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Business-to-Business Marketing. Haas School of Business UC Berkeley Fall 2008 Zsolt Katona. Agenda today. Review of course structure Needs and decisions in B2B markets Introduction to INDUSTRAT. Course objectives. To learn

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Business to business marketing l.jpg

Business-to-Business Marketing

Haas School of Business

UC Berkeley

Fall 2008

Zsolt Katona


Agenda today l.jpg
Agenda today

  • Review of course structure

  • Needs and decisions in B2B markets

  • Introduction to INDUSTRAT


Course objectives l.jpg
Course objectives

  • To learn

    • how general marketing concepts apply to (differ in) the industrial business context

    • some new concepts

  • To experience a realistic industrial marketing environment

    • complex daily decisions but need for long-term strategic thinking

    • typical B2B setting

    • interacting teams

    • time pressure


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Assignments

  • Simulation related (group work):

    • After third decision, write-up a strategic plan

      • corporate goals (mission statement)

      • how to achieve these goals

    • Final presentation (more details later)

      • in view of the planed strategy...

      • Industry / Firm analyses

      • ~15 minutes

  • Class participation


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Evaluation

  • Group work/simulation results 50%

  • Final presentation 20%

  • Participation 30%


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Introduction to B2B marketing

  • Definition: B-to-B marketing is

    • marketing to organizations,

    • marketing products that will be used to create other products.


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Some distinctions

  • fewer customers

  • fewer transactions with higher $ value

  • marketing is more a general management function

  • high degree of functional interdependence

  • higher degree of product complexity

  • derived demand (!)


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Key distinctions

  • Higher importance of Process and Relationship benefits compared to Functional benefits.

  • High degree of buyer-seller interdependence (strategic relationships)

    • Materials management

    • JIT

    • MIS systems…

  • Complex buying decision process

    • longer

    • more people involved (DMU)

    • more “structured” (DMP)


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Three types of benefits

  • Functional benefits

  • technical specifications

  • quality

  • Relationship benefits

  • trust

  • flexibility

  • customization

  • Process benefits

  • cost of transport

  • reliability of supply

  • MIS, materials management


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Utilitarian

Products

Model: Know → Feel → Do

Rational evaluation of alternatives: trade offs

Choice heuristic: ‘Buy the Best’

Low Involvement Products

Hedonic/Ego-Expressive Products

Model: Feel → Do → (Know)

Emotional evaluation: feeligs

Choice heuristic: ‘Buy What I Like’

Model: Know → Do → (Feel)

No evaluation of alternatives: confirmation

Choice heuristic: ‘Buy the Familiar’; ‘Buy the Cheapest’

Consumers’ Purchase Decisions


Prototypical dmp for a utilitarian product consumer goods l.jpg

Marketing weapons

Know benefits

Mkt. potential

Consider

Aware

Try

Prefer

Prototypical DMP for a utilitarian product (consumer goods)

Also called:

- AIDA

- Hierarchy of effects


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Prototypical DMP steps for an industrial good

  • Need recognition

  • Product definition and specification

  • Development of procurement strategy

    • make or buy?

    • formation of buying center!

    • design sourcing system

  • Search/qualification of potential sources

    • simultaneous vs. sequential evaluation

    • RFPs: open/closed bids, existing vendors

  • Selection of suppliers - final negotiations

  • Design of an order routine (contract)

  • Order

  • Performance feedback and evaluation


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Example: Brake Pads

Weapons:

Pass rate:

DMP steps:

Trade shows

Trade Publications

Brochures

Promotion expense

Material scientists

Development engineers

Production engineering

Price, delivery service

Aware of company

90%

Aware of product line

80%

Short-listed for bid

40%

D-spec check

10%

10%

b-check

pre-production check

5%

secondary

supplier

primary

supplier

4%


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Example: OAG

  • OAG – Official Airline Guide

    • Publishing public flight information

    • ~100k customers

    • Monthly subscription: $20

    • 80% gross contribution

    • Family business

  • In 1982 AMEX decides to enter the corporate travel business and becomes interested in OAG.

  • What should OAG do?

    • Should it sell?

    • What negotiation power does it have against AMEX?


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Problem: Mgr. stuck in Chicago at 2:00 am. He is pissed !!

Mgr. complains to Secretary

Sec. complains to Travel Agent

Travel Agent recommends OAG

Sec. orders OAG

Sec. receives OAG + invoice

Mgr. uses the Guide ☺

Map?

Mgr. thanks Sec. ☺☺

The O.A.G. Funnel

Inv. goes to finance

Inv. to accts payables

Bob pays !!

Sec. gets renewal invoice


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Funnel Analysis

  • The DMP often has important strategic implications in B2B markets.

  • Never use/accept the ‘standard’ DMP.

  • Use Funnel Analysis, a simple qualitative method to uncover the DMU/DMP in an organization.

    • Method: interviews, focus groups

    • Main uses:

      • Diagnose bottle necks

      • Forecast sales

      • Targeting: optimize sales strategy


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Implication: Communication strategy

  • Personnel selling is rated by industrial marketers more than twice as effective as other communications media

  • 90% of sales budget is personnel selling

  • But…

    • Bain and Co.


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INDUSTRAT

The Strategic

Industrial Marketing

Simulation

Jean-Claude Larréché & David Weinstein


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Objectives of INDUSTRAT

Review of strategic concepts

Application in an industrial

marketing context

Focus on prime industrial

marketing issues


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INDUSTRAT

Features

Strategic Marketing

Long term perspective

Marketing as a profit center

Marketing strategy based on segmentation, positioning and portfolio approach

Marketing mix decisions secondary to strategicdecisions

Competitive environment


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The Pedagogical Approach

A Simulated Environment


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The Economic Environment

Population: 250 million


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Korex Products

Strategic Product Attributes

Resistance: Ohms (W)

Suspension: Micro-seconds (Msc)

Frequency: Kilo-hertz (KHz)

Density: Micro-grams per mm3 (MGC)

Non Strategic Product Attributes, e.g

Liquid

Powder

Fiber

Solid


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Lomex Products

Strategic Attributes

Convexity: Degrees (De)

Conductivity: Micro-Seconds (MSc)

Purity: Percent (%)

Maximum Energy: Micro Watts (MW)



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INDUSTRAT’s Competitors

KARR

KERR

Firm 1

Firm 2

KIRR

Firm 3

Firm 5

KORR

KURR

Firm 4


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The Economic Environment

CENTRAL

WEST

EAST


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Account Size

Small

Medium

Large


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End-Product Applications

Communication

Instrumentation

Consumer Goods


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Korex Market

Macro segmentation

Communication

Consumer goods

Instrumentation

large

medium

east

small

central

west


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The Adoption Process

Testing

Awareness

KARR

Supplementary Supplier

Major Supplier



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Korex Market Micro-segmentation

General Manager

Production

Engineering

Purchasing


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Dynamics of the PurchasingProcess

Awareness

Testing

Supplementary

Major

General

100%

Production

Purchasing

Engineering

0%


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Industry Dynamics

Market growth

Competition

Technology

Economic

environment

Korex

?

Lomex

No new competitors

Introduction of Lomex

Collaboration

No further scientific innovation expected

Four Korex technologies

One Lomex technology

Growing GNP

Inflation

Antitrust intervention



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Corporate Resource Allocation

Internal Transactions

Finance

Dept.

R&D

Dept.

Sales

Dept.

Corporate

Marketing

Dept.

Technical

Dept.

Production

Dept.

Sales force

Expenditure

R&D

Expend-

diture

Technical

Support

Inventory

Holding

Costs

Manufac.

Costs

Corporate

Communication

Expenses

Commission

Marketing

Expenditure

Budget

Net Marketing

Contribution

Marketing = Profit Center

Sales

Revenues

Advertising

Expenditure

Promotional

Expenditure

Market

Research

Licensing

Fees

Licensing

Revenues

Client

Companies

Advertising

Agency

Promotional

House

Mkt Res

Firm

Licensors

Licensees

External Transactions


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Administrative Structure

Corporate Resource Allocation

Marketing

Expenditure

Budget

Marketing = Profit Center

Net Marketing

Contribution


Slide41 l.jpg

Administrative Structure

Internal Transactions

Production

Dept.

Finance

Dept.

R&D

Dept.

Sales

Dept.

Technical

Dept.

Corporate

Marketing

Dept.

Sales force

Expenditure

Technical

Support

Inventory

Holding

Costs

R&D

Expend-

diture

Manufact.

Costs

Corporate

Communication

Expenses

Commissions

Marketing = Profit Center


Slide42 l.jpg

Administrative Structure

External Transactions

Marketing = Profit Center

Sales

Revenues

Advertising

Expenditure

Promotional

Expenditure

Market

Research

Licensing

Fees

Licensing

Revenues

Market

Research

Firm

Licensors

Licensees

Client

Companies

Advertising

Agency

Promotional

House


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Administrative Structure

External Transactions

Marketing = Profit Center

Obsolete

Inventory

Sales

Loans Repayments

+ Interest

Joint R&D

Funds

Loans

Partners

The Bank

Exporters


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Decisions for your First Period

No market research available

No R&D allowed

No licensing allowed

Avoid radical changes

Familiarization

Gather information

Organize your team


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