2. Products and Services for Businesses Chapter 13 McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. PowerPoint presentation prepared by: Professor Rajiv Mehta Associate Professor of Marketing New Jersey Institute of Technology Newark, N.J.

3. Chapter Learning Objectives 1. The importance of derived demand in industrial markets 2. How demand is affected by technology 3. Characteristics of an industrial product

4. Chapter Learning Objectives 4. The importance of ISO 9000 certification 5. The growth of business services and nuances of their marketing 6. The importance of trade shows in promoting industrial goods 7. The importance of relationship marketing for industrial products and services

5. Introduction 1.Industrial products sold in business-to-business markets also constitute a large part of global marketing 2.The inherent nature of industrial goods makes marketing mix standardization more common 3.For industrial products that are custom made (specialized steel, customized machine tools), adaptation takes place for domestic as well as foreign markets 4.Industrial products and services are used in the process of creating other goods and services; consumer goods are in their final form and are consumed by individuals 5.The motive differs: Industrial consumers are seeking profit, whereas the ultimate consumer is seeking satisfaction 6.Although prevalent for industrial goods, protectionism can be much more pronounced for the service provider

7. Demand in Global Business-to-Business Markets 1.Demand in industrial markets is by nature more volatile 2.Stages of industrial and economic development (discussed in Chapter 9) affect demand for industrial products 3.The level of technology of products and services makes their sale more appropriate for some countries than others Three factors seem to affect the demand in international industrial markets differently than in consumer markets

8. The volatility of Industrial Demand Firms expands internationally because: –They want to expand –Increase PLC –Grow Sales and Profit etc. –Business-to-business have one additional reason to dampen the volatility of demand. –“A given percentage increase in consumer demand can lead to a much larger percentage increase in the demand for plant and equipment necessary to produce additional output, (Kotler, 1983, p. 167)

9. The volatility of Industrial Demand Steep increases in demand often mean shortages in materials, production capacity and labor. Sharp decrease in demand which are frequently the cause of production worker and management layoff and shock to profits and earnings

10. The volatility of Industrial Demand Strategies to manage volatility: –Maintaining broad product lines –Raising prices faster –During business booms companies can reduce advertising cost –Focus more on increasing stability than market share

11. Second: Stages of Economic Development The First Stage of Development: The Traditional Society Economic Development Industry Characteristics Industrial Demand Preindustrial or Precommercial Stage No Manufacturing Economy widely based on exploitation of raw materials and agricultural products Limited range of products Simple production of country’s resources Industrial manufacturing machinery and equipment for the production of simple resources

12. The Second Stage of Development: Preconditions for Take-off Economic Development Industry Characteristics Industrial Demand Development of Primary manufacturing Eg: South Africa Partial processing of raw materials and resources Machinery and other industrial goods necessary for processing raw materials prior to exporting South Africa has a demand for telecommunication, construction equipment, telecommunication equipment, mining equipment, processing facilities, power generators, technical expertise and traning etc.

13. The third Stage of Development: Take-off Economic Development Industry Characteristics Industrial Demand Growth of manufacturing facilities for non-durable and semi-durable consumer goods. Example: eastern European countries like Romania, Ukraine etc. Industries are small Local manufacturers of consumer goods Demand extends to entire factories and supplies necessary to support manufacturing

14. The Fourth Stage of Development: Drive to Maturity Economic Development Industry Characteristics Industrial Demand Well-industrialized economy Example: Parts of Eastern European countries like Poland, Hungary, Czech Republic. NIC countries and Four Tigers Production of capital goods as well as consumer goods such as automobiles, refrigerators, machinery etc. Demand extends to entire factories and supplies necessary to support manufacturing, also technical expertise and training for specialization is required

15. The Fifth Stage of Development: Age of Mass Consumption Economic Development Industry Characteristics Industrial Demand Complete industrialization Japan, US, Germany Generally indicates world leadership in the production of a large variety of goods Competes worldwide Almost all capital goods machineries and equipment s are produced in-house Latest technology Demand for telecommunication equipment, computer chips, electronic testing equipments, scientific controlling and measurement, equipment. Etc.

16. Third : Technology and Market Demand Level of technology and education has a relation in helping economies to prosper Japan drove economic growth in South Asian region

17. Technology and Market Demand Three interrelated trends spur demand for technologically advanced products: Expanding economic and industrial growth in Asia The disintegration of soviet empire The privatization of government-owned industries worldwide

18. The companies with the competitive edge will be those whose products are technologically advanced, of the highest quality, and accompanied by world – class service Technology and Market Demand

19. Quality and Global Standards 1.Quality is important with industrial products as well 2.Quality is defined by the buyer 3.One important dimension of quality is how well a product meets the specific needs of the buyer 4.This price–quality relationship is an important factor in marketing industrial products 5.Total quality management must be a part of all MNCs’ management strategy 6.A lack of universal standards is another problem in international sales of industrial products 7.Conflicting standards are encountered in test methods for materials and equipment, quality control systems, and machine specifications

20. ISO 9000 Certification: An International Standard of Quality 1.ISO 9000s, a series of five international industrial standards (ISO 9000–9004) originally designed by the International Organization for Standardization in Geneva to meet the need for product quality assurances in purchasing agreements 2.ISO 9000 concerns the registration and certification of a manufacturer’s quality system 3.It is a certification of the existence of a quality control system a company has in place to ensure it can meet published quality standards 4.ISO 9000 standards do not apply to specific products 5.It is a certification of the production process only, and does not guarantee that a manufacturer produces a “quality” product or service.

21. Installation Training Spare and replacement parts –Delivery time –Cost of parts Service personnel Almost always more profitable than the actual sale of the machinery or product Crucial in building strong customer loyalty Roy Philip21 After-Sale Services

22. Business Services For many industrial products after-sales service is also important For many industrial products, e.g., cell phones, the revenues from associated services exceed the revenues from the products Customer training is rapidly becoming a major after-sales service when selling technical products in countries that demand the latest technology but do not always have trained personnel After-sales services are crucial in building strong customer loyalty and are also almost always more profitable than the actual sale of the machinery or product

24. Trade Shows: A Crucial Part of Business-to-Business Marketing Trade shows serve as the most important vehicles for selling products, reaching prospective customers, contacting and evaluating potential agents and distributors, and marketing in most countries Trade shows serve a much more important role in other countries where most prospects are found European trade shows attract high-level decision makers who are there to buy products Trade shows provide the facilities for a manufacturer to exhibit and demonstrate products to potential users and to view competitors’ products Trade shows create an opportunity to create sales and establish relationships with agents, distributors, franchisees, and suppliers that can lead to more- permanent distribution channels in foreign markets

25. Scenes from the 50th Paris Air Show

27. Relationship Marketing in Business-to-Business Contexts Building long-term relationships with customers is a viable strategy for business-to-business marketing The objective of relationship marketing is to make the relationship an important attribute of the transaction, thus differentiating oneself from competitor It shifts the focus away from price to service and long-term benefits The reward is loyal customers that translate into substantial long-term profits Focusing on long-term relationship building will be especially important in most international markets where culture dictates stronger ties between people and companies