Description
This about dreived demand, volatility, implications on demand, pricing options, marketing implications, acceleration effect, whiplash effect, business purchase, vendor stack up, adverserial buying, buyer risk, customer gaps
DERIVED DEMAND & INDUSTRIAL MARKETING
?
DERIVED DEMAND
? Joint Demand ? Complimentary Products
?
DIRECT DEMAND
CHAIN OF DERIVED DEMAND
Chemical Manufacturer
Volatility Volatility
Plastic Liners Co
Metal Drums Co
Volatility
Electrolyte Acid Co
Battery Manufacturer
Volatility
Auto OEM
Volatility
DEMAND VOLATILITY
?
High tech components
? Price drop expectations/ expectations of the introduction of next generation
?
Capital goods
? Hardest hit during bust ? Recovery is also fast
? Two wheelers in 1990 ? Steel industry at present
DEMAND VOLATILITY
Year
1 2 3 4 5 6
Consumer Demand
100 100 110 130 130 100
Change
0 0 10% 18% 0 -23%
Machine required
10 10 11 13 13 10
Machine Demand
1 1 2 3 1 0
Change
0 0 100% 50% -66% -100%
IMPLICATIONS OF DERIVED DEMAND
? Product ? Price
& Profit ? Promotions ? Distribution
PRODUCT
Motors
Oil Wells
Mixies
A/C s
Tough conditions Cost Considerations NEMA standards
Several Models Form Factor Weight
Japanese Competition Extended Warranty Noise Levels
BUYER SELLER INTERPLAY
Buyer’s Initial Position
Criticality of Application
Position of Power
Domain Knowledge
?
Market Opportunity
Seller’s Initial Position
Product Expertise
MARKETING IMPLICATIONS
?
Horizontal v/s Verticals
? All segments volatile ? Some segments volatile ? All segments non-volatile
VARIABLES OF MARKET/SEGMENT ATTRACTIVENESS
Segment Attractiveness = f ( segment opportunity, segment volatility, level of competition )
PRICE & PROFIT IMPACT
?
Expanding Overall Demand
? Toothpaste
? Show ads where more paste is used ? Propaganda for 3 times brushing ? Reduce Price to cater to new segments
? Car Tyres
? Ask consumers to travel more ? Suggest change of tyres after every 10000 km ? Reduce Price Expecting scooter buyer to buy car tyres
PRICING OPTIONS AVAILABLE
Reduce Price
Overall Demand ?
Significant
CPU
Increase Price
Cost of Product
Overall Demand ?
Reduce Price Insignificant
Radiator Cap
Overall Demand ?
Increase Price
Overall Demand ?
PRICE & PROFIT IMPACT
?
RELATIVE PRICE INSENSITIVITY
? Price in relation to total cost ? Price in relation to other deliverables
?
RELATIVE PRICE SENSITIVITY
? Profit through higher sales (tough) ? Profit through cost reduction (easy)
MARKETING IMPLICATIONS
Flexible Pricing ? Proactive Pricing ? Value Based Pricing
?
PROMOTION
?
Push Strategy
? “Take 10 & get one free” ? “ I need 11. Quote your terms”
?
Pull Strategy with “Telescopic Marketing”
? ? ? ? High Market Share Patentable Products Entry Barriers Market is Large/Penetration Levels are low
DISTRIBUTION
? Acceleration ? Whiplash
Effect
Effect
ACCELERATION EFFECT
To satisfy one ultimate customer, several business marketers add value to raw material. It is not only loss of profit but the loss of whole business to the extent demand has shrunk.
WHIPLASH EFFECT
1 Sales 2 3 4 5 6 7 8 9 10 11
Retailer
Distributor
phase shift
Manufacturer amplitude
MARKETING IMPLICATIONS
Shorter Channels ? Hybrid Channels
?
BUSINESS PURCHASE
IMPORTANCE OF PURCHASING
? Scale
of Buying ( 25% to 70% )
• Impact on Profits • Impact on Quality ( Reliability / Dependability)
? Relationship
Management
BUSINESS PURCHASE
What do we study ?
Purchase Situations Purchase Philosophies Purchase Strategies Vendor Evaluation Government Buying
PURCHASE SITUATION
? Straight
Re-buy ? Modified Re-buy ? New Task
BUYING SITUATIONS
Product
Existing New
Existing
Straight Re-buy
Modified Re-buy
Vendor
New
Modified Re-buy
New Task
IMPLICATIONS OF BUYING SITUATIONS
? Straight
Re-buy (SRB)
• High Expertise • Relatively high Switching Costs • Low value routine products
? Modified
? New
Re-buy (MRB)
• High/Low Commercial / Product Expertise
Task (NTK)
• No Switching costs • Low Expertise • Volatile Markets
VENDOR STACK UP
Convenience Vendor Convenience Good Shopping Vendor Specialty Vendor
Shopping Good
Specialty Good
VENDOR STACK UP
Convenience Vendor
Shopping Vendor
Specialty Vendor
Convenience Good
SRB
MRB
SRB
Shopping Good
MRB
NTK
MRB
Specialty Good
SRB
MRB
SRB
ROLE OF PRICE
? Low
Buyer Expertise ? Undifferentiated Product ? Cost Reduction as a policy
PURCHASE PHILOSOPHIES
TWO BASIC APPROACHES
Adversarial Buying
?
Vendor as adversary ? Self interest seeking vendors ? Buying is a contest ? Win-lose as the outcome ? Non transparency
ADVERSERIAL BUYING
? Price
Transparency ? Non Negotiable Offers ? Future Price Commitments ? Main Emphasis on Price ? Threatening to Change Suppliers ? Delaying payments ? Insisting on buying at old prices
PURCHASE PHILOSOPHIES
TWO BASIC APPROACHES
Adversarial Buying
?
Non adversarial Buying
?
?
? ?
?
Vendor as adversary Self interest seeking vendors Buying is a contest Win-lose as the outcome Non transparency
?
? ? ?
Relationship Paradigm Vendor as a partner Win-Win situation Transparency in operations Co-operative approach
ANOTHER APPROACH
? Buying
Orientation
• Get the best price, quality & delivery • Maximize power over suppliers • Avoid risk wherever possible
Adversarial Buying Low or no interdependence
? Procurement
Orientation
• Improve quality • Reduce cost of ownership • Cooperate with suppliers
? Supply
Chain Orientation
Non-Adversarial Buying High Interdependence
• Develop network of suppliers • Relationship Paradigm • Focus on end user value
PURCHASE STRATEGIES
?
Make or Buy • Cost / Operational • Strategic ? Purchasing Methods • Just in Time • Cost Analysis / VED Analysis ? Centralized / Decentralized • Centralized DM – Centralized Buying • Centralized DM – Decentralized Buying
VENDOR EVALUATION
? Categorical
Method ? The Weighted Point Method ? The Cost Ratio Method
GOVERNMENT BUYING
? Largest
landlord ? Largest Buyer ? Central, State & Local Governments ? Other Government Establishments
GOVERNMENT BUYING
? Considerations
• Economical • Political • Social
Bidding – Rigid ? Pre-Requisites ( Qualifiers – PWD ) ? Preference to Govt. suppliers
? Government
NC MACHINES
New Product ( Innovation ) ? No Installed Base ? Costly Product ? Technically Complex
?
WHY ADOPT SUCH A PRODUCT?
Relative Advantage ? Compatibility ? Trialability ? Observability ? Complexity
?
?Benefit ?Benefit ?Benefit ?Benefit ?Cost
BUYER FIT ON BENEFITS
Benefits High : Buy ? Benefits Low : Do Not Buy ? Benefits Uncertain : ?
?
? Consequences ? Losses
Perceived Risk
DIMENSIONS OF PERCEIVED RISK
?
Task Related
? Performance ? Financial ? Time
?
Non Task Related
? Social ? Psychological ? Physical
BUYER RISK REDUCTION
Information Seeking ? Rely on Brand ? Price / Quality ? Postpone
?
BUYER INFORMATION SEARCH
Active Search
Information Sources •Salesman •Advertisements •Direct Mail •Exhibition/fair •Trade News •Word of Mouth •Others
HMT Initiatives ? 7 Technology Seminars ? 300 companies/450 people
Expectation of • Purchase • Engineers • Users • Others
? Product Briefs/Direct Mailers
? Educating Workforce ? Search for Components ? Feasibility Studies ? Participation in Exhibitions
Perceptual Distortion
COMPANY REPUTATION
Existing Supplier of Machine Tools ? Association with a Pioneering Company ? Agents to Sell & Service in India ? Personnel Trained by Principal Company. ? Public Sector
?
IS THIS ENOUGH TO ADDRESS BUYER NEEDS ?
POSSIBLE CUSTOMER GAPS
We are not leaders ? We are not making enough profits ? Our Market share needs improvement ? We need to improve quality ? Our employee morale could be higher
?
Has HMT handled uncertainties on these issues?
HMT CASE
?
What is the Buying Centre membership ? What are the major concerns ?
?
HMT CASE 1 : Existing User
•Initiator •Influencer •Gatekeeper •User •Decider •Buyer
High Tech Leadership Cost Reduction Tax Benefits
Works Manager Technical Director Company Executives Managing Director Finance Manager Costing Manager
HMT CASE 2 : Hot Prospect
•Initiator •Influencer •Gatekeeper •User •Decider •Buyer
Make or Buy Techno Economic Justification ROI/ BEP Accuracy / Rejection
Ind Engg Deptt Mfg Engg Dept General Manager CEO Finance Manager Costing Manager
HMT CASE 3 : Potential
•Initiator •Influencer •Gatekeeper •User •Decider •Buyer
Funds Availability Efficiency Reliability
Production Manager Purchasing Manager Finance Manager Managing Director Foreign Collaborator
BUYING CENTRE HEIRARCHY
Managing Director Technical Director Finance Manager Works Manager Costing Manager Company Executives CEO General Manager Finance Manager Costing Manager Ind Engg Deptt Mfg Engg Dept Case 3
Relative Advantage
Managing Director Foreign Collaborator Production Manager Purchasing Manager Finance Manager
Case 1
Change Agent
Case 3
Relative Advantage
FEATURES OF BUSINESS BUYING
• Products & services are brought to meet objectives. (most of the times clear) • Decision-making is complex. • Decision-making units exist. • Buyer perceive company & individual risk • Inter departmental & inter personnel concerns/ conflicts
STRATEGY FORMULATION FOR SELLER
?React as an organisation ?Analyse Risk Factor ?Understand link between corporate & buying “objectives” ?Locate Decision Makers ( pseudo / real ) ?Locate decision rules formulated by buyers
?Choose the best team / right personnel
?Create corporate goodwill ?Customize Communication
doc_338100297.ppt
This about dreived demand, volatility, implications on demand, pricing options, marketing implications, acceleration effect, whiplash effect, business purchase, vendor stack up, adverserial buying, buyer risk, customer gaps
DERIVED DEMAND & INDUSTRIAL MARKETING
?
DERIVED DEMAND
? Joint Demand ? Complimentary Products
?
DIRECT DEMAND
CHAIN OF DERIVED DEMAND
Chemical Manufacturer
Volatility Volatility
Plastic Liners Co
Metal Drums Co
Volatility
Electrolyte Acid Co
Battery Manufacturer
Volatility
Auto OEM
Volatility
DEMAND VOLATILITY
?
High tech components
? Price drop expectations/ expectations of the introduction of next generation
?
Capital goods
? Hardest hit during bust ? Recovery is also fast
? Two wheelers in 1990 ? Steel industry at present
DEMAND VOLATILITY
Year
1 2 3 4 5 6
Consumer Demand
100 100 110 130 130 100
Change
0 0 10% 18% 0 -23%
Machine required
10 10 11 13 13 10
Machine Demand
1 1 2 3 1 0
Change
0 0 100% 50% -66% -100%
IMPLICATIONS OF DERIVED DEMAND
? Product ? Price
& Profit ? Promotions ? Distribution
PRODUCT
Motors
Oil Wells
Mixies
A/C s
Tough conditions Cost Considerations NEMA standards
Several Models Form Factor Weight
Japanese Competition Extended Warranty Noise Levels
BUYER SELLER INTERPLAY
Buyer’s Initial Position
Criticality of Application
Position of Power
Domain Knowledge
?
Market Opportunity
Seller’s Initial Position
Product Expertise
MARKETING IMPLICATIONS
?
Horizontal v/s Verticals
? All segments volatile ? Some segments volatile ? All segments non-volatile
VARIABLES OF MARKET/SEGMENT ATTRACTIVENESS
Segment Attractiveness = f ( segment opportunity, segment volatility, level of competition )
PRICE & PROFIT IMPACT
?
Expanding Overall Demand
? Toothpaste
? Show ads where more paste is used ? Propaganda for 3 times brushing ? Reduce Price to cater to new segments
? Car Tyres
? Ask consumers to travel more ? Suggest change of tyres after every 10000 km ? Reduce Price Expecting scooter buyer to buy car tyres
PRICING OPTIONS AVAILABLE
Reduce Price
Overall Demand ?
Significant
CPU
Increase Price
Cost of Product
Overall Demand ?
Reduce Price Insignificant
Radiator Cap
Overall Demand ?
Increase Price
Overall Demand ?
PRICE & PROFIT IMPACT
?
RELATIVE PRICE INSENSITIVITY
? Price in relation to total cost ? Price in relation to other deliverables
?
RELATIVE PRICE SENSITIVITY
? Profit through higher sales (tough) ? Profit through cost reduction (easy)
MARKETING IMPLICATIONS
Flexible Pricing ? Proactive Pricing ? Value Based Pricing
?
PROMOTION
?
Push Strategy
? “Take 10 & get one free” ? “ I need 11. Quote your terms”
?
Pull Strategy with “Telescopic Marketing”
? ? ? ? High Market Share Patentable Products Entry Barriers Market is Large/Penetration Levels are low
DISTRIBUTION
? Acceleration ? Whiplash
Effect
Effect
ACCELERATION EFFECT
To satisfy one ultimate customer, several business marketers add value to raw material. It is not only loss of profit but the loss of whole business to the extent demand has shrunk.
WHIPLASH EFFECT
1 Sales 2 3 4 5 6 7 8 9 10 11
Retailer
Distributor
phase shift
Manufacturer amplitude
MARKETING IMPLICATIONS
Shorter Channels ? Hybrid Channels
?
BUSINESS PURCHASE
IMPORTANCE OF PURCHASING
? Scale
of Buying ( 25% to 70% )
• Impact on Profits • Impact on Quality ( Reliability / Dependability)
? Relationship
Management
BUSINESS PURCHASE
What do we study ?
Purchase Situations Purchase Philosophies Purchase Strategies Vendor Evaluation Government Buying
PURCHASE SITUATION
? Straight
Re-buy ? Modified Re-buy ? New Task
BUYING SITUATIONS
Product
Existing New
Existing
Straight Re-buy
Modified Re-buy
Vendor
New
Modified Re-buy
New Task
IMPLICATIONS OF BUYING SITUATIONS
? Straight
Re-buy (SRB)
• High Expertise • Relatively high Switching Costs • Low value routine products
? Modified
? New
Re-buy (MRB)
• High/Low Commercial / Product Expertise
Task (NTK)
• No Switching costs • Low Expertise • Volatile Markets
VENDOR STACK UP
Convenience Vendor Convenience Good Shopping Vendor Specialty Vendor
Shopping Good
Specialty Good
VENDOR STACK UP
Convenience Vendor
Shopping Vendor
Specialty Vendor
Convenience Good
SRB
MRB
SRB
Shopping Good
MRB
NTK
MRB
Specialty Good
SRB
MRB
SRB
ROLE OF PRICE
? Low
Buyer Expertise ? Undifferentiated Product ? Cost Reduction as a policy
PURCHASE PHILOSOPHIES
TWO BASIC APPROACHES
Adversarial Buying
?
Vendor as adversary ? Self interest seeking vendors ? Buying is a contest ? Win-lose as the outcome ? Non transparency
ADVERSERIAL BUYING
? Price
Transparency ? Non Negotiable Offers ? Future Price Commitments ? Main Emphasis on Price ? Threatening to Change Suppliers ? Delaying payments ? Insisting on buying at old prices
PURCHASE PHILOSOPHIES
TWO BASIC APPROACHES
Adversarial Buying
?
Non adversarial Buying
?
?
? ?
?
Vendor as adversary Self interest seeking vendors Buying is a contest Win-lose as the outcome Non transparency
?
? ? ?
Relationship Paradigm Vendor as a partner Win-Win situation Transparency in operations Co-operative approach
ANOTHER APPROACH
? Buying
Orientation
• Get the best price, quality & delivery • Maximize power over suppliers • Avoid risk wherever possible
Adversarial Buying Low or no interdependence
? Procurement
Orientation
• Improve quality • Reduce cost of ownership • Cooperate with suppliers
? Supply
Chain Orientation
Non-Adversarial Buying High Interdependence
• Develop network of suppliers • Relationship Paradigm • Focus on end user value
PURCHASE STRATEGIES
?
Make or Buy • Cost / Operational • Strategic ? Purchasing Methods • Just in Time • Cost Analysis / VED Analysis ? Centralized / Decentralized • Centralized DM – Centralized Buying • Centralized DM – Decentralized Buying
VENDOR EVALUATION
? Categorical
Method ? The Weighted Point Method ? The Cost Ratio Method
GOVERNMENT BUYING
? Largest
landlord ? Largest Buyer ? Central, State & Local Governments ? Other Government Establishments
GOVERNMENT BUYING
? Considerations
• Economical • Political • Social
Bidding – Rigid ? Pre-Requisites ( Qualifiers – PWD ) ? Preference to Govt. suppliers
? Government
NC MACHINES
New Product ( Innovation ) ? No Installed Base ? Costly Product ? Technically Complex
?
WHY ADOPT SUCH A PRODUCT?
Relative Advantage ? Compatibility ? Trialability ? Observability ? Complexity
?
?Benefit ?Benefit ?Benefit ?Benefit ?Cost
BUYER FIT ON BENEFITS
Benefits High : Buy ? Benefits Low : Do Not Buy ? Benefits Uncertain : ?
?
? Consequences ? Losses
Perceived Risk
DIMENSIONS OF PERCEIVED RISK
?
Task Related
? Performance ? Financial ? Time
?
Non Task Related
? Social ? Psychological ? Physical
BUYER RISK REDUCTION
Information Seeking ? Rely on Brand ? Price / Quality ? Postpone
?
BUYER INFORMATION SEARCH
Active Search
Information Sources •Salesman •Advertisements •Direct Mail •Exhibition/fair •Trade News •Word of Mouth •Others
HMT Initiatives ? 7 Technology Seminars ? 300 companies/450 people
Expectation of • Purchase • Engineers • Users • Others
? Product Briefs/Direct Mailers
? Educating Workforce ? Search for Components ? Feasibility Studies ? Participation in Exhibitions
Perceptual Distortion
COMPANY REPUTATION
Existing Supplier of Machine Tools ? Association with a Pioneering Company ? Agents to Sell & Service in India ? Personnel Trained by Principal Company. ? Public Sector
?
IS THIS ENOUGH TO ADDRESS BUYER NEEDS ?
POSSIBLE CUSTOMER GAPS
We are not leaders ? We are not making enough profits ? Our Market share needs improvement ? We need to improve quality ? Our employee morale could be higher
?
Has HMT handled uncertainties on these issues?
HMT CASE
?
What is the Buying Centre membership ? What are the major concerns ?
?
HMT CASE 1 : Existing User
•Initiator •Influencer •Gatekeeper •User •Decider •Buyer
High Tech Leadership Cost Reduction Tax Benefits
Works Manager Technical Director Company Executives Managing Director Finance Manager Costing Manager
HMT CASE 2 : Hot Prospect
•Initiator •Influencer •Gatekeeper •User •Decider •Buyer
Make or Buy Techno Economic Justification ROI/ BEP Accuracy / Rejection
Ind Engg Deptt Mfg Engg Dept General Manager CEO Finance Manager Costing Manager
HMT CASE 3 : Potential
•Initiator •Influencer •Gatekeeper •User •Decider •Buyer
Funds Availability Efficiency Reliability
Production Manager Purchasing Manager Finance Manager Managing Director Foreign Collaborator
BUYING CENTRE HEIRARCHY
Managing Director Technical Director Finance Manager Works Manager Costing Manager Company Executives CEO General Manager Finance Manager Costing Manager Ind Engg Deptt Mfg Engg Dept Case 3
Relative Advantage
Managing Director Foreign Collaborator Production Manager Purchasing Manager Finance Manager
Case 1
Change Agent
Case 3
Relative Advantage
FEATURES OF BUSINESS BUYING
• Products & services are brought to meet objectives. (most of the times clear) • Decision-making is complex. • Decision-making units exist. • Buyer perceive company & individual risk • Inter departmental & inter personnel concerns/ conflicts
STRATEGY FORMULATION FOR SELLER
?React as an organisation ?Analyse Risk Factor ?Understand link between corporate & buying “objectives” ?Locate Decision Makers ( pseudo / real ) ?Locate decision rules formulated by buyers
?Choose the best team / right personnel
?Create corporate goodwill ?Customize Communication
doc_338100297.ppt