Business Marketing By Frank G. Bingham, Jr. and Roger Gomes

Business MarketingBusiness Marketing

By Frank G. Bingham, Jr. and Roger GomesBy Frank G. Bingham, Jr. and Roger Gomes

ISBN: 0-658-01534-6ISBN: 0-658-01534-6

Published by NTC/Contemporary Publishing Group, Inc.Published by NTC/Contemporary Publishing Group, Inc.4255 W. Touhy Ave.4255 W. Touhy Ave.Lincolnwood (Chicago), IL 60712-1975 U.S.A.Lincolnwood (Chicago), IL 60712-1975 U.S.A.©2001 NTC/Contemporary Publishing Group, Inc.©2001 NTC/Contemporary Publishing Group, Inc.

Chapter 1Chapter 1

Introduction to the Introduction to the Business Marketing EnvironmentBusiness Marketing Environment

Chapter OutlineChapter Outline

Business Marketing: An OverviewBusiness Marketing: An Overview Why Study Business Marketing?Why Study Business Marketing? How the Business Market Differs from the How the Business Market Differs from the

Consumer MarketConsumer Market Characteristics of Business DemandCharacteristics of Business Demand The Nature of Business Buying BehaviorThe Nature of Business Buying Behavior A Classification of Business Goods and ServicesA Classification of Business Goods and Services Business CustomersBusiness Customers Business Marketing Planning and Strategy Business Marketing Planning and Strategy

FormulationFormulation Format of This TextFormat of This Text

What Is Business Marketing?What Is Business Marketing?

What Is Marketing?What Is Marketing?• One Definition: “The process of planning and One Definition: “The process of planning and

executing the conception (product), pricing, executing the conception (product), pricing, promotion, and distribution of want-satisfying ideas, promotion, and distribution of want-satisfying ideas, goods, and services to individuals and organizations.” goods, and services to individuals and organizations.”

What Is Business Marketing?What Is Business Marketing?• Those activities that facilitate exchanges involving Those activities that facilitate exchanges involving

products and customers in business marketsproducts and customers in business markets• A business transaction between a professional seller A business transaction between a professional seller

(representing a selling company) and a professional (representing a selling company) and a professional buyer (representing a buying company) buyer (representing a buying company)

• Activities in which goods or services are sold for any Activities in which goods or services are sold for any use other than personal consumption use other than personal consumption

• Note: It is not the nature of the product; it’s the Note: It is not the nature of the product; it’s the nature of the transaction. nature of the transaction.

(continued)(continued)

What Is Business Marketing? What Is Business Marketing?

Is it a consumer transaction or a business Is it a consumer transaction or a business transaction?transaction?• You buy a gear to fix your mountain bike.You buy a gear to fix your mountain bike.• Ford buys the same gear to fix a machine.Ford buys the same gear to fix a machine.• Xerox buys soft drinks for its cafeterias.Xerox buys soft drinks for its cafeterias.• You start a landscaping business and You start a landscaping business and

purchase a lawnmower. purchase a lawnmower. • Coke buys TV ad time or sugar.Coke buys TV ad time or sugar.• The U.S. government buys…anything.The U.S. government buys…anything.

Business versus Business versus Consumer MarketingConsumer Marketing

CharacteristicCharacteristic

Sales volumeSales volumePurchase volumePurchase volumeNumber of buyersNumber of buyersSize of individual buyersSize of individual buyersLocation of BuyersLocation of Buyers

Buyer-seller relationshipBuyer-seller relationshipNature of channelNature of channelNature of buying Nature of buying

influencesinfluencesType of negotiationsType of negotiationsUse of reciprocityUse of reciprocityUse of leasingUse of leasingPrimary promotion Primary promotion

methodmethod

Business MarketBusiness Market

GreaterGreaterGreaterGreaterFewerFewerLargerLargerGeographically Geographically

concentratedconcentratedCloserCloserMore directMore directMultiple (buying Multiple (buying

center)center)More complexMore complexYesYesGreaterGreaterPersonal sellingPersonal selling

Consumer MarketConsumer Market

SmallerSmallerSmallerSmallerManyManySmallerSmallerDiffuseDiffuse

More impersonalMore impersonalLess directLess directSingleSingle

SimplerSimplerNoNoSmallerSmallerAdvertisingAdvertising

Philosophy TestPhilosophy Test

What is the purpose of a business?What is the purpose of a business?• To some people, maximizing shareholder wealth is To some people, maximizing shareholder wealth is

consistent with an accounting philosophy—but not consistent with an accounting philosophy—but not marketing concept philosophy. marketing concept philosophy.

• To manufacturing folks, the purpose might be to make To manufacturing folks, the purpose might be to make the world’s best widgets.the world’s best widgets.

• To marketers, the purpose is to get and keep To marketers, the purpose is to get and keep customers. customers.

• To a customer-driven company, it would be the same.To a customer-driven company, it would be the same.• The principal task of the marketing function (operating The principal task of the marketing function (operating

under the marketing concept) is not to manipulate under the marketing concept) is not to manipulate customers to do what suits the interests of the firm but customers to do what suits the interests of the firm but rather to find efficient means of making the firm do rather to find efficient means of making the firm do what suits the interests of the customers.what suits the interests of the customers.

Derived DemandDerived Demand Inelastic DemandInelastic Demand Fluctuating DemandFluctuating Demand Joint DemandJoint Demand

Characteristics of Characteristics of Business DemandBusiness Demand

Scope and ImportanceScope and Importance““Derived demand” says that demand for a business product is Derived demand” says that demand for a business product is linked to demand for a consumer good. This means consumer linked to demand for a consumer good. This means consumer demand affects business marketing up a vast network of demand affects business marketing up a vast network of channels. For example, when OfficeMax experiences increased channels. For example, when OfficeMax experiences increased demand for paper clips, the effect is felt by its suppliers, paper demand for paper clips, the effect is felt by its suppliers, paper clip manufacturers, and their suppliers.clip manufacturers, and their suppliers.

Classification of Classification of Business Goods and ServicesBusiness Goods and Services

Major equipmentMajor equipment Accessory equipmentAccessory equipment Process materialsProcess materials MRO (maintenance, repair, operating) supplies MRO (maintenance, repair, operating) supplies Fabricated and component partsFabricated and component parts Business servicesBusiness services Raw materialsRaw materials

Major Categories of CustomersMajor Categories of Customers

Commercial enterprisesCommercial enterprises• Indirect channel members and facilitatorsIndirect channel members and facilitators• OEMs (original equipment manufacturers)OEMs (original equipment manufacturers)• Users = customersUsers = customers

Governmental organizationsGovernmental organizations InstitutionsInstitutions

Scope and Importance Scope and Importance of Customersof Customers

350,000 manufacturers350,000 manufacturers 300,000 business service providers300,000 business service providers 400,000 wholesalers, distributors, agents400,000 wholesalers, distributors, agents 2.5 million retailers2.5 million retailers 80,000 government agencies (federal, state, local) 80,000 government agencies (federal, state, local) Plus nonprofits—hospitals, museums, parks, Plus nonprofits—hospitals, museums, parks,

universities, political partiesuniversities, political parties

Major Uses of ProductsMajor Uses of Products

For additional production (e.g., components are For additional production (e.g., components are combined into subassemblies and become part of the combined into subassemblies and become part of the finished product)finished product)

For use in operations, but not part of the finished For use in operations, but not part of the finished productproduct

For resaleFor resale

Business Marketing View Business Marketing View of a Consumer Productof a Consumer Product

Identify what purchasing bought.Identify what purchasing bought.

The picture suggests quantities of the The picture suggests quantities of the following were purchased:following were purchased:

ConveyerConveyer Conveyer replacement and Conveyer replacement and

maintenance materialsmaintenance materials Components going down Components going down

conveyerconveyer Raw material and Raw material and

components of components of componentscomponents

Assembly station Assembly station magnifiermagnifier

Power tool with blue cordPower tool with blue cord

Assembly fixture Assembly fixture Table and chairTable and chair Trucks with components Trucks with components

on themon them Floor cleaning systemsFloor cleaning systems Lighting systemsLighting systems Heating/AC systemsHeating/AC systems Uniform vestUniform vest Health insuranceHealth insurance

How Do They Buy It?How Do They Buy It?

Items made from:Items made from:• SteelSteel• WoodWood• PlasticPlastic• ChemicalsChemicals• Printed formsPrinted forms• TransportationTransportation• ElectronicsElectronics

How do you pick one How do you pick one supplier from the supplier from the thousands out there? thousands out there?

How do you get them How do you get them to purchase products to purchase products from your company?from your company?

Remember What Remember What Business Marketers Do! Business Marketers Do!

Identify customers.Identify customers. Identify customer needs and sell benefits.Identify customer needs and sell benefits. Communicate with customers (contact personally, Communicate with customers (contact personally,

reach through media, build relationships, sell benefits).reach through media, build relationships, sell benefits). Communicate internally, build relationships, sell Communicate internally, build relationships, sell

benefits.benefits. Analyze buyer behavior, identify key buying center Analyze buyer behavior, identify key buying center

influencers and their roles.influencers and their roles. Develop products and services (complete packages of Develop products and services (complete packages of

attributes).attributes). Study the market and competitive environment Study the market and competitive environment

(economic, legal, technological).(economic, legal, technological).


Remember What Remember What Business Marketers Do! Business Marketers Do!

Set prices and terms, negotiate, sell benefits.Set prices and terms, negotiate, sell benefits. Make products available at the right time, in the Make products available at the right time, in the

right place, in the right quantity, in the right right place, in the right quantity, in the right condition.condition.

Allocate resources across products.Allocate resources across products. Create, implement, monitor, control, and Create, implement, monitor, control, and

continuously evaluate the marketing mix and continuously evaluate the marketing mix and strategic program to optimize customer satisfaction strategic program to optimize customer satisfaction and meet profit objectives. and meet profit objectives.

Be a solution to customer problems, sell benefits.Be a solution to customer problems, sell benefits. Be challenged—Use business judgment—Make Be challenged—Use business judgment—Make

decisions—Make decisions—Make decisions.decisions—Make decisions—Make decisions.

Mission StatementsMission Statements

Mission Statements reflect an organization’s purpose, values, Mission Statements reflect an organization’s purpose, values, and customer orientation.and customer orientation.

What can you tell about the people and culture that produced What can you tell about the people and culture that produced each of the following mission statements?each of the following mission statements?• Company 1:Company 1: “We truly care for each customer. We build “We truly care for each customer. We build

enduring relationships by understanding and anticipating enduring relationships by understanding and anticipating our customer’s needs and by serving them better each time our customer’s needs and by serving them better each time than the time before. Our customers can count on us to than the time before. Our customers can count on us to consistently deliver superior products and services that consistently deliver superior products and services that help them achieve their business objectives.” help them achieve their business objectives.”

• Company 2:Company 2: “We are dedicated to maintaining our position “We are dedicated to maintaining our position as a profitable organization and a leader in our industry. In as a profitable organization and a leader in our industry. In this way, we provide our shareholders a solid return on their this way, we provide our shareholders a solid return on their investment, our employees with the benefits of gainful investment, our employees with the benefits of gainful employment, and the surrounding community with a share in employment, and the surrounding community with a share in our prosperity.our prosperity.



• Company 3:Company 3: “To be the number one _______ company in “To be the number one _______ company in the world and among the premier industrial concerns in the world and among the premier industrial concerns in terms of quality, profitability, and growth.”terms of quality, profitability, and growth.”

• Company 4:Company 4: “We are dedicated to the creation and “We are dedicated to the creation and demonstration of a new corporate concept of linked demonstration of a new corporate concept of linked prosperity. Our mission consists of interrelated parts: prosperity. Our mission consists of interrelated parts: (a) make and distribute the finest quality innovative (a) make and distribute the finest quality innovative products, (b) operate the company in such a way that products, (b) operate the company in such a way that actively recognizes the central role that business plays actively recognizes the central role that business plays in the structure of society…by improving the quality of in the structure of society…by improving the quality of life of the broad local, national, and international life of the broad local, national, and international community.” community.”



• Company 5:Company 5: “We believe that our past, current, and “We believe that our past, current, and future successes come from a total dedication to future successes come from a total dedication to excellent service to those who buy our products. excellent service to those who buy our products. Satisfying our customers and consumer needs in a Satisfying our customers and consumer needs in a superior way is the only reason we are in business.”superior way is the only reason we are in business.”

• Company 6:Company 6: “We are in business to please our “We are in business to please our customers…to provide greater value than our customers…to provide greater value than our competitors.”competitors.”

• Company 7:Company 7: “______ is a global company committed to “______ is a global company committed to building long-term growth in volume and profit and to building long-term growth in volume and profit and to enhancing its worldwide leadership position by enhancing its worldwide leadership position by providing products of superior value.”providing products of superior value.”

Don’t Forget Don’t Forget the Marketing Conceptthe Marketing Concept

The Marketing Concept is a The Marketing Concept is a business philosophybusiness philosophy which which states that the customer’s want-satisfaction is the states that the customer’s want-satisfaction is the social and economic justification of a company’s social and economic justification of a company’s existence; consequently, all company activities must be existence; consequently, all company activities must be devoted first to determining what the customer’s wants devoted first to determining what the customer’s wants are and then to finding a way to satisfy those wants are and then to finding a way to satisfy those wants while still making a satisfactory profit.while still making a satisfactory profit.

Chapter 2Chapter 2

The Organizational Buying ProcessThe Organizational Buying Process


Objectives of Business BuyersObjectives of Business Buyers Profile of a Professional BuyerProfile of a Professional Buyer The Changing Role of the BuyerThe Changing Role of the Buyer The Business Buying ProcessThe Business Buying Process Business Buying SituationsBusiness Buying Situations The Buying CenterThe Buying Center The Materials Management ConceptThe Materials Management Concept Purchasing and the InternetPurchasing and the Internet Environmental Forces and Buying DecisionsEnvironmental Forces and Buying Decisions Purchasing's Impact Upon Company ProfitPurchasing's Impact Upon Company Profit

Typical Job AdTypical Job Ad

Square D Company has a Square D Company has a BuyerBuyer position available at position available at the Asheville, NC, location. Square D is a manufacturer the Asheville, NC, location. Square D is a manufacturer of electrical control products. Responsibilities include: of electrical control products. Responsibilities include: developing, communicating, and implementing developing, communicating, and implementing strategies and tactics to establish, manage, and strategies and tactics to establish, manage, and improve all aspects of supplier performance; acting as improve all aspects of supplier performance; acting as a liaison between the external supplier base and a liaison between the external supplier base and manufacturing operations; analyzing and developing manufacturing operations; analyzing and developing strategies to manage commodity availability and strategies to manage commodity availability and pricing market conditions. pricing market conditions.


Typical Job AdTypical Job Ad

Prefer a BS degree in business with knowledge of a Prefer a BS degree in business with knowledge of a JIT environment. CPM or APICS certification a plus. JIT environment. CPM or APICS certification a plus. Experience in value analysis required. This position Experience in value analysis required. This position requires a highly motivated self-starter with excellent requires a highly motivated self-starter with excellent verbal and written communication skills and strong verbal and written communication skills and strong computer experience.computer experience.

Steps in the Steps in the Business Buying ProcessBusiness Buying Process

Recognizing the needRecognizing the need Developing product specificationsDeveloping product specifications Soliciting bids from potential suppliersSoliciting bids from potential suppliers Making the purchase decisionMaking the purchase decision Issuing the contractIssuing the contract Inspecting delivered goods for qualityInspecting delivered goods for quality Evaluating vendor performanceEvaluating vendor performance

Value Analysis:Value Analysis:Comparison of Function to CostComparison of Function to Cost

Select a relatively high-cost or high-volume purchased Select a relatively high-cost or high-volume purchased item (part, material, or service).item (part, material, or service).

Find out how the item is used and what is expected of Find out how the item is used and what is expected of it—i.e., its function in detail.it—i.e., its function in detail.

Ask the following questions:Ask the following questions:• Does its use contribute value? Does its use contribute value? • Is it cost-proportionate to usefulness?Is it cost-proportionate to usefulness?• Does it need all its features?Does it need all its features?• Is there anything better, at a more favorable price, Is there anything better, at a more favorable price,

for the intended use?for the intended use?• Can the item be eliminated?Can the item be eliminated?• If the item is not standard, can a standard item be If the item is not standard, can a standard item be

used?used?



• If it is a standard item, does it completely fit the If it is a standard item, does it completely fit the proposed application, or is it a misfit? proposed application, or is it a misfit?

• Does the item have greater capacity than required?Does the item have greater capacity than required?• Is there a similar item in inventory that could be Is there a similar item in inventory that could be

used instead?used instead?• Can the weight be reduced?Can the weight be reduced?• Are closer tolerances specified than are necessary?Are closer tolerances specified than are necessary?• Is needless machining performed on the item?Is needless machining performed on the item?• Are unnecessarily fine finishes specified?Are unnecessarily fine finishes specified?• Is commercial quality specified?Is commercial quality specified?• Can you make it now? Can you buy it for less?Can you make it now? Can you buy it for less?• If you are making it now, can you buy it for less?If you are making it now, can you buy it for less?• Is the item properly classified for shipping Is the item properly classified for shipping

purposes to obtain the lowest transportation rates?purposes to obtain the lowest transportation rates?



• Can cost of packaging be reduced? Can cost of packaging be reduced? • Are you asking your suppliers for suggestions to Are you asking your suppliers for suggestions to

reduce costs?reduce costs?• Do material, reasonable labor, overhead, and Do material, reasonable labor, overhead, and

profit total the item’s cost?profit total the item’s cost?• Will another dependable supplier provide it for Will another dependable supplier provide it for

less?less?• Is anyone buying it for less?Is anyone buying it for less?

Now:Now:• Pursue those suggestions that appear practical.Pursue those suggestions that appear practical.• Get samples of the proposed item(s).Get samples of the proposed item(s).• Select the best possibilities and propose changes.Select the best possibilities and propose changes.

Quotations and ContractsQuotations and Contracts

RFQ:RFQ: Request for Quotation Request for Quotation RFP:RFP: Request for Proposal Request for Proposal Boilerplate:Boilerplate: Standard legal clauses (fine print) on RFQs, your Standard legal clauses (fine print) on RFQs, your

bid, and the customer’s order. May contain terms of sale that bid, and the customer’s order. May contain terms of sale that contradict terms on your bid, and often contain penalties for contradict terms on your bid, and often contain penalties for nonperformance.nonperformance.

You may receive an RFP, send a proposal, receive an RFQ, send You may receive an RFP, send a proposal, receive an RFQ, send a bid, receive an order, and ship products with an invoice. a bid, receive an order, and ship products with an invoice.

A contract may be involved for long-term requirements.A contract may be involved for long-term requirements. If company-to-company EDI is used to order, customer’s If company-to-company EDI is used to order, customer’s

boilerplate may be sent once per year. boilerplate may be sent once per year. Internet purchases give seller an advantage, in that seller’s Internet purchases give seller an advantage, in that seller’s

boilerplate terms are presented, but not customer’s. A wise boilerplate terms are presented, but not customer’s. A wise buyer might add a reference to them. buyer might add a reference to them.

Evaluating Potential VendorsEvaluating Potential Vendors

Basic Considerations in Evaluating Potential Basic Considerations in Evaluating Potential VendorsVendors• Performance ConsiderationsPerformance Considerations• Plant VisitsPlant Visits• Geographic LocationsGeographic Locations• CapacityCapacity

Vendor-Rating ApproachesVendor-Rating Approaches• The Categorical PlanThe Categorical Plan• The Weighted-Point PlanThe Weighted-Point Plan• The Cost-Ratio PlanThe Cost-Ratio Plan

Single SourcingSingle Sourcing

Between XYZ Corp., the buyer, and ___________, the seller. Term of Between XYZ Corp., the buyer, and ___________, the seller. Term of contract: January 1, 2000, through December 31, 2002.contract: January 1, 2000, through December 31, 2002.

1. 1. Seller shall furnish all goods and services listed as scheduled Seller shall furnish all goods and services listed as scheduled and released F.O.B. destination without additional charges.and released F.O.B. destination without additional charges.

XYZ Part #426F37 Revision A 125,000,000 units @ $55.00 XYZ Part #426F37 Revision A 125,000,000 units @ $55.00 per thousand unitsper thousand units

XYZ Part #426588 Revision D 5,000,000 units @ $15.78 XYZ Part #426588 Revision D 5,000,000 units @ $15.78 per thousand unitsper thousand units

XYZ Part #426C56 Revision E XYZ Part #426C56 Revision E 450,000 units @ $525.00 450,000 units @ $525.00 per thousand unitsper thousand units

2.2. Above quantities may be adjusted as necessary by XYZ Corp. over Above quantities may be adjusted as necessary by XYZ Corp. over the term of the agreement.the term of the agreement.

3. 3. Seller will provide technical support as required by XYZ Corp. at Seller will provide technical support as required by XYZ Corp. at no additional cost.no additional cost.


4.4. Goods will meet all XYZ Corp. product and quality specifications.Goods will meet all XYZ Corp. product and quality specifications.

5.5. If delivery is not completed within the time specified, XYZ Corp. If delivery is not completed within the time specified, XYZ Corp. reserves the right to any or all of the following:reserves the right to any or all of the following:

A. Terminate the agreement.A. Terminate the agreement.B. Purchase replacement goods at seller’s expense.B. Purchase replacement goods at seller’s expense.C. Bill seller for all downtime costs.C. Bill seller for all downtime costs.

6.6. Seller will, at no cost to XYZ Corp., have their materials certified Seller will, at no cost to XYZ Corp., have their materials certified by an independent laboratory as meeting XYZ Corp. specifications.by an independent laboratory as meeting XYZ Corp. specifications.

7.7. Seller is restricted from making any changes in the product after Seller is restricted from making any changes in the product after sample approval is granted, including but not limited to materials, sample approval is granted, including but not limited to materials,

production operations, and packaging.production operations, and packaging.

8.8. Sellers will allow XYZ Corp. personnel access to all areas and Sellers will allow XYZ Corp. personnel access to all areas and records necessary to verify compliance.records necessary to verify compliance.



9.9. Seller shall assume all responsibility in connection with liability Seller shall assume all responsibility in connection with liability based on seller’s performance and for the performance of their based on seller’s performance and for the performance of their goods, including, but not limited to patent infringement, civil goods, including, but not limited to patent infringement, civil liability, and criminal liability.liability, and criminal liability.

10.10. Seller shall treat as confidential all information, data, Seller shall treat as confidential all information, data, specifications, and processes involved in this agreement.specifications, and processes involved in this agreement.

11.11. XYZ Corp may terminate this agreement by way of written XYZ Corp may terminate this agreement by way of written notice with liability limited to products actually produced to a notice with liability limited to products actually produced to a scheduled delivery date 10 days in the future.scheduled delivery date 10 days in the future.

12.12. Part price is fixed for the term of the agreement; 24 months Part price is fixed for the term of the agreement; 24 months from the agreement date.from the agreement date.

13.13. Seller agrees that all terms expressed here are in addition to Seller agrees that all terms expressed here are in addition to the terms of the Uniform Commercial Code, laws of the State, and the terms of the Uniform Commercial Code, laws of the State, and laws of the United States.laws of the United States.


Types of Types of Business Buying SituationsBusiness Buying Situations

New-task buy:New-task buy: Business buying situation that is new Business buying situation that is new and very different from anything that the buyer has and very different from anything that the buyer has faced previously. faced previously.

Straight rebuy:Straight rebuy: Most common type of business Most common type of business buying situation; buyer purchases a part, material, or buying situation; buyer purchases a part, material, or service routinely, with little thought going into service routinely, with little thought going into buying process. buying process.

Modified rebuy:Modified rebuy: Reevaluation of alternatives; Reevaluation of alternatives; necessary because buying requirements have necessary because buying requirements have changed such that relatively routine buy or purchase changed such that relatively routine buy or purchase no longer is routine.no longer is routine.

Roles of Buying Center MembersRoles of Buying Center Members

User:User: Person who will use the product in question; Person who will use the product in question; influence can range from minimal to major. influence can range from minimal to major.

Gatekeeper:Gatekeeper: Keeps tight control on flow of information to Keeps tight control on flow of information to other buying center members; can open or close the gate other buying center members; can open or close the gate for salespeople. for salespeople.

Influencer:Influencer: Provides information to other members for Provides information to other members for evaluating alternative products or sets purchasing evaluating alternative products or sets purchasing specifications; can operate within or outside the buying specifications; can operate within or outside the buying center. center.

Decider:Decider: Makes buying decision; often difficult to identify. Makes buying decision; often difficult to identify. Buyer:Buyer: Assigned formal authority to select vendors and Assigned formal authority to select vendors and

complete purchasing transaction.complete purchasing transaction.

Materials Management ConceptMaterials Management Concept

Materials management:Materials management: Grouping of functions involved in Grouping of functions involved in obtaining and bringing materials into a production obtaining and bringing materials into a production operation. operation.

Usually one manager responsible for planning, Usually one manager responsible for planning, organizing, motivating, and controlling all the activities organizing, motivating, and controlling all the activities principally concerned with the flow of materials into an principally concerned with the flow of materials into an organization.organization.

View material flow as a View material flow as a system.system.

MRP SystemsMRP Systems

MRP MRP = Materials Requirement Planning= Materials Requirement Planning

MRP systems:MRP systems: Large computer systems used to plan and Large computer systems used to plan and schedule operations using a “push” approach.schedule operations using a “push” approach.

Starting from the order due dates and forecast, MRP Starting from the order due dates and forecast, MRP considers every required raw material, operating supply, considers every required raw material, operating supply, and component part, their order of use, and what and component part, their order of use, and what equipment they will occupy.equipment they will occupy.

Backs into a schedule of what will have to be done when, Backs into a schedule of what will have to be done when, including what will have to be ordered when and received including what will have to be ordered when and received when.when.

Just-In-Time SystemsJust-In-Time Systems

JIT JIT == Just-In-TimeJust-In-Time

Adopted and implemented by many original equipment Adopted and implemented by many original equipment manufacturers (OEMs) and suppliers of component parts manufacturers (OEMs) and suppliers of component parts and materials. and materials.

An operational philosophy thought to epitomize the An operational philosophy thought to epitomize the relationship marketing model.relationship marketing model.

Uses a “pull” approach; much more than material arriving Uses a “pull” approach; much more than material arriving just in time. just in time.

JIT FeaturesJIT Features

Zero defects—Strict quality controlZero defects—Strict quality control Frequent, reliable delivery of quantities as neededFrequent, reliable delivery of quantities as needed Close locationClose location Advanced telecommunications, EDI.Advanced telecommunications, EDI. Single sourcing—CustomerSingle sourcing—Customer-s-supplier upplier

partnerships/alliancespartnerships/alliances Value analysisValue analysis Early supplier involvementEarly supplier involvement Evergreen contractsEvergreen contracts Customer access to financial and process informationCustomer access to financial and process information

JIT SystemJIT System Pre-1985 U.S. Mfg.Pre-1985 U.S. Mfg.

IntegratedIntegrated JIT versus JIT versus U.S. ManufacturingU.S. Manufacturing (pre-1985)(pre-1985)

What it isWhat it is An integratedAn integrated The way it has The way it has philosophy of philosophy of always been donealways been doneoperating a operating a businessbusiness

Raw material and Raw material and A liability to be A liability to be Protection againstProtection againstin-process inventoryin-process inventory eliminatedeliminated problems, necessary problems, necessary

to maximize to maximize machine utilizationmachine utilization

Order sizeOrder size Immediate needs Immediate needs Based on EOQ andBased on EOQ andonly only efficient long efficient long

production runs.production runs.

JIT SystemJIT System Pre-1985 U.S. Mfg.Pre-1985 U.S. Mfg.

Production setup timeProduction setup time Fast at insignificant Fast at insignificant Low-priority concernLow-priority concerncost; flexible cost; flexible (Ex: same die change(Ex: same die changemanufacturing manufacturing =5 hours) =5 hours)(Ex: stamping die (Ex: stamping die change =5 minutes)change =5 minutes)

SuppliersSuppliers Part of the team-Part of the team- Adversarie-multiple Adversarie-multiple single source single source sourcesource

DeliveryDelivery Must arrive within Must arrive within Arrives on due date Arrives on due date small time window, small time window, plus or minus, plus or minus, go right to the line, go right to the line, packaged for packaged for

packaged for packaged for warehouse storage warehouse storage assembly efficiency assembly efficiency

Integrated JIT vs. Integrated JIT vs. U.S. Manufacturing U.S. Manufacturing (pre-1985)(pre-1985)

JIT SystemJIT System Pre-1985 U.S. Pre-1985 U.S. Mfg.Mfg.

PurchasingPurchasing Involve supplier in Involve supplier in Design in secret, Design in secret, design; long-term design; long-term competitive competitive

bidding; bidding; contracts at fixed contracts at fixed contract for currentcontract for currentpricesprices requirement; requirement;

recognize need recognize need for price increasesfor price increases

Efficiency Efficiency Workers see as Workers see as Workers see as Workers see as threat threat improvements improvements strengtheningstrengthening

companycompany

Production control andProduction control andDemand “pull”—Demand “pull”— Forecast “push”— Forecast “push”— scheduling scheduling Kanban to minimize Kanban to minimize maximize machinemaximize machine

in-process inventoryin-process inventory utilizationutilization

Integrated JIT vs. Integrated JIT vs. U.S. Manufacturing U.S. Manufacturing (pre-1985)(pre-1985)

KanbanKanban Exercise Exercise

1. Fill in the empty seats so that all the empty seats are in the 1. Fill in the empty seats so that all the empty seats are in the back of your row. back of your row.

2. Take the piece of paper handed out, put your name on it, 2. Take the piece of paper handed out, put your name on it, and put it at your feet in the isle between your chair and the and put it at your feet in the isle between your chair and the person in front of you. This is the product you have just person in front of you. This is the product you have just assembled (like a newly assembled door you’ve just put a assembled (like a newly assembled door you’ve just put a handle on).handle on).

3. 3. Your job on this assembly line is to repeat this process, but Your job on this assembly line is to repeat this process, but only when you see that the next person in the operation has only when you see that the next person in the operation has taken the piece you just assembled. (If the paper with you taken the piece you just assembled. (If the paper with you name on it is still at your feet, do nothing). name on it is still at your feet, do nothing).

SEE HOW DEMAND “PULLS” THE ASSEMBLY OPERATIONS?SEE HOW DEMAND “PULLS” THE ASSEMBLY OPERATIONS?

Strategic Alliances betweenStrategic Alliances betweenSuppliers and CustomersSuppliers and Customers

Bose CorporationBose Corporation• Reduced production Reduced production

costscosts• Reduced staffReduced staff• Allowed for just-in-Allowed for just-in-

time deliverytime delivery• Streamlined and Streamlined and

cost-effective cost-effective product developmentproduct development

• Consistently met Consistently met customer customer requirementsrequirements

Benefits to Bose Benefits to Bose SuppliersSuppliers• Evergreen contractsEvergreen contracts• Improved production Improved production

efficiencyefficiency• Elimination of sales Elimination of sales

callscalls• Improved Improved

communicationcommunication

Environmental Forces and Environmental Forces and Buying DecisionsBuying Decisions

The Economic EnvironmentThe Economic Environment The Physical EnvironmentThe Physical Environment The Competitive EnvironmentThe Competitive Environment The Technological EnvironmentThe Technological Environment The Legal-Political EnvironmentThe Legal-Political Environment The Ethical EnvironmentThe Ethical Environment

ISO 9000 CertificationISO 9000 Certification

ISO= International Organization for StandardizationISO= International Organization for Standardization ISO 9000 Certification: a series of standards that include:ISO 9000 Certification: a series of standards that include:

• Effective quality systemEffective quality system• Valid measurements and calibrationValid measurements and calibration• Appropriate statistical techniquesAppropriate statistical techniques• Lot control, part tracing, record keepingLot control, part tracing, record keeping• Internal process auditingInternal process auditing• Employee quality trainingEmployee quality training

Mandates:Mandates:• Define appropriate quality standardsDefine appropriate quality standards• Document processesDocument processes• Prove consistent adherence to bothProve consistent adherence to both



Required by U.S. Dept. of Defense, Japan, European Required by U.S. Dept. of Defense, Japan, European Community, and others. Requirement includes second-tier Community, and others. Requirement includes second-tier subassembly and component makers (and their suppliers, subassembly and component makers (and their suppliers, etc.).etc.).

Prior to ISO 9000, most companies had their own versions of Prior to ISO 9000, most companies had their own versions of quality systems (many modeled on military specifications).quality systems (many modeled on military specifications).

Certification assures customers that suppliers have Certification assures customers that suppliers have capabilities and systems to provide high-quality goods. capabilities and systems to provide high-quality goods. (Doesn’t assure that particular products are high quality, (Doesn’t assure that particular products are high quality, just the standards of the system they were produced under.)just the standards of the system they were produced under.)



Other International Standards receiving attention:Other International Standards receiving attention:• AS 9000 (aerospace)AS 9000 (aerospace)• ISO 14000 (environmental managementISO 14000 (environmental management• SA 8000 (social accountability)SA 8000 (social accountability)

ISO creates standards; typically, consultants help ISO creates standards; typically, consultants help company adapt systems to meet the standards. When company adapt systems to meet the standards. When ready, a certification company audits the systems and ready, a certification company audits the systems and awards certification (and provides periodic checking).awards certification (and provides periodic checking).

Adoption cost = ~$250,000Adoption cost = ~$250,000––$500,000 for average-size $500,000 for average-size plan operation.plan operation.

Why Is ISO 9000 Why Is ISO 9000 a Marketing Issue?a Marketing Issue?

If customer does not require it, ISO 9000 certification can be a If customer does not require it, ISO 9000 certification can be a differential advantage.differential advantage.

If customer does require ISO 9000, marketers ensure that If customer does require ISO 9000, marketers ensure that customer needs are met. If marketing is confident that their customer needs are met. If marketing is confident that their quality department can handle ISO requirement, marketing can quality department can handle ISO requirement, marketing can deal with other aspects of customer’s needs. If marketing is not deal with other aspects of customer’s needs. If marketing is not sure, then they need to be involved until they are. This is true of sure, then they need to be involved until they are. This is true of any customer requirement (e.g., technical, delivery, packaging).any customer requirement (e.g., technical, delivery, packaging).

Keep in mind that marketers decide which customers to serve with Keep in mind that marketers decide which customers to serve with what marketing mixes. For example, marketing can decide that it what marketing mixes. For example, marketing can decide that it is in the company’s best interest to target customers who require is in the company’s best interest to target customers who require ISO 9000, but not approach customers who require AS 9000.ISO 9000, but not approach customers who require AS 9000.

Today’s marketers will need to be familiar with ISO specifications. Today’s marketers will need to be familiar with ISO specifications. Find out more at www.ISO.ch and www.bsi.org.uk.Find out more at www.ISO.ch and www.bsi.org.uk.

Chapter 3Chapter 3

Marketing Research Marketing Research and Information Systemsand Information Systems


Differences Between Business and Consumer Differences Between Business and Consumer Marketing ResearchMarketing Research

Technology and Marketing ResearchTechnology and Marketing Research Major Tasks of Marketing ResearchMajor Tasks of Marketing Research Marketing Research Versus Marketing Information Marketing Research Versus Marketing Information

SystemsSystems Database DevelopmentDatabase Development The Marketing Research ProcessThe Marketing Research Process Qualitative Versus Quantitative ResearchQualitative Versus Quantitative Research The Make-or-Buy Decision in ResearchThe Make-or-Buy Decision in Research Developing Information SourcesDeveloping Information Sources

Marketers with Marketing Marketers with Marketing Research ResponsibilityResearch Responsibility

Vice President of Vice President of MarketingMarketing

Director of MarketingDirector of Marketing Marketing ManagerMarketing Manager Product ManagerProduct Manager Assistant Product Assistant Product

ManagerManager Sales ManagerSales Manager Field SalespersonField Salesperson All other professional-All other professional-

level marketing level marketing positionspositions

If you would like to If you would like to have one of these have one of these positions, take learning positions, take learning marketing research marketing research skills seriously. skills seriously. Marketing research is a Marketing research is a “must-have” core skill. “must-have” core skill.

Marketing Research AssignmentMarketing Research Assignment

Scenario:Scenario:

Clemson Electronics Inc. is a high-tech electronics Clemson Electronics Inc. is a high-tech electronics manufacturer that has designed a mobile, quick-manufacturer that has designed a mobile, quick-responding device to measure and identify hazardous responding device to measure and identify hazardous waste in soils. Traditionally, soil samples are collected, waste in soils. Traditionally, soil samples are collected, brought to a lab, and processed through a series of tests brought to a lab, and processed through a series of tests by a trained chemist. The new device is brought to the by a trained chemist. The new device is brought to the site, requires no special training, and can quickly provide site, requires no special training, and can quickly provide an accurate analysis. The general manager has assigned an accurate analysis. The general manager has assigned you to develop information upon which strategic planning you to develop information upon which strategic planning will be based.will be based.

How would you respond?How would you respond?

Marketing Research AssignmentMarketing Research Assignment

Questions to consider:Questions to consider:• What are the present and potential market segments?What are the present and potential market segments?• Who are the key potential customers?Who are the key potential customers?• Can you develop a demand forecast for the first five years?Can you develop a demand forecast for the first five years?• Who are the major competitors in each segment?Who are the major competitors in each segment?• How do we compare in costs and customer benefits? How do we compare in costs and customer benefits? • What environmental factors could favorably or unfavorably affect What environmental factors could favorably or unfavorably affect

demand?demand?• Are there government data that you recommend using? Are there government data that you recommend using? • Do you recommend primary research?Do you recommend primary research?• Can you have a report ready prior to the senior management Can you have a report ready prior to the senior management

meeting in three weeks?meeting in three weeks?

Be specific: Where would you get what information, and how Be specific: Where would you get what information, and how long would it take? These are the questions researchers must long would it take? These are the questions researchers must answer.answer.

.Consumer vs. Business Consumer vs. Business Marketing ResearchMarketing Research

Universe populationUniverse population 72.5 million households72.5 million households Limited by industry Limited by industry 250 million persons250 million persons

Respondent accessibilityRespondent accessibility Over the years, more andOver the years, more and Fairly difficult Fairly difficult more difficult more difficult (false research, over- (false research, over-

researched. Why researched. Why respond?)respond?)

Sample sizeSample size Can be large and random Can be large and random Limited by number in Limited by number in groupgroup

Respondent definitionRespondent definition Usually obvious who Usually obvious who Need to understand Need to understand buying buying to ask to ask centercenter

InterviewersInterviewers Easy to train to deal with Easy to train to deal with Need to be able to deal Need to be able to deal consumers consumers with with

executives, know executives, know about productabout product

Study costsStudy costs Function of sample size Function of sample size Usually much more Usually much more expensive (travel, cost of expensive (travel, cost of

interviewer, time, interviewer, time, nonresponse, etc.)nonresponse, etc.)

ConsumerConsumer BusinessBusiness

Major Tasks of Major Tasks of Business Marketing ResearchBusiness Marketing Research

Market PotentialMarket Potential 97%*97%*

Market-Share AnalysisMarket-Share Analysis 9797

Market CharacteristicsMarket Characteristics 9797

Sales AnalysisSales Analysis 9292

Forecasting (Demand Projection) Forecasting (Demand Projection) 8989

Business Trends Business Trends 8787

Competitive AnalysisCompetitive Analysis 8787

* Percent of firms doing this type of research, based on an AMA published* Percent of firms doing this type of research, based on an AMA published survey.survey.

Marketing Information SystemsMarketing Information Systems

Marketing information system Marketing information system uses procedures, uses procedures, hardware, and software to accumulate, integrate, and hardware, and software to accumulate, integrate, and disseminate important data through reports to key disseminate important data through reports to key marketing decision makers. In contrast, marketing marketing decision makers. In contrast, marketing research is problem or project oriented.research is problem or project oriented.

Can also be defined as a system that scans and Can also be defined as a system that scans and collects data from the environment, makes use of collects data from the environment, makes use of data from transactions and operations within the data from transactions and operations within the firm, and then filters, organizes, and selects data firm, and then filters, organizes, and selects data before presenting it as information to marketing before presenting it as information to marketing management.management.

Marketing Information Marketing Information System = MIS System = MIS

Most common business usage of MIS = Most common business usage of MIS = managementmanagement information systeminformation system

Management information systems usually collect, organize, Management information systems usually collect, organize, and report company operating information (production, and report company operating information (production, quality, labor usage, on-time delivery reports).quality, labor usage, on-time delivery reports).

In general sense, a marketing information system could be In general sense, a marketing information system could be included as one type of management information system. included as one type of management information system.

MIS is also an old term for a company’s computer MIS is also an old term for a company’s computer department (because it was responsible for management department (because it was responsible for management information system hardware, software, and system information system hardware, software, and system operation).operation).

The moral of the story is, refer to a marketing information The moral of the story is, refer to a marketing information system as a marketing information system rather than system as a marketing information system rather than MIS.MIS.

Marketing Information System Marketing Information System Can Be a “CRM” SubsystemCan Be a “CRM” Subsystem

• Customer service and communicationCustomer service and communication• Sales force automationSales force automation• Campaign managementCampaign management• Business intelligenceBusiness intelligence

CRM = Customer Relationship Management—CRM = Customer Relationship Management—an integrated software system which typically an integrated software system which typically includes:includes:

Decision Support Systems (DSS)Decision Support Systems (DSS)

Marketing information system can also be thought of as a Marketing information system can also be thought of as a decision support system (DSS) decision support system (DSS) for marketers.for marketers.

DSS’s modeling subsystem allows you to specify what you DSS’s modeling subsystem allows you to specify what you want done with the data and how you want it presented want done with the data and how you want it presented (e.g., calculate variance and standard deviation and plot (e.g., calculate variance and standard deviation and plot versus the top 3 competitors for the last 5 years).versus the top 3 competitors for the last 5 years).

To set up a DSS, you need to know what data you want to To set up a DSS, you need to know what data you want to be able to access to help in your decision making. For be able to access to help in your decision making. For example, for a pricing decision on a bid, you need:example, for a pricing decision on a bid, you need:• Product cost accounting dataProduct cost accounting data• Prices charged on other products to that customerPrices charged on other products to that customer


Decision Support System (DSS)Decision Support System (DSS)

• Sales call reports on that customerSales call reports on that customer• Competitor bidding historyCompetitor bidding history• Customer benefit and total life-cycle customer Customer benefit and total life-cycle customer

valuevalue• Industry product life-cycle positionIndustry product life-cycle position• Other members of the supply chainOther members of the supply chain• Economic trends in the customer’s industryEconomic trends in the customer’s industry• Freight cost differences for our distance from the Freight cost differences for our distance from the

customer versus competitors’customer versus competitors’

Primary Phases in a Primary Phases in a Marketing Research ProjectMarketing Research Project

1. Planning the Research Design1. Planning the Research Design• Recognize and define problemRecognize and define problem• Plan research design and write project Plan research design and write project

proposalproposal2. Preparation2. Preparation

• Develop sampling planDevelop sampling plan• Collect data and construct questionnaire Collect data and construct questionnaire

3. Field Operations3. Field Operations• Schedule interviewsSchedule interviews• Conduct interviewsConduct interviews• Check to ensure questionnaire validityCheck to ensure questionnaire validity


Primary Phases in a Primary Phases in a Marketing Research ProjectMarketing Research Project

4. Processing4. Processing• Code and input dataCode and input data• Construct computer file Construct computer file

5. Tabulation, analysis, and interpretation5. Tabulation, analysis, and interpretation• Generate tablesGenerate tables• Analyze dataAnalyze data• Interpret findingsInterpret findings

6. Reporting6. Reporting• Write report/oral presentationWrite report/oral presentation• Follow upFollow up

Qualitative versusQualitative versusQuantitative ResearchQuantitative Research

Types of questionsTypes of questions ProbingProbing Limited probing Limited probing

Sample sizeSample size SmallSmall LargeLarge

Information per respondentInformation per respondent MuchMuch VariesVaries

AdministrationAdministration Requires interviewer Requires interviewer Fewer special interviewer Fewer special interviewer with special skills with special skills

skills requiredskills required

Type of analysisType of analysis Subjective, interpretiveSubjective, interpretive Statistical, summarizationStatistical, summarization

HardwareHardware Tape recorders, projectionTape recorders, projection Questionnaires, Questionnaires, devices, video, pictures, devices, video, pictures,

computers, printoutscomputers, printoutsdiscussion guidesdiscussion guides

QualitativeQualitative QuantitativeQuantitative


Qualitative versusQualitative versusQuantitative ResearchQuantitative Research

Ability to replicateAbility to replicate LowLow HighHigh

Training of the researcherTraining of the researcher Psychology, sociology, Psychology, sociology, Statistics, decision Statistics, decision social psychology, social psychology, models, decision models, decision consumer behavior, consumer behavior, support systems, support systems, marketing research marketing research computer computer

programming, programming, marketing, marketing,

marketing marketing researchresearch Type of researchType of research ExploratoryExploratory Descriptive or Descriptive or

causalcausal


Developing Information SourcesDeveloping Information Sources

Secondary Data SourcesSecondary Data Sources• Internal Secondary Internal Secondary

SourcesSources• External Secondary External Secondary

Data SourcesData Sources– Government SourcesGovernment Sources– Commercial SourcesCommercial Sources– Professional Professional

PublicationsPublications• Secondary Data on Secondary Data on

the Webthe Web• Disadvantages of Disadvantages of

Secondary DataSecondary Data

Primary Data SourcesPrimary Data Sources• Personal InterviewsPersonal Interviews• Telephone SurveysTelephone Surveys• Mail SurveysMail Surveys• Disadvantages of Disadvantages of

Primary DataPrimary Data

Secondary Information SourcesSecondary Information Sources

Internal secondary data sources—financial Internal secondary data sources—financial statements, research reports, sales reports, customer statements, research reports, sales reports, customer lettersletters

External secondary data sources—published External secondary data sources—published marketing research—governmental sources (Freedom marketing research—governmental sources (Freedom of Information Act, bids and contracts, patent filings)of Information Act, bids and contracts, patent filings)• Commercial sources—suppliers, banks, Commercial sources—suppliers, banks,

consultants, ad agenciesconsultants, ad agencies• Professional publications—trade associations, Professional publications—trade associations,

journals, showsjournals, shows• Web connection (but, as always, consider the Web connection (but, as always, consider the

source)source)

Commercial Secondary SourcesCommercial Secondary Sources

Thomas Register of American ManufacturersThomas Register of American Manufacturers• Most used directory of manufacturers Most used directory of manufacturers • Available in libraries and on InternetAvailable in libraries and on Internet• 16 volumes of manufacturers listed by product16 volumes of manufacturers listed by product• 2 volumes of manufacturers listed alphabetically2 volumes of manufacturers listed alphabetically• 8 volumes of manufacturer’s catalogs8 volumes of manufacturer’s catalogs

City Chamber of Commerce Directory—lists all City Chamber of Commerce Directory—lists all member companies alphabetically, by product and member companies alphabetically, by product and by codeby code

To find company contacts, telephone numbers, To find company contacts, telephone numbers, products produced, and size:products produced, and size:


Commercial Secondary SourcesCommercial Secondary Sources

State Industrial DirectoriesState Industrial Directories• Companies listed by product, then grouped by Companies listed by product, then grouped by

location, by NAICS code, and alphabeticallylocation, by NAICS code, and alphabetically• Field salespeople love themField salespeople love them• Many libraries have all 50 volumesMany libraries have all 50 volumes

Association Membership Directories—lists members Association Membership Directories—lists members alphabetically, by company, and sometimes by state alphabetically, by company, and sometimes by state or county.or county.

NAICS CodesNAICS Codes

NAICSNAICS = North American Industrial Classification System; = North American Industrial Classification System; replaces SIC (Standard Industrial Classification) codesreplaces SIC (Standard Industrial Classification) codes

Common for NAFTA countriesCommon for NAFTA countries NAICS hierarchical structure:NAICS hierarchical structure:

XXXX Industry sector Industry sector XXX XXX Industry subsectorIndustry subsectorXXXXXXXX Industry groupIndustry groupXXXXXXXXXX IndustryIndustryXXXXXXXXXXXX U.S., Canadian, or Mexican national U.S., Canadian, or Mexican national

specificspecific

http://www.naics.com/cgi-bin/search.plhttp://www.naics.com/cgi-bin/search.pl



Divides economy into 20 major industry sectors Divides economy into 20 major industry sectors (at two-digit level):(at two-digit level):

11 Agriculture, Forestry, Fishing,11 Agriculture, Forestry, Fishing, 54 Professional, Scientific, and Technical 54 Professional, Scientific, and Technical and Huntingand Hunting servicesservices

21 Mining 21 Mining 55 Management of Companies and 55 Management of Companies and 22 Utilities 22 Utilities EnterprisesEnterprises23 Construction23 Construction 56 Administrative and Support, Waste 56 Administrative and Support, Waste 31–33 Manufacturing 31–33 Manufacturing Management, and Remediation ServicesManagement, and Remediation Services42 Wholesale Trade 42 Wholesale Trade 61 Education Services 61 Education Services 44–45 Retail Trade44–45 Retail Trade 62 Health Care and Social Assistance 62 Health Care and Social Assistance 48–49 Transportation 48–49 Transportation 71 Art, Entertainment, and Recreation 71 Art, Entertainment, and Recreation 51 Information 51 Information 72 Accommodation and Food Services72 Accommodation and Food Services52 Finance and Insurance 52 Finance and Insurance 81 Other services (except Public 81 Other services (except Public 53 Real Estate, Renting, 53 Real Estate, Renting, Administration) Administration)

and Leasing and Leasing 92 Public Administration92 Public Administration



Example of additional digits making the product more Example of additional digits making the product more specific:specific:

Sector Sector 31–33 31–33 ManufacturingManufacturing

SubsectorSubsector 334 334 Manufacturing computer and Manufacturing computer and electronic productselectronic products

Industry group Industry group 33463346 Manufacturing of magnetic and optical Manufacturing of magnetic and optical mediamedia

3346133461 Manufacturing of magnetic mediaManufacturing of magnetic media334611334611 Software reproductionSoftware reproduction

Disadvantages of Secondary DataDisadvantages of Secondary Data

Recency of dataRecency of data Coverage of data (adequate for your purposes?)Coverage of data (adequate for your purposes?) Sample size (adequate?)Sample size (adequate?) Bias (by sponsor or objectives of original Bias (by sponsor or objectives of original

survey) survey) Data sourceData source

Primary Data SourcesPrimary Data Sources Personal InterviewsPersonal Interviews Telephone SurveysTelephone Surveys Mail SurveysMail Surveys

Primary Survey MethodsPrimary Survey Methods

ApproachApproach Cost Cost TimeTime Information Information Nonresponse Information Information Nonresponse InterviewerInterviewer

qualityquality quantity problem quantity problem bias bias

Personal Personal interviewinterview

TelephoneTelephone

MailMail

InternetInternet

Fill in the table.Fill in the table.

Disadvantages of Primary DataDisadvantages of Primary Data

ExpensiveExpensive Time intensiveTime intensive Requires experimental design/survey design Requires experimental design/survey design

skillskill Unwillingness (or inability) of respondent to Unwillingness (or inability) of respondent to

provide informationprovide information Nonrepresentative, nonrespondent problemNonrepresentative, nonrespondent problem

Marketing Research Assignment: Marketing Research Assignment: A Second ChanceA Second Chance

Scenario:Scenario:

Clemson Electronics Inc. is a high-tech electronics Clemson Electronics Inc. is a high-tech electronics manufacturer that has designed a mobile, quick-manufacturer that has designed a mobile, quick-responding device to measure and identify hazardous responding device to measure and identify hazardous waste in soils. Traditionally, soil samples are waste in soils. Traditionally, soil samples are collected, brought to a lab, and processed through a collected, brought to a lab, and processed through a series of tests by a trained chemist. The new device is series of tests by a trained chemist. The new device is brought to the site, requires no special training, and brought to the site, requires no special training, and can quickly provide an accurate analysis. The general can quickly provide an accurate analysis. The general manager has assigned you to develop information manager has assigned you to develop information upon which strategic planning will be based.upon which strategic planning will be based.

How would you respond?How would you respond?

Marketing Research Assignment: Marketing Research Assignment: Questions to ConsiderQuestions to Consider

What are the present and potential market segments? What are the present and potential market segments? Who are the key potential customers? Who are the key potential customers? Can you develop a demand forecast for the first five Can you develop a demand forecast for the first five

years? years? Who are the major competitors for each segment? Who are the major competitors for each segment? How do we compare in costs and customer benefits? How do we compare in costs and customer benefits? What environmental factors could favorably or What environmental factors could favorably or

unfavorably affect demand?unfavorably affect demand? Are there government data that you recommend Are there government data that you recommend

using? using? Do you recommend primary research? Do you recommend primary research? Can you have a report ready prior to the senior Can you have a report ready prior to the senior

management meeting in three weeks? management meeting in three weeks?

Chapter 4Chapter 4

Market Segmentation, Positioning, Market Segmentation, Positioning,

and Demand Projectionand Demand Projection


General Market Segmentation StrategyGeneral Market Segmentation Strategy Market Strategies for Business SegmentationMarket Strategies for Business Segmentation Approaches to Market SegmentationApproaches to Market Segmentation Segmenting Business MarketsSegmenting Business Markets Evaluating Potential Market SegmentsEvaluating Potential Market Segments Product Positioning StrategyProduct Positioning Strategy Business Demand ProjectionBusiness Demand Projection Selecting Forecasting MethodsSelecting Forecasting Methods

Why Segment Markets?Why Segment Markets?

To group customers with similar needs so one To group customers with similar needs so one mix can custom meet the group’s needs without mix can custom meet the group’s needs without having a mix for each customer (and still create having a mix for each customer (and still create a differential advantage). a differential advantage).

Given limited resources, to strategically target Given limited resources, to strategically target which groups to serve.which groups to serve.

As in all marketing activity, to better serve As in all marketing activity, to better serve customer needs.customer needs.

Market Segmentation Uses Market Segmentation Uses in Strategic Market Planningin Strategic Market Planning

Analyze buyer behavior of each segment…Analyze buyer behavior of each segment… Analyze buyer decision process of each Analyze buyer decision process of each

segment…segment… Analyze the demographics of each segment…Analyze the demographics of each segment… Pick targets, forecast sales, calculate pro forma Pick targets, forecast sales, calculate pro forma

profitability, and design a mix for each segment profitability, and design a mix for each segment based on above…based on above…

Segment business market even if we are selling Segment business market even if we are selling consumer products…consumer products…

Strategic Market SegmentationStrategic Market Segmentation

Differences in customer needsDifferences in customer needs Differences in purchasing powerDifferences in purchasing power Differences in geographic locationsDifferences in geographic locations Differences in consistency with company’s Differences in consistency with company’s

missionmission

A Good Market Segment Is…A Good Market Segment Is… SubstantialSubstantial AccessibleAccessible MeasurableMeasurable DifferentiableDifferentiable ActionableActionable

Strategies for Business Strategies for Business SegmentationSegmentation

Undifferentiated Undifferentiated Marketing StrategyMarketing Strategy

Differentiated Differentiated Marketing StrategyMarketing Strategy

Concentrated Concentrated Marketing StrategyMarketing Strategy

Approaches to Market Approaches to Market SegmentationSegmentation• Macro/Micro Macro/Micro

SegmentationSegmentation• Nested ApproachNested Approach

– An Application of the An Application of the Nested ApproachNested Approach

Segmenting Business Segmenting Business MarketsMarkets• Type of Economic Type of Economic

ActivityActivity• Size of OrganizationSize of Organization• Geographic LocationGeographic Location• Product UsageProduct Usage• Structure of the Structure of the

Procurement FunctionProcurement Function

Approaches to Market Approaches to Market SegmentationSegmentation

Macro-basedMacro-based• NAICS categoryNAICS category• IndustryIndustry• GeographyGeography

Micro-basedMicro-based• Decision processDecision process• Buying structureBuying structure• Attitudes toward vendor relationshipsAttitudes toward vendor relationships

NestedNested• Hierarchical structureHierarchical structure

Nested SegmentsNested Segments

Computer Industry OEMComputer Industry OEM

Over $500,000,000 in SalesOver $500,000,000 in Sales

Uses Microsoft WindowsUses Microsoft Windows

Centralized PurchasingCentralized Purchasing

Single Source/JIT PurchasesSingle Source/JIT Purchases

Aerospace

Computers

Automotive

Robotics

Appliances

Toys

Misc.

Segmentation for Segmentation for Small Precision ServomotorsSmall Precision Servomotors

The entire market needs to be The entire market needs to be represented, not just present represented, not just present customers, and not just attractive customers, and not just attractive segments. Why?segments. Why?

Answer…Answer…

You would not be segmenting the market, only You would not be segmenting the market, only part of it.part of it.

If the segment isn’t represented, you will never If the segment isn’t represented, you will never even consider it.even consider it.

Problems with Problems with Adjusting Market SegmentsAdjusting Market Segments

Company systems set up around old segmentsCompany systems set up around old segments Lack of strategic marketing trainingLack of strategic marketing training Need for dynamic leadership to change Need for dynamic leadership to change

directiondirection

Why Strategically Position Why Strategically Position Products and Services?Products and Services?

So they are perceived as different from competitors’ in So they are perceived as different from competitors’ in ways that represent value to customer segmentsways that represent value to customer segments

As a tool to help marketers visualize the customer’s As a tool to help marketers visualize the customer’s perceptions of the competitive offerings available perceptions of the competitive offerings available according to various variables (axes) of importanceaccording to various variables (axes) of importance

How Can Product Positioning Be How Can Product Positioning Be Misused?Misused? One common error is to create a map of where you would One common error is to create a map of where you would likelike your your

products to be positioned or where they are positioned in your products to be positioned or where they are positioned in your perception of the market, then treat the resulting map strategically perception of the market, then treat the resulting map strategically as if it is a map of the as if it is a map of the actualactual perceptions of the customers in the perceptions of the customers in the market.market.

What Other Axes What Other Axes May Be Strategically Important?May Be Strategically Important?

For a company that can be described as a computer-For a company that can be described as a computer-industry OEM; $500,000+ in sales; Microsoft Windows industry OEM; $500,000+ in sales; Microsoft Windows user; centralized, single-source/JIT purchasing:user; centralized, single-source/JIT purchasing:• Positioning may have to be on the basis of multiple Positioning may have to be on the basis of multiple

sets of axes and may have to be done by segment.sets of axes and may have to be done by segment.• Don’t forget that positioning is just a visualization Don’t forget that positioning is just a visualization

tool—you still have to make the final strategic tool—you still have to make the final strategic decisions.decisions.

• This is a simple, two-variable model. Even with a 200-This is a simple, two-variable model. Even with a 200-variable computerized decision support system variable computerized decision support system simulation, you still have to make the final strategic simulation, you still have to make the final strategic decisions. That’s why they call them “decision decisions. That’s why they call them “decision support.support.””

Once You Have All the Maps Once You Have All the Maps to Visualize the Market…to Visualize the Market…

Consider what position the firm presently owns.Consider what position the firm presently owns. Decide what position that firm wants to own.Decide what position that firm wants to own. Decide who the the firm must outflank to gain Decide who the the firm must outflank to gain

that position.that position. Consider if the firm has the necessary resources Consider if the firm has the necessary resources

and is committed to achieving the objective.and is committed to achieving the objective. Determine if the firm can create a marketing Determine if the firm can create a marketing

mix to achieve the desired position.mix to achieve the desired position.

Why Forecast Demand?Why Forecast Demand?

Companies must plan in order to have Companies must plan in order to have materials/resources on hand to meet customer materials/resources on hand to meet customer needs.needs.

It is required by top management, just as engineers It is required by top management, just as engineers must design and accountants must add numbers.must design and accountants must add numbers.

It is a basic marketing function.It is a basic marketing function. Other functional areas use demand forecasts to Other functional areas use demand forecasts to

make their own forecasts and budgets, make make their own forecasts and budgets, make purchases, set goals, etc.purchases, set goals, etc.

Common Forecasting ProblemsCommon Forecasting Problems

Mysticism (to those who are not trained)Mysticism (to those who are not trained) Accuracy (marketers tend to be can-do, optimistic Accuracy (marketers tend to be can-do, optimistic

types)types) Inconsistency (if that didn’t work, change it)Inconsistency (if that didn’t work, change it) Accountability (developing forecast versus achieving Accountability (developing forecast versus achieving

forecast)forecast) Implementation (mixing forecasts, goals, quotas)Implementation (mixing forecasts, goals, quotas)

Forecasting BasicsForecasting Basics

The importance and nature of forecast impacts The importance and nature of forecast impacts method chosen. method chosen.

Different methods are appropriate for long-term vs. Different methods are appropriate for long-term vs. medium-term vs. short-term forecasts.medium-term vs. short-term forecasts.

Different methods are appropriate for different types Different methods are appropriate for different types of data (e.g., amount of cycle, trend, noise).of data (e.g., amount of cycle, trend, noise).

The right method for the right type situation and the The right method for the right type situation and the right type data improves accuracy.right type data improves accuracy.

Forecasting is not guessing.Forecasting is not guessing.


Forecasting BasicsForecasting Basics

Forecasting requires a pattern or relationship that Forecasting requires a pattern or relationship that is present in past data and will repeat.is present in past data and will repeat.

Forecasting is a lot more than averaging. It’s an Forecasting is a lot more than averaging. It’s an academic area with its own theory, textbooks, and academic area with its own theory, textbooks, and journals. journals.

Companies routinely hire expert consultants to Companies routinely hire expert consultants to improve their forecasting accuracy by a percentage improve their forecasting accuracy by a percentage point or two and save them millions of dollars.point or two and save them millions of dollars.


ForecastingForecasting


TimeTime SeriesSeries CausalCausal

Qualitative Forecasting Qualitative Forecasting TechniquesTechniques

Jury of executive opinionJury of executive opinion Sales force compositeSales force composite Survey of buyer’s intentionsSurvey of buyer’s intentions Delphi methodDelphi method

Quantitative ForecastingQuantitative Forecasting

Time-seriesTime-series• Trend fittingTrend fitting• Moving averageMoving average• Exponential smoothingExponential smoothing• Adoptive controlAdoptive control• Box-JenkinsBox-Jenkins

CausalCausal• RegressionRegression• EconometricsEconometrics• Leading indicatorsLeading indicators• Diffusion indexDiffusion index• Input-Output analysisInput-Output analysis• Life-cycle analysisLife-cycle analysis

What Is What Is NotNot Time-Series Time-Series ForecastingForecasting

You must not casually interchange terms with You must not casually interchange terms with specific meanings. Why?specific meanings. Why?

A “series” is not forecasting; it is a series of A “series” is not forecasting; it is a series of numbers (e.g., 2, 5, 7, 3, 9, 2, 6, 3, 8).numbers (e.g., 2, 5, 7, 3, 9, 2, 6, 3, 8).

A “time series” is not forecasting; it is a series of A “time series” is not forecasting; it is a series of numbers by time period. For example, sales by numbers by time period. For example, sales by month = Feb. $5M; Mar. $7M; Apr. $3M; May $9M; month = Feb. $5M; Mar. $7M; Apr. $3M; May $9M; June $2M, etc.)June $2M, etc.)

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You Can Graph a Time SeriesYou Can Graph a Time Series

If you were asked to If you were asked to define a time series and define a time series and you said anything you said anything about it being a about it being a forecast, that would be forecast, that would be wrong. A time series is wrong. A time series is not a forecast.not a forecast.

Causal Forecasting MethodsCausal Forecasting Methods

RegressionRegression EconometricsEconometrics Leading indicatorLeading indicator Diffusion indexDiffusion index Input-Output analysisInput-Output analysis Life-cycle analysisLife-cycle analysis

Documents

Business Marketing By Frank G. Bingham, Jr. and Roger Gomes