1. Business-to-Business Marketing
Haas School of Business
UC Berkeley
Fall 2008
Zsolt Katona

2. Agenda today Review of course structure
Needs and decisions in B2B markets
Introduction to INDUSTRAT

3. Course objectives To learn
how general marketing concepts apply to (differ in) the industrial business context
some new concepts
To experience a realistic industrial marketing environment
complex daily decisions but need for long-term strategic thinking
typical B2B setting
interacting teams
time pressure

4. Assignments Simulation related (group work): Class participation
After third decision, write-up a strategic plan
corporate goals (mission statement)
how to achieve these goals
Final presentation (more details later)
in view of the planed strategy...
Industry / Firm analyses
~15 minutes
Class participation

5. Evaluation Group work/simulation results 50% Final presentation 20%
Participation 30%

6. Introduction to B2B marketing
Definition: B-to-B marketing is
marketing to organizations,
marketing products that will be used to create other products.

7. Some distinctions fewer customers
fewer transactions with higher $ value
marketing is more a general management function
high degree of functional interdependence
higher degree of product complexity
derived demand (!)

8. Key distinctions
Higher importance of Process and Relationship benefits compared to Functional benefits.
High degree of buyer-seller interdependence (strategic relationships)
Materials management
JIT
MIS systems…
Complex buying decision process
longer
more people involved (DMU)
more “structured” (DMP)

9. Three types of benefits
Functional benefits
technical specifications
quality
Relationship benefits
trust
flexibility
customization
Process benefits
cost of transport
reliability of supply
MIS, materials management

10. Consumers’ Purchase Decisions
Low Involvement Products
Model: Know → Do → (Feel)
No evaluation of alternatives: confirmation
Choice heuristic: ‘Buy the Familiar’; ‘Buy the Cheapest’
Utilitarian
Products
Model: Know → Feel → Do
Rational evaluation of alternatives: trade offs
Choice heuristic: ‘Buy the Best’
Model: Feel → Do → (Know)
Emotional evaluation: feeligs
Choice heuristic: ‘Buy What I Like’
Hedonic/Ego-Expressive Products

11. Prototypical DMP for a utilitarian product (consumer goods)
Mkt. potential
Aware
Know benefits
Consider
Prefer
Try
Marketing weapons
Also called:
- AIDA
- Hierarchy of effects

12. Prototypical DMP steps for an industrial good
Need recognition
Product definition and specification
Development of procurement strategy
make or buy?
formation of buying center!
design sourcing system
Search/qualification of potential sources
simultaneous vs. sequential evaluation
RFPs: open/closed bids, existing vendors
Selection of suppliers - final negotiations
Design of an order routine (contract)
Order
Performance feedback and evaluation

13. Example: Brake Pads 90% 80% 40% 10% 10% 5% 4% Weapons: DMP steps:
Pass rate:
Trade shows
Trade Publications
Brochures
Promotion expense
Material scientists
Development engineers
Production engineering
Price, delivery service
Aware of company
90%
Aware of product line
80%
Short-listed for bid
40%
D-spec check
10%
b-check
10%
pre-production check 5%
primary
supplier
secondary
supplier 4%

14. Example: OAG OAG – Official Airline Guide
Publishing public flight information
~100k customers
Monthly subscription: $20
80% gross contribution
Family business
In 1982 AMEX decides to enter the corporate travel business and becomes interested in OAG.
What should OAG do?
Should it sell?
What negotiation power does it have against AMEX?

15. The O.A.G. Funnel
Problem: Mgr. stuck in Chicago at 2:00 am. He is pissed !!
Mgr. complains to Secretary 
Sec. complains to Travel Agent 
Travel Agent recommends OAG
Sec. orders OAG
Sec. receives OAG + invoice
Mgr. uses the Guide ☺
Map?
Inv. goes to finance
Mgr. thanks Sec. ☺☺
Inv. to accts payables
Bob pays !!
Sec. gets renewal invoice

16. Funnel Analysis
The DMP often has important strategic implications in B2B markets.
Never use/accept the ‘standard’ DMP.
Use Funnel Analysis, a simple qualitative method to uncover the DMU/DMP in an organization.
Method: interviews, focus groups
Main uses:
Diagnose bottle necks
Forecast sales
Targeting: optimize sales strategy

17. Implication: Communication strategy
Personnel selling is rated by industrial marketers more than twice as effective as other communications media
90% of sales budget is personnel selling
But…
Bain and Co.

20. Jean-Claude Larréché & David Weinstein
INDUSTRAT
The Strategic
Industrial Marketing
Simulation
Jean-Claude Larréché & David Weinstein

21. Objectives of INDUSTRAT
Review of strategic concepts
Application in an industrial
marketing context
Focus on prime industrial
marketing issues

22. INDUSTRAT Features Long term perspective Marketing as a profit center
Strategic Marketing
Long term perspective
Marketing as a profit center
Marketing strategy based on segmentation, positioning and portfolio approach
Marketing mix decisions secondary to strategic decisions
Competitive environment

23. The Pedagogical Approach
A Simulated Environment

24. The Economic Environment
Population: 250 million

25. Korex Products Strategic Product Attributes
Resistance: Ohms (W)
Suspension: Micro-seconds (Msc)
Frequency: Kilo-hertz (KHz)
Density: Micro-grams per mm3 (MGC)
Non Strategic Product Attributes, e.g
Liquid
Powder
Fiber
Solid

26. Lomex Products Strategic Attributes Convexity: Degrees (De)
Conductivity: Micro-Seconds (MSc)
Purity: Percent (%)
Maximum Energy: Micro Watts (MW)

27. The “Competition”

28. INDUSTRAT’s Competitors
KARR
KERR
Firm 1
Firm 2
KIRR
Firm 3
Firm 5
KORR
Firm 4
KURR

29. The Economic Environment
WEST
CENTRAL
EAST

30. Account Size
Small
Medium
Large

31. End-Product Applications
Communication
Instrumentation
Consumer Goods

32. Korex Market Macro segmentation Communication Instrumentation
Consumer goods
large
medium
east
small
central
west

33. The Adoption Process Testing Awareness Supplementary Supplier
KARR
Supplementary Supplier
Major Supplier

34. Purchasing Process Dynamics

35. Korex Market Micro-segmentation
General Manager
Production
Engineering
Purchasing

36. Dynamics of the Purchasing Process
Awareness
Testing
Supplementary
Major
General
100%
Production
Purchasing
Engineering 0%

37. ? Market growth Competition Technology Economic environment
Industry Dynamics
Market growth
Competition
Technology
Economic
environment
Korex ?
Lomex
No new competitors
Introduction of Lomex
Collaboration
No further scientific innovation expected
Four Korex technologies
One Lomex technology
Growing GNP
Inflation
Antitrust intervention

38. Direct Selling and Distribution

39. Corporate Resource Allocation
Internal Transactions
Finance
Dept.
R&D
Dept.
Sales
Dept.
Production
Dept.
Technical
Dept.
Corporate
Marketing
Dept.
R&D
Expend-
diture
Sales force
Expenditure
Inventory
Holding
Costs
Technical
Support
Manufac.
Costs
Corporate
Communication
Expenses
Commission
Marketing
Expenditure
Budget
Net Marketing
Contribution
Marketing = Profit Center
Sales
Revenues
Advertising
Expenditure
Promotional
Expenditure
Market
Research
Licensing
Fees
Licensing
Revenues
Client
Companies
Advertising
Agency
Promotional
House
Mkt Res
Firm
Licensors
Licensees
External Transactions

40. Administrative Structure
Corporate Resource Allocation
Marketing
Expenditure
Budget
Marketing = Profit Center
Net Marketing
Contribution

41. Administrative Structure
Internal Transactions
Production
Dept.
Finance
Dept.
R&D
Dept.
Sales
Dept.
Technical
Dept.
Corporate
Marketing
Dept.
Sales force
Expenditure
Technical
Support
Inventory
Holding
Costs
Manufact.
Costs
R&D
Expend-
diture
Corporate
Communication
Expenses
Commissions
Marketing = Profit Center

42. Administrative Structure
External Transactions
Marketing = Profit Center
Sales
Revenues
Advertising
Expenditure
Promotional
Expenditure
Market
Research
Licensing
Fees
Licensing
Revenues
Client
Companies
Advertising
Agency
Promotional
House
Market
Research
Firm
Licensors
Licensees

43. Administrative Structure
External Transactions
Marketing = Profit Center
Obsolete
Inventory
Sales
Joint R&D
Funds
Loans Repayments
+ Interest
Loans
Partners
Exporters
The Bank

44. Decisions for your First Period
No market research available
No R&D allowed
No licensing allowed
Avoid radical changes
Familiarization
Gather information
Organize your team