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
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evolves persons from departments (production, material, quality, finance, etc)
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use material planning, supplier rating, EOQ
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in-house technical exportise when required
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Economic Order Quantity(EOQ) = idea quantity of units to order to minimize total costs while meet demand
Process
- Identifying potential suppliers
- Negotiation & Selecting suppliers
- Ensuring right quality & quantity at right time
- 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:
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- sharing local advertising cost
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- Providing product leaflets or display materials
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- Competitive prices & trade discounts
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- 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
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- Micro: Customers & Competitors, Suppliers (affects a particular firm)
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- 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
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- Collecting information on customers & competitors
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- ANalyzing trade & government publications
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- 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
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Seeking ownership of or increased control over firm's competitors
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Growth strategy
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Mergers, acquisitions, takeovers, joint-ventures to enhance transfer of resources and competencies
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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
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Less risk of being in a single industry
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More difficult to manage
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when value chains posses competitively valuable cross-business strategic fit
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process that takes place when a business expands its activites into product lines that are similar to those it currently offers
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through acquisition of competitors, or through internal development
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when an organization competes in a no-growth or slow-growth industry
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when adding new, but related products would significantly enhance the sales of current products
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when new, but related products have seasonal sales levels that counterbalance
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when products are currently in the declining stage of the product lifecycle
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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
- Brief description of company (name, makret, product portfolio)
- Company's objectives/goals
- Select topic n1 and give 2 examples
- Select topic n2 and give 2 examples
- Select the most appropriate strategy (topic n3) to achieve the company's goals
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