Strategies

Nature of Business Marketing

Business Marketing = Industrial Marketing = B2B Marketing = Organizational Marketing

= Marketing of products & services to business organizations

• Manufacturing companies
• Government undertakings
• Private sector organizations
• Educational institutions
• Hospitals
• Distributors / Dealers

Business Marketing = Marketing of products & services to satisfy objectives (production of other goods/services, making profits, reducing costs, etc.)

Consumer marketing = Marketing of products & services to individuals for personal consumption

Derived Demand = Demand for industrial goods is derived from the demand for consumer goods (ex: demand for new homes -> demand for furniture -> demand for wood)

Joint Demand = Demand for industrial goods is joint with the demand for consumer goods (ex: demand for pen -> demand for ink)

Cross-Elasticity demand = Demand is 'elastic' if the percentage change in quantity demanded is more than percentage change in price. (ex: if the price of tea increases, the price of coffee will increase) = responsiveness of the sales of one product to a price change in another product

Purchasing Orientations of Industrial Customers

Buying Orientation (narrow & short-term focus)

• Lowest price: lowest price supplier, quality & availability are qualifying factors, negotiation style: "I win-you lose"
• Gain power: commoditization -> no competitive advantage (price is the only thing to be negotiated), multisourcing (buying from multiple suppliers) (SHARE OF WALLET)
• RIsk: avoid risk by not buying from new suppliers. Depend on suppliers who have proven their performance earlier.

Procurement Orientation (strategic focus & proative, quality improvement + cost reduction)

• Collaborative relationship: results in quality improvements & cost reduction, JIT delivery scheduling & quality asurance, integrative negotiation style: "win-win"
• Working closely with other functional areas: buyers are involved in describing specifications ensuring quality & availability

Supply Chain Management Orientation (improve value chain from raw-materials to end users)

(3Cs: Communication, Coordination, Cooperation)

• Deliver value to end users: market research to understand end users needs, requiremenets
• Outsource non-core activities: outsource systems or sub-systems that have become competitive, non-strategic, involve mature technology and have qualified suppliers
• Support collaborative relationships with major supplies: requires cooperation, communication, trust & commitment, lower total cost and/or increase value

Purchasing Practices of Industrial Customers

Purchasing in Commercial enterprise

• evolves persons from departments (production, material, quality, finance, etc)

• use material planning, supplier rating, EOQ

• in-house technical exportise when required

• Economic Order Quantity(EOQ) = idea quantity of units to order to minimize total costs while meet demand

Process

1. Identifying potential suppliers
2. Negotiation & Selecting suppliers
3. Ensuring right quality & quantity at right time
4. Long-term business relationship

• Many organisations have separated purchasing (material or purchase function) from manufacturating to form a distinct functional area

Pruchasing in Government Units

• Get name of the company registered with government units
• Registration involves submission of duly filled standard form, product leaflets & company details certified by a chartered accountant
• Some government units depute their inspectors to inspect company's manufacturing before approving registration
• Tender notices are advertised in national newspapers (suppliers procude tender fees)

Institutional Purchasing & Purchasing in Cooperative Societies

• Instituational buyers are either the government or the private organizations
• Normally follows the government purchase procedure
• Industrial marketer should stufy the pruchasing practices of each instituational buyer

Purchasing in Reseller's Market

• consists of industrial dealers/distributors whose main goals are profits & sales volume
• Select suppliers not only on product quality but also on policies of the supplier's product
• Policies can affect competitiveness:
• • sharing local advertising cost
• • Providing product leaflets or display materials
• • Competitive prices & trade discounts
• • Flexible payment terms with credit facility
• reseller & supplier has to work harmoniously to beat the competition

Environmental Analysis

• Ecological & Physical (air, water, power, skilled labor, etc)
• Internal (company location, R&D facilities, production facilities, HR, financial resources, marketing effectiveness) -> Strength and Weaknesses Analysis
• External -> Opportunity & Threat Analysis
• • Micro: Customers & Competitors, Suppliers (affects a particular firm)
• • Macro: Political, Economic, Social, Technological, Legal, Environmental (affects all firms)

Strategies

• Effective use of 4Ps are not adequate for the survival & success in dynamic environment
• First Step = continuous gathering & monitoring of information
• • Collecting information on customers & competitors
• • ANalyzing trade & government publications
• • Market research & economic forecasting

IN order to:

• understand changes in customer needs
• monitor competitor's actions and strategies
• identify technological innovations
• consider changes taking place in government, political & legal factors
• identify changes in demand of major customers & total market
• consider changes in any relevant environmental factors

Independant strategies

independant efforts of industrial firm by using its own resources (or strengths)

• pricing strategy based on competitors pricing
• product superiority through product development
• carry environment protection measure & creates awareness through corporate image advertising
• if product is not performing well, company might demarket/withdraw the product in that geographic region

Cooperative strategies

an industrial firm cooperates with other firms, industries, or groups

• Confederation of Indian Industries (CII) -> protect the Indian industries from unfair political or legal regulations of the government

Types of strategies

Integration Strategies

The strategy depends on the goals we want to achieve

Vertical Integration

• Vertical integration: owns its upstream suppliers & downstream buyers

Backward Integration

• Controls subsidiaries (suppliers) that provide inputs to the firm's production process -> to create a stable supply of inputs and ensure a consistent quality

Advantages:

• Suppliers can be expensive, unreliable
• Number of suppliers can be small and number of competitors can be large
• When organization wants to compete in an industry that is growing rapidly
• When organization has both capital and human resources to manage the new business
• When the advantages of stable prices are particularly important
• When supplies have high profit margins, which proves that the supplying products is worthwile
• The organization needs to quickly acquire the needed products

Forward Integration

• Controls distribution centers and retailers

ADvantages:

• When distributors are expensive or unreliable
• When availability of quality disributors is limited, that it offers a competitive advantage to integrate forward
• When organization competes in an industry that is growing and is expected to continue to grow markedly

Horizontal Integration

• Seeking ownership of or increased control over firm's competitors

• Growth strategy

• Mergers, acquisitions, takeovers, joint-ventures to enhance transfer of resources and competencies

• Expansion into additional business activites that are within the same level of the value chain

Guidelines:

• When organization can gain monopolistic advantages without being challenged by government
• When organization competes in a growing industry
• When increased economies of scale provide major competitive advantages
• When an organization has the capital and human resources to manage the epanded organization
• When competitors are faltering due to a lack of managerial expertise or a need for a particular resources that an organization possesses

Intesive Strategies

• Srategies

Market Penetration

• increase market share for present products through greater marketing efforts
• increase sales of present products in present markets through greater marketing efforts
• increase numbemr of salespersons, increase advertising, increase sales promotion, increase publicity, increase distribution

Guidelines:

• when current markets are not saturated
• when usage rate of present customers could be increased
• when market shares of major competitors are declining while total industry sales are increasing
• when correlation between doalr sales and dollar marketing expenditures has been high
• when increased economies of scale provide a major competitive advantages

Market Development

• involes introducing present products or services into new geographic areas

Guidelines:

• Channels of distributions are available, reliable, inexpensive and good quality
• when organization is very successful at what it does
• when new untapped or unsaturated markets exist
• when an organization has the capital and human resources to manage the expanded operations
• when an organization has excess production capacity
• when an organization's basic industry is rapidly becoming global in scope

Product Development

Guidelines:

• When organization has successful products that are in the maturity stage
• When organization competes in industry that is characterized by rapid technological developments
• When major competitors offer better-quality products at comparable prices
• When an organization competes in a high-growth industry
• When organization has especially strong research and development capabilities

Diversification

Related

• Less risk of being in a single industry

• More difficult to manage

• when value chains posses competitively valuable cross-business strategic fit

• process that takes place when a business expands its activites into product lines that are similar to those it currently offers

• through acquisition of competitors, or through internal development

• when an organization competes in a no-growth or slow-growth industry

• when adding new, but related products would significantly enhance the sales of current products

• when new, but related products have seasonal sales levels that counterbalance

• when products are currently in the declining stage of the product lifecycle

• when organization has strong management team

Unrelated

• favoris capitalizaing on a portfolio that are capable of delivering excellent financial performance in their respective industries
• when business adds new or unrelated product lines and penetrates new markets

Guidelines:

• when revenues derived from currrent produces would increase signiicantly by adding new, unrelated products
• competes in a highly competitive and/or no-growth indsutry
• channels of distribution can be used to market the new products
• new products have countercyclical sales patterns compared to present products (seasonality)
• basinc industry is declining
• organization has capital and human resources to manage the new industry
• opportunity to purchase an

Defensive strategies

• Used to reduce the risk of loss

Retrenchment

• turnaround or reorganizational strategy
• regroups through cost and asset reduction to reverse declining sales
• entail selling off land, buildings, pruning product lines, closing marginal businesses, closing obsolete factories, downsizing

Guidelines:

• when organization has clearly distinctive competencies but has faied to meet its objectives and goals
• when organization is one of the weaker competitors
• when organization is plagued by inefficiency, low profitability, poor employee morale and pressure from stockholders

Divestiture

• Selling a division or part of an organization
• Often is used to raise capital
• can be part of an overall retrenchment strategy

Guidelines:

• pursued retrenchment
• dividion needs more resources
• dividion is a misfit with the rest of the organization
• when large amount of cash is needed to quickly
• when government antistrust action threatens the organization

Liquidation

Topic 1: Purchasing Orientations of Industrial Customers Topic 2: Buying Situations Topic 3: Strategies for Maanaging Industrial Environment

1. Brief description of company (name, makret, product portfolio)
2. Company's objectives/goals
3. Select topic n1 and give 2 examples
4. Select topic n2 and give 2 examples
5. Select the most appropriate strategy (topic n3) to achieve the company's goals