B2B Marketing module wise notesMarketing

Marketing , B2B Marketing

1. B2B MODULE IV

2. Product Decisions Decisions regarding the product, price, promotion and distribution channels are decisions on the elements of the "marketing mix". It can be argued that product decisions are probably the most crucial as the product is the very epitome of marketing planning. The decision whether to sell globally standardised or adapted products is too simplistic for today's market place.

3. Industrial product An industrial product is a good used by a company for business consumption. It is distinct from a consumable good, which is purchased by individuals for personal and family consumption. One company selling goods to another for business consumption is a prime example of business-to-business, or B2B. The goods purchased for industrial or business use are known as industrial goods. Installations — Example: Machinery Accessories — Example: Power Generator Raw materials — Example: Cotton, timber, etc. Manufactured parts — Example: Radiator, battery, etc., needed by a car manufacturer. Supplies or Consumables — Example: Lubricants, oils, etc.

4. Classification of Industrial products

5. Categories of New Products new-to-the-world  products: These products are truly new because they create a totally new market and are only a small percentage of the new product category. Examples of this type of new product category would be microwave ovens, microprocessors and copiers. new product lines: When a company offers a product from a new category that they haven't previously offered, then it would be a new product line. For example, Coca-Cola is primarily a beverage manufacturer throughout the world. Let’s assume that they decide to diversify into snack foods and cookies. Additions to existing product lines: when the company introduces an additional product which is similar to its existing range of products. A common example of a product line extension is when a well-known brand brings out a variation of its product in terms of size, color, taste, and so on. Again, if we use the Coca-Cola Company as an example, then any new product of soft drink, juice, sports drink or water, would be considered to be a product line extension

6. improvements or revisions of existing products: A product improvement is making one or more changes to an existing product that is already in the marketplace. The change may be minor or more significant and typically involves only one or two of the product features. the phrase “new and improved” which sometimes appears on product packaging Repositioned products: A product repositioning involves taking an existing product in the marketplace and substantially changing its image (that is, it communicated range of benefits) or its target market. On occasion, product repositioning is also supported by the change in the product design and/or product packaging. For example, laundry detergents that used to target young parents who would wash cloth diapers for their babies. Due to significant social changes, young families are more time poor, and now choose to buy disposable varieties. In this case, some detergent manufacturers have repositioned their older products away from being suitable for cloth diapers and towards handling tough stains on all clothes. cost reductions: These types of products perform similar to competing brands at lower prices.

7. UTI Bank became what we know as Axis today. This happened in 2007 and the intention behind it was to make the brand more contemporary in terms of its appeal, and at the same time, have a name that could transcend geographical boundaries. They also changed their logo and came up with an integrated marketing programme to make sure that the customers remember the name, Axis.

8. Crystal Pepsi Company:  PepsiCo > Year released:  1992 In 1992, PepsiCo attempted to enter the then-flourishing “new-age beverages” market with its clear, caffeine-free Crystal Pepsi. The company promoted the product as a healthy and pure diet beverage. Its $40 million advertising campaign included permission to use Van Halen’s hit song Right Now in TV advertisements. Market tests at the time gave Crystal Pepsi such a positive outlook that Coca-Cola released Tab Clear to compete with it. While sales over the first year were a strong $470 million, many of the purchases were likely due to curiosity. Not only were consumers not convinced by Pepsi’s health angle, but many cola-drinkers expected a darker beverage. Also hurting Crystal Pepsi’s popularity: to many consumers it tasted just like original Pepsi.

9. Google Glass Company: Google Year introduced: 2013 What it was: Wearable technology Google first announced Google Glass -- an eyeglasses shaped head-mounted display with smartphone capabilities -- to the public in 2012. The announcement began with a statement of principle: “We think technology should work for you -- to be there when you need it and get out of your way when you don’t.” After two years of disappointing sales, it was clear consumers did not need Google Glass. Google stuck to its principle, and in 2015 discontinued the product’s development. Privacy concerns, reported bugs, low battery life, bans from public spaces, and an inability to live up to the hype all stymied public adoption of the technology.

10. Characteristics of Industrial Prices Price is not an independent variable. It is intertwined with product promotion  and distribution strategies. The real price an industrial customer pays is quite different from the list  price; this is because of the factors like delivery and installation cost, training  cost, discounts, financing cost, trade in allowances etc. By changing the quantity of goods & services provided by the seller,  changing the premiums and discounts that are offered, changing the time and  place of payment and also in numerous other ways prices can be changed.  Compare to product and distribution decisions, the decision regarding pricing is  more flexible. The complimentary and substitute product sold by the same company should  be considered at the time of deciding price for industrial goods. Prices can be resolved through negotiation in many a cases. In most of the  cases the industrial prices are established by competitive bidding on a project by  project basis. Industrial buyers who are experienced and able to estimate the vendors approximate production costs expect the increasing price to be justifiable on the  basis of either increasing cost or improvement in product. Hence, industrial  pricing is often characterized by an emphasis on fairness. Industrial prices are affected by several economic factors such as inflation,  change in interest rates, fluctuation in exchange rates etc. This problem is  particularly critical for the marketer locked into long term contract with no  escalation clause.

11. Pricing objectives Survival:  Survival is one of the short term objectives for many industrial  companies. Due to intense competition and other reasons the firm may be  unable to sell its products. For the survival of the firm it reduces the prices to  convert the inventory into sales. The survival is more important than prices.  The prices are fixed in such a way that they cover variable cost and a part of  fixed cost so that the company continues in business. Survival is only a short  term pricing objective and in the long run the firm must increase its prices to  cover total cost and end up with some profits. Maximum short term sales:  To maximize the sales revenue in the short run  is the pricing objective for some firms. The belief behind such an objective is  that by maximizing sales revenue in the short run the firms will have growth in  terms of market share and also have profit maximization. Maximum short term profits:  Setting prices with the objective of  maximization of profit in the short run may be pricing objective of some of the  marketing firms. These firms estimate the market demand and costs at  alternative prices and select the price that maximizes the present profits.  Estimating demand and cost is very difficult. This objective emphasizes on  short term profit maximization rather than long term performance and customer  relationships. The competitors reactions and legal implications are not  considered by the companies adopting this objective.

12. Market penetration:  Based on the assumption that the market is price  sensitive and that the low prices will increase sales; the prices of products are  fixed as low as possible by some firms with the objective of maximizing sales  volume and market share of its products. The other assumptions underlying are  low prices will discourage entry of potential competitors and highest volume  will reduce the production and distribution cost and leads to higher profits in the  long run. Maximum market skimming:  In the initial stages of the product life cycle  high prices are fixed by some firms when they introduce new and innovative  products. The new product is initially aimed at those market segments where  demand is least sensitive to price. The firm skims maximum revenue and profits  by adopting the skimming objective of pricing. The prices are lowered as the  time passes and sales slow down to attract new customers from price sensitive  market segments. To maximize sales revenue and profits is the objective in  market skimming. The assumption made in this strategy is that different prices  can be charged to different segments of customers at different times. There is  also a possibility that the competitors will be attracted because of high profits  resulting from high prices in this strategy. Product-quality Leadership:  By producing superior quality products and  charging little higher prices than the competitors price the industrial marketing  firm may have an objective to be product quality leader in the market. This  pricing objective results in higher profits. Other pricing objectives:  The other pricing objectives such as to meet or  prevent the competition, to stabilize the market, to avoid government  intervention etc. may be considered as objectives of pricing by many industrial  marketers.

13. Pricing methods/ Approaches

14. Cost-based Pricing: Cost-based pricing refers to a pricing method in which some percentage of desired profit margins is added to the cost of the product to obtain the final price. In other words, cost-based pricing can be defined as a pricing method in which a certain percentage of the total cost of production is added to the cost of the product to determine its selling price. Cost-based pricing can be of two types, namely, cost-plus pricing and markup pricing. i. Cost-plus Pricing: Refers to the simplest method of determining the price of a product. In cost-plus pricing method, a fixed percentage, also called mark-up percentage, of the total cost (as a profit) is added to the total cost to set the price. For example, XYZ organization bears the total cost of Rs. 100 per unit for producing a product. It adds Rs. 50 per unit to the price of product as’ profit. In such a case, the final price of a product of the organization would be Rs. 150. Cost-plus pricing is also known as average cost pricing. This is the most commonly used method in manufacturing organizations.

15. ii. Markup Pricing: Refers to a pricing method in which the fixed amount or the percentage of cost of the product is added to product’s price to get the selling price of the product. Markup pricing is more common in retailing in which a retailer sells the product to earn profit. For example, if a retailer has taken a product from the wholesaler for Rs. 100, then he/she might add up a markup of Rs. 20 to gain profit.

16. Demand-based Pricing: Demand-based pricing refers to a pricing method in which the price of a product is finalized according to its demand. If the demand of a product is more, an organization prefers to set high prices for products to gain profit; whereas, if the demand of a product is less, the low prices are charged to attract the customers The success of demand-based pricing depends on the ability of marketers to analyze the demand. This type of pricing can be seen in the hospitality and travel industries. For instance, airlines during the period of low demand charge less rates as compared to the period of high demand. Demand-based pricing helps the organization to earn more profit if the customers accept the product at the price more than its cost.

17. Competition-based Pricing: Competition-based pricing refers to a method in which an organization considers the prices of competitors’ products to set the prices of its own products. The organization may charge higher, lower, or equal prices as compared to the prices of its competitors. The aviation industry is the best example of competition-based pricing where airlines charge the same or fewer prices for same routes as charged by their competitors. In addition, the introductory prices charged by publishing organizations for textbooks are determined according to the competitors’ prices.

18. Other Pricing Methods: In addition to the pricing methods, there are other methods that are discussed as follows: i. Value Pricing: Implies a method in which an organization tries to win loyal customers by charging low prices for their high- quality products. The organization aims to become a low cost producer without sacrificing the quality. It can deliver high- quality products at low prices by improving its research and development process. Value pricing is also called value-optimized pricing. ii. Target Return Pricing: Helps in achieving the required rate of return on investment done for a product. In other words, the price of a product is fixed on the basis of expected profit.

19. iii. Going Rate Pricing: Implies a method in which an organization sets the price of a product according to the prevailing price trends in the market. Thus, the pricing strategy adopted by the organization can be same or similar to other organizations. However, in this type of pricing, the prices set by the market leaders are followed by all the organizations in the industry. iv. Transfer Pricing: Involves selling of goods and services within the departments of the organization. It is done to manage the profit and loss ratios of different departments within the organization. One department of an organization can sell its products to other departments at low prices. Sometimes, transfer pricing is used to show higher profits in the organization by showing fake sales of products within departments.

20. Pricing new products Price skimming The first new product pricing strategies is called price-skimming. It is also referred to as market-skimming pricing. Price-skimming (or market-skimming) calls for setting a high price for a new product to skim maximum revenues layer by layer from those segments willing to pay the high price. This means that the company lowers the price stepwise to skim maximum profit from each segment. As a result of this new product pricing strategy, the company makes fewer but more profitable sales. Many companies inventing new products set high initial prices in order to skim revenues layer by layer from the market. An example for a company using this new product pricing strategy is Apple. When it introduced the first iPhone, its initial price was rather high for a phone. The phones were, consequently, only purchased by customers who really wanted the new gadget and could afford to pay a high price for it. After this segment had been skimmed for six months, Apple dropped the price considerably to attract new buyers. Within a year, prices were dropped again. This way, the company skimmed off the maximum amount of revenue from the various segments of the market. However, this new product pricing strategy does not work in all cases. Price-skimming makes sense only under certain conditions. The product’s quality and image must support the high initial price, and enough buyers must want the product at that price. Also, the costs of producing smaller must not be so high that they overshadow the advantage of charging more. And finally, competitors should not be in sight – if they are able to enter the market easily and undercut the high price, price-skimming does not work.

21. Market penetration pricing The opposite new product pricing strategy of price skimming is market-penetration pricing. Instead of setting a high initial price to skim off each segment, market-penetration pricing refers to setting a low price for a new product to penetrate the market quickly and deeply. Thereby, a large number of buyers and a large market share are won, but at the expense of profitability. The high sales volume leads to falling costs, which allows companies to cut their prices even further. Market-penetration pricing is also applied by many companies. An example is the giant Swedish furniture retailer Ikea. By introducing products at very low prices, a large number of buyers is attracted, making Ikea the biggest furniture retailer worldwide. Although the low prices make each sale less profitable, the high volume results in lower costs and allows Ikea to maintain a healthy profit margin.

22. Pricing over Product Life Cycle Introduction Stage: When the product is introduced, sales will be low until customers become aware of the product and its benefits. Some firms may announce their product before it is introduced, but such announcements also alert competitors and remove the element of surprise. Advertising costs typically are high during this stage in order to rapidly increase customer awareness of the product and to target the early adopters. During the introductory stage the firm is likely to incur additional costs associated with the initial distribution of the product. These higher costs coupled with a low sales volume usually make the introduction stage a period of negative profits. During the introduction stage, the primary goal is to establish a market and build primary demand for the product class.

23. Price under Introduction Stage: Generally high, assuming a skim pricing strategy for a high profit margin as the early adopters buy the product and the firm seeks to recoup development costs quickly. In some cases a penetration pricing strategy is used and introductory prices are set low to gain market share rapidly.

24. Growth Stage: The growth stage is a period of rapid revenue growth. Sales increase as more customers become aware of the product and its benefits and additional market segments are targeted. Once the product has been proven a success and customers begin asking for it, sales will increase further as more retailers become interested in carrying it. The marketing team may expand the distribution at this point. When competitors enter the market, often during the later part of the growth stage, there may be price competition and/or increased promotional costs in order to convince consumers that the firm’s product is better than that of the competition. During the growth stage, the goal is to gain consumer preference and increase sales.

25. Maturity Stage: The maturity stage is the most profitable stage. While sales continue to increase in this stage, they do so at a slower pace. Because brand awareness is strong, advertising expenditures will be reduced. Competition may result in decreased market share and/or prices. The competing products may be very similar at this point, increasing the difficulty of differentiating the product. The firm places effort into encouraging competitors’ customers to switch, increasing usage per customer, and converting non-users into customers. Sales promotions may be offered to encourage retailers to give the product more shelf space over competing products. During the maturity stage, the primary goal is to maintain market share and extend the product life cycle.

26. Decline Stage: Eventually sales begin to decline as the market becomes saturated, the product becomes technologically obsolete, or customer tastes change. If the product has developed brand loyalty, the profitability may be maintained longer. Unit costs may increase with the declining production volumes and eventually no more profit can be made.