Download The Marketing Mix: The “4 P`s” of Marketing

Chapter 1
Introduction to Business-to-Business Marketing
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Entrepreneurial Marketing
…is conducting marketing in a way that
involves innovation, acting proactively, and
taking calculated risks.
Business Markets consist of all
organizations that purchase goods and
services to use in the creation of their own
goods and services.
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The Marketing Mix:
The “4 P’s” of Marketing
Place
Product
The
Marketing
Mix
Price
Promotion
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Marketing Mix: Product
+ Core Product
+ Financing Terms
+ Delivery Options
= “Total Offering”
The total offering is created by a
partnership between the buying
organization and the marketing
organization.
The process creates an
augmented product that is specific
to the buying unit’s needs and
maximizes the value creation
capabilities of the marketer.
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Marketing Mix: Price
Price…
•is the mutually agreed-upon
amount that satisfies both
sides in an exchange.
•often varies from fixed price,
with more special discounts
and allowances (in
comparison to consumer
markets).
•may involve things other than
a one-time price payment
(such as commissions).
Price is the
measure of value
exchanged and is
determined by the
market (not by
costs).
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Marketing Mix: Place
Place is about getting the product to the customer in
order to maximize economic utility.
Form Utility (having the product in the right
size package, quantity, etc.)
Economic
Utility
Time Utility (having product available at
useful times)
Place Utility (getting the product to the
customer where & when it is expected)
Possession Utility (making it easy to
transfer ownership to the buyer)
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Marketing Mix: Promotion
Business-to-business marketing requires a different
emphasis on different parts of the promotional mix
Consumer marketing
•Emphasis is
frequently on
advertising.
•Communication with
customers is often a
monologue.
•Relationship is often
brief.
Business-to-business
marketing
•Emphasis is frequently on
personal selling.
•Communication with
customers should be a
dialogue.
•Relationship is often longlasting.
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Business Markets and Business
Marketing
• Business markets
– All organizations that purchase goods and
services to use in the creation of their own
goods and services.
• Business marketing
– The process of matching and combining the
capabilities of the supplier with the desired
outcomes of the customer to create value for
the “customer’s customer.”
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The
Marketing
Concept
1. Be contextually
market sensitive
For a
business-to-business
organization to
successfully practice
the marketing concept,
it should:
2. Understand customer needs
3. Meet customer
needs in a way that provides
value to the customer
4. Meet organizational goals
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Consumer Demand and Derived
Demand
Business demand is
derived from
consumer demand.
Trees are demanded to make wood pulp
…because wood pulp is demanded to make paper
…because paper is demanded to produce books
…because the consumer demands books!
Because of this,
business-tobusiness demand
tends to be
Inelastic (short-run)
Volatile (leveraged)
Discontinuous
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The Bullwhip Effect
1. Suppliers forecast
their production on
existing order rates.
2. But, if consumer
demand drops, the
order rate also drops.
3. Supply chain members are then likely to overcompensate the difference between the old and new
forecasts, because…
A.
B.
C.
D.
Inventory levels can decline to fit new order rate,
Customers change orders frequently,
Minimum order quantities may exist, and/or
Trade promotions may influence buying patterns
(discontinuities of B2B demand add to the bullwhip effect)
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B2B demand is discontinuous –
it moves in large increments.
1. Consumers
increase their
demand for a
product.
2. To produce more, a consumer
goods manufacturer consumes
more raw materials, equipment,
and supplies.
3. Suppliers of raw materials,
equipment, and supplies are
pressured to expand capacity
and eventually do so.
4. Industry
capacity increases
in large
increments.
The industry capacity increases in a discontinuous manner.
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Business-to-business demand
tends to be inelastic
Price elasticity:
•It is the change in the quantity
demanded relative to the change in
price.
•When the price changes by X% and
demand changes by less than X%,
demand is described as inelastic.
Demand tends to be inelastic for those components that
are differentiated from competitors.
Manufacturers often choose to absorb price increases
rather than alienate customers (the manufacturer may
choose to later eliminate the component by design).
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Outsourcing
Outsourcing is the purchasing of part of the
company’s continuing operations, such as
manufacturing, rather than producing the
same function internally.
Quantity Discounts
Complementary Products
Delivery Schedules
Outsourcing
Increases the
complexity of
business-to-business
marketing
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Value Chain
The Value Chain
•The chain of activities that creates
something of value for targeted customers.
The value chain
contains both
direct and
support
activities.
Direct activities
contribute directly
to the offering.
Support activities
makes it possible to
perform the direct
activities.
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The Value Chain and Offering
PERCEIVES
INFRASTRUCTURE
HUMAN RESOURCES
PROCUREMENT
Offering:
TECHNOLOGY & TECHNOLOGY DEVELOPMENT
Product
Service
Support Activities
ADDED VALUE
Image
Availability
Quantity
Direct Activities
Evaluated
Price
CREATES
Supplier side -- Direct and support activities
of the Value Chain create many elements of
the offering.
Customer Side -- Target customers
perceive the offering from their value
perspective.
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Direct and Support Activities
Contribute to Value
INFRASTRUCTURE
Support activities include
infrastructure, human
resources, procurement, and
technology and technology
development.
HUMAN RESOURCES
PROCUREMENT
TECHNOLOGY & TECHNOLOGY DEVELOPMENT
Support Activities
ADDED VALUE
Direct activities include
inbound and outbound
logistics, operations,
marketing and sales, and
customer service.
Direct Activities
Goal is to
combine
elements to
create value as
perceived by the
target market.
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Supply Chain Orientation of Value
Chain
Support
Activities
Support
Activities
Support
Activities
ADDED VALUE
ADDED VALUE
ADDED VALUE
Direct
Activities
Direct
Activities
Direct
Activities
Support activities include infrastructure, human
resources, procurement, and technology and
technology development. Direct activities include
inbound and outbound logistics, operations,
marketing and sales, and customer service.
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Implications of the Value Chain
• The organization must understand its
prospective customers, what customers
perceive as valuable, and how prospects
might be persuaded to change their minds.
• Not all customers are alike. Customers can
be segmented on the basis of what they seek
and can afford.
• Direct and support activities are equally
important.
• The value chain extends from the customer
back thorough distribution channels,
manufacturers, suppliers and raw materials
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suppliers.
Trends and Changes in
Business Marketing
• Hypercompetition: the rapid emergence
of new competitors and industries.
• Formation of partner networks (use of
ERP systems).
• Use of Internet technologies to reduce
costs and to improve communication
and customer service.
• Time compression: an increase in the
speed of doing business.
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Questions for Review and
Discussion
1. Describe the differences between b-to-b
and consumer marketing for the following market
elements:
Products Buyer behavior Decision making
2. What is meant when we say that decision making
in business-to-business markets moves through
observable stages?
3. Describe the difference between derived demand
and consumer demand. How does the leveraging
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phenomenon occur?
Questions for Review and
Discussion
4. What is the difference between value as perceived
by the customer and value as perceived by the
supplier?
5. We learned in economics the difference between
elasticity and inelasticity. What is meant when we say
that business-to-business demand is inelastic in the
Short term and discontinuous in the long term?
6. Ultimately, who is the long-term benefactor of
application of the value chain?
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Questions for Review and
Discussion
7. Considering all of the elements of evaluated price,
would value to the customer’s customer be a major
consideration? Why, or why not?
8. How is value created in the transaction process?
9. As consumers, how do our “shopping instincts”
make it difficult to understand business-to-business
marketing philosophy?
10. What factors can contribute to a customer
remaining with a particular supplier even though
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lower-cost substitutes may be available?
Key Terms
inelastic demand
initial public offerings
(IPOs)
bullwhip effect
Intranet portals
business marketing
marketing concept
business markets
outsourcing
channel facilitators
partnership
consumer demand
place
derived demand
portal
discontinuous demand
possession
economic utility
price elasticity
electronic data interchange
supply chain
(EDI)
time
evaluated price
time compression
form
total offering
four Ps
value
hypercompetition
value chain
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Business-to-Business versus Consumer Marketing
Summarizing the Differences Consumer
Business to Business
Market Structure
• Geographically concentrated
• Relatively fewer buyers
• Oligopolistic competition
• Geographically dispersed
• Mass markets, many buyers
• Monopolistic competition
Products
• Can be technically complex
• Customized to user preference
• Service, delivery, and availability very
important
• Purchased for other than personal use
• Standardized
• Service, delivery, and availability only somewhat
important
• Purchased for personal use
Buyer Behavior
• Professionally trained purchasing personnel
• Functional involvement at many levels
• Task motives predominate
• Individual purchasing
• Family involvement, influence
• Social/psychological motives predominate
Buyer-Seller Relationship Expectations
• Less technical expertise
• Technical expertise an asset
• Nonpersonal relationships
• Interpersonal relationships between buyers
• Little information exchanged between participants
and sellers
on a personal level
• Significant info exchanged between
• Changing, short-term relationships encourage
participants on a personal level
switching
• Stable, long-term relationships encourage
loyalty
Channels
• Indirect, multiple relationships
• Shorter, more direct
• Little/no customer supply chain involvement
• Organization involvement as part of supply chain
Promotion
• Emphasis on personal selling, dialogue
• Most communications invisible to the consumer
• Consumer seldom aware of BtB brands and
companies
• Emphasis on advertising, monologue
• Companies compete for visibility and
awareness by consumer market
Price
• Complex purchasing process or competitive
bidding, depending on purchase type
• Usually list or predetermined prices
Demand
• Derived
• Inelastic (short run)
• Volatile (leveraged)
• Discontinuous
• Direct
• Elastic
• Less volatile
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Component
1990 Ford
Crown
Victoria
Airbags-Front
Airbags-Side
Battery
Johnson
Controls
Brakes / ABS
Ford (1)
Bumpers/Fascias
Console
DVD Nav system
Electric Motors
Exhaust System
Exterior Mirrors
Glass
Half Shafts/Drive
Shafts
Networked versus Integrated Supply
2005 Ford
2005 Chrysler 300
Escape
Dodge Magnum
Hybrid
Takata
TRW
2005 Jaguar
XK
Brembo
Teves
Bosch
Decoma
Collins & Aikman
Alpine
Harmon
Ford (1)
Fagor
Ederlan,
Teves
Decoma
Alpine
Eberspaecher NA
Schefenacker
Delphi (2)
Arvin Meritor
Pilkington
Delphi/Saginaw
GKN
Driveline
Automotive
Lighting
Valeo
HVAC
IP Assembly
Power Steering
Ford (1)
Ford (1)
Ford, TRW
premium audio
Ford (1)
Alpine
Ford
Lear
Ford (1)
Breed
Shock
Absorbers/Struts
Steering wheel
Autoliv
Toshiba
Headlamps
Seats
2005
Pontiac G6
Sanyo
Decoma
n/a
2005 Mini
Convertible
Behr
Collins & Aikman
NSK
Suspension
Ford
Taillamps
Ford
Transmission/
Transaxle
Ford
Valeo
ZF
Friedrichshafe
n AG
AW I
Delphi (2)
Johnson Controls
(JCI)
ZF
Harmon
Kardon
Johnson
Controls
ZF Sachs
Delphi
Inalfa Roof
Systems
Benteler
Sunroof
Valeo
Delphi (2)
W ebasto
Yorozu, AZ
North
American
Lighting
Aisin
W heels
Ford
W iper System
Ford (1)
Denso
W iring
Yazaki
Yazaki
Notes:
Notes: (1) The Ford divisions that supplied these components have been spun off into Visteon, an independent
company.
(2) Delphi is the name of the supply organization created when General Motors spun off their various
supply divisions.
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