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Week 8 Special Topics in Marketing
B2B Marketing, Marketing Information Systems, and Monitoring and Measuring Marketing Activities
This is special topics week, a compilation of three important issues in marketing.
Thus far, we have following the marketing process through planning and implementation for
business-to-consumer (B2C) consumers. Although we have touched on business-to-business
(B2B) markets throughout the course, this week we will note some of the unique details as they
relate to businesses selling to other businesses. Keep in mind that the marketing principles are
not different for B2B markets; everything we have been discussing is equally applicable to both
B2C and B2B marketing. The goal is still to create value, communicate value, deliver value, and
exchange value with the right customers, clients, or partners. But there are some unique
characteristics of B2B markets to discuss this week. If you are considering a career in marketing,
you likely will be starting your career in a B2B environment.
Our second objective this week is to introduce marketing information systems (MIS), the way
businesses in B2B and B2C manage vast amounts of information, both from their own marketing
research and other sources marketing professionals need to make good decisions. Technology
has greatly aided the development and sustainability of powerful information systems that if
used appropriately, can help companies create maximum value for the right customers.
We will end the week reviewing some of the more important metrics used to monitor and adjust
marketing activities. These are common key indicators most businesses use to take a snapshot at
how the firm and its marketing activities are contributing to profitability or other strategic goals.
Whether you pursue a marketing career or another business discipline, this is the common
language used throughout an organization, and it will benefit you to understand it.
8.1 The Characteristics of Business-to-Business Markets
LEARNING OBJECTIVES
1. Identify the ways in which business-to-business (B2B) markets differ from business-to-consumer (B2C) markets.
2. Explain why business buying is acutely affected by the behavior of consumers.
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Business-to-business (B2B) markets differ from business-to-consumer (B2C) markets in many
ways. For one, the number of products sold in business markets dwarfs the number sold in
consumer markets. Suppose you buy a $500 computer from Dell. The sale amounts to a single
transaction for you. But think of all the transactions Dell had to go through to sell you that one
computer. Dell had to purchase parts from computer component makers. It also had to purchase
equipment and facilities to assemble the computers, hire and pay employees, pay money to create
and maintain its website and advertise, and buy insurance and accounting and financial services
to keep its operations running. Many transactions had to happen before yours could.
Business products can also be very complex. Some need to be custom-built or retrofitted for
buyers. The products include everything from high-dollar construction equipment to commercial
real estate and buildings, military equipment, and billion-dollar cruise liners used in the tourism
industry. There are few or no individual consumers in the market for many of these products.
Moreover, a single customer can account for a huge amount of business. Some businesses, like
those that supply the US auto industry around Detroit, have just a handful of customers—General
Motors, Chrysler, and/or Ford. Consequently, you can imagine why these suppliers become
worried when the automakers fall on hard times.
Not only can business products be complex, but so can figuring out the buying dynamics of
organizations. Many people within an organization can be part of the buying process and have a
say in ultimately what gets purchased, how much of it, and from whom. This is perhaps the most
complicated part of the business. It's a bit like a chess match. And because of the quantities each
business customer is capable of buying, the stakes are high. For some organizations, losing a big
account can be financially devastating, and winning one can be a financial bonanza.
How high are the stakes? Table 8.1, "Top Five Publicly Held Corporations Worldwide in Terms of
Their Revenues" shows a ranking of the top five corporations in the world in terms of the sales
they generate annually.
Believe it or not, these companies earn more in a year than all the businesses of some countries.
Imagine the windfall you could gain as a seller by landing an exclusive account with one of them.
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Table 8.1 Top Five Publicly Held Corporations Worldwide in Terms of Their Revenues
Company Sales (Billions of Dollars)
Royal Dutch Shell 458
ExxonMobil 426
Walmart 405
British Petroleum (BP) 361
Toyota Motor Company 263
Note: Numbers have been rounded to the nearest billion.
Generally, the more high-dollar and complex the item being sold is, the longer it takes for the sale
to be made. The sale of a new commercial jet to an airline can take literally years to be completed.
Sales such as these are risky for companies. The buyers are concerned about many factors, such as
the safety, reliability, and efficiency of the planes. They also generally want the jets customized in
some way. Consequently, a lot of time and effort is needed to close these deals.
Unlike many consumers, most business buyers demand that the products they buy meet strict
standards. Take, for example, the Five Guys burger chain, based in Virginia. The company taste-
tested 18 different types of mayonnaise before settling on the one it uses. Would you be willing to
taste 18 different brands of mayonnaise before buying one? Probably not (Steinberg, 2009).
Another characteristic of B2B markets is the level of personal selling that goes on. Personal selling
can become the dominant promotion mix tool used (see Week 7 regarding professional selling).
Salespeople personally call on business customers to a far greater extent than they do consumers.
Most of us have had door-to-door salespeople call on us. However, businesses often have multiple
salespeople call on them in person daily, and some customers even provide office space for key
vendors' salespeople. Table 8.2, "Business-to-Consumer Markets vs. Business-to-Business
Markets: How They Compare," outlines the main differences between B2C and B2B markets.
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Table 8.2 Business-to-Consumer Markets vs. Business-to-Business Markets: How They Compare
Consumer Market Business Market
Many customers, geographically dispersed
Fewer customers, often geographically concentrated, with a small number accounting for most of the company's sales
Smaller total dollar amounts due to fewer transactions
Larger dollar amounts due to more transactions
Shorter decision cycles Longer decision cycles
More reliance on mass marketing via advertising, websites, and retailing
More reliance on personal selling
Less-rigid product standards More-rigid product standards
The Demand for B2B Products Even though they don't sell their products to consumers, B2B sellers carefully watch general
economic conditions to anticipate consumer buying patterns. The firms do so because the
demand for business products is based on derived demand. Derived demand is demand that
springs from, or is derived from, a source other than the primary buyer of a product. When it
comes to B2B sales, that source is consumers. If consumers aren't demanding the products
produced by businesses, the firms that supply products to these businesses are in big trouble.
Fluctuating demand is another characteristic of B2B markets: a small change in demand by
consumers can have a big effect throughout the chain of businesses that supply all the goods and
services that produce it. Often, a bullwhip type of effect occurs. If you have ever held a whip, you
know that a slight shake of the handle will result in a big snap of the whip at its tip. Essentially,
consumers are the handle and businesses along the chain compose the whip—hence the need to
keep tabs on end consumers. They are a powerful purchasing force.
For example, Cisco makes routers, which are specialized computers that enable computer
networks to work. If Google uses 500 routers and replaces 10 percent of them each year, that
means Google usually buys 50 routers in a given year. What happens if consumer demand for the
Internet falls by 10 percent? Then Google needs only 450 routers. Google's demand for Cisco's
routers therefore becomes zero. Suppose the following year the demand for the Internet returns
to normal. Google now needs to replace the 50 routers it didn't buy in the first year plus the 50 it
needs to replace in the second year. So in year two, Cisco's sales go from zero to 100, or twice
normal. Thus, Cisco experiences a bullwhip effect, whereas Google's sales vary only by 10 percent.
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Because consumers are such a powerful force, some companies go so far as to try to influence
their B2B sales by directly influencing consumers even though they don't sell their products to
them. Intel is a classic case. Do you really care what sort of microprocessing chip gets built into
your computer? Intel would like you to, which is why it runs TV commercials. Commercials aren't
likely to persuade a computer manufacturer to buy Intel's chips. But the manufacturer might be
persuaded to buy them if it's important to you.
Derived demand is also the reason Intel demands that the buyers of its chips put a little "Intel
Inside" sticker on each computer they make—so you get to know Intel and demand its products. It
also engages in consumer advertising to convince consumers that computers using Intel chips are
better computers.
Figure 8.1
Although Intel sells only to other businesses, it engages in
consumer advertising such as this ad on a building.
Source: Photo by Rico Shen. (2008). Wikimedia Commons. Used under
the terms of the Creative Commons 3.0 Unported license.
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B2B buyers also keep tabs on consumers to look for patterns that could create joint
demand. Joint demand occurs when the demand for one product increases the demand for
another. For example, when a new video console like the Xbox comes out, it creates demand for a
whole new crop of video games. Many businesses rely on joint demand for their survival.
8 . 1 K E Y T A K E A W A Y
B2B markets differ from B2C markets in many ways. There are more transactions in B2B markets and more high-dollar transactions because business products are often costly and complex. There are also fewer buyers in B2B markets, but they spend much more than the typical consumer does and have more rigid product standards. The demand for business products is based on derived demand. Derived demand is demand that springs from, or is derived from, a secondary source other than the primary buyer of a product. For businesses, this source is consumers. Fluctuating demand is another characteristic of B2B markets: a small change in demand by consumers can have a big effect throughout the chain of businesses that supply all the goods and services that produce it.
8.2 Types of B2B Buyers
LEARNING OBJECTIVES
1. Describe the major categories of business buyers. 2. Explain why finding decision makers in business markets is challenging for sellers.
Business buyers can be either nonprofit or for-profit businesses. To help you get a better idea of
the different types of business customers in B2B markets, we've put them into four basic
categories: producers, resellers, governments, and institutions.
Producers Producers are companies that purchase goods and services that they transform into other
products. They include both manufacturers and service providers. Procter & Gamble, General
Motors, McDonald's, Dell, and Delta Airlines are examples. So are the restaurants around your
campus, your dentist, your doctor, and the local tattoo parlor. All these businesses have to buy
certain products to produce the goods and services they create. General Motors needs steel and
hundreds of thousands of other products to produce cars. McDonald's needs beef and potatoes.
Delta Airlines needs fuel and planes. Your dentist needs drugs such as Novocain, oral tools, and
X-ray machinery. Your local tattoo parlor needs special inks and needles and a bright neon sign
that flashes "open" in the middle of the night.
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Resellers Resellers are companies that sell goods and services produced by other firms without materially
changing them. They include wholesalers, brokers, and retailers. Walmart and Target are two big
retailers. Large wholesalers, brokers, and retailers have a great deal of market power. If you can
get them to buy your products, your sales can exponentially increase.
Every day, retailers flock to Walmart's corporate headquarters in Bentonville, Arkansas, to hawk
products. But would it surprise you that not everybody wants to do business with a powerhouse
like Walmart? Jim Wier, one-time CEO of the company that produces Snapper-brand mowers
and snow blowers, actually took a trip to Walmart's headquarters to stop doing business with the
company. Why? Snapper products are high-end, heavy-duty products. Wier knew that Walmart
had been selling his company's products for lower and lower prices and wanted deeper and
deeper discounts from Snapper. He believed Snapper products were too expensive for Walmart's
customers and always would be, unless the company started making cheaper-quality products or
outsourced its manufacturing overseas, something he didn't want to do.
"The whole visit to Wal-Mart's headquarters is a great experience," said Wier about his trip. "It's
so crowded, you have to drive around, waiting for a parking space. You have to follow someone
who is leaving, walking back to their car, and get their spot. Then you go inside this building, you
register for your appointment, they give you a badge, and then you wait in the pews with the rest
of the peddlers, the guy with the bras draped over his shoulder." Eventually, would-be suppliers
were taken into small cubicles where they had 30 minutes to make their case. "It's a little like
going to see the principal, really," he said (Fishman, 2009).
Governments Can you guess the biggest purchaser of goods and services in the world? It is the US government.
It purchases everything you can imagine, from paper and fax machines to tanks and weapons,
buildings, toilets for NASA (the National Aeronautics and Space Administration), highway
construction services, and medical and security services. State and local governments buy
enormous amounts of products, too. They contract with companies that provide citizens with all
kinds of services from transportation to garbage collection. (So do foreign governments,
provinces, and localities, of course.) Business-to-government (B2G) markets, or when
companies sell to local, state, and federal governments, represent a major selling opportunity,
even for smaller sellers. In fact, many government entities specify that their agencies must award
a certain amount of business to small businesses, minority- and women-owned businesses, and
businesses owned by disabled veterans.
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There is no one central department or place in which all these products are bought and sold.
Companies that want to sell to the US government should first register with the Central
Contractor Registry (CCR). They then consult the General Services Administration (GSA) that
helps more than 200 federal agencies buy a variety of products. The products can include office
supplies, information technology services, repair services, vehicles, and many other products
purchased by agencies on a regular basis. Consequently, it is a good starting point. However, the
GSA won't negotiate a contract for the NASA toilet or a fighter jet, which follow a much more
rigorous procurement process. It sticks to routine types of purchases.
The existence of the GSA doesn't mean the agencies it works with don't have any say over what is
purchased for them. The agencies themselves have a big say, so B2B sellers need to contact them
and aggressively market their products to them. After all, agencies don't buy products, people do.
Fortunately, every agency posts on the Internet a forecast of its budget, that is, what it is planning
on spending money on in the coming months. The agencies even list the names, addresses, and e-
mails of contact persons responsible for purchasing decisions. Many federal agencies are able to
purchase as much as $25,000 of products at a time by simply using a government credit card.
This fact makes them a target for small businesses.
It's not unusual for each agency or department to have its own procurement policies. Would-be
sellers are often asked to submit sealed bids that contain the details of what they are willing to
provide the government and at what price. But contrary to popular belief, it's not always the
lowest bid that's accepted. Would the United States want to send its soldiers to war in the
cheapest planes and tanks, bearing the lowest-cost armor? Probably not. Like other buyers,
government buyers look for the best value.
Institutions Institutional markets include nonprofit organizations such as the American Red Cross,
churches, hospitals, charitable organizations, private colleges, and civic clubs. Like government
and for-profit organizations, they buy a huge quantity of products and services. Holding costs
down is especially important. The lower their costs, the more people to whom they can provide
their services.
The businesses and products we have mentioned so far are broad generalizations to help you
think about the various markets in which products can be sold. In addition, not all products a
company buys are high-dollar or complex. Businesses buy huge quantities of inexpensive
products, too. McDonald's, for example, buys a lot of toilet paper, napkins, bags, and employee
uniforms. Pretty much any product you and I use is probably used for one or more business
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purposes (cell phones and cell-phone services, various types of food products, office supplies, and
so on). Some of us own real estate, and so do many businesses. But very few of us own many of
the other products businesses sell to one another: cranes, raw materials such as steel, and fiber-
optic cables.
That said, a smart B2B marketer will look at all the markets to see if they represent potential
opportunities. The Red Cross will have no use for a fighter jet, of course. However, a company
that manufactures toilet paper might be able to market it to both the Red Cross and the US
government. B2B opportunities abroad and online B2B markets can also be successfully pursued.
8 . 2 K E Y T A K E A W A Y
Business buyers can be either nonprofit or for-profit businesses. There are four basic categories of business buyers: producers, resellers, governments, and institutions. Producers are companies that purchase goods and services that they transform into other products. They include both manufacturers and service providers. Resellers are companies that sell goods and services produced by other firms without materially changing them. They include wholesalers, brokers, and retailers. Local, state, and national governments purchase large quantities of goods and services. Institutional markets include nonprofit organizations such as the American Red Cross, churches, hospitals, charitable organizations, private colleges, and civic clubs. Holding costs down is especially important to them because it enables them to provide their services to more people.
8.3 Buying Centers
LEARNING OBJECTIVES
1. Explain what a buying center is. 2. Explain who the members of buying centers are and describe their roles. 3. Describe the duties of professional buyers. 4. Describe the personal and interpersonal dynamics that affect the decisions buying centers make.
Buying centers are groups of people within organizations who make purchasing decisions.
Large organizations often have permanent departments that consist of the people who, in a sense,
shop for a living. They are professional buyers, in other words. Their titles vary. In some
companies, they are simply referred to as buyers. In other companies, they are referred to
as purchasing agents, purchasing managers, or procurement officers. Retailers often refer to
their buyers as merchandisers. Most of the people who do these jobs have bachelor's of science
degrees. Some undergo additional industry training to obtain an advanced purchasing
certification designation (US Bureau of Labor Statistics, 2009).
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Buyers can have a large impact on the expenses, sales, and profits of a company. Pier 1's
purchasing agents comb the world for products the company's customers want most. What
happens if the products the purchasing agents pick don't sell? Pier 1's sales fall, and people get
fired. This doesn't happen in B2C markets. If you pick out the wrong comforter for your bed, you
don't get fired. Your bedroom just looks crummy.
Consequently, professional buyers are shrewd. Their jobs depend on their choosing the best
products at the best prices from the best vendors. Professional buyers are well informed and less
likely to buy a product on a whim than consumers. The sidebar below outlines the tasks
professional buyers generally perform.
The Duties of Professional Buyers • Considering the availability of products, the reliability of the products' vendors, and the
technical support they can provide
• Studying a company's sales records and inventory levels
• Identifying suppliers and obtaining bids from them
• Negotiating prices, delivery dates, and payment terms for goods and services
• Keeping abreast of changes in the supply and demand for goods and services their firms need
• Staying informed of the latest trends so as to anticipate consumer buying patterns
• Determining the media (TV, radio, Internet, newspapers) in which ads will be placed
• Tracking ads in newspapers and other media to check competitors' sales activities
Increasingly, purchasing managers have become responsible for buying not only products but
also functions their firms want to outsource. The functions aren't limited to manufacturing. They
also include product innovation and design services, customer service and order fulfillment
services, and information technology and networking services. Purchasing agents responsible for
finding offshore providers of goods and services often take trips abroad to inspect the facilities of
the providers and get a sense of their capabilities.
Other Players Purchasing agents don't make all the buying decisions in their companies, though. As we
explained, other people in the organization often have a say. Purchasing agents frequently need
their feedback and help to buy the best products and choose the best vendors. The people who
provide their firms' buyers with input generally fall into one or more of the following groups:
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Users
Users are the people and groups within the organization that actually use the product.
Frequently, they initiated the purchase in an effort to improve what they produce or how they
produce it. Users often have certain specifications in mind for products and how they want them
to perform. An example of a user might be a professor at your school who wants to adopt an
electronic book and integrate it into his or her online course.
Influencers
Influencers are people who may or may not use the product but have experience or expertise
that can help improve the buying decision. For example, an engineer may prefer a certain
vendor's product platform and may try to persuade others that it is the best choice.
Gatekeepers
If you want to sell a product to a large company such as Walmart, you can't just walk into its
corporate headquarters and demand to see a purchasing agent. You will first have to get past a
number of gatekeepers, people who will decide if and when you get access to members of the
buying center. These are people such as buying assistants, personal assistants, and other
individuals who have some say about sellers.
Gatekeepers often need to be courted as hard as prospective buyers. They generally have a lot of
information about what's going on behind the scenes and a certain amount of informal power. If
they like you, you're in a good position as a seller. If they don't, your job is going to e much harder.
In the case of textbook sales, the gatekeepers are often faculty secretaries. They know in advance
which instructors will be teaching which courses and the types of books they will need. It is
common for faculty secretaries to screen the calls of textbook sales representatives.
Deciders
The decider is the person who makes the final purchasing decision. The decider might or might
not be the purchasing manager. Purchasing managers are generally solely responsible for
deciding upon routine purchases and small purchases. However, the decision to purchase a large,
expensive product that will have a major impact on a company is likely to be made by or with the
help of other people in the organization, perhaps even the CEO. Sellers, of course, pay special
attention to what deciders want. "Who makes the buying decision?" is a key question B2B sales
and marketing personnel are trained to quickly ask potential customers.
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The Interpersonal and Personal Dynamics of B2B Marketing We made it a point earlier in our discussion to explain how rational and calculating business
buyers are. So would it surprise you to learn that sometimes the dynamics that surround B2B
marketing don't lead to the best purchasing decisions? Interpersonal factors among the people
making the buying decision often have an impact on the products chosen. (You can think of this
phenomenon as "office politics.") For example, one person in a buying unit might wield a lot of
power and greatly influence the purchasing decision. However, other people in the unit might
resent the power he or she wields and insist on a different offering, even if it doesn't best meet the
needs. Savvy B2B marketers are aware of these dynamics and try to influence the outcome.
Personal factors can sometimes play a part. B2B buyers are overwhelmed with choices, features,
benefits, information, data, and metrics. They often have to interview dozens of potential vendors
and ask them hundreds of questions. No matter how disciplined they are in their buying
procedures, they will often find a way to simplify their decision making, either consciously or
subconsciously (Miller, 2007). For example, a buyer deciding upon multiple vendors might
decide to simply choose the vendor whose sales representative he or she likes the most.
Factors such as these can be difficult for a company to control. However, branding—how
successful a company is at marketing its brands—is a factor under a company's control, says
Kevin Randall of Movéo Integrated Branding, an Illinois-based marketing-consulting firm. Sellers
can use their brands to their advantage to help business buyers come to the conclusion that their
products are the best choice. IBM, for example, has long had a strong brand name when it comes
to business products. The company's reputation was so solid that for years the catchphrase
"Nobody ever got fired for buying IBM" was often repeated among purchasing agents—and by
IBM salespeople, of course (Miller, 2007).
In short, B2B marketing is very strategic. Selling firms try to gather as much information about
their customers as they can and use that information to their advantage. As an analogy, imagine if
you were interested in asking out someone you had seen at your office. You could simply try to
show up at the coffee machine or somewhere in the building in the hopes of meeting the person.
But if you were thinking strategically, you might try to find out everything about the person, what
he or she likes to do, and then try to arrange a meeting. That way when you did meet the person,
you would be better able to strike up a conversation and develop a relationship. B2B selling is
similarly strategic. Little is left to chance.
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Ethical Dimensions of B2B Buying Ethical situations will frequently arise for B2B buyers and sellers. For example: unlike B2C
markets, offering customers free dinners and rounds of golf is common in B2B settings. In many
foreign countries, business and government buyers not only expect perks such as these but also
actually demand that bribes be paid if you want to do business with them. And firms pay bribes,
even though some countries prohibit them. (The United States is one such country.) Which
countries have a penchant for bribery? In a report called the "Bribe Payers Index," Transparency
International, a watchdog organization, annually ranks the likelihood of firms from the world's
industrialized countries to bribe abroad
(http://issuu.com/transparencyinternational/docs/bribe_payers_index_2011/7?e=0).
Or take, for example, the straight-rebuy situation we discussed earlier. Recall that in a straight
rebuy, buyers repurchase products automatically. Dean Foods, which manufactures the Silk
brand of soy milk, experienced negative press after the company changed the word "organic" to
"natural" on the labels of its milk, and quietly switched to conventional soybeans, which are often
grown with pesticides. But Dean didn't change the barcode for the product, the packaging of the
product, or the price much. So stores kept ordering what they thought was the same product—
making a straight rebuy—but it wasn't. Many stores and consumers felt as though they had been
duped. Some grocers dropped some Silk products (Warner, 2010).
And remember Intel's strategy to increase the demand for its chips by insisting that PC makers
use "Intel Inside" stickers? Intel paid a competitor more than a billion dollars to settle a court
case contending that it strong-armed PC makers into doing business exclusively with Intel (Lohr
& Kanter, 2009). (Does that make you feel less warm about the "Intel Inside" campaign?)
What Dean Foods and Intel did might strike you as being wrong. However, what is ethical and
what is not is often not clear. Walmart has a reputation for using its market power to squeeze its
suppliers for the best deals, in some cases putting them out of business. Is that ethical? What
about companies that hire suppliers abroad, putting US companies and workers out of business?
Is that wrong? It depends on whom you ask. Some economists believe Walmart's ability to keep
costs low has benefited consumers far more than it has hurt product suppliers. Is it fair to
prohibit US companies from offering bribes when their foreign competitors can?
Clearly, people have different ideas about what's ethical and what's not. So how does a business
get its employees to behave a certain way? Laws and regulations—state, federal, and
international—are an obvious starting point for companies, their executives, and employees
wanting to do the right thing. The US Federal Trade Commission (FTC) often plays a role when it
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comes to B2B laws and regulations. The FTC regulates companies in an effort to prevent them
from engaging in unfair trade practices that can harm consumers and hamper competition.
Companies are also adopting ethics codes that provide general guidelines about how their
employees should behave. Many firms require employees to go through training so they know
what to do when they face ethical dilemmas. Large corporations have begun hiring "chief ethics
officers" to ensure ethics are properly implemented within their organizations. The Business
Marketing Association has also developed a code of ethics
(http://web.archive.org/web/20140705010939/http://www.marketing.org/i4a/pages/index.cfm
?pageid=3286#.VQyDRI4VjkU) that discourages bribery and unfairly disparaging a competitor's
products, and encourages treating one's suppliers equitably.
As for Walmart, you can't fault the company's procurement practices. Walmart's purchasing
agents aren't allowed to accept a lunch, dinner, round of golf, or so much as a cup of coffee from
potential vendors. Walmart is not the only company to have implemented such a policy. More and
more firms have followed suit because (1) they realize that perks such as these drive up product
costs and (2) they don't want their buyers making decisions based on what they personally can get
out of them rather than what's best for the company.
All things equal, companies want to do business with firms that are responsible. They don't want
to be associated with firms that are not. Why is this important? Because that's what consumers
are increasingly demanding. A few years ago, Nike and a number of other apparel makers were
lambasted when it came to light that the factories they contracted with were using child labor and
keeping workers toiling for long hours under terrible conditions. Nike didn't own the factories,
but it still got a bad rap. Today, Nike, Inc., uses a "balanced scorecard." When evaluating
suppliers, Nike looks at their labor-code compliance along with measures such as price, quality,
and delivery time. During crunch times, it allows some Chinese factories latitude by, for example,
permitting them to adjust when employees can take days off (Roberts et al., 2006)
Similarly, Walmart has developed a scorecard to rate its suppliers on how their packaging of
products affects the environment (Arzoumanian, 2008). Walmart does so because its customers
are becoming more conscious of environmental damage and see value in products that are
produced in as environmentally friendly a way as possible.
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8 . 3 K E Y T A K E A W A Y
Buying centers are groups of people within organizations who make purchasing decisions. The buying centers of large organizations employ professional buyers who, in a sense, shop for a living. They don't make all the buying decisions in their companies, though. The other people who provide input are users, or the people and groups within the organization that actually use the product; influencers, or people who may or may not use the product but have experience or expertise that can help improve the buying decision; gatekeepers, or people who will decide if and when a seller gets access to members of the buying center; and deciders, or the people who make the final purchasing decision. Interpersonal dynamics between the people in a buying center will affect the choices the center makes. Personal factors, such as how likeable a seller is, play a part because buyers are often overwhelmed with information and will find ways to simplify their decision making.
Ethics come into play in almost all business settings. Business-to-business markets are no different. For example, unlike B2C markets, offering customers perks is very common in B2B settings. In many foreign countries, government buyers demand bribes be paid if a company wants to do business with them. Understanding the laws and regulations that apply to their firms is an obvious starting point for companies, their executives, and employees in terms of knowing how to act ethically. Companies are also adopting ethics codes that provide general guidelines about how their employees should behave, requiring their employees to go through ethics training, and hiring chief ethics officers. Companies want to do business with firms that are responsible. They don't want to be associated with firms that are not. Why? Because they know ethics are important to consumers and that they are increasingly demanding firms behave responsibly.
8.4 Segmenting B2B Markets
LEARNING OBJECTIVE
1. Identify bases for segmenting B2B markets.
Many of the same bases used to segment consumer markets we discussed in Week 4 are also used
to segment B2B markets. Demographic criteria are used. For example, Goya Foods is a US food
company that sells different ethnic products to grocery stores, depending on the demographic
groups the stores serve—Hispanic, Mexican, or Spanish. Likewise, B2B sellers often divide their
customers by geographic areas and tailor their products to them accordingly. Segmenting by
behavior is common as well. B2B sellers frequently divide their customers based on their product
usage rates. Customers that order many goods and services from a seller often receive special
deals and are served by salespeople who call on them in person. By contrast, smaller customers
are more likely to have to rely on a firm's website, customer service people, and salespeople who
call on them by telephone.
However, researchers Paul Hague, Nick Hague, and Matthew Harrison have theorized that there
are fewer behavioral and needs-based segments in B2B markets than in business-to-consumer
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(B2C) markets for two reasons: (1) business markets are made up of a few hundred customers
whereas consumer markets can be made up of hundreds of thousands of customers, and (2)
businesses aren't as fickle as consumers. Unlike consumers, they aren't concerned about their
social standing, or influenced by their families and peers. Instead, businesses are concerned solely
with buying products that will ultimately increase their profits.
According to Hague, Hague, and Harrison (n.d.), the behavioral, or needs-based, segments in B2B
markets include the following:
• A price-focused segment composed of small companies that have low profit margins
and regard the good or service being sold as not being strategically important
• A quality and brand-focused segment composed of firms that want the best products
and are prepared to pay for them
• A service-focused segment composed of firms that demand high-quality products and
have top-notch delivery and service requirements
• A partnership-focused segment composed of firms that seek trust and reliability on the
part of their suppliers and see them as strategic partners
B2B sellers, like B2C sellers, are exploring new ways to reach their target markets using
marketing communications tools. Trade shows and direct mail campaigns are two traditional
ways of reaching B2B markets. Now, however, firms are finding they can target their B2B
customers more cost effectively via e-mail campaigns, search-engine marketing, and "fan pages"
on social networking sites such as Facebook. Companies are also creating blogs with cutting-edge
content about new products and business trends in which their customers are interested. And for
the fraction of the cost of attending a trade show to exhibit their products, B2B sellers are holding
webcasts and conducting online product demonstrations for potential customers.
8 . 4 K E Y T A K E A W A Y
Many of the same bases used to segment consumer markets are used to segment business-to-business (B2B) markets. However, there are generally fewer behavioral-based segments in B2B markets.
8.5 Types of Business-to-Business Offerings
LEARNING OBJECTIVES
1. Define the types of offerings marketed to businesses. 2. Identify some of the differences with regard to how the types of business offerings are marketed.
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Just as there are different types of consumer offerings, there are different types of business-to-
business (B2B) offerings as well. But unlike consumer offerings, which are categorized by how
consumers shop, B2B offerings are categorized by how they are used. The primary categories are
• capital equipment offerings
• raw materials offerings
• original equipment manufacturer (OEM) offerings
• maintenance, repair, and operations (MRO) offerings
• facilitating offerings
Capital Equipment Offerings A capital equipment offering is any equipment purchased and used for more than one year
and depreciated over its useful life. Machinery used in a manufacturing facility, for example,
would be considered capital equipment. Professionals who market capital equipment often have
to direct their communications to many people within the firms because the buying decisions can
be complex and involve many departments. From a marketing standpoint, deciding who should
get what messages and how to influence the sale can be challenging.
Raw Materials Offerings Raw materials offerings are materials firms offer other firms so they can make a product or
provide a service. Raw materials offerings are processed only to the point required to
economically distribute them. Lumber is generally considered a raw material, as is iron, nickel,
copper, and other ores. If iron is turned into sheets of steel, it is called a manufactured
material because it has been processed into a finished good but is not a stand-alone product; it
still has to be incorporated into something else to be usable. Both raw and manufactured
materials are then used in the manufacture of other offerings.
Raw materials are often thought of as commodities, meaning that there is little difference among
them. Consequently, the competition to sell them is based on price and availability. Natuzzi is an
Italian company that makes leather furniture. The wood Natuzzi buys to make its sofas is a
commodity. By contrast, the leather the company uses is graded, meaning each piece of leather is
rated based on quality. To some extent, the leather is still a commodity, because once a firm
decides to buy a certain grade of leather, every company's leather within that grade is virtually the
same.
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OEM Offerings or Components An original equipment manufacturer (OEM) is a manufacturer or assembler of a final
product. An OEM purchases raw materials, manufactured materials, and component parts and
puts them together to make a final product. OEM offerings or components, like an on/off
switch, are components, or parts, sold by one manufacturer to another that get built into a final
product without further modification. Dell's hard drives installed in computer kiosks such as the
self-service kiosks in airports that print boarding passes are an example of OEM components.
MRO Offerings Maintenance, repair, and operations (MRO) offerings refer to products and services used
to keep a company functioning. Janitorial supplies are MRO offerings, as is hardware used to
repair any part of a building or equipment. MRO items are often sold by distributors. However,
you can buy many of the same products at a retail store. For example, you can buy nuts and bolts
at a hardware store. A business buyer of nuts and bolts, however, will also need repair items that
you don't, such as strong solder used to weld metal. For convenience sake, the buyer would prefer
to purchase multiple products from one vendor rather than driving all over town to buy them. So
the distributor sends a salesperson to see the buyer. Most distributors of MRO items sell
thousands of products, set up online purchasing websites for their customers, and provide other
services to make life easier for them.
Facilitating Offerings Facilitating offerings include products and services that support a company's operations but
are not part of the final product it sells. Marketing research services, banking and transportation
services, copiers and computers, and other similar products and services fall into this category.
Facilitating offerings might not be central to the buyer's business, at least not the way component
parts and raw materials are. Yet to the person who is making the buying decision, these offerings
can be important. If you are a marketing manager who is selecting a vendor for marketing
research or choosing an advertising agency, your choice could be critical to your personal success.
For this reason, many companies that supply facilitating offerings try to build strong relationships
with clients.
8 . 5 K E Y T A K E A W A Y
Business buyers purchase various types of offerings to make their own offerings. Some of the types of products they use are raw materials, manufactured materials, and component parts and assemblies, all of which can become part of an offering. MRO (maintenance, repair, and operations) offerings are those that keep a company's depreciable assets in working order. Facilitating offerings are products and services a company purchases to support its operations but are not part of the firm's final product.
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8.6 Stages in the B2B Buying Process and B2B Buying Situations
LEARNING OBJECTIVES
1. Outline the stages in the B2B buying process. 2. Explain the scorecard process of evaluating proposals. 3. Describe the types of B2B buying situations and how they affect sellers.
Stages in the B2B Buying Process Next, let's look at the stages in the B2B buying process. They are similar to the stages in the
consumer's buying process.
1. A need is recognized. Someone recognizes that the organization has a need that can be
solved by purchasing a good or service. Users often drive this stage. In the case of the electronic
textbook, it could be the professor assigned to teach the online course. However, it could be the
dean or chairman of the department in which the course is taught.
2. The need is described and quantified. Next, the buying center, or group of people
brought together to help make the buying decision, work to put parameters around what needs to
be purchased. In other words, they describe what they believe is needed, the features it should
have, how much of it is needed, and where. For more technical or complex products, the buyer
will define the product's specifications. Will an off-the-shelf product do, or must it be customized?
Users and influencers come into play. In the case of our electronic book, the professor who
teaches the online course, his or her teaching assistants, and the college's information technology
staff would try to describe the type of book best suited for the course. Should the book be posted
on the web as this book is? Should it be downloadable? Maybe it should be compatible with
Amazon's Kindle.
3. Potential suppliers are searched for. At this stage, the people involved in the buying
process seek out information about the products they are looking for and the vendors that can
supply them. Most buyers look online first to find vendors and products, then attend industry
trade shows and conventions and telephone or e-mail the suppliers with whom they have
relationships. The buyers might also consult trade magazines, the blogs of industry experts, and
perhaps attend webinars conducted by vendors or visit their facilities. Purchasing agents often
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play a key role when it comes to deciding which vendors are the most qualified. Are they reliable
and financially stable? Will they be around in the future? Do they need to be located near the
organization, or can they be in another region of the country or in a foreign country? The vendors
that don't qualify are quickly eliminated from the running.
4. Qualified suppliers are asked to complete responses to requests for proposal
(RFPs). Each vendor that makes the cut is sent a request for proposal (RFP), an invitation to
submit a bid to supply the good or service. An RFP outlines what the vendor is able to offer in
terms of its product—its quality, price, financing, delivery, after-sales service, whether it can be
customized or returned, and even the product's disposal, in some cases. Good sales and marketing
professionals do more than just provide basic information to potential buyers in RFPs. They focus
on the buyer's problems and how to adapt their offers to solve those problems.
Often, the vendors formally present their products to the people involved in the buying decision.
If the good is a physical product, the vendors generally provide the purchaser with samples, which
are then inspected and sometimes tested. They might also ask satisfied customers to make
testimonials or initiate a discussion with the buyer to help the buyer get comfortable with the
product and offer advice on how best to go about using it.
5. The proposals are evaluated and supplier(s) selected. During this stage, the RFPs are
reviewed and the vendor or vendors selected. RFPs are best evaluated if the members agree on the
criteria being evaluated and the importance of each. Different organizations will weigh different
parts of a proposal differently, depending on their goals and the products they purchase. The
price might be very important to some sellers, such as discount and dollar stores. Other
organizations might be more focused on top-of-the-line goods and the service a seller provides.
Recall that the maker of Snapper mowers and snow blowers was more focused on purchasing
quality materials to produce top-of-the-line equipment that could be sold at a premium. Still
other factors include the availability of products and the reliability with which vendors can supply
them. Reliability of supply is important because delays in the supply chain can shut down a
company's production of goods and services and cost the firm its customers and reputation.
For high-priced, complex products, after-sales service is likely to be important. A fast-food
restaurant might not care much about the after-sales service for the paper napkins it buys—just
that they are inexpensive and readily available. However, if the restaurant purchases a new drive-
thru system, it wants to be assured that the seller will be on hand to repair the system if it breaks
down and perhaps train its personnel to use the system.
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A scorecard approach can help a company rate the RFPs. Figure 8.2, "A Scorecard Used to
Evaluate RFPs," is a simple example of a scorecard completed by one member of a buying team.
The scorecards completed by all the members of the buying team can then be tabulated to help
determine the vendor with the highest rating.
Figure 8.2 A Scorecard Used to Evaluate RFPs
Selecting Single vs. Multiple Suppliers. Sometimes organizations select a single supplier to
provide the good or service. This can help streamline a company's paperwork and other buying
processes. With a single supplier, instead of negotiating two contracts and submitting two
purchase orders to buy a particular offering, the company only has to do one of each. Plus, the
more the company buys from one vendor, the bigger the volume discount it gets. Single sourcing
can be risky, though, because it leaves a firm at the mercy of a sole supplier. What if the supplier
doesn't deliver the goods, goes out of business, or jacks up its prices? Many firms prefer to do
business with more than one supplier to avoid such problems. Doing business with multiple
suppliers ensures they will remain competitive. If they know their customers can easily switch to
another supplier, they are likely to work harder to keep the business.
6. An order routine is established. This is the stage in which the actual order is put together.
The order includes the agreed-upon price, quantities, expected time of delivery, return policies,
warranties, and any other terms of negotiation (Brauner, 2008). The order can be made on
paper, online, or sent electronically from the buyer's computer system to the seller's. It can also be
a one-time order or consist of multiple orders that are made periodically as a company needs a
good or service. Some buyers order products continuously by having their vendors electronically
monitor their inventory for them and ship replacement items as the buyer needs them.
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7. A postpurchase evaluation is conducted and the feedback provided to the vendor.
Just as consumers go through an evaluation period after they purchase goods and services, so do
businesses. The buying unit might survey users of the product to see how satisfied they were with
it. Cessna Aircraft Company, a small US airplane maker, routinely surveys the users of the
products it buys so they can voice their opinions on a supplier's performance (Purchasing, 2009).
Some buyers establish on-time performance, quality, customer satisfaction, and other measures
for their vendors to meet, and provide those vendors with the information regularly, such as trend
reports that show if their performance is improving, remaining the same, or worsening. (The
process is similar to a performance evaluation you might receive as an employee.) For example,
Food Lion shares a variety of daily retail data and performance calculations with its suppliers in
exchange for their commitment to closely collaborate with the grocery-store chain.
Keep in mind that a supplier with a poor performance record might not be entirely to blame. The
purchasing company might play a role, too. For example, if the US Postal Service contracts with
FedEx to help deliver its holiday packages on time, but a large number of the packages are
delivered late, FedEx may or may not be to blame. Perhaps a large number of loads the US Postal
Service delivered to FedEx were late, weather played a role, or shipping volumes were unusually
high. Companies need to collaborate with their suppliers to look for ways to improve their joint
performance. Some companies hold annual symposiums with their suppliers to facilitate
cooperation among them and to honor their best suppliers (Copacino, 2009).
8 . 6 K E Y T A K E A W A Y
The stages in the B2B buying process are as follows: Someone recognizes that the organization has a need that can be solved by purchasing a good or service. The need is described and quantified. Qualified suppliers are searched for, and each qualified supplier is sent a request for proposal (RFP), which is an invitation to submit a bid to supply the good or service. The proposals suppliers submit are evaluated, one or more suppliers are selected, and an order routine with each is established. A postpurchase evaluation is later conducted and the feedback provided to the suppliers. The buying stages an organization goes through often depend on the buying situation—whether it's a straight rebuy, new buy, or modified rebuy.
8.7 Marketing Information Systems (MIS)
LEARNING OBJECTIVES
1. Describe the components of a marketing information system and each component's purpose. 2. Explain the situations in which marketing research should be used versus market intelligence. 3. Describe the limitations of market intelligence and its ethical boundaries. 4. Explain when marketing research should and should not be used.
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A certain amount of marketing information is being gathered all the time by companies as they
engage in their strategic planning and daily operations. When a sale is made and recorded, this is
marketing information that's being gathered. When a sales representative records the shipping
preferences of a customer in a firm's customer relationship management (CRM) system, this is
also marketing information being collected. When a firm gets a customer complaint and records
it, this, too, is information that should be put to use. All this data can be used to generate
consumer insight. However, truly understanding customers involves not just collecting
quantitative data (numbers) related to them but qualitative data, such as comments about what
they think.
The trick is integrating all the collected information so it can be used by as many people as
possible to make good decisions. Unfortunately, in many organizations, information isn't shared
well among departments. Even within departments, it can be a problem. For example, one group
in a marketing department might research a problem related to a brand and uncover certain
findings that would be useful to other brand managers, but never communicate them.
A marketing information system (MIS) is a way to manage the vast amount of information
firms have on hand—information marketing professionals and managers need to make good
decisions. Marketing information systems range from paper-based systems to sophisticated
computer systems. Ideally, however, a marketing information system should include the following
components:
• A system for recording internally generated data and reports
• A system for collecting market intelligence on an ongoing basis
• Marketing analytics software to help managers with their decision making
• A system for recording marketing research information
Internally Generated Data and Reports As we explained, an organization generates and records a lot of information as part of its daily
business operations, including sales and accounting data, and data on inventory levels, back
orders, customer returns, and complaints. Firms are also constantly gathering information
related to their websites, such as clickstream data. Clickstream data is data generated about the
number of people who visit a website and its pages, how long they dwell there, and what they buy
or don't buy. Companies use clickstream data in all kinds of ways. They use it to monitor the
overall traffic of visitors that a site gets, to see which areas of the site people aren't visiting and
explore why, and to automatically offer visitors products and promotions by virtue of their
browsing patterns. Software can be used to automatically tally the vast amounts of clickstream
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data gathered from websites and generate reports for managers based on that information. Netflix
awarded a $1 million prize to a group of scientists to plow through web data generated by millions
of Netflix users to improve Netflix's predictions of what users would like to rent (Baker,
2009). (That's an interesting way to conduct marketing research, don't you think?)
Being able to access clickstream data and other internally generated information quickly can give
a company's decision makers a competitive edge. Remember when we discussed how Walmart got
ahead of Target after 9/11? Walmart's inventory information was updated by the minute (the
retailer's huge computing center rivals the Pentagon's, incidentally); Target's was only updated
daily. When Walmart's managers noticed American flags began selling rapidly immediately
following the terrorist attacks on 9/11, the company quickly ordered as many flags as possible
from vendors—leaving none for Target.
Many companies make a certain amount of internal data available to their employees and
managers via intranets. An intranet looks like the web and operates like it, but only an
organization's employees have access to the information. So, for example, instead of a brand
manager asking someone in accounting to run a report on the sales of a particular product, the
brand manager could look on the firm's intranet for the information.
However, big companies with multiple products, business units, and databases purchased and
installed in different places and at different times often have such vast amounts of information
that they can't post it all on an intranet. Consequently, getting hold of the right information can
be hard. The information could be right under your nose and you might not know it.
Gary Pool works for BNSF Railway and is one of BNSF's "go-to" employees when it comes to
gathering marketing data. Pool knows how to access different databases and write computer
programs to extract the right information from the right places at BNSF, a process known
as data mining. Pool captures the information in spreadsheets such as Excel, which managers
can use to detect marketing trends.
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Figure 8.3
Gary Pool is an expert at data mining—hunting information for decision makers at BNSF
Railway. And no, he doesn't wear a headlamp. Nor does he wear a pocket protector! Pool's title:
Manager, marketing systems support & marketing decision support & planning.
Analytics Software Increasingly, companies are purchasing analytics software to help them pull and make sense of
internally generated information. Analytics software allows managers who are not computer
experts to gather information from a company's databases—information not produced in reports
regularly generated by the company. The software incorporates regression models, linear
programming, and other statistical methods to help managers answer "what if" types of questions.
For example, "If we spend 10 percent more of our advertising on TV ads instead of magazine ads,
what effect will it have on sales?" Oracle's Crystal Ball is one brand of analytical software.
The sporting goods retailer Cabela's has managed to refine its marketing efforts using analytics
software developed by the software maker SAS. "Our statisticians in the past spent 75 percent of
their time just trying to manage data. Now they have more time for analyzing the data with SAS,
and we have become more flexible in the marketplace," says Corey Bergstrom, director of
marketing research and analysis for Cabela's. "That is just priceless." (Zarello, 2009).
The software analyzes the company's sales transactions, market research, and demographic data
associated with its large database of customers. It uses the information to gain a better
understanding of the marketing channels Cabela's prefers and to make other marketing decisions.
For example, does the customer prefer Cabela's 100-page catalogs or the 1,700-page catalogs? The
software has helped Cabela's employees figure this out (Zarello, 2009).
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Market Intelligence A good internal reporting system can tell a manager what happened inside his or her firm. But
what about what's going on outside the firm such as when the company conducts a SWOT
analysis as part of its strategic planning process? What is the business environment like? Are
credit-lending terms loose or tight, and how will they affect what you and your customers are able
to buy or not buy? How will rising fuel prices and alternate energy sources affect your firm and
your products? Do changes such as these present business obstacles or opportunities? Moreover,
what are your competitors up to?
Not gathering market intelligence leaves a company vulnerable. Encyclopedia Britannica, the
market leader in print encyclopedia business for centuries, didn't see the digital age coming and
nearly went out of business as a result. (Suffice it to say, you can now access Encyclopedia
Britannica online.) By contrast, when fuel prices hit an all-time high in 2008, unlike other
passenger airline companies, Southwest was prepared. Southwest had anticipated the problem,
and early on locked in contracts to buy fuel for its planes at much lower prices. Other airlines
weren't as prepared and lost money because their fuel expenses skyrocketed. Meanwhile,
Southwest managed to eke out a profit. Collecting market intelligence can also help a company
generate ideas or product concepts that can then be tested by conducting market research.
Gathering market intelligence involves a number of activities, including scanning newspapers,
trade magazines, and economic data produced by the government to find out about trends and
what the competition is doing. In big companies, personnel in a firm's marketing department are
primarily responsible for their firm's market intelligence and making sure it gets conveyed to
decision makers. Some companies subscribe to news service companies that regularly provide this
information. LexisNexis is one such company. It provides companies with news about business
and legal developments that could affect their operations. Let's now examine some of the sources
of information you can look at to gather market intelligence.
Search Engines and Corporate Websites
An obvious way to gain market intelligence is by examining your competitors' websites as well as
doing basic searches with engines such as Google. If you want to find out what the press is writing
about your company, your competitors, or any other topic you're interested in, you can sign up to
receive free alerts via e-mail by going to Google Alerts. Suppose you want to monitor what people
are saying about you or your company on blogs, the comment areas of websites, and social
networks such as Facebook and Twitter. You can do so by going to a site like WhosTalkin.com,
typing a topic or company name into the search bar, and voilà! All the good (and bad) things
people have remarked about the company or topic turn up. What a great way to seek out the
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shortcomings of your competitors. It's also a good way to spot talent. For example, designers are
using search engines like WhosTalkin.com to search the blogs of children and teens who are
"fashion forward" and then involve them in designing new products.
Publications
The Economist, the Wall Street Journal, Forbes, Fortune, BusinessWeek, the McKinsey
Report, Sales and Marketing Management, and the Financial Times are good publications to
read to learn about general business trends. All of them discuss current trends, regulations, and
consumer issues that are relevant for organizations doing business in the domestic and global
marketplace. All of the publications are online as well, although you might have to pay a
subscription fee to look at some content. If your firm is operating in a global market, you might be
interested to know that some publications have Asian, European, and Middle Eastern editions.
Other publications provide information about marketplace trends and activities in specific
industries. Consumer Goods and Technology provides information consumer packaged-goods
firms want to know. Likewise, Progressive Grocer provides information on issues important to
grocery stores. Information Week provides information relevant to people and businesses
working in the area of technology. World Trade provides information about issues relevant to
organizations shipping and receiving goods from other countries. Innovation: America's Journal
of Technology Commercialization provides information about innovative products that are about
to hit the marketplace.
Trade Shows and Associations
Trade shows are another way companies learn about what their competitors are doing. If you are
a marketing professional working a trade show for your company, you will want to visit all of your
competitors' booths and see what they have to offer relative to what you have to offer. And, of
course, every field has a trade association that collects and disseminates information about
trends, breakthroughs, new technology, new processes, and challenges in that particular industry.
The American Marketing Association, Food Marketing Institute, Outdoor Industry Association,
Semiconductor Industry Association, Trade Promotion Management Association, and Travel
Industry Association provide their member companies with a wealth of information and often
deliver them daily updates on industry happenings via e-mail.
Salespeople
A company's salespeople provide a vital source of market intelligence. Suppose one of your
products is selling poorly. Will you initially look to newspapers and magazines to figure out why?
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Will you consult a trade association? Probably not. You will first want to talk to your firm's
salespeople to get their "take" on the problem.
Salespeople are the eyes and ears of their organizations. Perhaps more than anyone else, they
know how products are faring in the marketplace, what the competition is doing, and what
customers are looking for.
A system for recording this information is crucial, which explains why so many companies have
invested in customer relationship management (CRM) systems. Some companies circulate lists so
their employees have a better idea of the market intelligence they might be looking for. Textbook
publishers are an example. They let their sales representatives know the types of books they want
to publish and encourage their representatives to look for potential textbook authors among the
professors to whom they sell.
Suppliers and Industry Experts
Your suppliers can provide you with a wealth of information. Good suppliers know which
companies are moving a lot of inventory. And often they have an idea why. In many instances,
they will tell you, if the information you're looking for is general enough so they don't have to
divulge any information that's confidential or that would be unethical to reveal. Befriending an
expert in your industry, along with business journalists and writers, can be helpful, too. Often
these people are "in the know" because they get invited to review products (Gardner, 2001).
Customers
Finally, when it comes to market intelligence, don't neglect observing how customers are
behaving. They can provide many clues, some of which you will be challenged to respond to. For
example, during the economic downturn around 2008, many wholesalers and retailers noticed
consumers began buying smaller amounts of goods—just what they needed to get by during the
week. Seeing this trend and realizing that they couldn't pass along higher costs to customers
(because of, say, higher fuel prices), a number of consumer-goods manufacturers "shrank" their
products slightly rather than raise prices. You have perhaps noticed that some of the products you
buy got smaller—but not cheaper.
Can Market Intelligence Be Taken Too Far? Can market intelligence be taken too far? Yes. In 2001, Procter & Gamble admitted it had engaged
in "dumpster diving" by sifting through a competitor's garbage to find out about its hair care
products. Although the practice isn't necessarily illegal, it cast P&G in a negative light (Nemes,
28
2009). Likewise, British Airways received a lot of negative press in the 1990s after it came to light
that the company had hacked into Virgin Atlantic's computer system (Heichler, 1993).
Gathering corporate information illegally or unethically is referred to as industrial espionage.
Industrial espionage is common. Sometimes companies hire professional spies to gather
information about their competitors and their trade secrets or even bug their phones. Former and
current employees can also reveal a company's trade secret either deliberately or unwittingly.
Microsoft sued a former employee it believed had divulged trade secrets to its competitors (Mills,
2009). It's been reported that for years, professional spies bugged Air France's first-class seats to
listen in on executives' conversations (Anderson, 1995).
To develop standards of conduct and create respect for marketing professionals who gather
market intelligence, the Society of Competitive Intelligence Professionals has developed a code of
ethics (SCIP, n.d.):
• To continually strive to increase the recognition and respect of the profession.
• To comply with all applicable laws, domestic and international.
• To accurately disclose all relevant information, including one's identity and organization,
prior to all interviews.
• To avoid conflicts of interest in fulfilling one's duties.
• To provide honest and realistic recommendations and conclusions in the execution of
one's duties.
• To promote this code of ethics within one's company, with third-party contractors and
within the entire profession.
• To faithfully adhere to and abide by one's company policies, objectives and guidelines.
Marketing Research Marketing research is what a company has to resort to if it can't answer a question by using any of
the types of information we have discussed so far—market intelligence, internal company data, or
analytics software. As we have explained, marketing research is generally used to answer specific
questions. The name you should give your new product is an example. Unless your company has
previously done some specific research on product names—what consumers think of them, good
or bad—you're probably not going to find the answer to that question in your internal company
data. Also, unlike internal data, which is generated on a regular basis, marketing research is not
ongoing. Marketing research is done on an as-needed or project basis. If an organization decides
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that it needs to conduct marketing research, it can either conduct marketing research itself or hire
a marketing research firm to do it.
So when is marketing research needed? It can be expensive. You therefore have to weigh the costs
of the research against the benefits. What questions will the research answer, and will knowing
the answer result in the firm earning or saving more money than the research costs?
Marketing research can also take time. If a quick decision is needed for a pressing problem, it
might not be possible to do the research. Lastly, sometimes the answer is obvious, so there is no
point in conducting the research. If one of your competitors comes up with a new offering and
consumers are clamoring to get it, you certainly don't need to undertake a research study to see if
such a product would survive in the marketplace.
Alex J. Caffarini, the president and founder of the marketing research firm Analysights, believes
there are a number of other reasons why companies mistakenly do marketing research. Caffarini's
explanations (shown in parentheses) about why a company's executives sometimes make bad
decisions are somewhat humorous. Read through them (Caffarini, 2009):
• "We've always done this research." (The research has taken on a life of its own; this
particular project has continued for years and nobody questioned whether it was still
relevant.)
• "Everyone's doing this research." (Their competitors are doing it, and they're afraid
they'll lose competitive advantage if they don't; yet no one asks what value the research is
creating.)
• "The findings are nice to know." (Great—spend a lot of money to create a wealth of
useless information. If the information is nice to know, but you can't do anything with it,
you're wasting money.)
• "If our strategy fails, having done the research will show that we made our best
educated guess." (They're covering their butts. If things go wrong, they can blame the
findings, or the researcher.)
• "We need to study the problem thoroughly before we decide on a course of action."
(They're afraid of making a tough decision. Conducting marketing research is a good way
to delay the inevitable. In the meantime, the problem gets bigger, or the window of
opportunity closes.)
• "The research will show that our latest ad campaign was effective." (They're using
marketing research to justify past decisions. Rarely should marketing research be done
after the fact.)
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Is Marketing Research Always Correct? To be sure, marketing research can help companies avoid making mistakes. Take Tim Hortons, a
popular coffee chain in Canada, which has been expanding in the United States and
internationally. Hortons opened some self-serve kiosks in Ireland, but the service was a flop.
Why? Because cars in Ireland don't have cup holders. Would marketing research have helped?
Probably. So would a little bit of market intelligence. It would have been easy for an observer to
see that trying to drive a car and hold a cup of hot coffee at the same time is difficult.
That said, we don't want to leave you with the idea that marketing research is infallible. In fact,
marketing research studies have rejected a lot of good ideas. The idea for telephone answering
machines was initially rejected following marketing research. So was the hit sitcom Seinfeld, a
show that in 2002 TV Guide named the number-one television program of all time.
8 . 7 K E Y T A K E A W A Y
Many marketing problems and opportunities can be solved by gathering information from a company's daily operations and analyzing it. Market intelligence involves gathering information on a regular, ongoing basis to stay in touch with what's happening in the marketplace. Marketing research is what a company has to resort to if it can't answer a question by using market intelligence, internal company data, or analytical software. Marketing research is not infallible, however.
8.8 Predicting, Monitoring, and Measuring Marketing Strategies
LEARNING OBJECTIVES
1. Calculate return on marketing investment, breakeven point, contribution margin, market demand, and customer lifetime value.
2. Understand the value of using dashboards to monitor and measure marketing activities.
If you are mathphobic, don't be nervous about reading this section. It introduces you to the math
of marketing, but it will prove invaluable to you as a member of an organization that relies on
financial information to measure its success. Marketing is held accountable for the vast company
resources it consumes in the implementation of its activities. The question becomes: are those
expenses worth it? Are the marketing activities generating more sales, more awareness, more
customers, and all the other objectives the marketing plan intended to accomplish? We will only
look at a few of the key metrics that assess marketing performance and you will learn more
metrics in other business courses.
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The most common measure of financial performance is return on investment (ROI). It compares
capital projects where investments, such as marketing expenditures are made, and the returns the
company gained as a result of those expenditures. ROI is used both for projecting returns on
potential investments, and for measuring actual returns on investments.
return - investmentROI = investment
For marketing expenditures, we can further refine the ROI calculation to a basic return on
marketing investment (ROMI)
gross profit - marketing investmentROMI = marketing investment
Gross profit is revenue minus the cost of goods to produce/deliver a product or service. Marketing
investment is all the costs of the marketing efforts. These would include creative costs, printing
costs, media costs, technical costs, management time and costs of anything else used in the
marketing effort.
Both ROI and ROMI will be a percentage number. What this number represents is a target or an
actual return on investment, which may or may not be acceptable to the company. That is why
return on investment calculations are used both to project the performance of a marketing activity
and to measure the result of a marketing activity. For example, if the company's goal is to attain a
10 percent ROI or ROMI, and the final calculation was only 7.5 percent, then adjustments need to
be made. If the calculation was made as a projection, it could be the marketing activity, such as a
major advertising campaign, would be adjusted downward or scrapped.
Before a company can launch a product, it needs to determine what its breakeven point will be
before determining a price for the offering. Minimally, the company wants to recoup its costs and
make some profit. You probably learned this formula in another course, but the formula for
breakeven is:
fixed costsBreakeven point in units = price - variable costs
Companies may include differing variables in their fixed costs and variable costs definitions. As
long as the company is consistent with how these variables are determined, it will be able to use
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the same formula for computing its breakeven point. This calculation is determined as part of the
product development process, and the same basic formula is used to identify different breakeven
points based on different price points. If the price point gives the company the ROI it desires,
then that price point becomes the price of the offering as long as other market conditions such as
competitive influences are also considered. Most important to consider is the customer's
perception of the price, a potential price that can be determined using marketing research.
Another useful marketing metric is contribution margin. This number will help the company
understand how many units it needs to sell to reach an acceptable level of sales.
price - variable costsContribution margin = price
Market demand is the total volume that would be bought by a target market in a specific
geographic area, e.g. country, state, region or city, over a specific period. The most frequent way
market demand is calculated is by determining the market potential, or the maximum number of
customers that can possibly be obtained.
Market demand = (number of buyers in market × quantity purchased per year) × price of an average unit
A metric that is important for customer relationships is to know the value of that customer over
the life of the customer relationship. This is called customer lifetime value (CLV), and we
introduced the concept in Week 2. CLV is an essential metric for companies that are not only
customer-focused, but can take a longer-term view of a customer relationship instead of a focus
on quarterly or yearly profits (Common Language in Marketing, n.d.).
(margin $ × retention rate %)Customer lifetime value = (1 + discount rate (%) - retention rate (%)
The obvious benefit of calculating CLV is that the higher the value of the customer relationship,
the more the company should focus on meeting those customer needs.
All the above calculations are point-in-time measures that contribute to the strategic planning
effort either during the planning or after the plan period ends. However, there are numerous
ways the strategic marketing plan can be measured as the marketing strategies are being
implemented, often in real time, so that changes to the strategies can be made. These are called
performance metrics.
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For example, if one of the marketing communications objectives was to generate increased sales
by sampling and coupon redemption rates noted in real time via electronic scanning of the
coupons at the retail registers, the marketer might want to either increase the availability of the
coupons over social media or other media sites or retract the coupon offer if the sales goals were
met, or if inventory cannot keep up with demand.
Marketing managers can see this information right at their desks on dashboards, a visual
representation that gives managers a quick and easy way to view their key marketing performance
metrics in real time (Lavinsky, 2013).
This link to a sample dashboard tracking key words from a Google ad campaign for an auto repair
business tells the marketing manager that the key term "air filters" is the most frequently
searched term and that 33 leads have been generated for this company from the Google
campaign. The marketing manager can decide immediately if these results are sufficient for the
investment, change the copy to reflect more "air filter" or "SF Auto Repair" or other changes that
might generate more leads, including stopping the campaign.
This link to a dashboard compares the performance of five direct marketing campaigns. The
marketing manager can evaluate the relative merits of each campaign and whether to keep each
campaign or to direct more resources toward one or more of the campaigns because of the
potential for increased revenues. If you were the marketing manager, what might you think about
the campaign in green, the most leads, and the most revenue?
Dashboards have many advantages. Every company can design a dashboard to reflect statistics
that are most relevant for its needs. Some of the more common marketing performance metrics
you might find on a marketing dashboard include:
Sales team performance
• Number of closings • Closing percentages by salesperson • Sales by lead source • Dollar volume of sales • Sales by geography • Sales by territory • Sales by product line
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Website performance metrics
• Number of website visitors by traffic source • Top keywords referring traffic • Top referring websites
Advertising performance metrics
• Number of leads generated • Cost per lead by advertising source • Advertising expenses as a percentage of sales • Cost per thousand impressions • Number of inbound calls to 800 number • Sales conversion rates to 800 number
Public relations metrics
• Number of print inches with positive mentions • Number of broadcast airings with position mentions • Number of negative print stories • Number of negative broadcast stories • Number of participants in a special event • Number of references to competitors
Sales promotion metrics
• Number of coupons redeemed • Number of contest entrants and email addresses obtained • Number of free samples given away • Number of warranty forms turned in completed
Customer service performance metrics
• Dollar amount of refunds given • Number of refunds given • Average handle time of inbound calls • Number of additional sales made on call • Revenue generated on customer service calls
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• Number of e-mails/calls processed • Number of customer complaints • Number of customers referred to second-level customer service
E-mail marketing performance metrics
• E-mail open rates and click-through rates • E-mail unsubscribe rates • Revenue generated per e-mail or per click
Outbound telemarketing performance metrics
• Number sales per 100 outbound calls • Dollar revenue per 100 outbound calls • Sales per call representative Social media performance metrics
• Facebook fan engagement • Number of Twitter followers • Traffic to website from social media • Leads and sales generated from social media • Number of positive comments about the company's product or service • Number of negative comments about the company's product or service • Number of positive mentions of competitive offerings
Fulfillment metrics
• Number of services performed or products fulfilled • On-time completion rates • Changes in inventory levels
We have only covered a fraction of the types of metrics marketers use to monitor and measure the
results of marketing plans. This should suffice for those of you who are pursuing careers in other
business functions such as human resources, finance, or accounting. For those of you who are
pursuing marketing careers, you will be exposed to additional marketing metrics in your upper-
level marketing courses.
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8 . 8 K E Y T A K E A W A Y
Like all business functions, marketing is held accountable for its results that require an investment of limited company resources. No longer can a marketing director tell his or her CEO that the ad campaign created a lot of sales. He or she has to prove it. The most common way to measure overall marketing performance is the return on marketing investment. There are also metrics needed to plan marketing activities such as margin analysis, breakeven point, market demand, and customer lifetime value. As marketing plans are implemented, a dashboard conveying real-time information on how the results of the marketing activities is important not only to measure results but also to make ongoing adjustments should they be needed to improve performance. Week 8 References
Section 8.1 Steinberg, M. (2009, November 21-22). A fine diner. Financial Times, 5. Section 8.2 Businessdictionary.com. (n.d.) Retrieved December 24, 2014. Fishman, C. (2009, December 19). The man who said no to Wal-Mart. Fast Company, Retrieved December 13, 2009, from http://www.fastcompany.com/magazine/102/open_snapper.html?page=0%2C2 Section 8.3 Arzoumanian, M. (2008, November 15). Wal-Mart updates scorecard status. Official Board Markets, 84 (46), 1, 4. Lohr, S., & Kanter, J. (2009, November 12). A.M.D.-Intel settlement won't end their woes. New York Times. Retrieved March 20, 2015, from http://www.nytimes.com/2009/11/13/technology/companies/13chip.html?_r=0 Miller, J. (2007, March 18). Why B2B branding matters in B2B marketing. Marketo.com. Retrieved December 13, 2009, from http://blog.marketo.com/blog/2007/03/b2b_branding_wh.html Roberts, D., Engardio, P., Bernstein, A., Holmes, S., & Ji, X. (2006, November 27). How to make factories play fair. Retrieved December 13, 2009, from http://www.businessweek.com/magazine/content/06_48/b4011006.htm U.S. Bureau of Labor Statistics. (2009). Purchasing managers, buyers, and purchasing agents. Occupational Outlook Handbook, 2010–11 ed. Retrieved January 8, 2010 from http://www.bls.gov/oco/ocos023.htm (accessed January 8, 2010). Warner, M. (2010, September 10). How Silk's cost-cutting dis of organic backfired. CBS Moneywatch. Retrieved March 23, 2015, from http://www.cbsnews.com/news/how-silk-soymilks-cost-cutting-dis-of- organic-backfired/ Section 8.4 Hague, P., Hague, N., & Harrison, M. (n.d.). Why is business-to-business marketing special? B2B International. Retrieved January 27, 2010, from http://www.b2binternational.com/library/whitepapers/whitepapers04.php
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Section 8.6 Brauner, R. (2008, July 31). The B2B process: Eight stages of the business sales funnel. Retrieved December 13, 2009, from http://www.ronbrauner.com/?p=68 Copacino, W. (2009, July 8). Unlocking value through the supplier scorecard. Supply Chain Management Review. Retrieved December 13, 2009, from http://www.scmr.com/article/329960- Unlocking_Value_through_the_Supplier_Scorecard.php Purchasing. (2009, June). Cessna expands scorecard to indirect suppliers. 138(6), 58. Section 8.7 Anderson, J. (1995, March 25). Bugging Air France first class. Ellensburg Daily News. Retrieved April 13, 2012, from http://news.google.com/newspapers?nid=860&dat =19950320&id=ddYPAAAAIBAJ&sjid=F48DAAAAIBAJ&pg=4554,2982160 Baker, S. (2009, July 24). The web knows what you want. BusinessWeek. Retrieved December 14, 2009, from http://www.businessweek.com/magazine/content/09_30/b4140048486880.htm Caffarini, A. (2009). Ten costly marketing mistakes and how to avoid them. Analysights, LLC. Retrieved December 14, 2009, from http://analysights.com/Documents/10_Costly_MR_Mistakes.pdf Gardner, J. (2001, September 24). Competitive intelligence on a shoestring. Inc. Retrieved December 14, 2009, from http://www.inc.com/articles/2001/09/23436.html Heichler, E. (1993, January 18). Airline hacking case reveals CRS' security shortcomings. Computerworld, 2. Mills, E. (2009, January 30). Microsoft suit alleges ex-worker stole trade secrets. CNET. Retrieved December 14, 2009, from http://news.cnet.com/8301-10805_3-10153616-75.html Nemes, J. (2009, January 16). Dumpster diving: From garbage to gold. Greenbiz.com. Retrieved December 14, 2009, from http://www.businessgreen.com/business-green/analysis/2234107/dumpster-diving- garbage-gold SCIP (Society of Competitive Intelligence Professionals). (n.d.). SCIP code of ethics for CI professionals. Retrieved December 14, 2009, from http://www.scip.org/About/content.cfm?ItemNumber=578&navItemNumber=504 (accessed December Zarello, C. (2009, May 5). Hunting for gold in the great outdoors. Rental Information Systems News. Retrieved December 14, 2009, from http://www.risnews.com/ME2/dirmod.asp?sid=&nm=&type=MultiPublishing&mod=PublishingTitles &mid =2E3DABA5396D4649BABC55BEADF2F8FD&tier=4&id =7BC8781137EC46D1A759B336BF50D2B6 Section 8.8 Common Language in Marketing. (n.d.). Customer lifetime value. Retrieved January 31, 2015, from http://www.marketing-dictionary.org/ama Lavinsky, D. (2013, September 6). Executive dashboards: What they are and why every business needs one. Forbes. Retrieved January 31, 2015, from http://www.forbes.com/sites/davelavinsky/2013/09/06/executive-dashboards-what-they-are-why-every- business-needs-one/
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- Special Topics in Marketing
- 8.1 The Characteristics of Business-to-Business Markets
- The Demand for B2B Products
- 8.1 KEY TAKEAWAY
- 8.2 Types of B2B Buyers
- Producers
- Resellers
- Governments
- Institutions
- 8.2 KEY TAKEAWAY
- 8.3 Buying Centers
- The Duties of Professional Buyers
- Other Players
- Users
- Influencers
- Gatekeepers
- Deciders
- The Interpersonal and Personal Dynamics of B2B Marketing
- 8.3 KEY TAKEAWAY
- 8.4 Segmenting B2B Markets
- 8.4 KEY TAKEAWAY
- 8.5 Types of Business-to-Business Offerings
- Capital Equipment Offerings
- Raw Materials Offerings
- OEM Offerings or Components
- MRO Offerings
- Facilitating Offerings
- 8.5 KEY TAKEAWAY
- 8.6 Stages in the B2B Buying Process and B2B Buying Situations
- Stages in the B2B Buying Process
- 8.6 KEY TAKEAWAY
- 8.7 Marketing Information Systems (MIS)
- Internally Generated Data and Reports
- Analytics Software
- Market Intelligence
- Search Engines and Corporate Websites
- Publications
- Trade Shows and Associations
- Salespeople
- Suppliers and Industry Experts
- Customers
- Can Market Intelligence Be Taken Too Far?
- Marketing Research
- Is Marketing Research Always Correct?
- 8.7 KEY TAKEAWAY
- 8.8 Predicting, Monitoring, and Measuring Marketing Strategies
- 8.8 KEY TAKEAWAY