Edition Vitale and Giglierano Chapter 2 Classifying Customers, Organizations, and Markets Prepared by John T. Drea, Western Illinois University

2 Types of Organizational Customers Government Units Government Units Nonprofit and Not-for-Profit Organizations Nonprofit and Not-for-Profit Organizations Commercial Enterprises Commercial Enterprises Industrial Distributors Value-Added Resellers Original Equipment Manufacturers Users or End Users 85,000 local, state, and federal government units Churches, hospitals, colleges, nursing homes, etc.

3 Industrial Distributors –Provide economic utilities of form, time, place, and possession to manufacturers –Creates assortments of products from many manufacturers –Particularly useful for reaching customers too small to justify direct sales efforts Commercial Enterprises Commercial Enterprises Industrial Distributors Value-Added Resellers Original Equipment Manufacturers Users or End Users

4 Value-Added Resellers –More than just a distributor or wholesaler. –Provides unique offering enhancements tailored to a customer’s needs by combining products/services from other manufacturers. –Creates a value network at the user level. Commercial Enterprises Commercial Enterprises Industrial Distributors Value-Added Resellers Original Equipment Manufacturers Users or End Users

5 Original Equipment Manufacturers (OEMs) –Purchase products and incorporate those products into their products. –Usually the largest-volume users of goods and services. –Ex: Intel is an OEM supplier to many computer manufacturers, Firestone was an OEM supplier to Ford for many years. Commercial Enterprises Commercial Enterprises Industrial Distributors Value-Added Resellers Original Equipment Manufacturers Users or End Users

6 Users or End Users (E/U) –A manufacturer that purchases goods or services for consumption/ incorporation into their products in such a way that the identity of the purchased product is lost. –When Goodyear purchases steel for fabrication into steel belts for tires, Goodyear is the steel manufacturer’s E/U. Commercial Enterprises Commercial Enterprises Industrial Distributors Value-Added Resellers Original Equipment Manufacturers Users or End Users

7 Producer Types Component Parts and Manufactured Materials Producers Capital Goods Manufacturers Accessory Equipment Suppliers Raw Materials Producers

8 Producer Types Raw Materials Producers Often compete in price sensitive markets Raw materials markets are often dominated by a few very large producers Products lose identity once incorporated into the customer’s product Seek value added positions Raw Materials Producers

9 Producer Types Components Parts and Manufactured Materials Producers More differentiated from direct competition by the value added to the customer’s product. Usually retain identity even when incorporated into the customer’s product. Parts retain their same form when incorporated. Seagate computer drives are an example. Component Parts and Manufactured Materials Producers

10 Producer Types Capital Goods Manufacturers Adherence to specifications reduces opportunities for differentiation. Involves the development of specifications to ensure that organizational needs are met. Capital goods involve large purchases with considerable risk for the customer. Customers expect an offering that includes installation, equipment, and accessories. Capital Goods Manufacturers

11 Producer Types Accessory Equipment Suppliers Accessory equipment is usually produced by an independent supplier. Accessories can be added to a bundled offering by a channel intermediary. Accessory equipment is equipment that works with some other offering. The key to providing value is to be compatible with industry standards for the primary offering. Accessory Equipment Suppliers

12 Communities of interested parties who are not direct participants in a market as customers, channel members, suppliers, or competitors. Financial Publics Financial Publics Independent Press Independent Press Public Interest Groups Public Interest Groups Internal Publics Publics

13 The Macroenvironment influences value creation. Demographic Environment Economic Environment Sociocultural Environment Natural Environment Technological Environment Competitive Environment

14 Forms of Competition in B2B Markets Pure Competition –No single entity dominates the market or has much of an influence on price. –Most common in commodity industries. –Little product differentiation – price is a major component of the marketing mix.

15 Forms of Competition in B2B Markets Monopolistic Competition –Many buyers, many sellers. –Product is differentiable – can vary in quality, features, and style –A range of prices is possible. –Promotion and branding are important to product differentiation.

16 Forms of Competition in B2B Markets Oligoplistic Competition –Market consists of a few sellers that are sensitive of each others’ strategy. –Barriers limit entry of new competitors. –Prices are aimed at maintaining market stability. –Key is building relationships with large volume customers.

17 Forms of Competition in B2B Markets Pure Monopoly –Only one primary seller. –Competitors that do exist are small niche players.

18 An Adaptation of the Value Chain An Adaptation of the Value Chain

19 Multinational Value Network

20 The Product Life Cycle

21 The Technology Adoption Life Cycle

22 PLC and TALC Product Life Cycle (PLC) –Introduction –Growth –Maturity –Decline Technology Adoption Life Cycle (TALC) –Technophiles –Visionaries (aim for “quantum leaps”) –Pragmatists (want proven solutions) –Conservatives –Laggards

23 TALC and How Technology Markets Evolve Chasm –A break in the sales growth curve for a new technology. –A chasm occurs between visionaries and pragmatists. Tornado –The chaos that occurs during a period of rapid growth. –A dominant supplier usually emerges from a tornado.

24 Using the Technology Adoption Life Cycle The vendor of an innovation passes through technophiles and visionaries before establishing a foothold among pragmatists. Crossing the chasm (called the “market development gap”) between visionaries and pragmatists is related to a change in the entire marketing mix. –There are changes in type of customer and what the customers perceives as being of value.

25 Using the Technology Adoption Life Cycle Tornado –Corresponds to the late introduction/early growth stage of the PLC –The market wants to support the market leader – it reduces uncertainty for pragmatists. –The market leader has the chance to become the “gorilla” – the gorilla can do what it wants as long as it stays close to what pragmatists desire.

26 Introduction E-business tools facilitate information flow both the ways, connect the customer, automate transactions, offer a communication medium, develop catalogs, and integrate the back office into the supply chain. CRM tools automate an information-rich environment.

27 Defining CRM for distribution Distribution knowledge is divided into explicit and tacit forms. Explicit knowledge is information that can be explained in structured form and can, therefore, be programmed Tacit knowledge, on the other hand, is inconsistent, fuzzier to explain, and poorly understood E-Business focuses on the automation of explicit knowledge.

28 Defining CRM for distribution The purpose of data mining and customer profiling is to simplify the complexities of customer knowledge and behavior. Data mining is the process of examining data to determine the existence of relationships that are not immediately apparent.

29 Defining CRM for distribution The Boundaries of Knowledge

30 Hardware Needs Connection has been made easy with Wide spread availability of high-speed networks provided by Internet Service Providers (ISP’s). The threat of virus is a serious threat with a significant impact. Overwhelming costs of catalog development, hardware and software are the problems of connectivity through web to suppliers and customers.

31 Hardware Needs The intention to employ a mainframe-based system or a client/server environment by a frame dictates the required hardware. Experiences of the past are the most common determining factors. Capacity is an important issue. Selection of a CRM software for employment is a difficult task.

32 Software Needs Customer data is collected on a regular basis by all firms. Anticipation of customer needs is categorized into prediction with and with out historical information respectively. Forecasting consists of data collection, mathematical (historical) forecasting, and expert forecasting.

33 Software Needs ERP and Bolt-Ons

34 Anticipating and Meeting Customer Needs Data collection activity is the base of forecasting. Solutions to customer data problems typically combine strategic alliances with software/hardware solutions. Information batching means blocks of information are gathered to be acted upon at differing time intervals rather than instantaneously. The periods are a function of the mode of execution of customer’s orders.

35 Anticipating and Meeting Customer Needs Forecasting software is available as embedded in ERP software or as an bolt on. ERP forecasting uses the data it gathers from the system data bases in the forecasting process. Standard forecasting methodologies employed by many ERP systems are statistical forecasting and simulation.

36 Anticipating and Meeting Customer Needs Bolt-ons are comparable to specialists in any field. A feature offered by certain forecasting bolt-ons is inventory decision-making capability. Software decisions also deal with cost minimization.

37 Anticipating and Meeting Customer Needs Transportation management is a critical aspect for distribution. A popular option in recent years has been to outsource transportation decisions. Application service provider’s (ASPs) are also involved in the transportation activity. Profitability analysis software employs Activity Based Management (ABM) techniques to identify the value provided by an action.

38 Anticipating and Meeting Customer Needs Facility location software can be used to analyze the functioning of a distribution network. Warehouse management systems (WMS) govern the activity for inventory storage. Database marketing includes data mining and the storage of useful data for mining.

39 Catalog Development Catalog development in 1990s born out of the expectation of the distributors to maintain their own catalogs. Lackluster performance and development costs have retarded their popularity.

40 Back Office Integration Back office integration refers to the tools that connect the distributor’s or the manufacturer’s system to its channel partners. The other option was enterprise application integration (EAI) that took disparate systems and acted as a translator for the two to communicate. The dot.coms adopted EAI and professional associations drove standards development to encourage easier data exchange and development of EAI software