Understanding Business Markets and The Environment

CHAPTER 2
UNDERSTANDING BUSINESS MARKETS AND THE ENVIRONMENT

CLASSIFICATION OF BUSINESS CUSTOMERS
Commercial enterprises
• Industrial distributors/dealers
• Original equipment manufacturers (OEMs)
• Users
Government customers (Central/State/PSUs)
Institutional customers
(Hospitals, schools, colleges, universities, military canteens and prisons)
Cooperative societies
Classifying Goods for the Business Market
Raw materials Capital Items
Become part Used to

of another manufacture
product other products
Classify industrial goods by asking the following:

How does the good or service enter the Supplies and
production process? Services
How does it enter the cost structure of the firm? Aid in the normal
operations of
anfrom
Source: Adapted organization
Philip
Kotler, Marketing Management:
Analysis, Planning, and Control,
4th ed. (Englewood Cliffs, N.J.:
Prentice-Hall, 1980), p. 172,
with permission of Prentice-
Hall, Inc.
DETERMINE THE TYPE OF PRODUCT FOR EACH ITEM IN THE TABLE. SUPPORT
YOUR ANSWERS BY SPECIFYING USAGE PURPOSE AND INTENDED CUSTOMER
PRODUCT TYPE OF B2B B2B

B2B USAGE INTENDED
PRODUCT PURPOSE CONSUMER
3M SAND PAPER
CHAMPION SPARK
PLUG
COCA-COLA
CARBONATED
BEVERAGE
DELL LAPTOP
COMPUTER
GE FLUORESCENT
LIGHT FIXTURE
KRUPS ESPRESSO
MACHINE
SIGNIFICANCE OF GOODS CLASSIFICATION
SYSTEM IN FRAMING MARKETING STRATEGY
Type of Industrial Product Challenge for B2B Sellers Suggested Actions
Materials and Parts • Locating and accurately defining the • Strong supply chain capabilities
unique needs of B2B Customers; • Personal Selling and Customer
• Uncover key buying influentials relationship activities
Installations • High unit value/ Understanding the • Direct Manufacturer-to- user channel/
impact of installations on buyers’ Personal Selling/ Account
scale of operations Management
• Identifying buying motivators like • Strong CRM
economic factors/ emotional factors • Initial price, distribution and
etc. advertising play lesser roles
Supplies • Low unit value/ Low differentiation • Catalog listing; advertising, word of
• Prospective customers from many mouth, and personal selling (to a
different industries lesser extent)
• Right product assortment/timely and
reliable deliveries/ customized
services
MARKETING ORIENTATION & RELATIONSHIP EMPHASIS
A marketing-oriented firm determines what customers want and marshals all its resources to meet customers’ needs.
Market-driven firms demonstrate
1. A set of values and beliefs that places customers’ interests first
2. An ability to generate, disseminate, and productively use superior information about customers and competitors
3. The coordinated use of interfunctional resources (e.g., research and development, manufacturing)
They Deliver Value Propositions and create programs that include products, services, ideas and solutions to problems that
offer value and provide opportunities for their customers
• Relationship Emphasis : Focus should be on forging enduring relationships with the existing customers to retain them.
All marketing activities directed toward establishing, developing, and maintaining successful exchanges with customers
PURCHASING ORIENTATIONS OF BUSINESS CUSTOMERS
Three purchasing orientations

• Buying`
• Procurement
• Supply chain management
Buying firm’s purchasing efforts /decisions are guided by one of the above purchasing
orientations.
THREE PURCHASING ORIENTATIONS
BUYING ORIENTATION
Lowest Price (I win-you lose strategy ) Commoditization Trap

Gaining Power through commoditization and multi-sourcing (ensuring that no single
supplier can dominate the rest ).
Risk Aversion
• Playing safe by sticking to established procedures and
• Sticking to suppliers with proven track record.
PROCUREMENT ORIENTATION
Strategic(long-term) focus and proactive

• Collaborative Relationship with Major Suppliers for
Seeking solutions to meet common goals and interests.
• Working closely with other functional areas to ensure that

Goods and Services of required quality and quantity arrive on time.
SUPPLY CHAIN MANAGEMENT ORIENTATION
• Scope of purchasing is expanded to make it more strategic and value-added.

• Purchasing function integrates not only with other functions within the company but
also with other organizations in the whole value chain.
• The company with supply chain management orientation focuses on how to improve
the entire value chain from raw materials to end users.
• Three cardinal philosophies : (a) deliver value to end users (b) outsource noncore
activities ,and (c) support collaborative relationships with major suppliers.
STRATEGIES TO AVOID COMMODITIZATION
TRAP
Differentiate by
• Offering supplementary services like supplying ready to use materials (For
example supply of steel tubes in cut-to-length condition).
• Enhancing the product range
• Supplying just in time
PURCHASING PRACTICES IN COMMERCIAL
ENTERPRISES
Involvement of various departments
Major tasks performed:

• Identify, negotiate, select suppliers
• Ensure purchase objectives and efficiency are achieved
• Maintain good relationship with suppliers
• Establish procedures and documentation
E-PROCUREMENT
• Objective: To seek the best value from better and fewer suppliers.
• Advantages: Reduce material & administrative costs ; minimize purchasing cycle time ;
improve ability to identify new suppliers on a global scale.
• E-markets: offer online auctions, catalogues and bulletin boards to participants.
• Forward/English auction: One seller offers an item to many buyers. Sold to the highest
bidder.
• Reverse/Dutch auction: One buyer invites many suppliers to bid. Lowest bidder gets the order.
PURCHASING IN GOVERNMENT
ORGANIZATIONS

Established Purchase Procedure

Purchasing through Competitive Bidding/ Tenders
•Closed/sealed tenders
•Open/limited tenders

Other Government contracts

DGS & D contracts
PURCHASING IN INSTITUTIONS AND
COOPERATIVE SOCIETIES
• Government institutes follow their set process.

• Private sector institutes often follow a process similar to commercial
enterprises.
• Each major customer’s purchase process to be studied in detail
for better understanding.
PURCHASING IN RESELLERS MARKET
Objective: To maximize profit and sales volume

Dealings could be exclusive or with many competing firms
 Supplier related policies impacting the reseller-supplier relationships are :
 Sharing of local advertising cost
 Providing Point of Purchase(POP) display materials
 Competitive prices and trade discounts
 Flexible payment terms and credit facility
ENVIRONMENTAL ANALYSIS
Strength and
Weakness Analysis
Opportunities and Threats

Analysis
INTERNAL ENVIRONMENT
• Marketing
• Finance
• R&D
• Manufacturing,
• Organization structure,
• Human resources
EXTERNAL ENVIRONMENT
MICRO ENVIRONMENT
 Customers , competitors , suppliers
MACROENVIRONMENT
 Economic ,Demographic
 Natural, Technological
 Government, Political, Legal
 Cultural and Social
 Public
STRATEGIES FOR MANAGING EXTERNAL
ENVIRONMENT
Constant scanning/monitoring of environment to identify emerging threats and opportunities
Adopt one of the following strategies
o Independent strategies : Using own strengths/resources.

o Cooperative strategies:Join with other firms, or groups in the environment to
put in organized efforts to mitigate the issues affecting the industry as a whole.
o Strategic planning : Diversifying through forward ,backward or horizontal integration; going globa.l
End of PPt

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CHAPTER 2

UNDERSTANDING BUSINESS MARKETS AND THE ENVIRONMENT

Raw materials Capital Items

Become part Used to

Classify industrial goods by asking the following:

PRODUCT TYPE OF B2B B2B

Three purchasing orientations

Lowest Price (I win-you lose strategy ) Commoditization Trap

Strategic(long-term) focus and proactive

• Working closely with other functional areas to ensure that

• Scope of purchasing is expanded to make it more strategic and value-added.

Major tasks performed:

• Government institutes follow their set process.

Objective: To maximize profit and sales volume

Opportunities and Threats

Constant scanning/monitoring of environment to identify emerging threats and opportunities

Adopt one of the following strategies

o Independent strategies : Using own strengths/resources.

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