Business Marketing Module 1 & 2

1. BUSINESS MARKETING
Dr. S. MANJUNATH
Module 1 and 2

2. What is Business Marketing?
• Business marketing also referred to as “Industrial marketing” or
“B2B marketing” or “Organizational marketing”.
• Business marketing is the marketing of products & services to
business organizations.
• Business organizations include:
Manufacturing companies
Govt. undertakings
Private sector organizations
Educational institutions
Hospitals
Distributors / Dealers
Business organizations buy products
& services to satisfy many objectives
like production of other goods &
services, making profits, reducing
costs, & so on.
Consumer marketing is the marketing
of products & services to individuals,
families, & households. The
consumers buy products & services
for their own consumption.

3. NATURE OF THE BUSINESS MARKET
• Companies also buy services, such as legal, accounting,
office-cleaning, and other services.
• Some firms focus entirely on business markets.
• Example: Caterpillar, which makes construction and
mining
equipment.
• Diverse market, everything from a box of paper clips to
thousands of parts for an automobile manufacturer.

4. COMPONENTS OF THE BUSINESS MARKET
• Four main components:
• Commercial market Individuals and firms that acquire
products to support, directly or indirectly, production of
other goods and services.
• Largest segment of the business market.
• Trade industries Retailers or wholesalers that purchase
products for resale to others.
• Also called resellers, marketing intermediaries that
operate in the trade
sector.
• Government—all domestic levels (federal, state, local) and
foreign governments; also act as sellers—e.g., confiscated
goods.
• Public and private institutions, such as hospitals,
churches, colleges and universities, and museums.

5. B2B MARKETS: THE INTERNET CONNECTION
• More than 94 percent of all Internet sales are B2B
transactions.
• Opens up foreign markets to sellers.
• Largest segment of the business market.
DIFFERENCES IN FOREIGN BUSINESS MARKETS
• May differ due to variations in regulations and cultural
practices.
• Businesses must be willing to adapt to local customs and
business practices and research cultural preferences.

6. B2C and B2B
The Consumer Market (B2C) and the Business Market (B2B) at
Dell, Inc.
B2C
B2B
Institutions
Healthcare
Education
Customers:
Individuals &
Households
Businesses
Global
Large corporations
Small & Medium
sized businesses
Selected
Products:
PCs
Printers
Consumer
Electronics
Simple Service
Agreements
PCs
Enterprise Storage
Servers
Complex Service Offerings
Government
Federal
State
Local

7. The Supply Chain
Upstream Suppliers
Direct Suppliers
Auto Manufacturers
Auto Buyers
(USX, Du Pont)
(TRW, Johnson Controls)
(Ford, General Motors)
(Consumers)
Suppliers of
manufactured
materials and
parts such as
sheet metal or
plastic resin
Purchase input
used in creating
power-steering
systems (TRW) or
car seats (Johnson
Controls)
Purchase input
used in creating
automobiles
Purchase
automobiles
Business Marketing
Business Marketing
Consumer Marketing
(Individuals, Households)
and
Business Marketing
(Organisations such as
Fleet Buyers)
Source: Hutt, M.D. and Speh, T.W. (2004): Business Marketing Management: A Strategic View of Industrial and Organizational Markets, 8th
Edition, p. 15.

8. Major Categories of Business Customers
Identify the four major
categories of
business market customers
8

9. Major Categories of Business Customers
Producers
Resellers
Governments
Institutions
OEMs (Original Equipment
Manufacturers)
Wholesalers
Retailers
National Party
Municipal
Local
Schools
Hospitals
Colleges
Churches
Unions
Fraternal groups
Civic Clubs Foundations
Nonbusiness organizations
9

10. Producers
Original
Equipment
Manufacturers
OEMs.
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.
10

11. REVIEW LEARNING OUTCOME
Business Market Customers
Business Marketing
Producers
Resellers
Governments
OEMs
Wholesalers
Federal
Unions
Churches
Retailers
State
Civic
Clubs
Foundations
Municipal
Other
Nonprofits
County
Institutions

12. Business versus Consumer Markets
Explain the major differences
between business and
consumer markets
12

13. Business and Consumer Marketing Differs In:
1.
2.
3.
4.
5.
Nature of their markets
Market demand
Buyer behavior
Buyer-seller relationship
Environmental influences (competition,
political, legal) and
6. Market strategy
•
Due to these differences, business marketers
need to understand how demand for industrial
products and services differs from consumer
demand.

14. Business versus Consumer Markets
Characteristic
Demand
Business Market
Consumer Market
Organizational
Individual
Volume
Larger
Smaller
# of Customers
Location
Distribution
Nature of Buy
Buy Influence
Fewer
Concentrated
More Direct
More Professional
Multiple
Many
Dispersed
More Indirect
More Personal
Single
Negotiations
More Complex
Simpler
Reciprocity
Leasing
Promotion
Yes
Greater
Personal Selling
No
Lesser
Advertising

15. B2B Marketing vs. Consumer Marketing
Areas
Industrial Markets
Consumer Markets
1. Market characteristics
• Geographically concentrated
• Relatively fewer buyers
• Geographically distributed
• Mass markets
2. Product characteristics
• Technical complexity
• Customized
• Standardized
3. Service characteristics
• Service, timely delivery &
availability is very important
• Service, timely delivery &
availability is somewhat
important
4. Buying behavior
• Involvement of various
functional areas in both buyer
& supplier firms
• Purchase decisions are mainly
made on rational/performance
basis
•Technical expertise
• Stable interpersonal
relationship between buyers &
sellers
• Involvement of family
members
• Purchase decisions are
mostly made on physiological
/ social / psychological needs
• Less technical expertise
• Non-personal relationship

16. B2B Marketing vs. Consumer Marketing
Areas
Industrial Markets
Consumer Markets
5. Channel characteristics
• More direct
• Fewer intermediaries
• Indirect
• Multiple layers of
intermediaries
6. Promotional
characteristics
• Emphasis on personal selling
• Emphasis on advertising
7. Price characteristics
• Competitive bidding &
negotiated prices
• List prices for standard
products
• List prices or maximum retail
price (MRP)
New Work

17. Types of Business Products
Major Equipment
Accessory Equipment
Raw Materials
Component Parts
Processed Materials
Supplies
http://www.zzzzz.com
Business Services
Online

18. Types of Business Products (Cont.)
Major Equipment
Accessory Equipment
Raw Materials
Component Parts
Major
Categories
of Business
Products
18
Processed Materials
Supplies
Business Services

19. Classifying
Goods for the
Business
Market
Classifying industrial goods by
the following questions:
How does the good or service
enter the production process?
How does it enter the cost
structure of the firm?
Source: Adapted from Philip
Kotler, Marketing Management:
Analysis, Planning, and Control,
4th ed. (Englewood Cliffs, N.J.:
Prentice-Hall, 1980), p. 172, with
permission of Prentice-Hall, Inc.

20. Classifying Business Goods & Services
3 Main Categories of Products
Entering Goods
Become part of the finished product
Cost assigned to the manufacturing process
Foundation Goods
Capital Items
Typically depreciated over time
Facilitating Products
Support organizational operations
Handled as overhead expenses

21. Classifying Business Goods & Services
Entering Goods
 Raw Materials
 Farm products & natural products
 Only processed as necessary for handling & transport
 Require extensive processing
 Manufactured Materials & Parts
 Any product that has undergone extensive processing prior to
purchase
 Component Materials require additional processing
 Component Parts generally do not require additional processing

22. Classifying Business Goods & Services
Foundation Goods
Installations
Major long-term investment items
Buildings, land, fixed equipment, etc.
Accessory Equipment
Less expensive & short-lived
Not considered part of fixed plant
Portable tools, PC’s, etc.

23. Classifying Business Goods & Services
Facilitating Products
Supplies
Any supplies necessary to maintain the
organization’s operations
Services
Maintenance & Repair support
Advisory support
Logistical support

24. REVIEW LEARNING OUTCOME
Types of Business Goods and Services
Extruding
machine:
major equipment
Aluminum ore:
raw material
Tool cart:
accessory
equipment
Extruded metal:
processed
material
Propeller blade:
component part
Paper:
supply
Uniforms:
contracted
service

25. Evaluative Criteria
1. Quality
2. Service
3. Price

26. Buying Situations
New Buy
A situation requiring the
purchase of a product for
the first time.
Modified
Rebuy
A situation where the
purchaser wants some
change in the original
good or service.
Straight
Rebuy
A situation in which the purchaser
reorders the same goods or
services without looking for new
information or investigating
other suppliers.

27. What is market segmentation?
Market segmentation is the partitioning of the
market into groups of customers (segments)
with similar needs and/or characteristics who
are likely to exhibit similar purchase behaviour.
Source: Weinstein, A. (1994) Market Segmentation, Chicago: Probus Publishing Company.
27

28. Why market segmentation?
• To identify customer needs ( information).
• To cluster customers into groups to more efficiently
and effectively satisfy their needs
( decision).
• To tailor the marketing strategy to the customers’
needs and thus to efficiently allocate marketing
resources ( action).
Source:
Hutt, Michael D. and Speh, Thomas W. (2004): Business Marketing Management: A Strategic View of Industrial and Organizational Markets, 8th
Edition, p. 177-8.
28

29. Macro- and micro-segmentation
Relevant market
Macro-Segmentation
Basis: industry, region, size, etc.
Level 1
Macro-segment1 Macro-segment2
Level 2/3
...
Micro-Segmentation
Basis: buying centre structure, etc.
Micro-segment 1 Micro-segment 2
...
Source: Wind, Y. and Cardozo, R. (1974) Industrial Market Segmentation, Industrial Marketing Management, Vol. 3, March, p. 156.
29

30. Bases for Macro-segmentation
Source:
Hutt, Michael D. and Speh, Thomas W. (2004): Business Marketing Management: A Strategic View of Industrial and Organizational Markets, 8th
Edition, p. 180.
30

31. Bases for Micro-segmentation
Source:
Hutt, Michael D. and Speh, Thomas W. (2004): Business Marketing Management: A Strategic View of Industrial and Organizational Markets, 8th
Edition, p. 184.
31

32. Quantitative Evaluation of Segments
•
•
•
•
•
•
sales per segment
turnover / profit per segment
price (margin) per unit
market share within the segment
number of customers
segment specific costs
Source: Guenter, Bernd (1990) Marktsegmentierung, TV Lehrbrief, Berlin, p. 28.
32

33. Qualitative Evaluation of Segments
• growth potential (internal and external to the
segment)
• domination by competitors
• entry barriers
• degree of customer retention
• know-how transfer
• innovation potential
Source: Hlavacek, J. D. and Reddy, N. M. (1986) Identifying Industrial Market Segments, European Journal of Marketing, Vol. 20, No. 2, p. 1
33

34. The Market Segmentation Process
Source: According to Wind, Y. and
Cardozo, R. (1974) Industrial
Market Segmentation, Industrial
Marketing Management, Vol. 3,
March, p. 156.
Identify the relevant market
Identify macro-segments based on
important organisational criteria
Evaluate acceptable macro-segments
and judge whether the are homogenous
in responding to marketing measures
Yes
Stop!
macro-segments =
market segments
No
Identify micro-segments based on
important buying centre criteria within
macro-segments
Evaluate and select the most attractive
micro-segments
34
Evaluate and select
the most attractive
macro-segments

35. BUSINESS MARKET DEMAND
• Demand characteristics vary from market to market.

36. DERIVED DEMAND
• The linkage between demand for a company’s output and its
purchases of resources such as machinery, components,
supplies, and raw materials.
• Example: Demand for computer microprocessor chips is
derived
from demand for personal computers.
• Organizational buyers purchase two types of items:
• Capital items—long-lived business aspects that
depreciate.
• Expense items—items consumed within short time periods.
VOLATILE DEMAND
• Derived demand creates volatility.
• Example: Demand for gasoline pumps may be reduced if
demand for

37. JOINT DEMAND
• Results when the demand for one business product is related
to the demand for another business product used in combination
with the first item.
• Example: If lumber supply falls, then decrease in
construction will
affect concrete market.
INELASTIC DEMAND
• Demand throughout an industry will not change significantly
due to a price change.
• Example: Construction firms will not necessarily buy
more lumber if
prices fall unless overall housing demand also increases.

38. INVENTORY ADJUSTMENTS
• Just-in-time (JIT) inventory policies boost efficiency by
cutting inventory and requiring vendors to deliver inputs as
they are needed.
• Often use sole sourcing, buying a firm’s entire stock of a
product from just one supplier.
• Latest inventory trend: JIT II, suppliers to place
representatives at the customer’s facility to work as part of
an integrated, on-site customer–supplier team.
• Inventory adjustments are also vital to wholesalers and
retailers.

39. INDUSTRIAL DEMAND
Demand
for new
homes
Derived Demand
The demand for industrial products & services does not exist
by itself. It is derived from the ultimate demand for
consumer goods & services.
Demand
for
furniture
Demand
for wood
Industrial customers buy goods & services for use in
producing other goods & services.
Joint Demand
NEW WORK
Joint demand occurs when one industrial product is useful if
other product also exists.
Demand
for pen
Demand
for ink
Cross-Elasticity Demand
Demand is „elastic‟ if the %age change in quantity demanded
is more than the %age change in price.
Cross elasticity of demand is the responsiveness of the sales
of one product to a price change in another product.
Price of
Tea
Back

40. Commercial
enterprise
Govt.
customers
Institutional
customers
Cooperative
societies
Business / Industrial customers
Industrial Market & Environment
Industrial
distributors / dealers
Original equipment
manufacturers
Users
Intermediaries / middlemen, reselling to OEMs,
users, Govt. firms
For Exide (battery manufacturer), Telco, is an OEM
For HMT, TVS-Suzuki is the ‘user’
Public sector units
BHEL, ONGC, IOL
Govt. undertakings
Indian Railways, Defence units, State Elec. Boards
Public institutions
Govt. hospitals, prisons
Private institutions
Schools, colleges
Manufacturing units
Maharashtra Sugar Cooperative Society
Non-manufacturing
units
Cooperative banks, housing cooperative societies

41. Materials &
parts
Raw materials
Manufactured
materials
Component parts
Capital
items
Subassemblies
Light equipment or
accessories
Installations or heavy
equipment
Plant & building
Suppliers &
services
Industrial products & services
Industrial Market & Environment
Supplies
Services
Basic products like iron ore, crude oil, fish, fruits,
vegetables
Acids, fuel oil, steel, chemicals
Semi-finished parts like bearings, tyres, small
motors, batteries
Semi-finished goods like exhaust pipe in motorcycle
Hand tools, dies, computer terminals
Furnaces, machines, turbines
Offices, plants, warehouses, parking lots, real
estate property
Operating & maintenance suppliers like fuels,
packaging materials, lubricants, paints, elec. items
Legal, auditing, advertising, courier, marketing
research agency

42. Marketing Implications for Different
Customer & Product Types
Materials & Parts products, for large OEMs or users, selling is done directly from a
seller organization to a buyer organization.
For smaller volume OEMs & users, standard raw materials or components are sold
through industrial dealers or distributors as it is cost effective.
If the components are custom-made, considerable interaction takes place between
technical & commercial persons from both buyer & seller organizations. Selling is
direct.
Industrial salesman remain in close touch with various departments like purchase,
finance, R&D, marketing, production & quality of buyer organizations as they
influence the buying or payment releasing decisions.
Personal contacts, product leaflets/brochures help as industrial marketer in
communicating product & other information.
For standard products, the factors which influence buying decisions are:
Product quality & performance
Payment terms
Delivery dependability
Customer service
Price
Customer rapport

43. THE BUSINESS BUYING PROCESS
• More complex than the consumer decision process.
• Takes place within formal organization’s budget, cost, and
profit considerations.
INFLUENCES ON PURCHASE DECISIONS
Environmental Factors
• Economic, political, regulatory, competitive, and
technological considerations influence business buying
decisions.
• Example: Law freezing cable rates or introduction
of new product
by a competitor will affect demand.
• Natural disasters, such as Hurricane Katrina.
• Example: Rising fuel prices prompted Viking Energy
Management to lock in fuel prices.

44. Organizational Factors
• Successful marketers understand their customers’
organizational structures, policies, and purchasing systems.
• Some firms have centralized procurement, others delegate it
throughout the units.
• Many companies use multiple sourcing to avoid depending too
heavily on a sole supplier.
Interpersonal Influences
• Many different people influence B2B buying decisions,
sometimes as individuals and sometimes as part of a committee.
• Marketers must know who the influencers are and understand
their priorities.
• Sales personnel must be flexible and have a good technical
understanding of their products.

45. The Role of the Professional Buyer
• Many organizations rely on professionals, often called
merchandisers, who implement systematic buying procedures.
• Firms usually buy expense items with little delay but
carefully consider capital purchases.
• May rely on systems integration, centralization of the
procurement function.
• Corporate buyers often use the Internet to identify sources
of supplies.

46. MODEL OF THE ORGANIZATIONAL BUYING PROCESS

47. Stage 1: Anticipate a Problem/Need/Opportunity and
a General Solution
• Example: Need to provide employees with a good cup of
coffee to enhance productivity.
Stage 2: Determine the Characteristics and Quantity
of a Needed Good or Service
• Example: Offering a coffee system that brews one cup of
coffee at a time according to each employee’s preference.
Stage 3: Describe Characteristics and the Quantity
of a Needed Good or Service
• Example: Firms need a simple system for
brewing a good cup of coffee; quantity
requirements are easily correlated to the
number of coffee drinkers.

48. Stage 4: Search for and Qualify Potential Sources
• Choice of supplier may be fairly straightforward or very
complex.
Stage 5: Acquire and Analyze Proposals
• May involve competitive bidding, especially if the buyer is
the government or a public agency.
Stage 6: Evaluate Proposals and Select Suppliers
• Buyers choose proposal best suited to their needs.
• Final choice may involve trade-offs between feature
such as price, reliability, quality, and order accuracy.

49. Stage 7: Select an Order Routine
• Buyer and vendor work out best way to process future
purchases.
Stage 8: Obtain Feedback and Evaluate Performance
• Buyers measure vendors’ performance.
• Larger firms are more likely to use formal evaluation
procedures.
• Some firms rely on outside organizations to gather quality
feedback and summarize results.
• Example: J. D. Power and Associates

50. CLASSIFYING BUSINESS BUYING SITUATIONS
• Business buying behavior involves degree of effort involved
in the decision and the levels within the organization in
which these decisions are made.
Straight Rebuying
• A recurring purchase decision in which a customer reorders
a product that has satisfied needs in the past.
• Purchaser see little reason to assess competing options.
• Marketers who maintain good relationships with customers
can go a long way toward ensuring straight rebuys.
• High-quality products.
• Superior service.
• Prompt delivery.

51. Modified Rebuying
• Purchaser willing to reevaluate available options.
• May occur if supplier has let a rebuy circumstance
deteriorate because of poor service or delivery performance.
New-Task Buying
• First-time or unique purchase situations that require
considerable effort by the decision makers.
• Most complex category of business buying.
• Often requires purchaser to consider alternative offerings
and vendors.

52. Reciprocity
• Practice of buying from suppliers that are also customers.
• In U.S., Department of Justice and the Federal Trade
Commission view reciprocity as an attempt to reduce
competition.
ANALYSIS TOOLS
• Value analysis—examines each component of a purchase in an
attempt to either delete the item or replace it with a more
cost-effective substitute.
• Vendor analysis—an ongoing evaluation of a supplier’s
performance in categories such as price, EDI capability, back
orders, delivery times, liability insurance, and attention to
special requests.

53. THE BUYING CENTER CONCEPT
• Buying center Participants in an organizational buying
action.
BUYING CENTER ROLES

54. REVIEW LEARNING OUTCOME
Business Buying Behavior
Buying
Center
Initiator
Influencer
Decider
Purchaser
User
Gatekeeper
Evaluative
Criteria
 Quality
 Service
 Price
Customer service
Buying
Situations
New buy
Straight rebuy
Modified rebuy

55. Environmental Analysis in Business Marketing
Air & water pollution, solid waste disposal,
conserving natural resources
Environment
Ecological &
Physical
Water, power, skilled manpower, low-cost
labor, transportation
Company location, R&D facilities, production
facilities, HR, Financial resources, marketing
effectiveness, reputation or image of the
company
Internal
Strength & weaknesses analysis
External
Micro
Affect a
particular firm
Opportunity & threat analysis
Macro
Affects all firms
• Customers & competitors
• Suppliers
•
•
•
•
•
Economic
Technological
Govt. & political, & legal
Cultural & social
Public-press, institutional investors,
shareholders, banks, public interest groups