1. 1 2002 Edition Vitale and Giglierano Chapter 1 Introduction to Business-to-Business Marketing Prepared by John T. Drea, Western Illinois University

2. 2 The Marketing Mix: The “4 P’s” of Marketing ProductPrice Promotion Place The Marketing Mix

3. 3 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.

4. 4 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).

5. 5 Marketing Mix: Place Place is about getting the product to the customer in order to maximize economic utility. Economic Utility Form Utility (having the product in the right size package, quantity, etc.) 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)

6. 6 Marketing Mix: Promotion 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 long- lasting. Business-to-business marketing requires a different emphasis on different parts of the promotional mix

7. 7 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.”

8. 8 3. Meet customer needs in a way that provides value to the customer 3. Meet customer needs in a way that provides value to the customer 4. Meet organizational goals 2. Understand customer needs 1. Be contextually market sensitive 1. Be contextually market sensitive For a business-to-business organization to successfully practice the marketing concept, it should: The Marketing Concept

9. 9 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-to- business demand tends to be Inelastic (short-run)Volatile (leveraged) Discontinuous

10. 10 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 over- compensate the difference between the old and new forecasts, because… A.Inventory levels can decline to fit new order rate, B.Customers change orders frequently, C.Minimum order quantities may exist, and/or D.Trade promotions may influence buying patterns (discontinuities of B2B demand add to the bullwhip effect)

11. 11 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. The industry capacity increases in a discontinuous manner. 4. Industry capacity increases in large increments.

12. 12 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).

13. 13 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 Increases the complexity of business-to-business marketing

14. 14 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. Direct activities contribute directly to the offering. Support activities makes it possible to perform the direct activities. Support activities makes it possible to perform the direct activities.

15. 15 The Value Chain and Offering Added value Infrastructure Human resources Procurement Technology & technology development Support activities Margin through value Direct activities Customer service Marketing & sales Outbound logistics Operations Inbound logistics Offering: Product Service Image Availability Quantity Evaluated Price Target Customers Creates Perceives Margin through value

16. 16 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 suppliers.

17. 17 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.