Business Marketing

This article will focus on business marketing, especially business-to-business(B2B) marketing and e-commerce. The foundation of business marketing strategy is based on three concepts, which are segmentation, targeting, and positioning. Many forecasters have predicted that B2B markets can expect purchases to net several trillion dollars a year, which is why many are predicting that the growth will outpace business-to-consumer marketing. Although business-to-consumer electronic commerce captures the attention of the industry, business-to-business electronic commerce is the format that is predicted to reap most of e-business activity.

Keywords Business Marketing; Business-to-Business Electronic Commerce; Business-to-Consumer Electronic Commerce; Business-to-Business Marketing; Business-to-Consumer Marketing; Consumer Marketing; Customer Value Proposition; Market Segmentation; Positioning; Targeting; Value Based Pricing

Marketing> Business Marketing

Overview

When marketing is mentioned, many think of the function as it relates to consumers. However, there is another side that is expected to blossom during the next decade — business-to-business marketing. According to the 2007 Marketing Priorities and Plans survey conducted by the trade journal B to B, marketing efforts will grow as business-to-business marketers increase budgets, do more business online, and try new technologies (Maddox, 2006). Respondents shared some of their goals for 2007, and the top three goals were customer acquisition (62.3 percent of the respondents), brand awareness (19.5 percent) and customer retention (11 percent). "New market growth, product penetration, research and positioning the company as a thought leader" were other goals listed in the survey (Maddox, 2006). Although e-mail, search, and webcasts were listed as still being important and worthy of some funding, website development was allocated the biggest percentage of online marketing funds. It was also illustrated that “67.7 percent of advertisers plan to launch new ad campaigns in 2007” (Maddox, 2006).

Many forecasters have predicted that the business-to-business market can expect purchases to net several trillion dollars a year, which is why many are predicting that the growth will outpace business-to-consumer marketing. However, the marketing industry will respond accordingly by providing both markets with sufficient attention even though both have different focuses.

Business Marketing Versus Consumer Marketing

There are many differences between the two forms of marketing, such as business marketing using shorter and more direct channels of distribution (Dwyer & Tanner, 2006), and consumer marketing aiming at larger demographic groups through mass media and retailers. In addition, the negotiation process is more personal between the buyer and seller in business marketing. Business marketers tend to use direct mail and trade journals as the preferred method of advertising, and they only commit a small portion of their budgets to do so (Hull & Speh, 2001).

According to Oliva (n.d.), some of the unique features between the two methods are:

Business-to-Business (B2B) Marketing

• Transactions among and within value chains
• Value primarily determined by business economic use
• Small numbers of customers, many requiring personalized marketing, including customized products and prices
• Large customers with strong market power (a business's customers tend to be its competitors)
• Diverse and varied customer types and customer needs
• Large unit transactions
• Complex and lengthy selling processes involving many players creating a demand decision chain
• Deeper partnerships with members of the value chain, including customers
• Channel management oriented up and down the supply chain
• Sales focused on key account management, and multiple purchasing influencers

Business-to-Consumer (B2C) Marketing

• Transactions through the dealer to the end consumer
• Value determined by end-consumer perception
• Focus on brand management
• Large number of generally similar consumers
• Small transactions
• Linear selling process, usually of short duration
• Channel management oriented toward retail
• Sales activity focused on the end user

Business marketing’s foundation is based on “building profitable, value-oriented relationships” between two organizations and their workforces (Oliva, n.d.). Business marketers focus on a small number of customers by using sales processes that are large, complex and technical. Due to new marketing and communication technologies, B2B and B2C marketing efforts cross many industries. Business marketers must understand how the two methods work together in order to create and deliver value.

Importance of Value

Value is central to all marketing practices, especially business marketing. In business markets, the real value of a product or service can be understood by “analyzing the product’s use in the marketplace and comparing the product or service to the next best alternative for the customer” (Oliva, n.d.). For example, Microsoft has introduced Office 2013. However, many companies are still using Office 2010. Many organizations tend not to update to the newer version until the bugs are worked out. The value concepts for both of these products can be calculated in monetary terms. In consumer markets, value is based on perception. For example, the value of coffee is based on brand symbolism, loyalty, experience, and taste preference.

Some business marketers have made the mistake of pricing their products and services too low. Many believe that price and costs are directly related. However, pricing based on cost may create pricing errors, which may lead to missed profit opportunities with business-to-business efforts. In order to avoid this costly mistake, value based pricing should be used by companies. Value based pricing occurs when a company creates a marketing and sales program geared toward educating potential customers on the value of the product or service they are receiving. If this goal is successful, potential customers tend to be willing to pay more for the product or service. Oliva (n.d.) believes that “studying the impact of value on profitability is one of the most important analyses a business marketer can conduct. Value in business markets can be examined on many levels” such as:

• The actual economic value of the offering delivered to the typical customer.
• The value of the supplier to the customer, and the brand strength and relationship value of the supplier.
• How value differs among actual and prospective customers, and among the individuals who collectively make a buying decision.
• How specific marketing activities influence customer recognition of value.
• How value builds through the industry supply chain and how much of that value is actually captured in the prices charged by supply chain members (Oliva, n.d.).

Once the importance of value in business marketing has been established, value-based strategies should be developed. Value-based pricing aims to match the price of a product with the value that product imparts. Some value-based pricing strategies consider the break-even point and tend to be subjective. According to SmallBusinessNotes.com ("Value-based pricing," 2007), three of these types of strategies are:

1. Price the same as competitor.

This strategy is useful when offering a commodity product, when prices are well established or when there are no other means to set prices. Organizations will be challenged to develop a plan that will lower their costs so that they can receive a higher profit than their competitors.

2. Establish a low price on a product in order to capture a large number of customers in that market.

This strategy is useful if the organization's goal is to achieve non-financial objectives such as creating product awareness, meeting the competition or establishing an image of having a low cost. This strategy will work if the organization can maintain profitability at the low price or if it is able to maintain an acceptable level of sales in the event that it wants to raise prices at a later date.

3. Charge a high price relative to cost if the product has a uniqueness that is valuable to the customers.

This strategy is useful when the target market is affluent and the product is positioned as being upscale. In this type of situation, the organization may be able to mark up the price because there will be a demand. The organization charges what it believes potential customers are willing to pay.

Business Marketing Strategy

The foundation of business marketing strategy is based on three concepts: segmentation, targeting, and positioning.

• Segmentation Customers are not the same. They have different needs and place different values on products and services. In order for organizations to respond to the various demands, they may group similar customers together in order to customize a marketing campaign geared toward each group. This process is an example of market segmentation. Marketers predict that each segment will have similar feelings about specific products. Therefore, there is a high probability that the individuals in the group will be receptive to the marketing campaign.

The purpose of marketing segmentation is to identify groups of similar and potential customers; prioritize which groups a business will focus on; understand the potential customers' wants, needs and behavior patterns; and respond to the different preferences with the appropriate marketing strategy. If the goal is met, businesses are expected to increase their revenue and marketing effectiveness.

Successful segmentation is characterized by the ability to recognize similarities within segments and differences between segments as well as the ability to create identifiable and measurable groups, accessible groups, and groups that are large enough to positively affect profits. The variables used for segmentation include: geographic variables, demographic variables, psychographic variables and behavioral variables. When a marketer collects information on the various variables, he will combine the information to create a buyer profile. In business-to-business marketing, market segmentation can be tricky because market researchers must work with smaller customer populations which are not conducive to large group statistical analysis (i.e. data mining).

• Targeting Once the segments have been identified, the organization must determine which markets they will focus on. This is the next step and it is called targeting. Targeting involves the selection of customers. At this level, the organization must decide “which segments to target, how many products to offer, and which products to offer in which segments” (“Target market,” 2008). Targeting decisions are based on market maturity, diversity of buyers' needs and preferences, strength of the competition and the volume of sales required for profitability. Business marketers have to decide which segments are the most profitable, how to assign the sales staff to the various segments, and develop distribution channels. Targeting can be selective (i.e. niche marketing) or extensive (i.e. mass marketing).
• Positioning Once segmentation and targeting have been completed, the organization is ready for the final step – positioning. The way potential customers perceive a product is referred to as a product’s “position.” Organizations have the power to actively position their products through the fostering of image creation and association amidst target markets. There are two ways to achieve this goal. They are re-positioning and de-positioning. When an organization changes a product’s identity to differentiate it from competing products, it is called re-positioning. When an organization changes the identity of competing products to affect the identity of its own product, it is called de-positioning.

According to Ries and Trout (n.d.), the positioning process involves:

• Defining the market in which the product will compete
• Identifying the characteristics that define the product
• Collecting information from a sample of customers about their perceptions of each product on the relevant characteristics
• Determining each share
• Determining each product's current location in the product category
• Examining the fit between the position of the organization's product and the ideal vector

In the positioning phase, organizations are challenged with deciding which elements of their value proposition they will highlight in order to make their product the preferred choice for potential customers. The three elements are uniqueness, differences, and similarity. Uniqueness is when the organization can say it is the only company with the product. Differences are highlighted when the organization compares its product to the competitor's product (i.e. a Sony television has more features than a Toshiba television). Similarity occurs when an organization advertises that its product has the same features, but at a lower price. Organizations may highlight different parts of its value proposition to different target markets. The objective is to position the product or service so that it is the first thing that pops into the mind of the potential customers.

Applications

E-commerce

Although business-to-consumer electronic commerce captures the attention of the industry, business-to-business electronic commerce is the format that is predicted to reap most of e-business activity. business-to-business e-commerce has exploded. This market became a trillion-dollar market by 2003, and was expected to have a 90-percent compound annual growth rate (Sprague, 2000). According to Sprague (2000), “B2B e-commerce represents another revolution that is reshaping business relationships and is causing dramatic shifts in channel power as information and communication imbalances disappear” (p. 1). B2B e-commerce provides “buyers and suppliers with value propositions that can lower transaction costs and increase the value obtained in business relationships” (Sprague, 2000). These value propositions provide opportunities for new players to enter the process of facilitating buyer and supplier adoption of e-commerce capabilities.

One of the most important objectives of B2B e-commerce is to change the cost and benefits of transactions. Kaplan and Garicano (2001) developed a framework that describes how B2B e-commerce can change transaction costs. The model presented five ways that this could be done, and they are:

• Changes in the processes. B2B e-commerce can improve efficiencies by reducing the costs associated with existing business processes. Improvements may occur in two different ways. The first way is to reduce the cost of an activity that is currently being conducted (i.e. catalog orders being taken online versus by telephone or fax). The second way is to use the Internet to redesign the existing process (i.e. Autodaq creates online auctions for used cars without having to ship the cars to a physical auction). Each process improvement effort should be measured and evaluated to ensure that there are cost savings. This effort can be assessed by documenting the time and costs involved in both the existing process as well as the proposed process. The difference between the two is the savings from the process improvement.
• Changes in the nature of the marketplace. Use of the Internet can reduce a buyer's cost of finding suppliers, provide buyers with better information about product characteristics, and provide better information about buyers and sellers.
• Changes in indirect effects of transaction cost reductions. Better information about future demand through B2B e-commerce may allow a seller to improve its demand forecasts, and use that information to change its production decisions to better match demand. As a result, a buyer may obtain better information about existing and future supplies and use the information to change its inventory decisions. Also, if the Internet is able to produce decreases in the costs of processing transactions in the market, fewer transactions may be processed inside organizations.
• Changes the degree of information incompleteness Since buyers and sellers tend to not have the same information about a particular transaction, one or both parties may be at a disadvantage when evaluating the desirability of a transaction. The Internet has the potential to change the informational positions of buyers and sellers.
• Changes the ability to commit. B2B e-commerce has the ability to both increase and decrease the ability of buyers and sellers to commit to transactions. The Internet has the ability to increase a buyer's ability to commit by standardizing the process of the transaction and leaving an electronic trail.

Viewpoint

Left Brain Approach

Marketing should be based on two goals, they are: making sales in the present and driving organizations to create strategies that will define what is next. Unfortunately, most organizations do not have that focus. According to Anderson (2005), the marketing function in most B2B organizations are:

• Siloed. Most organizations have a decentralized marketing department where various aspects of the marketing function report to different departments such as sales or a line function. The marketing professionals in organizations with this type of structure are concerned that they cannot develop relationships with existing customers. However, organizations with a centralized marketing department have a different challenge. The marketing professionals in this type of structure are concerned with their ability to build an effective relationship with the sales department. Regardless of the structure, the silo approach does not work in either environment.
• Tactically focused. Many departments have a service oriented approach where they implement strategies that have been defined by other departments (i.e. sales, line management or senior management), and they are not a part of the planning process. As a result, the goals and objectives are short-term versus long-term. The focus tends to be on opportunities and deals that can be made on a quarterly basis versus relationships that can be built for long term profit. This type of strategy can backfire on an organization, especially if the market experiences paradigm shifts or changes in customer behavior.
• Not Accountable. Marketers tend to use response analysis, annual attitudinal and usage studies and post-buy media reports to measure return on investment. Unfortunately, these methods do not align and measure the areas that senior management focuses on. For example, many executives are interested in top line revenue growth and the above-mentioned methods do not measure this area.

If B2B professionals want to be taken seriously by the other major players in the organization and desire a place in the organization's strategic planning process, they will need to shift their strategies from qualitative to quantitative measures. This type of philosophy is referred to as the Left Brain Marketing approach. Anderson (2005) believes that this type of transformation will require a more data-driven approach that will allow the major players to see bottom line results. The process requires:

• Deep audience knowledge. Instead of relying on information obtained from direct sales and channel partners, organizations must develop strategies that will assist them with collecting information about their target audiences. This step will assist marketing professionals with developing strategies that can reach their target markets.
• Analytic techniques. Organizations have realized that the information they have in their CRM systems is very valuable and should be analyzed and evaluated. The results could identify “patterns and trends, profile and segment contacts, model customer profitability and potential, and the best prospects” (Anderson, 2005).
• Closed-loop measurement practices. Many marketing executives believe one of their biggest challenges is tying their efforts to end results. Unfortunately, most of their time is spent on putting processes, data and tools in place so that they can measure the results. They must develop a plan that will allow them to close the loop by measuring the results, then analyzing what it means.

Conclusion

For many years, business marketing took a back seat to consumer marketing (Morris, Pitt & Honeycutt, 2001), but times have changed.

B2B e-commerce has exploded and surpassed the profitability of B2C e-commerce. The new tools and techniques of the digital era have allowed these organizations to understand, develop and implement processes in a more effective and efficient manner. As a result, they are able to understand, develop and implement products with a greater value as well as create new channels for communication, supply chain integration, demand forecasting, and transaction management.

B2B marketers that work within brick-and-mortar organizations are leading the way by building digital business designs and portfolio based strategies. They are exploring how the new technologies can expand the options which they will have for improving the organization's marketing strategies. The processes and relationships of business-to-business marketing can be changed with the new technologies. In the future, complex digital networks will be used to supply customer needs. As the field progresses, business marketing will become a more defined discipline in marketing. Business marketers and scholars will be asked to contribute their findings to organizations so that they can continue to provide quality services to the growing customer base.

Terms & Concepts

Business Marketing: The process of supporting and fostering the sales of products or services to other commercial companies or organizations. This is also referred to as business to business marketing (B2B).

Business-to-Business Electronic Commerce: Utilizes automated electronic processes to facilitate the trading of products or services between partners; allows much higher volume of transactions than traditional commerce situations.

Business-to-Consumer Electronic Commerce: Utilizes electronic processes to facilitate the sale of products and services from a company or organization to a consumer.

Business-to-Business Marketing: The process of selling goods or services between businesses (see also, business marketing).

Business-to-Consumer Marketing: The selling of products or services to individual consumers.

Customer Value Proposition: The promise of benefits delivered to a customer in return for the customer’s business and payment.

Market Segmentation: The division of a market into specific groups which behave in similar ways or have similar needs. This is done with the assumption that similar groups of people will be affected similarly by marketing strategies.

Positioning: “The process by which marketers try to create an image or identity in the minds of their target market for its product, brand or organization” (Ries & Trout, n.d.).

Targeting: The selection of customers a business wishes to service.

Value Based Pricing: When a company uses its marketing and sales programs to educate potential customers on the value of products so that they are willing to pay more.

Bibliography

Anderson, E. (2005, April). Making B2B marketing work. Retrieved on May 3, 2007, from http://www.forrester.com/Research/Document/Excerpt/0,7211,36434,00.html

Dwyer, F., & Tanner, J. (2006). Business Marketing: Connecting Strategy, Relationships, and Learning (3rd ed.). New York: McGraw-Hill/Irwin.

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Hosford, C. (2013). B-to-b e-commerce taking hold. B to B, 98, 3. Retrieved November 20, 2013, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=88213611&site=bsi-live

Hutt, M., & Speh, T. (2001). Business Marketing Management: A Strategic View of Industrial and Organizational Markets (7th ed.). Dryden, TX:Harcourt, Inc.

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Maddox, K. (2006). Outlook 2007: The future looks bright, with marketing expanding and online exploding. B to B, 91, 28–30. Retrieved May 3, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=23601887&site=ehost-live

Morris, M., Pitt, L., & Honeycutt, E. (2001). Business-to-Business Marketing: A Strategic Approach. Thousand Oaks, CA:Sage Publication

Oliva, R. (n.d.). Business-to-Business marketing overview. Retrieved on May 3, 2007, from http://www.marketingpower.com/content1488.php

Ries, J. & Trout, J. (n.d.). The marketing strategy gurus on positioning. Retrieved May 3, 2007, from Easy-Strategy.com. http://www.easy-strategy.com/al-ries-jack-trout.html

Ryan, J., & Silvanto, S. (2013). The critical role of corporate brand equity in B2B marketing: An example and analysis. Marketing Review, 13, 39–50. Retrieved November 20, 2013, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=89761598&site=bsi-live

Sprague, C. (2000). B2B eCommerce comes of age and drives shareholder value. ASCET, 2. Retrieved on May 3, 2007, from http://www.ascet.com/documents.asp?grID=149&d%5fID=246

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Suggested Reading

Eid, R., Elbeltagi, I., & Zairi, M. (2006). Making Business-to-business international internet marketing effective: A study of critical factors using a case-study approach. Journal of International Marketing, 14, 87–109. Retrieved May 13, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=23047726&site=ehost-live

Ordanini, A. (2011). The ties that bind: How cooperative norms and readiness to change shape the role of established relationships in business-to-business e-commerce. Journal of Business-to-Business Marketing, 18, 276–304. Retrieved November 20, 2013, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=64854567&site=bsi-live

Ryals, L., & Humphries, A. (2007). Managing key Business-to-business relationships: What marketing can learn from supply chain management. Journal of Service Research, 9, 312–326. Retrieved May 13, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=24835946&site=ehost-live

Salminen, R., & Moller, K. (2006). Roles of references in business marketing — towards a normative theory of referencing. Journal of Business-to-Business Marketing, 13, 1–48. Retrieved May 3, 2007, from EBSCO Online Database Business Source Premier. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=20492412&site=ehost-live