B2B MARKETING

CONTRIBUTERS: Prof. Abhay Kardeguddi

MIT School of Business PGDM Lecture Plan Subject name: B2B Marketing Semester IV Subject code:

Session no.

Name of Topic What is B2B Marketing and Why study B2B Marketing? The Industrial Market Basics. B2C Vs B2B Markets. Industrial Products classification and its Marketing Implications. Why Businesses buy? Buyer Behavior in B2B Market: The Purchasing function. Business Marketing Communications. Contemporary Approaches to B2B Selling. The commercial sense for B2B Sales Person. KAM Key Account Management. Strategic and Marketing Planning Process. Service and CRM advantage in B2B.

Required readings Business Marketing by Krishna K. Havaldar

1.

2. 3.

4.

6.

7. 8. 9. 10. 11. 12.

Case Studies: 1. 2. Marketing@Mcdonalds. The Wallace Company. 3 Approaches to B2B Selling Transactional, Consultative and Enterprise Selling. Electric Motors India Limited. Chapman Variators Private limited. Dun and Bradstreet Inter Air Limited. Understanding SFA Sales Force Automation. Alfa and Beta. Culture of Service: General Electric.

3.

4. 5. 6. 7. 8. 9. 10.

Recommended Text Book:

Business Marketing: Text and Cases 3rd edition Krishna K. Havaldar - McGraw Hill Publication.

Recommended Ref. Books:

Business Marketing F Robert Dwyer and John F Tanner Mcgrawhill Publication.

Business to Business Marketing Daniel Michel, Peter Naude, Robert Salle and JeanPaul Valla Palgrave Macmillan Publication.

Business to Business Marketing Philip G. Duffy Vision Books publication.

Business Marketing Frank Bingham, Bryant college and Roger Gomes and Patricia A Knowles - Clemson University publication.

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Case 1

Activity: Marketing @ McDonalds

Do you eat at McDonalds, the fast food restaurant? How well do you think that McDonalds has identified, stimulated & satisfied the need of its customer? (Remember there are many people who are not McDonalds customers because it doesnt meet their needs.)

Start by making a list of what you think is McDonalds customers needs. Then make a second list of the ways in which they are satisfied. Afterwards, think about the way the company stimulates those needs or makes consumers aware that the fast-food chain can satisfy them.

Study the supply chain at Macdonalds India and develop a detailed note on the same.

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Case 2: The Wallace Company

The Wallace Companys business consists almost entirely of design, manufacture and sale of specialized equipment that is used by other companies to produce plastic products. The Wallace Company has approximately 65 customers. No single customer accounts for more than 15% of sales, but the 10 largest customers account for about 75% of total sales volume. Direct export business amounts to about 2.5% of total sales. The company maintains a research and development department designed to meet the specialized needs of the plastic industry in the development and improvement of plastics equipment. Because of the close integration of Wallace products and customers, the sales manager and one salesperson handle all sales through personal contact. The company has never done any advertising because it is the opinion of the chairman that advertising is unnecessary as the company manufacturers to order and within the specifications of customers in a highly specialized field. He believes that it is more advisable to invest in additional research and development any amount which might otherwise be set aside for advertising. At a meeting of his directors he stated: The total number of potential customers we have does not exceed 200. We are already selling to 65 of these; I believe that if we can improve some aspects of our equipment, we shall be able to get our machinery onto at least another 30 plants. As a result, I see no reason for changing the present sales policy. The success of Wallace depends upon whether or not the research and development departments can keep ahead of our competitors. The sales Manager, however, believe that the company should begin an advertising programme. His reasoning is based on an analysis of his own and the salespersons time. This analysis showed. 35% of their time was spent with customers and prospects. 58% of their time was devoted to travelling and awaiting interviews. 12% of their time was taken up with reports, office work and the like.

Deducting Saturdays, Sundays, holidays and a three week vacation period, there were 214 working days per year. On the basis of an eight hour day, the salesperson had 1,712 hours of working time per year. With 200 accounts on which to call, they were able to devote an average of only 4.5 hours with each company, twice a year. The sales manager also indicated that there was an average of four persons in each company who had to be contacted. As a result, he felt that he was not making the most effective use of his productive ability because he was devoting too much of his time to the dozen and one chores which could be more economically performed by advertising. In order to emphasize the importance of this, he broke down the sales function into six basic steps.

1. 2. 3. 4. 5. 6.

Making Contact Arousing Interest Stimulating Preference Making a specific proposal Closing the order Keeping the customer sold.

He then analyzed each step as follows. 1. Making contact: Salesperson can make a few contacts each day. Advertising can make thousands of contacts each day. 2. Arousing interest: Salesperson can arouse interest in a few prospects each day. Advertising can interest all our potential prospects. 3. Stimulating preference: Salesmen can create preference in one place at one time. Advertising can be everywhere at once creating preference. 4. Making a specific Proposal and 5. Closing the order: These are the steps that, in our business, the salesperson, and he alone, can do best. 6. Keeping the customer sold: This can be done more effectively by advertising, because key men in industry change jobs, titles and location at the rate of 50% per year, in normal times. Using advertising to do steps 1, 2, 3, and 6 will free the salespersons time from these jobs, enabling him to concentrate on steps 4 and 5. In this way, a salesperson can do a more effective job of performing the two steps for which he is best equipped. Questions Examine the business situation facing Wallace. How typical is it? Study the Machinery used in plastic products making. Develop a one page note on the same. Discuss the two points of view stated in the case. Advise the chairman on the ways in which you think he should allocate his resources between R&D, advertising, etc.

Karwak Case Studies B2B Marketing

CASE NO. 4: ELECTRIC MOTORS INDIA LIMITED

Electric Motors India Limited (EMIL) is a reputed firm manufacturing electric motors. It manufactures low tension squirrel cage induction motors in the range of 1 hp to 300 hp. Since its inception thirty years back, it operates in a highly competitive environment; there are six players in the market inclusive of EMIL, prices of all firms are at par, and the market is shared almost equally by these players.

Low tension squirrel cage induction motors are very standardized products. Frame size, type of insulation (e.g., F. B). enclosure type (e.g.. TEFC. SPDP) and standard of enclosure (e.g.. IP 55, IP 22) number of poles (e.g., 2, 4, etc.) are common to all manufacturers. That is to say, a 30 hp, 4 pole, TEFC motor of EMIL can be perfectly substituted by a motor of the same specifications of another make and vice versa. This product has a wide range of application and a much diversified customer base; it extends from agriculture, pharmaceutical, chemical, automobile and automobile ancillary to mining, food, and beverages. It has OE customers as well as retail customers. Its OE customers include turn-key plant suppliers in the fields of sugar, cement, dairy, brewery, distillery, cogeneration, power generation plants, and equipment manufacturers for pollution control, material handling, and foundry machinery, etc. The advantage of supplying to OE customers is the large volume and lower promotional expenses. The disadvantages are lower price, very high service level, heavy dependence on one buyer and accommodating requests for out-of-turn delivery or delaying a delivery, etc. The suppliers value the OE business heavily.

EMIL is doing business with Sugars India Limited (SIL), an accomplished supplier of sugar plants in India with a market share of 35% (it has only 3 competitors) since its inception thirty years back. In early nineties, Maharashtra government permitted almost 100 new sugar plants of capacity 2500 tpd (tonnes of sugar cane crushing per day) to be set up in various districts of the state. These sugar plants were to be set up by cooperative societies. Some of these cooperative societies approached SIL and signed a contract with them for the supply of sugar plants. (Other societies approached competitors of SIL for the plants.) The contract value was around Rs. 32 crores. SIL, in turn, placed its orders on its vendors for the supply of bought-out items of which electric motors was a part. EMIL received order for the supply of the electric motors for all the contracts received by SIL. As a rule of thumb, one sugar plant needs about 30-40 motors of

various horse power. EMIL was very happy with the new order book position, which, in reality, was impressive.

However, the cooperative societies could not raise the necessary amount and as a result all the projects slowed down to zero in the initial stage itself. EMIL could not supply its motors. This position continued for a period of 3-4 years. In the interim, cooperative societies did their best to raise funds so as to go ahead with the project. A few societies did manage to raise substantial amount, 4-5 of them came back to SIL and started re-negotiating the value with all other conditions of the contract absolutely unchanged. All sugar plant suppliers, including SIL were constrained to entertain their requests for a downward price revision, and ultimately, a price of Rs. 28 crores was fixed in lieu of Rs. 32 crores.

The only way for SIL to cover up or improve the margin was to force its vendors to reduce their prices. It adopted a methodical approach. It formed a cross-functional team consisting of representatives from the project group, the procurement, and the finance functions to renegotiate with its suppliers. The team started with high cost bought-out items like turbines. There were only two manufacturers of turbines and they had enjoyed the duopoly for the last 30-40 years. However, SIL managed to convince the turbine manufacturer to reduce its price by 18%. Looking at the value, this saving was substantial and SIL was encouraged to push for other products too.

Now it was the turn of EMIL. Its local branch manager received a telephonic message from a representative of SIL, whose name was unknown to him or the office. EMIL visited SIL the next day to attend a meeting with the team. Although representatives of EMIL knew these team members from minimal interaction that took place occasionally, they were a little surprised to see' them renegotiating price. A lot of meetings took place between representatives of SIL and EMIL. EMIL tried to impress upon them the longstanding business relationship, good presales and post-sales support given by EMIL in the past. It also reassured that the price at which deals were closed were indeed rock-bottom. However, it appeared that this fell on deaf ears and a situation arose wherein SIL rudely threatened EMIL of cancellation of existing orders and stoppage of future orders as and when they come. EMIL was in serious trouble.

QUESTIONS:

1. Comment on the marketing intelligence and the sales effort of EMIL.

2. Could EMIL have better explained the situation and justified that its prices were indeed rock-bottom with no scope for downward revision of prices?

3. Should EMIL reduce the price and retain this account or prefer to lose business?

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CASE NO. 5: CHAPMAN VARIATORS PRIVATE LIMITED

Chapman Variators Private Ltd. (CVPL) is a firm known for its high quality tailor-made mechanical drives. Its mechanical drives find application in paper mills, chemical plants, and pharmaceutical companies. As a matter of policy, it decided to be a niche player by providing only tailor-made mechanical drives. It practically had no competition for the market it served.

CVPL had sent a detailed techno-commercial offer to Padma Paper Mills Ltd. (PPML) for a drive; this drive was for substituting an imported mechanical drive. PPML was a large and highly profitable paper mill with potential for repeat business. It also had a lot of referral potential. PPML was interested in the offer because of poor after-sales service and very high price (five times that of CVPL) of the overseas supplier. Added to this were hassles associated with imports.

PPML had evaluated the technical part of the proposal and was satisfied with it. Price was a non-issue as there was no local competition and its price was 20% of that of the imported product. Other commercial clauses like Ex-CVPL works delivery, warranty and delivery schedule of CVPL were also acceptable to PPML. However, there was problem with payment terms. CVPL, as a policy, never gave credit, due to bitter experience it had in the past (customer did not pay for long despite being financially sound and CVPL wasted a lot of money and time in follow-up) and PPML wanted to pay only when delivery was made. Thus, there was a deadlock. This policy of paying after the delivery was made was based on a bitter experience PPML had with another firm in the recent past (one of the suppliers delayed dispatch by about three weeks after PPML paid him).

CVPL wanted this order, as an entry would mean repeat business with PPML. CVPL knew that price is a non-issue, and was thus sure of doing business on a comfortable margin. However, it was not prepared to agree to the payment terms of PPML. The sales engineer concerned was thinking hard on following issues:

1. Was this customer that important to his firm? The customer was showing him the carrot of

future business, but was unable to commit the date by which he would place another order.

2. Will not PPML ultimately agree to CVPL payment terms? CVPL is a monopoly supplier; PPML is facing problems with the imported mechanical drive, and experienced import hassles. Add to this the attractive price offered by CVPL. The value of Rs. 35,000 is not a big amount considering the size of PPML. He, in the interim provided PPML with references and list of customers so that PPML will get 'first-hand' information about it, and feels a little more confident about CVPL.

3. Even if PPML ultimately agrees to CVPL payment terms, will it foster long term business relationship and offer referral value?

4. What payment terms would be mutually acceptable? To start with, he came out with the idea of a letter of credit (LC); PPML rejected it as it claimed that the effort involved in opening of a LC is not worth the value of the job. A 'post-dated cheque' was also rejected as PPML did not have that practice. Can it be 'documents through bank' or 'hundi' payment? How to convince customer about it?

QUESTION:

Advise the best course of action and explain how you would convince the customer to take the course of action proposed by you.

CASE8: UNDERSTANDING SFA

SCENE 1:

You are a supplier of business desktops and servers and also shoulder the responsibility to maintain it. You are now on your way to meet your biggest customer Mr. Sharma chairman of Neon Logistics. You are expecting to get some more business from Neon Logistics today. You arrive at the building and take the elevator to his office. He seemed pretty tensed and was talking to his staff member. But when he sees you he dismisses his employee and asks you to sit down. Today he is not interested in placing an order. In fact, he might never place another one. As he explains it to you that its more than 28 hours since their work has been at standstill. The server is not working properly and three PCs have gone down. He himself and his people have been on the phone to your customer support center since the breakdown occurred but nothing has been done. Your face betrays your surprise. No one told me about this, Mr. Sharma as you strive to recall any SMS or voice mail messages you might have received off late. You try to put some excuses but he is not in a mood to listen to anything and waves you a goodbye. Will I get this order? is what you think while leaving Neon Logistics.

SCENE 2:

You are a supplier of business desktops and servers and also shoulder the responsibility to maintain it. You are now on your way to meet one of your important customer Mr. Sharma, chairman of Neon logistics. You are expecting to get some more business from more business from him today.

While on the route to his office you turn on your PDA (Airtel BlackBerry), which begins beeping. The screen display reads Urgent! Customer problem. Neon logistics server is undergoing problem, three PCs are also down. Service representative has been sent and is working on the problem. You arrive 15 minutes early to his office and decide to go and have a look at the situation. There you find your service representative busy in repairing the problem. He tells you that the server has been repaired. The work on the desktops is also on the verge of completion and wont take more than an hour. One of the desktops hard disk was having bad sectors and has been replaced. All the files have been recovered successfully.
Relieved, you take the stairs to Mr. Sharmas office. He appears in the doorway and sees you in. Dont worry Mr. Sharma every thing has been taken care of and system will be back in action within an hour, you said. He looks at you and smiles I knew you would, he says. I believe our workload is increasing day by day and we probably need an upgrade. How soon can you do it? Thirty minutes later, you leave his office and head towards EDP department where your service representative has been working to ensure the system is back on track. As you walk towards parking lot, you realize youre leaving behind a relieved customer and are confident about increase in your order booking.

ACTIVITY BASED ON CASE-STUDY

1) Develop an explanatory note of scene 1 and scene 2 in your own words. 2) List out the reasons why the sales person in scene 2 is confident of getting the order from Neon Logistics. 3) Study Sales Force Automation. Relate the case study and discuss how the elements of SFA might have helped sales process in scene 2.

(Adopted from CRM book by Abhay Kardeguddi for Symbiosis Centre for Distance Learning)

Case No 9: Alfa Beta: Strategy Frame

Alfa is an Industry leader and has accumulated a wealth of resources of every kind human talent, technical skills, distribution access, well known brands, manufacturing facilities and cash flow and it can fund just about any initiative it considers strategic. But its aspirations to remain atop its present perch, to grow as fast as its industry, and to achieve a 15% return on equity are modest. Where do you go, Alphas managers ask them selves, when youre already number one?

Beta, its rival, is a relative latecomer to the industry. It is much smaller then Alpha and has no choice but to make do with fewer people, a smaller capital budget, more modest facilities, and a fraction of Alphas R&D budget. Nevertheless, its ambitions belie its meager resource base. Betas managers have every intention of knocking Alpha off its leadership perch. To reach this goal, they know that they must grow faster than Alpha, develop more and better products than Alpha, and build a worldwide brand franchise and a presence in every major market, all while expending fewer resources. The misfit between Betas resources and its aspirations would lead most observers to challenge the feasibility of its goals, if not the sanity of its managers.

Consider the likely effects of Alphas abundance and Betas ambition on how the two companies frame their competitive strategies and marshal their resources. What according to you is the main difference in Alpha and Beta? What Strategies and Tactics may guide Beta towards its Goal? What will Alpha have to do if Beta challenges it?

(Karwak case studies strategic marketing)

CASE STUDY 10: CULTURE OF SERVICE: GENERAL ELECTRIC

GEs most complex and intimate relationships develop in the large capital goods businesses- jet engines and medical systems. In these situations, initial purchase price range from millions of dollars to hundreds of millions of dollars. Despite these intoxicating numbers-just imagining the commissions is enough to make you dizzy- GE encourages its executive to look beyond its initial sales and consider the long-term value of customer retention to the companys bottom line.

Although GE probably wont be auditing your wardrobe in the near future, its jet engine businesses regularly perform what could be called wing audits to determine the exact needs of the airline customers. The relatively small number of customers-there are only 300 airlines around the worldmakes monitoring process highly manageable. Additionally, the purchasing cycles of these customers are usually well known. So its not difficult to project the sales revenue with reasonable certainty. Whats less easy to foresee, however, is the strategic value, or what we call lifetime value, of this customer base. This is where things get interesting.

You just cant bolt a jet engine to a wing and forget about it. For the sake of both safety and economy youve got to maintain the engine in a superb condition. Jet engines are subject to continuous maintenance. From customers point of view, the expense of maintaining a jet engine is far more significant than its initial purchase price. The vendor has the similar perspective- its far more profitable to maintain a jet engine then it is to sell a jet engine. In fact, most of the jet engines are steeply discounted, sometimes to the point of being sold at cost. Theres simply no such thing as a short-term relationship between a customer and a vendor in this sector. Breaking off the relationship poses serious consequences for both parties. To maintain this relationship GE has developed high value extranets for its large capital goods customers. Anyone who buys a GE jet engine now knows that mission critical information is a mouse click away. The latest FAA directives, as well as any safety bulletins, are posted on a special extranet designed exclusively for jet engine customers. Blueprints, wiring diagrams, modifications and schematics-can be accessed from the extranet site. In some cases engine problems can be diagnosed in flight with the aid of sensors capable of beaming real time performance data to service personnel on the ground. Spare parts can be ordered over this private network, which allows

customers to monitor shipping status. This feature alone saves airlines tens of thousands of dollars, since it enables them to make decisions based on real time knowledge instead of hunches and intuition.

In old days, the salespeople in GE were trained to act like elephant hunters. Theyd go out on a game hunt, find a big customer and bring back a half-billion-dollar order. Nowadays, for example, the pricing on jet engines is so brutal that theyre sold at cost or worse. Soothe money has to be made in parts or service. As a result, they have large service operations around the world that they didnt have a decade ago. The people leading those operations have changed too. Today, they have shifted some of their top talents into these service operations. They want to focus their resources into these service operations because theyve become very valuable profit centers for them. Their aircraft engine services is now as important a business as their jet engine equipment manufacturing operation. Klaus Huber, director of European sales for GEs aircraft engine division, doesnt mince words when talking about the role of on-to-one relationships in building long term profitability. What happens after they buy your product-is everything. In this business you cant leave people in the lurch. Because they will never come back to you again.

Lufthansa is Hubers largest account. Hubers success as a manager is based on his ability to maintain a steady stream of communication between GE and their airline. A small squad of GE technicians and engineers assigned to the Lufthansa maintenance shop provides elbow-to-elbow contact with their client. While this live-in arrangement guarantees daily exchanges between the jet engine maker and its end-users, its only part of the relationship process. In addition, Huber manages the overall relationship with the help of a formal entity called the customer team, or CT. The CT is composed of representatives from various specialties such as sales, customer support, technical services, parts and repair. All of us talk together on the phone every day. We make sure everybody on the team knows what the customers needs are. We make sure were servicing those needs. And we look for new opportunities to serve the customer.

Over the years, customer-driven behaviors have played a major role in the success of the aircraft engines division. During the 1940s and 1950s, GE provided aircraft engines solely to the military. In the 1960s the company saw an opportunity to sell into the commercial aviation market and differentiated itself largely by establishing a more customer-friendly environment than its competitors. Today GE is a leading provider of the jet engines used on wide-body aircraftthe most lucrative part of the commercial market.

Huber embodies an interesting synthesis of Welchs concept of the boundryless organization and our vision of the fully integrated, one-to-one enterprise in which turf wars are obsolete and missioncritical information flows seamlessly across divisions. When a problem happens, we dont argue about whos at fault, says Huber. If the plane isnt flying, our customer is losing money. We know the clock is ticking, so we go in and fix it, no argument. Responsiveness is our game. Extranets have also been designed for customers of GEs medical systems business. GE can remotely track the operational status of its medical systems worldwide, 24 hours a day. An imaging device in a Boston Hospital will be monitored during the day by GE technicians at New York. When the New York teams shift is over, it hands off to a team in Tokyo. 8 hours later a team based in Paris takes over. When the shift is through, New York picks up the ball again.

Smart sensors alert the technicians to any variance in the machines operation. Based on the machines known performance characteristics, the technician will diagnose and troubleshoot the problem. In most cases, they are able to alert the operators at the hospital before they even notice somethings out of kilter. And if necessary, they will dispatch technicians to the scene to fix the problem before the customer has even asked for help. This is what they mean when they say Were using information to build intimate relationships with our customers. This is where it becomes tougher for the competitors to match them. What GE feels is that today customers are seeking relationships, not products.

(Abridged form of case studies from 1to1 marketing by Don Peppers and Dr.Martha Rogers)

ACTIVITY

1. Based on web search find out about the competitors of GEs aircraft engine division.

2. What do understand by Welchs Boundry-less organization?

3. Explain how communication and relationship is at the core of business between GE and Lufthansa.

4. Visit a nearby modern hospital and enquire about the customer service they get from the medical equipment providers. Write a detailed note based on your experience.

Karwak Case Studies Industrial (B2B) Marketing (Adopted from: CRM book by Prof. Abhay Kardeguddi for SCDL, Pune.)