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Business Marketing By Frank G. Bingham, Jr. and Roger Gomes ISBN: 0-658-01534-6 Published by NTC/Contemporary Publishing Group, Inc. 4255 W. Touhy Ave. Lincolnwood (Chicago), IL 60712-1975 U.S.A. ©2001 NTC/Contemporary Publishing Group, Inc. Chapter 1 Introduction to the Business Marketing Environment Chapter Outline Business Marketing: An Overview Why Study Business Marketing? How the Business Market Differs from the Consumer Market Characteristics of Business Demand The Nature of Business Buying Behavior A Classification of Business Goods and Services Business Customers Business Marketing Planning and Strategy Formulation Format of This Text What Is Business Marketing? What Is Marketing? • One Definition: “The process of planning and executing the conception (product), pricing, promotion, and distribution of want-satisfying ideas, goods, and services to individuals and organizations.” What Is Business Marketing? • Those activities that facilitate exchanges involving products and customers in business markets • A business transaction between a professional seller (representing a selling company) and a professional buyer (representing a buying company) • Activities in which goods or services are sold for any use other than personal consumption • Note: It is not the nature of the product; it’s the nature of the transaction. (continued) What Is Business Marketing? Is it a consumer transaction or a business transaction? • You buy a gear to fix your mountain bike. • Ford buys the same gear to fix a machine. • Xerox buys soft drinks for its cafeterias. • You start a landscaping business and purchase a lawnmower. • Coke buys TV ad time or sugar. • The U.S. government buys…anything. Business versus Consumer Marketing Characteristic Business Market Consumer Market Sales volume Purchase volume Number of buyers Size of individual buyers Location of Buyers Greater Greater Fewer Larger Geographically concentrated Closer More direct Multiple (buying center) More complex Yes Greater Personal selling Smaller Smaller Many Smaller Diffuse Buyer-seller relationship Nature of channel Nature of buying influences Type of negotiations Use of reciprocity Use of leasing Primary promotion method More impersonal Less direct Single Simpler No Smaller Advertising Philosophy Test What is the purpose of a business? • To some people, maximizing shareholder wealth is consistent with an accounting philosophy—but not marketing concept philosophy. • To manufacturing folks, the purpose might be to make the world’s best widgets. • To marketers, the purpose is to get and keep customers. • To a customer-driven company, it would be the same. • The principal task of the marketing function (operating under the marketing concept) is not to manipulate customers to do what suits the interests of the firm but rather to find efficient means of making the firm do what suits the interests of the customers. Characteristics of Business Demand Derived Demand Inelastic Demand Fluctuating Demand Joint Demand Scope and Importance “Derived demand” says that demand for a business product is linked to demand for a consumer good. This means consumer demand affects business marketing up a vast network of channels. For example, when OfficeMax experiences increased demand for paper clips, the effect is felt by its suppliers, paper clip manufacturers, and their suppliers. Classification of Business Goods and Services Major equipment Accessory equipment Process materials MRO (maintenance, repair, operating) supplies Fabricated and component parts Business services Raw materials Major Categories of Customers Commercial enterprises • Indirect channel members and facilitators • OEMs (original equipment manufacturers) • Users = customers Governmental organizations Institutions Scope and Importance of Customers 350,000 manufacturers 300,000 business service providers 400,000 wholesalers, distributors, agents 2.5 million retailers 80,000 government agencies (federal, state, local) Plus nonprofits—hospitals, museums, parks, universities, political parties Major Uses of Products For additional production (e.g., components are combined into subassemblies and become part of the finished product) For use in operations, but not part of the finished product For resale Business Marketing View of a Consumer Product Identify what purchasing bought. The picture suggests quantities of the following were purchased: Conveyer Conveyer replacement and maintenance materials Components going down conveyer Raw material and components of components Assembly station magnifier Power tool with blue cord Assembly fixture Table and chair Trucks with components on them Floor cleaning systems Lighting systems Heating/AC systems Uniform vest Health insurance How Do They Buy It? Items made from: • Steel • Wood • Plastic • Chemicals • Printed forms • Transportation • Electronics How do you pick one supplier from the thousands out there? How do you get them to purchase products from your company? Remember What Business Marketers Do! Identify customers. Identify customer needs and sell benefits. Communicate with customers (contact personally, reach through media, build relationships, sell benefits). Communicate internally, build relationships, sell benefits. Analyze buyer behavior, identify key buying center influencers and their roles. Develop products and services (complete packages of attributes). Study the market and competitive environment (economic, legal, technological). (continued) Remember What Business Marketers Do! Set prices and terms, negotiate, sell benefits. Make products available at the right time, in the right place, in the right quantity, in the right condition. Allocate resources across products. Create, implement, monitor, control, and continuously evaluate the marketing mix and strategic program to optimize customer satisfaction and meet profit objectives. Be a solution to customer problems, sell benefits. Be challenged—Use business judgment—Make decisions— Make decisions—Make decisions. Mission Statements Mission Statements reflect an organization’s purpose, values, and customer orientation. What can you tell about the people and culture that produced each of the following mission statements? • Company 1: “We truly care for each customer. We build enduring relationships by understanding and anticipating our customer’s needs and by serving them better each time than the time before. Our customers can count on us to consistently deliver superior products and services that help them achieve their business objectives.” • Company 2: “We are dedicated to maintaining our position as a profitable organization and a leader in our industry. In this way, we provide our shareholders a solid return on their investment, our employees with the benefits of gainful employment, and the surrounding community with a share in our prosperity. (continued) Mission Statements • Company 3: “To be the number one _______ company in the world and among the premier industrial concerns in terms of quality, profitability, and growth.” • Company 4: “We are dedicated to the creation and demonstration of a new corporate concept of linked prosperity. Our mission consists of interrelated parts: (a) make and distribute the finest quality innovative products, (b) operate the company in such a way that actively recognizes the central role that business plays in the structure of society…by improving the quality of life of the broad local, national, and international community.” (continued) Mission Statements • Company 5: “We believe that our past, current, and future successes come from a total dedication to excellent service to those who buy our products. Satisfying our customers and consumer needs in a superior way is the only reason we are in business.” • Company 6: “We are in business to please our customers…to provide greater value than our competitors.” • Company 7: “______ is a global company committed to building long-term growth in volume and profit and to enhancing its worldwide leadership position by providing products of superior value.” Don’t Forget the Marketing Concept The Marketing Concept is a business philosophy which states that the customer’s want-satisfaction is the social and economic justification of a company’s existence; consequently, all company activities must be devoted first to determining what the customer’s wants are and then to finding a way to satisfy those wants while still making a satisfactory profit. Chapter 2 The Organizational Buying Process Chapter Outline Objectives of Business Buyers Profile of a Professional Buyer The Changing Role of the Buyer The Business Buying Process Business Buying Situations The Buying Center The Materials Management Concept Purchasing and the Internet Environmental Forces and Buying Decisions Purchasing's Impact Upon Company Profit Typical Job Ad Square D Company has a Buyer position available at the Asheville, NC, location. Square D is a manufacturer of electrical control products. Responsibilities include: developing, communicating, and implementing strategies and tactics to establish, manage, and improve all aspects of supplier performance; acting as a liaison between the external supplier base and manufacturing operations; analyzing and developing strategies to manage commodity availability and pricing market conditions. (continued) Typical Job Ad Prefer a BS degree in business with knowledge of a JIT environment. CPM or APICS certification a plus. Experience in value analysis required. This position requires a highly motivated self-starter with excellent verbal and written communication skills and strong computer experience. Steps in the Business Buying Process Recognizing the need Developing product specifications Soliciting bids from potential suppliers Making the purchase decision Issuing the contract Inspecting delivered goods for quality Evaluating vendor performance Value Analysis: Comparison of Function to Cost Select a relatively high-cost or high-volume purchased item (part, material, or service). Find out how the item is used and what is expected of it—i.e., its function in detail. Ask the following questions: • Does its use contribute value? • Is it cost-proportionate to usefulness? • Does it need all its features? • Is there anything better, at a more favorable price, for the intended use? • Can the item be eliminated? • If the item is not standard, can a standard item be used? (continued) Value Analysis: Comparison of Function to Cost • If it is a standard item, does it completely fit the proposed application, or is it a misfit? • Does the item have greater capacity than required? • Is there a similar item in inventory that could be used instead? • Can the weight be reduced? • Are closer tolerances specified than are necessary? • Is needless machining performed on the item? • Are unnecessarily fine finishes specified? • Is commercial quality specified? • Can you make it now? Can you buy it for less? • If you are making it now, can you buy it for less? • Is the item properly classified for shipping purposes to obtain the lowest transportation rates? (continued) Value Analysis: Comparison of Function to Cost • Can cost of packaging be reduced? • Are you asking your suppliers for suggestions to reduce costs? • Do material, reasonable labor, overhead, and profit total the item’s cost? • Will another dependable supplier provide it for less? • Is anyone buying it for less? Now: • Pursue those suggestions that appear practical. • Get samples of the proposed item(s). • Select the best possibilities and propose changes. Quotations and Contracts RFQ: Request for Quotation RFP: Request for Proposal Boilerplate: Standard legal clauses (fine print) on RFQs, your bid, and the customer’s order. May contain terms of sale that contradict terms on your bid, and often contain penalties for nonperformance. You may receive an RFP, send a proposal, receive an RFQ, send a bid, receive an order, and ship products with an invoice. A contract may be involved for long-term requirements. If company-to-company EDI is used to order, customer’s boilerplate may be sent once per year. Internet purchases give seller an advantage, in that seller’s boilerplate terms are presented, but not customer’s. A wise buyer might add a reference to them. Evaluating Potential Vendors Basic Considerations in Evaluating Potential Vendors • Performance Considerations • Plant Visits • Geographic Locations • Capacity Vendor-Rating Approaches • The Categorical Plan • The Weighted-Point Plan • The Cost-Ratio Plan Single Sourcing Between XYZ Corp., the buyer, and ___________, the seller. Term of contract: January 1, 2000, through December 31, 2002. 1. Seller shall furnish all goods and services listed as scheduled and released F.O.B. destination without additional charges. XYZ Part #426F37 Revision A 125,000,000 units @ $55.00 per thousand units XYZ Part #426588 Revision D 5,000,000 units @ $15.78 per thousand units XYZ Part #426C56 Revision E 450,000 units @ $525.00 per thousand units 2. Above quantities may be adjusted as necessary by XYZ Corp. over the term of the agreement. 3. Seller will provide technical support as required by XYZ Corp. at no additional cost. (continued) Single Sourcing 4. Goods will meet all XYZ Corp. product and quality specifications. 5. If delivery is not completed within the time specified, XYZ Corp. reserves the right to any or all of the following: A. Terminate the agreement. B. Purchase replacement goods at seller’s expense. C. Bill seller for all downtime costs. 6. Seller will, at no cost to XYZ Corp., have their materials certified by an independent laboratory as meeting XYZ Corp. specifications. 7. Seller is restricted from making any changes in the product after sample approval is granted, including but not limited to materials, production operations, and packaging. 8. Sellers will allow XYZ Corp. personnel access to all areas and records necessary to verify compliance. (continued) Single Sourcing 9. Seller shall assume all responsibility in connection with liability based on seller’s performance and for the performance of their goods, including, but not limited to patent infringement, civil liability, and criminal liability. 10. Seller shall treat as confidential all information, data, specifications, and processes involved in this agreement. 11. XYZ Corp may terminate this agreement by way of written notice with liability limited to products actually produced to a scheduled delivery date 10 days in the future. 12. Part price is fixed for the term of the agreement; 24 months from the agreement date. 13. Seller agrees that all terms expressed here are in addition to the terms of the Uniform Commercial Code, laws of the State, and laws of the United States. Types of Business Buying Situations New-task buy: Business buying situation that is new and very different from anything that the buyer has faced previously. Straight rebuy: Most common type of business buying situation; buyer purchases a part, material, or service routinely, with little thought going into buying process. Modified rebuy: Reevaluation of alternatives; necessary because buying requirements have changed such that relatively routine buy or purchase no longer is routine. Roles of Buying Center Members User: Person who will use the product in question; influence can range from minimal to major. Gatekeeper: Keeps tight control on flow of information to other buying center members; can open or close the gate for salespeople. Influencer: Provides information to other members for evaluating alternative products or sets purchasing specifications; can operate within or outside the buying center. Decider: Makes buying decision; often difficult to identify. Buyer: Assigned formal authority to select vendors and complete purchasing transaction. Materials Management Concept Materials management: Grouping of functions involved in obtaining and bringing materials into a production operation. Usually one manager responsible for planning, organizing, motivating, and controlling all the activities principally concerned with the flow of materials into an organization. View material flow as a system. MRP Systems MRP = Materials Requirement Planning MRP systems: Large computer systems used to plan and schedule operations using a “push” approach. Starting from the order due dates and forecast, MRP considers every required raw material, operating supply, and component part, their order of use, and what equipment they will occupy. Backs into a schedule of what will have to be done when, including what will have to be ordered when and received when. Just-In-Time Systems JIT = Just-In-Time Adopted and implemented by many original equipment manufacturers (OEMs) and suppliers of component parts and materials. An operational philosophy thought to epitomize the relationship marketing model. Uses a “pull” approach; much more than material arriving just in time. JIT Features Zero defects—Strict quality control Frequent, reliable delivery of quantities as needed Close location Advanced telecommunications, EDI. Single sourcing—Customer-supplier partnerships/alliances Value analysis Early supplier involvement Evergreen contracts Customer access to financial and process information Integrated JIT versus U.S. Manufacturing (pre-1985) JIT System Pre-1985 U.S. Mfg. What it is An integrated philosophy of operating a business The way it has always been done Raw material and in-process inventory A liability to be eliminated to maximize Protection against problems, necessary machine Immediate needs only Based on EOQ and efficient long production runs. utilization Order size Integrated JIT vs. U.S. Manufacturing (pre-1985) JIT System Pre-1985 U.S. Mfg. Production setup time Fast at insignificant cost; flexible manufacturing (Ex: stamping die change =5 minutes) Low-priority concern (Ex: same die change =5 hours) Suppliers Part of the teamsingle source Adversarie-multiple source Delivery Must arrive within small time window, go right to the line, packaged for assembly efficiency Arrives on due date plus or minus, packaged for warehouse storage Integrated JIT vs. U.S. Manufacturing (pre-1985) Purchasing JIT System Pre-1985 U.S. Mfg. Involve supplier in design; long-term contracts at fixed prices recognize need Design in secret, competitive bidding; contract for current requirement; for price increases Efficiency improvements Workers see as strengthening company Workers see as threat Production control and scheduling Demand “pull”— Kanban to minimize in-process inventory Forecast “push”— maximize machine utilization Kanban Exercise 1. Fill in the empty seats so that all the empty seats are in the back of your row. 2. Take the piece of paper handed out, put your name on it, and put it at your feet in the isle between your chair and the person in front of you. This is the product you have just assembled (like a newly assembled door you’ve just put a handle on). 3. Your job on this assembly line is to repeat this process, but only when you see that the next person in the operation has taken the piece you just assembled. (If the paper with you name on it is still at your feet, do nothing). SEE HOW DEMAND “PULLS” THE ASSEMBLY OPERATIONS? Strategic Alliances between Suppliers and Customers Bose Corporation • Reduced production costs • Reduced staff • Allowed for just-in-time delivery • Streamlined and costeffective product development • Consistently met customer requirements Benefits to Bose Suppliers • Evergreen contracts • Improved production efficiency • Elimination of sales calls • Improved communication Environmental Forces and Buying Decisions The Economic Environment The Physical Environment The Competitive Environment The Technological Environment The Legal-Political Environment The Ethical Environment ISO 9000 Certification ISO= International Organization for Standardization ISO 9000 Certification: a series of standards that include: • Effective quality system • Valid measurements and calibration • Appropriate statistical techniques • Lot control, part tracing, record keeping • Internal process auditing • Employee quality training Mandates: • Define appropriate quality standards • Document processes • Prove consistent adherence to both (continued) ISO 9000 Certification Required by U.S. Dept. of Defense, Japan, European Community, and others. Requirement includes second-tier subassembly and component makers (and their suppliers, etc.). Prior to ISO 9000, most companies had their own versions of quality systems (many modeled on military specifications). Certification assures customers that suppliers have capabilities and systems to provide high-quality goods. (Doesn’t assure that particular products are high quality, just the standards of the system they were produced under.) (continued) ISO 9000 Certification Other International Standards receiving attention: • AS 9000 (aerospace) • ISO 14000 (environmental management • SA 8000 (social accountability) ISO creates standards; typically, consultants help company adapt systems to meet the standards. When ready, a certification company audits the systems and awards certification (and provides periodic checking). Adoption cost = ~$250,000–$500,000 for average-size plan operation. Why Is ISO 9000 a Marketing Issue? If customer does not require it, ISO 9000 certification can be a differential advantage. If customer does require ISO 9000, marketers ensure that customer needs are met. If marketing is confident that their quality department can handle ISO requirement, marketing can deal with other aspects of customer’s needs. If marketing is not sure, then they need to be involved until they are. This is true of any customer requirement (e.g., technical, delivery, packaging). Keep in mind that marketers decide which customers to serve with what marketing mixes. For example, marketing can decide that it is in the company’s best interest to target customers who require ISO 9000, but not approach customers who require AS 9000. Today’s marketers will need to be familiar with ISO specifications. Find out more at www.ISO.ch and www.bsi.org.uk. Chapter 3 Marketing Research and Information Systems Chapter Outline Differences Between Business and Consumer Marketing Research Technology and Marketing Research Major Tasks of Marketing Research Marketing Research Versus Marketing Information Systems Database Development The Marketing Research Process Qualitative Versus Quantitative Research The Make-or-Buy Decision in Research Developing Information Sources Marketers with Marketing Research Responsibility Vice President of Marketing Director of Marketing Marketing Manager Product Manager Assistant Product Manager Sales Manager Field Salesperson All other professional-level marketing positions If you would like to have one of these positions, take learning marketing research skills seriously. Marketing research is a “must-have” core skill. Marketing Research Assignment Scenario: Clemson Electronics Inc. is a high-tech electronics manufacturer that has designed a mobile, quick-responding device to measure and identify hazardous waste in soils. Traditionally, soil samples are collected, brought to a lab, and processed through a series of tests by a trained chemist. The new device is brought to the site, requires no special training, and can quickly provide an accurate analysis. The general manager has assigned you to develop information upon which strategic planning will be based. How would you respond? Marketing Research Assignment Questions to consider: • • • • • • • • • What are the present and potential market segments? Who are the key potential customers? Can you develop a demand forecast for the first five years? Who are the major competitors in each segment? How do we compare in costs and customer benefits? What environmental factors could favorably or unfavorably affect demand? Are there government data that you recommend using? Do you recommend primary research? Can you have a report ready prior to the senior management meeting in three weeks? Be specific: Where would you get what information, and how long would it take? These are the questions researchers must answer. . Consumer vs. Business Marketing Research Consumer Business Universe population 72.5 million households 250 million persons Limited by industry Respondent accessibility Over the years, more and more difficult Fairly difficult (false research, overresearched. Why respond?) Sample size Can be large and random Limited by number in group Respondent definition Usually obvious who to ask Need to understand buying center Interviewers Easy to train to deal with consumers Need to be able to deal with executives, know about product Study costs Function of sample size Usually much more expensive (travel, cost of interviewer, time, nonresponse, etc.) Major Tasks of Business Marketing Research Market Potential 97%* Market-Share Analysis 97 Market Characteristics 97 Sales Analysis 92 Forecasting (Demand Projection) 89 Business Trends 87 Competitive Analysis 87 * Percent of firms doing this type of research, based on an AMA published survey. Marketing Information Systems Marketing information system uses procedures, hardware, and software to accumulate, integrate, and disseminate important data through reports to key marketing decision makers. In contrast, marketing research is problem or project oriented. Can also be defined as a system that scans and collects data from the environment, makes use of data from transactions and operations within the firm, and then filters, organizes, and selects data before presenting it as information to marketing management. Marketing Information System = MIS Most common business usage of MIS = management information system Management information systems usually collect, organize, and report company operating information (production, quality, labor usage, ontime delivery reports). In general sense, a marketing information system could be included as one type of management information system. MIS is also an old term for a company’s computer department (because it was responsible for management information system hardware, software, and system operation). The moral of the story is, refer to a marketing information system as a marketing information system rather than MIS. Marketing Information System Can Be a “CRM” Subsystem CRM = Customer Relationship Management— an integrated software system which typically includes: • Customer service and communication • Sales force automation • Campaign management • Business intelligence Decision Support Systems (DSS) Marketing information system can also be thought of as a decision support system (DSS) for marketers. DSS’s modeling subsystem allows you to specify what you want done with the data and how you want it presented (e.g., calculate variance and standard deviation and plot versus the top 3 competitors for the last 5 years). To set up a DSS, you need to know what data you want to be able to access to help in your decision making. For example, for a pricing decision on a bid, you need: • Product cost accounting data • Prices charged on other products to that customer (continued) Decision Support System (DSS) • • • • • • • Sales call reports on that customer Competitor bidding history Customer benefit and total life-cycle customer value Industry product life-cycle position Other members of the supply chain Economic trends in the customer’s industry Freight cost differences for our distance from the customer versus competitors’ Primary Phases in a Marketing Research Project 1. Planning the Research Design • Recognize and define problem • Plan research design and write project proposal 2. Preparation • Develop sampling plan • Collect data and construct questionnaire 3. Field Operations • Schedule interviews • Conduct interviews • Check to ensure questionnaire validity (continued) Primary Phases in a Marketing Research Project 4. Processing • Code and input data • Construct computer file 5. Tabulation, analysis, and interpretation • Generate tables • Analyze data • Interpret findings 6. Reporting • Write report/oral presentation • Follow up Qualitative versus Quantitative Research Qualitative Quantitative Types of questions Probing Limited probing Sample size Small Large Information per respondent Much Varies Administration Requires interviewer with special skills Fewer special interviewer skills required Type of analysis Subjective, interpretive Statistical, summarization Hardware Tape recorders, projection devices, video, pictures, discussion guides Questionnaires, computers, printouts (continued) Qualitative versus Quantitative Research Qualitative Quantitative Ability to replicate Low High Training of the researcher Psychology, sociology, social psychology, consumer behavior, marketing research Statistics, decision models, decision support systems, computer programming, marketing, marketing research Type of research Exploratory Descriptive or causal Developing Information Sources Secondary Data Sources • Internal Secondary Sources • External Secondary Data Sources – Government Sources – Commercial Sources – Professional Publications • Secondary Data on the Web • Disadvantages of Secondary Data Primary Data Sources • Personal Interviews • Telephone Surveys • Mail Surveys • Disadvantages of Primary Data Secondary Information Sources Internal secondary data sources—financial statements, research reports, sales reports, customer letters External secondary data sources—published marketing research—governmental sources (Freedom of Information Act, bids and contracts, patent filings) • Commercial sources—suppliers, banks, consultants, ad agencies • Professional publications—trade associations, journals, shows • Web connection (but, as always, consider the source) Commercial Secondary Sources To find company contacts, telephone numbers, products produced, and size: Thomas Register of American Manufacturers • Most used directory of manufacturers • Available in libraries and on Internet • 16 volumes of manufacturers listed by product • 2 volumes of manufacturers listed alphabetically • 8 volumes of manufacturer’s catalogs City Chamber of Commerce Directory—lists all member companies alphabetically, by product and by code (continued) Commercial Secondary Sources State Industrial Directories • Companies listed by product, then grouped by location, by NAICS code, and alphabetically • Field salespeople love them • Many libraries have all 50 volumes Association Membership Directories—lists members alphabetically, by company, and sometimes by state or county. NAICS Codes NAICS = North American Industrial Classification System; replaces SIC (Standard Industrial Classification) codes Common for NAFTA countries NAICS hierarchical structure: XX Industry sector XXX Industry subsector XXXX Industry group XXXXX Industry XXXXXX U.S., Canadian, or Mexican national specific http://www.naics.com/cgi-bin/search.pl (continued) NAICS Codes Divides economy into 20 major industry sectors (at two-digit level): 11 Agriculture, Forestry, Fishing, and Hunting 21 Mining 22 Utilities 23 Construction 31–33 Manufacturing 42 Wholesale Trade 44–45 Retail Trade 48–49 Transportation 51 Information 52 Finance and Insurance 53 Real Estate, Renting, and Leasing 54 Professional, Scientific, and Technical services 55 Management of Companies and Enterprises 56 Administrative and Support, Waste Management, and Remediation Services 61 Education Services 62 Health Care and Social Assistance 71 Art, Entertainment, and Recreation 72 Accommodation and Food Services 81 Other services (except Public Administration) 92 Public Administration (continued) NAICS Codes Example of additional digits making the product more specific: Sector 31–33 Manufacturing Subsector 334 Manufacturing computer and electronic products Industry group 3346 33461 334611 Manufacturing of magnetic and optical media Manufacturing of magnetic media Software reproduction Disadvantages of Secondary Data Recency of data Coverage of data (adequate for your purposes?) Sample size (adequate?) Bias (by sponsor or objectives of original survey) Data source Primary Data Sources Personal Interviews Telephone Surveys Mail Surveys Primary Survey Methods Fill in the table. Approach Personal interview Telephone Mail Internet Cost Time Information Information Nonresponse quality quantity problem Interviewer bias Disadvantages of Primary Data Expensive Time intensive Requires experimental design/survey design skill Unwillingness (or inability) of respondent to provide information Nonrepresentative, nonrespondent problem Marketing Research Assignment: A Second Chance Scenario: Clemson Electronics Inc. is a high-tech electronics manufacturer that has designed a mobile, quick-responding device to measure and identify hazardous waste in soils. Traditionally, soil samples are collected, brought to a lab, and processed through a series of tests by a trained chemist. The new device is brought to the site, requires no special training, and can quickly provide an accurate analysis. The general manager has assigned you to develop information upon which strategic planning will be based. How would you respond? Marketing Research Assignment: Questions to Consider What are the present and potential market segments? Who are the key potential customers? Can you develop a demand forecast for the first five years? Who are the major competitors for each segment? How do we compare in costs and customer benefits? What environmental factors could favorably or unfavorably affect demand? Are there government data that you recommend using? Do you recommend primary research? Can you have a report ready prior to the senior management meeting in three weeks? Chapter 4 Market Segmentation, Positioning, and Demand Projection Chapter Outline General Market Segmentation Strategy Market Strategies for Business Segmentation Approaches to Market Segmentation Segmenting Business Markets Evaluating Potential Market Segments Product Positioning Strategy Business Demand Projection Selecting Forecasting Methods Why Segment Markets? To group customers with similar needs so one mix can custom meet the group’s needs without having a mix for each customer (and still create a differential advantage). Given limited resources, to strategically target which groups to serve. As in all marketing activity, to better serve customer needs. Market Segmentation Uses in Strategic Market Planning Analyze buyer behavior of each segment… Analyze buyer decision process of each segment… Analyze the demographics of each segment… Pick targets, forecast sales, calculate pro forma profitability, and design a mix for each segment based on above… Segment business market even if we are selling consumer products… Strategic Market Segmentation Differences in customer needs Differences in purchasing power Differences in geographic locations Differences in consistency with company’s mission A Good Market Segment Is… Substantial Accessible Measurable Differentiable Actionable Strategies for Business Segmentation Undifferentiated Marketing Strategy Differentiated Marketing Strategy Concentrated Marketing Strategy Approaches to Market Segmentation • Macro/Micro Segmentation • Nested Approach – An Application of the Nested Approach Segmenting Business Markets • Type of Economic Activity • Size of Organization • Geographic Location • Product Usage • Structure of the Procurement Function Approaches to Market Segmentation Macro-based • NAICS category • Industry • Geography Micro-based • Decision process • Buying structure • Attitudes toward vendor relationships Nested • Hierarchical structure Nested Segments Computer Industry OEM Over $500,000,000 in Sales Uses Microsoft Windows Centralized Purchasing Single Source/JIT Purchases Segmentation for Small Precision Servomotors Aerospace Computers Automotive Robotics Appliances Toys The entire market needs to be represented, not just present customers, and not just attractive segments. Why? Misc. Answer… You would not be segmenting the market, only part of it. If the segment isn’t represented, you will never even consider it. Problems with Adjusting Market Segments Company systems set up around old segments Lack of strategic marketing training Need for dynamic leadership to change direction Why Strategically Position Products and Services? So they are perceived as different from competitors’ in ways that represent value to customer segments As a tool to help marketers visualize the customer’s perceptions of the competitive offerings available according to various variables (axes) of importance How Can Product Positioning Be Misused? One common error is to create a map of where you would like your products to be positioned or where they are positioned in your perception of the market, then treat the resulting map strategically as if it is a map of the actual perceptions of the customers in the market. What Other Axes May Be Strategically Important? For a company that can be described as a computer-industry OEM; $500,000+ in sales; Microsoft Windows user; centralized, singlesource/JIT purchasing: • Positioning may have to be on the basis of multiple sets of axes and may have to be done by segment. • Don’t forget that positioning is just a visualization tool—you still have to make the final strategic decisions. • This is a simple, two-variable model. Even with a 200-variable computerized decision support system simulation, you still have to make the final strategic decisions. That’s why they call them “decision support.” Once You Have All the Maps to Visualize the Market… Consider what position the firm presently owns. Decide what position that firm wants to own. Decide who the the firm must outflank to gain that position. Consider if the firm has the necessary resources and is committed to achieving the objective. Determine if the firm can create a marketing mix to achieve the desired position. Why Forecast Demand? Companies must plan in order to have materials/resources on hand to meet customer needs. It is required by top management, just as engineers must design and accountants must add numbers. It is a basic marketing function. Other functional areas use demand forecasts to make their own forecasts and budgets, make purchases, set goals, etc. Common Forecasting Problems Mysticism (to those who are not trained) Accuracy (marketers tend to be can-do, optimistic types) Inconsistency (if that didn’t work, change it) Accountability (developing forecast versus achieving forecast) Implementation (mixing forecasts, goals, quotas) Forecasting Basics The importance and nature of forecast impacts method chosen. Different methods are appropriate for long-term vs. mediumterm vs. short-term forecasts. Different methods are appropriate for different types of data (e.g., amount of cycle, trend, noise). The right method for the right type situation and the right type data improves accuracy. Forecasting is not guessing. (continued) Forecasting Basics Forecasting requires a pattern or relationship that is present in past data and will repeat. Forecasting is a lot more than averaging. It’s an academic area with its own theory, textbooks, and journals. Companies routinely hire expert consultants to improve their forecasting accuracy by a percentage point or two and save them millions of dollars. (continued) Forecasting Qualitative Quantitative Time Series Causal Qualitative Forecasting Techniques Jury of executive opinion Sales force composite Survey of buyer’s intentions Delphi method Quantitative Forecasting Time-series • Trend fitting • Moving average • Exponential smoothing • Adoptive control • Box-Jenkins Causal • Regression • Econometrics • Leading indicators • Diffusion index • Input-Output analysis • Life-cycle analysis What Is Not Time-Series Forecasting You must not casually interchange terms with specific meanings. Why? A “series” is not forecasting; it is a series of numbers (e.g., 2, 5, 7, 3, 9, 2, 6, 3, 8). A “time series” is not forecasting; it is a series of numbers by time period. For example, sales by month = Feb. $5M; Mar. $7M; Apr. $3M; May $9M; June $2M, etc.) You Can Graph a Time Series If you were asked to define a time series and you said anything about it being a forecast, that would be wrong. A time series is not a forecast. Causal Forecasting Methods Regression Econometrics Leading indicator Diffusion index Input-Output analysis Life-cycle analysis