The Unique Nature of

B2B/Industrial Marketing
 Session objectives
Fundamentals
Characteristics of B2B markets
Types of buying situations and
participants
Buying processes

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DEFINITIONS

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 Industrial Marketing
Also called: Business-to-Business (B2B)
and Organizational Marketing.
Definition: the creation and management
of mutually beneficial relationships
between organizational suppliers and
organizational customers.
Customer can be private firm, public
agency, or nonprofit organization.
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 Definition
Marketing of products , services and
solutions to organization such as Govt ,
big enterprises, and institutions .

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CHARACTERISTIC FEATURES

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 Characteristic features of B2B
Marketing
Markets are oligopolistic in nature.
Geographically concentrated markets
Demand is derived
Large quantities or high value items are
involved .
Technically complex products .
Service is a strategic tool
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 Characteristics ….
Buying committees –multiple buying
influences
Rational buying
Professionally and technically qualified
buyers
Reciprocal buying
Informed buyer
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 Characteristic features …
Prolonged negotiations .
Zero level or one level channel
Personal selling and demonstrations
preferred
Leasing and competitive bidding – price
determination
Advtg is not verbose.
Packaging … 9
 Kinked Demand curve
Price reduction causes relatively small
increase in sales .But Price raise causes
significant reduction in the quantity
demanded.

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 Customisation …
L&T is a technology driven construction
company .
HED of L&T manufactures industrial
grade equipments for fertilizer, sugar ,
petrochemical plants .
Made-to-order
Defense , nuclear and aerospace

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 Communication
Personal selling is more important than
mass paid advertising
Support sales with other promotional
activities: advertising in trade journals,
catalogs, trade shows, direct mail,
internet .
Message focused on technical, factual,
and descriptive content.
Multiple audience members.

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 Relationship Marketing
Ballarpur Industries Ltd .
Direct marketing initiatives to enhance
customer interaction and feedback
5 manufacturing plants and 126 dealer
network spread across the country , ERP
system , J-I-T .
India’s largest paper mfgg company and
ranks amongst top 200 paper mfgg in the
world
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PRODUCT CLASSIFICATION

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 Product classification
Entering goods
Foundation goods
Facilitating goods

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 Systems buying
Mind tree consulting (MindTree) –
Emirates Airlines
Data warehousing – business reports
Manage huge data effectively

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BUYING SITUATIONS

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 Types of Buying situations
New task –Vijay Mallya –Kingfisher
Airlines-purchase of other capital
equipment.
Straight re-buy :routine decision making
, neither the contract terms nor the
product specifications are modified .

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 Types of Buying situations
Modified re-buy
Product specifications have to be
changed
Vendor’s performance is questionable.

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Organisational buying decision
process
Need recognition
Product Characteristics
Searching for potential suppliers
Soliciting and analysing proposals
Making the purchase decision
Selecting the order routine
Evaluating vendor performance
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 Buying Roles
Users
Gatekeepers
Influencers
Deciders
Buyers

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 Some facets
Competitive bidding
Leasing
Reverse Auctions

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 Competitive Bidding
Why is it done ?
Obtain products at reasonable prices.
Rigging of prices – public funds are spent
It is not necessary that the lowest bidder
wins the contract

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Reliance – metro project in
Mumbai(Least VGF)
Reliance – sea link to Nariman point
Insider trading happens…
Market driven process
Lowest bids – waste disposal services for
a municipal corporation
BALCO-STERLITE- highest bidders for
equity
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 Types of bidding ….
Informal bidding – simplest , involves low
investments .
Open Bidding – hi-tech and technological
markets , buyer is not in a position to
specify requirements of the product .
Infrastructure projects – Govt
Formal process, last dates for tender
submission and final bidding date
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 Closed bidding
Sealed bids
Disclosed only on a particular date
Suppliers do not know about the other
bids
No open negotiations
ONGC- equipment and machinery

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Competitive bidding procedure
RFP from the list of suppliers .( request
for proposal ).
Pre –bid conference – details , date , time
,conditions , bidding ceremony
Suppliers submit a technical bid .
RFQ to only those suppliers who meet the
technical criteria.
Price bids from suppliers ,earnest money
deposited. 27
 Strategies for Competitive
bidding
Long term strategic benefits – Govt
contracts ( winning the bid may not be
profitable).
Past bidding information will disclose the
bidding pattern of competitors .Compare
its cost structure with each bid of the
competitor .

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 Reverse auctions
A reverse auction is a type of auction in
which the roles of buyers and sellers are
reversed. In an ordinary auction (also
known as a forward auction), buyers
compete to obtain a good or service, and
the price typically increases over time. In
a reverse auction, sellers compete to
obtain business, and prices typically
decrease over time. 29
Reverse auctions or downward
auctions
Southwest Airlines for bag tags
G.E
 Tata Motors Initiates Reverse
Auctions
Tata Motors developed its new
procurement strategy with the help of
Freemarkets, an e sourcing company.
Reverse auction ….the lowest bidder
would get 65% of the order volume.
Reverse Auction for steel –POSCO , US
steels, and participants from Mexico ,
Japan , Malaysia …had participated.
Leasing : An important strategy
What is leasing ?
What are the advantages or risks
involved?
Types of leases .
 Leasing …..
Contract
Owner –another party interested in using
the asset
Periodic payment of rent (lease
payments).
Lessor-Lessee
 HIGHLIGHTS
Lessee – avoidance of purchase cost
Assets not on the books
Depreciation expenses –avoided ( although
there are tax benefits )
Obsolescence is not a worry for the lessee
Lessor takes care of the maintenance
Risk of annulling the contract by the lessor
Off balance sheet items
 Requirement for a shorter period ..
Buyer will go for an operating lease
Tata Power – Turbines for three to five years
 Renewable contracts
Should there be a breakdown maintenance or
any other functional issue , the lessor will have
to provide solutions to the problem
Operations do not come to standstill
 Do not have to purchase Turbines from G.E
or Rolls Royce
 Operating lease…
Short term
Cancelable
Lease rates are higher as the lessor has
compensate for operating costs and the
risk of obsolescence
 Long term …….
Fully amortized
Lessee has to make continuous payments to
the lessor spread over the useful life of the
asset .
Purchase options are often involved in
financial leasing
Usually the term of the lease is atleast 75%
of the assets estimated economic life and the
present value of lease payments is atleast
90% of the fair market value of the asset .
 Coal mines and NTPC
It will need a lot of project finance to
develop a coal mine .
So , Power companies have lease contracts
with Coal mines for a span of 15 years or
more.
The lessor benefits from assured payments
over the useful life of the asset .
Airplanes ….,Ships …
 Ashok Leyland insights
Reverse auctions saved Rs 14700 per set
of tyres

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 The eye opener ….
V Ramchandran , Deputy GM , Corporate
buying cell
Logged on to the auction site
Suppliers of some specific tyres in the global
market
Reverse Auction
Within an hour , Czechoslovakian company
confirmed the deal …saved Rs 14,700 for AL
per set.
 Tiering of vendors
Quality and vendor consolidation drive
62 components from 16 vendors ( trucks and
buses)
Later , One Tier I vendor sourced from other
vendors and supplied the assembly to Ashok
Leyland.
Saved cost and time
Reduction of supplier base
Tool kits as an example-Punjab , Faridabad,
Bangalore and Chennai.
 SRM
Vendors were helped in production know
–how , quality
Financial help
AL certification system for vendors.
 OSCARS
Optimizing supply chain and rationalizing
sourcing.
Reduce material costs and optimum inventory
levels to reduce inventory carrying costs
 Single window – ek khidki
Packs or categories were created
18 % suppliers accounted for 92%
business and others handled just the
remaining volumes
Centrally negotiated price to pull
components in line with production plans.
Approved panel of vendors
 Vendor Analysis
Vendor evaluation – potential vendors
Vendor assessment – existing vendors

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 Evaluating Potential Vendors
Vendor’s track record of meeting
quality , delivery and service quality
specifications consistently .
Financial statements
Vendor’s facility – infrastructure
,production capacity
Vendors location – J-I-T
Technical capability , financial capability
,production capability .. 46
 Vendor rating
Quality of products supplied
Delivery schedules
Credit support
Defectives
GM has 30 ,000 suppliers
Qualitative
Weighted averages method
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 Presentations: next class
Four groups
Case : Caterpillar ‘CAT’ case
PowerPoint presentation
20 min per group
Mock selling exercise : 3 people in a group
Lame excuses will face disciplinary
actions !!

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EXTRA READING MATERIAL

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 What is a purchase policy ?
 Clauses that govern methodical implementation of
the purchase process.
 Governs all parties involved in the decision
process
 Prevents any malpractice or bias.
 The objectives of a firm’s purchase policy may
include – to purchase at competitive price, to
ensure the availability of materials in a
continuous process….
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 Reliance Energy Ltd
Guidelines of its purchase policy
Personal advantage should never be the
criteria for arriving at purchase decisions
Objective , fair , transparent and
responsible criteria for evaluating ,
passing or rejecting the quality of goods/
services supplied.

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www.rel.co.in/CodeofEthics.asp
Employees should not solicit gifts or
courtesies from suppliers and service
providers .
Suppliers should ensure that they do not
violate these business ethics provisions in
any manner .
Care must be taken to avoid actual /
potential conflicts of interest .

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It is a primary tenet of Value Engineering
that quality not be reduced as a
consequence of pursuing Value
improvements.

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 Value Analysis
Value engineering
Larry Miles –G.E
It deals with evaluating products by
analysing the functions performed.
Identify the function of a product or
service .
Establish a monetary value for the
functions
Provide the function at lower overall cost54
Value analysis : Building
construction

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 Downsizing the atrium.

• Eliminating certain exterior structural items, not necessary as a

part of the building structure, such as the brick amphitheater
northwest of the building

• Reducing interior equipment items such as plumbing and kitchen

equipment.
• Reducing the landscaping allowances.

• Changing the parking lot material to asphalt.

• Using less expensive building materials such as gypsum board,

glass, concrete, wood and the roof

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 How does it help ?
Understanding the features of the
product ,eliminating unnecessary ones
Cost –cutting
Bajaj Auto – RACE engine
TATA motors – 10% reduction in the cost
of direct materials.

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 Value analysis: A recap!
Identify the primary and secondary
functions of the product .
Perform a functional analysis –try to
modify specifications so that overall cost
of the item can be reduced .
Make a decision – product or its
substitute ,make or buy .

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