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Global Marketing Management Global Product Decisions B2B

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1 Global Marketing Management Global Product Decisions B2B
MKTG Fall 2013 Mrs. Tamara L. Cohen Global Marketing Management Global Product Decisions B2B Class # 20

2 Global Product Decisions B2B
Reading for this class: Course Pack #8

3 B2B is ‘big time’ The US government is the biggest single purchaser of products & services in the country, spending > $300 billion annually. B2B accounts for > half business activity in developed countries¹ More marketing majors begin their careers in B2B than in consumer marketing. 1. Dwyer, F. Robert, Tanner, John F. (2006) Business Marketing: Connecting Strategy, Relationships, and Learning, 3rd Edition, McGraw-Hill/Irwin

4 KEY TERMS B 2 B : Industrial products Derived demand
Business Business Industrial products Derived demand ISO 9000 certification Relationship marketing Content marketing B2B goods/services are also referred to as industrial goods/services. (This may be relevant when reading about international trade statistics.) Derived demand = demand dependent on another source ISO 9000 = certification of international standard of quality Relationship marketing = developing and maintaining effective customer relationships; links organization to its individual customers/clients, employees, suppliers and other partners for their mutual long-term benefits Content marketing = creation and distribution of educational and/or compelling content in multiple formats to attract and/or retain customers 90% of B2B marketers do some form of content marketing, whether or not they realize it 60% of B2B marketers plan to spend more on content marketing in the next 12 months

5 KEY CONCEPTS B 2 B : Business Business Effect of technology on demand
Trade shows & relationship marketing Trade shows = forum where manufacturer can exhibit & demonstrate products to potential users Technology is included in the USA’s main B2B exports: 46% These exports include semiconductors, airplanes, high tech. These categories attract barriers to entry and barriers to exit.

6 B2B interactions SUGAR from Haiti MILK from Wisconsin
COCOA BEANS from Côte d’Ivoire (Ivory Coast) Wrapping machine from CHINA Unsupported aluminum foil from SWITZERLAND Tenshi SCALE from Japan on bagging machine CORRUGATED CONTAINERS from Gastonia

7 DEMAND is different in Global B2B Markets
Demand in industrial markets is more volatile. Stages of industrial & economic development affect demand for industrial products. Level of technology of products & services make sales more appropriate in some countries than others. 3 factors affect demand in international industrial markets differently than in consumer markets: Demand in industrial markets is by nature more volatile. Stages of industrial and economic development affect demand for industrial products. Level of technology of products and services makes their sale more appropriate in some countries than others.

8 1. VOLATILITY of Industrial Demand
Cyclical swings in demand increased professional buyers tend to act ‘in concert’ derived demand accelerates changes in markets Minor changes in consumer demand mean major changes in related industrial demand e.g. Boeing worldwide demand for travel services related to demand for new airplanes commercial aircraft industry one of most volatile Derived demand = demand dependent on another source Consumer products companies have many reasons to market internationally — exposure to more-demanding customers, keeping up with the competition, extending product life cycles, growing sales and profits. Companies producing products and services for industrial markets have an additional crucial reason for venturing abroad: dampening the natural volatility of industrial markets. Perhaps the single most important difference between consumer and industrial marketing is the huge, cyclical swings in demand inherent in some industries. It is true that demand for consumer durables such as cars, furniture, or home computers can be quite volatile. In industrial markets, however, 2 other factors come into play that exacerbate both the ups and downs in demand: Professional buyers tend to act in concert (i.e. at the same time). e.g. Purchasing agents at big computer manufacturers (IBM, Apple, Samsung, Toshiba, etc.) are responsible for procuring parts for their companies at the lowest possible prices, and in good time. They monitor prices for PCs and prices of components (microprocessors, disk drives, etc.), and changes in customer markets and supplier prices that directly affect their needs. Changes in PC demand or supplier prices directly affect those needs, so they can suddenly increase or decrease their buying. Important: These purchasing agents at all the PC companies are monitoring the same data, so they all increase or decrease their buying at the same time. e.g. Purchasing agents buying raw materials like cocoa beans, coffee beans, sugar, milk will respond to market changes in similar ways, i.e. in concert Derived demand accelerates changes in markets. For managers selling capital equipment and big-ticket industrial services, understanding the concept of derived demand is critical to their success. e.g. the demand for Boeing 747s is derived from the worldwide consumer demand for air travel services. Air travel was dramatically impacted by Sept.11 attacks. The commercial aircraft industry has always been and will continue to be one of the most volatile of all. e.g. tsunami in Japan in 2011 had profound effect on car manufacturers. This industry has been moving towards JIT, which means they carry minimal inventories. When they couldn’t get essential components from Japan, manufacturing was seriously disrupted. Difference between industrial and consumer demand: Car manufacturers absolutely need that black paint from Japan, and cannot proceed without it. Consumers have options – can wait and buy car later, buy another car that is immediately available, etc. How to manage this volatility? maintain broad product lines aim for broad market coverage raise prices fast during booms reduce advertising expenditures during booms ignore (or minimize) market share as strategic goal avoid layoffs focus on stability American companies are not as good at this as Japanese and German companies.

5-stage model of economic development: Traditional society - most important B2B demand associated with extraction of natural resources; e.g. many countries in Africa & Middle East Preconditions for takeoff - manufacturing is starting. Primary needs typically related to infrastructure development, like construction, telecommunications, power generation equipment; e.g. Vietnam Takeoff - manufacturing of consumer goods has begun. B2B needs focus on equipment & supplies to support manufacturing; e.g. Russian & Eastern European countries Drive to maturity - industrialized economies. Focus on low-cost manufacturing of various consumer goods & some industrial goods; need all categories of B2B goods & services; e.g. Korea; Czech Republic Age of mass consumption - mostly service economies. High-tech products & services sought mostly from other stage 5 suppliers + consumer products from stage 3 & 4 countries; e.g. Germany; Japan Most significant environmental factor affecting international markets for industrial (B2B) goods and services is the degree of industrialization. The stage of economic development can be used as a rough indicator of a country’s industrial market. 5-stage model of economic development – Walt W. Rostrow The Stages of Economic Growth

10 Preconditions for takeoff Takeoff Drive to maturity
Traditional society Preconditions for takeoff Takeoff Drive to maturity Age of mass consumption Traditional society - most important B2B demand associated with extraction of natural resources - CATERPILLAR MAKES MINING EQUIPMENT (mine haul truck) Preconditions for takeoff - manufacturing is starting. Primary needs typically related to infrastructure development - CATERPILLAR makes infrastructure equipment Takeoff - manufacturing of consumer goods has begun. B2B needs focus on equipment & supplies to support manufacturing - CATERPILLAR makes earth-moving equipment (Cat 637G Scraper, one of the most productive earth moving machines) Drive to maturity - industrialized economies - need all categories of B2B goods & services Age of mass consumption - mostly service economies - high-tech products & services - CATERPILLAR is combining its robotics technology with NASA's knowledge of the moon’s surface to build the Chariot, a "lunar truck"

11 3. TECHNOLOGY & Market Demand
Trends spurring demand for technologically advanced products expanding economic & industrial growth in Asia disintegration of Soviet empire privatization of government-owned industries worldwide Companies with competitive edge will be those whose products are: technologically advanced highest quality accompanied by world-class service Not only is technology the key to economic growth, but for many products it is also the competitive edge in today’s global markets. 3 interrelated trends spur demand for technologically advanced products: expanding economic and industrial growth in Asia, particularly China and India; disintegration of the Soviet empire; and privatization of government-owned industries worldwide. The competition to meet this global demand will be stiff; the companies with the competitive edge will be those whose products are technologically advanced, of the highest quality, and accompanied by world-class service.

12 B2B Promotional Activity
Internet/Electronic Media Trade Shows/Events Print Advertising Promotion/Market Support Publicity/Public Relations Dealer/Distributor Materials Market Research Telemarketing Directories “B2B spending on interactive marketing will [jump] to $4.8 billion in 2014, according to Forrester Research's ‘B2B US Interactive Marketing Forecast, ’.” Research company Outsell: digital marketing expenditures accounts for 40% of overall B2B marketing spending B2B interactive marketing = search marketing, display advertising, mobile marketing, marketing, social media. B2B interactive marketing spending is expected to grow at 14.4% p.a. Forrester Research, Nov.21, 2011 Interactive marketing is the future for B2B marketing

13 Social Media is up-and-coming
Nov 2, 2010 The Three C’s of B2B Social Media Marketing: Content, Contact, Cash Rick Short, the Director of Marketing Communications at Indium Corporation. (Indium Corporation develops and manufactures materials used primarily in the electronics assembly industry. There are 11 manufacturing facilities in the USA, Europe, and Asia.) In the past several years, Indium has cut advertising expenditures and increased sales by using social media as part of its B2B marketing mix. This has worked well for Indium demonstrating the power of B2B social media marketing. Rick Short’s three tips for getting started in using social media for B2B marketing. Start with your goal, i.e. begin with the end in mind. Create your vision and work backwards from there. What assets do you have that can help you reach your goal? What do you need to bridge the gap? Implement metrics you can believe in. What does success look like for you? Are you aiming for more business leads or more Facebook fans? Tie your metrics back to business goals. Use the best tool for the task at hand. Use different tools and platforms to reach different audiences. Some audiences respond to online videos and others respond to blog posts. Some audiences respond to direct mail and others respond to social media. As marketers we have to use the right tools for the job. Social media is a tool that we cannot afford to ignore. Rick Short’s “Three C’s of B2B Social Media Marketing”: 1. Content. In business cash is king. In social media content is king. Create and share content that provides value for your customers. How do you provide value? Entertain. Inform. Assist. Offer a sweet deal. The way you define and provide value depends upon the needs of your customers. If your customers need information, strive to “be the answer today to the question your customer will ask tomorrow.” In addition to providing valuable content, the company blog also provides professional bios and contact information for each company blogger. This information helps to establish credibility and encourage contact. 2. Contact These days, customer contact happens in different ways and on different platforms. Some customers initiate contact with a phone call or . Others will respond to a Tweet or download a white paper. Each contact reveals the needs or interests of the customer. Once you understand the needs of your customer, you can connect the customer with a product or service that will address their needs. Designated “shepherds” within the organization help take leads from social media content and guide them down the pipeline to the sales team. 3. Cash Create a relationship with the customer and convert that relationship into a cash transaction. Work with your customer to understand their needs and address their challenges. With the right approach you will earn a sale and ultimately a long-term relationship with a customer.

14 Content Marketing “Content marketing (custom media) is the creation and distribution of educational and/or compelling content in multiple formats to attract and/or retain customers.” e.g. white papers case studies videos articles Content marketing is a marketing technique of creating and distributing relevant and valuable content to attract, acquire, and engage a clearly defined and understood target audience – with the objective of driving profitable customer action. Basically, content marketing is the art of communicating with your customers and prospects without selling. It is non-interruption marketing. Instead of pitching your products or services, you are delivering information that makes your buyer more intelligent. The essence of this content strategy is the belief that if organizations deliver consistent, ongoing valuable information to buyers, they ultimately reward those organizations with their business and loyalty. This happens. Content marketing is being used by some of the greatest marketing organizations in the world, including P&G, Microsoft, Cisco Systems and John Deere. It’s also developed and executed by small businesses and one-person shops around the globe. Why? Because it works. “Consumers have simply shut off the traditional world of marketing. They own a DVR to skip television advertising, often ignore magazine advertising, and now have become so adept at online “surfing” that they can take in online information without a care for banners or buttons (making them irrelevant). Smart marketers understand that traditional marketing is becoming less and less effective by the minute, and that there has to be a better way.” What is Content Marketing? Contact Marketing Institute 9 out of 10 B2B marketers are using content marketing to grow their businesses On average, B2B marketers use 8 different content marketing tactics to achieve their marketing goals. The most popular tactics are article posting (79%) social media (excluding blogs) (74%) blogs (65%) eNewsletters (63%) case studies (58%) in-person events (56%). Web traffic is the most widely used success metric (58%). B2B marketers dedicate approximately 26% of their total budgets to content marketing initiatives. B2B Content Marketing: 2012 Benchmarks, Budgets and Trends Illustration Silicon BeachTraining, Jan.2012

15 Trade Shows: Crucial Part of B2B Marketing
manufacturer can exhibit & demonstrate products to potential users manufacturers can view competitors’ products opportunity to create sales & establish relationships with agents, distributors, franchisees & suppliers Online trade shows useful in difficult economic / political circumstances poor substitute for live trade shows Secondary marketing methods - print advertising, catalogs, web sites, direct mail Total annual media budget on trade events: Europeans 22% Americans 5% Trade shows provide the facilities for a manufacturer to exhibit and demonstrate products to potential users and to view competitors’ products. They are an opportunity to create sales and establish relationships with agents, distributors, franchisees, and suppliers that can lead to more nearly permanent distribution channels in foreign markets. In fact, a trade show may be the only way to reach some prospects. Trade show experts estimate that % of the people seen on a trade show floor never have a salesperson call on them. Several websites now specialize in virtual trade shows. They often include multimedia and elaborate product display booths that can be virtually toured. Some of these virtual trade shows last only a few days during an associated actual trade shows. In difficult economic and/or political circumstances online trade shows become a useful, but obviously less than adequate substitute. Not even the best online trade show imaginable can make up for this apparent step backward in international trade and cooperation. The promotional problems encountered by foreign industrial marketers are similar to the problems faced by domestic marketers. Until recently, there have been few specialized advertising media in many countries, however, specialized industrial media have been developed to provide the industrial marketer with a means of communicating with potential customers, especially in western Europe and to some extent in eastern Europe, the Commonwealth of Independent States (CIS), and Asia. In addition to advertising in print media and reaching industrial customers through catalogs, websites, and direct mail, the trade show or trade fair has become the primary vehicle for doing business in many foreign countries. As part of its international promotion activities, the U.S. Department of Commerce sponsors trade fairs in many cities around the world. Additionally, local governments in most countries sponsor annual trade shows. African countries, for example, host > 70 industry-specific trade shows. Trade shows serve as the most important vehicles for selling products, reaching prospective customers, contacting and evaluating potential agents and distributors, and marketing in most countries.

16 Trade shows Eyeball magnet

17 In US, >2,500 trade shows held every year.

18 This is how you command attention at a busy trade show, whether on a generous budget (lower left) or on a small budget (lower right). Sure, it's been hammed up a bit for the photo (trade show regulations would never let you spill into the aisle like that), but this is a proof that you don't need a two story tower filled with booth babes and free beer to get noticed. (Doba is a company that has online software which allows online retailers (people looking for products to sell) to connect with several different suppliers.)

19 Relationship Marketing in B2B Contexts
Not a matter of selling right product 1st time instead sell continuously changed product to keep it right over time Objective of relationship marketing make relationship an important attribute of transaction + differentiate from competitors Use Internet to facilitate relationship building and maintenance The industrial customer’s needs in global markets are continuously changing, and suppliers’ offerings must also continue to change. The need for the latest technology means that it is not a matter of selling the right product the first time but rather of continuously changing the product to keep it right over time. The objective of relationship marketing is to make the relationship an important attribute of the transaction, thus differentiating oneself from competitors. It shifts the focus away from price to service and long-term benefits. The reward is loyal customers that translate into substantial long-term profits. As in all areas of international business, the Internet is facilitating relationship building and maintenance in new ways. One study has shown key aspects of managing this aspect of international industrial marketing to be website design, multi-lingual access, cultural considerations, and effective marketing of the website itself. Cisco Systems is a leader in this area; it not only supplies the hardware that allows B2B commerce to work, but its relationship management practices and process also serve as models for the industry. Another such company is Solar® industrial gas turbines are used by customers in 86 countries worldwide, in the oil and gas industries, electrical power generation, and marine propulsion. Solar promotes its products on the Internet.

20 Quality is Defined by the Buyer
lack of universal standards country-specific standards metric system ISO 9000 Certification = International Standard of Quality ISO 9001 certification of a fish wholesaler in Tsukiji More and more often industrial customers, including foreign customers, are directly involved in all aspects of the product development process, from generating new ideas to prototype testing. Lack of universal standards is a problem in international sales of industrial products. The US industrial goods exporter has 2 major areas of concern in this regard: a lack of common standards for manufacturing highly specialized equipment such as machine tools and computers the use of the inch-pound, or English (imperial) system of measurement In the US, conversion to the metric system and acceptance of international standards have been slow. Congress and industry have dragged their feet for fear conversion would be too costly. But the cost will come from not adopting the metric system; e.g. General Electric Company had a shipment of electrical goods turned back from a Saudi port because its connecting cords were six feet long instead of the required standard of two meters. A strong level of interest in ISO 9000 is being driven more by marketplace requirements than by government regulations, and ISO 9000 is now an important competitive marketing tool in Europe and around the world. ISO 9000 is a family of standards for quality management systems. ISO 9000 is maintained by ISO, the International Standardization Organization. It is administered by accreditation and certification bodies. The rules are updated, as the requirements motivate changes over time. Requirements include: a set of procedures that cover all key processes in the business; monitoring processes to ensure they are effective; keeping adequate records; checking output for defects, with appropriate and corrective action where necessary; regularly reviewing individual processes and the quality system itself for effectiveness; and facilitating continual improvement. A company or organization that has been independently audited and certified as conforming with ISO 9000 may publicly state that it is "ISO 9001 certified" or "ISO 9001 registered". Certification to an ISO 9001 standard does not guarantee any quality of end products and services; rather, it certifies that formalized business processes are being applied. Quality is a "culture" - ISO 9000 "Quality" is an important and valuable accreditation to achieve. ISO 9000 is a family of standards that describe a Quality Management System. ISO 9001 is the document that contains the requirements.

21 Global Project Team Customer – initiate inquiry
Sales engineer – initial customer contact Application engineer – find best product match Engineering & control systems – design Project manager – manage project & liaise Manufacturing technicians – produce, assemble, test Customer services – installation & start-up Suppliers – provide materials & components Service engineer – after-sales service & maintenance Using the example of Solar Turbines (Cateora, Gilly & Graham), the project teams comprises: The customer - involved as a vital member of the project team from the initial inquiry to final acceptance. The sales engineer - maintains initial customer contact, prompts analysis of customer needs, submits a comprehensive proposal to the customer, monitors execution of the order, and submits the order to the assigned. The application engineer - responsible for determining the best product match for customer requirements and recommending alternative approaches as appropriate. Engineering and Control Systems - where gas turbines, gas compressors, and controls are designed and gas turbine packages are customized for the customers based on proven designs. Personal selling is the most important aspect of the promotions mix for industrial companies like Solar. The project manager - handles all aspects of the order, maintains liaison with the customer, controls documentation, arranges quality audits, and is responsible for on-time shipment and scheduling equipment commissioning at the customer site. Manufacturing technicians - produce, assemble, and test industrial gas turbines and turbomachinery packages designed to meet specific customer needs. Customer services - handles installation and start-up of the turbomachinery, trains personnel, and provides a wide range of vital services to support customer and operating requirements. And finally, suppliers - critical element of all project teams; they provide materials and components that must meet Solar’s demanding quality standards.


23 Support Services Deliveries Warranty Spare parts
Repair and maintenance Installation Instructions Other related services Many otherwise successful marketing programs have ultimately failed because little attention was given to this product component. Repair and maintenance are especially difficult problems in developing countries. Consumers in a developing country and in many developed countries may not have even one of the possibilities for repair and maintenance available in the US, and independent service providers can be used to enhance brand and product quality. In some countries, the concept of routine maintenance or preventive maintenance is not a part of the culture. As a result, products may have to be adjusted to require less-frequent maintenance, and special attention must be given to features that may be taken for granted in the US. Literacy rates and educational levels of a country may require a firm to change a product’s instructions. A simple term in one country may be incomprehensible in another.

24 Marketing Consumer Services Globally
Consumer services characteristics intangibility inseparability heterogeneity perishability Service can be marketed as industrial (B B) as consumer service (B C) Much of the advice regarding adapting products for international consumer markets also applies to adapting services. Moreover, some services are closely associated with products. However, many consumer services are distinguished by 4 unique characteristics—intangibility, inseparability, heterogeneity, and perishability—and thus require special consideration Products are often classified as tangible, whereas services are intangible. Cars, computers, and furniture are examples of products that have a physical presence; they are things or objects that can be stored and possessed, and their intrinsic value is embedded within their physical presence. The intangibility of services results in characteristics unique to a service: It is inseparable in that its creation cannot be separated from its consumption; it is heterogeneous in that it is individually produced and is thus unique; it is perishable in that once created it cannot be stored but must be consumed simultaneously with its creation. As is true for many tangible products, a service can be marketed both as an industrial (B2B) or a consumer (B2C) service, depending on the motive of, and use by, the purchaser.

25 Business Services For many industrial products, revenues from associates services > revenues from products cell phones printers Leasing capital equipment Services not associated with products Boeing at-sea-satellite-launch services Ukrainian cargo company rents space on giant jets professional services (advertising, banking, healthcare, etc.) For many industrial products, the revenues from associated services exceed the revenues from the products. Perhaps the most obvious case is cellular phones, in which the physical product is practically given away to gain the phone services contract. Consider how inexpensive printers may seem until the costs of operation (i.e. ink cartridges) are included. For many capital equipment manufacturers the margins on after-sale services (i.e. maintenance contracts, overhauls, repairs, and replacement parts) are much higher than the margins on the machinery itself. When companies lease capital equipment to customers, the distinction between products and services almost disappears completely. When a business customer leases a truck, is it purchasing a vehicle or transportation services? Businesses also buy a variety of services that are not associated with products. e.g. at-sea-satellite-launch services are provided by Boeing and the Russian navy, the latter by submarine Ukrainian cargo company that charges $24,000 an hour to rent space on its giant jets Other professional services are purchased from advertising and legal agencies, transportation and insurance companies, oil field services, banks and investment brokers, and healthcare providers, etc.

26 After-Sale Services Installation Training Spare and replacement parts
delivery time cost of parts Service personnel Almost always more profitable than actual sale of machinery / product Crucial in building strong customer loyalty Effective competition abroad requires not only proper product design but effective service, prompt deliveries, and the ability to furnish spare and replacement parts without delay. e.g. GE Medical Systems provides a wide range of after-sale services for hospitals that buy MRIs and other equipment—training, information technologies, associated healthcare services, and parts and accessories For many technical products, the willingness of the seller to provide installation and training may be the deciding factor for the buyers in accepting one company’s product over another’s. Customer training is rapidly becoming a major after-sales service when selling technical products in countries that demand the latest technology but do not always have trained personnel. A recent study of international users of heavy construction equipment revealed that, next to the manufacturer’s reputation, quick delivery of replacement parts was of major importance in purchasing construction equipment. Caterpillar, global manufacturer of heavy equipment, claims its service - as meted out by distributors - is a key to its worldwide success. This service includes cultivating and nurturing relationships with customers, and facilitating speedy repair or replacement of parts (maximum 48 hour turnaround). Some international marketers may be forgoing the opportunity of participating in a lucrative aftermarket. Certain kinds of machine tools use up to 5 times their original value in replacement parts during an average life span and thus represent an even greater market. After-sales services are not only crucial in building strong customer loyalty and the all-important reputation that leads to sales at other companies, but they are also almost always more profitable than the actual sale of the machinery or product.

27 Services Opportunities in Global Markets
Tourism – int’l tourism largest US services export Transportation Financial services Education – 2007: >600,000 foreign students, tuition $11 billion Communications – phone services Entertainment – sporting events sold all over the world Information – Internet, etc. Health care – foreigners come here; US facilities abroad too International tourism is by far the largest services export of the United States, ranking behind only capital goods and industrial supplies when all exports are counted. Spending by foreign tourists visiting American destinations such as Orlando or Anaheim is roughly double that spent by foreign airlines on Boeing’s commercial jets. The dramatic growth in tourism has prompted American firms and institutions to respond by developing new travel services. Other top consumer services exports include transportation, financial services, education, telecommunications, entertainment, information, and health care, in that order. Insurance sales are also growing in Latin America, with joint ventures between local and global firms making the most progress. Financial services in China are undergoing a revolution, with new services being offered at an incredible pace—new sources of investor information and National Cash Register ATMs popping up everywhere. Sporting events are being sold all over the world—Mexican football in Los Angeles, American football in Scotland and Turkey, American baseball in Mexico, upcoming World Cup 2014 soccer (football) in Brazil. Finally, not only are foreigners coming to the United States for healthcare services in fast-growing numbers, but North American firms are building hospitals abroad as well.

28 Next class: Global Product Decisions B2C
Preparation: Read Course Pack #9

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