B2B Marketing

By Professor Preeti Kaushik

 SYLLABUS

❑ Introduction to Industrial Marketing, Differences between Industrial & Consumer Marketing, Types of B2B products – Heavy and Light
equipments, systems, raw and processed materials, consumable supplies, components and industrial services

❑ Industrial Marketing Environment, Types of Customers, Types of buying situations, Key challenges – Managing commoditization of products,
hybrid channels, CSR issues.

❑ Segmentation of B2B – Product/Applications matrix, Differences in customer strategy, Types of segmentation: Needs approach,
Identifiable/Accessible approach, Shapiro-Bonoma Nested Hierarchy approach - Demographics, Operation variables, purchasing approaches,
situational factors, buyer’s personal characteristics

❑ Market selection: Horizontal vs vertical choice in the value chain. Product form, consequences of resource commitment by the firm across the
value chain.

❑ Specialty vs. commodity markets: Types of specialities – convenience specialty, availability specialty, functional specialty, relationship
specialty. Types of commodities – Pure commodities, price/performance commodities; Dynamics of commodity market and commoditization
process
 SYLLABUS

❑ B2B Product Decisions – Service augmentation, Product-Service bundling, Product/ Process innovation, Service
innovation.

❑ Types of customer benefits in B2B markets: Tangible financial benefits, non-tangible financial benefits, tangible non-
financial benefits, nontangible non-financial benefits, loyalty benefits, B2B branding – Ingredient branding

❑ Models of organisational buying behaviour: Sheth BUYGRID model – Webster Wind model, Developing buyer-seller
relationships – Dwyer’s 5 phases

❑ Key Account Management: Definition, Drivers – Rise of global customers, JIT. Selection of Key Accounts – Criteria,
Analysis of buying process

❑ Firm networks: Uppsala Model (Johanson and Vahlne), Transaction cost theory (Rugman and Williamson), Business
Ecosystem (Moore). Network formation – Alliances , JV, Decomposition of value chains, Role of networks in dominant
design
 BUSINESS MARKETING
• Business buying involves the purchase of products and services
for use in business activities and not for the buyer’s self
gratification/ satisfaction.

• Organization either incorporates the purchased product or

service in the product it makes, or the purchased product or
service is used to facilitate the running of the organization, or
the purchased product is resold with or without adding value.
• Business marketers can make profits only if their customers make profits

• Business marketing should revolve around making business customers’

operations more efficient and profitable

• The same product can be classified as either a consumer product or a

business product depending upon the way the product is bought and used

• Motivations of an individual and a company are different even when they

are buying the same product
 TYPES OF BUSINESS MARKETS
• Industrial market
• Reseller market
• Government market
• Non-profit organizations
• Different players in the buying company evaluate supplier offerings along
different choice criteria
• Satisfy diverse requirements through one offering
 Specialty vs. commodity markets
Specialty Market
• Specialty market has one or 2 uses
• Specialty products tend to be finished products.
• A company’s product is a specialty product if it is uniquely
different than those of competitors. If the product is different,
the producer can make the case that it is better. If it is a better
product, the company can charge a higher price for it. For
example, efforts to build a better mouse trap are based on the
premise that, if you can build a better one, it will have more
value to the customer and you can sell it for a higher price.
• The producer of a differentiated product is said to be a price
maker . A price maker has some influence over price, but not as
much as most people believe. Essentially a producer of a
differentiated product creates a separate market for his/her
individual product. For example, the demand for “Johnson’s
Better Organic Milk” is unique to Johnson. This allows Johnson
the opportunity to charge a price that is different than that of
other organic milk.
Commodity Market
• Commodity market has multiple uses and applications
• Commodities are fungible. This means that each unit of a
commodity is exactly like every other unit. For example, every
bushel of number 2 corn (15.5 % moisture) can be substituted
for every other bushel of number 2 corn. Because the identity
of each producer’s corn does not have to be kept separate, the
corn from many farmers can be mixed together. This also
means that the price for corn on any given day, at any given
location, is the same for all farmers.
• Commodities tend to be raw materials like corn, wheat,
copper, crude oil, etc. Only commodities can be traded on
“futures” markets because every unit is the same.
• People that produce commodities are referred to as “price
takers.” This means that an individual producer has no control
over his/her price. On any day, they must take what the market
offers them. For example, a corn farmer has no influence over
price because each farmer’s corn is the same. So buyers don’t
care which farmer’s corn they buy.
 Difference between Consumer & Industrial Sectors
Consumer Sector
• Mostly Cost-driven customers
• Stress on ‘Comforts’
• Purchases for Personal Use
• Major deciding factors are Family
needs, Fashion, Social necessity
• Decisions are fast and simple
• Marketing is for masses through radio,
TV, newspaper ads etc.
• Buyers are reasonably sensitive to
technological changes
Industrial Sector
• Mostly Value-driven customers
• Stress on ‘Benefits’
• Purchases for Business or Trading
• Major deciding factors are Profitability,
Productivity, Payback, Operational ease
& Maintenance
• Decisions are slow and complex
• Marketing is through focused approach
through direct one-to-one presentation
and discussion
• Buyers are very sensitive to
technological changes
 Characteristics of business market customers
• Business Market customers are composed of commercial enterprises,
institutions, & governments. Eg. Dell
• A single purchase by a business customer is far larger than that of an
individual consumer. Eg. Microsoft
• The demand for industrial products is derived from the ultimate demand for
consumer products. Eg. Realty
• Relationships between business marketers tend to be close and enduring.
Eg. IBM
• Buying decisions by business customers often involve multiple buying
influences, rather than a single decision maker. Eg. To buy laptop
• While serving different types of customers, business marketers and
consumer-goods marketers share the same job titles. Eg.
 CLASSIFICATION OF GOODS FOR BUSINESS MARKETS

ENTERING GOODS FOUNDATION GOODS

INSTALLATIONS
FARM PRODUCTS
- Building & Land Rights
(Eg. Wheat)
(Eg. Office)
-Natural Products
- Field Equipment
(Eg. Lumber, Iron Ore)
(Eg. Computers, Elevators)
MANUFACTURED MATERIALS & PARTS
ACCESSORY EQUIPMENT
-Component Materials
-Light Factory Equipment
(Eg. Steel)
(Eg. Lift tracks)
- Component Parts
-Office Equipment
(Eg. Tires, Microchips)
(Eg. Desks, PC’s)

FACILITATING GOODS
SUPPLIES
-Operating Supplies
(Eg. Lubricants, paper)
-Maintenance & Repair Items
(Eg. Paint, Screws)
BUSINESS SERVICES
-Maintenance & Repair Services
(Eg. Computer repair)
- Business Advisory Services
(Eg. Legal, Advertising, Management Consulting)
 CHARACTERISTICS OF BUSINESS BUYER

• Nature and size of customers • Buying to specific requirements

• Complexity of buying • Reciprocal buying

• Economic and technical choice • Derived demand
criteria
• Negotiation
• Risks
 DIMENSIONS OF BUSINESS BUYING BEHAVIOR

• Who does the business buying?

• Roles in a DMU (decision making unit)
– Initiator
– Influencer
– Decider
– User
– Buyers
– Gatekeepers
 Dimensions of Business Buying Behavior (Contd.)

• Purchase Process of business buyers:

1. Recognition of a problem or need
2. Determination of specification and quantity of needed items
3. Search for and qualification of potential sources
4. Acquisition and analysis of proposals
5. Evaluation of proposals and selection of suppliers
6. Selection of an order routine
7. Performance feedback and evaluation
 Decision Making Process
• Need Recognition
• Product Specification
• Laying Down Qualifications for Potential Vendors
• Inviting Proposals from Qualified Vendors
• Evaluating Proposals
• Selecting the Vendor
• Determination of Order Size and Placement of Order
• Review & Feedback
 CHOICE CRITERIA
• Quality

• Price and life cycle costs

• Continuity of supply

• Perceived risk

• Personal likes and dislikes

• Implications for marketers

Hierarchy of customer values

Unanticipated Values

Desired Values

Anticipated Values
 Influences on Buying Decisions
• Environmental
• Organisational
• Interpersonal
• Individual
 Buying Situations
• Straight Rebuy - a situation in which a purchaser buys the same product in the same
quantities from the same vendor. Nothing changes. Postpurchase evaluations are
often skipped, unless the buyer notices an unexpected change in the offering such as
a deterioration of its quality or delivery time.
• Modified Rebuy - occurs when a company wants to buy the same type of product it
has in the past but make some modifications to it. Maybe the buyer wants different
quantities, packaging, or delivery, or the product customized slightly differently. A
modified rebuy doesn’t necessarily have to be made with the same seller.
• New Buy - occurs when a firm purchases a product for the first time. New buys are
the most time consuming for both the purchasing firm and the firms selling to them.
If the product is complex, many vendors and products will be considered
 Influences on Business Buying Behavior (Contd.)
New Buy
– Big gains at the start of the decision making process
– Investment in sales personnel higher
Straight rebuy
– Ensure regular contact if existing supplier
– If out-supplier, offer guarantees
– Value analysis and life cycle cost calculation changes straight rebuy to modified
buy
– Life cycle cost analysis - move cost focus from initial purchase price to the total
cost of owning and using the product
 Influences on Business Buying Behavior (Contd.)

• THE PRODUCT TYPE

– Materials to be used in the production process

– Components to be incorporated in the finished product

– Plant and equipment

– Products and services for maintenance, repair and

operations
 Influences on Business Buying Behavior (Contd.)

• IMPORTANCE OF PURCHASE
– Purchase important when:

– Involves large sums of money;

– Cost of making wrong decision high (e.g. when an equipment has to

be bought);

– When there is uncertainty about outcome of alternate offerings (e.g.

when two substitutes are considered)
 DEVELOPMENTS IN PURCHASING PRACTICE

• JUST IN TIME PURCHASING (JIT)

Aims to minimize stocks by organizing a supply system which

provides materials and components as they are required. The
Stockholding costs of the buyers significantly reduced or
eliminated
 Developments in Purchasing Practice (Contd.)

Many JIT practices associated with improved quality

Suppliers evaluated on their ability to provide high quality standards

Lead times of supplier’s product must be short and number of defects

must be very low

Long term purchasing agreements

Suppliers need to make changes in their systems and operations to

work in the JIT environment
• CENTRALIZED PURCHASING
Several operating units within a company having common requirements
Opportunity to strengthen a negotiating position by bulk buying, central
purchasing
Encourages purchasing specialists to focus on a small group of products
Develops an extensive knowledge of cost factors and operations of suppliers
Supplier: Dedicated teams to serve a large company; Develop long term
relationships
• REVERSE MARKETING

Proactive, aggressive stance on purchasing

Buyer attempts to persuade the supplier to provide exactly what
the organization wants
Purchaser takes initiative to approach new or existing suppliers,
persuades them to meet their supply requirements
Pose threats to non-cooperative in-suppliers
Major opportunities to responsive in-and out-suppliers
• LEASE

Contract by which the owner of an asset grants the right to

use the asset for a period of time to another party in
exchange for payment of rent

Supplier will improve the quality of product as the risks of

ownership remains with him
Advantages:
Avoids need to pay purchase price of product
Hedge against fast product obsolescence
May have tax advantages
Avoids problems of equipment disposals
Avoids some maintenance costs
Reduces risks for unproven products
May cost more than outright buying
 RELATIONSHIP MANAGEMENT IN BUSINESS MARKETING

• Key task is to manage relationships

• Consider not only formal business arrangements but also
informal networks
• Long term relationship has advantages for both buyer and
seller
• Buyers treating their trusted suppliers as strategic partners
 Relationship Management in Business Marketing (Contd.)

• National accounts

• Building relationships

Technical support

Expertise

Resource support

Service levels

Risk reduction
MARKETING MIX
 PRODUCT
• Business product life cycle is shorter than that of consumer products
• Business products are customized to the customers’ technical
requirements
• Business products are mostly identified by a corporate family brand
• Consumers usually buy products for immediate use, whereas
organizations buy products to fit a planned requirement
 Marketing Mix (Contd.)

• Large part of business purchases are materials and components

that must undergo further transformations
• Packaging performs two functions of protection of contents and
promotion
• Business customers demand and receive more services in
association with products
• Business buyers expect various pieces of equipment they
purchase to match and work well together
 Marketing Mix (Contd.)

• Smooth operations of a business depends on the uniform and

predictable quality of its units
• Industrial design creates products that are not only functional but
also aesthetically and ergonomically sound
• System selling involves offering a complete package of products
and services, installations, and service
• Big after market or spare parts market for most industrial
products
 PROMOTION
• Focus on rational, economic themes

• Emphasize personal selling as the buyer requires the help of

supplier in solving technical problems and the buyer
negotiates with the supplier

• Cost of personal selling is very high in business markets

 Promotion (Contd.)

• Messages emphasize factual, rational, and economic issues,

such as technical specifications, performance characteristics,
and enhancement of customer’s efficiency and profits

• Business salesperson is a technical problem solver

• Business sales promotion makes more use of catalogs, direct

mail, trade shows, and exhibits
 DISTRIBUTION
• Business channels shorter but more complex
• Channel members have greater product knowledge
• Channels tend to be short and direct
• Business channels more complex than channels for consumer
products
• Business channel members must be thoroughly familiar with the
technical aspects of the product
 Distribution (Contd.)

• Suppliers can use direct or exclusive distribution

approaches (due to small numbers and greater
concentrations of customers

• Reliability is crucial and has a direct impact on profitability

 PRICE
• Make extensive use of competitive bidding
• Price negotiation is a common practice
• Leasing as an alternative to financing a large purchase
• Price of a purchased business product is only one of the various costs
evaluated by business buyers
• Consider the effects of technological obsolescence on purchases
• Complicated set of discounts is applied to the list price
Difference between business and consumer
markets –
characteristics of business markets
 MARKET STRUCTURE
• Fewer sellers and buyers

• Business demand is derived

• No direct one-to-one relationship between business buyer’s sales fluctuations and

business marketer’s sales

• Reverse price elasticity of demand

• Business market significantly larger than consumer market
• Organizational decision-making unit (DMU) involves several individuals
• Businesses tend to concentrate geographically
 MARKETING PERSPECTIVE
• Segmentation variables different

• Business markets have higher investments in capital equipment

and R&D

• Business goods are less dependent on regional and tastes and

preferences

• Business marketers focus on improving profits in the short run

 Marketing Perspective (Contd.)

• Business market innovations technology-push type and consumer

market innovations demand-pull type
• Business marketers are far more customer oriented than are
consumer marketers
• Reciprocity in business markets
• Key account management in business markets
• For many business marketers educating their customers is an
important task
 CUSTOMER BEHAVIOR
• Business marketers are closer to customers

• Number of customers in business markets are small but their per order
size is normally high

• Purchasing motives of business buying are maintaining and furthering

organizational goals

• Business buyers may impose substantial penalties for non-performance

by suppliers
 Customer Behavior (Contd.)

• Business markets characterized by reverse marketing

• Business buyers show strong loyalty to their current supplier

• Business buyer’s involvement in a purchase is much greater than

that of a customer in consumer market

• Business buying decision process is complex and involves several

functional areas of the buying organization

• Business buyer’s risk can be very high

 Factors differentiating Organisational Buyer
from Household Buyer
• Size of the Buyer
• Risks in Purchases
• Concentration of Buyers
• Organisational Purchase Decisions are Joint
• Adherence to Specifications
 Factors involved in industrial buyer’s decision making process

• Continuous and Reliable Product Performance

• Guaranteed Delivery
• Technology Fit
• Price
• Service
• Company Sales Force
• Transparency
 Importance of Industrial Segmentation
• Analysis of the market—better understanding of the total
marketplace, including how and why customers buy.
• Selection of key markets—rational choice of market segments
that best fit the company’s capabilities.
• Management of marketing—the development of strategies,
plans, and programs to profitably meet the needs of different
market segments and to give the company a distinct
competitive advantage.
Segmental analysis for Industrial Goods
Product/ Applications Matrix
Shapiro-Bonoma Nested Hierarchy approach
 Shapiro-Bonoma Nested Hierarchy approach
• Shapiro and Bonoma suggested segmentation for industrial
markets on the basis of criteria as under:
– Demographics – Industry type, Size of the company, Geographical
area
– Operating variables – Technology, Customer profile
– Purchase approaches – Terms of payment, Negotiating power of
vendors, Nature of relationship with suppliers and stakeholders
– Situational factors – Size of the order, Customization as per Usage,
Urgency/ Delivery timeline
– Personal characteristics – Risk-taking capacity, Loyalty,
 Market selection: Horizontal vs vertical choice in the value chain

• Vertical integration:
– It is a strategy used by firms to gain control over the supply or distributors in order to increase its power in the marketplace, reduce costs and earn
higher income.
– In other words, it refers to practices of value addition and involvement in other activities along the value chain with a view of increasing the firm’s
market power and profits.
– Vertical integration occurs where two or more stages in the process of production and marketing are effectively controlled by single management.
– Such integration is motivated by the type and nature of fixed investments and products.
– Vertically integrated firms maximize return on investments through value addition, complimenting own produce from other sources as well as
offering diversified products from the same material inputs.
– When selling their products, such actors will use marketing channels that enable their produce to reach the market at least cost per unit of output.
– Vertical Integration can either be in the form of Forward or Backward Integration
– Forward Integration: If the company acquires control over distributors, then it is downstream or forward integration.
– Backward Integration: When the company acquires control over its supplier, then it is upstream or backward integration.
– For example, the company has to decide if it only manufactures its products or would engage in retailing and after-sales services as well. Two issues
have to be considered before integration:
– Costs. An organization should vertically integrate when costs of making the product inside the company are lower than the costs of buying that
product in the market.
– Scope of the firm. A firm should consider whether moving into new industries would not dilute its current competencies. New activities in a company
are also harder to manage and control.
 Vertical Integration at Zara

• Zara, a Spanish clothing and accessory company, has more than 1,000
outlets worldwide. The secret to their success is vertical integration – from
design to manufacture to retail. Unlike companies like Gap and H&M; that
purchase their clothes from suppliers, Zara makes most of its own. Sixty
percent of its goods are made in house. This helps the company manage its
inventory with extreme efficiency. It also allows the company to respond to
seasonal and fashion changes very quickly. While Gap and H&M; may take
up to nine months to introduce a new line of clothing, Zara can do it in two
to three weeks. The firm can respond quickly to any market contingency.
• Horizontal integration:
– It is a process of establishing economic ties between firms producing products in the same category. This includes
joint sales, marketing, joint input procuring and promotion.
– This is an effective manner of mitigating the market-related consequences of small-scale production and the high
heterogeneity.
– Horizontal integration occurs when a firm gains control over other firms performing similar activities at the same
level in production and marketing.
– By pooling skilled manpower, horizontally integrated firms who are chain actors are able to minimize on
transaction costs, access market information and adhere to government regulations more easily.
– Horizontally integrated firms are able to take collective action on securing new markets, bargaining for better
prices products and use of the most effective marketing channel.
– Such actions are taken against a background of strong associations by firms who are trained and have a strong
entrepreneurial orientation.
– Eg.: Kraft Foods taking over Cadbury, HP acquiring Compaq or Lenovo buying personal computer division from
IBM.
 Ferrero
• Geopolitical and environmental concerns were the primary reasons why
Ferrero broke its own long standing commitment to avoid mergers and
acquisitions and purchase Turkey’s largest hazelnut producer, Oltan Gida.
• Hazelnuts are the principal ingredient in Nutella, which is Ferrero’s most
important product. The Oltan Gida purchase secured the chocolate giant’s
ability to ensure continuous hazelnut supply, to the detriment of other
hazelnut buyers if necessary, as Ferrero now controls a significant portion of
the world’s hazelnut supply.
• The company is now also moving into forward, as well as backward
integration, having begun to open Nutella bars, where consumers can go to
eat and drink everything Nutella.
BASIS FOR COMPARISON
• Meaning
• Objective
• Consequence
• Capital Requirement
• Self-sufficiency
• • Higher
Strategy used to exercise
control over
HORIZONTAL INTEGRATION
• When two firms combine, whose
products and production level is
same, then this is known as
Horizontal Integration.
• Increasing the size of the business
and scale of production
• Elimination of competition and
maximum market share.
• No
• Whole Market
VERTICAL INTEGRATION
• Vertical Integration is when a firm
takes over another firm or firms,
that are at different stage on the
same production path.
• Strengthening and smoothening its
production-distribution process
• Reduction of cost and wastage.
• Lower
• Yes
• Whole Industry