SCM 130 - Business to Business Marketing
Topic 1: Introduction to business marketing
Key concepts
This topic includes:

marketing

business-to-business marketing (B2B)

business-to-consumer marketing (B2C)
Topic outcomes
By the end of this topic, you should be able to:

explain the key principles of modern marketing and business-to-business (B2B)
marketing

explain the key differences between B2B and B2C marketing

describe the underlying factors that influence demand in business markets.
Business-to-business (B2B) marketing Def
Business-to-business (B2B) marketing refers to the marketing activities between businesses.
The overall economic value of business-to-business transactions is much higher than the
value of business-to-consumer (B2C) transactions. In effect, numerous business-to-business
marketing activities and transactions take place for any marketing offering that reaches its
final consumers.
Business-to-business marketing involves a wide set of marketing activities, such as
identification of business customer needs, developing products/services to address unmet
needs of business customers and delivering products/services to business customers in an
effective and efficient way. It entails deciding on a suitable price for products/services that
will balance business customer demand and company profitability, and promoting
products/services in a creative way to generate awareness and willingness to buy among
business customers.
In this topic, you will be introduced to the unique facets of the business-to-business market.
The topic is pivotal to developing an effective understanding of business marketing
management, as the essence of the business market and its unique aspects are often the
basis for the development of marketing strategies.
The topic highlights what marketing – and, importantly, (B2B) marketing – is and what the
important dimensions of business-to-business customers are. It also highlights the essential
differences between business-to-consumer and business-to-business markets and provides
an insight into the nature of business product demand.
Business products are distinguished by the intended use of the product and the intended
consumers. The importance of market-sensing and customer-linking capabilities will also be
discussed, as well as the essentials of derived demand and how it influences the demand
elasticity for business products. The business-to-business market has been defined to
include organizations that buy products and services for use in the production of other
products and services that are sold, rented, or supplied to others. It also includes retailing
and wholesaling firms that acquire goods for the purpose of reselling or renting to others
(Kotler and Armstrong, 2001).
Business buyers generally buy to increase their company’s profits. Institutional buyers have
the same concerns but they may be focused on providing an adequate surplus for their
organization.
There are only two basic ways to increase profits (or surplus): boost sales or lower costs.
These objectives may be achieved by increasing efficiency or purchasing lower-cost
products/services. Sometimes B2B buyers also buy to avoid penalties from government
regulators or negative publicity from activist groups. The most effective marketing programs
directed at business buyers are always based on one of the following three basic appeals:
• increasing sales;
• reducing costs;
• meeting government regulations/ avoiding negative PR.
Especially when taking a marketing strategy from a domestic to an international setting,
experience shows that the appeal must be simple to explain. Appeals that do not fall into
one of the three basics above often fail when translated to foreign markets.
Transactions in consumer vs. B2B markets
The consumer sale in most products consists of only one transaction compared with the
many transactions that take place before that one final sale is made in the business-tobusiness world. The conversion sequence shown below gives an idea of the number of steps
required to make any product. Since businesses, institutions, and governments buy every
product, simply looking at a product cannot tell us whether it is a consumer or B2B product.
Consider the humble hairdryer. If we trace this product through the stages in the production
chain, we will see that many B2B transactions must take place in order for a final sale to a
consumer to happen.
Conceptual differences between B2B and consumer marketing (B2B vs B2C)
Twelve major differences: consumer vs. business-to-business marketing
• Internal to company
– Interdependence of departments
– Differences in product management responsibilities
– Marketing strategy = corporate strategy
• Customer/marketing
– More rational decision
– Narrower customer base
– More buying influences and locations
– Different segmentation
– More markets and channels
– Personal customer contact more important
• Uncontrollables/environment
– Technology
– Derived demand
– Less end-user info
Internal to company
In business marketing, it is not possible for one department alone to develop or make a
change in an offering and gain the approval of a large number of customers. In a business
marketing firm, a product manager usually must act like a mini-general manager. He/she
faces every product manager’s problem of responsibility without authority. The business
marketing manager must be able to gain cooperation from all the other functions including
engineering, MIS, human resources, finance, and manufacturing. Especially in the
manufacturing of B2B products there are often long lead times
In business marketing, the marketing strategy often is the same as the overall corporate
strategy. For reasons already cited, many of the firms’ functional areas must be involved in
the marketing strategy. For instance, a small security division of a large corporation was
faced with an opportunity to develop special security equipment for the White House in
Washington, D.C. The salesperson presented his ideas to engineering, manufacturing and
the finance department and the entire division decided to pursue this exciting strategic
opportunity, changing the corporate strategy from commercial to governmental target
market segments. The investments required to make this product were significant. In
addition, other departments had to change their priorities with the new product forcing a
new strategy. The gestation period from time of suggestion to actual sales involving this
large government contract was well over two years, and therefore, the entire division had to
change its strategy to be successful.
Customer/marketing
While emotion plays some role in the purchasing process, generally speaking buying
decisions are more rational in non-consumer markets. It is hard to justify the purchase of a
new companywide computer system based on the color of the machine housings or the
social relationship between the purchaser and the salespeople. Some rationale must be
developed in order for this decision to be accepted by all members of the purchasing team.
Consumer markets generally consist of millions of individuals. Far fewer customers make up
most non-consumer markets. For instance, a provider of jet engines need call on only a few
potential customers such as Airbus and Boeing, who manufacture the majority of
commercial airliners. In business marketing, Pareto’s Law is often strongly in effect. In other
words, a small percentage of the customers account for a very large percentage of all the
business in a particular segment. For instance, in the United States, about 4 percent of all
corporations account for 70 percent of all exports. This narrow base means that in many
markets, the buyers have more power than the sellers.
While in consumer marketing families and other reference groups play key roles in the
purchasing decision, in business markets the decision-making unit or buying center is the
key. There are a number of individuals who take specific roles and make decisions based on
these roles. In addition to a number of individuals in this decision-making unit, one finds a
number of locations involved. One large credit card firm assembled a team who were
located in various cities throughout North America, Europe, and Asia. These individuals
rarely met, but communicated by e-mail, voice mail, and texting. In making a buying
decision about a new computer software program, these people took various roles and
came to the decision without physically ever being in the same room.
Business buyers are characterized in different ways than are consumer buyers. Consumers
can be segmented by demographic or psychographic methods while customers in business
markets are segmented by factors such as industry classification codes, product
applications, price sensitivity, location, importance of product to the buying firm, and
customer size.
While consumer goods are often sold directly or through only one or two steps of
distribution, business equipment and services providers often use many different channels.
Most large producers sell directly to large customers, while also selling through various
other channels at the same time. For instance, a roofing shingle firm is likely to sell directly
to large home builders, contractors, and “big box” retailers like Home Depot in the US or
B&Q in the UK, while at the same time selling through distributors who in turn sell to
smaller lumber yards, builders’ merchants, and other outlets. Each effort through different
distribution channels reaching different customers requires a different marketing strategy.
Uncontrollables/environment
While some final consumers find technology exciting, it is not usually the telling attribute
with consumers. With business customers, the application of proper technology often has
significant effects on their firm’s financial results. One need only imagine the production line
of a computer manufacturer to see the importance of particular circuit boards. A circuit
board provider would need to be intimately familiar with the technology used by Dell,
Lenovo or Hewlett-Packard in order to serve these firms most effectively. Should an error be
made and the wrong type of board be provided, these computer manufacturers’ assembly
lines would shut down and the loss of revenue would be significant. Technology is also very
important in improving the sales success ratio. Since salespeople can carry laptops or tablets
into a customer’s location, they can often make very effective presentations and at the
same time tap into head office databases to answer important questions on the spot.
Perhaps the best known difference between consumer and business marketing is the
concept of derived demand. This simply means, as we have seen in the hairdryer example,
that the demand for business marketers’ products is derived from sales to the consumer. A
firm supplying personal security systems to home builders would be affected significantly by
the number of new homes or apartments built in a particular area. Should demand for these
homes slacken, no amount of convincing marketing will force a home builder to purchase
more personal security systems than he can install in newly built residences. Business
marketers must look beyond their own customers to the ultimate consumer to understand
trends which may have a significant effect upon their business. The disposable income in a
particular market has a significant effect on the demand for automobiles. A firm supplying
seats or GPS equipment to automobile manufacturers would do well to review the
disposable income trends in a particular market to predict future sales of their product
In consumer markets, there are well-established government and private firms supplying
specific market data. For instance, in the United States, the AC Nielsen Company supplies
frequent data about supermarket sales by product and brand. In addition, models exist that
can predict the success of a consumer marketing activity based on small experiments. Here,
exposing a test market to advertising then examining the sales results can allow a firm to
predict nationwide sales since well-established formulas are commercially available to make
this prediction. No such formulas exist in B2B markets and frequently the data required by a
particular business marketer are difficult to find. A firm that manufactures access flooring (a
product that provides a false floor on top of an original floor to allow a plenum for housing
wiring and passing air conditioning) was attempting to determine the size of its market in
the Far East. The firm looked first at the United States and found that no government data
were available which specifically identified the sales of this type of product.
B2B vs B2C Marketing
Marketing’s role is to make a product or service as attractive as possible to the most
suitable group of customers.
Rėklaitis & Pilelienė (2019) define marketing communication as a core of promotional
strategy encompassing six promotional mix elements: advertising, public relations
(publicity), sales promotions, personal selling, digital marketing, and direct marketing.
The Differences Between B2B and B2C Marketing
B2B stands for ‘Business to Business’, and B2C stands for ‘Business to Consumer’. Therefore,
they differ primarily in terms of the audience. B2B sell products and services directly to
other businesses and B2C sell products and services to consumers for personal use.
Examples of B2B are businesses selling the raw product to manufacturers such as timber or
steel, Accountants’ customers are typically other businesses, or a company offering website
building or digital marketing.
Examples of B2C businesses are the local corner store/convenience store, where you pop
down to pick up some milk and bread quickly when you’ve run out. Another is a website
where you can buy fitness and health supplements or any store in the local shopping
centre/mall.
There is some overlap between the two, and many of the practices and processes stay the
same. However, some differences separate them.
In B2B, marketing communications are far more professional, rational, and less emotive
than B2C.
B2B is about building relationships and educating prospects; where B2C marketing uses
enjoyable content and focuses on quick solutions to trigger an emotional response to a
need, interest, or challenges of people, in their everyday lives.
Rėklaitis & Pilelienė (2019) identify numerous differences between B2B and B2C markets
(below).
The decision-maker
Multiple staff can influence the decisions in organisations, whereas B2C often involves one
decision-maker.
B2B — Multiple decision-makers or influences
We are not marketing to one just one person in B2B. Organisational processes confine
purchases, and there is a chain of command to deal with in B2B, with owners, managers or
other decision-makers purchasing on behalf of their organisation.
The needs of the company and/or the employees drive decisions. A worker in a particular
factory area might report that they need new equipment, but a manager might decide what
to purchase.
Work out who the right person is to target with marketing or have a conversation with is, as
marketing must reach this small group of individuals within the business, which can be
easier said than done.
B2C — Decision-maker is often the customer
The decision-maker for B2C is often the customer or another family member. The decision is
based on what benefits it brings to them personally or to their family member.
Communication to consumers should focus on the problem you solve or help your brand
provides.
Marketing can reach any potential consumer for a product in a household, even if they are
not necessarily the purchaser.
Reach the household decision-maker for significant items such as a new vehicle. For smaller
items such as cereal for the household or cleaning products, the kids or wife could be the
decision-maker or consumer, and the husband/father the customer who makes the
purchase.
The decision-making and sales process
The decision-making and sales process for B2B is usually highly planned, process-driven and
logical, where a B2C is often more emotional than rational.
B2B — Slow decision-making process, highly planned and logical
The purchasing process for B2B focuses on the logic of the product/service, its features, and
financial incentives. Rationality drives choices, which are less pleasure-driven than B2C, with
little personal emotion involved.
B2B customers expect the business to look after them. Sales take a consultative approach,
focusing on customer service before a transaction occurs, maintaining open communication.
Provide custom solutions to customers to best fit their needs, as they are often investigating
alternative solutions from competitors
B2B customers spend longer researching before purchasing than B2C. The length of sales
cycles has increased as the more significant number of decision‐makers in the B2B buying
process has increased. The buyer decision process illustrated in the AIDA Model.
B2C — Decisions more emotional than rational
Decisions made by B2C customers are often more emotional, impulsive, less rational and
vary in length and importance. Advertising often influences these decisions and customers
can decide on a purchase instantly.
The purchase process, therefore, should be as easy and as convenient as possible.
This shortened research, decision, and sales process means that social proof through social
media or via reviews has more influence on decision-making than B2B.
Often, when a consumer realises they have a need, they already know what kind of solution
(product or service) they need. They have seen the advertising, or there is a brand they trust
above others.
The Motivation
Business purchasing decisions are typically motivated by business needs, in contrast to
consumer decisions often motivated by individual desire.
B2B — Improve business performance
The goal of improving their business its profitability is a significant motivation for B2B
customers. These customers seek efficiency and/or expertise, thinking about the impact of
their business decisions. Decisions are well thought out, with little influence of emotions.
Emotion is in B2B does exist, just not at the same level. You are still selling to human beings
with fears, needs, and wants, and marketers should try to appeal to this. Tie emotion appeal
back to improving their business performance and a return on investment.
B2C — Fulfilling consumer desire
The motivation for B2C customers is the desire to improve their lives in a particular way.
They could be seeking deals, entertainment, or pleasure. Purchasing a new shirt, or a
holiday probably will not have the same decision-making process than choosing an
accountant for their business.
Consumers do not have to think on behalf of an organisation, although they might decide
for their family. Often instant gratification is the primary motivating factor.
Customer Relationships
B2B marketing focuses on forming long-term personal relationships with its target
customers, whereas B2C marketing focuses on creating short-term value and efficiency.
B2B — Build personal relationships
Repeat and referral business is critical is advertising is not as effective as it is for B2C,
instead of forming and developing personal relationships drives B2B sales and marketing
goals.
Having conversations with people you know and meeting new people can be very successful
for generating leads (potential customers; a reason why networking is an excellent tool for
B2B businesses.
More nurturing of leads is required than B2C, paying close attention to customer needs.
Good communication is needed and other customer service aspects of creating positive (or
negative) associations with your brand by your practices helping separate you from
competitors.
B2C — Transactional relationship
The aim of B2C marketing is drive as many sales as possible in an efficient manner. The
effort spent getting to know the customer is far less than B2B, as relationships are more
short-term and transactional.
Because of the larger markets and customer potential, instead of focusing on building close
relationships with customers, the emphasis is on creating value and process efficiency.
The investment into you from B2C customers is unlikely not as deep as your investment in
them. Do not bombard them with too much content outside their buying cycle. Try to make
the customer experience with your website or other contact points, a positive experience to
encourage their loyalty.
Focus on selling the product, one way of doing this is by using a call to action and offer
incentives.
Marketing strategy
The focus of B2B marketing strategy is on lead generation through relationship building. For
B2C, the emphasis is instead on branding to create an identity that attracts customers.
B2B — Lead generation
Lead generation is a priority of B2B businesses. B2B purchasers rely on personal sales
relatively more than advertising as a source of product information. Salespeople are integral
marketing tools.
Because decision-making often involves a group of people, the salesperson can talk with and
negotiate with all the relevant parties at once.
Being consistent in the presentation of information, and a good reputation for delivering on
promises goes a long way to drive repeat business and referrals.
Networking with other businesspeople increases your chances of bumping into past clients
and acquaintances, where a conversation and introduction be your next warm sales lead.
You already have built credibility through the association and introduction.
B2C — Branding
Branding is a priority for B2C marketing. Marketing should put the brand front and centre to
create a lasting memory. When it comes time for customers to make a purchase, you
automatically want them to think of your brand.
Keep your brand in front of target consumers with email marketing and remarketing on
Google. Invest in SEO or Google Ads, and identify keywords that consumers are likely to
search for online when looking for products/services you offer, to rank for those keywords
and improve your online search result.
Encourage happy customers to leave positive reviews. Offer them a discount on their next
purchase if they leave a review, which will help create social proof for consumers in their
decision-making process.
“The larger number of decision-makers/influencers in B2B means that B2B marketers must
consider different media and different messages for each person involved.” (Habibi,
Hamilton, Valos, & Callaghan, 2015)
Target Audience
B2B marketing targets the multiple decision-makers of a business, where B2C is targeted
directly to end-users.
B2B — Multiple decision-makers/managers
In B2B marketing, it is essential to understand the characteristics of businesses’ decisionmakers. They are the target audience. They may not be the user of the product or service
themselves, but make decisions on behalf of staff, who do use them. Salespeople need to
know who to have a conversation with — the chain of command.
With digital marketing, the more we understand these people’s demographic and
behaviours, the better we can target them with smart digital advertising. It is easy to
compile and then analyse data about customers through CRM.
B2C — End users
Products or services are marketed directly to end-users in a B2C market. Because of this,
consumers must recognise the brand and the value you provide. Consumer markets are
usually much more extensive, with much more diverse customer demographics.
Create influential advertisements for mass media that give the consumer the desire for your
products or services. Lead generation through social media is another effective way to reach
consumers. Focus on after-sales activities rather than pre-sale to enhance the customer’s
chances of retaining your brand’s favourable opinion.
Communication tools
B2B communication uses integration between digital tools and salespeople, whereas B2C
commonly uses mass media such as TV or Facebook to reach audiences.
B2B — Integration between digital tools and salespeople
Using diverse social media and other digital tools enhances a firm’s ability to communicate a
large amount of information. Social media can perform some of the functions previously
carried out by salespeople, by sharing educational information about products or services,
such as how you save time, money, and resources.
However, salespeople are still essential to B2B marketing to address different decisionmakers’ emotional needs.
Social media’s coordination between the sales department, operations, and marketing
should ensure consistency.
Content marketing through social media helps business satisfy the rational needs of the
multiple decision‐makers involved in a company. Ensure consistent messages to keep a
consistent brand image over time, in different contexts. The effectiveness of social media
platforms for B2C, and B2B varies. Many B2C firms have experienced great success acquired
customers through Facebook or Instagram, where LinkedIn generates the most leads for
B2B.
B2C — Mass media
Facebook is a powerhouse in B2C marketing, and Instagram and Pinterest are also popular
platforms for B2C. A robust visual component can help create an emotional response.
B2C does not usually require a sales team (apart from retail). Instead, firms should choose
the most relevant marketing channels to communicate with their target audience.
Mass marketing tools such as product placements or television advertising is far more
effective for B2C than B2B.
Language
B2B marketing and sales should use industry terminology to enhance professionalism and
credibility, but B2C communication should be simple, in customers’ voice and emotive.
B2B — Speak the lingo
Marketing in B2B should be professional; you could lose credibility with language that is too
informal.
B2B customers need a salesperson or an expert in their industry terminology and
knowledgeable about their business processes. They need a constructive conversation with
knowledge provided about exactly what they are purchasing. Marketers must speak their
language and provide detailed content.
B2C — Use emotional triggers.
Marketing to consumers should use straightforward language, in the customer’s voice, so it
is relatable. It should also aim to evoke the emotions of the audience to create a desire.
Get right to the point with marketing and point out the benefits clearly, so it is easy to
understand. The more straightforward, the better — no industry jargon. It is also okay to be
informal and humorous.
Consumers often purchase with the hearts over their minds and will go with their gut.
Emotion often influences this ‘gut’ feeling.
We aim to entertain the audience rather than strictly educating them. B2C customers are
highly motivated by personal gratification, so marketing that tells an uplifting story about
someone who benefited from consuming your brand provides excellent marketing content.
Purchase value and complexity
The B2B the purchasing process is more complicated than B2C, taking more consideration
from decision-makers, as purchases are usually of higher cost and importance.
B2B — High value and complexity
Because of the higher-order values and longer sales cycles of B2B, the potential risk is
heightened compared to B2C.
Purchases can become quite complicated, with multiple influences on decisions. Decisions
are typically long-term investments; decisions can be a complicated process with pressure
to get decisions right. B2B clients often need to prove a return-on-investment for their
purchase.
B2B marketers should use social media to provide informational and valuable content to
reduce risk perception.
B2C — low value and complexity
Purchase values in B2C can vary greatly. Low-cost consumables from the supermarket, for
example, are low cost and low risk. Do not have to educate purchasers but instead entice
them.
Marketing should aim to create an emotional response — food looks eye-watering tasty,
clothing makes a model look more fashionable or a phone that takes better photos to create
better memories. A decision is usually not complicated, often made in a split second to fulfil
instant gratification motivation.
B2B and B2C explained
In order to start with the marketing side of B2B and B2C, let’s quickly identify the overall
difference between B2B and B2C.
Business-to-business (B2B) is the term used to describe a business relationship between at
least two companies. This can be small businesses, medium sizes businesses or large
corporations. An example of B2B would be a chipset manufacturer that sells its products to
other companies.
Business-to-consumer (B2C) is the term used to describe a business relationship between
one company and at least one individual consumer. An example of B2C would be a travel
agency that sells flights to individual consumers.
Similarities of B2B and B2C marketing
Before we dive into the differentiators of B2B and B2C marketing, let us first have a look at
the similarities. You will see some very fundamental points that apply for both categories.

You can do B2B or B2C marketing, but behind both groups are real people.

You need to build trust in order to make a sale.

You need to make clear that you are able to solve your client’s specific problem.

You need to give your customers the option to contact you through different channels.

You must continue the customer journey even after the sale happens.

Your marketing should work hand-in-hand with sales.

You have to recognize people as individuals.

Your potential customers are willing to spend money on a product or service like yours
and eventually have the intention to make a purchase.

You need to identify and define buying personas (fictional representation of your
individual human customer) and ideal customer profiles (fictional representation of the
company that best fits your product or service) for successful marketing.
9 differentiators of B2B and B2C marketing
You cannot see the differentiators as definite. There are always cases when these general
differentiators do not apply. For example, not all B2B products and services are complex,
but on average, they are more complex than B2C products and services.
On the other hand, it’s up to you how you are going to market your product or service. You
can market a less exciting B2B product or service in a fun and exciting way. Keep in mind
that behind every company you market individuals. It must always be human-to-human
marketing.
1. User groups (B2B) vs. individual buyer (B2C)
In B2B, you tend to market a group of stakeholders in order to make one sale. This can
include executives, product users, IT staff and managers. Think of a committee to decide
which AI software subscription to buy.
In B2C, you tend to market and sell to one individual buyer. Think of a person buying
premium app features.
2. Detailed information vs. broad description
In B2B, you tend to need to create detailed and longer texts for your customers. Think of a
company that needs to buy a specific fabric.
In B2C, you tend to create short and broad texts. Think of a person looking for new shoes.
3. Rational vs. emotional
In B2B, you tend to have a more rational messaging. B2B buyers tend to be more planned
and logical with a specific return on investment (ROI) in mind. Think of an airline leasing
airplanes.
In B2C, you tend to have a more emotional messaging. B2C buyers tend to be more
spontaneous and even buy things without actually having a need for it. Think of a person
buying a new car.
4. Higher price vs. lower price
B2B prices tend to be higher than B2C prices. Therefore, B2B buyers tend to need to be well
informed in order to make a purchasing decision. Think of finding a logistics partner for
importing goods from abroad.
B2C prices tend to usually be lower compared to B2B prices. As prices rise, B2C buyers have
a higher need to be well informed in order to make a purchasing decision. Think of shipping
a parcel to Europe from the United States.
5. Large scale vs. personal use
In B2B, you tend to market to people that need to buy products or services for a lot of
people. Think of new laptops for all employees.
In B2C, you tend to market to people that are buying it for themselves, friends, family, or
other people in their household. Think of getting a new phone.
6. Longer sales cycle vs. shorter sales cycle
In B2B, you tend to have longer sales cycles and therefore need to nurture over a longer
period of time before a sale is made. Think of a multi-million press shop that needs a lot of
planning and customization.
In B2C, you tend to have short sales cycles compared to B2B. You may tend to make a sale
at the very first touchpoint. Think of the purchase of a new printer in a given price range.
7. Educational vs. fun
In B2B, customers tend to expect more educational content. You may use industry jargon or
business-friendly terms. Think of a complex article on how to combine data points along a
customer journey.
In B2C, customers tend to expect content that is more fun to enjoy. You may avoid the use
of any jargon. Think of an article about the top 10 tourist destinations in South America.
8. Longer customer relationships vs. shorter customer relationships
In B2B, you tend to more often have longer customer relationships. Think of account
managers that are in close contact with your clients over many years.
In B2C, you tend to more often have shorter customer relationships and clients are less
loyal. Think of a one-time purchase of a backpack made through a retailer.
9. Higher acquisition costs vs. lower acquisition costs
In B2B, you tend to have higher customer acquisition costs that are justified with equivalent
higher prices. Think of multiple marketing campaigns with high spendings over a long sales
cycle.
In B2C, you tend to have lower customer acquisition costs that go along with lower prices.
Think of a cheap micro-influencer campaign that shortens your sales cycle to one
touchpoint.
B2B vs. B2C e-commerce: What's the difference?
What is B2B e-commerce?
B2B stands for business-to-business. B2B e-commerce refers to a business model that lets
organizations sell products and services to other businesses over the internet. For example,
Micron Technology -- which sells computer chips to smartphone manufacturers, such as
Apple -- is a B2B company. Business decision-makers from companies like Apple can visit
Micron's website and purchase products in large quantities. B2B e-commerce organizations
sell products in bulk more often than B2C organizations.
What is B2C e-commerce?
B2C stands for business-to-consumer. B2C e-commerce refers to a business model that lets
organizations sell products and services to end consumers over the internet. Walmart is an
example of a B2C company with in-person and e-commerce components. Unlike B2B
companies, like Micron Technology, Walmart sells most of its products to individuals, not
businesses.
1. Customers
B2B organizations sell their products and services to businesses, whereas B2C organizations
serve individual consumers. Businesses and consumers demonstrate different purchasing
behavior because organizations make much larger purchases than consumers. For instance,
an insurance company may order hundreds of laptop computers at once to equip its remote
contact center agents. B2C customers, on the other hand, tend to make small, frequent
purchases, which may include clothing for themselves or toys for their children.
Additionally, the sales process can take longer in B2B than B2C because business purchases
involve many players. Organizations make purchases less frequently than consumers, but
those purchases involve large investments that affect hundreds of people. For instance, if a
pharmaceutical company buys new content management software, that purchase affects
employees in IT, marketing, finance graphic design, sales and HR. Leaders from each
department may also play a role in the sales process.
2. Marketing content
Businesses make larger purchases than consumers, so they tend to engage in heavier
product research. B2B e-commerce marketing appeals to logic and includes detailed
product information, such as buyer guides, specs, FAQ pages, blogs and video
demonstrations. B2C marketing primarily wants to get people's attention, and people often
purchase products spontaneously. B2C marketing content often involves fun, flashy and
creative messaging designed to resonate with personal desires.
Additionally, B2B marketing seeks to build strong relationships between businesses and
their clients. Its content often includes click-to-call buttons or live chat windows that
connect shoppers with sales representatives. B2B shoppers make high-value purchases and
often stick with one vendor for other purchases, so B2B organizations put significant effort
into their individual customer relationships.
B2C marketing content focuses more on facilitating speedy checkouts than personal
relationships. However, these organizations increasingly rely on customer data to create
personalized discounts and product recommendations.
3. Support
B2B e-commerce organizations require more elaborate support teams than B2C because
they have more complex products and business relations. Support may include agents,
community forums, 24/7 chatbots, FAQ pages, product demos and troubleshooting videos.
B2B customers typically have a high customer lifetime value (CLV), and organizations invest
in strong support infrastructures to quickly solve their complex issues.
B2C e-commerce organizations also require customer support teams, but their customers
often ask simpler questions. Chatbots and FAQ pages can handle common inquiries, such as
those related to return policies, and agents don't always need extensive product knowledge.
4. Pricing
B2B organizations typically offer negotiable pricing, whereas B2C retailers have fixed prices.
Given the high CLV of B2B customers, B2B organizations focus on a long-term sales cycle.
For example, if a growing startup company with a small budget wants to purchase CRM
software from a vendor, the vendor may want to offer a lower price if it expects the
company to significantly grow in the coming years. As the startup grows, the software
vendor can expect to sell it more product licenses in the future.
Also, B2B organizations may offer negotiable pricing to account for their products' complex
nature. For example, many B2B software vendors offer highly customizable products that
involve different microservices and deployment requirements for different customers. This
complexity can cause prices to vary between customers.
B2C pricing, on the other hand, usually remains fixed. Consumer products tend to be less
complex and customizable than B2B products, so sellers don't need to tailor prices to unique
product customizations. However, retailers often give discounts and personalized offers,
such as birthday coupons, to boost customer engagement.
5. Order size
Although B2B e-commerce organizations have fewer customers than B2C companies, those
customers make much larger purchases. B2B e-commerce organizations sell in bulk, which
requires them to set minimum pricing levels. For instance, a lumbar wholesaler may require
customers to buy at least $5,000 worth of wood, whereas B2C retailers, like Home Depot,
have no such minimum.
In fact, B2C e-commerce organizations may put product maximum limits on certain highdemand items. For instance, a retailer may limit how many gaming consoles a customer can
buy during the holiday season. Because they serve high volumes of people, B2C retailers
want to avoid a handful of customers buying up all their inventory.
6. Website design
Given their different customers bases, B2B and B2C e-commerce websites often have
different designs. B2B sites typically offer simple and clean homepages because bright and
busy B2C marketing techniques don't appeal as much to corporate audiences. B2C retailers,
on the other hand, often make their e-commerce homepages creative, loud and flashy to
get users' attention.
B2B websites also offer extensive product information, such as detailed demonstration
videos, blogs and specs, to help customers complete their research processes. B2C ecommerce sites also include product information, but they may limit it to basic descriptions
and attributes, like size, color and dimensions.
B2B e-commerce websites use live chat windows and click-to-call buttons across their
product pages so customers can easily reach sales and support representatives to discuss
product features, plans and pricing options. These live interactions can help B2B
organizations build relationships with their customers. Conversely, B2C website designs
prioritize self-service and quick checkout processes.
B2B Vs. B2C: the Differences Every Marketer Should Know
1. Customer Relations
B2B
The target audience in the B2B model is businesses. You’re a business marketing your
product or service to other businesses. Your marketing focus is going to be on creating and
building more personal relationships that will lead to long-term business.
Personal relationships are important as potential clients get to know your practices, ethics,
and morals. These things can separate you from your competition and let your target
audience know that you are a good, reliable supplier. These are long-term qualities that
business people look for.
Building these business relationships and generating leads creates repeat and referral
business. So developing relationships with target audiences is crucial for B2B businesses.
One way to do this is to allow customers to call you at any time using a toll-free number.
B2C
The target audience in the B2C model is retail consumers. You’re a business marketing your
product or service to consumers. Your marketing focus here is going to be on leading
consumers to your ecommerce store and driving sales.
Because you’re only generating one or two small sales at a time with no guarantee of longterm business, your marketing focus can’t be on building personal relationships. Instead,
B2C businesses need to focus on sales efficiency and creating extremely transactional
relationships.
The marketing strategy for B2C focuses on selling the product, with the majority of time
spent on delivering high-quality products as quickly as possible. One way to speed up the
customer experience is to use AI customer service.
2. Branding
B2B
As mentioned above, in B2B marketing, the focus is on relationship building. This applies to
branding as well. Honoring relationships through consistent presentation and delivery of
products or services will build your reputation or brand in the industry.
Your target audience is businesses whose decision-making is business-oriented. To build
your brand you’ll need to market your position in the industry and let your personality
shine. This will build brand recognition and generate leads. Don’t forget to adjust your
brand towards your target audience and be aware of their personalities.
B2C
When marketing to a B2C audience, branding is essential. Having a strong brand allows you
to deliver a message, build brand loyalty, create credibility, emotionally connect with
customers, and motivate purchases.
Branding is the number one priority of B2C marketing due to the fact that the customer and
business don’t interact a lot. To make up for this you have to create a lasting, positive
opinion and provide a quality experience for the customer, ensuring repeat sales.
Building a brand with a good reputation can be achieved by delivering clear, credible
messages, and creating motivational copy that resonates with consumers.
3. Decision-Making Process
B2B
The decision-making process in the B2B model involves more open communication between
businesses so that both parties can decide if it would be a good partnership. Therefore
appeals to emotional and rational decisions can be made.
In B2B, the decision-making process sees customers evaluating their needs which can have
rational and emotional motivators. Rational motivations are driven by financial mindsets; is
this a good investment? Emotional motivations are driven by emotional connections; Will
we lose money and have to fire some staff?
Understanding your audience can help you comprehend the decision-making process that
may apply to you. This allows you to get ahead of competitors by creating an emotional
connection through clear, specific messaging.
B2C
With B2C, the focus is on the sales funnel. Marketers should use their knowledge of the
conversion funnel in the decision-making process, maximizing ROI. At the top of this funnel
are advertisements that give customers the need for a product.
Now, the customer will know what product they want to purchase. However, unlike B2B,
customers are more open when looking for a specific product to buy.
That is why it’s essential to simplify the decision-making process for consumers while
continuing to appeal to them. There is still a high chance that consumers are looking at your
competitors as well. Using an influencer marketing campaign is a great strategy, especially
when paired with discounts via a referral code.
4. Audience Targeting
B2B
B2B businesses operate in a niche market, and so it’s very important to know your target
demographic. An example of a niche may be cheap electronic parts made specifically for the
Indian market. To effectively attract customers, you must compile and analyze accurate data
(both qualitative and quantitative).
B2C
Since the target audience is so broad (retail customers), B2C businesses must work in largerscale markets. For marketers, the marketing funnel is crucial for attracting customers.
Start at the top of the funnel and cast a wide net. Use emotional and product-driven
advertisements. From there you can create a warm lead list and remarket to those target
audiences who showed interest.
5. Ad Copy
B2B
In B2B it is important for you to speak your target audience’s language. This is because
businesses want to partner with experts who understand their industry. Understanding the
terminology, processes, and even the decisions made by customer businesses can greatly
increase the chances of a purchase.
B2C
In B2C, customers only care about the product or service they receive. So instead of using
industry jargon, you can use more straightforward language to speak to customers in a
relatable voice. Aim to evoke emotion in your audience.
B2C customers want to enjoy a purchase, whereas B2B customers are making a rational,
logical financial purchase.
B2C Marketing Overview
Business to Customer or B2C refers to the marketing strategies where a company promotes
its products and services directly to individual people as customers. Businesses employing
B2C marketing create, advertise and sell products for customers' immediate needs in
everyday life.
Apart from the focus on promoting the benefit or value offered by a product, the B2C set of
strategies, practices, and tactics work towards campaigns that invoke an emotional
response from the customer. Goods or services required to meet an immediate need do not
entail much research before purchase, hence adverts that appeal to customers generally
convert better into sales.
In the same vein, B2C promotions should be engaging and easy to understand. They should
focus on solving the immediate and precise problem faced by consumers as purchases in
B2C are typically completed within a short duration of becoming aware of a product or
service.
Successful B2C campaigns require an understanding of:

buying habits of customers

trends in the market

strategies used by competitors
The above information and the right tools help marketers to create B2C campaigns that
trigger the right reactions from consumers to drive sales.
Let's take the example of grocery stores. They store packaged food in small containers,
bundle similar items that are purchased together with discount, offer further discounts on
buying more than one unit of products, or offer free merchandise, etc. All these promotions
and sales are targeted at individual consumers on goods appropriate to take home. The
grocery store here is applying B2C marketing tactics.
B2B Marketing Overview
In terms of the example above, the grocery store which catered to individual consumers will
be a poor fit for purchases by a restaurant. Compared to cooking dinner for a family,
restaurants are providing meals to a number of families with varying options. Here, the
demand is for bulk quantities which can be fulfilled by stores that focus on sales to
businesses in large quantities.
Thus, Business-to-Business or B2B Marketing is where a company sells directly to other
companies or organizations, and not to the end consumer. The marketing strategies in B2B
are geared towards promoting products to businesses for use in the production of goods,
for general supply operations, or for resale to end consumers in turn.
B2B marketing strategies differ within businesses based on the sales categories. Sales
categories are broadly determined by a company's functioning. B2B marketing campaigns
are either employed by industry experts, general suppliers, or companies specializing in
supplying products to distributors. However, marketers may find that different divisions
within large companies use different methods to reach their respective markets.
A great example in e-commerce employing B2B strategies is Alibaba. This China-based
business platform has more than 18 million buyers and sellers from around 240 countries
where small businesses globally trade. On the other hand, Myntra, an Indian e-commerce
store selling fashion and lifestyle products, is a classic B2C marketing type.
Differences Between B2B vs B2C Marketing
There are many differences when it comes to B2B and B2C marketing. Some of the key
distinctions every marketer should be aware of are the decision-makers involved, the
purchasing and sales cycle, and the cost of purchases.
Here's a clear enumeration of the basic differences:

Customer Relationships in B2B vs B2C
Small vertical markets and often niche markets make up the sales possibilities in B2B while
B2C markets are generally larger. B2B marketing focuses on building long-term personal
relationships. The need is to prove business practices and ethics that help to build a brand
as repeat and referral business is important here.
B2C marketing, on the other hand, focuses on a transactional relationship with the
consumer. The marketing strategy here is about efficiently pushing the product at the
quickest rate possible.

Branding in B2B vs B2C
In B2B marketing, brand identity is created through relationship building, consistency in
delivery, and long-term sales, while B2C marketing focuses on advertising and social media.
The priority in B2C campaigns is to emotionally connect with the customer and motivate
them to buy. The quality of experience should retain the customer for future sales.
Therefore, clearly delivering messages of credibility and creating emotional copy that
resonates with the customer is crucial for success.
B2B campaigns focus on driving lead generation through brand recognition and, therefore,
stress on market positioning.

Purchase or Decision-Making Process in B2B vs B2C
In B2B, the decision to purchase is more complex, time-consuming, and requires extensive
research. It is based on needs and budgets. In B2C, this process is impulsive and
instantaneous.
The complexity of B2B decision-making involves open communication, and rational
motivations, and emotional ones. B2B marketing efforts that compare the positive aspects
of a business to its competitors can be highly effective.
In B2C marketing, influential adverts and promotions simplify the decision-making process
of consumers. A need is created and fulfilled by optimizing the conversion funnel.

Audience Targeting in B2B vs B2C
B2B marketing works in a niche market where understanding the target audience
demographic is crucial to effectively compile and analyze accurate data. With this data and
integrated advertisements built on them, marketers can successfully build a lead generation
strategy.
B2C marketing works in a larger and spread-out market that requires casting a wide net to
acquire customers. One strategy is to analyze the demographics of the top-of-funnel leads,
and the other is to implement effective SEO and CRO tactics. Therefore, creative copy,
optimized web pages, quality UX and UI take up importance
Quick purchases with less research and due diligence by individual customers compared to
businesses provide B2C marketers a much smaller window of opportunity to influence
consumer behavior.
Understanding these differences in B2B and B2C marketing strategies lead to a
knowledgeable application of tactics. Marketers can affect appropriate changes to tactics
and ramp up lead generation and improve the outcome of businesses.
Similarities Between B2B vs B2C Marketing
The marketing strategies for B2B and B2C seem characterized by the differences in their
business models. However, there are numerous similarities too.
1. In B2B there are multiple decision-makers involved compared to B2C, but both
categories constitute real people as the target audience.
2. Both the marketing strategies require excellent customer service and enhanced
customer experience. Now, B2B sales may have rational motivations but still need
personalized experiences to engage, convert, nurture, and make sales.
3. The sales process has to be customer-centric where the company has to provide
exceptional support service. The customer has to come first to generate sales.
4. The focus should be on solving the customers' problems. Defining the ideal customer
profile and buyer's journey help to refine sales strategies that achieve success.
5. Customers in both the B2B and B2C segments are becoming more aware and stress
on authenticity and credibility to be engaged. Thus, marketers in both business types
need to build trust and drive sales.
6. Whether B2B or B2C, aligned marketing strategies are essential in online and offline
communications to avoid losing customers to competitors.
The towering similarity between B2B and B2C marketing models is a clear strategy. It is
crucial to have the clarity and precision to measure performance, minimize risks, and
resolve issues.
B2B Marketing vs. B2C Marketing
Although both approaches use a very familiar foundation and set of tactics, the customer
approach is vastly different. B2C customers are emotion-driven in their purchases and
largely follow trends, whereas B2B customers make thoughtful, well-researched choices for
their business needs. Here are more details about the two customer types.
Key Differences Between B2B and B2C Marketing:

Several business buyers, including the CFO and other executives, department heads,
and functional experts, usually are the decision-maker for B2B purchases. B2C
customers usually make choices alone. Example: If you buy a t-shirt, it only affects
you. If you buy Hubspot, it's going to affect you, your editor, content strategist, and
project manager.

B2B customers use research as a primary tool. Decision-makers frequently consult
white papers, blogs, articles, and social media to learn about products. On the other
hand, B2C customers often buy impulsively and emotionally and typically follow pop
culture or cultural trends. Take the example of the cat bed. I once spent $5 on a cat
toy because it was payday and Friday, and I was feeling good. However, B2B
stakeholders are people, too. Their moods can also influence business-to-business
buys.

For B2B purchases, the seller's reputation is essential, as is the sophistication of the
products or services. Thought leadership and informative content attract business
customers. But individual customers often respond to popular trends and the desire
to "belong" to a tribe. Primal branding and experiential marketing nurture these
kindred feelings.

Often B2B relationships are long-standing, yielding sustained revenue through large,
expensive, or ongoing orders. B2C relationships may be fleeting because customers
make one-off purchases of lower-priced items. Above all, brand image and
reputation is what’s most important: for every one bad brand experience, you need
12 good brand experiences to sway that individual back to trusting your brand.

B2B customers look at the whole brand experience, not just product quality.
Consider our product manager looking for the bug tracking software. How
responsive is the service team? What's the onboarding process? Will this make work
more efficient for the team over time? The individual on the street probably has
shorter-term expectations. Like, does that cheeseburger look tasty? Will it make a
good lunch?
Key Similarities Between B2B and B2C Marketing:

Both B2B and B2C consumers still want to be delighted with quality goods and
services.

Weather, natural and other disasters, and geopolitical tensions affect B2B and B2C
customer demand and supply chains.

The economy, and local and global politics influence individual customers and
business buyers. As an example, look no further than the recent rise in gas prices. In
B2B, the value chain is impacted as organizations adjust service areas or reduce
services levels to save money. At the same time, B2C consumers may simply stop
buying all but necessary items as prices rise.
How B2B Marketing Works
B2B marketing works when you target your audience and appeal to their need to find an
ROI-boosting solution for their company.
B2B marketing also emphasizes one-to-one connections between stakeholders and seller
account managers. In the past, business-to-business marketing and sales relied on
sometimes frequent in-person meetings. But, because of the pandemic, sales teams now
regularly use video calls and live chat to nurture leads and close deals.
You succeed at business-to-business marketing when you understand your unique value
proposition. You also benefit from competitive analysis to grasp the strengths and
weaknesses of similar businesses and consider how you can do better in your company.
Once you understand yourself and businesses like yours, try several different digital
marketing approaches. Remember to track each result to know if you're winning and where
you can improve via SMART goals.
What Are Effective B2B Marketing Strategies?
An effective B2B marketing strategy means you meet your target audience where they are
to raise brand awareness. Strategies carry your company over the long-term and provide
direction for your marketing plans. Some powerful elements of your strategy include three
things:
1. Find the right audience for your product. Face it, not everyone will want every
product you sell. And, frankly, that's how marketing worked in the old days—with
advertising broadcast to a wide audience. Today, it's all about defining market
niches.
2. Define the right message for that audience. Once you understand your segments,
position your brand as the solution to tackle that segment’s issues.
3. Connect with your audience to share the message. Find out what channels work for
each segment.
What is B2B marketing?
B2B marketing is short for business-to-business marketing. It’s the process by which
businesses market their services to other businesses. An example of a B2B marketing goal
would be to sell a program management software to a company that organizes citywide
events.
B2B marketers need to be able to facilitate relationships between two businesses. The
members of a business that make purchasing decisions are typically professionals in their
field. They’re not likely to be enticed to buy with emotional appeals.
Businesses need to make calculated decisions about the other businesses they engage. For a
B2B relationship to work, there should be mutual trust, and the decision to work together
should make sense logically.
A B2B marketer’s job is to forge a bond between two companies. The marketer must then
convince one business that purchasing the other’s product will be profitable to their
operations.
To do this, B2B marketers advertise technical specifications and conduct market research
studies to design logical arguments and sell their products or services. They also try to keep
businesses in constant contact to allow a professional relationship to develop.
What is B2C marketing?
B2C marketing is short for business-to-customer marketing. It’s the process by which a
business advertises directly to consumers. An example of a B2C marketing goal would be to
sell a certain brand of napkins.
B2C marketing requires a strategy designed to reach the everyday consumer. Long ads
denoting the technical capabilities and specifications of a product bore the general
public. B2C campaigns are tailored to make an audience feel an emotional connection to the
product.
A B2C ad will try to capture the attention of a certain type of customer. For example, a B2C
ad for an energy drink might feature images or videos of extreme athletes doing complex
stunts. The marketer knows that teens and young adults mostly consume the product. The
goal is to get their customer base to associate their product or service with an active
lifestyle.
These businesses have very little personal interaction with customers. To gain return
business, they need an identity that’s easy to remember and identify with. That’s why they
put the majority of their energy into branding.
Even so, it’s difficult for a B2C marketer to build customer loyalty. Without a personal
relationship to the business, consumers feel free to use other products from many different
brands. For this reason, B2C marketers are constantly creating content to engage their
audience.
B2B vs. B2C marketing: Similarities to consider
Although B2B and B2C marketing target different audiences, there are similarities between
them and basic marketing methods that work for both. Because of their prevalence, B2B
and B2C companies do a large portion of their advertising online. Marketing online offers
businesses a cost-effective opportunity to reach broad or specific audiences. In fact, nearly
100% of Americans said they used the internet in 2020.
Both B2B and B2C businesses use Instagram and Facebook. On average, U.S. businesses
spend almost three-fourths of their advertising budgets marketing on Facebook (5%) and
Instagram (69%). The platforms offer companies the ability to customize ad campaigns to
particular demographics.
While effective, television commercials can be extremely expensive to produce. Online
video marketing not only costs less, but it also allows for more flexibility. Video is an
extremely popular form of content marketing for businesses.
B2B companies can create films that demonstrate their products’ technical specifications
and feature them on YouTube ads, banner ads, or even a company website. B2C companies
can do the same with engaging content that communicates the emotion they want their
brand to evoke.
Some other tools that B2B and B2C marketers use are blogs, Google Ads, and search engine
optimization (SEO). In today’s market, all types of businesses must put constant effort into
staying relevant online.
B2B vs. B2C marketing: Contrasts to consider
Because B2B and B2C marketing practices need to appeal to separate audiences, the
methods used to implement them are different. To implement the right marketing plan for
your business, you’ll need to understand the differences between the two strategies.
Finding the right marketing expert for your company can be an arduous task. You may think
that you need to find someone in your area, but with current technology, workers can
communicate with their clients from anywhere in the world. Remote talent platforms like
Upwork can draw from a global talent pool to identify the top workers with the marketing
skills that your company needs.
Customer relationships vs. branding
While the chief aim of B2B marketing is to form a professional relationship between two
companies, the objective of B2C marketing is to develop a popular brand. B2B companies
deal in long-term business and don’t have access to the same broad customer base that B2C
businesses do.
While a B2C company can sell to an almost infinite number of consumers, a B2B company
may only have a few large corporations that use their service. Because B2B companies may
not be able to do business with a massive amount of customers, they should do everything
they can to keep positive relations with the ones they do have.
If a B2C company’s product or service gets a bad online review, it’s not a big deal. If the
product is made with quality and well known, it will receive enough good reviews to keep
the business’s general scores high.
A bad online review for a B2B company can be devastating. Not only can it result in the loss
of a customer, but it can also be seen as a red flag that prevents other businesses from
engaging with them. If a B2B company gets a bad review, it’s important for the marketer to
immediately reach out to the customer to see what can be done to repair the relationship.
Finding a niche vs. broad customer outreach
To sell to other businesses, a B2B company’s product or service should meet a need for the
other company. The product can improve business operations or solve a problem. To inspire
the confidence of its customers, the B2B company must specialize in a certain service or
cluster of services. The specific issue that a B2B company’s product or service addresses is
called a niche.
While a B2C product may still appeal to a certain type of customer, its ad campaign should
aim to reach as many people as possible. Customers typically don’t put in the same amount
of effort or specialized research that businesses do before buying a product.
For example, if a nonprofit corporation needs easy-to-operate accounting software, they’ll
likely type in a very targeted Google search like “accounting software for nonprofits,” but if
a general customer is looking for new furniture, they might type in a broad Google search
like “furniture” to see what’s available.
Both B2B and B2C marketers use SEO to make sure the product’s website ranks high in
Google searches. A marketer can do this by ensuring the website uses keywords like
“accounting software” and “nonprofits” effectively in its content.
Business speak vs. common language
B2B and B2C campaigns should take their audience into account when deciding what
language to use in their advertising. Business professionals respond differently to certain
types of language than the general public.
Businesses want to know that the product or service they’ll be investing in is recommended
by experts in their industry. Ads aimed at selling from business to business should include
technical language, business testimonials, case studies, and any other fact-based, hard
evidence that a product will work for them.
There are a few exceptions, like enthusiasts who want the highest-quality gear that money
can buy, but for the most part, general customers don’t need the same type of convincing to
buy that businesses do. A customer buying a soda likely won’t research its ingredients to
make sure it’s the highest-quality soda on the market.
In most cases, B2C consumers don’t want to hear product specifications, technical terms, or
sit through boring case studies. Ads targeted toward this group should be easily digestible
and clearly written.
Logical vs. emotional appeal
To be effective, a B2B marketing campaign should make a logical appeal to a business
leader. The whole point of the campaign should be to show a business why it makes sense
for them to purchase a product or service.
Several logical arguments can be used in a B2B campaign. The more specific the arguments,
the more credibility they’ll have with business teams. For example, instead of saying “this
software will save your company money,” you might say something like, “this software will
cut your company’s administrative costs by 23% over the next quarter.”
B2C marketing campaigns are usually designed to make a consumer feel some emotion. The
idea is that the consumer will link that positive emotion with their product subconsciously.
That’s why car commercials show groups of good-looking friends driving for about five
seconds and frolicking on the beach for a whole minute.
Business goods classifications
There are a number of ways of classifying B2B goods. All are entirely different than
consumer goods classifications, which are usually divided into convenience, specialty and
shopping goods. From a B2B point of view, goods are divided by the use to which they will
be put. The most widely accepted classification of business products is as follows:
• Entering goods and services – products and services that become part of other products –
raw materials, component parts, and materials. Examples of these kinds of products are
taillights for an automobile, lumber or metallic ores, formed parts of aluminum or plastic or
electronic products like integrated circuits. These are usually expensed rather than
capitalized.
• Foundation goods and services – products that are used to make other products. This
includes installations and accessory equipment. The former are items like offices and
buildings and the latter are machine tools. Foundation goods do not become part of the
finished products. While most of them are capital items, some foundation goods can also be
expensed.
• Facilitating goods and services – products and services that help an organization achieve
its objectives. These goods also do not enter the product or even the production process.
Generally speaking, facilitating goods and services are expensed rather than capitalized.
Examples of facilitating goods and services are market research services, cleaning supplies
and services, copiers and small hardware. Facilitating goods are usually divided into supplies
and business services. In this category are items that are often characterized as MRO
(maintenance, repair, and operations).
Topic 2: Organisational buying behaviour
This topic includes:

buyer behaviour

buying situations

determinants of buying behaviour.
Topic outcomes
By the end of this topic, you should be able to:

describe the organisational buying process in business markets

describe how different buying situations and strategies influence
organisational buying decisions

explain the various forces that influence the organisational buying
process.
The Organizational Buying Process
The organization buying process stages are described below.
Problem Recognition
The process begins when someone in the organization recognizes a problem or need that
can be met by acquiring a good or service. Problem recognition can occur as a result of
internal or external stimuli. Internal stimuli can be a business problem or need that surfaces
through internal operations or the actions of managers or employees. External stimuli can
be a presentation by a salesperson, an ad, information picked up at a trade show, or a new
competitive development.
General Need Description
Once they recognize that a need exists, the buyers must describe it thoroughly to make sure
that everyone understands both the need and the nature of solution the organization
should seek. Working with engineers, users, purchasing agents, and others, the buyer
identifies and prioritizes important product characteristics. Armed with knowledge, this
buyer understands virtually all the product-related concerns of a typical customer.
From a marketing strategy perspective, there is opportunity to influence purchasing
decisions at this stage by providing information about the nature of the solution you can
provide to address the the organization’s problems. Trade advertising can help potential
customers become aware of what you offer. Web sites, content marketing, and direct
marketing techniques like toll-free numbers and online sales support are all useful ways to
build awareness and help potential customers understand what you offer and why it is
worth exploring. Public relations may play a significant role by placing stories about your
successful customers and innovative achievements in various trade journals. (Note that the
AirCanada video you just watched is an example of this. The video was created by IBM and
is offered as one of many “IBM client stories.”)
Product Specification
Technical specifications come next in the process. This is usually the responsibility of the
engineering department. Engineers design several alternatives, with detailed specifications
about what the organization requires. These specifications align with the priority list
established earlier.
Supplier Search
Six of the mirror segments for NASA’s James Webb Space Telescope. The mirrors were built
by Ball Aerospace & Technologies Corp., Boulder, Colorado
The buyer now tries to identify the most appropriate supplier (also called the vendor). The
buyer conducts a standard search to identify which providers offer what they need, and
which ones have a reputation for good quality, good partnership, and good value for the
money. This step virtually always involves using the Internet to research providers and sift
through product and company reviews. Buyers may consult trade directories and
publications, look at published case studies (written or video), seek out guidance from
opinion leaders, and contact peers or colleagues from other companies for
recommendations.
Marketers can participate in this stage by maintaining well-designed Web sites with useful
information and case studies, working with opinion leaders to make advantageous
information available, using content marketing strategies to make credible information
available in sources the buyer is likely to consult, and publishing case studies about
customers using your products successfully. Consultative selling (also called personal selling)
plays a major role as marketers or sales personnel learn more about the organization’s
goals, priorities, and product specifications and provide helpful information to the buyer
about the offerings under consideration.
Proposal Solicitation
During the next stage of the process, qualified suppliers are invited to submit proposals.
Depending on the nature of the purchase, some suppliers send only a catalog or a sales
representative. More complex purchases typically require submission of a detailed proposal
outlining what the provider can offer to address the buyer’s needs, along with product
specifications, timing, and pricing. Proposal development requires extensive research,
skilled writing, and presentation. For very large, complex purchasing decisions, such as
the solution sale described above, the delivery of a proposal could be comparable
to a complete marketing strategy targeting an individual customer. Organizations that
respond to many proposals typically have a dedicated proposal-writing team working closely
with sales and marketing personnel to deliver compelling, well-crafted proposals.
Supplier Selection
At this stage, the buyer screens the proposals and makes a choice. A significant part of this
selection involves evaluating the vendors under consideration. The selection process
involves thorough review of the proposals submitted, as well as consideration of vendor
capabilities, reputation, customer references, warranties, and so on. Proposals may be
scored by different decision makers using a common set of criteria. Often the selection
process narrows down vendors to a short list of highest-scoring proposals. Then the shortlisted vendors are invited to meet with the buyer(s) virtually or in person to discuss the
proposal and address any questions, concerns, or gaps. At this stage, the buy may attempt
to negotiate final, advantageous terms with each of the short-listed vendors. Negotiation
points may cover product quantity, specifications, pricing, timing, delivery, and other terms
of sale. Ultimately the decision makers finalize their selection and communicate it internally
and to the vendors who submitted proposals.
Consultative selling and related marketing support are important during this stage. While
there may be procurement rules limiting contact with buyers during the selection process, it
can be helpful to check in periodically with key contacts and offer any additional
information that may be helpful during the selection process. This phase is an opportunity
for companies to demonstrate their responsiveness to buyers and their needs. Being
attentive during this stage can set a positive tone for how you will conduct future business.
Order-Routine Specification
The buyer now writes the final order with the chosen supplier, listing the technical
specifications, the quantity needed, the warranty, and so on. At this stage, the supplier
typically works closely with the buyer to manage inventories and deliver on agreement
terms.
Performance Review
In this final stage, the buyer reviews the supplier’s performance and provides feedback. This
may be a very simple or a very complex process, and it may be initiated by either party, or
both. The performance review may lead to changes in how the organizations work together
to improve efficiency, quality, customer satisfaction, or other aspects of the relationship.
From a marketing perspective this stage provides essential information about how well the
product is meeting customer needs and how to improve delivery in order to strengthen
customer satisfaction and brand loyalty. Happy, successful customers may be great
candidates for published case studies, testimonials, and references for future customers.
Dissatisfied customers provide an excellent opportunity to learn what isn’t working,
demonstrate your responsiveness, and improve.
Procurement Processes for Routine Purchases
As noted above, the complete eight-stage buying process describe here applies to new
tasks, which typically require more complex, involved purchasing decisions. For rebuys and
routine purchases, organizations use abridged versions of the process. Some stages may be
bypassed completely when a supplier has already been selected.
Organizations may also use e-procurement processes, in which an approved supplier has
been selected to provide a variety of standard goods at pre-negotiated prices. For example,
an organization may negotiate an e-procurement agreement with Staples that allows
employees to order office supplies directly from the company using an approval workflow in
the ordering system. These systems help simplify the buying process for routine purchases,
while still allowing appropriate levels of approvals and cost controls for the buyer.
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in this
outcome. This short quiz does not count toward your grade in the class, and you can retake
it an unlimited number of times.
Stages in Organizational Buying

Problem recognition. The process begins when someone in the organization
recognizes a problem or need that can be met by acquiring a good or service.
Problem recognition can occur as a result of internal or external stimuli. External
stimuli can be a presentation by a salesperson, an ad, or information picked up at a
trade show.

General need description. Having recognized that a need exists, the buyers must
add further refinement to its description. Working with engineers, users, purchasing
agents, and others, the buyer identifies and prioritizes important product
characteristics. Table 4.1 lists several sources of information for many industrial
customers. Armed with extensive product knowledge, this individual is capable of
addressing virtually all the product-related concerns of a typical customer. To a
lesser extent, trade advertising provides valuable information to smaller or isolated
customers. Noteworthy is the extensive use of direct marketing techniques (for
example, toll-free numbers and information cards) in conjunction with trade ads.
Finally, public relations plays a significant role through the placement of stories in
various trade journals.

Product specification. Technical specifications come next. This is usually the
responsibility of the engineering department. Engineers design several alternatives,
depending on the priority list established earlier.

Supplier search. The buyer now tries to identify the most appropriate vendor. The
buyer can examine trade directories, perform a computer search, or phone other
companies for recommendations. Marketers can participate in this stage by
contacting possible opinion leaders and soliciting support or by contacting the buyer
directly. Personal selling plays a major role at this stage.

Proposal solicitation. Qualified suppliers are next invited to submit proposals. Some
suppliers send only a catalog or a sales representative. Proposal development is a
complex task that requires extensive research and skilled writing and presentation.
In extreme cases, such proposals are comparable to complete marketing strategies
found in the consumer sector.

Supplier selection. At this stage, the various proposals are screened and a choice is
made. A significant part of this selection is evaluating the vendor. One study
indicated that purchasing managers felt that the vendor was often more important
than the proposal. Purchasing managers listed the three most important
characteristics of the vendor as delivery capability, consistent quality, and fair price.
Another study found that the relative importance of different attributes varies with
the type of buying situations. For example, for routine-order products, delivery,
reliability, price, and supplier reputation are highly important. These factors can
serve as appeals in sales presentations and in trade ads.

Order-routine specification. The buyer now writes the final order with the chosen
supplier, listing the technical specifications, the quantity needed, the warranty, and
so on.

Performance review. In this final stage, the buyer reviews the supplier's
performance. This may be a very simple or a very complex process.
8 Steps of a Business Organization's Purchasing Process
1. A Problem Is Identified
The purchasing process does not begin until someone identifies a problem within the
organization, which can be solved by purchasing a good or service. Anyone within the
organization can initiate this – from a customer service rep out of printer paper – to the CEO
who decides that it's time to expand to a larger facility. In some instances, a sales person
may help someone in the organization to identify a need that no one had previously
recognized.
2. General Need Description
After a problem is identified, the organization determines which product or service is
required. When an office is out of printer paper, the office manager may decide that more
paper is needed. However, a software engineer in the same company might suggest that the
organization become paperless by providing all employees in the office with tablet
computers.
3. Product or Service Specification
Once the general need is agreed upon by those who have purchasing authority in that
organization, they will then narrow down the options by specifying what the product or
service must offer. If they have decided on tablets, they would then specify the size they
want, how much memory the tablets offer, and so on. If they decide on paper, then they
would determine the quantity and quality of paper required.
4. Potential Supplier Search
The third step of the buying process involves looking for potential suppliers. If the company
doesn't already have an established relationship with a vendor that offers the product, then
often the company must look online, attend trade shows or contact suppliers by telephone.
Purchasers determine if the suppliers are reputable, financially stable and if they'll be
around for future requirements.
5. Request for Proposals
For large purchases, organizations usually write out a formal RFP, a Request for Proposal,
and then send it to their preferred suppliers. Alternatively, they may make the process
public so that anyone can send in a proposal. For smaller purchases, this could be as simple
as looking at the price on a website.
6. Supplier Evaluation and Selection
In this part of the process, supplier proposals and prices are evaluated to determine who is
offering the best price and the best quality. Often, price alone is enough to win an
organization's business, as many businesses will weigh the price against financing options,
supplier reputation and whether or not a supplier can provide the organization with future
goods and services.
7. Establishing Credit and Order Specification
Once the winning supplier has been selected, the organization places the order. This may
involve establishing credit with the supplier, agreeing on terms, as well as reviewing
shipment times and any other deliverables that may come with the sale, such as installation
or product training.
8. Supplier Performance Review
After the product has been delivered or the service has been performed, the organization
will review the purchase to see if it meets acceptable standards. For larger purchases, this
could be a formal review involving key decision makers in the organization and the
supplier's sales staff. For smaller purchases, it is often informal. For example, if the company
ordered a box of paper that arrived late or was damaged, the company may decide not to
buy from that supplier again, without ever informing the supplier of a problem.
Three types of buying situations
New Task
In the new-task buying situation, organization decisions makers perceive the problem or
need as totally different from previous experiences; therefore, they need a significant
amount of information to explore alternative ways of solving the problem and searching for
alternative suppliers.
When confronting a new-task buying situation, organizational buyers operate in a stage of
decision making referred to as extensive problem solving.4 The buying influentials and
decision makers lack well-defi ned criteria for comparing alternative products and suppliers,
but they also lack strong predispositions toward a particular solution. In the consumer
market, this is the same type of problem solving an individual or household might follow
when buying a first home.
Buying-Decision Approaches5 Two distinct buying-decision approaches are used:
judgmental new task and strategic new task. The greatest level of uncertainty confronts
firms in judgmental new-task situations because the product may be technically complex,
evaluating alternatives is diffi cult, and dealing with a new suppliers has unpredictable
aspects. Consider purchasers of a special type of production equipment who are uncertain
about the model or brand to choose, the suitable level of quality, and the appropriate price
to pay. For such purchases, buying activities include a moderate amount of information
search and a moderate use of formal tools in evaluating key aspects of the buying decision.
Even more effort is invested in strategic new-task decisions. These purchasing decisions are
of extreme importance to the firm strategically and financially. If the buyer perceives that a
rapid pace of technological change surrounds the decision, search effort is increased but
concentrated in a shorter time period.6 Long-range planning drives the decision process. To
illustrate, a large health insurance company placed a $600,000 order for workstation
furniture. The long-term effect on the work environment shaped the 6-month decision
process and involved the active participation of personnel from several departments.
Strategy Guidelines The business marketer confronting a new-task buying situation can gain
a differential advantage by participating actively in the initial stages of the procurement
process. The marketer should gather information on the problems facing the buying
organization, isolate specifi c requirements, and offer proposals to meet the requirements.
Ideas that lead to new products often originate not with the marketer but with the
customer.
Marketers who are presently supplying other items to the organization (“in” suppliers) have
an edge over other fi rms: They can see problems unfolding and are familiar with the
“personality” and behavior patterns of the organization. The successful business marketer
carefully monitors the changing needs of organizations and is prepared to assist new-task
buyers.
Straight Rebuy
When there is a continuing or recurring requirement, buyers have substantial experience in
dealing with the need and require little or no new information. Evaluation of new
alternative solutions is unnecessary and unlikely to yield appreciable improvements. Thus, a
straight rebuy approach is appropriate. Routine problem solving is the decision process
organizational buyers employ in the straight rebuy. Organizational buyers apply welldeveloped choice criteria to the purchase decision. The criteria have been refi ned over time
as the buyers have developed predispositions toward the offerings of one or a few carefully
screened suppliers. In the consumer market, this is the same type of problem solving that a
shopper might use in selecting 30 items in 20 minutes during a weekly trip to the
supermarket. Indeed, many organizational buying decisions made each day are routine. For
example, organizations of all types are continually buying operating resources—the goods
and services needed to run the business, such as computer and office supplies, maintenance
and repair items, and travel services. Procter & Gamble alone spends more than $5 billion
annually on operating resources.
Buying Decision Approaches Research suggests that organizational buyers employ two
buying-decision approaches: causal and routine low priority. Causal purchases involve no
information search or analysis and the product or service is of minor importance. The focus
is simply on transmitting the order. In contrast, routine low-priority decisions are somewhat
more important to the firm and involve a moderate amount of analysis. Describing the
purchase of $5,000 worth of cable to be used as component material, a buyer aptly
describes this decision-process approach: On repeat buys, we may look at other sources or
alternate methods of manufacturing, etc. to make sure no new technical advancements are
available in the marketplace. But, generally, a repeat buy is repurchased from the supplier
originally selected, especially for low dollar items.
Strategy Guidelines The purchasing department handles straight rebuy situations by
routinely selecting a supplier from a list of approved vendors and then placing an order. As
organizations shift to e-procurement systems, purchasing managers retain control of the
process for these routine purchases while allowing individual employees to directly buy
online from approved suppliers.8 Employees use a simple point-and-click interface to
navigate through a customized catalog detailing the offerings of approved suppliers, and
then order required items. Individual employees like the self-service convenience, and
purchasing managers can direct attention to more critical strategic issues. Marketing
communications should be designed to reach not only purchasing managers but also
individual employees who are now empowered to exercise their product preferences.
The marketing task appropriate for the straight rebuy situation depends on whether the
marketer is an “in” supplier (on the list) or an “out” supplier (not among the chosen few). An
“in” supplier must reinforce the buyer-seller relationship, meet the buying organization’s
expectations, and be alert and responsive to the changing needs of the organization.
The “out” supplier faces a number of obstacles and must convince the organization that it
can derive significant benefits from breaking the routine. This can be difficult because
organizational buyers perceive risk in shifting from the known to the unknown. The
organizational spotlight shines directly on them if an untested supplier falters. Buyers may
view testing, evaluations, and approvals as costly, time-consuming, and unnecessary.
The marketing effort of the “out” supplier rests on an understanding of the basic buying
needs of the organization: Information gathering is essential. The marketer must convince
organizational buyers that their purchasing requirements have changed or that the
requirements should be interpreted differently. The objective is to persuade decision
makers to re examine alternative solutions and revise the preferred list to include the new
supplier.
Modified Rebuy
In the modified rebuy situation, organizational decision makers feel they can derive
significant benefits by revaluating alternatives. The buyers have experience in satisfying the
continuing or recurring requirement, but they believe it worthwhile to seek additional
information and perhaps to consider alternative solutions. Several factors may trigger such a
reassessment. Internal forces include the search for quality improvements or cost
reductions. A marketer offering cost, quality, or service improvements can be an external
precipitating force. The modified rebuy situation is most likely to occur when the fi rm is
displeased with the performance of present suppliers (for example, poor delivery service).
Limited problem solving best describes the decision-making process for the modified rebuy.
Decision makers have well-defi ned criteria but are uncertain about which suppliers can best
fit their needs. In the consumer market, college students buying their second computer
might follow a limited problem-solving approach.
Buying-Decision Approaches Two buying-decision approaches typify this buying-class
category. Both strongly emphasize the firm’s strategic objectives and long-term needs. The
simple modified rebuy involves a narrow set of choice alternatives and a moderate amount
of both information search and analysis. Buyers concentrate on the long-term-relationship
potential of suppliers.
The complex modified rebuy involves a large set of choice alternatives and poses little
uncertainty. The range of choice enhances the buyer’s negotiating strength. The importance
of the decision motivates buyers to actively search for information, apply sophisticated
analysis techniques, and carefully consider long-term needs. This decision situation is
particularly well suited to a competitive bidding process. For example, some firms are
turning to online reverse auctions (one buyer, many sellers), where the buying organization
allows multiple suppliers to bid on a contract, exerting downward price pressure throughout
the process. To participate, suppliers must be prepared to meet defi ned product
characteristics, as well as quality and service standards. “And while price will always be an
issue, more buyers today use reverse auctions to determine the best value.”9 Rather than
being used for specialized products or services where a close working relationship with the
supplier is needed, auctions tend to be used for commodities and standardized parts.
Strategy Guidelines In a modified rebuy, the direction of the marketing effort depends on
whether the marketer is an “in” or an “out” supplier. An “in” supplier should make every
effort to understand and satisfy the procurement need and to move decision makers into a
straight rebuy. The buying organization perceives potential payoffs by reexamining
alternatives. The “in” supplier should ask why and act immediately to remedy any customer
problems. The marketer may be out of touch with the buying organization’s requirements.
The goal of the “out” supplier should be to hold the organization in modified rebuy status
long enough for the buyer to evaluate an alternative offering. Knowing the factors that led
decision makers to reexamine alternatives could be pivotal. A particularly effective strategy
for an “out” supplier is to offer performance guarantees as part of the proposal.10 To
illustrate, the following guarantee prompted International Circuit Technology, a
manufacturer of printed circuit boards, to change to a new supplier for plating chemicals:
“Your plating costs will be no more than x cents per square foot or we will make up the
difference.”11 Given the nature of the production process, plating costs can be easily
monitored by comparing the square footage of circuit boards moving down the plating line
with the cost of plating chemicals for the period. Pleased with the performance,
International Circuit Technology now routinely reorders from this new supplier.
Strategy Implications Although past research provides some useful guidelines, marketers
must exercise great care in forecasting the likely composition of the buying center for a
particular purchasing situation.12 The business marketer should attempt to identify
purchasing patterns that apply to the fi rm. For example, the classes of industrial goods
introduced in Chapter 1 (such as foundation goods versus facilitating goods) involve varying
degrees of technical complexity and financial risk for the buying organization.
Types of B2B Buying Situations
There are three types of buying situations that have an impact on the way that the DMU is
organized and how products and suppliers are selected: Straight re-buy, modified re-buy,
and new-task purchase.

Straight re-buy - The buyer reorders without requesting any product or service
modifications. The buyer simply chooses a supplier from an approved list based on
past buying satisfaction. Because it is a routine reordering situation, the supplier may
propose an automatic reordering system both to save purchasing time and to reduce
the risk of losing profitable, regular purchases.

Modified re-buy - Although the company has prior experience of the product, the
particular purchase situation demands some degree of customization, such as
changes in the product specification, price, terms or supplier. Approved suppliers,
including those currently under contract to the customer, may use the purchasing
opportunity to make a better offer to the customer in order to win new business.

New-task purchase - A company buying a product or service for the first time may
have no experience of supplier capabilities or performance evaluation.
Consequently, the greater the cost or risk, the larger the DMU and its informational
requirements. The new-task situation represents the marketer's greatest
opportunity and challenge: the aim is to reach as many key buying influencers as
possible, and to provide help and information.

• Straight rebuy. In a straight rebuy, the purchasing department reorders items like
office supplies and bulk chemicals on a routine basis and chooses from suppliers on
an approved list. The suppliers make an effort to maintain quality and often propose
automatic reordering systems to save time. “Out-suppliers” attempt to offer
something new or exploit dissatisfaction with a current supplier. Their goal is to get a
small order and then enlarge their purchase share over time.

• Modified rebuy. The buyer in a modified rebuy wants to change product
specifications, prices, delivery requirements, or other terms. This usually requires
additional participants on both sides. The in-suppliers become nervous and want to
protect the account. The out-suppliers see an opportunity to propose a better offer
to gain some business.

• New task. A new-task purchaser buys a product or service for the first time (an
office building, a new security system). The greater the cost or risk, the larger the
number of participants, and the greater their information gathering—the longer the
time to a decision.47
The business buyer makes the fewest decisions in the straight rebuy situation and the most
in the new-task situation. Over time, new-buy situations become straight rebuys and routine
purchase behavior. The buying process passes through several stages: awareness, interest,
evaluation, trial, and adoption. Mass media can be most important during the awareness
stage;
salespeople often have the greatest impact at the interest stage; and technical sources can
be most important during evaluation. Online selling efforts may be useful at all stages.
Many business buyers prefer to buy a total problem solution from one seller. Called systems
buying, this practice originated with government purchases. In response, many sellers have
adopted systems selling or a variant, systems contracting, in which one supplier provides the
buyer with all MRO (maintenance, repair, and operating) supplies. This lowers procurement
costs and allows the seller steady demand and reduced paperwork.
Different types of Buying Situations
There are three main types of buying situations:
1. Straight rebuy- reordering the same product in the same quantity that one
purchased the last time.
2. Modified rebuy- reordering from the same company but with slight modifications.
3. New buy- when a company places an order with a certain supplier for the first time.
Companies resort to one of these buying situations depending on the following factors:
1. How new the buying requirement is
2. If the problem being solved is complex or routine work
3. Total time to solve the problem (if the task is already done there is no need to
reorder)
4. If its a long-term or a short term project
New buy is fundamentally different from modified rebuy and straight rebuy buying
situations. Since the order is being placed for the first time the process takes comparatively
longer. The company has to perform detailed analysis and research to understand which
supplier’s offering best fits their needs. Only after the detailed analysis will a company place
its first order.
Straight Rebuy vs Modified Rebuy
As mentioned above, straight rebuy and modified rebuy buying situations are both very
similar. The company chooses to reorder from the same supplier but their order is different
in both cases. Let’s understand how these two buying situations differ.
1. Straight Rebuy
In the case of a straight rebuy, the reorder specifications exactly match the specifications of
the last order. This is a routine affair, both the parties - supplier and company expect the
order to be placed and fulfilled on time. There is no room for any delays or confusion or
misunderstanding.
To maintain this buying situation suppliers have to ensure timely delivery and consistent
product quality. This buying situation is also convenient for companies as they can skip the
research process and directly place the order.
2. Modified Rebuy
In modified rebuy, the company reorder from the same supplier but they modify some
elements of their order. The modification can be in terms of features, design, quality,
packaging, quantity, or even delivery time.
Modified rebuy can sometimes result in delayed delivery or a wrong supply of goods.
Because of the modification, the whole process can turn time-consuming.
Examples of Straight Rebuy
Routine Coffee Order
Starbucks is a huge corporation with outlets around the world. Many consumers visit
Starbucks every morning to place the same coffee order with all the same specifications.
This is a classic example of straight rebuy as all the elements of the order remain the same.
The consumer visits the same supplier each day and places the exact same order.
Manufacturing Companies
Manufacturing companies rely heavily on suppliers to deliver their products on time. Any
delays in the delivery of raw materials can affect the entire supply chain. Therefore these
companies have to straight rebuy their orders for a specific project. Depending on the
duration or complexity of the project the order might eventually change, but for a short
period, the straight rebuy buying situation is being implemented.
Restaurants or Food Chains
Restaurants need fresh produce and pantry staples delivered routinely. Most restaurants
buy fresh produce every day but the specific product, in this case, might change depending
on the season. But pantry staples like milk, flour, salt, sugar, pepper, etc are essential.
Restaurants definitely need a regular supply of them. So in this case the straight rebuy
buying situation can be implemented.
Types of B2B Buying Situations
To some extent the stages an organization goes through and the number of people involved
depend on the buying situation. Is this the first time the firm has purchased the product or
the fiftieth? If it’s the fiftieth time, the buyer is likely to skip the search and other phases
and simply make a purchase. A straight rebuy is a situation in which a purchaser buys the
same product in the same quantities from the same vendor. Nothing changes, in other
words. Postpurchase evaluations are often skipped, unless the buyer notices an unexpected
change in the offering such as a deterioration of its quality or delivery time.
Sellers like straight rebuys because the buyer doesn’t consider any alternative products or
search for new suppliers. The result is a steady, reliable stream of revenue for the seller.
Consequently, the seller doesn’t have to spend a lot of time on the account and can
concentrate on capturing other business opportunities. Nonetheless, the seller cannot
ignore the account. The seller still has to provide the buyer with top-notch, reliable service
or the straight-rebuy situation could be jeopardized.
If an account is especially large and important, the seller might go so far as to station
personnel at the customer’s place of business to be sure the customer is happy and the
straight-rebuy situation continues. IBM and the management consulting firm Accenture
station employees all around the world at their customers’ offices and facilities.
By contrast, a new-buy selling situation occurs when a firm purchases a product for the first
time. Generally speaking, all the buying stages we described in the last section occur. New
buys are the most time consuming for both the purchasing firm and the firms selling to
them. If the product is complex, many vendors and products will be considered, and many
RFPs will be solicited.
New-to-an-organization buying situations rarely occur. What is more likely is that a purchase
is new to the people involved. For example, a school district owns buildings. But when a new
high school needs to be built, there may not be anyone in management who has experience
building a new school. That purchase situation is a new buy for those involved.
A modified rebuy occurs when a company wants to buy the same type of product it has in
the past but make some modifications to it. Maybe the buyer wants different quantities,
packaging, or delivery, or the product customized slightly differently. For example, your
instructor might have initially adopted this textbook “as is” from its publisher, Unnamed
Publisher, but then decided to customize it later with additional questions, problems, or
content that he or she created or that was available from Unnamed Publisher.
A modified rebuy doesn’t necessarily have to be made with the same seller, however. Your
instructor may have taught this course before, using a different publisher’s book. High
textbook costs, lack of customization, and other factors may have led to dissatisfaction. In
this case, she might visit with some other textbook suppliers and see what they have to
offer. Some buyers routinely solicit bids from other sellers when they want to modify their
purchases in order to get sellers to compete for their business. Likewise, savvy sellers look
for ways to turn straight rebuys into modified buys so they can get a shot at the business.
They do so by regularly visiting with customers and seeing if they have unmet needs or
problems a modified product might solve.
Forces Shaping Organizational Buying Behavior
Environmental Forces
A projected change in business conditions, a technological development, or a new piece of
legislation can drastically alter organizational buying plans. Among the environmental forces
that shape organizational buying behavior are economic, political, legal, and technological
influences. Collectively, such environmental influences define the boundaries within which
buyer-seller relationships develop. Particular attention is given to selected economic and
technological forces that influence buying decisions.
Economic Influences Because of the derived nature of industrial demand, the marketer
must be sensitive to the strength of demand in the ultimate consumer market. The demand
for many industrial products fluctuates more widely than the general economy. Firms that
operate on a global scale must be sensitive to the economic conditions that prevail across
regions. For example, while the United States, western Europe, and Japan may experience
modest increases (for example, 2 or 3 percent) in gross domestic product (GDP) in the years
ahead, rapidly developing economies (RDEs) are projected to grow three or four times as
fast. In addition to China and India, key RDEs include Mexico, Brazil, central and eastern
Europe, and southeast Asia.13 A wealth of political and economic forces dictate the vitality
and growth of an economy. A recent study found that the number of North American
companies purchasing goods and services from China, eastern Europe, and India has
increased sharply in recent years and will continue to rise.14 Best-in-class procurement
organizations are twice as likely as their competitors to emphasize low-cost-country
sourcing strategies.15 Demonstrating this trend, IBM recently moved its procurement
headquarters to Shenzhen, China! The economic environment influences an organization’s
ability and, to a degree, its willingness to buy. However, shifts in general economic
conditions do not affect all sectors of the market evenly. For example, a rise in interest rates
may damage the housing industry (including lumber, cement, and insulation) but may have
minimal effects on industries such as paper, hospital supplies, office products, and soft
drinks. Marketers that serve broad sectors of the organizational market must be particularly
sensitive to the differential effect of selective economic shifts on buying behavior.
Technological Influences Rapidly changing technology can restructure an industry and
dramatically alter organizational buying plans. Notably, the World Wide Web “has forever
changed the way companies and customers (whether they be consumers or other
businesses) buy and sell to each other, learn about each other, and communicate.
The rate of technological change in an industry influences the composition of the decisionmaking unit in the buying organization. As the pace of technological change increases, the
importance of the purchasing manager in the buying process declines. Technical and
engineering personnel tend to be more important when the rate of technological change is
great.
Organizational Forces
An understanding of the buying organization is based on its strategic priorities, the role of
purchasing in the executive hierarchy, and the fi rm’s competitive challenges. Growing
Influence of Purchasing As a rule, the influence of the procurement function is growing.
Why? Globalization is upsetting traditional patterns of competition, and companies are
feeling the squeeze from rising material costs and stiff customer resistance to price
increases. Meanwhile, to enhance efficiency and effectiveness, many firms are outsourcing
some functions that were traditionally performed within the organization. As a result, at
companies around the world, CEOs are counting on the procurement function to keep their
businesses strongly positioned in today’s intensively competitive marketplace.
Strategic Priorities in Purchasing
As the influence of purchasing grows, chief procurement officers feel the heat of the
spotlight, so they are pursuing an ambitious set of strategic priorities (Table 3.1). They seek
cost savings but realize that such savings are only part of what procurement can contribute
to the bottom line. More importantly, however, procurement executives are turning to a
more strategic question: How can procurement become a stronger competitive weapon?
Here attention centers on corporate goals and how procurement can help their internal
customers (that is, other business functions) achieve these goals. As a direct participant in
the strategy process, procurement managers are giving increased emphasis to suppliers’
capabilities, exploring new areas where a strategic supplier can add value to the firm’s
product or service offerings. Robert K. Harlan, director of e-procurement at Motorola,
captures the idea: For new product development, “we bring many suppliers in early to
design, simplify, and implement new technologies.”23 Leading-edge purchasing
organizations have also learned that the “best value chain wins,” so they are building closer
relationships with a carefully chosen set of strategic suppliers and aligning the activities of
the supply chain with customers’ needs.24 For example, Honda of America reduced the cost
of the Accord’s purchased content by setting cost targets for each component—engine,
chassis, and so on.25 Then, purchasing managers worked with global suppliers to
understand the cost structure of each component, observe how it is manufactured, and
identify ways to reduce costs, add value, or do both.
Offer Strategic Solutions As purchasing assumes a more strategic role, the business
marketer must understand the competitive realities of the customer’s business and develop
a value proposition—products, services, ideas—that advance its performance goals. For
example, IBM centers attention on customer solutions—how its information technology and
assorted services can improve the effi ciency of a retailer’s operations or advance the
customer service levels of a hotel chain. Alternatively, a supplier to Hewlett-Packard will
strike a responsive chord with executives by offering a new component that will increase
the performance or lower the cost of its inkjet printers. To provide such customer solutions,
the business marketer needs an intimate understanding of the opportunities and threats
that the customer confronts.
Organizational Positioning of Purchasing
As purchasing moves from a transaction-based support role and assumes a more prominent
strategic spot at the executive level, many leading fi rms are centralizing the procurement
function. An organization that centralizes procurement decisions approaches purchasing
differently than a company in which purchasing decisions are made at individual user
locations. When purchasing is centralized, a separate organizational unit has authority for
purchases at a regional, divisional, or headquarters level. For example, by centralizing
procurement, American Express realized nearly $600 million in purchasing savings in the
first three years.26 IBM, Sara Lee, 3M, Hewlett-Packard, Wendy’s International, and Citicorp
are among other corporations that emphasize centralized procurement. A marketer who is
sensitive to organizational influences can more accurately map the decision-making process,
isolate buying influentials, identify salient buying criteria, and target marketing strategy for
both centralized, as well as decentralized, organizations.
Centralization of Procurement: Contributing Factors Several factors contribute to the trend
toward centralizing purchasing. First, centralization can better integrate purchasing strategy
with corporate strategy, and e-procurement software tools now enable managers to
monitor and analyze corporate spending data in minute detail. Importantly, e-procurement
software from fi rms such as Ariba, Inc. (http://www.ariba.com) now provides buyers with a
rich set of new tools to track and manage spending across the entire enterprise. For
example, the corporate procurement group at Walt Disney Company manages spending on
all items common to the entertainment firm’s four business units: media networks, parks
and resorts, studio entertainment, and consumer products. These items include such
categories as information technology, telecommunications, construction services, and
insurance.
Second, an organization with multiple plant or office locations can often cut costs by pooling
common requirements. Before Motorola centralized its procurement function, it had 65
different software agreements globally with one supplier for the same software license.30
By negotiating a global agreement that covers all Motorola operations around the world,
the centralized procurement staff saved more than $40 million, or about 50 percent of what
the firm had been paying for the 65 different agreements.
Third, the nature of the supply environment also can determine whether purchasing is
centralized. If a few large sellers dominate the supply environment, centralized buying may
be particularly useful in securing favorable terms and proper service. If the supply industry
consists of many small fi rms, each covering limited geographical areas, decentralized
purchasing may achieve better support.
Centralization versus Decentralization Centralized and decentralized procurement differ
substantially.31 Centralization leads to specialization. Purchasing specialists for selected
items develop comprehensive knowledge of supply and demand conditions, vendor options,
supplier cost factors, and other relevant information. This knowledge, and the significant
volume of business that specialists control, enhances their buying strength and supplier
options. The priority given to selected buying criteria is also influenced by centralization or
decentralization. By identifying the buyer’s organizational domain, the marketer can
generally identify the purchasing manager’s objectives. Centralized purchasing units place
more weight on strategic considerations such as long-term supply availability and the
development of a healthy supplier complex. Decentralized buyers may emphasize more
tactical concerns such as short-term cost efficiency and profit considerations.
Organizational buying behavior is greatly influenced by the monitoring system that
measures the performance of the unit. Personal selling skills and the brand preferences of
users influence purchasing decisions more at user locations than at centralized buying
locations. At user locations, E. Raymond Corey points out that “engineers and other
technical personnel, in particular, are prone to be specific in their preferences, while
nonspecialized, nontechnical buyers have neither the technical expertise nor the status to
challenge them,”32 as can purchasing specialists at central locations. Differing priorities
between central buyers and local users often lead to conflict. In stimulating demand at the
user level, the marketer should assess the potential for conflict and attempt to develop a
strategy to resolve any differences between the two organizational units.
Strategy Response The organization of the marketer’s selling strategy should parallel the
organization of the purchasing function of key accounts. To avoid disjointed selling activities
and internal confl ict in the sales organization, and to serve the special needs of important
customers, many business marketers have developed key account management programs
to establish a close working relationship that, according to Benson Shapiro and Rowland
Moriarty, “cuts across multiple levels, functions, and operating units in both the buying and
selling organizations.”33 For example, IBM assigns a dedicated account executive to work
with large customers, like Boeing or State Farm Insurance. Thus, the trend toward the
centralization of procurement by buyers has been matched by the development of key
account management programs by sellers. For large, multinational organizations that have
the structure, processes, and information systems to centrally coordinate purchases on a
global scale, the customer might be considered for global account management status. A
global account management program treats a customer’s worldwide operations as one
integrated account, with coherent terms for pricing, service, and product specifications
Group Forces
Multiple buying influences and group forces are critical in organizational buying decisions.
The organizational buying process typically involves a complex set of smaller decisions made
or influenced by several individuals. The degree of involvement of group members varies
from routine rebuys, in which the purchasing agent simply takes into account the
preferences of others, to complex new-task buying situations, in which a group plays an
active role. The industrial salesperson must address three questions. Which organizational
members take part in the buying process? What is each member’s relative influence in the
decision? What criteria are important to each member in evaluating prospective suppliers?
The salesperson who can correctly answer these questions is ideally prepared to meet the
needs of a buying organization and has a high probability of becoming the chosen supplier.
The Buying Center
The concept of the buying center provides rich insights into the role of group forces in
organizational buying behavior. The buying center consists of individuals who participate in
the purchasing decision and share the goals and risks arising from the decision. The size of
the buying center varies, but an average buying center includes more than 4 persons per
purchase; the number of people involved in all stages of one purchase may be as many as
20.
The composition of the buying center may change from one purchasing situation to another
and is not prescribed by the organizational chart. A buying group evolves during the
purchasing process in response to the information requirements of the specific situation.
Because organizational buying is a process rather than an isolated act, different individuals
are important to the process at different times.37 A design engineer may exert significant
influence early in the process when product specifications are being established; others may
assume a more dominant role in later phases. A salesperson must defi ne the buying
situation and the information requirements from the organization’s perspective in order to
anticipate the size and composition of the buying center. Again, the composition of the
buying center evolves during the purchasing process, varies from fi rm to fi rm, and varies
from one purchasing situation to another.
Isolating the Buying Situation Defining the buying situation and determining whether the
firm is in the early or later stages of the procurement decision-making process are important
first steps in defining the buying center. The buying center for a new-task buying situation in
the not-for-profit market is presented in Table 3.2. The product, intensive-care monitoring
systems, is complex and costly. Buying center members are drawn from five functional
areas, each participating to varying degrees in the process. A marketer who concentrated
exclusively on the purchasing function would be overlooking key buying influentials.
Predicting Composition A marketer can also predict the composition of the buying center by
projecting the effect of the industrial product on various functional areas in the
organization. If the procurement decision will affect the marketability of a firm’s product
(for example, product design, price), the marketing department will be active in the process.
Engineering will be influential in decisions about new capital equipment, materials, and
components; setting specifications; defining product performance requirements; and
qualifying potential vendors. Manufacturing executives will be included for procurement
decisions that affect the production mechanism (for example, materials or parts used in
production). When procurement decisions involve a substantial economic commitment or
impinge on strategic or policy matters, top management will have considerable influence.
Buying Center Influence Members of the buying center assume different roles throughout
the procurement process. Frederick Webster Jr. and Yoram Wind have given the following
labels to each of these roles: users, influencers, buyers, deciders, and gatekeepers. As the
role name implies, users are the personnel who use the product in question. Users may
have anywhere from inconsequential to extremely important influence on the purchase
decision. In some cases, the users initiate the purchase action by requesting the product.
They may even develop the product specifications.
Gatekeepers control information to be reviewed by other members of the buying center.
They may do so by disseminating printed information, such as advertisements, or by
controlling which salesperson speaks to which individuals in the buying center. To illustrate,
the purchasing agent might perform this screening role by opening the gate to the buying
center for some sales personnel and closing it to others.
Influencers affect the purchasing decision by supplying information for the evaluation of
alternatives or by setting buying specifications. Typically, those in technical departments,
such as engineering, quality control, and R&D, have significant influence on the purchase
decision. Sometimes, outside individuals can assume this role.
Deciders actually make the buying decision, whether or not they have the formal authority
to do so. The identity of the decider is the most diffi cult role to determine: Buyers may have
formal authority to buy, but the president of the fi rm may actually make the decision. A
decider could be a design engineer who develops a set of specifications that only one
vendor can meet.
The buyer has formal authority to select a supplier and implement all procedures connected
with securing the product. More powerful members of the organization often usurp the
power of the buyer. The buyer’s role is often assumed by the purchasing agent, who
executes the administrative functions associated with a purchase order.
One person could assume all roles, or separate individuals could assume different buying
roles. To illustrate, as users, personnel from marketing, accounting, purchasing, and
production may all have a stake in which information technology system is selected. Thus,
the buying center can be a very complex organizational phenomenon.
A buying centre is comprised of all those individuals and groups who participate in the
buying decision-making process, who share some common goals and the risks arising from
these decisions. Before identifying the individuals and groups involved in the buying
decision process, a marketer must understand the roles of buying centre members.
Understanding the buying centre roles helps industrial marketers to develop an effective
promotion strategy.
Within any organisation, the buying centre will vary in the number and type of participants
for different classes of products.
But on an average a buying center of an organisation has the following seven members or
a group of members who play these roles:
1. Initiators:
Usually the need for a product/item and in turn a supplier arises from the users. But there
can be occasions when the top management, maintenance or the engineering department
or any such recognise or feel the need. These people who “initiate” or start the buying
process are called initiators.
2. Users:
Under this category come users of various products. If they are technically sound like the
R&D, engineering who can also communicate well. They play a vital role in the buying
process. They also act as initiators.
3. Buyers:
They are people who have formal authority to select the supplier and arrange the purchase
terms. They play a very important role in selecting vendors and negotiating and sometimes
help to shape the product specifications.
The major roles or responsibilities of buyers are obtaining proposals or quotes, evaluating
them and selecting the supplier, negotiating the terms and conditions, issuing of purchase
orders, follow up and keeping track of deliveries. Many of these processes are automated
now with the use of computers to save time and money.
4. Influencers:
Technical personnel, experts and consultants and qualified engineers play the role of
influencers by drawing specifications of products. They are, simply put, people in the
organisation who influence the buying decision. It can also be the top management when
the cost involved is high and benefits long term. Influencers provide information for
strategically evaluating alternatives.
5. Deciders:
Among the members, the marketing person must be aware of the deciders in the
organisation and try to reach them and maintain contacts with them. The organisational
formal structure might be deceptive and the decision might not even be taken in the
purchasing department.
Generally, for routine purchases, the purchase executive may be the decider. But for high
value and technically complex products, senior executives are the deciders. People who
decide on product requirements/specifications and the suppliers are deciders.
6. Approvers:
People who authorise the proposed actions of deciders or buyers are approvers. They could
also be personnel from top management or finance department or the users.
7. Gate Keepers:
A gatekeeper is like a filter of information. He is the one the marketer has to pass through
before he reaches the decision makers.
Understanding the role of the gatekeeper is critical in the development of industrial
marketing strategies and the salesperson’s approach. They allow only that information
favourable to their opinion to flow to the decision makers.
By being closest to the action, purchasing managers or those persons involved in a buying
centre may act as gatekeepers. They are the people whom our industrial marketer would
first get in touch with. Hence, it so happens that information is usually routed through them.
Meaning of Buying Center
Buying center is the decision making unit of a buying organization. It is composed of all the
individuals and units that participate in the business decision-making process. The buying
center includes all members of the organization who play a role in the purchase decision
process. They share common goals and the risks arising from the decisions. The members
includes the actual users of the product or service, those who make the buying decision,
those who influence the buying decision, those who do the actual buying and those who
control buying information.
The members of the buying center or decision-making unit of the organization fulfill various
functions and often engage in complex interactions, both among themselves and with
outsiders such as salespeople and suppliers.
Types of Buying Center
The buying center includes all members of the organization who play any of seven roles in
the purchase decision process.
1. Initiators: Initiators are those people who request that something to be purchased.
They may be users or others in the organization.
2. Users: Users are those people who will use the product or services. They are socalled because the work they do in the organization is directly affected by the
purchase under consideration. They can range from trainees to executives.
3. Influencers: Influencers are the people who influence the buying decision. They help
to shape criteria by providing useful information. In the complex world of modern
business, technical and legal experts often influence buying decisions, although they
may have no direct connection with the buying process itself.
4. Deciders: Deciders are the people who decide on product requirements or on
suppliers. They have the final authority over buying decisions. In some cases, they
buyer may also be that decider, but in most cases the two roles are performed by
separate individuals. For example, engineers have the final say in deciding with
suppliers of raw materials to choose.
5. Approvers: Approvers are the people who authorize the proposed actions of
deciders or buyers.
6. Buyers: Buyers are those people who have formal authority to select the supplier
and arrange the purchase items. They can range from the chief of the company to its
purchasing agent. They contact suppliers and negotiate business transactions.
Buyers often have the power to choose suppliers or to develop lists of suitable
suppliers.
7. Gatekeepers: Gatekeepers are those people who have the power to prevent sellers
or information from searching members of the buying center. They can be
purchasing agents, salespersons, or secretaries. They control the information flowing
into the buying center and they are often the members of the organization who
contact suppliers or vendors to solicit a quote for their products.
Individual Forces
Individuals, not organizations, make buying decisions. Each member of the buying center
has a unique personality, a particular set of learned experiences, a specified organizational
function, and a perception of how best to achieve both personal and organizational goals.
Importantly, research confirms that organizational members who perceive that they have an
important personal stake in the buying decision participate more forcefully in the decision
process than their colleagues.46 To understand the organizational buyer, the marketer
should be aware of individual perceptions of the buying situation.
Differing Evaluative Criteria Evaluative criteria are specifications that organizational buyers
use to compare alternative industrial products and services; however, these may conflict.
Industrial product users generally value prompt delivery and efficient servicing; engineering
values product quality, standardization, and testing; and purchasing assigns the most
importance to maximum price advantage and economy in shipping and forwarding.47
Product perceptions and evaluative criteria differ among organizational decision makers as a
result of differences in their educational backgrounds, their exposure to different types of
information from different sources, the way they interpret and retain relevant information
(perceptual distortion), and their level of satisfaction with past purchases.48 Engineers have
an educational background different from that of plant managers or purchasing agents:
They are exposed to different journals, attend different conferences, and possess different
professional goals and values. A sales presentation that is effective with purchasing may be
entirely off the mark with engineering.
Responsive Marketing Strategy A marketer who is sensitive to differences in the product
perceptions and evaluative criteria of individual buying center members is well equipped to
prepare a responsive marketing strategy. To illustrate, a research study examined the
industrial adoption of solar air-conditioning systems and identified the criteria important to
key decision makers.49 Buying center participants for this purchase typically include
production engineers, heating and air-conditioning (HVAC) consultants, and top managers.
The study revealed that marketing communications directed at production engineers should
center on operating costs and energy savings; HVAC consultants should be addressed
concerning noise level and initial cost of the system; and top managers are most interested
in whether the technology is state-of-the-art. Knowing the criteria of key buying center
participants has significant operational value to the marketer when designing new products
and when developing and targeting advertising and personal selling presentations.
Information Processing Volumes of information flow into every organization through directmail advertising, the Internet, journal advertising, trade news, word of mouth, and personal
sales presentations. What an individual organizational buyer chooses to pay attention to,
comprehend, and retain has an important bearing on procurement decisions.
Selective Processes Information processing is generally encompassed in the broader term
cognition, which U. Neisser defi nes as “all the processes by which the sensory input is
transformed, reduced, elaborated, stored, recovered, and used.” Important to an
individual’s cognitive structure are the processes of selective exposure, attention,
perception, and retention.
1. Selective exposure. Individuals tend to accept communication messages consistent with
their existing attitudes and beliefs. For this reason, a purchasing agent chooses to talk to
some salespersons and not to others.
2. Selective attention. Individuals fi lter or screen incoming stimuli to admit only certain ones
to cognition. Thus, an organizational buyer is more likely to notice a trade advertisement
that is consistent with his or her needs and values.
3. Selective perception. Individuals tend to interpret stimuli in terms of their existing
attitudes and beliefs. This explains why organizational buyers may modify or distort a
salesperson’s message in order to make it more consistent with their predispositions toward
the company.
4. Selective retention. Individuals tend to recall only information pertinent to their own
needs and dispositions. An organizational buyer may retain information concerning a
particular brand because it matches his or her criteria.
Each of these selective processes infl uences the way an individual decision maker responds
to marketing stimuli. Because the procurement process often spans several months and
because the marketer’s contact with the buying organization is infrequent, marketing
communications must be carefully designed and targeted.51 Key decision makers “tune
out” or immediately forget poorly conceived messages. They retain messages they deem
important to achieving goals.
Risk-Reduction Strategies Individuals are motivated by a strong desire to reduce risk in
purchase decisions. Perceived risk includes two components: (1) uncertainty about the
outcome of a decision and (2) the magnitude of consequences from making the wrong
choice. Research highlights the importance of perceived risk and the purchase type in
shaping the structure of the decision-making unit.52 Individual decision making is likely to
occur in organizational buying for straight rebuys and for modified rebuys when the
perceived risk is low. In these situations, the purchasing agent may initiate action.53
Modified rebuys of higher risk and new tasks seem to spawn a group structure.
Major Influences On Business Buyers
Business buyers are subject to many influences when they make their buying decisions.
Economy is one of the major influences in some marketers’ perception. They think buyers
will favor the supplier who offers the lowest price rate or the best product or the most
service. They focus on offering strong economic benefits to buyers. However, business
buyers actually respond to both economic and personal factors.
Today, most B-to-B marketers recognize that emotions play a vital role in business buying
decisions. For example, you might expect that an advertisement promoting large trucks to
corporate fleet buyers would stress objective performance, technical, and economic factors.
Though, an ad for Volvo heavy-duty trucks shows two drivers arm-wrestling and claims, “it
solves all your fleet problems, except who gets to drive.”
There are many factors which actually influence on business buyers:

Environmental Factors
Business buyers are influenced heavily by factors in the current and expected economic
environment, such as the level of primary demand, the economic outlook, and the cost of
the money. When economic uncertainty rises, business buyers cut back their new
investment and attempt to utilize their inventories. There are many other factors includes in
environment factors, these are economic development, supply conditions, technological
changes, political and regulatory developments, competitive development and culture and
customs. These have impact on business market directly or indirectly.

Organizational Factors
All buying organizations have their own objectives, policies, procedures, structures, and
systems. The business marketers must understand all these factors well because so many
queries are connected to these factors. Like how many people are involved in buying
decisions? Who they are? What are the evaluation criteria? What are the company’s policies
and limitation for their buyers?

Interpersonal Factors
Usually buying center includes many participants, who influence each other. So,
interpersonal factors also influence the business buying process. Though, it is quite difficult
to assess such interpersonal factors and group dynamics. Managers do not wear labels that
differentiate them as important or unimportant buying participants, and powerful
influencers are often buried behind the scene. Interpersonal factors may include authority,
status, empathy, and persuasiveness of participants in business buying process.

Individual Factors
Individual has a vital role in business buying process. Each participant in the business
buying-decision process brings in personal motives, preferences, and perceptions. But these
individual factors are affected by personal characteristics of each person, such as, age,
education, income, professional identification, their job status, personality, and attitudes
towards risk. All buyers have different buying style.
So these are all the factors that influence business buyers. Marketers have to keep all these
factors in their mind while making marketing plans or products or services.
Factors affecting Business Buying Behaviour
Organisational purchase decisions are influenced by the firm’s external and internal
variables.
Four major factors affecting business buying behaviour decisions namely:
1. Environmental Variables
2. Organisational Variables
3. Interpersonal Variables
4. Individual Variables
Factors affecting Business Buying Behaviour
Environmental Variables
Among the various environmental variables, the influence of the state of the economy and
other economic factors including government policy is the most important variable in
organisational buyer behaviour.
Organisational Variables
Internal variables like culture and environment of an enterprise affect buying decisions.
Every organisation follows systems and procedures for business buying.
These systems and procedures have developed over a period of time reflecting the culture,
policies and practices, processes, structures and objectives of the enterprise.
Interpersonal Variables
The marketer needs to know who exerts the maximum authority and who would be able to
persuade others to agree with his viewpoint.
Knowledge of group dynamics helps the marketer evolve his strategy on selling to the
buying centre. The buying centre is a collection of different kinds of participants with
different attitude levels and power dynamics among each other.
Individual Variables
People carry their motivations, perceptions, market knowledge and preferences while
making purchase decisions.
Decision-making is also influenced by demographic variables like age, income, occupation,
position in the company, and perception of risk involved in decision-making. These factors
have a direct bearing on organisational buyer’s decisions.
Topic 3: Customer relationship management strategies for business markets
Key concepts
This topic includes:

customer relationship management

customer centricity

relationship marketing

customer profitability.
Topic outcomes
By the end of this topic, you should be able to:

explain the concept of customer centricity

explain the procedures for designing effective customer relationship programmes

identify the factors that influence profitability of individual customers.
The key issues in relationships between buyers and sellers.





Trust versus formality refers to the degree to which the relationship is bounded by
contractual agreements. This issue can be affected by culture in the global context:
most negotiators are less likely to trust foreigners than they are to trust people from
their own cultural background, but also different cultures have different attitudes
toward the role of trust in business. This means that a written contract is not the
whole story and may prove to be unenforceable. In Japan, written contracts are
enforceable, but only after expensive and prolonged litigation, which means that
written contracts are not regarded as highly as good relationships of trust. In
Germany and the United States, the written contract forms the basis of the
agreement, so business relationships tend to be more formal.
Power and dependence refers to the degree to which either party can make life
difficult for the other party. If one firm is heavily dependent on the other, the second
firm can dictate the terms of the relationship
The complexity of the relationship is likely to be a function of the closeness of the
relationship. The more points of interaction that exist between the buyer and the
seller, the more complex the relationship becomes, but at the same time the
relationship also becomes closer
Supplier relations concern the coordination of suppliers with each other, and the
relationships that may develop therefrom.
Conflict and cooperation are the opposite ends of a spectrum. Conflict is inevitable
when companies with different aims, backgrounds, and agendas attempt to work


together: if the conflict is resolved in a reasonable manner, cooperation is the end
result.
A longer-term result of conflict resolution is adaptation. As the relationship
develops, the parties will need to adapt their business practices in order to
cooperate better
A relationship might be considered a long-term investment. Each party will need to
expend effort that is not immediately rewarded in order to enjoy longer-term
benefits.
Within this complex relationship, there will be distinct interactions between the parties:
these are called episodes (Hakansson and Gadde, 1992). The way each episode is handled
will depend largely on the past history between the organizations (if any). If the parties
know and trust each other, the episode will be handled in a different way from the way it
would be handled if the parties have no previous relationship, or have reasons for mistrust.
The possible cases for handling episodes can be broadly categorized as follows
1 Simple episode with no previous relationship. These episodes would involve simple
purchases, often in small quantities, or regular purchases of basic raw materials that are of a
fairly standard nature (for example, sales representatives buying petrol).
2 Simple episode in a well-developed relationship. Here, the relationship facilitates the
process: for example, a firm’s relationship with its bankers may mean that borrowing
money becomes much simpler because the firm already has a track record.
3 Complex episode with no previous relationship. This type of transaction involves the most
negotiation, because complexity in itself generates uncertainty and this is exacerbated by
the unknown qualities of the other party to the transaction (see Chapter 1). Often, these
purchases are one-offs: for example, a power generating company may only buy one
hydroelectric dam in its entire existence, so there is no opportunity to build a long-term
relationship with the civil engineers who build the dam.
4 Complex episodes in well-developed relationships mean that many people from both
organizations will need to interrelate (as in the case of the insurance company and the IT
supplier mentioned earlier). Again, the previous relationship will inform the progress of
events, and the nature of the interaction.
Investing in a long-term relationship will therefore almost certainly pay dividends in
reducing transaction costs, since there is little or no time wasted on learning about the
other party. It also reduces risk by reducing complexity.
Relationships clearly have at least some of the characteristics of investments. In the early
stages of the relationship, the main costs of establishing the relationship will be most
evident. In the first few years, expenditures are likely to exceed revenues for the selling
firm. In one study, this situation prevailed for the first four years of the relationship, and the
selling firm only moved into profit in the relationship after seven years. This means that it is
far more profitable to retain and improve existing relationships than it is to seek out new
ones, and it is well known that firms that expand too rapidly frequently encounter cash flow
problems. From the purchasing firm’s viewpoint, there are costs attached to dealing with a
new supplier, particularly when the purchase is complex, whereas savings are likely only to
accrue over long periods
One of the major advantages of establishing a relationship is the possibility for making
adaptations. Classical economics assumes that all products are identical, but, of course, this
is not the case in the real world, and firms adapt their offerings in order to accommodate
purchasers. To a lesser extent, purchasers sometimes adapt their requirements in order to
take advantage of special offers from suppliers. An example of this is the Land Rover,
originally designed in the late 1940s as a utility vehicle for farmers and landowners. The
vehicle was designed around the availability of aluminum, which was then in oversupply in
comparison to steel, which was strictly rationed. The rust-free qualities of aluminum quickly
became a major selling point for the vehicle, but this was a side effect of the Rover Car
Company’s ingenuity in making use of a plentiful material to replace a scarce one.
The result of this is that many long-term relationships between firms rely much more
strongly on mutual trust than on formality. This approach is strongly evidenced in Japanese
firms, where contracts are regarded as an adjunct to the business agreement rather than as
its main pillar: Japanese executives spend a great deal of time establishing informal
relationships with suppliers and purchasers, and try to create an atmosphere of trust before
being prepared to do business. This can be frustrating for American executives, and to some
Northern European executives, who are used to doing business at a much faster pace and
even (in the case of Americans especially) involving their legal advisers from the outset.
Partly this difference in attitude is rooted in the Japanese culture, which is strong on issues
such as duty and honesty, and partly it is a result of the Japanese legal system, which
actively discourages corporate lawsuits by making them expensive and extremely longdrawn- out.
Power and dependence are important aspects of buyer–supplier relationships. The most
important supplier relationships are likely to involve large volumes of goods or materials,
but may involve relatively low volumes of key supplies. From a purchaser’s viewpoint,
establishing a long-term relationship with a supplier carries the risk of becoming overdependent on that supplier. Spreading the risk by using several suppliers means diluting the
advantages of establishing a relationship.
Power-dependence relationships are seldom symmetrical. In many cases the purchaser will
be holding most of the power, but in some cases the reverse is true – suppliers may even
band together in order to exercise power over purchasers, as is the case with OPEC, the
Organization of Petroleum Exporting Countries. OPEC operates by controlling the supply of
oil to the rest of the world, and was originally set up (at the instigation of Venezuela) to
redress the power balance between the largely developing world oil producers and the
industrialized countries who are the main users of oil. Sellers may have more power during a
boom, when supplies may be limited, whereas buyers have more power in a recession.
Abuse of the situation may very well lead to reprisals when the positions are reversed, of
course, so maintaining a long-term relationship may rely on looking after good customers
(or suppliers) when times are hard.
Supplier Relationship Management (SRM) forms a key part of the procurement cycle. It
could be argued that a contract should merely be agreed upon and the rest will take care of
itself. In reality, this is rarely the case. A contract simply states what should be done.
Supplier relationship management is about making it happen.
For many authors and academics, the sole factor in supplier relationship management is
communication. Although effective communication is integral to commercial relationships,
it forms only part of the overall approach to supplier relationship management. There are a
number of other rules to consider when examining the relationship from a buyer / supplier
viewpoint.
1. Communication. This is key to successful commercial relationships. The point being
that it must be effective communication. Expressing your thought clearly and
precisely using the most appropriate channel of communication is a good start
combined with good listening skills. For the communication to be effective the
message must be understood and clearly signalled as such. How the message is
transmitted, received and interference to the message would all need to be taken
into account as described in the Shannon-Weaver communications model. Further
considerations from the viewpoint of supplier relationship management would be
the time, place and frequency of communication.
2. Respect. You will succeed more in a relationship where you respect the other party
and they respect you. Suppliers want to work with buyers who demonstrate integrity
and appreciate them for the value-add they provide to the buying organisation.
Respect helps to build trust and with that trust comes endless possibilities to
increase performance through innovation and problem solving. This can only be
possible where both parties understand their contribution to the agreement and
trust one another.
3. Openness. To gain respect is important that both parties are open with each other.
Sharing information including results and problems shows a willingness to work
together to achieve the objectives of the agreement. Not only should the
communication be open, it should also be honest. If there is a problem it should be
stated. If the problem is on the buyers side they must admit to it and find a solution.
The same would be expected of the supplier.
4. Fairness. Building trust through respect and openness reaps benefits. However, this
can be countermanded where one or both parties are not satisfied with the
relationship. If the supplier feels that they are not being treated fairly they may be
unhappy with the relationship and not perform to the requirements of the
agreement. If the buyer feels that they are being treated unfairly they may resent
having the agreement with the supplier and look to source elsewhere. This is not to
say that either party should roll over for every requirement of the other. Fair means
being treated reasonably based on the requirements of the contract and
relationship.
5. Terms. Specific to supplier relationship management is the fact that the relationship
is based around a contractual agreement. We have already identified that the
contract states what should be done. This also forms the basis for how the
relationship will be monitored. The contractual terms will state what each party has
agreed to do. This may include prices, delivery and quantities. During the lifetime of
the contract, the buyer will monitor these responsibilities to ensure the agreed
performance is maintained. Regular communication with mutual respect, openness
and fairness will ensure effective communication keeps the agreement on track.
Thus merging contract management with supplier relationship management.
What is the buyer and supplier relationship?
The buyer and supplier relationship is important for collaborative and effective supply chain,
ensuring that your department runs successfully. A positive buyer and supplier relationship
is extremely important to build a long term working relationship that’s friendly, trustworthy
and gets stronger through effective communication. When the buyer and the supplier are
both transparent about short and long term goals, each party, in turn, can help each other
to achieve these goals through a mutually beneficial relationship. Getting to know your
buyers and suppliers on a personal level, outside of work, will help you to build trust and
grow a long term collaborative buyer seller relationship. However, these relationships can
take time to build and won’t happen overnight.
What are the benefits of buyer supplier relationship?
1. Effective communication and trust
For a mutually beneficial buyer and supplier relationship, communication is important for
the procurement department to run smoothly. Open, honest, two-way communication not
only helps each party to understand the other businesses needs but helps to build trust.
Trust leads to a healthy and collaborative buyer seller relationship, which can be beneficial
for each party, such as sharing industry knowledge or discussing seasonal peaks and troughs
in demand.
2. Reduced costs
A positive relationship can lead to reducing procurement costs, as once the relationship has
been built, the supplier may favour your business and offer you incentives to ensure that
you stay as a customer. For example, a supplier may offer your business a discounted rate
on stock or a reduced delivery cost, helping the procurement department to work closer to
their budget.
3. Increased efficiency
A key benefit of collaborative buyer seller relationships is the opportunity for increased
efficiency, as both parties come to understand the other businesses needs and how they
work. This means both parties may be able to help each other through reduced lead times,
reduce waste or come up with a solution to improve business operations.
Having built a strong buyer and supplier relationship, your supplier may look for advice by
discussing their concerns with you; such as rising fuel and transportation costs. In response,
your department can suggest fuel cards for their fleet, to reduce travel costs, monitor their
fleet’s fuel usage and as fuel cards are a cashless option for their drivers, this reduces time
spent on administration. As you’ve helped the supplier, in turn, they should help you out.
4. Streamlined supply chain
For a more efficient buyer and supplier relationship, both parties want to get to the position
where you’re comfortable enough with each other to be open and honest if there’s an
opportunity that each of you could help each other with. In turn, this streamlines the supply
chain; for instance, there may be an opportunity to outsource tasks to suppliers such as
taking inventory levels.
What are the challenges facing buyer supplier relationship?
1. Preferred methods of communication
For a strong buyer and supplier relationship, communication is key. However, collaborative
buyer seller relationships aren’t always easy to create. Between the procurement
department and the buyers and suppliers, you will all need to find common ground for the
best methods of communication. Your department may find multiple emails a day easy to
deal with. In contrast, your buyers and suppliers may prefer communication once a week via
email, telephone or video call software such as Zoom or Google Hangout. A situation of
over-communication can deteriorate working relationships, so it’s important to find the
right balance.
2. Lack of transparency
If the buyer and supplier relationship isn’t open and transparent, this can lead to a
misunderstanding of business needs. If the correct information isn’t shared between each
party, this can mean that vital business opportunities could be missed.
3. Supply chain disruptions
External factors outside of your control can lead to problems in the supply chain. Whether
that’s a late delivery or a dip in the quality of the good or service; these are disruptions that
the procurement department haven’t prepared for. These may be rare occurrences;
however, they can put a strain on the buyer and supplier relationship and lead to conflict
between the procurement department and your buyers and suppliers.
4. Mismatching business culture
A business’ culture is at the heart of business operations. Hence, for collaborative buyer
seller relationships, both organisations need to have cultures which align and not conflict
with one another. No matter how hard either party tries to make a relationship work,
sometimes buyers and sellers don’t align, and it’s best to explore the market for an
alternative buyer or supplier.
7 Key Supplier Relationships Management Challenges – and How to Tackle Them
Healthy relationships with suppliers can decide a business’s success, especially as the world
navigates the global health event and recent geopolitical tensions. However, while supplier
relationship management models are essential, implementing them properly is a daunting
task.
While business leaders continually monitor their in-house operations with a sharp eye,
dealing with third parties comes with its own obstacles. They have to encounter some
unknown voids regularly. Whether companies are sourcing from dozens or even hundreds
of vendors, they must address the following challenges associated with the supplier
relationship management process:
Inept Buyer-seller Communication
Communication is necessary for several enterprise aspects. Unfortunately, as buyers, many
companies have become significantly cryptic when it comes to sharing the amount with
suppliers. This has created mistrust between sellers and buyers, straining mutual
collaboration. Besides, suppliers might be unable to fulfill organizations’ needs if they do not
understand their mission-critical goals.
Luckily, technology can help sustain supplier-buyer collaboration. Companies can use eprocurement tools to report and extract data. Then, they can transfer the data to other
supplier relationship management tools, where it is accessible to both parties.
Mitigating Supplier-related Risks
Organizations face supply chain risks, particularly during peak shipping seasons, as the
pressure to meet consumer and delivery expectations without additional expenses surges.
These risks and their accompanying uncertainty adversely impact supplier-customer
relationship management.
With AI-based data collection, procurement teams can segment suppliers by measuring the
risk categories – financial, credit, and cyber. After detecting potential supplier-associated
threats, companies can determine how to utilize each vendor and monitor their online and
regulatory behavior round the clock.
Ticking Regulatory Checkboxes
Ensuring that suppliers tick compliance requirements for factors, including environmental
controls, product ingredients, and production standards, is a critical barrier between
businesses and suppliers. Moreover, monitoring compliance becomes even more
burdensome and complicated if the suppliers are scattered across geographies. To address
this, organizations must maintain a close collaboration with vendors to ensure they meet
the service level agreements (SLA).
Contract Conflicts
Inking a biased deal that does not align with the needs of both buyers and suppliers can
result in unnecessary issues. Supplier relationship management in procurement tends to
benefit all the concerned parties. However, insufficient alignment between organizations
and suppliers can be devastating if the buying company wants to collaborate with suppliers
working to exploit customers.
Some enterprises approach supply chains with different methodologies and mindsets. To
avoid conflicts over contracts, the procurement teams, along with other corporate divisions
and the suppliers, must discuss and define a clear vision with measurable objectives.
Over Reliance on One Supplier
Suppliers work with multiple companies at once. Hence, they might cross the delivery
deadline due to the unavailability of the required products or services (demand surpasses
supply). Such delayed deliveries cripple buyer-seller relationships. In these situations,
predicting a company’s critical or routine needs help implement supplier relationship
management strategies smoothly.
Focusing only on Cost Efficiency
Companies’ procurement teams have always been focused on getting the best deal possible
from the suppliers they pick instead of strengthening supplier ties. They look for significantly
improved results to show up in their annual reviews.
Earlier, many procurement professionals were trained to close deals with suppliers offering
budget-friendly services. Today, the focus has shifted to maximizing the business value of
every facet of supplier-buyer partnership. Besides, various other corporate elements
deserve greater attention than suppliers offering business owners a 3-5% discount.
Managing Inventory
Companies focusing on supplier relationship management benefits and efficiencies can
often underbuy or overbuy. While these are not big-dollar goods, this is about linking
manufacturing goals to supply chain management.
Organizations must connect supplier relationship management strategies to inventory
monitoring and constantly review that data. After establishing a healthy relationship with
suppliers, the supplier might assist the company with offloading outdated inventory or
inform about stockout risks.
The unhelpful idealisation of collaboration
The focus on collaboration has increased in the past decade due to a shift in the diversity
and interdependency of the workplace, supported by globalisation and technological
advancements. The investment in collaboration at work is supported by a growing body of
evidence to show how the way people work together makes a difference, not only to
business performance but also to culture and people’s experiences of organisations and
society. The problem is, however, that there is a general idealisation of collaboration, it is
often seen as an achievable, all-harmonious, and peaceful state; where everyone gets on
well together, enjoys their work, and achieves their goals. Additionally, it is often
understood that by collaborating well you are going to do good work, yet it’s important to
remember, people can collaborate excellently and still do some pretty bad things! By
idealising collaboration we are risking overlooking the more messy, complex reality of
working with others.
The damning of conflict
Like with collaboration, there has been an increase in management and leadership
initiatives focussed on ‘resolving conflict’ and ‘managing conflict’ as if it were something
that can be controlled and done away with. The mindset tends to be: “If only we could
resolve all our differences, we would reach this desired collaborative state” or even “if I just
pretend this conflict doesn’t exist, we will all get on and be successful”. There are of course
many conflicts that can and should be resolved, and there are skills we can develop to get
better at doing this, but to think we can work in a tensionless, all agreeing way would be
flawed, and probably pretty boring. It is within the tensions and differences between us that
innovation, creativity, and opportunity lie.
A more real, re-imagining of collaboration
So, rather than striving for an unobtainable, collaborative utopia, perhaps a more real way
of working is to shift our understanding of collaboration to be the ‘how we are together’ the quality of participation with one another. Rather than it being associated with harmony
and alignment, also recognising it’s about conflict, identity, and anxiety. The more aware we
can be of the dynamics that exist, including the disrupting AND beautiful tensions and
differences, the greater choice and capacity we have for changing things in the moment; to
best suit the needs of the group, project, or cause.
Advantages of Collaborating Conflict Management
The primary advantage of collaborating conflict management is that it makes all parties
involved in the dispute feel valued and understood. When you critically listen to the
concerns people in conflict have with each other, you diffuse the hostility by allowing free
expression.
Many conflicts are generated because the sides aren’t listening to each other, so they tend
to misunderstand the source of the other side’s reasons for not giving in. When everyone in
a dispute expresses the totality of their concerns, it can foster understanding, empathy and
mutual respect.
Another advantage is that it sets the tone for future conflict resolutions, and it gives those
involved the shared responsibility to resolve the problem.
Disadvantages of Collaborating Conflict Management
The main disadvantage of collaborating conflict management is that it takes a lot of time,
energy and effort to achieve a resolution. The reason is that because the desired outcome
is a “win-win,” a mediator must sift through multiple solutions before achieving
compromise. This delay can affect workplace productivity, and may increase tension and
resentment.
Another disadvantage is that there may not be a solution that provides a victory for all
parties involved, and if all parties are not committed to compromise, collaboration conflict
management will fail.
What is Conflict?
“Conflict is any situation where your concerns or desires differ from another person's,”
according to Thomas and Kilmann (1974). This modern definition of conflict no longer
includes a heightened level of hostility. The emotional quality of conflict can range from a
friendly discussion to uncontrolled fighting. Many terms are used interchangeably with the
term “conflict.” Exhibit 1 differentiates these terms.
Exhibit 2 gives examples of each term for three project management areas.
The Costs and Benefits of Conflict
Conflict is no longer viewed as an aberration. It is now considered a natural outgrowth of
human interaction.
Harmful Conflict
When conflict is unmanaged, it can damage relationships between groups and between
individuals. Lines are drawn, and assumptions about future actions, and intentions are
made. It hurts performance on your current project, and it poisons the environment for
future projects.
Beneficial Conflict
Managed conflict can allow your project team to reach its full potential. It can improve the
team's creativity in problem solving and reaping the rewards of good business relations with
the rest of the organization.
You may be wondering, “What's wrong with harmony and tranquility?” Without
disagreement or conflict, the project team can become static or apathetic. Because they are
unwilling to encourage conflict, they are more likely to be unresponsive to the pressure for
necessary change or innovation. It is easy for a group that insists on harmony to shut out
alternatives that disagree with their accepted convictions.
Causes of Conflict
Conflict occurs when actions and expectations differ. Actions result from a combination of:
• Ingrained assumptions about life—group and individual
• Espoused values reflecting our ideals—group and individual
• Immediate situation—perceived uniquely by each individual.
Groups build up values and assumptions, based on their history of success. We observe an
action and tend to attribute assumptions and values to the actor. We perceive the
immediate situation in our own way and cannot see it the way others do. We often attribute
disagreements to personalities without taking into account the effect of cultures.
The traditional philosophy of conflict resolution is to focus on solving the immediate
problem. However, this method rarely gets to the heart of the conflict. The complaint may
be only the most convenient way to express a much deeper and larger set of misgivings,
built up over a history of conflicts.
Managed conflict is conflict that has been redirected from hostility to beneficial problem
solving. Managed conflict is not conflict that has been suppressed. Suppressed conflict
usually reappears in more hostile forms later.
How well you manage conflict depends on Your Skill + The Situation + Your Preferences.
Principles of Conflict Management in Projects
The following nine principles demonstrate the influence that conflict management can have
on a project.
1. Unmanaged conflict can cause your project to fail.
2. Handling unmanaged conflict can use up all your time and energy.
3. Unmanaged conflict can destroy business relationships, so that future projects are also
doomed.
4. Conflict is inevitable in the project environment.
5. Managed conflict, however, can introduce better methods and products.
6. Effective project managers proactively manage conflicts.
7. There are many methods for resolving conflict.
8. Collaboration has the most potential for improving product, processes, and business
relations.
9. Managing conflict requires concept, planning, implementation, and closeout—the
standard PM process.
Consider this situation. The project sponsor has signed off on the project's requirements
and plan. You find out the next day that he has been fired. It seems that he and his
supervisor, a corporate vice president, didn't agree on much. You've heard that the vice
president has selected someone from an entirely different operational area to replace the
fired employee temporarily until a permanent replacement is found.
The conflicts that could arise as a result of this change are broad reaching. Funding,
deadlines, resources, and even the continuation of the project itself could now be
challenged. As project manager, you will have to respond to each of these conflicts as they
arise, or you can mitigate their effects by anticipating them and managing them before the
come to a head. You may find that you must spend a majority of your time compensating for
this change. This change in your project's validity according to the project sponsor could
have significant effects on other projects, already planned for future implementation. Much
of this diversion could have been mitigated, of course, if you had perceived the background
conflict between your sponsor and his superior.
Conflict Management Balance
Managing conflict in projects requires maintaining a balance between the project's
commitment and its environment.
1. Forming and executing the project's commitments:
• Budgets—funds allocation and release
• Deadlines—deliverables, and milestones
• Resources—assignment and fulfillment
• Quality—features and worthiness (“good enough”)
2. Recognizing the project environment:
• Interactions—how people/groups communicate
• Culture—what groups value and how they behave
• Trust—the quality of personal/group relationships
• Expectations—what people/groups believe they deserve.
The Conflict Management Process
The process for managing conflict is a repetitive set of actions that may be performed in any
order as needed to anticipate or mitigated the specific conflict situation.
Prepare for Conflict
The first step in preparing for conflict is to identify the key players in the project whose
expectations or concerns may differ from those of other key players. Determining the
motivations for and importance of their differing expectations or concerns is the next step.
Every issue uncovered that could have consequential effects on the project must be
researched and understood.
Exhibit 3. Major Commitment Points
Mitigate Hostilities
Ultimately, if conflict is inevitable, the time and place for resolving it must be mutually
agreed to. The earlier a conflict is addressed, the less likely the conflict will grow to a level of
damaging hostility. Throughout this process, the overall goals of the project may need to be
continually reconfirmed.
Select Conflict Resolution Methods
There are five different modes of conflict resolution, as described later in this paper.
Choosing the appropriate mode should not be one-sided. All the key participants need to
the involved, both in recognizing their automatic response to conflict and in selecting the
mode that will benefit the project and the participants' relationships most.
Follow Through
Like any other project management practice, planning and preparation are not enough.
Because the full participation of all the key players is required for successful conflict
management, everyone involved must be motivated to share the responsibility for
managing their conflicts. The actions required as a result of the ongoing management of a
conflict must also be monitored and evaluated. Any shortcomings in performance or
outcome of these actions must be responded to.
Be Flexible
The complexity and long-range effects of project conflicts means that conflict rarely can be
rigidly controlled. Although planning for managing conflict is crucial, it must be flexible
enough to adjust to changing perceptions and relationships throughout the conflicts' life
cycle.
Anticipating Conflict
Managing conflict requires continual work by the project manager over the life of the
project. It is crucial for the project manager to understand that conflicts are not single
points on the project timeline. They may first appear as isolated issues or problems but
typically start much earlier as an accumulation of miscommunication and missed
opportunities.
Once visible problems surface, damage may have already been done. To avoid being caught
off-guard by conflict, the project manager must make sure that the methods a project will
use for conflict management are documented during project communication planning.
Having the project stakeholders agree to these methods early in the project helps start the
culture change needed to move from blame to acclaim.
Early Detection
In their drive to meet project constraints, it's easy for project managers to fix their focus on
the project plans and miss the subtle clues that signal impending conflict. A way to avoid
this is to frequently “look sideways” at the project. By taking a different perspective, you are
more likely to see what is normally not obvious. For example, when collecting estimates,
you want to pay attention to any significant difference between estimates, especially when
using the optimistic-pessimistic-most-likely method. Early in the project, if participants are
not at least mildly enthusiastic, it may indicate an underlying conflict. Similarly, a reluctance
to commit to project responsibilities typically results from inconsistent expectations or
concerns. Excessive reviews are required of any work products is another symptom of
pending conflict.
By staying in touch with the project participants, you will be able to learn about changes in
the project's environment earlier than if you are isolated. One way to accomplish this is
through what's called “MBWA” or “Management by Wandering Around.” If this is not
possible, enlisting the help of a “circuit rider” could give you the insight you need. A circuit
rider is an independent confidant who makes the rounds within any group inside or outside
the project to uncover problems early.
Exhibit 4. Five Modes of Conflict Resolution
Commitment Points
Major commitment points in the project often cause conflicts. It's human nature to
suddenly rethink decisions with major impact, at the last minute. Commitment points
typically involve releases to the project: funding, personnel, resources, distribution
authority, production authority, etc. Commitment points occur anytime during the project,
especially at the end of phases, sometimes called, gates, phase approvals, etc., as shown in
Exhibit 3.
Preparation for Commitment Points
Once you have identified the critical commitment points in your project, you must get the
agreement of those responsible for the amendment concerning the specific procedures they
will follow in making the commitment. These procedures are the actions they will take, not
just the criteria they will apply. It is important to be sure that they identify all those
participants who will be involved and what information, in what form, they will need to
make the commitment. This way, you can avoid last minute surprises, such as extra
reviewers, additional paperwork, and unplanned inspections.
Responding to Conflict
Of the five classic methods for conflict resolution, all but one emphasizes give-and-take
problems solving based on past experience and on the distribution of power. None of these
methods directly affect trust. Only collaboration forges a stronger relationship by using the
underlying conflict to improve the groups' performance. To accomplish this, collaboration is
a forward-looking method in which participants commit to actions based on future payoffs,
rather than as compensation for past wrongs. Trust is rebuilt through shared commitments
to action.
Modes of Conflict Resolution
A model for understanding individuals' responses to conflict was developed in the mid-'70s
that is still used today for developing an appropriate response to conflict. The five modes
are competing, accommodating, compromising, collaborating, and avoiding. Each involves a
level of assertiveness (interest in satisfying one's own desires) and an independent level of
cooperativeness (interest in satisfying others' desires), as shown in Exhibit 4.
Competing = win/lose (high assertiveness, low cooperativeness)
Competing is used when quick action is required as in an emergency or when unpopular
decisions must the made involving some vital issues requiring a clear decision. Aggression by
the other party may also require a competitive response. If the conflict is not important
enough to spend time on compromise or collaboration, competing (along with
accommodating or avoiding) may be more cost-effective. However, competing is often
viewed as a noncooperative approach and an undermine to the other parties' trust.
Accommodating = lose/win (low assertiveness, high cooperativeness)
Accommodating is used to show reasonableness, to create good will, and to keep the peace,
especially when dealing with a new and unfamiliar area of conflict. Like competing and
avoiding, accommodating may be used for conflicts of low importance to save time.
However, accommodating is often interpreted as a retreat rather than an overt strategy.
Avoiding = ?/? (low assertiveness, low cooperativeness)
Avoiding is used to allow time for tensions to ease and to buy time for preparing a better
strategy. Like competing and accommodating, avoiding may be used for conflicts of low
importance to save time, especially for handling bigger issues. However, avoiding is often
perceived as arrogance or fear, i.e., either the party doesn't think the conflict is worth their
time or trouble, or he or she wants to avoid an inevitable loss. Avoiding conflict resolution
does not mean that you always avoid responsibility. In fact, you may end up with excessive
responsibility and no authority.
Compromising = lose/lose (medium assertiveness, medium cooperativeness)
Compromising is used when the conflict is important enough to spend the time needed to
reach an agreement through negotiation. Unless the parties are evenly matched in power
and skill, compromising can revert to competing and accommodating. Most compromised
solutions are temporary, unlike collaborative solutions. However, compromising typically
requires less time than collaborating.
Collaborating = win/win (high assertiveness, high cooperativeness)
Collaborating is used to resolve important conflicts, especially those affecting relationships
between groups. The predominant activities in collaborating are integrating solutions,
marching perspectives, gaining commitments, and learning more about the other parties
and the conflict itself.
Managing Collaboration
Project managers play a key role in injecting the process of collaboration into their projects.
Collaboration is a continuous process, a building and rebuilding of relationships, and
requires a continuously engaged facilitator to move it step by step through the project
phases; the continuous involvement of the project manager meets this need. The project
manager also is responsible for the success of the project for all stakeholders and is most
highly motivated to seek a cooperative, rather than adversarial project environment.
The major tasks for collaboration to success are:
• Getting participation from the right representatives for all affected parties
• Establishing a common set of desirable outcomes, intermediate as well as longer term
• Reaffirming the power inherent in working together in good relationships
• Reaffirming the potential benefits of conflicts as catalysts to develop better products and
achieve higher performance
• Neutralizing attempts at avoidance, accommodation, or competition
• Focusing on commitments to action and follow through, rather than dwelling on past
injuries.
Although project managers are in the best position to facilitate successful collaboration,
several barriers often prevent them from succeeding.
• Reticence, especially in the face of conflict, is common for managers who came from an
occupation that had low communication requirements, such as the technical fields.
• Affiliation of the project manager with his or her primary group can bias the project
manager's approach and alienate other parties.
• Playing a more unbiased role and entertaining others' views can make the project
manager appear to betray his or her primary group.
• The threat of being out-maneuvered by better negotiators or by those with higher
authority can discourage the project manager.
• A fixation on revenge by any party may outweigh their interest in a continuing
relationship.
• The widespread effect of any culture change can put an unwelcome spotlight on the
project manager.
To be able to overcome these barriers, the project manager can use any or all of the
following aids:
• Training and "practice, practice, practice" in conflict resolution and mediation methods
• Assistance of a trained mediator or facilitator
• Support of a sponsor at a level higher than that of the participants
• A visible set of conflict resolution rules to which all participant agree and comply in every
encounter
• A project progress chart of conflicts encountered and their outcomes, to track the groups'
improvement.
Mapping customer centricity
Now consider the following questions and record your responses in your study journal.
1. What are the critical aspects of EMC’s customer centricity initiative?
2. What evidence is there in the case that their customer centricity approach has been
effective?
3. How do the key attributes of the customer base, customer experience, customer
needs and customer challenges affect the need for a culture of customer centricity at
EMC?
4. How might customer centricity differ between EMC’s traditional business-tobusiness environment and its new business-to-consumer environment?
5. How have EMC’s recent strategic moves (within the past 10 years) supported its
customer-centric approach? How have they made it harder for the company to
practise customer centricity?
Customer Centricity at EMC
Ruettgers made a bold move that would plant the seeds of EMC’s competitive advantage for
the next twenty years: he decided that EMC would offer disgruntled customers either a new
EMC replacement product or a comparable replacement product from IBM. “So many
customers opted for IBM [replacement products] that during one quarter in 1989, at the
height of the fiasco, most of the storage systems shipped by EMC were actually made by its
biggest competitor.”3 EMC’s profitability took a severe hit, with a loss of $8 million in 1988.
The company laid off one-third of its employees
Customer centricity at EMC meant that the company put customers squarely in the center
of their business mission, as expressed in their 2008 annual report: “We go about our jobs
with a passion for delivering results that exceed our customers’ expectations for quality,
service, innovation, and interaction. We pride ourselves on doing what’s right, and putting
our customers’ best interests first.”
Listening to the Voice of the Customer
The TCE process was fed by a continuous stream of customer input which came both from
structured market research and from unstructured conversations with customers. A Voice of
the Customer (VOC) team was charged with listening to thousands of EMC customers
through analysis of quarterly customer loyalty surveys. The VOC team transferred learnings
from the surveys into tangible recommendations that they shared with EMC’s business
divisions in quarterly TCE Executive Summits. “Hot alerts” captured pressing customer
concerns and went out to business units for immediate response. EMC also proactively
conducted Customer Business Reviews to delve into the customer-firm relationship and to
seek candid feedback. During these meetings, EMC executives probed to find out what more
EMC could do to improve the relationship.
The sales process was transformed from a hard sell into a consultative sell, where
prospective customers could visit an EMC Executive Briefing center to share their needs,
challenges, and goals. During these sessions, EMC senior executives and technology experts
listened and worked with prospective customers to design EMC solutions for helping the
customers extract value from their data. Through extensive retraining, EMC transformed its
sales culture, putting “its once infamously aggressive sales force to charm school”.5 “For a
long time we were basically a product company,”6 explained Frank Hauck, executive vice
president of global marketing and customer quality. For years, salespeople at EMC were
focused on making the sale and neglected to care what happened afterwards. The EMC
sales force had to be retrained, “They’d have to be strategic advisors, they’d have to be
more consultative…It’s less about trying to close a transaction at the end of the quarter and
more about having knowledge of what’s going on with the customer. We want everybody to
be on top of what the customer might need.
EMC2 = Everybody Makes Customer Calls
At EMC, customer centricity was everyone’s job and employees joked that EMC2 stood for
“Everybody Makes Customer Calls”. Managers encouraged all employees to embed
themselves in the lives of their customers. EMC practiced a philosophy of surrounding the
customer from the sales process, to the product installation, to the ongoing customer
service, and everyone in the company played a role. All employees were screened during
the hiring process to ensure they could interact well with customers and participated in
training to improve customer interaction skills. EMC invested heavily in customer service. In
2000, 18% of its workforce consisted of dedicated service employees. “The company has
benefited from this critical insight: if you want service to pay off, you don’t treat it as a
profit center,”3 said Paul Judge of Fast Company. The company offered its hightouch service
to all customers.
Fast deployment was essential when systems went down, and EMC developed sophisticated
infrastructures and processes to ensure that they were ready to respond anytime and
anywhere there was a problem. A team of customer service, technical, and field personnel
were available for support and problem-solving throughout the world. EMC personnel were
there, in person, at the customers’ site, whenever needed. The company’s focus on
teamwork to deliver solutions for its customers was key, “The biggest mistake you can make
as a customer engineer…is to try to solve a problem by yourself. EMC doesn’t want heroes
in the field; it wants team players who will draw on the company’s collective expertise to
solve a problem quickly and elegantly,”3 explained Fast Company reporter Paul Judge.
EMC’s products were a critical component to their customers’ businesses and customers
relied on EMC to deliver high quality, dependable products. Walter Reitz, vice president of
customer service marketing explained EMC’s service philosophy, “We service the world’s
largest global companies, who run seven days a week, twenty hour hours a day, 365 days a
year…so we deliver the best service, because that’s what they’ve asked for.”9 When an EMC
product broke, business stopped for the banks, financial services firms, airlines,
telecommunications providers, and retailers that were EMC’s customers. Recognizing how
critical their products were, EMC built in product features and service procedures to ensure
that any product problems were identified and fixed quickly.
Taking Responsibility: Guilty Until Proven Innocent
One way EMC delivered service to its customers was through its “guilty until proven
innocent” policy. The policy dictates that in critical moments when companies’ systems go
down, EMC steps in and takes responsibility for the problem, regardless of whether EMC
products are causing it. If EMC finds that another supplier’s product is at fault, EMC
employees work with the supplier to fix it, without the customer getting involved. This
makes working with EMC a stress-free proposition, as Kees van Rossen, chief information
officer of ING-DiBa, the largest direct bank in Europe explained, “We are using almost the
complete storage portfolio of EMC. I really have to say that this is an environment where I
have no headaches. EMC is making sure that the storage infrastructure always runs
undisturbed.
Transforming the Product Portfolio
As it worked on its customer centricity initiatives, EMC began investing heavily in research
and development. Focusing its efforts on computer storage systems for large mainframe
computers, EMC’s engineers created a series of new products which would fuel the
company’s growth for the next decade. The new products all featured a new technology
called RAID, (redundant array of independent disks), which provided fast, reliable storage of
very large quantities of data in a small space. Symmetrix, the product that would become
EMC’s golden goose, was launched in 1990. Symmetrix was smaller, faster, more powerful,
more reliable, and less expensive than IBM’s storage systems. EMC used Symmetrix to chip
away at IBM’s dominant market share. In 1993, IBM had a 48% share of the market for
mainframe storage machines, while EMC had 17%; by 1997, EMC dominated the market
with a 43% share, while IBM slipped to 30%. Over time, EMC became the preferred supplier
of data storage for the world’s top companies. Its premium technology and premium
customer service came with a correspondingly premium price tag
But EMC stumbled again when the dot.com bubble burst in 2001. Sales stalled, due to an
overall decrease in spending in the technology sector, but also because companies both
small and large were looking for more affordable storage options. EMC’s Symmetrix storage
units delivered superior technology and customer service, but with price tags starting at $3
million, they failed to meet the needs of many companies that were looking for more cost
effective solutions. EMC salespeople often quoted prices to customers that were two to
three times higher than the competitive bids customers were receiving,2 leading
competitors to claim that that EMC stood for “Excessive Margin Company”.11 Competitors
IBM and Hitachi, offering storage products of comparable quality, swooped in and grabbed
these more price sensitive customers, and then engaged in a bitter price war which led to a
60% decline in prices for data storage systems in 2001. The impact of these missteps on
EMC’s fortunes was large. Total revenues in 2002 were $5.4 billion—a nearly 40% decrease
from the glory days of 2000.
As EMC looked ahead, managers saw increasing opportunities for helping companies
manage the relentless growth of the digital information being produced, which was
expected to equal 1,800 billion gigabytes in 2011, ten times the quantity produced five years
earlier. EMC launched a new tagline: “EMC: Where Information Lives” that captured their
expanded portfolio and new vision for the company as a partner to help companies manage
their information as a strategic asset and release its inherent power to create value. Jenkins
explains, “Corporations and government agencies are looking to align their IT infrastructure
more closely with their overall objectives and processes so they can more effectively
monitor, analyze, and respond to events that impact their business. We’re working to give
customers secure, real-time information they need to make decisions that further their
business and their mission.” Companies were realizing that information management was a
sustainable competitive advantage, and that EMC was the partner working behind the
scenes that could help them store, protect, manage, search, share, and harness their
information. EMC promised its customers that “no matter how fast their marketplaces
change, what new technologies emerge, or how much information they need to handle, we
will be the world’s best caretaker and enabler of all their information.
Delivering Customer Centricity in 2011
The previous decade had transformed EMC’s business model, increasing the
complexity of the business substantially. EMC’s product line was significantly more complex,
and it was difficult for a single account manager (or even an account team) to adequately
service a customer’s needs across the diverse hardware, software, and consulting products.
As Jenkins explained, “In the past, our sales reps only had one message to give to the
customer, now a rep has to become a generalist, and our hope is that they can articulate the
company strategy, cover the core storage business fairly well, and be able to ask the right
questions on the security and content side to get some interest going, and then, maybe talk
about virtualization. There’s no way they can cover it all well and we’ve come to the
realization that we can’t depend on the rep anymore to tell everything to customers that we
need them to, so we have to get more active in trying to directly talk to the customer.
Relationships with some customers were being negotiated at arms-length, due to
the VAR sales model. Jenkins worried that customers sold and serviced by VARs would not
experience EMC’s high quality, high touch service. Although he liked the sales growth the
VARs delivered, he worried about the long term consequences for the EMC brand. The
hardware, software, and consulting firms that EMC was acquiring also brought new types of
customers into the customer portfolio. Jenkins wondered how to best fold these new
customers into the EMC family. Could EMC maintain its customer centricity with customers
who were acquired rather than nurtured through the selling process by EMC itself?
The 2008 economic recession was driving customers’ price sensitivity up. Customers
were forestalling IT purchases. Many of EMC’s core customer segments were hit particularly
hard, especially the banking and retailing sectors. EMC was optimistic about its customer
relationships. As Hauck explained, “People may get rid of their vendors for price, but you
don’t see them getting rid of strategic business partners. We think we’re in the right
place.”6 However, the company had gotten burned before during recessions, when even
satisfied customers defected to lower priced products. Taking a historical look, Hauck
mused, “It’s easy to get complacent when things rock and roll. We were doing satisfaction
surveys and getting a 97 percent satisfaction rating, so it was like ‘Fine, good enough’. But
what we learned when things went downhill is that satisfaction isn’t enough. Excellent
service is not about consistency; it’s about surprise above the consistent
High Touch vs. High Tech?
Some had suggested that emerging Web 2.0 technologies might hold some answers. Jenkins
was excited about some of the social media efforts that had taken root within the company,
but was not sure what their payoff would be in the long term with customers. EMC’s
internal online community, EMC One was thriving. EMC One was launched in 2007 as a
virtual gathering and workspace for EMC employees. Thirteen thousand contributors
contributed to the over 4.2 million pages of content and the site enjoyed 22,000 unique
employee visits each month. This had transformed the way people worked together and had
introduced many employees to the world of Web 2.0. Len Devanna, EMC’s director of web
strategy called EMC One a culture-changer: “the very pulse of how this company operates
now.
EMC updated its online customer support forum, Powerlink, with Web 2.0 tools. Powerlink
offered customers product information, product alerts and diagnostic tools, how to videos,
software downloads, product support, and live chat with customer service employees.
While the live chat on Powerlink continued to be staffed exclusively by customer service
employees, all EMC employees were encouraged to participate in the blogs, the community
forums, and on Twitter, Facebook, Flickr, and YouTube, to engage EMC customers, partners,
and users in conversations to spark new ideas, solve problems and unearth solutions.
Employee participation in these external conversations was gaining momentum.
Looking Ahead to a New Decade
Despite these early successes, EMC’s experiences with Web 2.0 seemed to raise more
questions than they answered. The sales team worried about converting sales from the
virtual sales meeting, as Jenkins recounted, “As a sales person, I would say ‘No, I need the
face-to-face, I need the high touch. There’s a difference in feeling coming out of a virtual
sales meeting versus a traditional face-to-face sales meeting.’” What would happen to the
relationship between salespeople and their customers, if customers were now talking to
thousands of employees throughout the organization? For a salesdriven culture like EMC,
these were serious questions. Accustomed to “managing the message” through a
centralized marketing organization, Jenkins and his marketing team were grappling with
how to deal with multiple voices communicating with its various publics, including its
customers. Could and should marketing and sales try to control the message? What ground
rules for participation and communication should be established? Was centralized control
even possible in the world of Web 2.0? Was EMC too big, too complex, and too corporate to
relate to its customers through social media? Or would social media be the technological
tool that allowed EMC’s code of “everyone makes customer calls” to be realized?
What is customer-centricity?
Customer-centricity is a business strategy that’s based on putting your customer first and at
the core of your business in order to provide a positive experience and build long-term
relationships.
When you put your customer at the core of your business, and combine it with Customer
Relationship Management (CRM), you collect a wealth of data, which gives you a full 360
view of the customer. This data can then be used to enhance your customer’s experience.
For example:

You can use customer data to understand buying behavior, interests and
engagement

You can identify opportunities to create products, services, and promotions for your
best customers

You can use customer lifetime value to segment customers based on top spenders
Research by Deloitte and Touche found that customer-centric companies were 60% more
profitable compared to companies that were not focused on the customer, and 64% of
companies with a customer focused CEO are more profitable than their competitors.
Furthermore, 90% of companies compete solely on the basis of customer experience.
Companies that focus on their customers are able to provide a positive customer experience
through their entire journey. To accomplish this, companies must undergo a massive shift in
their organization’s structure and culture.
The challenges of becoming a customer-centric organization
The power shift between brand and customer happened during the economic downturn in
the late nineties as customers became more selective in which brand they chose to spend
their money with.
The winning brands were the ones who treated their customers with respect, offered great
service, and built a relationship with them that still exists today.
During the same period, another game-changer took place - social media. Social media
marketing (and with it social selling) changed the way customers interact with brands and
became a major part of the customer journey.
In a recent report by Global Web Index, 41% of social media users find out about new
brands or products via social media ads, recommendations, or updates on brands’ pages (up
from 32% in 2017); 45% of consumers use social networks to research brands (a 5 points
increase since 2017).
One in three customers find out about new products, services and brands through social
media.
Only in the US, 83% of online shoppers are influenced by their friends’ social media posts in
their purchase decisions.
Social media is just one of many digital channels that is changing the landscape between
companies and customers.
Research reveals that companies struggling to become a customer-centric organization are
unable to share customer information across departments and lack an aligned culture
around the customer’s needs.
5 Best practices to becoming a customer-centric company
Becoming a customer-centric business allows you to anticipate customers' needs and
delight them with products and services.
Consider the CEO of Apple, Tim Cook, who said, “Our whole role in life is to give you
something you didn't know you wanted. And then once you get it, you can't imagine your life
without it.”
Apple’s entire strategy revolves around customer-centricity. Their product makes customers
fall in love and their Apple Centers provide world-class customer support to help them get
set up and out the doors with a smile on their face.
Thus, a customer-centric brand creates products, processes, policies and a culture that is
designed to support customers with a great experience from initial discovery to point of
purchase and beyond.
To achieve better customer-centricity, here are five best practices to help your business
stand out:
1. Hire for customer success. Employees are the front-facing workforce that will shape
many of the experiences with customers. Regardless of role, focus on hiring talent
that can be aligned with customer-centric thinking and the importance of customer
experience at your business.
2. Put relationships first. Customers are not numbers to be measured and analyzed in
a revenue performance report. They are people and benefit greatly when you
establish a mutually beneficial relationship together.
3. Democratize customer data. Adopting a new customer-centric strategy requires
centralized access to customer data and insights. Having a CRM database can help
facilitate a better understanding of customers to provide a unified front that delivers
better customer experiences.
4. Connect company culture to customer outcomes. Employees will be motivated by a
customer-centricity strategy when actions can be linked to results. For example,
strategies to reduce customer wait times or making transitions easier for a customer
can be captured in real-time to highlight successful strategy implementation.
5. Define your CX strategy. A customer experience strategy comes from your brand
and business strategy. In your brand strategy you’ll lay out exactly what customers
expect from your brand; a CX strategy is how you meet those customer expectations.
3 ways to measure the success of a customer-centric company
Not every organization will have the same customer success metrics to measure customercentricity. However, the three most important customer-centric metrics that should be
carefully monitored are churn rate, Net Promoter Score and customer lifetime value (CLV).
7 Elements of a Customer-Centric Team
To provide positive customer experiences and build long-term relationships, put your clients
at the core of your business.
Here are seven elements that encourage consistently positive customer experiences.
1) A customer-centric culture. That typically happens from the top down. Your
organization’s leaders must truly value a customer-first mentality and be willing to do
what’s necessary to execute it at all points of contact. Then, all your team members must
follow that lead.
2) A commitment to hiring the right people. That may seem obvious, but too many
companies hire “warm bodies” to fill roles without confirming each person’s commitment to
serving customers in exceptional ways.
During the interview process, question candidates about their perspective on customer
relations to make sure their standards match your those of your company. Consider asking
these open-ended questions:

How do you handle difficult clients?

How do you respond to clients that need a lot of hand-holding?

How do you work with clients who think they can do it all?
3) Customer empathy that’s engrained in your culture. Customer empathy is the ability to
identify your customers’ emotional needs, understand the reason behind those needs, and
then respond to them appropriately and effectively.
4) Regular customer experience training. Your goals should include ensuring that every
employee understands your customers – who they are, what they do and how they work –
and that all your employees understand that they have opportunities to make your
customers’ lives better. (By the way, we train on customer engagement every week at
MadAveGroup.)
5) Employees empowered to make every customer experience sensational. Your
customers should feel cared for when they interact with anyone in your company,
regardless of their title or position. Every person in every department must have the tools
and training they need to make a positive impression.
6) Employee engagement and excitement. Define how customer centricity will be
measured in your organization, then share those metrics with your employees often. They’ll
want to know how their efforts impact the company.
Also, if you tie employee compensation or bonuses to your customers’ satisfaction, your
team members will be more motivated to deliver consistently excellent experiences.
Tips for building a customer-centric culture
Service at the core: Traditionally customer service is a task associated with post-sale
activities, a shift in this mindset is critical to putting the customer first. This shift requires the
service team to think beyond traditional channels, such as phone and email, and meet the
customers where they are.
Everyone is responsible: Shaping a customer-centric culture is a responsibility that belongs
to the entire organization. It is not a task that falls to a particular department. Customers
don’t care about organizational charts when they interact with a company; all they perceive,
and associate with the brand, is the experience they have.
Proactive, not reactive: Putting the customer first involves solving problems before they
take place. This approach is one where service and product teams understand customer
needs well enough to anticipate issues that may arise and devise meaningful solutions.
Personalised: In a customer-centric model companies don’t treat their consumers as a
broad demographic or a random data set. You need to gather rich insights and understand
the individual relationships each customer has with your product.
Challenges And Best Practices For Becoming A Customer-Centric Company
The first step is getting everyone on board — leadership, marketing, sales, service, support,
finance, etc.
Then, customer-centric marketing can be achieved through:
• Thoughtful targeting: Figuring out who your most likely customers are and finding them
on different platforms.
• Creating marketing material for the entire customer journey: People need different sorts
of information and will be hooked by different content at different parts of the journey. For
example, in the awareness stage, we usually want their attention, so ads should be fun,
interesting and shorter; whereas in the consideration phase, people need information, they
want to compare products and possibly want to learn more. Having the right data at the
start is one thing. But over time, as you gather more data and connect it with the customer’s
profile, it guides future decisions and helps you build more personalized campaigns.
There’s a caveat here, though, and one marketers need to be mindful of: The digital
marketing world is going toward less identification, less data and more privacy (for example,
the removal of third-party cookies from most browsers, or the EU’s General Data Protection
Regulation). Properly targeting someone requires proper automation and optimization
setups, which are not necessarily possible on a small budget or with small amounts of data.
Customer-Centric Best Practices To Help You Achieve Your Vision
• Build a customer-centric culture. Ensure that every employee, from the CEO to the frontline worker, lives and breathes the customer. Build it into your mission, values and vision.
• Improve your data. Improve the quality of your data, and make it consistent and available
to everyone in the organization. Data is often underused and used incorrectly. If it’s not a
tangible asset, people in the organization won’t understand how to interpret and use it
properly. With AI, for example, data can be automatically connected to resolve identities
and reveal insights that improve personalization and next best offer initiatives. (But take
heed of my caveat above.)
• Capture customer feedback. It’s imperative to really listen to what your customers want
and need by getting their feedback, reading it and using it to help drive your business. Not
every customer is always right. You will know when someone is nitpicking or worse. But it
pays to listen to many customers who provide the same feedback — verbally or through
their behavior.
• Think long term. A long-lasting relationship with a customer is more valuable than a single
transaction. Create and nurture relationships with your customers to make them feel like
more than just a number. The contact you provide them with, the tailor-made offers, and
the knowledge you have of them and their preferences help you build long-term
relationships with them, which will result in loyalty and retention.
Repeat, regular customers will bring you greater revenue. This is truly where customer
centricity has an impact.
How to Become a Customer-Centric Company
As we mentioned in the last section, customer-centricity begins with your company's
culture. If your goal is to learn how to be customer-centric, then your business needs to
make a company-wide commitment to your customer's success. The steps below explain
what your organization can do to make that commitment to your customers and examples
of how top brands put customers at the center of everything they do.
1. Anticipate Customer Needs
There's a great quote from Henry Ford that says:
"If I had asked people what they wanted, they would have said faster horses."
You may be wondering why I am bringing this up when it seems counter-intuitive to the
concept of customer-centricity. But hear me out:
Ford is saying that if he had only listened to what customers thought he could build, he
wouldn't have produced a car. He was thinking light-years ahead of his competition, and for
that reason he created a product that anticipated the market's future needs. Ford knew
what the customer wanted before the customer knew they even wanted it — that's a gamechanging business move.
We can see similar styles of future-forecasting in Steve Jobs and Elon Musk. These visionary
CEOs pushed the envelopes on what people would want in the future, giving the world the
iPhone, iPad and the Model X — and companies with valuations of $1.08 trillion and $48
billion, respectively.
While most customers are able to accurately provide an account of what they want today,
gauging what they want on a longer time horizon is extremely difficult for most people.
They rely on companies to do that work for them to anticipate their needs — and make
helpful suggestions accordingly.
2. Collect Customer Feedback
It may seem obvious, but to create a great, customer-centric company, you need to
communicate both frequently and regularly with your customers.
In today's digital world, there are countless encounters where you can collect feedback.
Here are a few touchpoints that you might already use to communicate with customers:

Chat

Email

SMS

Phone calls

In-app messages

FB Messenger

Message boards
Today, valuable communication can occur on so many different platforms.
Every department should be using all of the communication channels at their disposal to
learn about customers — and the sheer volume of quantitative insight you receive from
these messages can help you greatly as you adjust your product roadmap.
But there's also a level of qualitative feedback that you need to be proactive about
collecting. While the aforementioned communication is likely already occurring at your
company, user research is something you might be ignoring.
Here are three customer research techniques to consider if you're not already:
Conduct a Survey
By telling your customers that you're not perfect, you can gain insight and track your
performance. The most successful companies in the world already know the value of
surveys, and by conducting a regular customer satisfaction survey or product survey, you
can provide an avenue for great feedback.
Launch User Testing
Ask any designer or PM the value of user testing, and they'll sing their praises.
Modern digital marketing tools such as Usertesting.com and Hotjar provide a simple
framework to collect feedback from real people about your product. In the quest to build a
customer-centric organization, this can help validate your hunches and guide your work
towards the highest-impact projects.
Make Direct Calls
Have a friend that always insists on talking over the phone rather than text? I'd take a
gander that that friend is one of your closer confidants. There's something more personal
about a conversation outside of the digital realm — by simply picking up the phone, you're
able to get a more robust form of feedback from customers.
And an added plus? You can adjust your line of questioning in real-time to adapt to each
situation.
Our CTO J.P. Morgan practices this technique weekly — and he swears by the feedback he
collects from his customer calls:
"Talking to customers is probably the most important thing I do all week. While there's a
level of product development that requires you to take a stance and anticipate needs — it's
impossible to do that without an understanding of your customer's current situation."
3. Be Easily Accessible
We all know the concept: make it difficult to contact support, and you'll spend less time
servicing those difficult customers.
There's a huge financial and time expenditure used in servicing customers, so many brands
(especially digitally-built businesses) hide their support behind many layers of pages.
For instance, try to find a phone number on Facebook's Help Page. It's nearly impossible.
They'd rather communicate through help articles and live chat before giving out their
number.
On the other spectrum, there's Zappos, the online shoe retailer with a completely opposite
approach to customer success.
Zappos identifies that when a customer wants to talk to them, they should make it as easy
as possible. Note how they include their phone number prominently on the top bar of every
page with the note "Available 24/7."
Tony Hsieh, the CEO of Zappos, describes his rationale for that decision as:
"A lot of people may think it's strange that an internet company would be so focused on the
telephone, when only about 5% of our sales happen by phone. But we've found that on
average, our customers telephone us at least once at some point, and if we handle the call
well, we have an opportunity to create an emotional impact and a lasting memory … Our
philosophy has been that most of the money we might ordinarily have spent on advertising
should be invested in customer service, so that our customers will do the marketing for us
through word of mouth."
Make sure your ‘Contact Us' page is highly visible and easy to access — and that it actually
answers common customer questions you see crop up time and time again.
4. Meet With Customers In-Person
One of the biggest epidemics facing modern organizations is the loss of feedback from inperson meetings. Looking back 50 years, before the advent of the Internet and our
diversified global economy, it was far easier for a business to interact with an end customer.
Direct, human contact happened on a daily basis simply because it was a necessary part of
commerce. If you wanted an item, you went to a store, talked to a salesperson, and bought
it in-person. That feedback could be used by a business to improve the consumer
experience.
Today, in most businesses, this is not the case. Don't get me wrong, the other advances
from the digital economy have provided great benefits. While your potential touchpoints for
feedback are far greater due to technology, there is less in-depth contact.
How do you combat this? By bringing back the in-person experience.
It may seem old school, but hosting in-person events can be beneficial in your quest to
customer centrism. By hosting an event, you provide value to two parties: the customers
and the brand.
For instance, consider Sofi's initiative to host community events across the country. While
it's likely a substantial expense, there's a positive externality. And they don't hide it. They
claim the benefits of a direct channel to interact with and get feedback from their members,
as well as a way to build brand affinity. Not to mention, it's lots of fun, too.
5. Provide Proactive Customer Service
One of the best ways to differentiate your business from its competitors is to provide your
customers with added value that extends beyond the point of purchase. This shows them
that you're truly invested in creating a delightful customer experience and will go aboveand-beyond to deliver it to them.
One way to provide added value is to include proactive customer service features. Proactive
customer service gives your customers resources that help them solve problems on their
own, without having to reach out to your business for support. This way they can resolve
simple issues and avoid waiting on hold for your customer service team.
WashCard Systems is one company that has profited immensely from adopting proactive
customer service. They used HubSpot to create a pricing page so customers wouldn't have
to reach out to a live rep to see how much its products cost. This accelerated the company's
sales process as customers knew immediately whether or not WashCard Systems would fit
their budget.
A pricing page may seem like a simple addition, but it completely changed WashCard
Systems' lead generation process. In 2018, the pricing page became the website's most
visited page and was responsible for nearly two-thirds of the company's online conversions.
Rather than dissuading customers, the pricing page encouraged them to reach out to
WashCard Systems and learn more about what the business had to offer. This type of
proactive customer service demonstrated the business's customer-centric approach to
improving the buying experience.
6. Adopt Customer Service Tools
The customer's experience with your brand is just as important as the product or service
you're providing. Customers don't just want a sale, they want to enjoy the entire buying
experience. Even if your product is great, you'll lose customers to competitors who are able
to make their customer interactions enjoyable and productive.
Adopting the right customer service tools plays a major role in creating a customer-centric
experience. These tools help customer service teams create seamless, omni-channel
support systems that provide customers with immediate solutions to their problems. By
doing so, customers are more satisfied because the business is investing in their short- and
long-term success.
One company that does an excellent job of utilizing customer service tools is the insurance
company, Lemonade. Lemonade recognized that one of its most difficult challenges was
changing the customer's perception of its industry. Most people loathe speaking with
insurance companies because the customer experience is typically dull and frustrating. So,
Lemonade invested in chatbots to help change that experience for its customers.
Lemonade's chatbot, "Mia," creates a light-hearted and friendly conversation with its users.
Mia provides customers with clear and concise answers and advises them on plans that will
best fit their budgets.
In an interview with HubSpot's The Growth Show, the company's CEO, Daniel Schreiber,
highlighted that this chatbot has made their customer service experience more "playful and
instantaneous." Additionally, Lemonade has been able to cut costs and reduce prices for
customers as a result of added automation.
7. Look Beyond the Purchase
At the end of the day, your business's goal is to get customers to purchase your product or
service. However, when customers buy once, you'll want to ensure they buy again. After
all, studies show that it costs nearly five times more to attain a new customer than to retain
an existing one.
But, how do you motivate your current customers to purchase from you again? Well, the
best way is to provide them with added benefits that extend beyond the point of purchase.
These benefits should help customers achieve their goals and create a more memorable
customer experience. By doing so, customers will begin to affiliate their success with your
company's products and services.
One example of this can be seen with the industrial clothing company, Rocky Mountain
Industrial Supply, or RMI. RMI sells flame-resistant clothing to labor crews operating in
industrial worksites like oilfields and mines.
In addition to its clothing, RMI creates added value for its customers by providing them with
free safety certification courses. Customers take these courses to receive credible
certifications that will qualify them to operate a product or piece of machinery. This not only
helps customers avoid costly mistakes but also gives them the tools needed to excel in their
careers. As they take more courses and enhance their skill set, customers begin to rely on
RMI to assist with their long-term goals.
8. Create an Onboarding Process
If you want to create a customer-centric culture, your team can't abandon customers after
you make a sale. Instead, make sure your customers get the most from your product and
services. That way they'll be more inclined to return to your business when they're ready for
an additional purchase.
One of the best methods for optimizing your product's value in the eyes of the customer is
setting up a detailed onboarding process. An onboarding process introduces your products
and services to the customer and explains how to use them to fulfill their specific needs.
Each customer's needs will be unique, so your team should personalize this process to
ensure every customer is properly set up for success.
Home CX Customer Experience
Customer Centricity: Benefits and Implementation Tips
Today, companies in every industry face a battle for customer loyalty. This is no longer just
about price, promotions and quality; experience also plays an important role. This is why
organizations have implemented an approach called customer centricity.
In today’s article, we will talk about customer centricity and the benefits of having a
customer-centric culture. Read on and put into practice the tips we have for you.
What is customer centricity?
Customer centricity is a business strategy based on putting the customer first and at the
center of the business to deliver a positive customer experience and build long-term
relationships.
This sales and marketing concept places customers rather than the product at the center of
interest. Thus, customer expectations, needs and desires form the starting point of
marketing campaigns.
However, customer centricity is more than a service or a sales channel. It is part of the
organizational culture, strategies and philosophy of the company. The concept covers all
areas and requires the collaboration of all employees.
It also includes a multichannel communication strategy so potential customers can reach
the company through any medium.
Among the most critical objectives of customer centricity are:

Align your company with the customer.

Put customers at the heart of your company.

Create a customer-centric culture throughout the company.

Prioritize customer needs.

Listen to customers, understand their needs and act.

Deliver a positive customer experience from the beginning of the awareness stage all
the way through the post-purchase process.
What Is Customer Centricity?
Defined literally, one may say customer centricity means putting customers at the center of
decisions. And while that definition is a good starting point to broadly explain customer
centricity, there’s a bit more to it than simply listening to your customers. That’s because
customer centricity is an organizational mindset that’s woven throughout the fibers of every
part of an organization, not just customer-facing teams like support, success, and sales.
In this article, we address customer centricity—and some of its nuances—through a lens of
product development, but it’s worth noting that many parts of our definition are applicable
to the broader organization’s contribution to this mindset.
What Is Customer-centered New Product Development?
At UserVoice, our product development process is customer-centric, as well.
“Customer-centric product development is an approach to building and improving
products that places customer truths at the core of new development. Embracing this
approach means every new feature and functionality released can be traced back to a real
customer problem.”
This approach places emphasis on gathering, tracking, and acting on customer feedback
with the end goal of developing products customers truly love and get value from.
Understanding Client-Centric
Client-centric has long been a buzzword in service-oriented industries, especially financial
services. Firms that strive to be client-centric often do so by offering one-stop shopping to
save customers time and money. Others may provide a suite of high-level services for highnet-worth clients. Note that in some industries, this word has become a cliche that turns off
clients.
The overarching business theory is that serving the customer to the utmost of your ability
results in loyal customers who will both spend more of their money with the company and
be less likely to go elsewhere based on price.
The Benefits of a Client-Centric Approach
Companies choose a client-centric approach for several reasons, but the biggest one is that
new customers are hard to find. Unless you are providing a brand new good or service, the
majority of customers evaluate your business against competitors or equivalents. For
example, consumers typically compare the pizza shop at one end of a street to the pizza
shop at the other end.
Acquiring new customers is generally expensive, requiring the issuance of discounts
or promotions. So a business makes more by keeping the customers they have and selling
them more. For example, a pizza shop adds pasta and drinks to its menu, gaining more of its
existing customers' restaurant budget. A financial advisor adds an estate planner,
retirement specialist, and tax advisor to the team.
Mapping the Customer Journey
The digital customer journey begins with answers to a simple set of questions.

What defines my customers?

In their customer journey, what are their touch points? How do they use them?

What do they value and expect?

Who or what influences them? Whom do they influence?
While it is true that technology does not define digital transformation, it is a sure means to
better customer experiences. When technology and customer behavior come together,
relevance to the customer is created. And this happens when business looks at the
customer journey solely from the customer's perspective.
This is what Starbucks has done so well. It looks at the customer journey from the
customer's perspective. This has led them to discover nine different areas of work stream
that are connected because of the customer's journey. Starbucks modifed their interdepartmental workflow and collaboration processes accordingly.
Characteristics Of Customer Centric Companies
Customer centricity is the core of every successful business, both old and new.
However, there are certain characteristics that differentiate customer-centric companies
from the rest. Some characteristics are explained below:

Customer-focused leadership: The top management gets involved in all decisions
related to customers, which makes them accountable for all customer-related
results. The management ensures that they are customer-centric in their thinking
and actions.

A customer-centric culture: All employees, right from the frontline to the top
management, are focused on understanding and meeting customer needs.
Employees are encouraged to think innovatively and challenge the status quo to
develop better solutions for customers.

Customer data is used effectively: The company gathers data about customers and
analyses it to draw insights. These insights are used to improve the value
proposition, strengthen the brand, understand customer needs and create strategies
for retaining customers.

Customer-friendly technology: The company uses modern technologies like social
networking, big data analytics, mobility, cloud, etc., that can help them to better
engage with customers.

Customer-friendly funnel: The company focuses on the steps in the purchase
process, like reducing customer friction, increasing customer touchpoints, making
purchase flow easy and simple, etc., to make the customer journey better.

Customer communication: Firms make sure that they are available to interact with
customers via different communication channels. They take feedback seriously and
use it to improve their customer service.
Customer-centric companies continuously monitor their performance, look for customer
feedback and thoughts across all touchpoints, and improve on them. This is achieved
through various ways like involving the entire workforce in understanding customer needs,
offering personalised service to customers, collecting data and conducting research to
understand customers
What are the steps to create a customer-centric value proposition?
Clarify the problem statement – define opportunities, threats, strengths and weaknesses of
your market and company, and search for any existing market study, relevant articles, or
case studies. They are a mine of information.
Gather qualitative data about consumers – create a representative pool of personas that
will paint the portrait of your targeted consumers, influencers who might influence the
decision making. Refer to focus groups, field studies, customer immersions, 1:1 interviews
(physical, online, telephonically).
Synthesise all insights - Create insights sheet including customers’ needs, their barriers,
triggers as well as pain points. Group the information by persona and look for existing cases
in your research, market study, that tackle those customers needs.
Develop value propositions – organise a benchmark meeting with your colleagues and all
together find solutions, new ideas or new concepts to the problems highlighted in your
insights sheet.
Assess the value-propositions - is the value proposition unique? Relevant to your
consumer's profiles? Does it fit the company’s values? Is it sustainable and profitable?
Feasibility of the value-proposition – this is a key step to ensure that the value-propositions
are feasible, and if you have multiple of them focus on 1 or 2 first. Make a choice based on
pre-defined criteria like goals and objectives of the company, budget, human resources
available, timescale.
Develop a marketing plan for each of the value-proposition – develop the project
roadmap. Don’t forget to create a storyline as well as the customer’s journey as for how a
customer would experience it.
Define the go-to-market strategy – this is your action plan that describes how to reach your
target (personas) and identifies the touchpoint where you have to be visible to raise brand
awareness. It is a combination of key elements (marketing plan) such as distribution
channels, pricing, promotion channels etc…
Analyse again – pull out and analyse your KPIs on a monthly basis and listen to customers
feedback to improve your products and services. Your ultimate goal is to retain customers.
Calculating Customer Profitability
Calculating customer profitability begins by identifying the various costs incurred specifically
in relation to servicing a specific customer or segment of customers.
For example, a solar panel company serves two types of customers: Individuals and Small
Medium Enterprises (SMEs). For the attainment, servicing, and retention of its customers,
the company is required to provide consulting and service visits, as well as process sale
orders. Individuals require only one site visit before placing an order.
What is customer profitability?
Customer profitability refers to how businesses calculate the profit they generate per
customer. It factors in the expenses that businesses produce to gain and serve a particular
customer and compares the expenses against the profit the customer brings. When
customers generate more profit than businesses spend attracting and serving them, then
businesses can consider them profitable. Businesses need to know how much profit they
earn per customer so they can determine whether the expense of attracting and
maintaining those customers is beneficial to meeting their financial goals.
Related: Profitability vs. Profit: What They Are and Why They're Important
How do businesses calculate customer profitability?
Businesses calculate customer profitability by determining the annual profit they generate
per customer, which comes from determining their total annual revenue produced per
customer and subtracting the total expenses incurred to serve customers over a year-long
period. To calculate their annual per customer profit, businesses use this formula:
Annual profit = (total annual revenue the customer generates) - (total annual expenses
used to serve the customer)
When determining the amount of revenue a customer generates, businesses factor in all
sales made to the customer, including any recurring revenue they produce, any upgrades
made to their service plan and all cross-purchases of similar or relevant products. To
calculate expenses, businesses account for the cost of providing products and services, any
expenses related to attracting and retaining customers, such as marketing, the expense of
offering customer loyalty advantages and the cost of operations. After calculating their
annual profit, businesses can determine the customer profitability analysis using this
formula:
Customer profitability analysis = (annual profit) x (number of years the customer remains
with the company)
What is a customer profitability analysis?
Customer profitability analysis is a formula that businesses use to understand how much
profit an individual customer generates for their organization over time. It helps businesses
evaluate whether the cost of providing services and marketing to gain and keep customers
generates enough profit for them to continue with their current business strategy.
Calculating customer profitability analysis relates to businesses calculating the profitability
of their individual products or services in that understanding both measures allows
businesses to track the revenue they earn by providing products and services that offer
value to their customers.
Benefits of a customer profitability analysis
Performing a customer profitability analysis has several benefits for businesses. The benefits
of performing this calculation include:
Minimizing cost factors
One benefit of doing a customer profitability analysis is identifying cost factors related to
attracting and retaining profitable customers. A customer profitability analysis can help
businesses identify their most profitable and least profitable customers and the expenses
incurred for different market segments. By identifying the costs associated with each
market segment, businesses can determine strategies for reducing the cost factors for their
more expensive markets.
Another option is to stop serving markets that offer less profitability than others. Businesses
can restructure their services to optimize their profits by cutting costs associated with less
profitable customers and investing more in increasing the revenue generated by more
profitable markets. For example, if they find the expenses related to a particular customer
group are too high compared to the profit generated by that group, the business may
choose to discontinue services to that group or find opportunities to reduce the cost of
providing those services.
Targeting the right market segment
Besides reducing the costs associated with less profitable market segments, businesses can
use their customer profitability analysis to identify their most profitable customers. Knowing
what market segments produce the most profit for your business allows you to analyze that
market to identify the key factors that contribute to its profitability. By understanding your
most profitable markets, you can either apply similar business strategies to increase the
revenue produced by other markets, or you can invest more in expanding and optimizing
those markets that generate the most profit.
For example, once you've identified your most profitable markets, your marketing team can
generate strategies to reach more potential customers that match your target demographic.
Knowing the profit potential of serving a certain demographic can help your business
establish a marketing and customer retention budget. When businesses understand their
customers and the potential of their customers to produce profit, they can make the most
of their opportunities to access and keep the customers that contribute the most to their
financial goals.
Improving customer retention strategy
Businesses can use their customer profitability analysis to optimize their customer retention
strategy for each market segment they serve. For example, businesses may wish to spend
more on providing top-quality services and advantages to retain customers who offer a high
rate of profitability. It's important for businesses to earn the loyalty of customers who
generate the most profit for their business, even if that means raising the budget and
increasing their expenses to retain those customers. For less profitable market segments,
businesses may not be willing to incur additional expenses to retain customers who
generate less profit.
The customer profitability analysis allows businesses to assess the expenses related to each
marketing decision they make and compare that expense to the profit generated per
customer earned or retained. Having data to compare expenses with potential profit can
help your business make effective marketing decisions. The better you understand the
relationship between marketing expenses, customer profitability and customer retention,
the more refined you can be in strategizing your marketing budget for each of your market
segments.
Increasing the efficiency of operations
Finally, calculating your customer profitability analysis can help you identify any operational
reasons that explain why a certain market segment has a lower level of profit than others.
For example, you might notice a higher amount of expenses related to a particular market.
You may spend more money on marketing to a certain demographic without gaining the
expected revenue from that group, indicating that the cost of operations to serve that
market is ineffective. Identifying this issue allows you to make adjustments by lowering your
marketing costs so they're better aligned with the profit gained.
How to calculate a customer profitability analysis
Here are the steps for calculating a customer profitability analysis:
1. Segment your markets
The first step to calculating customer profitability is segmenting your customers. The
process for customer segmentation can vary by your industry. For example, some industries
may rely on demographic information like customer age groups, income level and
geographic area. Other businesses may rely more heavily on psychographic information,
such as customer interests, values, needs and patterns of behavior. Some businesses may
collect information in both these areas to gain a thorough understanding of who their
customers are and how their customers' purchasing habits affect their business.
2. Attribute revenue to each market
Once you've identified each market segment for your business, determine the profitability
for each segment. You can also calculate your total revenue by finding the sum of all
segments combined. Factor in any adjustments, such as discounts and service fees, when
calculating the revenue for each market.
3. Attribute costs to each market
Next, identify your expenses for each market. This number includes all marketing expenses
and costs related to product development, customer retention, distribution and operations.
Subtract the cost for each market from its revenue to calculate the profitability for each
market segment.
4. Analyze the profitability of each segment
After calculating the customer profitability analysis for each of your market segments,
analyze and classify your segments based on profitability. You can categorize your markets
by those that promote high profitability, moderate profitability and low profitability to
better understand how each segment contributes to your overall goals. Based on your data
for each segment, analyze what factors cause each market to meet its level of profitability.
Consider whether your current business strategies are working to optimize the profit gained
from each of your market segments.
5. Implement strategies to maximize profit and assess
Finally, after analyzing your market segments, develop new strategies for maximizing your
profit for each of your target markets. For any market that generates low profitability,
consider whether you can improve your marketing strategies, reduce your costs of
operations or eliminate services to that group to improve your overall profitability. After
identifying your high-profit segments, consider how effective your customer retention
strategies are for those groups. Also, determine whether you can invest more in marketing
to customers who fit the profile of those in your high-profit market segments to gain more
customers.
As part of your plan to implement new strategies, also plan to assess the effectiveness of
these strategies. Set specific goals for improving your profitability and define how you plan
to measure your progress. For example, you might identify a goal to increase the
profitability of a particular market segment by 15% over a six-month period. After setting
this goal, create a plan to reduce expenses or increase the revenue generated by the market
segment. Assess the effectiveness of your plan throughout the six-month period and make
adjustments as needed to reach your goal.
Customer lifetime value (CLV) is a business metric that measures how much a business can
plan to earn from the average customer over the course of the relationship. Differences in
products, costs, purchase frequencies and purchase volumes can make customer lifetime
value calculations complex. However, with the right tools, you can find customer lifetime
value in just a few clicks.
With an understanding of CLV, you can make better-informed marketing and sales
decisions, among other benefits. This guide provides insights about customer lifetime value,
how to calculate this metric and more useful information about CLV that business owners
and managers should know.
What Is Customer Lifetime Value (CLV)?
Customer lifetime value (CLV) is a measure of the total income a business can expect to
bring in from a typical customer for as long as that person or account remains a client.
When measuring CLV, it’s best to look at the total average revenue generated by a customer
and the total average profit. Each provides important insights into how customers interact
with your business and if your overall marketing plan is working as expected.
For a more in-depth look, you may want to break down your company’s CLV by quartile or
some other segmentation of customers. This can give greater insight into what’s working
well with high-value customers, so you can work to replicate that success across your entire
customer base.
Note: There are multiple definitions of CLV: Basic calculations that only look at revenue and
more complex equations that factor in gross margin and operational expenses like COGS,
shipping, and fulfillment. Marketing expenses can be included but are sometimes left out if
they are too variable. For the sake of simplicity, we’re using revenue throughout this article.
Key Takeaways

Customer lifetime value (CLV) is a measure of the average customer’s revenue
generated over their entire relationship with a company.

Comparing CLV to customer acquisition cost is a quick method of estimating a
customer’s profitability and the business’s potential for long-term growth.

Businesses have several marketing tools to help them improve CLV over time.

Looking at CLV by customer segment may offer expanded insights into what’s
working well and what isn’t working as well for your organization.
Customer Lifetime Value (CLV) Explained
Customer lifetime value boils down to a single number, but there may be significant
nuances. By understanding the different parts of your CLV, you can test different strategies
to find out what works best with your customers. Thanks to its simplicity, CLV can be an
important financial metric for small businesses.
For example, let’s examine how a grocery chain may look at CLV. Based on data in the
company’s ERP system, it can see that the typical customer spends $50 per visit and comes
in an average of once every two weeks (26 times per year) over a seven-year relationship.
The grocer can find its CLV by multiplying those three numbers — 50 x 26 x 7 — for a value
of $9,100. But why does that number matter? We’ll dig into the details in the next section.
Why Is Customer Lifetime Value Important to Businesses? Why Does It Matter?
In the example above, we figured out the average lifetime value of a customer for a grocery
store. But why do businesses care about CLV? Here are a few key reasons to track and use
CLV:

You Can’t Improve What You Don’t Measure:
Once you start measuring customer lifetime value and breaking down the various
components, you can employ specific strategies around pricing, sales, advertising and
customer retention with a goal of continuously reducing costs and increasing profit.

Make Better Decisions on Customer Acquisition Costs:
When you know what you will earn from a typical customer, you can increase or decrease
spending to ensure you maximize profitability and continue to attract the right types of
customers.

Improved Forecasting:
CLV forecasts help you make forward-looking decisions around inventory, staffing,
production capacity and other costs. Without a forecast, you could unknowingly overspend
and waste money or underspend and put yourself in a bind where you struggle to keep up
with demand.
Advantages of Customer Lifetime Value

Improve Customer Retention:
One of the biggest factors in addressing CLV is improving customer retention and
avoiding customer attrition. Tracking these details with accurate segmentation can help you
identify your best customers and determine what’s working well.

Drive Repeat Sales:
Some retailers, tech companies, restaurant chains and other businesses have loyal customer
bases that come back again and again. You can use CLV to track the average number of visits
per year or over the customer lifetime and use that data to strategize ways to increase
repeat business.

Encourage Higher-Value Sales:
Netflix is an example of a business that improved CLV through higher pricing but learned
years ago that increasing costs too quickly may scare off long-time customers. The right
balance is key to success here.

Increase Profitability:
Overall, a higher CLV should lead to bigger profits. By keeping customers longer and building
a business that encourages them to spend more, you should see the benefit show up on
your bottom line.
Challenges of Customer Lifetime Value

It Can Be Hard to Measure:
If you don’t have quality tracking systems in place, calculating CLV can be difficult.
An enterprise resource planning (ERP) or customer relationship management (CRM)
system can make this information easily available on an automated dashboard that tracks
KPIs.

High-Level Results May Be Misleading:
Looking at a business’s total CLV can be a helpful data point, but it can also cover up
problems in certain customer segments. Breaking down the data by customer size, location
and other segments may provide more useful data.
How to Measure Customer Lifetime Value
Businesses with ERP systems don’t have to worry about the math behind CLV. The system
does all of the calculations for you. If you’re looking to measure customer lifetime value
manually, however, you can follow the steps and formula below.
1. Determine Your Average Order Value:
Start by finding the value of the average sale. If you have not been tracking this data for
long, consider looking at a one- or three-month period as a proxy for the full year.
2. Calculate the Average Number of Transactions Per Period:
Do customers come in several times a week, which might be common with a coffee shop, or
only once every few years, which could be the case at a car dealership? The frequency of
visits is a major driver of CLV.
3. Measure Your Customer Retention:
Finally, you’ll need to figure out how long the average customer sticks with your brand.
Some brands, like technology and car brands, inspire lifelong loyalty. Others, like gas
stations or retail chains, may have much less loyal customers.
4. Calculate Customer Lifetime Value:
Now you have the inputs. It's time to multiply the three numbers together to calculate CLV
per the formula below.
Customer Lifetime Value Formula
Here is the formula for customer lifetime value:
CLV = Average Transaction Size x Number of Transactions x Retention Period
Each of these inputs acts as a lever you can pull to grow your CLV. However, every move
your business makes may have unintended consequences that impact CLV. For example, a
price increase may improve your average transaction size, but it could push customers to
shop less often or look for lower-cost alternatives.
Experienced marketers familiar with the four Ps of marketing — product, place, price and
promotion — have a strong understanding of how marketing efforts directly influence
customer lifetime value.
Customer Lifetime Value Examples
The best way to understand CLV is through examples. Here are examples from three very
different industries to better demonstrate how customer lifetime value may impact your
company:
Coffee shop
A coffee shop is a perfect starting example for CLV, as it is easy to understand even if you
don’t have an extensive business background. Let’s say a local coffee chain with three
locations has an average sale of $4. The typical customer is a local worker who visits two
times per week, 50 weeks per year, over an average of five years.
What is customer lifetime value (CLV)?
Customer lifetime value is the total worth to a business of a customer over the whole period
of their relationship. It’s an important metric as it costs less to keep existing customers than
it does to acquire new ones, so increasing the value of your existing customers is a great
way to drive growth.
Knowing the CLV helps businesses develop strategies to acquire new customers and retain
existing ones while maintaining profit margins.
CLV is distinct from the Net Promoter Score (NPS) that measures customer loyalty,
and CSAT that measures customer satisfaction because it is tangibly linked to revenue rather
than a somewhat intangible promise of loyalty and satisfaction.
Why is customer lifetime value important to your business?
Ultimately, you don’t need to get bogged down in complex calculations – you just need to
be mindful of the value that a customer provides over their lifetime relationship with you.
By understanding the customer experience and measuring feedback at all key touchpoints,
you can start to understand the key drivers of CLV.
CLV is a great metric to use when you have a multi-year relationship with a customer – say
for a paid TV subscription or mobile phone contract. And it’s good for spotting the early
signs of attrition – say, for example, you see spend dropping off after the first year as they
use the subscription less and less.
How much are your customers costing you?
CLV goes hand in hand with another important metric – CAC (customer acquisition cost).
That’s the money you invest in attracting a new customer, including advertising, marketing,
special offers and so on. Customer lifetime value only really makes sense if you also take the
CAC into account.
For example, if the CLV of an average coffee shop customer is $1,000 and it costs more than
£1,000 to acquire them (via advertising, marketing, offers, etc.) the coffee chain could be
losing money unless it pares back its acquisition costs. Another thing to keep a close eye on
is the cost of that customer to your business.
Another factor in the equation is Cost to Serve. This is part of the cost of doing business, and
it involves everything you do to get the product or service into the customer’s hands and
doing what they need it to do. For example, logistics, overheads in your physical location,
contact center costs and so on.
Breaking this down by customer can help you understand these costs on a granular level,
and dig into details like whether your high CLV customers cost the same as the low ones,
and whether some customers are more expensive than others. If the cost of serving an
existing customer becomes too high, you may be making a loss despite their seemingly high
CLV.
Cost to serve may vary across the customer lifetime, unlike customer acquisition which is a
one-off expense. To go back to our paid TV subscription, your cost to serve might be higher
in the first year of a contract but gradually drop off the longer the customer stays with you.
Thus, if your renewal rates drop, your average cost to serve is likely to rise and cause a drop
in profitability.
Understanding these numbers over time and being able to track them side by side is the
only way to get a true understanding not only of what’s driving customer spend and loyalty
but also what it’s delivering back to the business’s bottom line.
What is customer lifetime value (CLV)?
Customer lifetime value is the total amount of money a customer is expected to spend with
your business, or on your products, during the lifetime of an average business relationship.
This is an important figure to know because it helps you make decisions about how much
money to invest in acquiring new customers and retaining existing ones.
Customer lifetime value helps you understand and gauge current customer loyalty. If
customers continue to purchase from you time and time again, that’s usually a good sign
that you’re doing the right things in your business. Furthermore, the larger a customer
lifetime value, the less you need to spend on your customer acquisition costs.
Let’s look at an example.
The CLV of a Honda owner might be as much as $100,000 if they are happy with their car or
minivan choice and end up buying several through the years. Or the CLV of a regular coffee
drinker might be even higher than that, depending on how many cups of coffee they drink a
day and where they buy it. Conversely, someone who buys a home twice in their life might
be worth only, say, $15,000 to a real estate agent, because while the value of the purchase
is huge, the percentage paid to an agent is only a fraction of the total.
In the big picture, customer lifetime value is a gauge of the profit associated with a
particular customer relationship, which should guide how much you are willing to invest to
maintain that relationship. That is, if you estimate one customer’s CLV to be $500, you
wouldn’t spend more than that to try and keep the relationship. It just wouldn’t be
profitable for you.
If you understand your CLV well, that can help shape your business strategy to keep loyal
customers, rather than investing the resources in acquiring new ones. Of course, new and
current customers play an important role in business building in general.
How to calculate customer lifetime value (CLV)
Fortunately, calculating customer lifetime value is relatively straightforward.
The simplest way to calculate CLV is:
CLV = average value of a purchase x number of times the customer will buy each year x
average length of the customer relationship (in years)
So a marathon runner who regularly buys shoes from your shoe store might be worth:
$100 (per pair of shoes) x 4 (pairs per year) x 8 (years) = $3,200
And the mom of a toddler might be worth:
$20 (per pair) x 5 (pairs per year) x 3 (years) = $300
So who should you be paying more attention to? Using CLV, the marathon runner should be
your focus!
Understanding how to calculate customer lifetime value is essential for everyone in
leadership, and especially for a CEO. Knowing how much you can expect from an existing
customer can give you a clear and updated picture of the health of your business.
If you find your customer lifetime value is declining over two consecutive quarters, for
example, you might invest more into retention and customer service. While not the only
factor that affects customer lifetime value, customer satisfaction does play a key role. If
there's a difference in quality of service between when a customer first buys and their third
purchase, CLV will likely decline.
CLV should be one of the most important metrics you track.
The value of knowing your CLV
Calculating the CLV for different customers helps in a number of ways, mainly regarding
business decision-making. Knowing your CLV you can determine, among other things:

How much you can spend to acquire a similar customer and still have a profitable
relationship

The exact amount you can expect an average customer to purchase over time

What kinds of products customers with the highest CLV want

Which products have the highest profitability

Which customer relationships are driving the bulk of your sales

Who your most profitable types of clients are

Using your CLV as a base, you can work to better understand your most loyal
customers. What do they like? Why do they continue to purchase from you?
Together, these types of decisions can significantly boost your business’ profitability.
As with any metric you track in business, knowing the number is not enough. You have to
use your CLV to shape your overall business strategy. If your customer lifetime value is on
the rise, that could mean you should continue to invest in product development or your
customer success teams. If your CLV is declining, that might tell you your latest marketing
strategy could use a reboot. One of the main benefits of understanding CLV is that it can
help you significantly reduce your customer acquisition costs over time.
Boosting customer lifetime value
Since the odds of selling to a current customer are 60% to 70%, according to eConsultancy,
and the odds of selling to a new customer are 5% to 20%, investing your resources in selling
more to your existing customer base is the key. In most cases, it’s far easier to sell to
existing customers than it is to invest in acquiring new customers.
So what tactics will increase the likelihood of a customer buying more from you? How can
you increase your average order value?
Here are some proven techniques:

Make it easy for customers to return items they’ve purchased from you. Making it
hard or expensive will significantly reduce the odds of them making another
purchase.

Make strategic exceptions for your most loyal customers. For example, if someone is
planning on canceling a subscription service you offer, give them an option of
remaining a user with a small discount.

Interview and connect with your best customers to understand why they continue to
choose your brand.

Set expectations regarding delivery dates, aiming to underpromise and overdeliver.
It’s much better to promise delivery by August 1 and have it in their hands by July 20
than the reverse.

Create a rewards program to encourage repeat purchases, with rewards that are
both attainable and desirable.

Offer freebies for doing business with you to build brand loyalty.

Run exclusive deals only for existing customers.

Use upsells to increase the average value of a customer transaction, which is the
equivalent of McDonald’s asking, “Would you like fries with that?”

Stay in touch. Long-time customers want to know you haven’t forgotten them. Make
it easy for them to reach out to you as well.
What Is Customer Lifetime Value And Why Is It Very Important
Customer lifetime value is one of the most important ecommerce metrics. It provides a
picture of the business long-term and its financial viability. High CLV is an indicator of
product-market fit, brand loyalty and recurring revenue from existing customers. It is
recommended that ecommerce businesses monitor and optimize customer lifetime value if
they are looking for steady growth. Although it widely varies across categories, of course,
the average CLV for ecommerce brands is $168.
Defined: Customer Lifetime Value
Customer lifetime value is the total revenue you as an ecommerce business earn from a
customer over time. It takes into account all their orders ever. It is a good metric to size up
customer satisfaction, loyalty and the viability of a brand.
Calculating Customer Lifetime Value
There are two ways of calculating CLV, depending on what data you have available.
1. Accumulated data method
If you have historical sales data, this method is far more accurate. It puts together all orders
by individual customers to get their own real CLVs. In case your business has been operating
for some time and you only now decide to start monitoring customer lifetime value,
some ecommerce analytics tools are able to pull this historical data by customer back since
your day 1. The formula would look like this:
CLV = Order 1 + Order 2 +……+ Order n (where n is the number of orders)
2. Average estimate method
If you don’t have granular data, you can estimate an average by the following formula:
CLV = AOV x n
It takes the average order value and the average number of orders you receive from each
customer. This method gives you an estimate if you are just launching your ecommerce
store and only have industry data yet as well.
Why Is CLV So Important?
CLV is at the heart of financially stable ecommerce businesses that can grow organically and
sustainably. This is because CLV is long-term, repeating the benefits of better ROI and unit
economics. It is an entirely different strategy than going for short-term sales. The problem is
acquisition-based growth needs constant marketing spending and you only grow as much as
you can spend - think Facebook ads and Google adwords.
1. It impacts the bottom line.
Your total customer lifetime value impacts your profitability. If you only work for
conversions, relying on new customers, that requires you to pay the cost of acquisition
every time, getting a smaller margin from each sale. Optimizing for CLV means getting
repeat orders from customers you already acquired so no need to pay for them again. You
would get the full profit margin of all orders after the first one, making up for the CAC you
paid initially. Thus, your ROI increases.
2. It means a steady cash flow.
Getting repeat orders from existing customers brings in a healthy cash flow regularly into
the business. So you don’t need to worry about at least a part of your costs. It is easy to
project and keep up with your payments due when you know money is definitely coming in.
3. It lets you acquire more of your target customers.
When you know a customer will spend $100 instead of $10 with your business over the
course of time, you can plan a different acquisition budget. You can spend more to reach
the perfect target group. Maybe a competitor was outbidding you on keywords before or
worked with big influencers you could not afford. In turn, the quality leads will probably
turn into loyal customers, strengthening your brand and getting you high customer lifetime
value.
4. It lets you grow.
With a bigger margin, you can reinvest more back into growing the business. Expanding
overseas, developing new products or hiring sales consultants is more doable with the
security of recurring revenue.
5. It means customers love your brand and products.
A high customer lifetime value indicates people shop a lot from you. They seem to be
satisfied with the service and quality so your products must be good. And most importantly,
they are brand loyal so you have a chance for growing even more. This is something
investors love to hear, if you decide to seek funding.
Ways to Maximize Customer Lifetime Value
From the formulas for calculating CLV it is clear that increasing the customer lifespan, the
order frequency and the order value will lead to an increase in CLV as well. Ideally, it all is
the result of customer retention and brand loyalty, not just sales tricks. Here are a few ways
to drive lifetime value while building a meaningful relationship with your customers.
1. Keep customers for longer.
Customer retention is about adding value for your customers, helping through your brand.
So your marketing should inform, educate, inspire and relieve instead of sell directly. Send
emails with information and various uses of the product bought to make them use it more
effectively. Treat long-standing customers with special care. Use content marketing to
entertain between orders. Segment customers by interests, tastes or preferences whatever fits your products - and customize offers reaching them. Also, use feedback as a
chance to connect, discuss, learn and improve - it keeps people coming back despite an
occasional mishap. All these communications add to the shopping experience and
strengthen customer’s trust in the brand.
2. Stimulate more frequent orders.
Sometimes it is hard to keep people coming back for years due to the nature of your
products. For example, if you sell baby products, people will move out of your target group
in about three years if they don’t have another child. So getting frequent orders is another
way to drive customer lifetime value when the lifetime is not that long itself. Follow up
browse abandonment sessions when they visit your site but don’t buy anything with
tailored offers. Send reorder reminder emails so they don’t wake up to no coffee or no
deodorant one day. You can even put little surprises in the boxes to make every order
exciting. Coupons for next order are also great to speed things up.
3. Push for bigger order values.
Bundles easily make bigger basket size because they are a deal. A simple analysis can tell
you what products people buy together to bundle up for a desirable offer that makes sense.
Another way is to offer freebies with orders over a certain value as a token of appreciation.
Last, categorizing products by use or occasion, not just kind, might help people discover
various accessories and complimentary items to make their life easier.
Topic 4: Segmentation and targeting strategies in business markets
Key concepts
This topic includes:

segmentation

targeting.
Topic outcomes
By the end of this topic, you should be able to:

describe the segmentation concept and process

explain the procedures for evaluating and selecting market segments

describe the use of targeting in business markets.
Consumer versus B2B segmentation
According to Kotler (2003), the major segmentation bases for consumer markets are
geographic, demographic, psychographic, and behavioral. Geographic segmentation
includes aspects such as city or state, climate or landscape. Demographic segmentation
includes factors such as age, family size and lifecycle, gender, income, occupation,
education, religion, race, generation, nationality, and social class. Psychographic
segmentation includes lifestyle and personality characteristics, while behavioral
segmentation includes purchase occasion, benefits sought, user status, usage rate, loyalty
status, readiness stage, and attitude toward the product. Some of these variables can be
applied in business marketing as we shall see. Certainly, geographic segmentation is
important, as are the “demographics of the firm” and, in some cases, the demographics of
the buyers. There is less importance placed on the race, religion, or nationality of buyers of
business products, although cultural factors will be important in global markets, while
psychographics are generally inapplicable in business markets. Of the behavioral variables,
many can be adapted to business markets and this has been done with some success.
Business marketers should be careful about applying consumer segmentation techniques
directly to business markets. Unrefined use of consumer segmentation techniques can lead
a business marketer in the wrong direction.
SEGMENTING B2B VS B2C: 6 AUDIENCE CHARACTERISTICS TO CONSIDER WHEN PLANNING
YOUR NEXT MARKETING CAMPAIGN
1. The needs of B2B buyers tend to be complex
Clients in a B2B environment are complex because their solutions are part of a much larger
process. In a B2B system, clients are experts and vendors must ensure customer satisfaction
during the whole buying cycle. Even when vendors offer a standard solution, many times
customization is an important part of the B2B process. This applies to both products and
services. Clients often have specialized needs that require individual attention and / or
suitable modifications. This customization allows vendors to further adjust their
segmentation process, based on the different needs or applications of similar clients.
The base offer remains the same, with adjustments made according to varying needs. This
provides the advantage of a solution with multiple adjustments, each responding to the
exact requirements of one niche market. Even when the requirements are complex the
exact solution is available.
2. The decision process for B2B purchases involves a group of people
Decision-making is also different in B2B purchases. When individual people look for shoes,
furniture, or even a house, the criteria to buy and the final decision rests with one or two
people.
In contrast, the B2B buying process usually involves a number of decision-makers from
different departments, each with particular needs and priorities. On top of that, the amount
of money involved in a B2B purchase also differs from the usual B2C transactions.
3. B2B buyers are rational
B2B buyers are said to be more ‘rational’ than their B2C counterparts, an interesting and
sometimes controversial conclusion. When an individual makes a purchase on behalf of an
organization his / her reputation is at stake. Mistakes will lead to questions and
consequences. Buying on behalf of an organization requires a clear mind and sound
evaluation to separate ‘want’ from ‘need’.
Segmenting a business audience based on need is a more efficient approach than
segmenting based on consumer audience criteria such as geography or demographics. It is
critical to identifying the reasons why the client makes the purchase.
4. B2B companies need a lower number of clients to be profitable
A B2B target audience is smaller than a B2C target audience. In B2C sales the target market
can include millions of potential customers, whereas a small number of B2B clients can
generate 80% or more of sales. In the B2B process, a few clients can make a huge
difference.
5. Long buying cycle
In most B2C transactions, clients make purchase decisions within days or even minutes. The
buying cycle in B2B companies is much longer, ranging from a few months to years. The
mechanics at work in B2B environments are elaborate: select solutions, track down the
most appropriate vendors as well as clarify every advantage and disadvantage of the
solution. This is followed by discussions about options and implications with the team. This
process takes time.
6. Loyalty
Considering that the B2B buying process may take years, companies tend to repeat
purchases from the same suppliers over time. These suppliers can become critical to the
company’s long-term performance. The client also comes to rely on maintenance or aftersales service. Over time, the buyer and supplier develop a relationship of trust. The supplier
develops a deep understanding of the client’s requirements and a skill set particular to that
client’s needs. This can result in a deeply loyal relationship.
B2B segments do not change quickly. When an accurate segmentation is in place, its
evolution is slow and becomes a strategic, long-term tool. However, companies still must
pay attention to changes in the segments, to ensure that the offers, messages, channels,
etc. remain relevant as the segment evolves.
As shown here, the concepts behind segmentation of B2B and B2C start from the same
ground, but the particulars in each target audience call for a different strategy to connect
with them. When a company strategically identifies a narrow group of clients as its target
market, its sales and marketing efforts become more effective. To do so, the company
needs to understand its clients and prospects, and connect with them at the right time, with
the right message, through the right channels, in the most cost-effective manner.
One thing that sets the two apart is in the way you approach your target audience. B2C
businesses tend to focus on appealing to their customers using emotion, which provokes
their audience to buy (for example, looking good, feeling great, and finding internal
happiness).
The B2B crowd responds emotionally too (because B2B companies are still made up of
humans), but by and large, this group weighs its decisions heavily toward need and business
impact. For example, B2B companies are focused on saving time and money and boosting
revenue. If your offer addresses these critical areas, then odds are, you’ll attract the right
kind of attention from B2B customers.
Difference between B2B and B2C Marketing
Model
– The most significance difference between B2B and B2C marketing is the manner of
advertising involving products and the buying decision. B2B marketing means marketing to
businesses and they mainly focus on the logic of the product and there is little or no
personal emotion attached when it comes to making the purchase decision. B2C marketing,
on the other hand, means business to consumer in which a company markets its products or
services directly to individual people, rather than other companies.
Strategy
– It all starts with strategy; in fact, strategy is the foundation for everything. B2B marketers
employ different sales strategies for their business customers and they need to be aware of
business buying behavior, including the needs, interests and challenges of the decision
makers who make decisions on behalf of their organizations. The main strategy is to gather
leads through market intelligence, ads, and content marketing, and converting those leads
into prospects. B2C marketing, on the other hand, is a different game altogether; the focus
is on the benefits of the product and decision is more emotional rather than rational.
Consumers
– B2B consumers look for logic of the product and positive return on investment (ROI). They
are focused on efficiency and expertise, and the decisions are mostly financially motivated
rather than emotionally driven. They expect more detailed richer information as well as
different types of content to help guide them in their decision making process. B2C
consumers do not always rely on detailed content for their decision process; in fact, they
expect the content to be simpler and precise, more engaging, and stimulating rather than
informative.
o
o
Business

ACCOUNTING

ECONOMICS

FINANCE

INVESTMENT

MANAGEMENT

MARKETING

ORGANIZATIONS

PLANNING & ACTIVITIES

PRODUCT & SERVICES

STRUCTURE & SYSTEMS
Miscellaneous

CAREER & EDUCATION

CULTURE

ENTERTAINMENT

FASHION & BEAUTY

GEOGRAPHY

HISTORY

LEGAL

POLITICS


IDEOLOGY

LEADERS

POLITICAL INSTITUTIONS
RELIGION


o
o
ISLAM
SPORTS
Technology

GADGETS

GAMING

SMARTPHONES

TABLETS

SOFTWARE

INTERNET

HARDWARE

PROTOCOLS & FORMATS

COMMUNICATION

WEB APPLICATIONS

INDUSTRIAL

HOUSEHOLD EQUIPMENTS

AUTO

CAREER AND CERTIFICATIONS
Science

BIOLOGY

CHEMISTRY

HEALTH

DISEASE
o
o

DIET & FITNESS

DRUGS

MATHEMATICS & STATISTICS

NATURE

ANIMALS

BIRDS

PHYSICS

PSYCHOLOGY
Objects

FOOD

PROCESSED FOODS

VEGETABLES & FRUITS
Language

WORDS

GRAMMAR
Difference Between B2B and B2C Marketing
• Categorized under Business,Marketing | Difference Between B2B and B2C Marketing
The business landscape has changed dramatically over the years, moving through multiple
eras, from the production age through to the marketing age and more recently, from the
globalization era to the digital era. Business today looks very different from what it used to
be 10 years back. Today, even the best organizations are driven my marketing, not sales.
Even though significant revenue is brought in by the sales teams and the profits that entail,
the most successful businesses function with marketing at their core. Today, all business
marketing strategies come under the portfolio of either B2B (business to business) or B2C
(business to consumers).
What is B2B Marketing?
B2B stands for “business to business” and in the context of marketing, it is a business
marketing model in which individuals or organizations market their products and services to
other companies or organizations. B2B is exactly what it says it is – business to business
meaning selling a product produced by one company to another company. B2B is when a
business is associated commercially with another business. B2B marketing is mainly focused
on the logic of the product and there is little or no emotion involved in the purchasing
decision. Within B2B marketing, there are clear differences between marketing to small
businesses and medium or large enterprises. This distinction is clearly between transactional
marketing for small businesses and relationship marketing for medium and large
enterprises.
What is B2C Marketing?
B2C or business to consumer marketing is a business model in which a company markets its
products or services directly to individual people, rather than other companies. B2C is the
manner of advertising concerning products which are more directed to the final consumer.
In B2C marketing, companies and organizations sell their final products to the final
consumer. B2C is a very different marketing mix that has its own strategies and methods
and is driven by data, personalization and customer satisfaction. In the B2C marketing
world, the million dollar question is “who is your target audience?” and the answer to that
question is invariably same. For every online purchase your make, you are doing a B2C
transaction.
Difference between B2B and B2C Marketing
Model
– The most significance difference between B2B and B2C marketing is the manner of
advertising involving products and the buying decision. B2B marketing means marketing to
businesses and they mainly focus on the logic of the product and there is little or no
personal emotion attached when it comes to making the purchase decision. B2C marketing,
on the other hand, means business to consumer in which a company markets its products or
services directly to individual people, rather than other companies.
Strategy
– It all starts with strategy; in fact, strategy is the foundation for everything. B2B marketers
employ different sales strategies for their business customers and they need to be aware of
business buying behavior, including the needs, interests and challenges of the decision
makers who make decisions on behalf of their organizations. The main strategy is to gather
leads through market intelligence, ads, and content marketing, and converting those leads
into prospects. B2C marketing, on the other hand, is a different game altogether; the focus
is on the benefits of the product and decision is more emotional rather than rational.
Consumers
– B2B consumers look for logic of the product and positive return on investment (ROI). They
are focused on efficiency and expertise, and the decisions are mostly financially motivated
rather than emotionally driven. They expect more detailed richer information as well as
different types of content to help guide them in their decision making process. B2C
consumers do not always rely on detailed content for their decision process; in fact, they
expect the content to be simpler and precise, more engaging, and stimulating rather than
informative.
Target Audience
– The target audience in B2B marketing varies significantly from that of B2C. First, it varies in
size and they are long term buyers. Because they make bulk purchases that would require
regular maintenance and updates, relationships tend to be long term and stronger.
Identifying your target audience is the key to a successful B2B marketing strategy.
Marketing to consumers tend to be aimed at large group of consumers through mass media
and retailers. B2C companies usually target a large audience of individual shoppers, rather
than professional buyers.
Segmentation
– B2B marketing is characterized in ways that makes it very different from its consumer
cousin. In B2B marketing, the decision making unit is more complex and a few consumers
can make a huge difference. So, segmentation can be based on organizational factors such
as industrial sector, size of a business, and the buying behavior. B2C markers have more
behavioral and needs-based segments, so segmentation can occur across life stage and life
cycle, such as families, teens, parents, to make marketing and budgets work better. The
stakes are higher for B2B clients because more people are involved in the process.
B2B vs. B2C Marketing: What is the Difference?
What is the difference between B2B and B2C marketing?
Business-to-business (B2B) and business-to-consumer (B2C) marketing techniques are
focused on attracting two distinct audiences. B2B refers to businesses that are focused on
serving other businesses instead of themselves. Some examples include software,
manufacturing equipment, and repair services for long-haul fleets.
B2C refers to businesses that are focused on the needs and interests of their customers,
who are often individuals. In other words, they sell to everybody but professionals. Think
toothpaste, grocery stores, and mobile gaming apps. While these brands may also appeal to
businesses, the bulk of their customer base comes from consumers, so their marketing
reflects that.
There are also cases where both B2B and B2C initiatives happen at the same time. For
example, an interior design agency might design rooms for hotels as well as homeowners.
On the surface level, B2B and B2C marketing campaigns share the same technical and
behavioral best practices. However, there are several strategic differences that separate the
B2B and B2C campaigns.
Potential sales volume
B2C campaigns can reach anyone interested in a product even if they aren’t the intended
buyer. For example, a product intended for children might appeal to the decision-maker in
the household by also targeting them to get them to purchase something.
While B2C companies can cast a wide net and still expect a solid ROI on their campaigns,
B2B brands don’t have that same advantage. That’s because, in B2B marketing, the products
are meant for businesses, and there are typically far fewer businesses than there are people
in any demographic.
While specificity is key for both, B2B marketing has to niche down even further by industry,
business size, approximate revenue, and much more when choosing their target audience.
Average budget per customer
There's a big difference in the budget that an individual has versus what a corporation
has. While spending five figures on a piece of equipment might be out of reach for the
Average Joe, it's likely already built into the company budget for a business. And, as you can
probably guess, how you market a $5 item is quite different from how you market a $50,000
item.
Volume of sales needed to reach goals
Because B2C products are typically sold at a lower price point, they need to rely on a
significant number of purchases to reach their goals. This is often reflected in the frequency
and variety of their marketing. Even the B2C channels they use offer mass appeal. Podcast
ads, paid social media ads, and even billboards are excellent examples of this.
Conversely, B2B products are sold at a higher price point and need fewer yet more highly
targeted accounts to make a profit. These types of campaigns rely more on reaching the
right quality of audience rather than the right quantity of audience. In other words, more is
not necessarily more in B2B marketing.
Even if the B2B marketers are targeting a specific set of individual decision-makers within a
company, they are still benefiting from that company's access to a greater amount of
financial resources than the average individual would have.
In short, B2C marketing is often aimed at individuals with smaller budgets, while B2B
marketing is all about targeting corporations with larger budgets.
Decision-making timeline
In both B2B and B2C marketing, ads need to immediately inspire customers to take the next
action. The difference here is that the next action for B2C audiences might be to make a
purchase, while B2B buyers tend to have a much longer decision-making timeline.
For B2C, consumers should be able to see an ad and decide whether or not they like the
product enough to go in-store or online to make the purchase. While they might do
additional research, the time it takes to read reviews or watch product videos on YouTube is
a much quicker turnaround than in B2B buying.
For B2B brands, there may be many different decision-makers from a variety of
departments involved in the purchase. Often, a few different budget approvals and
negotiations will take place between the business’s first initial ad viewing and the final
purchase.
When put together, the B2B marketing timeline can often be significantly longer than the
B2C marketing timeline.
Emotion vs. logic
B2C marketing also relies on appealing to emotions to make quick buying decisions. This
means their content is often more fun or entertaining. Think TikTok videos, YouTube reacts,
and paid social media sponsorships.
For B2B, marketers often aim to move their leads to the next stage of the sales funnel. That
could mean anything from setting up a free demonstration to starting a subscription. B2B
marketers have to consider which campaigns will target which parts of the marketing
funnel. This helps them reach the right audience with the right messaging at the right time.
Also, the demand for efficiency and expertise is higher among B2B audiences than among
the consumer group. As a result, the purchase decision is often influenced by both logic and
financial incentive more than emotion.
Personal attention
Unlike in a B2C environment, B2B customers expect their sales and marketing teams to be
focused on them because of the higher ticket price. This means providing personalized
service, getting to know their team members on an individual level, and tailoring solutions
to fit their changing needs over time.
Customer experience is an important factor for B2C audiences too. However, the average
consumer doesn’t expect to get to know a sales representative at their favorite laundry
detergent brand before buying their next bottle.
B2B segmentation
It might go without saying, but an organization is free to segment its customer base in any
manner that aligns with its goals and objectives. However, there are three main approaches
to B2B segmentation. They are:

Priori or firmographics segmentation. This is segmentation based on information
related to customers that is publicly available, such as company size and industry.
This is a simplistic approach to segmentation and it is where a B2B organization
might start if it was just getting into customer segmentation and wasn’t yet taking
advantage of the tools and analytics available for customer segmentation.

Value based segmentation. This divides customers based on the economic value
they present to the organization, both in terms of completed sales and potential
sales. This approach makes it easy for sales people to identify and spend more time
on high value customers.

Needs-based segmentation. This approach to segmentation groups customers based
on validated needs for products or services. While the value-based approach is
perhaps the most efficient for sales people, a needs-based approach provides the
most accurate method of targeting customers.

There are tips on B2B marketing that you might also want to read.
B2C segmentation
For B2C segmentation, there are four basic segmentation approaches.

Demographic segmentation. This is the B2C version of firmographics. Demographic
segmentation divides customers based on aspects such as age, gender, education,
religion, occupation, income and marital status.

Geographic segmentation. This approach groups customers based on geographic
location. It allows companies to focus the products and services offered to different
segments based on where they are located. It also helps smaller companies save
marketing spend on impressions that aren’t likely to become leads.

Behavioral segmentation. A somewhat looser or less quantifiable approach to
customer segmentation, behavioral segmentation divides customers based on
attributes such as brand loyalty, awareness, knowledge, social media interaction and
purchasing patterns. Though difficult to implement, especially without advanced
customer segmentation analysis tools, behavioral segmentation allows for precisely
targeted marketing messages.

Psychographic segmentation. Also a less quantifiable approach to segmentation,
this approach groups customers based on personality, lifestyle, values and social
class. Similar to behavioral segmentation, psychographic segmentation can be
difficult to implement, but the payoff in precise marketing is significant.
Relationship between segmentation, targeting, and positioning
What are Market Segmentation and Targeting?
Market segmentation and targeting refer to the process of identifying a company’s potential
customers, choosing the customers to pursue, and creating value for the targeted
customers. It is achieved through the segmentation, targeting, and positioning (STP)
process.
Overview of the STP Process
As mentioned earlier, STP stands for segmentation, targeting, and positioning.
Segmentation is the first step in the process. It groups customers with similar needs
together and then determines the characteristics of those customers. For example, an
automotive company can split customers into two categories: price-sensitive and priceinsensitive. The price-sensitive category may be characterized as one with less disposable
income.
The second step is targeting, in which the company selects the segment of customers they
will focus on. Companies will determine this base on the attractiveness of the segment.
Attractiveness depends on the size, profitability, intensity of competition, and ability of the
firm to serve the customers in the segment.
The last step is positioning or creating a value proposition for the company that will appeal
to the selected customer segment. After creating value, companies communicate the value
to consumers through the design, distribution, and advertisement of the product. For
example, the automotive company can create value for price-sensitive customers by
marketing their cars as fuel-efficient and reliable.
How do Companies Segment Consumers?
The most common way to segment consumers is by looking at geography, demographics,
psychographics, behavior, and benefits sought. Psychographics include the lifestyle,
interests, opinions, and personality of the consumer.
Behavior is the loyalty, purchase occasion, and usage rate of the buyer, and benefits sought
are the values the consumer is looking for, such as convenience, price, and status associated
with the product.
Another way to segment consumers is by asking why, what, and who.
A more difficult but important thing for companies when segmenting consumers is
understanding their behavior. This is the “why” question. By collecting information on a
consumer’s past purchases, companies can make good predictions of future purchases.
Therefore, this allows companies to target the right consumer.
The “what” that companies ask focuses on purchase behavior. Data that interests
companies can be broken down into recency, frequency, and monetary value. These three
things show when the last visit to the store was, how frequently customers shop in the
store, and how much money they spend. They help companies determine the value and
loyalty of customers.
Segmenting consumers by “who” is arguably the easiest way because the information is
readily available. Information can include a person’s income, education, family size, and age.
Firms hope that such features closely correlate to the needs of the consumer. For example,
if a person is in their mid-40s and belongs to a large family, then the automobile company
will likely advertise an SUV instead of a two-seater vehicle.
How Do Companies Target Customers?
Targeting is the process of evaluating the attractiveness of the consumer segments, as well
as determining how to attract the consumers. A firm’s choice of consumer segment largely
depends on the product and service they are offering. It also determines the marketing
strategy the company will employ. Markets that are undifferentiated are suitable for mass
marketing.
For example, large companies such as Microsoft will utilize the same design and similar ads
for all customers. For other markets, one-to-one marketing is more appropriate. One
example would be Dairy Queen, where the customers can design and create their own cake.
Another example would be luxury stores such as Tiffany Co., which sends personalized
letters as ads.
Three factors influence a company’s selection of segments. First of all, companies consider
the characteristics of the segments. Characteristics include are how fast or slow a segment
is growing and how profitable it is.
Secondly, the company considers its own competencies and resources to address the needs
of the segments. For example, a large segment is attractive. However, a company may not
be able to serve the whole segment because of a lack of resources.
Lastly, a company considers the competition in the segment, both current and in the future.
A large and growing segment may be profitable but will attract a lot of competition,
effectively reducing margins.
Segmentation and Targeting Strategy
Strategies are the process of creating product, pricing, communication, and customer
management strategies. Product strategy aims to extract the most value out of customers. It
is done by offering products at different price levels or by only making expensive products
available first.
Pricing strategy involves appealing to either price-sensitive or price-insensitive segments.
Communication strategy advertises using the appropriate ads and the right media to target
the chosen consumer group.
How do market segmentation and target markets work together?
Marketing and business development teams might use these two concepts in the
segmentation, targeting and positioning, or STP process. STP works like this:

Segmentation: This is where you study the market to find the common
characteristics consumers have, and this helps you understand which products and
services each segment might find useful. By creating segments, you can decide which
group or groups make the most sense for your marketing campaigns.

Targeting: Targeting is when you study the habits of each segment and select the
ones you think make the most sense for the product or service you're selling.
Typically, marketing teams select one or two segments to focus on at a time.

Positioning: With your knowledge of your target market, you can position your
brand, products and services in the places they're likely to discover them, such as TV
advertisements, social media campaigns or in stores where your target markets
often shop.
Why are segmentation, targeting, and positioning important in marketing?
Segmentation, targeting, and positioning are essential elements of marketing strategy. All
three concepts are prerequisites for developing the marketing mix. These steps are
necessary for understanding customers and the product offering better. It also allows
businesses to understand which customers they should focus their marketing strategy on
and how they can make their product the most successful from a marketing point of view.
Segmentation is essential for firms as it allows them to understand their market
better. During segmentation, customers are divided into smaller subsets based on shared
characteristics, which provides insight into the different types of customers purchasing the
firm's products or services.
Targeting is also important because it is essential to select which customer segment is most
attractive from a marketing perspective. This customer segment, or segments, will be the
ones you focus your marketing on.
Finally, positioning the product is crucial because it determines how customers will view the
product or service compared to those of competitors. This step helps businesses define their
product offerings and the value they bring to their customers.
Relationship between segmentation, targeting, and positioning
As illustrated in the Figure 2 above, segmentation, targeting, and positioning are all
related. The model begins with segmentation, in which consumers are divided into
subsegments or subgroups. Each subgroup includes a group of customers with similar
characteristics, either demographically, geographically, psychographically, or behaviourally.
The next step is targeting, in which the firm decides which market segment it wants to
target. Once the organisation identifies all market segments, it chooses the most attractive
one; the one aligned with the firm's objectives and resources.
Finally, the firm needs to decide how it will serve its customers. During this process, the
organisation needs to define its product differentiation strategy. This strategy includes
figuring out what makes the product or service different from competitors' products and
services. Then, it is time for market positioning. During this step, the firm needs to
determine how they want customers to perceive the product and position this product for
each target segment.
1. Segmentation
The first step in the process of product promotion is Segmentation
The division of a broad market into small segments comprising of individuals who think on
the same lines and show inclination towards similar products and brands is called Market
Segmentation.
Market Segmentation refers to the process of creation of small groups (segments) within a
large market to bring together consumers who have similar requirements, needs and
interests.
The individuals in a particular segment respond to similar market fluctuations and require
identical products.
In simpler words market segmentation can also be called as Grouping.
Kids form one segment; males can be part of a similar segment while females form another
segment. Students belong to a particular segment whereas professionals and office goers
can be kept in one segment.
2. Targeting
Once the marketer creates different segments within the market, he then devises various
marketing strategies and promotional schemes according to the tastes of the individuals
of particular segment. This process is called targeting. Once market segments are created,
organization then targets them.
Targeting is the second stage and is done once the markets have been segmented.
Organizations with the help of various marketing plans and schemes target their products
amongst the various segments.
Nokia offers handsets for almost all the segments. They understand their target audience
well and each of their handsets fulfils the needs and expectations of the target market.
Tata Motors launched Tata Nano especially for the lower income group.
3. Positioning
Positioning is the last stage in the Segmentation Targeting Positioning Cycle.
Once the organization decides on its target market, it strives hard to create an image of its
product in the minds of the consumers. The marketers create a first impression of the
product in the minds of consumers through positioning.
Positioning helps organizations to create a perception of the products in the minds of target
audience.
Ray Ban and Police Sunglasses cater to the premium segment while Vintage or Fastrack
sunglasses target the middle income group. Ray Ban sunglasses have no takers amongst the
lower income group.
Garnier offers wide range of merchandise for both men and women.
Each of their brands has been targeted well amongst the specific market segments. (Men,
women, teenagers as well as older generation)
Men - Sunscreen lotions, Deodorant
Women - Daily skin care products, hair care products
Teenagers - Hair colour products, Garnier Light (Fairness cream)
Older Generation - Cream to fight signs of ageing, wrinkles
A female would never purchase a sunscreen lotion meant for men and vice a versa. That’s
brand positioning.
What is STP?
STP stands for segmentation, targeting, and positioning in marketing. It is a three-step
process that allows for the development of a specific and actionable marketing strategy.
The main principle behind the process is to segment your audience, target each segmented
group according to their preferences and habits, and make positioning adjustments in your
branding and marketing strategies to accommodate their needs and expectations.
The segmentation-targeting-positioning process is so effective because it breaks down
broader markets into smaller parts, making it easier to develop specific approaches for
reaching and engaging potential customers instead of using a generic marketing strategy
that would not be as appealing, or as effective.
How to Use STP in Strategy Building
Using STP marketing in your business may seem complicated, but the process can be broken
down into actionable steps.
First, you must define the market you want to reach and create market segments based on
segmentation variables and bases such as age, location, interests, or almost anything else.
Then, evaluate each segment for viability, looking at how realistic it is to target them, and
choose the segments that show the most promise.
After performing a thorough FTP analysis and selecting the most promising segments,
developing a targeting strategy for that market (or markets), and identifying the most
promising positioning opportunities for engaging that market.
Let’s take a deeper look at the segmentation-targeting-positioning equation below.
Market Segmentation
The process of customer segmentation is all about identifying distinctive and common traits
between people in your market, which allows you to develop much more relevant and
engaging marketing campaigns.
If you can use audience insights to identify a specific desire or need in a group of people in
your market, you will be able to focus your message and deliver it in a way that has a much
stronger impact than broader marketing campaigns.
In fact, in saturated and mature markets, you may even discover new opportunities,
highlighting unique benefits to a segment that wasn’t catered to by anyone else.
But what types of segmentation variables can you use for segmentation? Some of the most
common segmentation variables include:

Demographics: age, gender, marital status, ethnicity, etc.

Geography: city, region, country, climate, etc.

Psychographics: personality traits, habits, attitudes, etc.

Values: politics, religion, cultural beliefs, identifications, etc.

Life Stages: work status, education status, retirement, etc.

Behaviors: purchases, interests, clicks, browsing data, etc.
These are just some of the possibilities for segmenting your audience, but they should
provide a pretty good starting point for what you should look at.
Market Targeting
The next step is to look at the segments that you picked to identify the best opportunities
for your business.
First, you will need to look at the size of the segment, which will tell you whether it’s worth
pursuing. After all, the marketing opportunity must be large enough to warrant running a
campaign. Otherwise, it simply won’t be worth the effort.
The next step is to look at whether there are significant markers that set the segments
apart; these can become the basis of an STP marketing campaign.
Be sure to analyze the opportunity from a financial perspective—the profits that you can
expect should exceed the additional marketing budget that would be required to execute it.
Finally, you must look at whether the market segment is accessible to your company, and if
you will be able to get your marketing messages in front of them.
In the end, the targeting stage is all about identifying the best opportunities for using the
consumer data and insights that you gain during the segmentation stage. Then, you can
optimize the customer journey map and create more relevant and engaging marketing
campaigns.
Market Positioning
Finally, consider positioning opportunities that will help you respond to an unmet need or
desire in your market that your product can fulfill.
Since you have tangible data about what segments of your audience desire, you can use
those insights to position your product and develop a unique selling proposition, presenting
the right message at the right time.
Using customer segmentation models, you can completely revamp your product positioning
and center your campaign around the most pressing problem that your audience is facing.
With a segmented and specifically targeted audience, your product positioning can have a
much stronger impact, helping your message stand out in a crowded marketplace.
Tests of a good segment
First, a segment must be measurable. That is, specific information about the size and
expenditures and characteristics of any segment can be determined through primary or
secondary research. Second, the market segment must be substantial, that is, large enough
to justify a firm’s expenditures of manpower and capital. Third, the segment must be
accessible. The firm must be able to reach the segment through marketing efforts. For
instance, it would be of no use to know that left-handed purchasing managers are more
inclined to buy cleaning solvents from a particular firm, since there is no clear way to reach
this segment through sales effort or established media. Some analysts add the term
“actionable” to this list of segmentation tests but accessible and actionable really describe
the same attribute. A good segment must be differentiable, which means it is homogeneous
within and heterogeneous between. In other words, the group targeted reacts in a
particular way to marketing stimuli and that reaction is different from the reaction of other
segments. This variable should also be reviewed for the level of response. If a segment is
more responsive than another, it may make it more attractive for a particular marketer.
Finally, the best segments are somewhat stable. Although segments can change as product
offerings and marketing stimuli are changed, the best segments are relatively stable
justifying the investment by a firm in targeting that particular segment.
5 Requirements for Effective Segmentation
Identifying the requirements for effective market segmentation allows companies to create
marketing campaigns that are essential for their growth and development. Here are the five
criteria for effective market segmentation:
1.Measurable
The size and purchasing power profiles of your market should be measurable, meaning
there is quantifiable data available about it. A consumer’s profiles and data provides
marketing strategists with the necessary information on how to carry out their campaigns.
It would be difficult to create advertisements for markets that have little to no data or for
audiences that can’t be measured. Always ask whether there is a market for the kind of
product or service that your business wants to produce then define how many possible
customers and consumers are in that market.
2. Accessible
Accessibility means that customers and consumers are easily reached at an affordable cost.
This helps determine how certain ads can reach different target markets and how to make
ads more profitable.
A good question to ask is whether it’s more practical to place ads online, on print, or out of
house. For example, gather data on the websites a specific target market usually visits so
you can place more advertisements on those websites instead.
3. Substantial
The market a brand should want to penetrate should be a substantial number. You should
clearly define a consumer’s profiles by gathering data on their age, gender, job, socioeconomic status, and purchasing power.
It doesn’t make sense to try and reach an unjustifiable number of people — you’re just
wasting resources. However, you also don’t want to market the brand to a group too small
that the business doesn’t become profitable.
4. Differentiable
When segmenting the market, you should make sure that different target markets respond
differently to different marketing strategies. If a business is only targeting one segment,
then this might not be as much of an issue.
But for example, if your target market is college students, then it’s essential to create a
marketing strategy that both freshman students and senior students react to in the same
positive way. This process ensures that you are creating strategies that are more efficient
and cost-effective.
5. Actionable
Lastly, your market segments need to be actionable, meaning that they have practical value.
A market segment should be able to respond to a certain marketing strategy or program
and have outcomes that are easily quantifiable.
As a business owner, it’s important to identify what kind of marketing strategies work for a
certain segment. Once those strategies have been identified, ask yourself if the business is
capable of carrying out that strategy.
Marketing research can help the small business identify and refine the segments that offer
the greatest opportunities. Part of that process will be to identify segments that meet the
requirements of measurability, substantiality, stability, accessibility, actionability,
and differential response.Dana-Nicoleta Lascu and Kenneth E. Clow, Essentials of
Marketing (Mason, OH: Atomic Dog Publishing, 2007), 175–76. Meeting these requirements
will increase the chances for successful segmentation.

Measurability. Is it easy to identify and estimate the size of a segment? A small
business that moves forward without a clear definition of its market segments is
working blind. Intuition can only go so far. Are there people who are interested in
freshly baked cookies for dogs (it would seem so), and how many of these people are
there? (Check out Happy Hearts Dog Cookies.)

Substantiality. Is the segment large and profitable enough to justify an investment?
A small business may not require a huge number of customers to be profitable, but
there should be enough people interested in the product or the service being offered
to make operating the business worthwhile. Fancy designer clothes for dogs, for
example, is a business that can survive—but not everywhere
(see www.ralphlauren.com/search/index.jsp?kw=pup&f=Home).

Stability. Stability has to do with consumer preferences. Are they stable over time?
Although segments will change over time, a small business needs to be aware of
preferences that are continuously changing. Small businesses can be more nimble at
adapting their businesses to change, but too much volatility can be damaging to a
business’s operations.

Accessibility. Can a business communicate with and reach the segment? A small
business interested in women who work outside the home will present greater
communication challenges than will stay-at-home wives and mothers.

Actionability. Is a small business capable of designing an effective marketing
program that can serve the chosen market segment? There was a small
manufacturer of low-priced cigarettes in Virginia that found it difficult to compete
with the big brands and other established lower-priced brands such as Bailey’s. The
manufacturer’s solution was to sell to Russia where “Made in Virginia, USA” worked
very well with customers and retailers.Dana-Nicoleta Lascu and Kenneth E.
Clow, Essentials of Marketing (Mason, OH: Atomic Dog Publishing, 2007), 176.

Differential response. The extent to which market segments are easily
distinguishable from each other and respond differently to company marketing
strategies.Dana-Nicoleta Lascu and Kenneth E. Clow, Essentials of Marketing (Mason,
OH: Atomic Dog Publishing, 2007), 176. For the small business that chooses only one
segment, this is not an issue. However, the small manufacturer of ramen noodles in
New York City needs to know whether there are different segments for the product
and whether the marketing strategy will appeal to those segments in the same
positive way.
Measurable
After market segmentation is done, we can clearly define the size, profile and purchasing
power of each segment. This implies that we have access to reliable data (for example
census data) or a reliable way of measuring segments. For example, knowing that your
product is a perfect fit for people that have a specific height is not relevant as you do not
have access to height data in specific regions, and the region average might differ from the
overall country average. In a similar manner, purchase power, consumption rates, habits,
cultural differences, physical characteristics and many other criteria, even if they would be
very relevant for your market segmentation, are almost impossible to determine for specific
regions (consider countries with high ethnic diversity, emergent economy or economic
issues and so on).
Accessible
While the segments themselves might be correctly established, you also need to be able to
reach these segments with your message and your products. For example, you can be
certain that your product is best suited for VPs and CEOs (based on education, income,
availability to spend, social expectations), but there are very few ways to reach top
management people directly.
Substantial
The obtained segments should be relevant in terms of size and purchase capability. Having a
segment that represents 97% of the population and the other segments consisting of 1%
each is not a valid market segmentation.
Differential
Each segment is well defined by unique needs, desires and characteristics that do not
overlap (as much as possible). This allows for specific approaches, messages and campaigns
dedicated for each segment. If segments overlap then segmentation might not be useful.
For example, marital status is not enough to differentiate segments when it comes to
perfume preferences. Marital status overlaps with gender segments and age segments,
leading to the inability to adress specific needs of the overlapping groups.
Actionable
Depending on the approach, segments might be too difficult or too expensive to reach. Even
if the segmentation is correct, the inability to take proper actions towards marketing to
specific segments makes these segments useless. The goal is to create segments for which
you are able to take actions (implicitly create and run your marketing campaigns) and then
be able to evaluate the results.
Segmentation variables
Business marketing segmentation variables can be divided into two main categories. In the
first category called identifiers by Day (1990), firms try to pre-establish segments a priori,
that is before any data are collected. This is done by using traditional segmentation
variables because the data are easier to obtain through observation of the buying situation
or from secondary sources. Some researchers call these macro variables. As can be seen
from Table 6.2, they include demographic factors, operations factors, product required, and
purchasing situation variables, related to current or potential customer market segments.
Day (1990) also identified response profile characteristics, “unique to the product or service
. . . based on attributes and behavior toward the product category or specific brands and
vendors in that category.” These include specific vendor attributes such as overall value
offered, product quality, vendor reputation, on time delivery and so on. In addition,
customer variables such as the make-up of the decision-making unit (or Buying Center), the
importance of the purchase to the subject segment, and the innovativeness of the firms in
this potential segment are examined. The response profile technique also involves reviewing
the user’s applications of the product to determine how products are used – for example, a
construction company might use detergent for cleaning the offices, or it might be used as an
additive to concrete to make it easier to mix. In the case of service industries, where
customer participation is critical to success in providing the service, Santos and Spring
(2015) suggest customer ability and willingness to participate as important segmentation
variables.
The response profile variables are often referred to as a posteriori, or after-the- fact
variables, in which a “clustering approach” is used to gather similar customers together
based on their needs. Some researchers call these micro variables. Looking at the usefulness
of the two basic segmentation approaches as measured against the tests for a good
segment, Malhotra (1989) claims the identifier approach is better than the response profile
approach in terms of measurability and accessibility since it is easier to find and reach the
segments that already have established data classifications. He feels this method is
particularly good for institutional markets, where the number of establishments is small and
the number of variables is large. On the other hand, Malhotra believes that using the
response profile or clustering approach will produce more responsiveness from a particular
segment since the marketing mix will be closely tailored to the specific needs of the
segment identified. Generally speaking, business marketers have used identifiers to
segment markets. The major reason for this is simplicity. The Internet has made it easy to
get the information needed to segment markets this way.
Segmentation is a major element of marketing. At its simplest it involves finding groups with
different preferences and different levels of willingness to pay and creating products and
offers that target these different groups - better matching what your offer against what the
market will pay for.
Segmentation is often used to describe the process of finding the segments. This can be
through market or survey research, or through database or other data analysis. However, it
is also important to realise that segmentation also involves using the groups for business
development. As such, it normally comes with a cost and complexity overhead so segments
need to be robust, replicable and have sufficient potential sales volume to make them
worth addressing.
At a research-level there are four major ways of segmenting a market, partly according to
the level of precision required and the type of data and analysis available about your
customers. However, in finding different market segments it is important to keep in mind
that the business will have to use the segments and implement segment
specific investments and plans for segmentation such as tailored products, pricing or
service to meet the needs of each target group.
Important questions are therefore how are you going to place customers into each group
and how are you going to target and track each group. Do you leave it up to the customer to
select themselves into a segment, or do you have specific segment sales managers?
1. A Priori segmentation
A-priori (pre-existing) segments are the most basic way of creating market segments. In Apriori segmentation, the market is split according to pre-existing demographic criteria such
as age, sex or social economic status, or other criteria available, particularly if using
databases or lists as a starting point.
More sophisticated versions include lifestage (which combines information about age,
presence of children and working status) and geodemographics such as Experian's Mosaic or
CACI's Acorn classification systems where households are allocated to specific clusters on
the basis of typical household make up and housing type. For website analysis, segments
can include country, browser type, or previous history.
A priori segments are easy to define and easy to target with advertising and media. For
some sectors, for instance technology, there are such strong relationships between age and
use, that a priori segments are all that are needed. However in other markets - for instance
drinks, it is more difficult to use pre-existing variables for segmentation.
A priori segmentations are also the simplest segmentation to apply and use. A database can
be flagged or sorted on the pre-existing data and that data used to drive sales and
marketing campaigns. Similarly, on a website basis, segments can be identified from session
histories and IP identifiers.
However, although better than pure mass marketing, even the most sophisticated a priori
systems are quite crude. In geodemographics there is the assumption that you buy or think
the same way as your neighbour which is clearly not always the case.
3. Attitudinal research and cluster analysis
When market research is used for usage studies, it is also often accompanied by attitudinal
research - what do customers think or believe about the category in question. This is
commonly achieved through banks of agree-disagree scales or ratings out of 5,7 or 10. The
aim of these studies is not just to understand commonalities in opinion, but also what
makes one group of users different from another.
To understand how attitudes affect purchase statistical techniques such as "cluster
analysis" are used where people with similar attitudes are combined together. For instance
grouping those for whom the environment is important separately from those who think
price is more important.
This information can then be used to target groups by what they think and how they feel,
rather than just who they are. This is particularly valuable in determining branding
strategies and keeping a brand in tune with consumers.
However, attitudinal clusters do not fit easily into database or conventional media targeting
which are more often than not based on demographics. The translation from attitudes to
demographics means that some of the usefulness of an attitudinal segmentation is lost.
Companies can reach different attitudinal groups by offering a range of products and a
range of communication, but clearly the lack of a clear definition means cross-over between
the targeting of segments.
Attitudinal grouping also suffer from some problems with regard to their robustness and
replicability. Cluster analysis cannot be carried out in the field so scoring systems (similar to
credit scoring) or surrogate measures and variables are needed to allocate individuals to a
group. These additional measures can be guessed at, but normally need to be defined and
tested post-hoc. Repeating attitudinal analysis successfully can be very difficult and
expensive.
Attitudinal groups may also change or move over time as some views become fashionable
or unfashionable. It is possible to find a segmentation that quickly disappears or is
superseded by events (imagine the music market). There is also debate about how attitudes
change - is it the advertising and the product that create the attitudes, or do the attitudes
lead to the choice of a particular product. In particular a single individual in different
circumstances or mode, may fit into a different segment. Capturing this complexity in a
single dimensional study is difficult.
Nonetheless, attitudinal clustering remains one of the most common forms of research-type
segmentation. If you find different attitude groups - for instance an environmentalist group
versus a buy by price group, there can be very clear distinct differences in messages,
distribution and product for genuinely different attitude groups.
Segmentation techniques
Once segmentation variables have been preselected and the data is collected, it is necessary
to choose the statistical process by which the segments will be identified. The segmentation
technique to be used depends largely on the type of data available (metric or nonmetric
variables) and the kinds of dependence observed — that is, dependence or
interdependence (Cooper D. & Emory, W., 1995, p. 521). Among the most common
segmentation techniques used are factor analysis, cluster analysis, discriminant analysis,
and multiple regression. Increasingly utilized techniques include chi-squared automatic
detection (CHAID), LOGIT, and Log Linear Modeling (Magidson, J., 1990).
Traditionally cluster analysis had been utilized but its use declined because of increased
criticism of its empirical nature (Mitchell, V. W., 1994) and the emergence of new methods.
Newer systems and algorithms such as CHAID permit the use of chi-squared analysis which
does not force ordinal and nominal data into continuous variables. CHAID permits not only
the identification of segments but also their ranking by profitability or some other measure
of desirability (Magidson, J. 1993). Since the segmentation process is complex, and thus
prone to error, data integrity tests and validity assessments should be included along the
process as well as in the final outcome review.
Once clusters have been identified, they are described using other variables not included in
forming the clusters. This descriptive process is intended to yield a full-bodied description of
the market segments, which will be useful in the evaluation process but, most importantly,
in the marketing mix creation stage. Multiple discriminant analysis is often used for this
purpose (Gunter, B., & Furnham, A., 1992).
The 4 Types of Market Segmentation
While there are dozens of subcategories and traits that can be used to identify different
markets, there are only four types of market segmentation. The dozens of separate
subcategories are placed under each of these four types of segmentation. The purpose of
breaking the market up into four types of segments is that businesses can more accurately
achieve similarity in each segment.
For instance, all of the subcategories that are placed under the demographic segment are
similar to one another, which provides companies with the information they need to
precisely target a specific customer-base. When performing market segmentation, make
sure that you avoid combining two of the segmentations into a single one. Even though the
demographic and geographic segmentations are similar, a combination of these variables is
exceedingly difficult to create.
Demographic
The demographic market segmentation is focused entirely on who the customer is.
However, the traits that are placed into the demographic market segment depend on
whether you run a B2B or B2C business. If you run a B2B company, the traits that you would
likely include in this segment extend to industry type, company size, time in position, and
role within the company. On the other hand, a B2C company would include such
demographic traits as age, education, gender, occupation, family status, and income.
This is a very common segmentation type that's used within market research to determine
what a company's main target audience is. This information is also easy to obtain. All you
need to do to gain this information is to pull census data. Auto dealerships can use this
information to market their brand to different genders, age groups, and income levels. This
has also proven to be a useful type of market segmentation because it allows you to directly
respond to the wants and needs of your customers.
If your main product is a high-end item, you may want to segment your audience based on a
high household income. When you use these traits to categorize your audience for
marketing purposes, you should be able to increase customer retention and loyalty. You
also won't waste your resources on targeting an audience who would never be interested in
the items or services that you provide. You can use several of the traits or segments within
the demographic segmentation to reach a precise customer with your marketing.
The belief when using this type of market segmentation is that all of the customers within a
demographic trait will have similar purchasing behaviors. For instance, customers within the
40-49 age bracket may be much more likely to purchase your product when compared to
customers within the 20-24 age bracket, which is useful to know when you're looking to
create an effective and efficient marketing campaign.
Geographic
The geographic market segmentation allows you to effectively split your entire audience
based on where they are located, which is useful when the location of the customers plays a
part in their overall purchase decision. The core traits and segments that can be used
with the geographic segmentation include region, continent, country, city, and district.
This is an exceedingly popular type of segmentation because most customers are influenced
at least partly based on where they live. If a significant amount of your audience lives in the
United Kingdom, you can use this information to create a co.uk website. This form of
segmentation is considered to be ideal for international companies. Customers who live in
different countries will have different wants and needs, which can be precisely targeted in a
marketing campaign. This is considered by many companies to be the simplest form of
market segmentation. It's also highly beneficial for small businesses with a limited budget. If
your main geographic segment responds better to online ads than TV and print ads, this
information should help you use your resources wisely.
Psychographic
The psychographic market segmentation is aimed at separating the audience based on
their personalities. The different traits within this segmentation include lifestyle, attitudes,
interests, and values. However, extensive research will be necessary with this form of
segmentation since identifying demographics based on personality is relatively subjective. If
you find that your main audience values quality and energy-efficiency above all else, your
marketing platform can be altered to account for these core values.
It's recommended that you cover at least several psychographic traits when forming your
marketing approach to ensure that you don't miss a perspective that your audience might
have. While this market segmentation is difficult to use, many companies believe that it can
lead to high yields. When your marketing is targeted to someone's personality, it's more
likely that the individuals who see this marketing will become increasingly loyal to your
brand.
Behavioral
The behavioral market segmentation divides your whole audience based on the previous
behavior that they've exhibited with your brand. Some of the main traits within this
segmentation type include product knowledge, purchase patterns, previous purchases,
awareness of your business, and product rating.
To best understand how this market segmentation is used, an example of a business that
might employ this type of segmentation is a restaurant. If a restaurant has different menus
for lunch and dinner, they could compare purchase patterns between the dinner audience
and lunch audience. It's possible that items on the lunch menu would be much more
popular if they were instead available on the dinner menu. The restaurant could use this
data to improve their menus and release new ones that would be more effective for each
audience segment.
Types Of Market Segmentation
There are 4 types of market segmentation. Below, we describe each of them:
Geographic segmentation
Geographic segmentation consists of creating different groups of customers based on
geographic boundaries.
The needs and interests of potential customers vary according to their geographic location,
climate and region, and understanding this allows you to determine where to sell and
advertise a brand, as well as where to expand a business.
Demographic segmentation
Demographic segmentation consists of dividing the market through different variables such
as age, gender, nationality, education level, family size, occupation, income, etc.
This is one of the most widely used forms of market segmentation, since it is based on
knowing how customers use your products and services and how much they are willing to
pay for them.
Psychographic segmentation
Psychographic segmentation consists of grouping the target audience based on their
behavior, lifestyle, attitudes and interests.
To understand the target audience, market research methods such as focus groups, surveys,
interviews and case studies can be successful in compiling this type of conclusion.
Behavioral segmentation
Behavioral segmentation focuses on specific reactions, i.e. the consumer behaviors,
patterns and the way customers go through their decision-making and purchasing
processes.
The attitudes the public has towards your brand, the way they use it and their awareness
are examples of behavioral segmentation. Collecting this type of data is similar to the way
you would find psychographic data. This allows marketers to develop a more targeted
approach.
What is Market Segmentation?
Market segmentation is a strategy that helps marketers identify potential customers and
understand consumer behavior so that they can craft effective targeted marketing
campaigns.
Market segmentation breaks the consumer population down into subgroups based on
shared characteristics. Companies can then tailor their marketing efforts to directly appeal
to different subgroups of target consumers or use the information to expand their product
offerings to fill market gaps.
There are various market segmentation strategies, each yielding unique insights into
consumer behavior. Marketers can look at observable demographic information like age or
occupation or break up populations geographically. They can also look at how their target
consumers behave, what they value, where they shop, and how loyal they are to the brands
they use.
Marketing segmentation requires a lot of data, which is typically obtained in one of three
ways:

First-party data: Information obtained directly from your customers. First-party data
yields the most accurate and targeted marketing information but can be timeconsuming and not always feasible.

Second-party data: Another business entity’s first-party data. This data comes from
web activity, customer surveys, mobile app usage, and social media.

Third-party data: Data purchased from an entity that did not initially collect the
information. Marketers buy third-party data from large data aggregators, which
organize massive amounts of data into categories based on industry, demographic
characteristics, and consumer behavior.
What Are the 4 Types of Market Segmentation?
The following four types of market segmentation–demographic, geographic, psychographic,
and behavioral–are popular, effective ways to identify and understand a consumer
population.

Demographic Market Segmentation
Demographic market segmentation splits consumers into groups based on quantifiable,
observable metrics like age, occupation, and income.
Segmentation by demographic is one of the most basic and common types of market
segmentation. Marketers often pair demographic segmentation with other methods to yield
a more specific market segment.
Demographic qualities commonly used in market segmentation include:

Age

Occupation

Education level

Income

Marital status

Family size

Nationality

Race

Religion
Marketing companies can generally obtain large amounts of demographic data at relatively
low costs by asking customers directly or by working with second or third-party data
providers.

Geographic Market Segmentation
Geographic market segmentation separates consumers by location, recognizing that
consumers in a given area tend to overlap in their wants and needs. Marketers can segment
customers by country, state, or zip code or look at the characteristics of a geographic area,
such as its climate and population density, to inform their marketing decisions.
Geographic segmentation allows marketers to target consumers in a specific region, which is
particularly useful when creating a marketing strategy for local businesses. With insights
gleaned through geographic market segmentation analysis, the marketer can craft an
appealing campaign that corresponds to the interests, language, and norms of the target
region’s unique consumer base.
Segmenting a population geographically also allows marketers to tailor the message of
broader campaigns to suit the interests and attributes of consumers in a target location. For
example, a clothing company can show ads for cozy winter clothes to audiences in colder
climates and bathing suits ads to those in warm or tropical regions.

Psychographic Market Segmentation
Psychographic market segmentation aims to separate consumers based on mental and
emotional characteristics such as personality traits, values, beliefs, lifestyles, attitudes, and
interests. Understanding consumer motives, needs, and preferences allow marketers to
create more effective and appealing content for their clients.
Marketers often employ psychographic segmentation when consumers within a target
demographic respond differently to marketing content. The marketer can identify the
shared characteristics of the consumers who buy the product and adjust its ads to appeal to
other customers with the same characteristics.
For example, an interior design company does a psychographic segmentation analysis and
realizes that its signature sofa is being bought by customers who see themselves as
environmentally-conscious. To reach potential customers, the company can create ads that
emphasize the sofa’s eco-friendly attributes or include other “green” elements in the ad,
like indoor plants and natural light.

Behavioral Market Segmentation
Behavior market segmentation divides consumers based on how they relate and interact
with a company’s product, website, and brand. Using this method, marketers can create
messages that align with how consumers generally behave when they encounter a
company’s promotional efforts.
Marketers can track a range of consumer behaviors, including:

Online shopping habits

Website actions, such as how long the customer stays on the site, types of content
they click, and whether or not they read to the end of articles

The usage rate of the product

Brand loyalty
Marketers generally collect this behavioral information through cookies on their website,
purchase data from CRM (customer relationship management software), or third-party
databases.
Because it is such a broad and complex category, behavioral market segregation is often
broken down further into four subcategories: purchasing behavior, benefits sought, usage
benefit, and occasion-based (or timing-based) behavior.
The nested approach to segmentation / Industrial market segmentation
Industrial Market Segmentation – Meaning and Bases
It is a system to identify and categorize the diversified potential customers of an industrial
market or B2B market into different groups. It aids in making strategic and tactical decisions
relating to the sales and marketing of the industrial products/services in the chosen market
segment. However, the complexity of the products/services and buying procedures in the
industrial markets makes industrial market segmentation more challenging and intricate
than customer market segmentation.
Different parameters for industrial market segmentation are as below –

1. Industry Type
Different types of industries form different types of industrial markets for B2B products.
These industries are thus segmented as automobiles, IT, chemicals, FMCG, textiles, iron &
steel, services, and so on.

2. Geographic
B2B markets are segmented based on geographical locations as follows 
Based on distance, markets are segmented as local, regional, domestic, and
international markets.

Based on the location of the buyers, markets are segmented as rural (buyers located
in the countryside) and urban (buyers located in a city or a town).

3. Business Operations
Industrial market segmentation is also done based on the diverse nature of operations
performed by the industrial units. This includes manufacturing, assembling, distributing,
retailing, consulting, etc.

4. Consumption Rate or Size
Based on the annual consumption of resources and the size of orders processed, industries
are segmented as large, medium, or small scale industries.

5. Ownership
Based on ownership structure, industrial companies are classified as sole proprietorships,
partnerships, private, public, government, and corporations.

6. Buying Techniques
Different buying techniques adopted by different industrial buyers segments the industrial
markets or customers as tender or sealed-bidding, leasing, service contracts, direct
purchasing, and agency-approved purchasing.

7. Payment Procedures
The mode and time of payment adopted by buyers segments them as – cash purchasers,
credit purchasers, full-paying purchasers, and installment-paying purchasers
Examples of industrial segmentation
There are many different ways that businesses can segment industrial customers. Some
common examples of industrial segmentation include:

Industry-based segmentation: This type of segmentation involves dividing industrial
customers into different groups based on the industries they operate in, such as
manufacturing, healthcare, or technology.

Size-based segmentation: This type of segmentation involves dividing industrial
customers into different groups based on the size of their business, such as small,
medium, or large enterprises.

Location-based segmentation: This type of segmentation involves dividing industrial
customers into different groups based on their geographic location, such as by
country, region, or city.

Purchasing power-based segmentation: This type of segmentation involves dividing
industrial customers into different groups based on their purchasing power, such as
by their annual revenue or the size of their purchasing budgets.

Customer type-based segmentation: This type of segmentation involves dividing
industrial customers into different groups based on their customer type, such as by
their role within the organization (e.g. decision-maker, influencer, user) or their level
of engagement with the business (e.g. first-time buyer, regular customer, lapsed
customer).
Best practices of industrial segmentation
To effectively implement industrial segmentation in marketing efforts, it is important to
follow some best practices. Some key best practices to consider include:
Use a variety of data sources
Industrial segmentation should be based on a range of data sources, including customer
surveys, sales data, and market research. This can help to provide a more comprehensive
and nuanced understanding of industrial customers' needs and preferences.
Use multiple segmentation methods
Industrial segmentation should not rely on a single method or factor, such as industry or
size. Instead, it should use a combination of different segmentation methods to provide a
more detailed and accurate understanding of industrial customers.
Regularly review and update segmentation strategies
Industrial customers' needs and preferences can change over time, as can market
conditions. Therefore, industrial segmentation strategies should be regularly reviewed and
updated to ensure that they remain relevant and effective.
Involve different teams and departments
Industrial segmentation should be a collaborative effort involving teams and departments
across the business, including sales, marketing, and customer service. This can help to
ensure that segmentation strategies are aligned with overall business goals and objectives.
Communicate segmentation strategies to the entire organization
Industrial segmentation strategies should be clearly communicated to the entire
organization, so that all teams and departments are aware of how to target and engage with
specific segments of industrial customers. This can help to ensure that marketing efforts are
consistent and effective.
Market Segmentation, Targeting and Positioning
Industrial market segmentation is a complex procedure. The market segmentation provides
benefits like determining market attractiveness and opportunities by analyzing the market.
The segmentation should be based on important criteria like measurability, potential,
compatibility, stability, and accessibility. Segmentation can be based on macro and micro
variables.
The macro bases of segmentation are based on the industry and organizational
characteristics. Organizational characteristics include demographics, end-use markets, and
product applications. Micro bases for segmentation include purchasing situations, and
customer-oriented variables such as customer experience, customer interaction needs, and
customer benefits.
The nested approach divides the market on the basis of five basic criteria like demographics,
operational variables, purchasing approaches, situational factors, and buyer's personal
characteristics. Segmentation is followed by targeting.
Target markets are selected by evaluating the markets, by analyzing the profitability of the
segments, and the capabilities of competitors.
We have identified five general segmentation criteria (see Exhibit 1), which we have
arranged as a nested hierarchy—like a set of boxes that fit one into the other. Moving from
the outer nest toward the inner, these criteria are: demographics, operating variables,
customer purchasing approaches, situational factors, and personal characteristics of the
buyers.
Exhibit 1 Nested Approach
Exhibit 1 shows how the criteria relate to one another as nests. The segmentation criteria of
the largest, outermost nest are demographics—general, easily observable characteristics
about industries and companies; those of the smallest, innermost nest are personal
characteristics—specific, subtle, hard-to-assess traits. The marketer moves from the more
general, easily observable segmentation characteristics to the more specific, subtle ones.
This approach will become clearer as we explain each criterion.
We should note at this point that it may not be necessary or even desirable for every
industrial marketer to use every stage of the nested approach for every product. Although it
is possible to skip irrelevant criteria, it is important that the marketer completely
understand the approach before deciding on omissions and shortcuts.
Demographics
The outermost nest contains the most general segmentation criteria, demographics. These
variables give abroad description of the company and relate to general customer needs and
usage patterns. They can be determined without visiting the customer and include industry,
company size, and customer location.
The Industry.
Knowledge of the industry affords a broad understanding of customer needs and
perceptions of purchase situations. Some companies, such as those selling paper, office
equipment, business-oriented computers, and financial services, market to a wide range of
industries. For these, industry is an important basis for market segmentation. Hospitals, for
example, share some computer needs and yet differ markedly as a customer group from
retail stores.
Marketers may wish to subdivide individual industries. For example, although financial
services are in a sense a single industry, commercial banks, insurance companies, stock
brokerage houses, and savings and loan associations all differ dramatically. Their differences
in terms of product and service needs, such as specialized peripherals and terminals, data
handling, and software requirements, make a more detailed segmentation scheme
necessary to sell computers to the financial services market.
Company Size.
The fact that large companies justify and require specialized programs affects market
segmentation. It may be, for example, that a smaller supplier of industrial chemicals, after
segmenting its prospective customers on the basis of company size, will choose not to
approach large companies whose volume requirements exceed its own production capacity.
Customer Location.
The third demographic factor, location, is an important variable in decisions related to
deployment and organization of sales staff. A manufacturer of heavy-duty pumps for the
petrochemical industry, for example, would want to provide good coverage in the Gulf
Coast, where customers are concentrated, while putting little effort into New England.
Customer location is especially important when proximity is a requirement for doing
business, as in marketing products of low value-per-unit-weight or volume (such as
corrugated boxes or prestressed concrete), or in situations where personal service is
essential (as in job shop printing).
As noted, a marketer can determine all of these demographic variables easily. Industryoriented and general directories are useful in developing lists of customers in terms of
industry, size, and location. Government statistics, reports by market research companies,
and industry and trade association publications provide a great deal of demographic data.
Many companies base their industrial marketing segmentation approach on demographic
data alone. But while demographics are useful and easily obtained, they do not exhaust the
possibilities of segmentation. They are often only a beginning.
Operating Variables
The second segmentation nest contains a variety of segmentation criteria called “operating
variables.” Most of these enable more precise identification of existing and potential
customers within demographic categories. Operating variables are generally stable and
include technology, user/nonuser status (by product and brand), and customer capabilities
(operating, technical, and financial).
Company Technology.
A company’s technology, involving either its manufacturing process or its product, goes a
long way toward determining its buying needs. Soda ash, for example, can be produced by
two methods that require different capital equipment and supplies. The production of
Japanese color televisions is highly automated and uses a few large, integrated circuits. In
the United States, on the other hand, color TV production once involved many discrete
components, manual assembly, and fine tuning. In Europe, production techniques made use
of a hybrid of integrated circuits and discrete components. The technology used affects
companies’ requirements for test gear, tooling, and components and, thus, helps determine
a marketer’s most appropriate marketing approach.
Product and Brand-Use Status.
One of the easiest ways, and in some situations the only obvious way, to segment a market
is by product and brand use. Users of a particular product or brand generally have some
characteristics in common; at the very least, they have a common experience with a product
or brand.
Manufacturers who replace metal gears with nylon gears in capital equipment probably
share perception so frisk, manufacturing process or cost structure, or marketing strategy.
They probably have experienced similar sales presentations. Having used nylon gears, they
share common experiences including, perhaps, similar changes in manufacturing
approaches.
One supplier of nylon gears might argue that companies that have already committed
themselves to replace metal gears with nylon gears are better customer prospects than
those that have not yet done so, since it is usually easier to generate demand for a new
brand than for a new product. But another supplier might reason that manufacturers that
have not yet shifted to nylon are better prospects because they have not experienced its
benefits and have not developed a working relationship with a supplier. A third marketer
might choose to approach both users and nonusers with different strategies.
Current customers are a different segment from prospective customers using a similar
product purchased elsewhere. Current customers are familiar with a company’s product and
service, and company managers know something about customer needs and purchasing
approaches. Some companies’ marketing approaches focus on increasing sales volume from
existing custom-ers, either by customer growth or by gaining a larger share of the
customer’s business, rather than on additional sales volume from new customers. In these
cases, industrial sales managers often follow a two-step process: first they seek to gain an
initial order on trial, and then they seek to increase the share of the customer’s purchases.
Banks are often more committed to raising the share of major customers’ business than to
generating new accounts.
Sometimes it is useful to segment customers not only on the basis of whether they buy from
the company or from its competitors, but also, in the latter case, on the identity of
competitors. This in formation can be useful in several ways. Sellers may find it easier to lure
customers from competitors that are weak in certain respects. When Bethlehem Steel
opened its state-of-the-art Burns Harbor plant in the Chicago area, for example, it went
after the customers of one local competitor known to offer poor quality.
Customer Capabilities.
Marketers might find companies with known operating, technical, or financial strengths and
weaknesses to be an attractive market. For example, accompany operating with tight
materials inventories would greatly appreciate a supplier with are liable delivery record. And
customers unable to perform quality-control tests on incoming materials might be willing to
pay for supplier quality checks. Some raw materials suppliers might choose to develop a
thriving business among less sophisticated companies, for which lower-than-usual average
discounts well compensate added services.
Technically weak customers in the chemical industry have traditionally depended on
suppliers for formulation assistance and technical support. Some suppliers have been astute
in identifying customers needing such support and in providing it in a highly effective
manner.
Technical strength can also differentiate customers. Digital Equipment Corporation for many
years specialized in selling its minicomputers to customers able to develop their own
software, and Prime Computer sold computer systems to business users who did not need
the intensive support and “hand holding” offered by IBM and other manufacturers. Both
companies used segmentation for market selection.
Many operating variables are easily researched. In a quick drive around a soda ash plant, for
example, a vendor might be able to identify the type of technology being used. Data on
financial strength is at least partially available from credit-rating services. Customer
personnel may provide other data, such as the name of current suppliers; “reverse
engineering”(tearing down or disassembly) of a product may yield information on the type
and even the producers of components, as may merely noting the names on delivery trucks
entering the prospect’s premises.
Purchasing Approaches
One of the most neglected but valuable methods of segmenting an industrial market
involves consumers’ purchasing approaches and company philosophy. The factors in this
middle segmentation nest include the formal organization of the purchasing function, the
power structures, the nature of buyer-seller relationships, the general purchasing policies,
and the purchasing criteria.
Purchasing Function Organization.
The organization of the purchasing function to some extent determines the size and
operation of a company’s purchasing unit. A centralized approach may merge individual
purchasing units into a single group, and vendors with decentralized manufacturing
operations may find it difficult to meet centralized buying patterns.1 To meet these different
needs, some suppliers handle sales to centralized purchasers through so-called national
account programs and those to companies with a decentralized approach through fieldoriented sales forces.
Power Structures.
These also vary widely among customers. The impact of influential organizational units
varies and often affects purchasing approaches. The powerful financial analysis units at
General Motors and Ford may, for example, have made these companies unusually priceoriented in their purchasing decisions. Or a company may have a powerful engineering
department that strongly influences purchases; a supplier with strong technical skills would
suit such a customer. A vendor might find it useful to adapt its marketing program to
customer strengths, using one approach for customers with strong engineering operations
and another for customers lacking these.
Buyer-Seller Relationships.
A supplier probably has stronger ties with some customers than with others. The link may
be clearly stated. A lawyer, commercial banker, or investment banker, for example, might
define as an unattractive market segment all companies having as a board member the
representative of a competitor.
General Purchasing Policies.
A financially strong company that offers a lease program might want to identify prospective
customers who prefer to lease capital equipment or who have meticulous asset
management. When AT&T could lease but not sell equipment, this was an important
segmentation criterion for it. Customers may prefer to do business with long-established
companies or with small independent companies, or may have particularly potent
affirmative action purchasing programs (minority-owned businesses were attracted by
Polaroid’s widely publicized social conscience program, for example). Or they may prefer to
buy systems rather than individual components.
A prospective customer’s approach to the purchasing process is important. Some
purchasers require an agreement based on supplier cost, particularly the auto companies,
the U.S. government, and the three large general merchandise chains—Sears, Roebuck;
Montgomery Ward; and J.C. Penney. Other purchasers negotiate from a market-based price,
and some use bids. Bidding is an important method for obtaining government and quasigovernment business, but because it emphasizes price, bidding tends to favor suppliers that,
perhaps because of a cost advantage, prefer to compete on price. Some vendors might view
purchasers who choose suppliers via bidding as desirable, while others might avoid them.
Purchasing Criteria.
The power structure, the nature of buyer-seller relationships, and general purchasing
policies all affect purchasing criteria. Benefit segmentation in the consumer goods market is
the process of segmenting a market in terms of the reasons why customers buy. It is, in fact,
the most insightful form of consumer goods segmentation because it deals directly with
customer needs. In the industrial market, consideration of the criteria used to make
purchases and the application for these purchases, which we consider later, approximate
the benefit segmentation approach.
Situational Factors
Up to this point we have focused on the grouping of customer companies. Now we consider
the role of the purchase situation, even single-line entries on the order form.
Situational factors resemble operating variables but are temporary and require a more
detailed knowledge of the customer. They include the urgency of order fulfillment, product
application, and the size of order.
Urgency of Order Fulfillment.
It is worthwhile to differentiate between products to be used in routine replacement or for
building a new plant and those for emergency replacement of existing parts. Some
companies have found a degree of urgency useful for market selection and for developing a
focused marketing-manufacturing approach leading to a “hot-order shop”—a factory that
can supply small, urgent orders quickly.
A supplier of large-size, heavy-duty stainless steel pipe fittings, for example, defined its
primary market as fast-order replacements. A chemical plant or paper mill needing to
replace a fitting quickly is often willing to pay a premium price for a vendor’s application
engineering, for flexible manufacturing capacity, and for installation skills that would be
unnecessary with routine replacement parts.
Product Application.
The requirements for a 5-horsepower motor used in intermittent service in a refinery will
differ from those of a 5-horsepower motor in continuous use. Requirements for an
intermittent-service motor will vary depending on whether its reliability is critical to the
operation or safety of the refinery. Product application can have a major impact on the
purchase process and purchase criteria and thus on the choice of vendor.
Size of Order.
Market selection can begin with the individual line entries on the order form. A company
with highly automated equipment might segment the market so that it can concentrate only
on items with large unit volumes. A non automated company, on the other hand, might
want only small-quantity, short-run items. Ideal for these vendors would be an order that is
split up into long-run and short-run items. In many industries, such as paper and pipe
fittings, distributors break up orders in this way.
Marketers can differentiate individual orders in terms of product uses as well as users. The
distinction is important; users may seek different suppliers for the same product under
different circumstances. The pipe-fittings manufacturer that focused on urgent orders is a
good example of a marketing approach based on these differences.
Situational factors can greatly affect purchasing approaches. General Motors, for example,
makes a distinction between product purchases—that is, raw materials or components for a
product being produced—and nonproduct purchases. Urgency of order fulfillment is so
powerful that it can change both the purchase process and the criteria used. An urgent
replacement is generally purchased on the basis of availability, not price.
The interaction between situational factors and purchasing approaches is an example of the
permeability of segmentation nests. Factors in one nest affect those in other nests. Industry
criteria, for instance, an outer-nest demographic description, influence but do not
determine application, a middle-nest situational criterion. The nests are a useful mental
construct but not a clean framework of independent units because in the complex reality of
industrial markets, criteria are interrelated.
The nesting approach cannot be applied in a cookbook fashion but requires, instead, careful,
intelligent judgment.
Buyers’ Personal Characteristics
People, not companies, make purchase decisions, although the organizational framework in
which they work and company policies and needs may constrain their choices. Marketers for
industrial goods, like those for consumer products, can segment markets according to the
individuals involved in a purchase in terms of buyer-seller similarity, buyer motivation,
individual perceptions, and risk-management strategies.
Some buyers are risk averse, others risk receptive. The level of risk a buyer is willing to
assume is related to other personality variables such as personal style, intolerance for
ambiguity, and self-confidence. The amount of attention a purchasing agent will pay to cost
factors depends not only on the degree of uncertainty about the consequences of the
decision but also on whether creditor blame for these will accrue to him or her. Buyers who
are risk averse are not good prospects for new products and concepts. Risk-averse buyers
also tend to avoid untested vendors. Some buyers are meticulous in their approach to
buying—they shop around, look at a number of vendors, and then split their order to assure
delivery. Others rely on old friends and past relationships and seldom make vendor
comparisons.2 Companies can segment a market in terms of these preferences.
Data on personal characteristics are expensive and difficult to gather. It is often worthwhile
to develop good, formal sales information systems to ensure that sales people transmit the
data they gather to the marketing department for use in developing segmented marketing
strategies. One chemical company attributes part of its sales success to its sales information
system’s routine collection of data on buyers. Such data-gathering efforts are most justified
in the case of customers with large sales potential.
Reassembling the Nest
Marketers are interested in purchase decisions that depend on company variables,
situational factors, and the personal characteristics of the buyers. The three outer nests, as
Exhibit 2 shows, cover company variables; the fourth inner-middle nest, situational factors;
and the innermost nest, personal characteristics.
Nested approach to segmentation (Bonoma & Shapiro model)
Taking the Wind & Cardozo model, Bonoma & Shapiro extended this into a multi-step
approach in 1984. As the application of all the criteria recommended by Wind and Cardozo
and subsequent scholars who expanded upon their two-stage theory became increasingly
difficult due to the complexity of modern businesses, Bonoma and Shapiro suggest that the
same / similar criteria be applied in multi-process manner to allow flexibility to marketers in
selecting or avoiding the criteria as suited to their businesses. “They proposed the use of the
following five general segmentation criteria which they arranged in a nested hierarchy:
1. On a macro segmentation level:
1. Demographics: industry, company size, customer location
2. Operating variables: company technology, product/brand use status, customer
capabilities
3. Purchasing approaches: purchasing function, power structure, buyer-seller
relationships, purchasing policies, purchasing criteria
2. On a micro segmentation level:
1. Situational factors: urgency of order, product application, size of order
2. Buyers’ personal characteristics: character, approach
The idea was that the marketers would move from the outer nest toward the inner, using as
many nests as necessary”. (Kalafatis & Cheston, 1997). As a result, this model has become
one of the most adapted in the market, rivalling the Wind & Cardozo model head-on. One of
the problems with the nested approach “is that there is no clear-cut distinction between
purchasing approaches, situational factors and demographics". Bonoma and Shapiro are
aware of these overlaps and argue that the nested approach is intended to be used flexibly
with a good deal of managerial judgment” (Webster, 2003).
Segmentation selection process
Freytag and Clarke (2001) offer a segment selection process illustrated in Figure 6.3. This
process requires that a firm compare potential segments it may serve, estimating future
attractiveness, resource demands, and fit with firm strategy. First, the firm should decide
whether this particular segment will be growing at a suitable rate, is large enough and
profitable enough to serve. Second, the firm should assess the competition and the risk,
understand any governmental or environmental concerns, what demands customers may
have, and how serving this particular segment may affect present and future relationships
with current and potential customers. Third, the firm must measure demands on its
resources in technology, relationships, human resources in each of the functional areas,
image, capital investment, and product development required. Finally, the firm should
examine whether a segment is congruent with its present or future strategy related to the
overall corporate direction, management’s commitment, and organizational requirements
required to implement the strategy. Bonoma and Shapiro (1983) recommend choosing
segments using two major criteria: Customer Conversion Analysis and Segment Profitability
Analysis. The first simply means estimating how many potential prospects in a particular
segment can be converted to customers and how large that served segment will be. This is
based upon the number of prospects in a market (the density) which can be reached for a
particular marketing expenditure. Segment Profitability Analysis is an attempt to determine
the contribution margin per dollar invested to serve that segment. The authors recommend
combining these approaches to determine which segments a firm ought to serve.
Selecting Target Segments
Once an actionable segmentation approach is in place, marketing organizations typically
follow one of two major segmentation strategies: a concentration strategy or a
multisegment strategy.
Rolex focuses on a single market segment—those who want a luxury watch—and is thus a
prime example of the concentration strategy of market segmentation.
In the concentration strategy, a company chooses to focus its marketing efforts on only one
market segment. Only one marketing mix is developed: the combination of product
offerings, promotional communications, distribution, and pricing targeted to that single
market segment. The primary advantage of this strategy is that it enables the organization
to analyze the needs and wants of only one segment and then focus all its efforts on that
segment. The primary disadvantage of concentration is that if demand in the segment
declines, the organization’s sales and financial position will also decline.
In the multisegment strategy, a company focuses its marketing efforts on two or more
distinct market segments. The organization develops a distinct marketing mix for each
segment. Then they develop marketing programs tailored to each of these segments. This
strategy is advantageous because it may increase total sales with more marketing programs
targeting more customers. The disadvantage is the higher costs, which stem from the need
for multiple marketing programs that may include segment-specific product differentiation,
promotions and communication, distribution/delivery channels, and pricing.
How to choose the market segment?
There’s a high chance that we’ve identified more than one segment worth our attention.
Even if we want to win all of them, we should start with one, and once we dominate it, we
can spread to the second, third, fourth, and so forth. Otherwise, we risk spreading our focus
too thin. Again, it’s better to do great in one segment than okayish in multiple.
One of the tactics to quickly find the best candidates is to use GE McKinsey Matrix.
GE McKinsey Matrix
The idea is relatively straightforward. We choose the best segment to enter by evaluating
two criteria:

Segment attractiveness. Even if we have chosen segments with high need, high
perceived value and high willingness to pay, there are more factors worth
considering when comparing attractiveness.

Business strength. Which segment are we best suited to tackle, given our current
capabilities?
We are looking for highly attractive segments that we can enter easily. Some criteria we
could use to evaluate these areas are:
Segment attractiveness

Compulsion: how strong is the need, and how powerful is the benefit?

Size: how big is the segment?

Growth: is it growing or declining?

Competitors: what are competitors in this segment?

Pricing: how does the potential cost of the whole product fit customers’ budgets?

Infiltration: can we leverage sales in the niche to expand into adjacent markets in
the future?

Entry barriers: what’s required to enter the segment?
Business strength

Capability: Do we have the skills, knowledge and expertise to deliver the whole
product?

Distribution: Can we leverage existing distribution channels?

Credibility: Can we build credibility in the segment quickly?

Alignment: Does entering the segment align with company strategy?
Precision is not required here. Usually, a quick assessment of each component is enough to
distinguish the best candidate.
Let’s keep in mind that our business strengths and market attractiveness change over time.
We should reassess the segments we operate in now and then — sometimes, it’s no longer
worth it to stick to a particular segment.
Selecting market targets
Once potential market segments have been identified, an organisation needs to decide
which markets to operate in and which products or service to offer within those markets.
Once these choices have been made the organisation then has to decide how it will
compete within those markets. An organisation’s investment of time and resources should
be targeted at markets where the prospects are most attractive, the required returns can be
met and where the firm can establish a strong, defensible position (Piercy, 1997).
Successful evaluation of market segments requires organisations to systematically address
two fundamental issues: the attractiveness of competing segments and the organisations
relative capability in serving customer demand within that segment (Kotler and Keller,
2016). There is wide range of criteria for assessing the attractiveness of a marketing
segment, however most can be categorised under four main headings: market factors, the
nature of competition, economic and technological factors and the business environment
factors. Many of the criteria used to judge market attractiveness are qualitative rather than
quantitative in nature. This is often because the criteria which make a market attractive to
an organisation often reflects the specific characteristics of that company and the priorities
of its management (Hooley et al., 2014). The table below summarises the factors influencing
market segment attractiveness.
The attractiveness of market segments is dependent on several factors. If all other factors
are equal, segments that are large and growing are most likely to provide the greatest
prospects. However, size and growth should not be the only criteria considered. Building a
strong and defensible position within the segment is also of paramount importance to the
company’s long-term success. To do this the company must clearly identify its strengths for
competing in the proposed segment.
An organisation’s capabilities are comprised of specific assets and competencies. When
targeting market segments, it is crucial that the organisation identifies capabilities where it
is superior to the competition. Assets are tangible or intangible attributes which can be used
to gain competitive advantage. For example, production machinery, information systems,
scale advantages, brand name, patents, distribution networks and so on. Drummond and
Ensor (2005) argue that assets should not be viewed in isolation, it is equally important to
identify organisational competencies that lead to competitive advantage. Porter’s (1984)
value chain framework is a useful model for identifying areas of unique competence. The
key consideration when assessing a company’s strength is that strength is relative to
competitors who operate within the same market segment and to the demands of
customers within that segment.
Having identified the assets and competencies with which an organisation can build low cost
or differentiated positions; the next crucial step is to align its capabilities to attractive
market segment opportunities. If the organisation’s current or potential capabilities are
superior to competitors, they provide a platform for establishing a competitive position
within a target market. The organisation should also consider whether the market segment
is compatible with its long-term goals and objectives. If this is not the case, then despite
temptation, the organisation must resist entering the segment as this will only dilute and
divert company resources away from the company’s core competencies and objectives
(Hooley et al., 2014). A conventional approach to making choices between markets and
segments is to use portfolio matrices, which can be adapted to evaluate market segment
opportunities against the organisation’s strength and capabilities. The matrix uses two
dimensions market segment attractiveness and the organisation’s current and potential
assets and competencies in serving the segment to ascertain the ‘fit’ between segment’s
characteristics and the company’s strengths (Drummond and Ensor, 2005).
At the turn of the twenty first century, research revealed that consumer attitudes toward
cars were changing. German manufacturer BMW recognised that customers cared less
about the status and brand of BMW and more about design, size, price and style choices
(Clothier, 2014). In response the company expanded its product line to target specific
market segments. This resulted in unique premium cars such as SUVs to target the modern
mainstream, convertibles aimed at flashy, high-income groups who like to attract attention
and moderately priced cars such as the 1 series targeted at family focused customers who
may have previously avoided BMW due to their premium costs. In addition, BMW
redesigned its core range (3, 5 and 7 series), producing a unique appearance while
maintaining their exceptional performance. BMW report their biggest growth drivers are its
SUV models which increased sales 12.1 per cent to $792,590 and its 5 Series model which
increased sales 12.7 per cent in 2018 (BMW, 2019). In recent years the company’s brand
emphasis has returned to performance over status, stating “We only make one thing, the
ultimate driving machine” (New York Times, 2012).
Market targeting
Once the segmentation process is nearly complete, the firm must choose the target market
segments it wishes to serve. A target market is a set of buyers with common characteristics
that a company decides to serve. To decide on which market segments to target, a firm
would decide whether a segment is attractive, whether the firm has the resources to serve
that segment, and whether serving that segment fits with the company’s overall objectives.
A firm may choose to apply undifferentiated marketing, which means focusing on
commonalities among all segments, but in essence attempting to serve the entire market
with only one marketing mix. This is found most often in the earliest stages of a product
lifecycle when undifferentiated product will be accepted by customers because there is no
other choice. For example, early personal computers were heavy, slow, expensive, and had
limited software capabilities yet firms bought large numbers of these machines because the
productivity increases of their employees outweighed the difficulties of finding specific
computers that satisfied their corporate needs. Undifferentiated marketing usually only
lasts as long as competition is limited.
When a firm decides to use differentiated marketing, it designs specific marketing mixes to
serve each segment. Obviously, differentiated marketing costs more than undifferentiated
marketing and can only be justified when the results outweigh the cost. The easiest way to
picture differentiated marketing is to conceive of the marketing machine as shown in Figure
6.4. In this machine, each lever represents one of the 7 Ps. In using differentiated
marketing, these levers would be set to best satisfy a particular segment. For the next
segment, the levers would be set differently. However, it is important to remember that not
all levers have to be changed to serve each segment. In many cases the same product, price,
and promotion, etc. may serve two different segments where the only variation required is
distribution or service (included under place). For firms with very limited resources the only
choice may be concentrated marketing. In this case a firm concentrates on one or very few
segments. The idea is to build a dominant position in that segment. For example, a firm
manufacturing highly sensitive, low-light level television cameras focuses its efforts on
industrial applications such as unauthorized entry or pilferage. Here again, the marketing
machine must be carefully set to serve the specific segment(s) chosen. This is perhaps the
most risky targeting strategy since the possibility exists that the segment may experience
economic difficulties, or choose to use a substitute product. Firms using the concentration
strategy must be vigilant about the possibility of new segments evolving.
7 Ps of Marketing Mix
What are the 5 P’s of Marketing?
The 5 P’s of marketing are part of what is often referred to as a “marketing mix”.
A marketing mix is the actions brands take to market their products and services by using a
specific framework with the five biggest components of successful marketing: product,
place, price, promotion, and people.
These five core tenants have become the foundation for a marketing mix, and have been
used in business since the 1940s.
While originally “people” was left unsaid, modern marketers tend to add that into their
marketing mix to create what we commonly refer to as the 5 P’s of marketing.
Let’s look closer at each value.
1. Product
Your product is what you offer to customers.
Whether it’s a physical product or a service, your offerings to consumers are the first core
principle that makes up your marketing strategies.
Your product includes the function, branding, appearance, warranty, quality, and even the
packaging of your product or service.
2. Place
The place of marketing refers to the time at which your products reach customers and the
channels you use to get them there.
That includes things like your distribution channels, logistics, market coverage, and levels
of service.
You always want your products to get to the right people in the right place at the right time,
so this element offers important benefits.
3. Price
Your pricing refers to the price of each product or the levels of pricing on services.
It’s essentially your marketing strategy for making a profit, and needs to include the cost of
goods, the advertised price, discounts, sales, and payments.
Pricing affects how your goods are viewed by consumers, and can impact your brand
reputation as affordable or high-end.
4. Promotion
Promotion refers to the ways in which you promote your products and services and how
you get information about those products and services in front of your audiences.
This can include many of the day-to-day elements of digital marketing, like social media,
advertising, and SEO strategies.
5. People
Businesses and brands don’t run by themselves.
People are an essential component in how your company functions, from your internal
employees to customers to partners.
You need to think about the needs and functions of groups inside your organization and the
needs and wants of your customer base.
Other Marketing Mix P’s
While these 5 P’s are the core behind a marketing foundational strategy, there are a few
other P’s that many marketers want to place into their marketing mix, depending on what
type of business you have.
Here are a few of the other P’s you might want to think about separating into their own
specific categories when creating your marketing mix.
Process
This is the next most common element to get added to a marketing mix, as it’s all about the
ways in which you deliver your products and services to customers, which can be an
important part of your marketing strategy.
Physical Evidence
This is the tangible parts of your products or services that can be delivered into the hands of
customers and the proof of delivery.
1st of 7P’s of marketing – Product
Simply put, the marketing mix product is what is being marketed. When we refer to the
product, we refer to aspects such as quality, packaging, design, and brand. You must ensure
that the product satisfies the needs of your market while designing it, i.e., does your target
market or audience desire or need it?
The life cycle, which covers the growth, maturity, and sales drop phases, must also be
considered. By providing a better quality product to your intended audience than your
opponents, you will be able to win this aspect.
Here are five questions to consider while defining product mix strategies:

What do people expect from a product or service?

What will they do with it, and how will they use it?

What features are required to fulfil the client’s requirements?

Is the product’s name memorable?

What sets your product apart from the competition?
2nd of 7P’s of marketing – Price
Price in the marketing mix refers to the amount of money your consumer is willing to spend.
The price must be higher than the cost of manufacturing by definition, as this decides your
profit or survival. Changing the pricing has a significant influence on the product’s sales and
demand and the impression of your brand.
Tip: When customers compare your prices to your competitors, they may connect a lower
price with poor quality items. However, overpricing might result in costs exceeding benefits.
Where exactly is the middle ground?
Thus, while determining the price, marketers should examine the product’s value and assess
various pricing techniques.
Check these questions to help you get started with this marketing mix element:

Is this priced favorably?

How does the price compare to competitors?

Should discounts be offered?

Do you accept payment plans?

Are there any credit terms the customer might need to meet?
3rd of 7P’s of marketing – Place
Place refers to the distribution and availability of your goods to potential buyers as part of
the marketing mix. And you can’t talk about the location without mentioning your target
market. This component necessitates a thorough grasp of the target persona. You will
uncover the most effective distribution methods once you have nailed knowing the ins and
outs of your target clients.
So, how do you position your product correctly? Here are five questions that can assist you
in defining this marketing element:

What are the places where purchasers seek your product?

What’s the best way to find the correct distribution channels?

What distinguishes your distribution strategy from that of your competitors?

Is it necessary to hire a sales team?

Do you need to sell something on the internet?
4th of 7P’s of marketing – Promotion
Spread the word!
When it comes to the marketing mix, the component of the promotion mix refers to who,
what, and how. What is conveyed, to whom it is transmitted, how is that audience reached,
and how frequently is it promoted? It uses techniques such as:

Advertising

Sales

Public relations

Emails

Social media
The promotion mix meaning and principle is to increase brand awareness and sales. If you
can answer yes to these five questions, you’ll be well on your way to developing a
promotion strategy:

When and where can you reach out to your target market with your marketing
messages?

How do your competitors promote themselves?

And how do your competitors impact the promotional activities you choose?

When is the most effective time to market your product?

Is using social media the best option?
5th of 7P’s of marketing – People
Aren’t businesses dependent on the individuals who manage them? Having the right people
is a no-brainer since they are as much a part of your business offering as the
products/services you provide. Employee performance, appearance, and customer service
are all examples of this.
As a result, establishing what constitutes the “appropriate people” for your company might
be difficult, but it should include the following three factors:

Exceptional service

Genuine enthusiasm

Be open to suggestions
Tip: Having the right teammates is an organizational benefit that influences your market
position.
6th of 7P’s of marketing – Process
The process in the marketing mix is the method through which your product or service is
presented to clients. Your sales funnel, distribution system or other methodical operations
can ensure your company functions properly. You also want to make sure that your
procedure is well-organized to save money.
Other examples include the order in which individuals complete activities, the quantity of
inquiries received by salespeople, and how performance is recorded and assessed.
7th of 7P’s of marketing – Physical evidence
Physical proof is a must-have for the 7 Ps of marketing. It might be material or intangible,
and you should provide proof of delivery. Product packaging, receipts, and customer service
are all physical examples. The perception of a company’s product in the marketplace is
intangible physical proof.
Consistent branding across channels is a means to impact customers’ views to the point that
your brand is the first thing that comes to mind when they hear a word, sound, or phrase.
Consider who comes to mind when you think about fast Pizza. Pizza Hut is a popular answer.
Their existence in the marketplace is immediately noticeable. That is Intangible physical
evidence.
Here’s how the 7 Ps of marketing can be applied to everything in your marketing mix:
1. PRODUCT
It goes without saying that the service or product you’re selling should be at the centre of
every element of the marketing mix.
Fundamentally, it allows you to address the questions key to sales conversion: what
problem or issue does the product solve for customers? Why is your product the best one to
solve it?
The digital marketing mix is perfect for showcasing your products, through SEO, blogs
or articles, paid advertising, influencer marketing, and viral video campaigns, for example.
2. PRICE
The strategy behind the pricing of your product needs to be based on what your customers
are prepared to pay, costs such as retail mark-up and manufacturing, as well as other
considerations.
Your marketing mix can include subscription and membership discounting programs,
or email marketing of promotions and sales.
3. PROMOTION
Successful marketing strategies include all the promotional activities across the marketing
mix, including advertising, direct marketing, and in-store promotional activities.
The possibilities of digital promotion are limited only by your imagination and can include
online events, chats, social media groups, and livestreams.
4. PLACE
Where and how your product is displayed and sold should be directly informed by your
customers.
A deep understanding of their purchasing patterns – and targeting them at the right stage in
their buying cycle – will make it clear where you should promote and sell your products and
how that fits into your online and real-world marketing mix.
5. PEOPLE
Excellent customer service not only converts to sales, but can increase your customer base
by referrals. Acquiring these referrals by people who love your brand can also be a great
example of how your marketing efforts can support your sales process.
It’s important that everyone who represents your brand or deals with customers – including
the non-human chat bot variety! – are fully trained sales professionals with an intimate
knowledge of your product and how it will improve the lives or solve the problems of your
customers.
6. PROCESS
The process of delivering your product to the consumer should be designed for maximum
efficiency and reliability, but may also include features that are in line with your brand, such
as being environmentally or sustainably focused.
With the rise in online shopping, digital partnerships and logistics have become an essential
part of the marketing mix.
7. PHYSICAL EVIDENCE
Physical evidence incorporates aspects that proves your brand exists and that a purchase
took place.
Examples of proof that your brand exists can include things like a physical store or office for
your business, a website if your business operates solely online, and printed business cards
that you exchange when meeting people. Examples of proof of purchases can include
physical or digital receipts, invoices, or follow-up email newsletters that you send to
customers as a retention exercise.
Your marketing mix must also take into consideration all the things your customer sees,
hears – sometimes even smells – in relation to your product or service.
This, of course, includes packaging and branding, but should also bring in the ways products
are displayed in stores, where they are placed, and the context in which they sit, as well as
digital placement, including on your website and social media.
What is the marketing mix?
The marketing mix refers to the tactics (or marketing activities) that we have to satisfy
customer needs and position our offering clearly in the mind of the customer. It involves the
7Ps; Product, Price, Place and Promotion (McCarthy, 1960) and an additional three elements
that help us meet the challenges of marketing services, People, Process and Physical
Evidence (Booms & Bitner, 1982).
Know your 7Ps
Product
This refers to what the company produces (whether it is product or service, or a
combination of both) and is developed to meet the core need of the customer – for
example, the need for transport is met with a car. The challenge is to create the right
‘bundle of benefits’ that meet this need. So what happens as customer needs change,
competitors race ahead or new opportunities arise? We have to add to the ‘bundle of
benefits’ to improve the offering, create new versions of existing products, or launch brand
new products. When improving the product offering think beyond the actual product itself –
value can be added and differentiation achieved with guarantees, warranties, after-sales or
online support, a user-friendly app or digital content like a video that helps the user to make
the most out of the product.
Price
This is the only revenue-generating element of the mix – all other marketing activities
represent a cost. So it’s important to get the price right to not only cover costs but generate
profit! Before setting prices, we need to research information on what customers are willing
to pay and gain an understanding of the demand for that product/service in the market. As
price is also a strong indication of the positioning in the market against competitors (low
prices=value brand), prices need to be set with competitors in mind too.
Place
This is the ‘place’ where customers make a purchase. This might be in a physical store,
through an app or via a website. Some organisations have the physical space, or online
presence to take their product/service straight to the customer, whereas others have to
work with intermediaries or ‘middlemen’ with the locations, storage and/or sales expertise
to help with this distribution. The decisions to be made in this element of the marketing mix
concern which intermediaries (if any) will be involved in the distribution chain and also the
logistics behind getting the product/service to the end customer, including storage and
transportation.
Promotion
So we have a fantastic product, at an appealing price, available in all the right places, but
how do customers know this? Promotion in our marketing mix is about communicating
messages to customers, whichever stage they are in the buyer journey, to
generate awareness, interest, desire or action.
We have different tools for communication with varying benefits. Advertising is good for
raising awareness and reaching new audiences, whereas personal selling using a sales team
is great for building relationships with customers and closing a sale. The challenge? To
choose the best tool for the job, and select the most effective media to reach our audiences
based on what we know about them. If your customer is a regular on Instagram then that’s
where you need to be talking to them!
This doesn’t just apply to customers. Communicate to other stakeholders too like
shareholders and the wider public to build company reputation. The same principles apply;
choose the right tools and media that fit with what you are trying to achieve.
People
A company’s people are at the forefront when interacting with customers, taking and
processing their enquiries, orders and complaints in person, through online chat, on social
media, or via the call centre. They interact with customers throughout their journey and
become the ‘face’ of the organisation for the customer. Their knowledge of the company’s
products and services and how to use them, their ability to access relevant information and
their everyday approach and attitude needs to be optimised. People can be inconsistent but
with the right training, empowerment and motivation by a company, they can also
represent an opportunity to differentiate an offering in a crowded market and to build
valuable relationships with customers.
Process
All companies want to create a smooth, efficient and customer-friendly journey – and this
can’t be achieved without the right processes behind the scenes to make that happen.
Understanding the steps of the customer journey – from making an enquiry online to
requesting information and making a purchase – helps us to consider what processes need
to be in place to ensure the customer has a positive experience. When a customer makes an
enquiry, how long will they have to wait before receiving a response? How long do they wait
between booking a meeting with the sales team to the meeting taking place? What happens
once they make an order? How do we make sure reviews are generated after a purchase?
How can we use technology to make our processes more efficient? All of these
considerations help build a positive customer experience.
Physical Evidence
Physical evidence provides tangible cues of the quality of experience that a company is
offering. It can be particularly useful when a customer has not bought from the organisation
before and needs some reassurance, or is expected to pay for a service before it is
delivered. For a restaurant, physical evidence could be in the form of the surroundings, staff
uniform, menus and online reviews to indicate the experience that could be expected. For
an agency, the website itself holds valuable physical evidence – from testimonials to case
studies, as well as the contracts that companies are given to represent the services they can
expect to be delivered.
Definition of Targeting
After the creation of different segments, managers decide which segment is best to target.
For the purpose of targeting the company takes into account its ultimate objectives. In
practice, managers go for that segment that is highly profitable. But, the firm can also aim
for that segment that is less likely to attract competitors.
In other words, targeting is the process of choosing one segment, of all the segments, to aim
for. There are three strategic options are available to the marketers which are:
1. Concentrated Marketing: In this, the company focuses on a single segment at a
time. Another term used for this is niche marketing. In this, the marketer attempts
to become the blue-chip within that segment.
2. Differentiated Marketing: In this strategy, the marketer concentrates on more than
one segment at a time. Also, the company offers a differentiated marketing mix for
each segment. The alternative name of this is multi-segmented marketing.
3. Undifferentiated Marketing: In this, the marketer uses a ‘scattergun’ approach.
Therefore, the marketers offer one basic product that would serve the needs of
people belonging to different age groups and lifestyles.
The marketer’s decision about the adoption of strategy depends on these factors:

Company’s Resources

Product features and benefits

Characteristics of the segment
Targeting Strategies
Standardization:
Here, the firm offers a similar product to different segments. For this, the same
communication, distribution, and pricing strategy are used.
Differentiation:
In this, the company differentiates its products to match the needs and expectations of
different segments of the market.
Focus:
It is a hybrid strategy. That is to say, it combines both standardization and differentiation
strategies. Also, the ‘core strategy’ remains unchanged, but differentiation is implemented
to fulfill the requirements of specific consumers.
Targeting
Step two of the STP marketing model is targeting. Your main goal here is to look at the
segments you have created before and determine which of those segments are most likely
to generate desired conversions (depending on your marketing campaign, those can range
from product sales to micro conversions like email signups).
Your ideal segment is one that is actively growing, has high profitability, and has a low cost
of acquisition:
1. Size: Consider how large your segment is as well as its future growth potential.
2. Profitability: Consider which of your segments are willing to spend the most money
on your product or service. Determine the lifetime value of customers in each
segment and compare.
3. Reachability: Consider how easy or difficult it will be for you to reach each segment
with your marketing efforts. Consider customer acquisition costs (CACs) for each
segment. Higher CAC means lower profitability.
There are limitless factors to consider when selecting an audience to target – we’ll get into a
few more later on – so be sure that everything you consider fits with your target customer
and their needs.
Targeting
The next step in the STP model is targeting. This is the stage where you decide which
segments you created during the segmentation phase are worth pursuing. You should
ideally consider the below criteria to choose your targetable segments:
Size: Your audience segments must have enough potential customers to be worth marketing
to. If your segments are too small, you may not get enough conversions to justify your
marketing efforts.
Difference: There should be a measurable difference between any two segments. The lack
of it leads to unnecessary duplication of efforts.
Reachability: The segments should be accessible to your sales and marketing teams and not
be marred by technical or legal complications.
Profitability: The segment should have a low-to-medium customer acquisition cost (CAC)
while bringing in high returns, i.e., the audience must be willing to spend money on your
product.
Benefits: Different benefits attract different segments. In our plant-based milk example,
Segment A would go for cruelty-free while Segment B for dairy-free.
Knowing which audience segments to target comes from having all-around visibility of those
segments in one place. This makes comparing segments and weighing the pros and cons of
targeting some segments over others easier.
In our example of plant-based milk, you've determined through research that veganism is all
the rage, and roughly 60% of the people are searching for dairy-free alternatives. You also
discover that approximately 80% of the people in your chosen demographic are lactose
intolerant. Though the audience size is more significant in the second segment, you're likely
to get more returns when you go after the first segment as it consists of high-income groups
who are ready to pay a premium for quality lifestyle-changing products.
What Is Targeting In The STP Model
After creating our segments, then we have to choose which ones work best. Targeting in the
STP model refers to choosing the right segments to target and plan its marketing activities.
The goal of targeting is to research each segment’s business opportunities and choose the
one that aligns with our goals.
While it is tempting to achieve growth through multiple segments simultaneously, it is rarely
possible. Hence, we must pinpoint the best segment before.
By targeting one segment at a time, we can build more measurable strategies to determine
whether the segment provided the results we thought it would. Especially as online
marketing moves as fast as possible, it enables us to target different segments quickly.
To analyze the segments we create, we can use the following questions to determine how
good they are and whether it is worth it to us.



Measurability
o
What is the size of the segment?
o
Purchase behaviors
o
Needs of the segment
Accessibility
o
Can we communicate (advertising, for example) with the segment?
o
How often we can communicate
o
How costly is it?
o
The required marketing channels
Sustainability
o
Is the segment profitable enough to sustain marketing efforts?
o
Does the segment align with our business goals?
o

Can we realistically offer value to the segment sustainably?
Actionability
o
Can we maintain a competitive edge for the segment?
o
Can we communicate the way the segment wants?
Market Positioning
Positioning essentially means developing a theme which will provide a “meaningful
distinction for customers” (Day, 1990). The concept of positioning was strongly advanced by
Ries and Trout (2001). They state that many products already have a distinctive position in
the mind of the customer. These positions are difficult to dislodge. For instance, IBM would
be thought of as the world’s largest and most competent computer company. Ries and
Trout say that competitors have three possible strategies they may follow. First, the firm
may choose to strengthen its current leadership position by reinforcing the original concepts
that led to the first position in the mind of the customer. Second, the firm might establish a
new position – “cherchez le créneaux” – looking for new openings in a market. Third, the
firm might try to de-position or re-position the competition. Ries and Trout claim that
customers establish a ladder for each product category in their minds. On these ladders,
buyers establish possible suppliers as first, second, or third level. This can offer an
opportunity for positioning. Their most famous example of this comes from the auto rental
business and the rental company Avis. When Avis entered the market, Hertz held an
unassailable position as the premier car rental firm. Avis was one of many other
competitors, but Avis chose to position themselves as “#2” which at that time was an
unoccupied position. This immediately catapulted Avis to a position as an important
competitor despite the reality that it was no larger than any of the other competitors
fighting for a piece of the market with the pre-eminent Hertz. Avis established itself as the
first alternative to Hertz in the minds of customers. This is also known as establishing the
“against” position – Avis placing themselves against Hertz. Treacy and Wiersema (1993)
offer three value disciplines – operational excellence, customer intimacy, or product
leadership. They recommend a firm become a “champion” in one of these areas while
simply meeting industry standards in the other two. Often, positioning is based upon a
series of perceptual maps. An example is shown
A critical point is that customers must place value on the variables being examined. In our
example, if the customers had little need for technical assistance this perceptual map would
be virtually useless. However, if Firm C’s market research shows that technical assistance
and initial price are critical variables in the decision-making process this map is quite useful
in helping develop a position which can be clearly communicated to potential customers.
A special consideration for international positioning is the country of origin effect. Buyers
often have established perceptions of country capabilities, i.e. “German engineering”
develops positive associations. For example, a US-based office furniture firm decided to
make products for the EU in a new, state-ofthe- art factory in Kells, Ireland. The products
were equal in quality in every way to those produced in the US factory, yet Continental
buyers often rejected the Irish-made product for competitive brands made in their home
countries. Country of origin effect seems to be reduced as buyers become more informed,
but it is important a manager knows what perceptions already exist so that they can be
addressed.
Product positioning
Positioning maps are the last element of the STP process. For this to work, you need two
variables to illustrate the market overview.
In the example here, I’ve taken some cars available in the UK. This isn’t a detailed product
position map, more of an illustration. If there were no cars in one segment it could indicate
a market opportunity. Expanding on the extremely basic example above, you can unpack the
market by mapping your competitors onto a matrix based on key factors that determine
purchase.
Positioning
The final step in this framework is positioning, which allows you to set your product or
services apart from the competition in the minds of your target audience. There are a lot of
businesses that do something similar to you, so you need to find what it is that makes you
stand out.
All the different factors that you considered in the first two steps should have made it easy
for you to identify your niche. There are three positioning factors that can help you gain a
competitive edge:
1. Symbolic positioning: Enhance the self-image, belongingness, or even ego of your
customers. The luxury car industry is a great example of this – they serve the same
purpose as any other car but they also boost their customer’s self-esteem and
image.
2. Functional positioning: Solve your customer’s problem and provide them with
genuine benefits.
3. Experiential positioning: Focus on the emotional connection that your customers
have with your product, service, or brand.
The most successful product positioning is a combination of all three factors. One way to
visualize this is by creating a perceptual map for your industry. Focus on what is important
for your customers and see where you and your competitors land on the map.
The final stage of the STP model, positioning, is where you use the insights gained from
segmentation and targeting to decide how you're going to communicate your product to
chosen audience segments.
While segmentation and targeting are about customers, positioning is about your product
from the customer's perspective. You can consider positioning as the bridge that connects
your product with the audience. This is the stage where you perform competitor analysis,
figure out your value proposition, and communicate that to your customers.
Based on what your brand stands for, you can position your product in several ways. If
you're in the luxury market, you can appeal to the ‘desire for prestige’ among customers by
positioning yourself as a status symbol. Or, if you fall in the budget category, you could
differentiate yourself by offering more benefits to your target at a lower cost than your
competitors.
The best way to approach positioning is by drawing a Product Positioning Map that has two
key market attributes as its axes and plotting your competitors and you in it. This will give
you a clear picture of how you stack up against your competition and where you should
place your product to maximise profits.
What Is Positioning In The STP Model
Position in STP is all about creating products and its marketing to fit a marketing segment
you created. And it’s the final step in the process of the model.
And as the last step, it’s the most essential. Because if we don’t understand how to position
our offering to the chosen segments, we can’t succeed with our marketing strategy.
Tools you can use to figure out the positioning:

Understand your USP (unique selling point) to the segment

Positioning map
Through your customers’ problems (and the segment) have, and the solutions you provide
should answer the wants and needs of the segments you target.
What is your value proposition that drives the competitive edge against your competitors in
the segment?
When we understand how to position ourselves in the segments and modify the offering to
our target audience’s needs, we’ll create a solid base from where we can drive marketing
efforts forward to achieve growth.
In the positioning phase, you can introduce competing companies and brands to the mix to
determine where you stand against them when looking at the chosen segments. It should
help in identifying your USP more clearly and whether you need to think about it again.
As the company that can fulfill the needs and wants of the segment will achieve better
results from marketing.
Topic 5: Brand management, and product and service strategies in business
markets
Key concepts
This topic includes:

branding

product management

service marketing

product/service quality.
Topic outcomes
By the end of this topic, you should be able to:

explain the value of branding and brand positioning in business
markets

describe the types of products in business markets

explain key components of product and service quality in business
markets.
Interbrand's brand valuation methodology
Our methodology
Having pioneered brand valuation in 1988, we have a deep understanding of the impact a
strong brand has on key stakeholder groups that influence business growth, namely (current
and prospective) customers, employees, and investors. Strong brands influence customer
choice and create loyalty; attract, retain, and motivate talent; and lower the cost of
financing. Our brand valuation methodology has been specifically designed to take all of
these factors into account.
A strategic tool for ongoing brand management, valuation brings together market, brand,
competitor, and financial data into a single framework within which the performance of the
brand can be assessed, areas for growth identified, and the financial impact of investing in
the brand quantified.
Interbrand was the first company to have its methodology certified as compliant with the
requirements of ISO 10668 (requirements for monetary brand valuation) and has played a
key role in the development of the standard itself.
There are three key components to all of our valuations: an analysis of the financial
performance of the branded products or services, of the role the brand plays in purchase
decisions, and of the brand’s competitive strength.
1.Financial Analysis
This measures the overall financial return to an organization’s investors, or its economic
profit. Economic profit is the after-tax operating profit of the brand, minus a charge for the
capital used to generate the brand’s revenue and margins.
2.Role of Brand
This measures the portion of the purchase decision attributable to the brand as opposed to
other factors (for example, purchase drivers such as price, convenience, or product
features). The Role of Brand Index (RBI) quantifies this as a percentage. RBI determinations
for Best Global Brands derive, depending on the brand, from one of three methods: primary
research, a review of historical roles of brands for companies in that industry, or expert
panel assessment.
3.Brand Strength
Brand Strength measures the ability of the brand to create loyalty and, therefore,
sustainable demand and profit into the future. Brand Strength analysis is based on an
evaluation across 10 factors that Interbrand believes constitute a strong brand.
Performance in these areas is judged relative to other brands in the industry and relative to
other world-class brands. The Brand Strength analysis delivers an insightful snapshot of the
strengths and weaknesses of the brand and is used to generate a road map of activities to
grow the brand’s strength and value into the future.
Applications for brand valuation
Interbrand’s brand valuation methodology seeks to provide a rich and insightful analysis of
your brand, providing a clear picture of how your brand is contributing to business growth
today, together with a road map of activities to ensure that it is delivering even further
growth tomorrow.
Brand activation roadmap
Valuation analysis is also used to support the business case for Iconic Moves, combining
market research with financial modelling to quantify potential impact, investment and ROI.
Brand impact business case
There are a wide range of brand-driven and commercially driven uses cases for valuation
where Interbrand has particular expertise:

Target setting and brand roadmap activation

Informing commercial negotiations or disputes

Creation of brand licensing structures to comply with transfer pricing regulations and
create budget for brand investment

Supporting share price through investor communications

Making the case for brand investment

When Interbrand conducts valuations for financial or commercial reasons, we also
provide strategic branding recommendations, in addition to delivering a rigorously
analyzed and defensible valuation number. This delivers value to the business—
beyond the knowledge of the value alone.
Criteria for Inclusion in Best Global Brands
To be included in Best Global Brands, a brand must be truly global, having successfully
transcended geographic and cultural boundaries. It will have expanded across the
established economic centers of the world and entered the major growth markets. In
specific terms, this requires that:

At least 30 percent of revenue must come from outside of the brand’s home region.

The brand must have a significant presence in Asia, Europe, and North America, as
well as geographic coverage in emerging markets.

There must be sufficient publicly available data on the brand’s financial
performance.

Economic profit must be expected to be positive over the longer term, delivering a
return above the brand’s cost of capital.

The brand must have a public profile and sufficient awareness across the major
economies of the world.

The brand’s ‘Brand Strength Score’ must be equal to 50 or above.
These requirements—that a brand be global, profitable, visible, and relatively transparent
with financial results—explains the exclusion of some well-known brands that might
otherwise be expected to appear in the ranking.
Brand value is the Net Present Value (NPV) or today's value of the earnings the brand is
expected to generate in the future. This valuation approach is a derivative of the way
businesses and financial assets are valued. It fits with current corporate finance theory and
practice.
There are three key elements and they are detailed below:
Financial Forecasting
Interbrand identifies the revenues from products or services that are generated with the
brand. From these Branded Revenues we deduct operating costs, applicable taxes and a
charge for the capital employed to derive Intangible Earnings. Intangible Earnings are the
earnings that are generated by all of the business' intangibles including brands, patents,
R&D, management expertise, etc. This is a prudent and conservative approach as it only
rewards the intangible assets after the tangible assets have received their required return.
The concept of Intangible Earnings is therefore similar to value based management concepts
such as economic profit or EVA (Economic Value Added is Stern Stuart's branded concept).
Based on reports from financial analysts we prepare a forecast of Intangible Earnings for 6
years.
Role of Branding
Since Intangible Earnings include the returns for all intangibles employed in the business, we
need to identify the earnings that are specifically attributable to the brand. Through our
proprietary analytical framework called Role of Branding we can calculate the percentage of
Intangible Earnings that are entirely generated by the brand. In some businesses, e.g.
fragrances or packaged goods, the Role of Branding is very high - as the brand is the
predominant driver of the customer purchase decision.
However, in other businesses (in particular b2b) the brand is only one purchase driver
amongst many and the Role of Branding is therefore lower. In the case of Shoppers Mart
people buy not only because of the brand but also because of the location of the stores. We
have for each of the brands (and categories) assessed the Role of Branding. In situations
where the brand is used across a variety of businesses, the Role of Branding figure was
assessed for each core business segment.
The Role of Branding is a per cent - thus if it is 50 per cent, we take 50 per cent of the
intangible earnings as Brand Earnings. If it is 10 per cent, we take only 10 per cent of the
earnings.
Brand Strength
STORY CONTINUES BELOW ADVERTISEMENT
For deriving the NPV of the forecast Brand Earnings, Interbrand uses a discount rate that
represents the risk profile of these earnings. There are two factors at play: Firstly, the time
value of money (i.e. $100 today is more valuable than $100 in 5 years as I can earn interest
on the money in the meantime), secondly the risk of the forecast earnings actually
materializing. The discount rate represents these factors as it provides an asset specific risk
rate. The higher the risk of the future earnings stream the higher will be the discount rate.
To derive today's value of a future expected earnings stream it needs to be 'discounted' by a
rate that reflects the risk of the earnings actually materializing and the time for which it is
expected. For example, $100 from the RBC brand in 5 years commands a lower discount
rate than $100 from the National Bank of Canada brand in 5 years, as the RBC brand is
stronger and therefore more likely to deliver the expected earnings.
The assessment of Brand Strength is a structured way of assessing the specific risk of the
brand. We compare the brand against a notional ideal and score it against common factors
of Brand Strength such as awareness, market position, customer satisfaction, loyalty and
advertising & marketing support. The ideal brand is virtually 'risk free' and would be
discounted at a rate almost as low as government bonds or similar risk free investment. The
lower the Brand Strength the further it is from the risk-free investment and so the higher
the discount rate (and therefore the lower the net present value).
The basis of the financial assessments
Using the 2005 edition of Report on Business' Top 1000 list of the largest publicly traded
Canadian corporations, Interbrand formed an initial consideration set of brands owned and
operating in the country. Published annual reports and analyst reports from multiple
investment banks were used to examine the revenues, earnings and balance sheets of the
brand-owning companies.
The basis for the marketing assessments Interbrand's experience in creating and managing
brands over 30 plus years has created brand metrics that consider: (a) the level of
differentiation the brand has achieved; (b) the success of the current position; (3) the ability
to control that position and (4) the ability to maintain differentiation from competitors. Our
expertise was supplemented with press articles, analysts comment and syndicated market
research.
The value of branding and brand positioning in business markets
The tentative theoretical framework of brand value in industrial marketing is developed
from the findings of both previous research and the exploratory interviews with managers
(see Fig. 2). It examines brand value from a suppliers' perspective while previous models
have examined it from the buyers' perspective. Fig. 2 shows how brand value and company
characteristics can be conceptualized as leading to relationship value. Brand value cannot be
deconstructed into goods and service value and added values (resulting from the brand
name alone) as the brand supervenes on and cannot be separated from the product (Grassl,
1999). Our framework also takes into account situational and environmental factors which
affect the influence of branding in purchase decisions.
In Fig. 2 the functional and emotional qualities are at the core of B2B brand value. In the
creation of industrial brand equity, managers perceived functional values including quality,
technology, and after sales service as encompassed by Mudambi et al. (1997) to be of
importance to the buyers. Innovation, a functional factor was also found to be of
importance which has not been found in previous research. In this research, functional
values emerged as the primary factors considered by buyers in the decision making process.
This is in line with previous research (e.g. Abratt, 1986; Bendixen et al., 2004; Kuhn et al.,
2008) highlighting the rational approach taken in a B2B context. However, the managers
also highlighted the emotional qualities of risk reduction, providing reassurance and trust as
being significant for the development of their brands. This provides support to previous
research advocating the importance of emotion for industrial markets. Despite the
dominant role of functional values in this context it is suggested that there is an
interrelationship between the functional and emotional qualities of an industrial brand. The
provision of the functional qualities obviously contributes to developing the emotional
qualities. For example, the presence of a service infrastructure reassures buyers and
reduces their perceived risk. Future research could focus on identifying interactions and a
possible hierarchy between functional and emotional elements.
This research has found certain characteristics of the supplier company to be instrumental
to the development of a branding strategy. These characteristics are likely to be considered
in conjunction with the functional and emotional elements of the product/service. While
only experience and age of the company were identified, future research needs to
determine what other company characteristics could be contributing to the purchase
decision. These company characteristics could be incorporated into the B2B branding
strategy.
Within a company the significance of consistent internal communication to convey brand
message has been highlighted in the interviews. Adhering to the functional and emotional
values encapsulated by the brand enables employees to deliver coherent interactions that
are likely to contribute to developing buyer relationships. Consistent with previous
literature in B2B (e.g. Kuhn et al., 2008) and B2C (e.g. Keller, 1993) the managers regard
relationships the pinnacle of industrial brand equity. Developing stronger buyer
relationships with the brand, employees and the organization leads to the creation of exit
barriers which has been mentioned in this study and reiterates previous research (Low &
Blois, 2002). Future research may try to deconstruct the value of relationships and assign a
relative value to different aspects such as the product, the employees, and organization.
Further research could also determine the importance of each element, product, employees
and organization throughout the relationship lifecycle. It would be useful to identify
whether brands drive the initial development of relationships and whether their importance
is sustained, enhanced or diminished throughout the relationship lifecycle.
This study has found that suppliers' perceptions of the importance of branding may be
determined inter alia by situational factors such as the nature of the product and
environmental factors such as the economic situation both of which have not been
mentioned in past research. With regard to situational factors branding was found to be
more important for commodity products, however it is necessary to investigate further
which of the functional and emotional elements are most influential in creating a strong
brand for such a product. With regard to environmental factors the current economic
situation seems to be negatively affecting the role of branding. A priority for buyers is to
obtain the quality required at a lower price rather than paying a premium for a brand.
Emotional qualities of a brand are less valued in a recession where quality and fitness-forpurpose are the primary concerns. Further academic research needs to systematically
determine the effect of these situational and environmental factors on buyers' perceptions
of branding including whether the importance of branding in decision making process varies
between straight rebuys, modified rebuys and new tasks.
Why Strong Brands Drive B2B Markets
Cut Through Clutter
Brands matter because the B2B marketing communications world is characterized by
numbing sameness, commoditized feature wars and laundry-lists of product benefits. In
other words, there is a sea of noise, parity, clutter and dullness. Branding–going all the way
back to its origins with Norse livestock herders–allows a producer or owner to distinguish
his/her goods or services. Branding today is a strategic tool that helps the supplier cut
through the morass of the market, get noticed and connect with the customer on many
levels and in ways that matter. A strong brand becomes the customer’s ‘shorthand’ for
making good choices in a complex, risky and confusing marketplace.
Tap Into Emotional Drivers
Brands matter because companies act just like people when it comes to evaluating what
products or services to buy. Along with a number of explicit rational criteria, a powerful
irrational impulse is always present to influence the purchase decision. A strong brand with
an effective positioning strategy speaks to and taps into the totality of these buyer needs.
Facilitate Delivery Of Promise
Brands matter when supplier teams are doing business with buyer teams. Through effective
internal branding efforts, the brand becomes the “glue” that binds the supplier culture and
organization together, enabling the brand to make good on its external promise. Enterprise
customers will reward a brand which delivers a unified, consistent and satisfying experience
with repeat business.
However, common beliefs in the B2B marketing universe overlook the importance of
brands. Consider the following thoughts:
Consumer brands are defined and presented largely based on emotive appeals—‘warm and
fuzzies’. In B2B, products and services, rather than ‘brands’, are pitched, sold and transacted
through cold logic.
Consumers are drawn to brands’ irrational benefits (status, prestige, affinity, self-security).
Business customers specify and purchase based on rational drivers (pricing, specifications,
product performance, metrics).
Such thinking by B2B marketers is not only naïve (and defies logic) but also undermines their
ability to drive incremental business value and ROI.
As the following examples show, brands drive B2B. Those who recognize this fact and
leverage their full brand assets will create a true, strategic competitive advantage.
Brands produce economic value in the B2B marketplace. According to the 2015 Interbrand
100 Best Global Brands ranking, IBM, GE and Intel, largely B2B-focused brands targeting
sophisticated enterprises and “technical buyers”, are among the most valuable brands. Their
intangible asset of “goodwill” drives billions of dollars in value and market capitalization.
IBM’s 2015 brand value is $65.1 billion (GE $42.2 billion, Intel $35.4 billion). Their brands,
not their products, are their differentiators that lead to competitive advantage. Brands drive
value for small business-to-business companies too (see Acme Brick story in Did You Know?).
Ironically technology has led to brand importance in the B2B world. The growth of the
Internet and e-marketplaces along with accelerating technological product obsolescence has
resulted in a hyper-informed and commoditized B2B marketplace. Buyers are overwhelmed
with myriad logical choices, features, benefits, information, data, metrics–parity and clutter.
They want to make an easy, safe and right choice. Thus, “Brand” becomes the compass or
default for navigating the purchase process.
B2B customers often evaluate potential suppliers according to numerous, rigorous criteria–a
‘scientific’ RFP process. But does anyone really think a multi-million dollar decision will come
down to a numeric score or check list? How does a supplier even make the RFP list? You
guessed it…Through their recognized brand.
Strong B2B brands benefit from organically created, branded, Web-based communities of
loyal customer-advocates who evangelize the brand while providing it with new product or
service ideas. As Chuck Feltz of Deluxe financial services notes, “if we can create more
consciousness around the experience, it has ROI.”
When it comes to marketing technology products, marketers all too often ignore the full
package of customer benefits and instead focus only on rational product features. Mohanbir
Sawhney, Professor of Technology at Northwestern’s Kellogg School of Management, argues
that there are three dimensions of benefits upon which technology firms should build
positioning platforms:

1st-Functional (what the product does)

2nd-Economic (what the brand means to the customer in time and money)

3rd-Emotional (how the brand makes the customer feel)
Brands that deliver beyond the functional and economic levels with emotional benefits will
command an incremental price premium and create strong competitive advantage and
customer brand loyalty.
Emotive propositions resonate in B2B markets whether customers admit it or not. People
say that they are not influenced by advertisements but data and client spending suggest
otherwise. In the early-to-mid 1980s, IBM did not have the best computer systems or
pricing. “Big Blue,” however, became the enterprise systems market leader because you
never got fired for buying IBM (same with Cisco today). IT Directors “bought” a relationship,
company, reputation, service, people, assurance. In other words they bought goodwill or
the brand.
Recent advances in neuroscience support the notion that buying decisions in B2C and B2B
spheres are largely based on irrational impulses often unknown to the buyer. For example,
the IBM customer was strongly motivated by job security and peace-of-mind. Today’s B2B
customers may articulate their need for ROI, higher performance, a better mousetrap. Yet,
they really want: to avoid doing business with “an Enron”; a name or people they can trust;
to buy from a “leader”. Strong brands play to these important drivers.
Successful B2B brands require one voice. B2B transactions often involve large amounts of
lots of money, complexity and people. Corporate teams sell to corporate teams. OEM
engineer or professional services clients interact with an array of supplier professionals
(sales to marketing to senior management to support). Customers who have a brand
experience that is integrated, consistent, easy and expected will more likely become
customers again. Loyalty drives brand economic value according to leading marketing and
brand valuation experts. With the objective of unifying the brand and improving the
customer experience, Caterpillar has educated and trained over 10,000 employees through
its “OneVoice” program on how to communicate and demonstrate CAT’s singular brand
personality and values to the marketplace.
Strong B2B brands are branded from the inside-out, top-down and bottom-up. Aligning
the whole organization from customer-facing reps to factory floor employees with
the corporate brand strategy is crucial to driving brand value and customer loyalty,
especially in the B2B world. For example, if every employee at a $500 million electronic
component manufacturer or mid-market professional services firm did not “live” the brand
strategy, then the firm may face lost sales and unhappy customers. On the other hand, if
every Procter & Gamble employee who worked on Ivory Soap did not understand its brand
promise, there may be minimal negative impact on sales and consumer satisfaction.
Infineon, a German-based semiconductor company spun out of Siemens in 1999, recognizes
the power of branding as a guiding principle for both internal and external audiences. Led by
their CEO, 25,000 employees were engaged in the process of the initial brand launch. The
company continues to conduct periodic studies to chart perceptions of both employees and
customers in order to make sure the Infineon brand promise is fulfilled by the organization
and that the brand is aligned with market values.
There is a proven link between internal branding and the bottom line–across B2C and B2B
markets. Companies like Pitney Bowes, Symbol Technologies, Itron, Hewlett Packard and
William Blair have implemented CEO-sponsored “brand assimilation” programs that
resulted in improved performance in internal and external brand measures. Effective
internal brand-building and communications efforts result not only in higher employee job
satisfaction, improved morale, lower turnover and enhanced productivity, but also
increased worker motivation, focus, engagement and conviction in the brand enterprise all
of which leads to higher employee and organizational performance. A Watson Wyatt study
showed the earning per share performance of companies with high employee trust levels
outperformed companies with low trust levels by 186%.
Brands drive B2B. Because not all B2B marketers embrace or grasp this notion, there is a
real opportunity for the enlightened B2B brand strategist and marketer to achieve real
impact.
Did You Know?
Small Brands Can Achieve Great Impact…Founded in 1891 and based in Fort Worth, Texas,
Acme Brick is a manufacturer of bricks that are sold largely through the building trade. A
good portion of their $1.5 million marketing communications budget goes into image
building and strongly branded tactics including partnerships with professional sports
celebrities and teams, PR, charity events and outdoor boards. In 1995 they introduced an
unheard of 100-year product guarantee (3-5 years had been the industry standard) to
further differentiate Acme. Their brand-building efforts have paid-off. Acme is the dominant
brand in the area for both homebuilders and buyers. A 1998 survey of homebuyers showed
Acme had achieved 84% brand preference when no other supplier was above 10% in their
regional market. In fact, Acme estimates:

Their brand is worth an extra 10 cents for every dollar’s worth of Acme brick sold
and $250 in incremental revenue per home

Approximately $20 million of Acme’s annual $200 million brick sales is a return on
the investment that Acme makes yearly in brand-building.

There is a 13-fold return on an average annual marcom budget of $1.5 million.

If a brick can be successfully differentiated then almost anything can be branded to
create value.
Tech Brands Generate Financial Returns…Since 1984, technology consultant Techtel has
been measuring the relationship between brand-building in the high technology arena and
stock performance. Merrill Lynch and Fidelity Investments use Techtel’s research in
forecasting tech stock movements. On a quarterly basis, enterprise customer respondents
are queried about whether they have a positive, negative or neutral opinion of a technology
brand. Over 100 brands spanning more than 40 technology categories (including Apple,
EMC, Intel, IBM, Freescale Semiconductor, Cisco, Accenture, Toshiba, Hewlett Packard,
Fujitsu and Oracle) are part of the study’s database. Empirical research in the finance field
shows that marketing ROI strongly correlates with stock return. Over the last decade, the
Techtel study has consistently found on average a 70% correlation between brand equity
and stock performance. Thus, there is a direct and positive relationship between brand
image for technology companies and their financial performance.
An Unseen Commodity Produced BIG Money…Before the 1990s, Intel, a second-tier
electronics player lagging well behind Texas Instruments in microprocessor sales, was an
undistinguished brand. Few people (PC manufacturers, buyers or users) knew or cared
about specialized “386” components let alone if one brand name was different from
another. In 1991, Intel launched a $100 million long-term cooperative “Intel Inside” brand
campaign with PC-makers to differentiate computers built with its chip “ingredient” and
build “consumer pull” for the Intel component. At the time, Intel’s market capitalization was
$10.2 billion. By 1998, its market cap had grown to $208.5 billion. It is estimated the brand
itself contributes about $2 billion annually to Intel’s market value. Today the Intel brand,
based on a commodity product, is the 14th most valued brand in the world with intangible
financial worth estimated at $35.4 billion.
Trust Is Worth Billions…According to Richard Costello, General Electric’s former Manager of
Marketing Communications, the company netted a bonus of about $10 billion in 1999,
roughly equal to GE’s entire net income that year when revenues were $111.6 billion.
Costello and others including former CEO Jack Welch and current chief Jeffrey Immelt
attribute much of GE’s impressive growth and success to the cultivation of intangible brand
value, or the GE “trust factor”. In fact, for a number of their flagship offerings like aircraft
engines and medical equipment, GE makes more money and achieves greater
differentiation through its value-added intangibles, in the form of its “branded” offering
(services, assurance, solutions, people, etc.) than its “parity products” (Much like GE, IBM in
the 1990s, under the skilled leadership of Lou Gerstner created transformative growth and
value, reengineering itself with a customer and brand-centric offering and culture,
discarding its product-focused legacy in favor of value-added services.).
Customers Buy In A Blink…Malcolm Gladwell’s best-selling book Blink: The Power of
Thinking Without Thinking asserts that customers make most buying decisions (and the best
choices) by relying on their 2-second first impressions (or their “adaptive unconsciousness”)
versus a long, drawn-out process involving lots of rational yet extraneous information.
Gladwell and others have exposed a dirty little secret known in marketing research circles
that customers usually cannot articulate how they really feel, what they actually think or
why they buy a particular brand of product. The driver of their real feelings, thoughts and
actions according to Gladwell, neuroscientists and new wave market researchers is their
unconscious. Buyers make split-second decisions (“thin-slicing”) based on stored memories,
images and feelings—which is what a brand is all about. A strong brand equals a strong 2second impression, whether you’re buying potato chips or specifying microchips.
What is brand value?
Brand value definition:
Brand value is the monetary worth of your brand, if you were to sell it.
If your company were to merge or be bought out by another business, and they wanted to
use your name, logo and brand identity to sell products and services, your brand value
would be the amount they would pay you for that right. This is market-based brand value.
Another way to think of brand value is in terms of replacement cost (cost-based brand
value). In this sense, brand value is the amount you would need to spend to design, execute,
promote and amplify a totally new brand to the same level as your old one. That figure
might include the cost of hiring a design agency, the time and effort spent on marketing and
social media strategy, the cost of advertising, PR outreach and sponsorship, and so on.
Brand value vs. brand equity
Whereas brand value is a financial gauge of your brand’s worth, brand equity is to do with
customer perceptions and how positive they are. Customers who prefer your brand to
others and exhibit loyalty to your brand over time are contributing to your brand equity.
Brand equity can be viewed as a factor influencing brand value, since in building your brand
equity, you’re contributing to the qualities that will make it valuable – things like brand
recognition, positive associations with quality and service, or aspirational value. All these
factors promote revenue by driving customer spend and loyalty.
However, a brand can also have value without having equity. For example, in the prerelease phase of a product, a company would spend money and invest value into developing
a brand before its future customers ever see it. Brand equity is linked to both reputation
and brand purpose, since these relate to how a customer’s personal values align to a
brand’s, and the resulting bond that forms between them. Compared with brand value,
brand equity is a more nebulous concept and harder to measure, since it relates to
consumer motivation, opinion and behaviour rather than financial figures.
What is B2B Branding?
B2B branding is the process of creating a unique identity and image for a business that sells
products or services to other businesses.
The process is done through various methods, such as creating a unique logo, using specific
colors or design elements, and developing a tagline or a slogan.
It is important for businesses to create a strong B2B brand, as this can help them to stand
out from the competition and build trust with potential customers.
An impeccable branding strategy (for both B2B and B2C companies) ensures that the
messaging is aligned with the core values of your company. This secures the tone of your
communication on how you want to be remembered by your customers and the public.
The Role of Branding in B2B Marketing
Branding is an essential element of B2B marketing. It helps businesses to create a unique
identity and build recognition in the marketplace.
Branding can also be used to communicate messages about a company’s products and
services, and to differentiate them from competitors.
An effective branding strategy can help businesses to attract and retain customers, and to
increase sales and market share.
It can also help to build trust and credibility and to create an emotional connection with
customers. While branding is important for all businesses, it is particularly significant for B2B
companies.
Since B2B buyers are often more knowledgeable and sophisticated than consumers, they
place greater emphasis on factors such as reputation and trustworthiness when making
purchasing decisions.
Benefits of B2B Branding
There are numerous benefits of B2B branding, including increased visibility, customer
loyalty, and improved sales.
Increased Visibility
A strong brand can help a business stand out from its competitors. In a highly-saturated
marketplace, it can be difficult for customers to differentiate one business from another.
Only a strong brand can help a business stand out, making it more visible to potential
customers.
Moreover, a strong brand can help build trust with potential customers. When customers
see a strong, well-established brand, making a purchase decision is lessened as they
associate your brand as trustworthy.
Customer Loyalty
Branding can help to retain customer loyalty in a number of ways.
It can create a sense of familiarity and comfort for customers who have been using a
particular brand for a long time. It can make them less likely to switch to a competitor’s
product, even if it is cheaper or of higher quality.
In addition, branding can create a sense of trust between the customer and the company.
When customers feel they can trust a particular brand, they will be more likely to continue
using that brand, even if there are cheaper or better alternatives available.
via GIPHY
Most importantly, branding can influence customer patronage by creating a sense of
community or belonging. When customers feel they are part of a community associated
with a particular brand, they will be reluctant to switch to other brands because more than
the products, a part of their journey comes along with the people and their experiences.
Improved Sales
In relation to the points previously stated, branding can help improve sales over time. One
of the most important ways is by creating brand loyalty. When customers are loyal to a
brand, they are more likely to continue buying products or services from that brand over
time, regardless of the cheaper alternatives available.
Branding can also help increase brand awareness, resulting in customers becoming
interested in what a company has to offer.
Good branding can help create an emotional connection with customers, which can make
them even more likely to continue doing business with a company over time.
But even with so many quantitative tools out there, some elements of good marketing
remain frustratingly challenging to measure. One of those is brand — the ownable,
authentic story that conveys who you are and what sets your business apart from
competitors. The foundation upon which all marketing is based, brand informs everything
from print campaigns and digital media to pop-up engagements and physical environments.
But brand does more than just influence marketing; it also helps bring in top talent, attract
prospective clients, and keep old ones coming back. So, while brand’s short-term ROI can be
difficult to assess, the importance of a well-defined brand is undeniable — and should not
be underestimated.
To help CMOs and other marketing leaders demonstrate brand value, we’ve identified four
ways branding delivers marketing ROI: by engaging purpose-driven employees, by attracting
customers with genuine passion, by creating consistency, and by guiding customer
experience.
1. Brand attracts purpose-driven employees
An essential component of brand, purpose describes why a business exists and the main
benefit it delivers. A great purpose acts as a rallying cry across the entire company. But it’s
far more than just marketing speak — purpose can have a real impact on an organization’s
outcomes, helping it to grow, earn, and thrive.
First and foremost, aligning a company around a clear intent can help it cultivate better
relationships with internal audiences. Brand purpose and culture go hand-in-hand. Current
employees and future hires feel more pride working for an organization that explains its
reasons for existing beyond just building shareholder value. This is especially true for
millennials; 78 percent report that it’s important for them to work at a company with whom
their values align. This can help attract top talent and reduce turnover — all of which make
the business more successful and profitable.
2. Brand purpose engages new customers
Explicitly defining your purpose will give prospective clients a better understanding of who
you are, helping you stand out in what can often be a murky and crowded marketplace.
Chairman and CEO of BlackRock, Larry Fink, said it well: “Without a sense of purpose, no
company, either public or private, can achieve its full potential.”
“Without a sense of purpose, no company, either public or private, can achieve its full
potential.”
Though defining purpose and being a purpose-driven organization are different things, the
latter can also play a key role in attracting customers and adding value. While this is
certainly the case in the B2C space — with socially conscious brands like Patagonia, Warby
Parker, and Toms gaining prominence — having a higher-order purpose can also resonate in
the B2B space. This is especially critical as millennials, who are more likely to make decisions
based on personal values, step into B2B buyer positions.
Purpose can help the bottom line of even the most quotidian services. When CEO Lyell
Clarke shifted the purpose of Clarke — his residential and commercial mosquito control and
aquatic company—from eliminating bugs and cleaning ponds to “making communities
around the world more livable, safe, and comfortable,” he saw a noticeable increase in his
partnerships and revenue. Focusing on the public health aspect of Clarke’s work ultimately
had a positive impact on the business overall.
Purpose is equally vital for major B2B corporations. Maersk is a good example. You may not
think of shipping lines as an especially purpose-driven or values-led industry. However, the
company takes its purpose—going “all the way” to empower global commerce—seriously.
This means delivering far more than logistics; it means partnering with IBM on new
technologies, cleaning up the oceans, and creating unparalleled transparency for the
general public. As such, B2B companies are proud to partner with Maersk for their shipping,
assured that their collaboration will have only a positive halo effect on their brand.
2. Brand consistency builds equity
In an age of globalization, many of the world’s most well-known brands succeed largely
through the simple act of repetition. Think about it: when you’re searching for coffee, you’ll
instantly think of the green Starbucks seal. And it’s easy to understand why: Starbucks looks
and sounds the same everywhere. You can visit any store, from Minneapolis to Madrid, and
count on it to deliver the same products, ambiance, and experience as the one in your own
neighborhood — which is one of the reasons why it’s always top of mind.
Brand drives this consistency, which is a fundamental benefit that helps build equity for a
business. Uniformly applying one visual and verbal identity throughout all your
communications makes it clear what your company stands for. Because when clients
constantly hear a similar message — instead of disparate ideas — they’ll begin to associate
that distinct concept with you. This helps reduce confusion in the marketplace, creates a
stronger impression with customers, and builds trust among your target audience — which
inevitably drives conversion.
3. Brand experience drives loyalty
In today’s world, clients are expecting more from their B2B partners. They’re influenced by
the B2C brands they use every day — companies like Lyft and Hulu, which prioritize
personalization and convenience to provide exceptional experiences for users. With these
consumer companies shaping the way clients think about their B2B interactions, it’s more
important than ever for businesses to elevate their experiences through brand.
“73 percent of business leaders believed that investing in customer experience helped them
increase business performance.”
And recently, leadership has started to agree, too: in a Harvard Business Review research
report, research report, 73 percent of business leaders believed that investing in customer
experience played a critical role in helping them increase business performance. From office
environments to customer service processes to digital interactions, designing brand-led
experiences can help you enrich relationships with your customers and encourage word-ofmouth referrals, both of which strengthen sales. Plus, the process of reviewing the customer
journey — which is a critical component to understanding and enhancing the customer
experience — can reveal opportunities to optimize your supply chain and drive operational
efficiencies. And over time, this reduces costs, enabling your business to become more
profitable.
Purpose, authenticity, consistency, and experience: these ingredients are all linked to brand.
And they’re all benefits of brand … even though that value can sometimes be hard to
quantify. But with these four areas of impact in mind, you can start to select the metrics
that help you communicate marketing ROI to executives. From these factors to key
marketing initiatives and beyond, brand affects so many important business aspects —
which means getting it wrong can often have far-reaching and financial consequences. So,
the question shouldn’t be, “Can we afford to invest in our brand?” but rather, “Can we
afford not to?”
The importance of branding for B2B businesses
In the past, brand positioning was considered extremely important for B2C businesses, but
largely irrelevant for B2B businesses.
The majority of views were that:

price is the driving force behind decision-making purchases in B2B

B2B buyers are rational decision-makers unmoved by emotional factors, including
brands

relationship between sales reps and buyers and that the sales reps are more
important than the brand

B2B products are too complex to be reduced to a tagline
However, those views have changed, and most people now understand that branding is
every bit as important for B2B businesses as for B2C businesses.
B2B buyers are people, and people are emotional. People largely make decisions relying on
their first impressions of stored memories, images and feelings. These emotions impact
economic decision making. In one sense, brands inherently operate on an emotional level by
stimulating that part of the brain that stores emotional reactions. By nurturing the right
brand associations in your prospects’ minds, you can begin closing the deal before the
selling has even started. Trust can be achieved by being the dominant player in your market,
or by achieving thought leadership early in the buying cycle.
The benefits of a strong B2B brand
B2B businesses can benefit greatly from a strong brand. A strong B2B brand:

ensures your brand stands out and cuts-through in its category – it gives customers a
reason to choose your brand over competitors

creates customers with a predisposition towards your brand, and an increased
willingness to try it

shortens the sales cycle

enables your brand to charge and sustain a price premium

enables your brand to build trust with its key stakeholders – customers, employees,
shareholders, distributors, partners, intermediaries etc.

it creates loyal customers, advocates, and even evangelists, out of those who buy

lowers sensitivity to price increases

attracts and retains the best employee talent.

the financial pay-off
Because brand-influenced emotional reactions impact buyer decision making, those
companies with strong brands usually achieve better financial performance. In
fact, McKinsey states that their analysis shows that B2B companies with strong brands
outperform weak ones by 20 percent.
Examples of strong, successful B2B brands
Boeing
A global brand known around the world as the leading manufacturer of commercial aircraft,
Boeing has successfully owned this positioning. However, from a B2B perspective, they are
also leaders in manufacturing defence, space and security systems, with a vision to be the
largest aerospace company with innovation at its core. Boeing’s focus on innovation attracts
and retains the best talent, which is vital in a company that relies on the best and brightest
to continually innovate in their industry.
MailChimp
The most recognised email marketing service provider, MailChimp has traditionally
positioned themselves as the ‘lead in’ or ‘go-to’ email marketing tool for beginners or
smaller businesses. Mailchimp has managed to grow the brand and its values into a more
professional B2B offering that can scale as your business scales. Awareness, ease of use and
technical integration abilities has driven larger companies to buy into the brand and remain
loyal. By targeting beginners to email marketing, MailChimp also wins loyalty from users
who don’t have time to learn a new system as their business grows.
Why is Branding important for B2B companies?
B2B branding builds market share and boosts bottom lines.
How? In 3 ways:
1. Building trust
Data suggests that before interacting with a B2B website, an average buyer will
conduct 12 online searches. That means buyers don’t trust any business in one go. You need
to persistently brand your business so that trust is established.
How does trust relate to market share and bottom lines?
Well, 46% of customers in a Salsify survey mentioned that they’d be willing to pay more for
brands that they trust.
Thus, with branding efforts directed at building trust, you can get your business users to pay
a premium for your products and services with ease.
2. Attracting new customers
No matter how many leads your sales team brings via outbound marketing, you can sure do
with some more, right?
And B2B branding is a surefire way to attract new customers. Primarily due to
the availability heuristic.
Obviously, price, features, benefits, and data drive business buying decisions. But business
decision-makers are also people. And they do use mental shortcuts (called heuristics) to
make snap judgments.
So if they have seen, heard of, and engaged with your business brand before, they’ll
subconsciously give you a higher preference.
And given that only a small percentage of B2B companies care about branding today, you’ll
have a definitive edge if you do invest in B2B branding.
3. Reassuring old customers of their choice and ensuring loyalty
Did you know that loyal customers spend 67% more than new ones?
In the B2B domain, where the cost of a single sale is much higher, retaining old customers
can mean having a golden goose for a pet.
By consistently branding your business, you can associate a pride factor with your name.
And with that, you can make past customers feel good about their association with you.
The result? Higher customer retention. And more repeat contracts/purchases.
Ready for some B2B branding action? Remember to use the right strategies though. Don’t
mistakenly use B2C branding tactics here or you’d be set for failure.
Why?
Because B2B and B2C branding are vastly different. And so is the branding in these 2
markets.
Here’s a quick summarization of how B2B branding differs from its B2C counterpart.
The impact of a strong B2B brand.
When your B2B branding is fully thought about and implemented, your business will be
well-positioned to take advantage of the opportunities that a well-perceived brand has over
those that don't - much the same as in a B2C context:
- A brand has significant value in its own right, demanding a value for the ‘good-will’ offered.
This can really affect the value of your business should you choose to sell or be acquired.
- A brand that has achieved great brand perception and leaves a positive impression on
customers can often charge more for their service. In the same way that Iphones are the
most expensive phones, your buyer understands that he / she is paying a premium for the
brand value.
- A well established brand can create brand loyalty, putting it in good standing for future
product or service releases. It’s often said that the cost of keeping a customer is much lower
than the cost of acquiring a new customer, so this can increase profits.
- If a business has succeeded in making a customer loyal to its brand rather than its
products, there is a small chance of competitors poaching your clients.
- A good brand provides a safety net in the face of a setback. For example, if there is a
security breach or a problem with a service, a strong brand tends to offer a leniency and
resilience to these issues.
- A strong, well known brand often attracts top talent - so you can expect your workforce to
grow in competence.
With that in mind, here are five reasons that brands matter very much in B2B:
1. A strong brand gets you in the door
Recently, one of my clients needed customer relationship management (CRM) software.
Did they contact every CRM supplier in the known universe? Of course not. The buying
committee started with the one brand they all could name — Salesforce. Then they located
a few others via online search and word-of-mouth. Salesforce ultimately won their business.
There’s logic at play: “If they’re well-known, they must be good. And if they’ve served many
companies like mine, they should work for me too.”
Branding is far more than awareness. But the role of awareness should not be
underestimated. Buyers don’t have time to investigate every option. A strong brand gets
you in the door.
2. A strong brand minimizes the buyer’s risk
You’re never selling to a company. You are helping a person, or a team of people, solve a
problem. And people will decide whether you get that shot or not.
This is not a wholly rational thing. You’re not selling to robots. Many a sale has been closed
because “the offerings were similar, but we liked their people better.”
The cost of an error in B2B can be huge. So there can be considerable risk. And fear.
Reputations and time are on the line.
Solving problems, and reducing risk and pain, have real value. If your brand really delivers,
companies (people) will often pay a premium for that.
Some sales will always go to “he cheapest. But the best is where the real brands stake their
claims.
3. A strong brand helps to close the next sale
Remember that a brand is not just the promise you make, but the way that you keep it.
What you do matters more than what you say.
In other words, once you’re in the door, how well do you deliver?
When you deliver on your brand promise, you add to a bank of goodwill. And that goodwill
carries forward. The next time your customer needs services like yours, she may only make
one call — to you — instead of four or five.
And, of course, employees don’t remain at one company forever. When they move on, they
may bring you to their next gig — assuming you’ve done great work for them.
4. Most B2B brands are weak
Most B2B brands are weak. I know this because most brands are weak.
If your competitors have weak brands, you can stand out by building yours.
If your competitors have strong brands, they’ll leave you further behind unless you change.
5. The numbers are clear
Google “best brands list” or “list of most valuable brands.” You’ll find that many of the
world’s top brands are B2B brands, or have a strong B2B component.
A significant chunk of a company’s worth (a third to a half or more, depending on the
measure) derives from its brands. Strong brands, including B2B, have value that the market
recognizes.
Remember: Branding is not the “fluffy stuff.” It’s the real work of improving someone’s
condition. Brands matter hugely in B2B, and companies that don’t get that are setting
themselves up to fail.
The advantages of a strong brand in B2B marketing
In the business to business market, a strong brand can help companies do the following:
Stand out from the crowd
A strong brand enables a B2B company to more readily distinguish its goods or services from
all the others on offer. In a complex and often confusing marketplace, strong branding
associates a B2B company with certain core characteristics or values, in the eyes of the
target audience.
Tap into the buyer’s emotional triggers and perceived business needs
With an effective brand marketing strategy, companies can communicate brand values that
resonate with the needs and aspirations of potential customers, whose buyer’s journey will
often include the identification of pain points or business needs that the offerings of a
particular company specifically address.
Shorten the sales cycle
With a strong brand, existing customers will already know and appreciate the brand value
that your company offers, while strong brand positioning makes it easier for new customers
to identify your company’s offerings and/or actively seek them out. Knowing the brand
value they can expect, these buyers will be more willing to accelerating their time to
purchase, making life easier for your sales and marketing team.
Gain greater control over pricing
A strong brand empowers your company to charge and sustain premium prices for products
or services that embody your brand values and fully deliver on their promise to target
audiences. With a strong brand perception, your company is also better placed to weather
changes in price generally -- such as those caused by supply chain shortages and market
fluctuations.
Create more loyal customers
A strong brand perception, brand value that delivers results to your target audience, and the
fulfilment of your brand promise will make existing customers more willing to continue
patronising your brand. These loyal customers may also become brand advocates, using
positive reviews, referrals, and word of mouth to extol the virtues of your company to other
companies looking to purchase goods or services.
Definition of product
A product is an offering of a firm that satisfies the needs of customers. Customers are
seeking to purchase benefits and they are willing to part with items of value (including
money and time) in exchange for gaining these satisfactions. This includes the core product
and benefits, essentially the value the customer is actually purchasing, plus the product
attributes, which include the brand name, the design, the country of origin, and price and
packaging, as well as support services such as delivery, installation, warranty, and after-sales
service. Since many business marketers began their careers as engineers they often focus
too strongly on the tangible core product and functions, rather than the total package that
the customer considers when he/she buys
To understand this concept better, it is worthwhile looking into some key principles of
marketing.
Philip Kotler, also known as the father of modern marketing, states that product planners
should think about products and services on three levels. Each level adds more customer
value: core product, actual product and augmented product.
Let’s talk about a regular product and take iPhone as an example. The core product (first
level) that creates value here is the ability to make phone calls, send text messages and
browse on the Internet, among other opportunities the device provides. But are we buying
iPhone just for that? Probably not.
Here comes the second level of a product – an actual product. In the context of iPhone, the
actual product includes design, quality level, a brand name and packaging, where all its
parts, styling, features combine to add more value to the core product. But is it always
enough to have the actual product for customers to buy it? Again, probably not.
Therefore, an augmented product (third level) has to be built around the core and actual
product by offering additional benefits. The iPhone is more than phone calls, messages and
Internet. It’s more than style and design. It’s also the complete solution to mobile
connectivity problems. The consumers will expect warranty, instructions and after-sale
service.
Consumers see products as complex bundles of benefits that satisfy their multiple
needs. What about personal brands? Does our target audience only look at the core value
we provide? Probably not.
As mentioned earlier, core product addresses a fundamental need of the consumer. For
example, if you are a Marketing Strategist, your clients will primarily need you to create a
marketing strategy for them. That’s the core personal brand this professional has.
Actual product, in addition to the core product, provides additional symbolic value to the
consumers. For example, some clients may choose a famous and well-known Marketing
Strategist because of the symbolic meaning (trendiness) he represents. Other clients will
choose the most experienced one, just because experience to them means expertise and
trust. Therefore, a particular marketing strategist will be booked not only because he will
create a marketing strategy for the company, but also because his personal brand stands
for a certain quality level as well as values, characteristics and other features that
altogether compose an actual personal brand.
Augmented product provides added value or attributes to its core utility or benefit. For a
Marketing Strategist the supplemental feature might be giving training to the team on the
marketing strategy’s execution, and answering all the questions that will come up during the
execution process. We can call this an augmented personal brand the Marketing Strategist
has.
Applying this concept to your own personal brand might be helpful to understand the full
picture. It’s not only about the core product or service your personal brand stands for, but
also about other levels, overt or implied, it has.
Therefore, when building a strong personal brand:
1. Identify the core value your personal brand stands for. How do you create value for
your target audience in the first place?
2. Design the actual personal brand by naming other attributes that may influence
others choosing you as a professional.
3. Think how you can augment your personal brand. What additional value can you
create to stand out from others?
Three Levels of Product
A product is more than what you see, touch and feel. A product is actually a multi-layer
concept. Even if they are not always obvious, the three levels of products are nearly always
present: the Core Value, the Actual Product and the Augmented Product. Each level adds
more customer value to the total product.
Three Levels of Product – Core Value, Actual Product and Augmented Product
When you think of a product, you nearly always envision the “actual product”. Let’s start
with an example. Sticking with the car example, you probably think of the car itself. You
think of the brand, the features, the design, the performance, and so on. A different person
might think of other aspects first – maybe the quality level or the sound of the engine. In
nearly all cases, however, consumers would think of the actual product first because it is the
most visible and obvious layer of the three levels of product.
The Core Customer Value – The Inner Layer
The first and most basic level is called the core customer value, or core benefit. Although it
is the first and inner layer, it is not the easiest to think of. As in the car example, you would
rather think of the obvious features than of the underlying core value.
In order to identify the core customer value of a product, you need to answer a simple
question: What is the buyer really buying? In other words, what is the customer really
looking for? In most cases, the core value is the basic need that is satisfied by the product.
This basic need differs depending on the person and the specific demand. For a car, the
basic need might be the transportation from A to B. I might also be the status symbol. It
might be the option to participate in car races. For a smartphone, the core value might be
communication. But it might also be freedom and on-the-go connectivity. Also here, it might
be the status symbol.
As you can see, the core customer value can be many things – it is the underlying need and
the reason why the product is bought in the first place. It is the core problem solved by the
product. In contrast, all later levels of the product add detail and potentially additional
reasons for buying this specific version of the product. They are basically “add-ons”.
When a marketer designs a product in the new product development process, the core
problem should always be the starting point. What does the consumer really seek? What
are problems that are not ideally solved by existing products? Thereby, ideas for new
products are generated that solve problems in better ways than existing products.
It is important to note that products are rarely marketed by their core value. The reason is
that the core value in most cases does not really offer competitive advantage. Usually, there
are several alternatives available that satisfy the most basic need – either competing
products or substitutes. Imagine if a car would be advertised by its ability to offer
transportation. Quite a ridiculous thought. As many alternative products offer this core
value, the differentiation usually happens at later stages – at the actual product or
augmented product level. For instance, the specific car might be differentiated by its
powerful engine and the interior quality.
The Actual Product – the Middle and Most Obvious Layer
The second level of product is the actual product. Marketers should turn the core benefit
they identified into an actual product. This involves developing product features, design, a
quality level, a brand name and even a packaging. The actual product offers the best and
easiest options for differentiation. Alternative products that offer the same core benefits
can be set apart by different features, designs, qualities etc.
The smartphone or the car you buy are actual products. You buy the phone, the packaging,
the functionality and so on. You buy the car, the powerful engine, the sporty exhaust and so
further. All these factors at the middle level of product relate to the core customer value.
This reveals that the levels of product build up on each other. The smartphone’s name,
parts, styling, features, packaging and other attributes all have been carefully combined to
deliver the core customer value of staying connected.
As the examples show, different aspects of the actual product may appeal to different
customers. This is also the main reason why most products can be purchased in a number of
different versions. For instance, you can choose different colors and engines for a car, and
different memory sizes for a smartphone.
The Augmented Product – The Outer Layer
A product is completed by the last layer – the augmented product. While the actual product
offers most differentiation potential, the augmented product adds further options to
differentiate. It is usually built around the core value and the actual product. It simply offers
additional consumer services and benefits.
Let’s consider an example. If you buy a tablet device, you get more than the core customer
value (e.g., communication), and also more than the actual product (brand, design, features,
etc.). You also get the augmented product, which turns the product into a complete solution
to your connectivity problems as defined by the core customer value. This complete solution
might take the form of a warranty, after-sale service, product support, instructions on how
to use the device and so further.
The three levels of product
Three levels of product can be identified. Each level adds more customer value. The first and
most basic level is called the core customer value. The first one of the levels of product, the
core customer value, answers the question: What is the buyer really buying? When a
marketer designs a product, he should first think of the core problem. What does the
consumer really seek? If you buy a car, the most basic core value you seek is transportation.
For others, it might be status or glamour. If you buy a smartphone, the core customer value
might be communication. Likewise, if you buy an iPad, you buy more than a mobile
computer or a personal organiser. The core customer value you buy is freedom and on-thego connectivity. A woman buying a lipstick seeks more than just a colourful cosmetic. In fact,
she might seek hope. You see that already the first one of the three levels of product is
much more than the product itself. Always ask yourself first when developing a product:
What benefit does the customer really seek? What is the problem that needs to be solved?
The second one of the three levels of product is the actual product. Marketers should turn
the core benefit, the core customer value they identified into an actual product. This
involves developing product features, design, a quality level, a brand name and even a
packaging. The smartphone you finally buy as well as the car are actual products. You buy
the phone, the packaging, the functionality and so on. All these factors at the second one of
the levels of product relate to the core customer value. This reveals that the levels of
product build up on each other. The smartphone’s name, parts, styling, features, packaging
and other attributes all have been carefully combined to deliver the core customer value of
staying connected.
Finally, the levels of product are completed with the augmented product. The augmented
product rounds of the three levels of product, being built around the core value and the
actual product. It simply offers additional consumer services and benefits. If you buy an
iPad, you get more than the core customer value (e.g. communication), and also more than
the actual product. These are only two levels of product. The augmented product you get is
the complete solution to your connectivity problems as defined by the core customer value.
This complete solution might take the form of a warranty, after-sale service, product
support, instructions on how to use the device and so further.
As we have learned, a product is more than what you actually see when you buy it. Three
levels of product are involved in any purchase. The levels of product include the core
customer value, the actual product and the augmented product. What you buy is a complex
bundle of benefits that aim to satisfy your needs. This also means that when marketers
develop products, they first must identify the core customer value. What does the customer
really need and want, what problem does he have? Then, they must design the actual
product and in addition find ways to augment it in order to create customer value and the
most satisfying experience.
Product strategy
The product strategy of a firm relates to making decisions about the features, quality, and
the entire offering shown in Figure 8.1. Needless to say, the product strategy is a most
tangible expression of the overall firm strategy discussed in Chapter 3. Product strategy
involves developing a rational relationship between and among product offerings. For
instance, an office furniture product manager must decide upon the features, functions and
benefits of a particular seating line, the quality level that will affect the pricing and all of the
ancillary items under his control including packaging, design, country of origin, delivery,
installation, warranty, and after-sales service. He or she also has to make decisions about
the brand. If one assumes that this product manager is employed by Steelcase, the world’s
largest office furniture manufacturer, he or she may choose to offer the product as a
Steelcase branded product or to develop a new brand name not associated with Steelcase,
so that this product stands on its own. A third choice might be to private-brand the product
for some other outlet such as Office Depot or Staples. These three choices are illustrated in
Figure 8.2.
In deciding upon the entire product offering, the manager must distinguish between an
individual product that has the unique set of the attributes seen in Figure 8.1, a product line,
which is a group of these individual products which are related to one another, and the
overall product assortment which is all of the product lines together. In the global context,
product lines tend to expand to accommodate the varying requirements of national
markets. Each country requires slightly different product characteristics, leading to a
proliferation of models. It is critical for a manager of the product line to attempt to limit the
number of products and product lines to the minimum that will satisfy the requirements of
most of his customers. Pruning the product line to remove unprofitable or underperforming
products should be a regular activity for marketers.
While consumer product strategy is similar to business product strategy, there are a few
major differences. First, consumer products focus more heavily on brand identity and
product appearance than do strategies related to business products. Since most business
products are sold with related services like installation, training, after-sales service, and
maintenance, in almost every case a business product must be offered as a total package. As
mentioned earlier, business buyers attempt to minimize the emotional content of their
decisions. In most cases, they are concerned with specific tangible benefits that can be
measured when they make a buying decision. Therefore, designing a business product
requires a full understanding of the customer’s value-creating activities so that the product
can be positioned as an important contributor to the customer’s value chain.
What is product strategy?
Product strategy bridges the gap between the conceptualization of a product and creating a
set development plan. You may have a terrific idea for the next big product. However, odds
are you’d find it difficult to jump straight from “dreamt up” to “drawn out on paper.”
A product strategy outlines the principles that justify the creation of the product and the
work required to make it successful. It helps companies answer three essential questions
about their product:

Who is the customer base?

How will the product address these customers’ pain points?

How will the product benefit the company?
The answers to these questions will inform the broad-strokes planning of the product. These
big-picture strategies include the types of features the product will contain, a general
blueprint of product development, and the measurable objectives the company hopes to
achieve.
Product strategy is often confused with the product roadmap. However, a roadmap is a
timeline of action items that outline how exactly a product will come together. Successful
roadmaps require the established vision, timelines, and goals set forth first in a clear
product strategy.
Product strategy serves as a reference point as the product roadmap changes throughout
development. Deadlines, tasks, and goals are all bound to shift or change altogether during
product development in response to feedback, testing, and unexpected obstacles. A
company that adheres to a set strategy is better equipped to handle changes and devise
solutions in line with the ultimate vision for the product.
The importance of product strategy to your business
Product strategy benefits businesses by keeping a product’s trajectory aligned with both
customer and internal expectations. A strategy is so vital to a product’s success that 84% of
product managers identify ownership of their product strategy as one of their top
responsibilities. A quality product strategy:
Defines your product’s niche
A well-researched product strategy provides companies with a clear sense of what niche
their product will occupy when it goes to market. This awareness allows teams to make
decisions during development that speak to the product’s niche and thus to its intended
audience.
Imagine your product’s niche as a triangle. At one point, you have the customers you want
to serve. On another point, you have the profit-minded goals of your company. On the third
and final point, you have the various functions and features of your product that
differentiate it from the competition.
A product strategy defines each of these points and helps to balance them against each
other. You won’t sell a product that has a thousand features but no audience. You also
won’t capture an audience by setting goals that force you to charge far more than
comparable competitors.
Informs your product roadmap
Your product roadmap acts as the official game plan for developing, releasing, and growing
your product. It’s a company’s ultimate resource for task management and helps ensure
that deadlines are being met. Hiccups in the development process may change action items
on the roadmap, but those changes are visible to and respected by all parties involved.
Product strategy directly informs your product roadmap by setting a sturdy foundation. Your
strategy sets high-level deadlines and phases of your product’s development while your
roadmap will detail the specific methods for execution. The roadmap you start out with is
likely to look much different than the one you wind up with. However, a roadmap based on
a clearly defined product strategy is likely to require fewer changes than one based on a bad
strategy or no strategy at all.
Provides direction and clarity for internal teams
Your product team won’t be the only people within your company who need to be in sync
with your goals. Everyone within your company works to bolster the success of your
product. Sales teams need to know how to talk about its value to high-impact prospects.
Marketers must develop a plan for marketing your product strategy to the broader public. IT
and customer service teams need to understand how it works so they can anticipate the
questions they’ll be fielding from users. Internal policies and plans for interfacing with
customers should all focus on the points outlined in your product strategy to maintain
consistent messaging in communications.
Additionally, every team within your business undoubtedly supports your product, but they
may not always agree on the best way to get there. These teams should refer back to the
product strategy when faced with uncertainty or disagreement. Potential decisions should
be compared against the product strategy to determine which way forward speaks best to
the intent of the product.
What is a product strategy?
A high-level plan that describes what a business aims to achieve with its products and how it
plans to achieve these goals is known as a product strategy. This strategy acts as a roadmap
to develop your products and answers questions such as who the product will serve
(product persona), how the product will benefit personas and the company goals. A product
strategy acts as a guide to allow users to know what tasks they should complete in order to
achieve the business goals. Creating a detailed product strategy will ensure that tasks are
completed on time and efficiently.
It also outlines how the product would benefit the business by describing the problem that
the product solves and how it will impact the customers. This strategy can be used to
explain what product is being built and when, it gives a clear definition of the product. It
acts as a baseline to measure success before, during, and after product development.
The Product Life Cycle
A product life cycle is the length of time from a product first being introduced to
consumers until it is removed from the market. A product’s life cycle is usually broken
down into four stages; introduction, growth, maturity, and decline.
Product life cycles are used by management and marketing professionals to help determine
advertising schedules, price points, expansion to new product markets, packaging redesigns,
and more. These strategic methods of supporting a product are known as product life cycle
management. They can also help determine when newer products are ready to push older
ones from the market.
The various stages of a product’s life cycle determine how it is marketed to consumers.
Successfully introducing a product to the market should see a rise in demand and
popularity, pushing older products from the market. As the new product becomes
established, the marketing efforts lessen and the associated costs of marketing and
production drop. As the product moves from maturity to decline, so demand wanes and the
product can be removed from the market, possibly to be replaced by a newer alternative.
Managing the four stages of the life cycle can help increase profitability and maximise
returns, while a failure to do so could see a product fail to meet its potential and reduce its
shelf life.
Writing in the Harvard Business Review in 1965, marketing professor Theodore Levitt
declared that the innovator had the most to lose as many new products fail at the
introductory stage of the product life cycle. These failures are particularly costly as they
come after investment has already been made in research, development and production.
Because of this, many businesses avoid genuine innovation in favour of waiting for someone
else to develop a successful product before cloning it.
Stages
There are four stages of a product’s life cycle, as follows:
1. Market Introduction and Development
This product life cycle stage involves developing a market strategy, usually through an
investment in advertising and marketing to make consumers aware of the product and its
benefits.
At this stage, sales tend to be slow as demand is created. This stage can take time to move
through, depending on the complexity of the product, how new and innovative it is, how it
suits customer needs and whether there is any competition in the marketplace. A new
product development that is suited to customer needs is more likely to succeed, but there is
plenty of evidence that products can fail at this point, meaning that stage two is never
reached. For this reason, many companies prefer to follow in the footsteps of an innovative
pioneer, improving an existing product and releasing their own version.
2. Market Growth
If a product successfully navigates through the market introduction it is ready to enter the
growth stage of the life cycle. This should see growing demand promote an increase in
production and the product becoming more widely available.
The steady growth of the market introduction and development stage now turns into a
sharp upturn as the product takes off. At this point competitors may enter the market with
their own versions of your product – either direct copies or with some improvements.
Branding becomes important to maintain your position in the marketplace as the consumer
is given a choice to go elsewhere. Product pricing and availability in the marketplace
become important factors to continue driving sales in the face of increasing competition. At
this point the life cycle moves to stage three; market maturity.
3. Market Maturity
At this point a product is established in the marketplace and so the cost of producing and
marketing the existing product will decline. As the product life cycle reaches this mature
stage there are the beginnings of market saturation. Many consumers will now have bought
the product and competitors will be established, meaning that branding, price and product
differentiation becomes even more important to maintain a market share. Retailers will not
seek to promote your product as they may have done in stage one, but will instead become
stockists and order takers.
4. Market Decline
Eventually, as competition continues to rise, with other companies seeking to emulate your
success with additional product features or lower prices, so the life cycle will go into decline.
Decline can also be caused by new innovations that supersede your existing product, such as
horse-drawn carriages going out of fashion as the automobile took over.
Many companies will begin to move onto different ventures as market saturation means
there is no longer any profit to be gained. Of course, some companies will survive the
decline and may continue to offer the product but production is likely to be on a smaller
scale and prices and profit margins may become depressed. Consumers may also turn away
from a product in favour of a new alternative, although this can be reversed in some
instances with styles and fashions coming back into play to revive interest in an older
product.
Product Life Cycle Strategy and Management
Having a properly managed product life cycle strategy can help extend the life cycle of your
product in the market.
The strategy begins right at the market introduction stage with setting of pricing. Options
include ‘price skimming,’ where the initial price is set high and then lowered in order to
‘skim’ consumer groups as the market grows. Alternatively, you can opt for price
penetration, setting the price low to reach as much of the market as quickly as possible
before increasing the price once established.
Product advertising and packaging are equally important in order to appeal to the target
market. In addition, it is important to market your product to new demographics in order to
grow your revenue stream.
Products may also become redundant or need to be pivoted to meet changing demands. An
example of this is Netflix, who moved from a DVD rental delivery model to subscription
streaming.
Understanding the product life cycle allows you to keep reinventing and innovating with an
existing product (like the iPhone) to reinvigorate demand and elongate the product’s market
life.
How the Product Life Cycle Works
Products, like people, have life cycles. The life cycle of a product is broken into four stages—
introduction, growth, maturity, and decline.
A product begins with an idea, and within the confines of modern business, it isn't likely to
go further until it undergoes research and development (R&D) and is found to
be feasible and potentially profitable. At that point, the product is produced, marketed, and
rolled out. Some product life cycle models include product development as a stage, though
at this point, the product has not yet been brought to customers.
As mentioned above, there are four generally accepted stages in the life cycle of a product.
Here are details about each one.
Introduction Stage
The introduction phase is the first time customers are introduced to the new product. A
company must generally includes a substantial investment in advertising and a marketing
campaign focused on making consumers aware of the product and its benefits, especially if
it is broadly unknown what the item will do.
During the introduction stage, there is often little-to-no competition for a product, as
competitors may just be getting a first look at the new offering. However, companies still
often experience negative financial results at this stage as sales tend to be lower,
promotional pricing may be low to drive customer engagement, and the sales strategy is still
being evaluated.
Growth Stage
If the product is successful, it then moves to the growth stage. This is characterized by
growing demand, an increase in production, and expansion in its availability. The amount of
time spent in the introduction phase before a company's product experiences strong growth
will vary from between industries and products.
During the growth phase, the product becomes more popular and recognizable. A company
may still choose to invest heavily in advertising if the product faces heavy competition.
However, marketing campaigns will likely be geared towards differentiating its product from
others as opposed to introducing the goods to the market. A company may also refine its
product by improving functionality based on customer feedback.
Financially, the growth period of the product life cycle results in increased sales and higher
revenue. As competition begins to offer rival products, competition increases, potentially
forcing the company to decrease prices and experience lower margins.
Maturity Stage
The maturity stage of the product life cycle is the most profitable stage, the time when the
costs of producing and marketing decline. With the market saturated with the product,
competition now higher than at other stages, and profit margins starting to shrink, some
analysts refer to the maturity stage as when sales volume is "maxed out".
Depending on the good, a company may begin deciding how to innovate its product or
introduce new ways to capture a larger market presence. This includes getting more
feedback from customers, and researching their demographics and their needs.
During the maturity stage, competition is at the highest level. Rival companies have had
enough time to introduce competing and improved products, and competition for
customers is usually highest. Sales levels stabilize, and a company strives to have its product
exist in this maturity stage for as long as possible.
A new product needs to be explained, while a mature product needs to be differentiated.
Decline Stage
As the product takes on increased competition as other companies emulate its success, the
product may lose market share and begin its decline. Product sales begin to drop due to
market saturation and alternative products, and the company may choose to not pursue
additional marketing efforts as customers may already have determined whether they are
loyal to the company's products or not.
Should a product be entirely retired, the company will stop generating support for it and will
entirely phase out marketing endeavors. Alternatively, the company may decide to revamp
the product or introduce a next-generation, completely overhauled model. If the upgrade is
substantial enough, the company may choose to re-enter the product life cycle by
introducing the new version to the market.
The stage of a product's life cycle impacts the way in which it is marketed to consumers. A
new product needs to be explained, while a mature product needs to be differentiated from
its competitors.
Advantages of Using the Product Life Cycle
The product life cycle better allows marketers and business developers to better understand
how each product or brand sits with a company's portfolio. This enables the company to
internally shift resources to specific products based on those products' positioning within
the product life cycle.
For example, a company may decide to reallocate market staff time to products entering the
introduction or growth stages. Alternatively, it may need to invest more cost of labor in
engineers or customer service technicians as the product matures.
The product life cycle naturally tends to have a positive impact on economic growth, as it
promotes innovation and discourages supporting outdated products. As products move
through the life cycle stages, companies that use the product life cycle can realize the need
to make their products more effective, safer, efficient, faster, cheaper, or better suited to
client needs.
Limitations of Using the Product Life Cycle
Despite its utility for planning and analysis, the product life cycle doesn't pertain to every
industry and doesn't work consistently across all products. Consider popular beverage lines
whose primary products have been in the maturity stage for decades, while spin-offs or
variations of these drinks from the same company have failed.
The product life cycle also may be artificial in industries with legal or trademark restrictions.
Consider the new patent term of 20 years from which the application for the patent was
filed in the United States.1 Though a drug may be just entering their growth stage, it may be
adversely impacted by competition when its patent ends regardless of which stage it is in.
Another unfortunate side effect of the product life cycle is prospective planned
obsolescence. When a product enters the maturity stage, a company may be tempted to
begin planning its replacement. This may be the case even if the existing product still holds
many benefits for customers and still has a long shelf life. For producers who tend to
introduce new products every few years, this may lead to product waste and inefficient use
of product development resources.
Why is the product life cycle helpful for marketers?
A product life cycle is helpful for marketers because it helps you figure out what marketing
strategies to use in specific situations.
For example, you can use a product life cycle as a forecasting and planning tool. If you have
released a similar product in the past, you might be able to use that product to create a
product life cycle for a future release.
Then, you can figure out what marketing strategies you want to use in specific situations.
You can even use a product lifecycle tool to estimate your profits and revenue. For example,
if you know that a specific product followed a similar life cycle in the past, you might be able
to take a look at its revenue numbers.
Then, you can track your new product over time, estimating how much revenue you might
generate in specific situations. The entire purpose of a product life cycle is to add a bit of
transparency to an unknown situation, helping you maximize the value of each product you
release.
What are the drawbacks of the product life cycle model?
There are a few significant drawbacks of a product life cycle model. The first drawback is
that you do not necessarily want to pigeonhole yourself into a specific cycle. It can be very
difficult to predict how a product life cycle is going to unfold, and if you expect one thing to
happen but end up with another, you might not necessarily know how to respond.
Another significant drawback of the product life cycle model is that you do not know how
long your product is going to spend in each individual stage. Even though it might be helpful
to take a look at similar products in the past, industries can change quickly. You might have
a hard time figuring out when your product is going to transition to another stage, and that
can make it difficult to respond accordingly.
That is why it is important to take a look at your life cycle model from time to time and reevaluate it when necessary.
How Would the Marketing Mix Change at Different Stages of the Product Life Cycle?
A product life cycle is the typical stages a product goes through during its lifetime. The
product life cycle is broken down into five different stages, which include the development,
introduction, growth, maturity and decline stages of the product. Characteristics for each
stage differ and in response to the different needs of the product as it moves through its life
cycle, the market mix (various marketing tactics) used during these stages differ as well.
Understanding the product life cycle can help business owners and marketing managers
plan a marketing mix to address each stage fully.
Development Stage
1. During the development stage, the product may still be just an idea, in the process of
being manufactured or not yet for sale. In this stage, the marketing mix is in the
planning phase, so rather than implementing marketing strategies, the product
producer is researching marketing methods and planning on which efforts the
company intends on using to launch the product. The marketing mix for this stage
includes ways to bring awareness of the product to potential customers through
marketing campaigns and special promotions.
Introduction Stage
1. As the product hits the market, it enters the introduction stage of the product life
cycle. Because it is a new product that customers are not yet aware of, the product
sales during the introduction stage are generally low. At this time, marketing
expenses are generally high because it requires a lot of effort to bring awareness to
the product. The marketing mix during this stage of the product life cycle entails
strategies to establish a market and create a demand for the product.
Growth Stage
1. As customers become aware of the product and sales increase, the product enters
into the growth stage of the product life cycle. Marketing tactics during the growth
stage requires branding that differentiates the product from other products in the
market. Marketing the product involves showing customers how this product
benefits them over the products sold by the competition—also known as building a
brand preference.
Maturity Stage
1. As the product gains over its competition, the product enters the maturity stage of
the product life cycle. The marketing mix during this stage involves efforts to build
customer loyalty, typically accomplished with special promotions and incentives to
customers who switch from a competitor’s brand.
Decline Stage
1. Once a product market is over saturated, the product enters into the decline stage of
the product life cycle. This is the stage where the marketing mix and marketing
efforts decline. If the product generated loyalty from customers, the company can
retain customers during this stage, but does not attract new sales from new
customers. For the marketing mix that remains during the decline stage, the focus is
generally on reinforcing the brand image of the product to stay in a positive light in
the eyes of the product's loyal customers.
How Marketing Mix Strategies can Change through the Product’s Lifecycle
First Stage: Introduction
During this stage the company would typically have high promotion activity planned, which
focuses on informing about the product just launched. If your product is new and there is
not much competition, the product then might be priced higher compared to a market with
a high degree of competition. The distribution at first might be selective, to see whether the
product takes off and has success in the marketplace. Cost on sales promotion tends to be
higher too.
Second Stage: Growth
If the product succeeds on the market, demand for it naturally grows. During this stage,
sales go up and so does production cost, as more products are being produced to meet
customer demand. As success is reached, competition could also rise. As more competitors
enter the market, the price would be affected; assessing your price might therefore be
necessary. The consideration for distribution might change as well, as the product demand
and competition are high. Most companies would try to increase their market share during
this stage.
Third Stage: Maturity
The product has reached its peak and sales are starting to decline. There would be more
sales promotion during this stage and discount prices would be one approach to liquidate
stocks. The product distribution would then move to a more intensive approach as a way of
handling aging products.
Fourth Stage: Decline
Profits are starting to reduce during this stage. Typically, companies would cut spending
on promotion, as sales continue to decline. Distribution would be even more limited. This is
the stage where companies would consider whether to develop and further innovate the
product or find a new potential market elsewhere.
Product introduction strategies
Marketing strategies used in the introduction stages include:

rapid skimming - launching the product at a high price and high promotional level

slow skimming - launching the product at a high price and low promotional level

rapid penetration - launching the product at a low price with significant promotion

slow penetration - launching the product at a low price and minimal promotion
During the introduction stage, you should aim to:

establish a clear brand identity

connect with the right partners to promote your product

set up consumer tests, or provide samples or trials to key target markets

price the product or service as high as you believe you can sell it, and to reflect the
quality level you are providing
You could also try to limit the product or service to a specific type of consumer - being
selective can boost demand. Read more about the introduction stage of a product life
cycle.
Product growth strategies
Marketing strategies used in the growth stage mainly aim to increase profits. Some of the
common strategies to try are:

improving product quality

adding new product features or support services to grow your market share

entering new markets segments

keeping pricing as high as is reasonable to keep demand and profits high

increasing distribution channels to cope with growing demand

shifting marketing messages from product awareness to product preference

skimming product prices if your profits are too low
The growth stage is when you should see rapidly rising sales, profits and your market share.
Your strategies should seek to maximise these opportunities.
Product maturity strategies
When your sales peak, your product will enter the maturity stage. This often means that
your market will be saturated and you may find that you need to change your marketing
tactics to prolong the life cycle of your product. Common strategies that can help during this
stage fall under one of two categories:

market modification - this includes entering new market segments, redefining target
markets, winning over competitor's customers, converting non-users

product modification - for example, adjusting or improving your product's features,
quality, pricing and differentiating it from other products in the marking
Product decline strategies
During the end stages of your product, you will see declining sales and profits. This can be
caused by changes in consumer preferences, technological advances and alternatives on the
market. At this stage, you will have to decide what strategies to take. If you want to save
money, you can:

reduce your promotional expenditure on the products

reduce the number of distribution outlets that sell them

implement price cuts to get the customers to buy the product

find another use for the product

maintain the product and wait for competitors to withdraw from the market first

harvest the product or service before discontinuing it
Another option is for your business to discontinue the product from your offering. You may
choose to:

sell the brand to another business

significantly reduce the price to get rid of all the inventory
Development or introduction stage:
The product development or introduction stage is generally a stage full of risks and
uncertainties.
At this stage, the company need to focus upon creating demand and driving brand
awareness higher.
How much time it will take for demand to grow will depend on the product’s complexity, its
innovativeness, how well it fits into consumer needs and the presence of substitutes in the
market.
For example, a product that is rare and inimitable will not have to struggle for creating
demand.
If a proved cure for cancer arrives in the market, the company will need to spend virtually
nothing on creating demand.
However, this is generally not the case always and apart from that if the level of
competition in the market or the number of substitutes is higher, the product will struggle
to achieve higher demand.
In such a case, the expenditure on marketing and advertising will be higher since the
company will need to focus on growing awareness about the product and drive demand for
it by encouraging customers to try the product.
If the number of substitutes is higher in the market, the company will keep prices low to
drive faster growth in demand.
The focus of the marketing mix and marketing strategies of the company will be on gaining
market share and creating demand.
This is generally the riskiest stage for the product since it will either successfully gain market
share or end up failing.
All these factors including competition and uncertainty drive the cost of marketing in the
initial stage higher.
Growth Stage:
Successful products generally experience a gradual rise in demand during the initial market
development stage.
At some point as demand keeps rising, a remarkable increase in consumer demand happens
and sales take off from that point.
This point is the beginning of the second stage or the market growth stage.
If a company has faced lower competition in the first stage might experience higher
competition in the second one since chances are higher that new competitors jump into the
fray.
Some players might enter the market with carbon copies of the product and others might
bring similar products with design and functional improvements.
This is the point where product and brand differentiation start developing or the focus of
the marketing mix will be on differentiation.
At this stage, the focus of the marketing strategy will be on the use of techniques that help
differentiate the product from rivals.
However, with the entry of competitors in the market who might have been inspired to
release similar products by the success of the original product, the task of the manufacturer
company might become difficult.
Rather than encouraging consumers to try the product, the company needs to offer
customers compelling reasons to prefer its product over the others.
The company will need to change its marketing strategy and methods since the ones used in
the initial stage will not work at this stage.
Another critical marketing related challenge at this stage is that the company will not be as
free to experiment with its marketing methods as in the first stage due to the presence of
competitors.
Due to the competition, the company will have limited choices in terms of pricing and
distribution also.
At this stage, experimenting with prices may not be possible.
However, accelerating consumer demand and acceptance opens the scope for the adoption
of new distribution channels.
The chances of competition growing at this stage are again higher since more players will
see an opportunity to earn profits.
Technological advancements and production shortcuts will also allow competitors to charge
lower prices for their products.
Inevitably, the product reaches a new stage of competition at this point.
Maturity Stage:
Learn more
The first sign of the maturity stage is the evidence of market saturation.
In terms of marketing strategy, this is also a rather complex stage where the manufacturing
company needs to appeal to the consumer on the basis of the marginal differentiators,
prices, or both.
Based on the type pf product, the most effective form of differentiation at this stage will be
the services and deals provided in connection with the product.
Apart from it, the company will also try to create and promote fine distinctions through
packaging and advertising.
It will also try to appeal to new market segments.
Especially, in the case of branded products, the manufacturer will be forced to communicate
more directly with the customer.
The market maturity stage can pass rapidly or it can sustain for long where demand will
neither rise nor fall.
The focus of the marketing mix will be on building customer loyalty through promotions and
special incentives and encouraging brand switching.
Decline Stage:
When the product maturity stage has come to an end, the product reaches the decline
stage. This is also the stage where the expenditure of the company on marketing declines.
Marketing related efforts also decline at this stage.
While attracting new sales from new customers might not be possible at this stage, the
company can still retain its loyal customers.
It has achieved customer loyalty in the previous stages and the focus will be on reinforcing
the product’s and the brand’s image in a manner that the product stays in light and the
company is able to retain its loyal customers.
Companies can also avoid market decline in many cases through the use of carefully
orchestrated marketing techniques and by being innovative in their approach to marketing
the product.
Services definitions
What is a Service?
A service is intangible. It is the transaction of intangible goods between the service provider
and customer. One of the key ways to differentiate it from a product is that a service is
neither transferable nor storable.
Some more characteristics of services include

Inseparability from offering and consumption, and

Simultaneous involvement of both the service provider and the customer.
Let’s check out how Philip Kotler describes a service.
“A service is an activity or benefit that one party can offer to another that is essentially
intangible and does not result in the ownership of anything. Its production may or may not
be tied to a physical product.”
Types of Services
Let’s explore the types of services based on tangibility and intangibility.

Services Based on Tangibility – This classification includes services for people such
as healthcare facilities, restaurants, etc. Apart from that, there is service for
goods including transportation, warehouse facility, repairing, etc.

Services Based on Intangibility – This classification covers education, information
services, legal services, etc.
Definition of Service?
Service is a commitment to deliver something that benefits another person.
The word service has been used for centuries and in many different contexts, but it is often
associated with jobs such as wait staff or customer service. It can also refer to the support
offered by doctors and nurses in hospitals or social workers who help people transition from
homelessness into their own homes and communities. Service providers are typically paid
for their work, but they may be volunteering instead of being compensated monetarily.
Services
A service is an intangible item offered to customers and meets a need that the customer
can't meet themselves or provides a benefit to the customer. When someone performs a
service for another person, they may be performing a job or handling a task, which can be a
one-off or repeat service. A service-based business often has lower overhead costs than a
business that sells products because the former doesn't buy and maintain inventory. Pricing
for services can vary drastically and can depend on the type of service, the skills of the
person or people offering it and its demand.
Because the customer doesn't walk away with a physical item after purchasing a service, the
marketing and sales teams of businesses that offer services often place heavy emphasis on
building credibility and reliability through physical evidence. For new customers, this
evidence might come in the form of positive reviews, effective branding and excellent
customer service. For repeat customers, this might come in the form of post-purchase
emails, newsletters and high-quality materials to ensure product durability.
Definition and characteristics of Services
The American Marketing Association defines services as - “Activities, benefits and
satisfactions which are offered for sale or are provided in connection with the sale of
goods.”
The defining characteristics of a service are:
Intangibility: Services are intangible and do not have a physical existence. Hence services
cannot be touched, held, tasted or smelt. This is most defining feature of a service and that
which primarily differentiates it from a product. Also, it poses a unique challenge to those
engaged in marketing a service as they need to attach tangible attributes to an otherwise
intangible offering.
1. Heterogeneity/Variability: Given the very nature of services, each service offering is
unique and cannot be exactly repeated even by the same service provider. While
products can be mass produced and be homogenous the same is not true of services.
eg: All burgers of a particular flavor at McDonalds are almost identical. However, the
same is not true of the service rendered by the same counter staff consecutively to
two customers.
2. Perishability: Services cannot be stored, saved, returned or resold once they have
been used. Once rendered to a customer the service is completely consumed and
cannot be delivered to another customer. eg: A customer dissatisfied with the
services of a barber cannot return the service of the haircut that was rendered to
him. At the most he may decide not to visit that particular barber in the future.
3. Inseparability/Simultaneity of production and consumption: This refers to the fact
that services are generated and consumed within the same time frame. Eg: a haircut
is delivered to and consumed by a customer simultaneously unlike, say, a takeaway
burger which the customer may consume even after a few hours of purchase.
Moreover, it is very difficult to separate a service from the service provider. Eg: the
barber is necessarily a part of the service of a haircut that he is delivering to his
customer.
Types of Services
1. Core Services: A service that is the primary purpose of the transaction. Eg: a haircut
or the services of lawyer or teacher.
2. Supplementary Services: Services that are rendered as a corollary to the sale of a
tangible product. Eg: Home delivery options offered by restaurants above a
minimum bill value.
The goods/services continuum
Goods and services are the outputs offered by businesses to satisfy the demands of
consumer and industrial markets. They are differentiated on the basis of four
characteristics:
1. Tangibility: Goods are tangible products such as cars, clothing, and machinery. They
have shape and can be seen and touched. Services are intangible. Hair styling, pest
control, and equipment repair, for example, do not have a physical presence.
2. Perishability: All goods have some degree of durability beyond the time of purchase.
Services do not; they perish as they are delivered.
3. Separability: Goods can be stored for later use. Thus, production and consumption
are typically separate. Because the production and consumption of services are
simultaneous, services and the service provider cannot be separated.
4. Standardization: The quality of goods can be controlled through standardization and
grading in the production process. The quality of services, however, is different each
time they are delivered.
For the purpose of developing marketing strategies, particularly product planning and
promotion, goods and services are categorized in two ways. One is to designate their
position on a goods and services continuum. The second is to place them into a classification
system.
The goods and services continuum enables marketers to see the relative goods/services
composition of total products. A product's position on the continuum, in turn, enables
marketers to spot opportunities. At the pure goods end of the continuum, goods that have
no related services are positioned. At the pure services end are services that are not
associated with physical products. Products that are a combination of goods and services fall
between the two ends. For example, goods such as furnaces, which require accompanying
services such as delivery and installation, are situated toward the pure goods end. Products
that involve the sale of both goods and services, such as auto repair, are near the center.
And products that are primarily services but rely on physical equipment, such as taxis, are
located toward the pure services end.
The second approach to categorizing products is to classify them on the basis of their uses.
This organization facilitates the identification of prospective users and the design of
strategies to reach them. The major distinction in this system is between consumer and
industrial products. Consumer goods and services are those that are purchased for personal,
family, or household use. Industrial goods and services are products that companies buy to
make the products they sell.
Two major changes have affected the marketing and production of goods and services since
about 1950. The first was a shift in marketing philosophy from the belief that consumers
could be convinced to buy whatever was produced to the marketing concept, in which
consumer expectations became the driving force in determining what was to be produced
and marketed. This change in orientation has resulted in increases in both lines of products
and choices within the lines.
Summary: Key Difference Between Product and Service

Products are things that you can buy and use, like a car or blender. Services are
transactions where no physical goods are transferred from the seller to the buyer.
Unlike products, services can’t be manufactured or stored and must happen in real
time, like a haircut service for example.

Products are tangible, manufactured objects or systems that can be sold to
consumers and bought back again. Services include intangible things such as haircuts
that have to take place right away due to their nature of being intangible rather than
tangible objects like when you buy an apple at farmer’s market or Walmart grocery
store versus buying it off your neighborhood grocer who stocks them all year round.

It is much harder for consumers to evaluate the quality of a service than it is when
they are evaluating the quality of a product. If you buy an anti-dandruff shampoo
and find that your dandruff disappears, then there’s no need to question whether or
not it works because you’re seeing results right before your eyes. But what about if
someone hires their lawyer for them? It can be hard to tell how good he/she
performed until after everything has gone down (or back up.)
The key differences between products and services
With an increasing amount of business taking place online, products and services are often
combined to create a more desirable package. A customer is more likely to buy a sofa if it
comes with a warranty and returns policy, for example. This merging of products and
services may make it more difficult to draw a clear line between them. Therefore, knowing
their fundamental differences can help you develop a more organised and robust
understanding of how best to approach a marketing and advertising strategy.
You can combine products and services in several ways, two of which are the product-as-aservice (PaaS) model and the service-as-a-product (SaaP) model. The PaaS model involves
turning one-off exchanges into relationships, for example, through subscription services for
delivered meals. The SaaP model involves turning services into one-off products, like hotel
stays and taxi services. Products and services are therefore far from mutually exclusive,
they're highly compatible and adaptable. Knowing the differences between products and
services can help you calculate how to leverage the two approaches to serve your
employer's goals. Below are four differences between products and services:
Tangibility
Perhaps the main difference between products and services relates to their tangibility.
Products can be both tangible and intangible. An example of a tangible product is a laptop
and an example of an intangible one is content management software. Services can only be
intangible, for example, a piano lesson.
A customer can physically interact with a product and often does before buying it, but this
isn't the case with services. With services, the customer first pays for a service before they
receive it. For example, if someone is buying a home, the home is a tangible product. If
they're hiring a chartered surveyor to inspect the home, the surveyor's actions are an
intangible service. For this reason, effective marketing tactics are often necessary to build
the trust and interest of potential customers before they make a payment.
Perishability
A business can see its services as perishable because they're often tied to specific dates and
times. Services may have a higher sense of urgency than products, such as products that
aren't perishable, like soap and tinned foods. For example, if a company offers carpet
cleaning services to customers but doesn't fill every time slot in a day, it can't fill those time
slots once they've passed.
Some products are perishable, but they may not perish as quickly as the opportunity to
complete a service at a particular time. Returning a product is therefore often possible, but
returning services is often not because the service is already used or consumed at the time
it's performed. Some service providers offer a satisfaction guarantee, but if that's not an
option and the consumer isn't happy with the result, they may not have recourse.
Judgment of quality
It's typically easy to judge the quality of a product. If you buy a kitchen knife, you can test its
sharpness and durability. If you buy a camera, you can see the quality of the photos it
produces and judge the variety of settings it offers. In contrast, the quality of a service is
more difficult to pinpoint and often the criteria for determining quality aren't always clear.
Determining, for example, whether a financial advisor has given you well-informed advice
may not be immediately clear.
Due to this difficulty judging service quality, many service-based businesses make sure their
target market can accurately assess the quality of their services before they're purchased.
Some methods for demonstrating quality include publishing reviews and testimonials from
previous clients or by completing customer surveys and publishing the results on the
business's website.
Improvement and personalisation
The process of improving a service-based business for customers can be more involved and
complex than for a product-based business because each project can have slightly different
parameters or customer requirements. For example, one client may hire a house-cleaning
service and prioritise thoroughness over speed, whereas another client may have the
opposite preferences. This element of personalisation can mean if a company makes a
certain service more efficient for one client, it may not necessarily benefit all other clients.
In contrast, parameters are more likely to stay the same when it comes to an established
physical product. The manufacturing, storage and transportation processes are unlikely to
vary from customer to customer. In addition, unless a product has protection under a
patent, it's likely that many versions of it already exist. This means the personalisation that
often comes with services, like a doctor attending to two patients with very different
ailments, can become the focus of a product-based company, which can then market
several products that appeal to different customers.
Summary of Key Differences Between Services and Products
1. Products are tangible – they are physical in nature such that they can be touched,
smelled, felt and even seen. Services are intangible and they can only be felt not
seen.
2. Need vs. Relationship– a product is specifically designed to satisfy the needs and
wants of the customers and can be carried away. However, with a service,
satisfaction is obtained but nothing is carried away. Essentially, marketing of a
service is primarily concerned with creation of customer relationship.
3. Perishability- services cannot be stored for later use or sale since they can only be
used during that particular time when they are offered. On the other hand, it can be
seen that products are perishable. For example, fresh farm and other food products
are perishable and these can also be stored for later use or sale.
4. Quantity- products can be numerically quantified and they come in different forms,
shapes and sizes. However, services cannot be numerically quantified. Whilst you
can choose different service providers, the concept remains the same.
5. Inseparability- services cannot be separated from their providers since they can be
consumed at the same time they are offered. On the other hand, a product can be
separated from the owner once the purchase has been completed.
6. Quality- quality of products can be compared since these are physical features that
can be held. However, it may be difficult to compare the quality of the services
rendered by different service providers.
7. Returnability- it is easier to return a product to the seller if the customer is not
satisfied about it. In turn, the customer will get a replacement of the returned
product. However, a service cannot be returned to the service provider since it is
something that is intangible.
8. Value perspective- the value of a service is offered by the service provider while the
value of the product is derived from using it by the customer. Value of a service
cannot be separated from the provider while the value of a product can be taken or
created by the final user of the product offered on the market.
9. Shelf line- a service has a shorter shelf line compared to a product. A product can be
sold at a later date if it fails to sell on a given period. This is different with regard to a
service that has a short shelve line and should be sold earlier.
Explain the Goods-Service Continuum
The Goods-service Continuum
The goods and services continuum enables marketers to see the relative goods/services
composition of total products. A product’s position on the continuum, in turn, enables
marketers to spot opportunities. At the pure goods end of the continuum, goods that have
no related services are positioned. At the pure services end are services that are not
associated with physical products. Products that are a combination of goods and services fall
between the two ends. For example, goods such as furnaces, which require accompanying
services such as delivery and installation, are situated toward the pure goods end. Products
that involve the sale of both goods and services, such as auto repair, are near the center.
And products that are primarily services but rely on physical equipment, such as taxis, are
located toward the pure services end.
A few observations of the Continuum model can be made:
– The offerings of a firm range from pure goods to pure services.
– Those that are mostly goods are tangible and are very easy to evaluate by the consumer
(like fabrics, jewellery, a house etc.). A consumer finds it very difficult to evaluate those
offers which are mostly services because of their intangibility (like legal and counselling
advice, medical diagnosis etc).
– The range of offers has different qualities in themselves and the customer looks for or
seeks these qualities:
Those that are mostly goods show search qualities. Customers know exactly what they want
and look for those features in the offer. Thus, an apartment hunter would look for a 2bedroom-hall-kitchen property in Bandra admeasuring 900 square feet in car.pet area. Or, a
lady might look for specific designs in a 23-carat bangle from a Tanishq outlet. Mr. Joseph
looks for worsted, blue woollen suit material for himself etc.
Thus a marketer can put the search quality features on prominent display and make it easier
for customers to get details or access. If the customers do not find these features in their
search they may become anxious and may not buy or they may go for rival products where
there is easier access to information.
Those offers that are mostly services evince credence qualities There are no tangible
features for the customer to search for. He then looks for credo qualities in the offer
Reputation of the offer becomes the decisive factor. He has very few other alternatives to
compare. Thus, Mrs. Manjrekar would choose only that lawyer to fight her divorce and
custody battle who has a reputation for winning such court cases. A patient would. choose
his doctor or surgeon on the basis of his reputation.
We tend to give our computers or for -repair on the basis of the reputation of the
repairman. A marketer of such offers has to be doubly careful in highlighting the credibility
of the service provider. An actor is never called again for a stage play if his histrionic talent is
in question; a doctor or surgeons whose ethical reputation is in question right never have
patients. Thus, in the product-service continuum’, services can be classified in three ways,
under the range or degree of tangibility – highly tangible to highly intangible. They are:
Highly tangible services:
They have high degree of tangibility. This is mainly because the services are rendered over
certain goods, e.g., car rentals. It is a service based entirely on cars. If a place had no cars,
such a service would cease to exist. For the marketer, it is both a boon and a curse. As
mentioned, car rentals exist only because cars exist. It’s easy for the service marketer to be
persuasive and “tangibles” the offer. He only has to include the car in his communication;
the service concept could be easily comprehended by the consumer. In addition, if the car
has a good brand image and is looking spick and, the car rental basks in the reflected glory.
If the car rental mentions in its advertisements about the type of cars in its pool, the
consumers perceive the quality of the company accordingly. Alternatively, if the car breaks
down during a rental service, the consumer will have a poor impression and image of the car
rental company. He would not reason that it was the car that broke down and failed and
that the car rental company should really not be blamed.
Examples of car rental companies in India are Dial-a-Cab, in Delhi, and -Wheels-Rent-A-Car
(WRAC) of the Bhoruka group, who also own Transport Corporation of India, the giant fleet
trucking enterprise. Other car rental companies are Hertz-Rent-A-Car and Avis in the United
States.
Service linked to tangible goods: Here the service is linked to goods, either independently,
or as part of the marketer’s offer. If it is the latter, the service becomes a part of the total
product concept. This takes place when Videocon, the home appliance company, includes
repair as part of its marketing mix. Even if it is not included, home appliance repair is a
service that is forever linked to goods. If there were no home appliances in the world, such
services would be non-existent. A whole range of services exists in the housing sector –
especially post-construction like repair and maintenance.
Highly intangible services: In this classification under the continuum model, service is highly
intangible. The services cannot be touched, felt or seen, e.g., counselling, consultancy,
psychotherapy, physiotherapy, a guest lecture, etc.
Post Pagination
Goods-Service Continuum
In general, organizational products are a composition of goods and services. According to
the goods-services continuum in the figure given below, some products may have either
tangible (e.g., salt) or intangible (e.g., teaching) characteristics. However, some products
provide both goods and services at the same time, like traveling via airplane.
The position of the product on the continuum enables the marketer to spot potential
opportunities. At the tangible (pure goods) end of the continuum, only those goods are
positioned, which are not related to services. At the intangible (pure services) end of the
continuum, only those services are positioned, which have no association with physical
products.
The middle portion of both the ends consists of the products that have combined
characteristics of both goods and services, e.g., goods like air-conditioners also require
services like installation and delivery, besides being a product.
All the three positions involved in the goods-services continuum are described below:
1) Standalone Service Products: These are the services that the consumer buys because
they offer some expertise. Here the expertise is referred to as the standalone service (like
psychoanalysis) offered by such services. Such people-based services are on the intangible
end of the service continuum. The need for such services is increasing day by day as people
have lesser time to perform their daily tasks.
There is also the emergence of self-improvement services like spoken language classes or
personality grooming classes. In large cities, even services like professional dog walkers are
becoming very popular. Individuals also engage someone to help them with their legal
matters, tax filings, and even repair their car, electronic gadgets, etc.
The manufacturing firms (which earlier were engaged in offering products with only
supplementary services) are now developing and redesigning their core potential to offer
standalone services. As per their expertise, they are offering new standalone services to the
public.
For example, IBM was initially known as a manufacturer of computer and hardware
equipment. Now they have four business verticals viz. strategic outsourcing, business
consulting, integrated technology services, and maintenance as standalone services.
2) Service Products Bundled with Tangible Products: In this category, both goods and
services combine to form a complete product. For example, restaurants and hotels are
placed in the middle of the continuum, as they use goods (e.g., expensive crockery) and
services (e.g., skilled manpower). Other facility-driven services such as museums,
multiplexes, zoos, amusement parks, etc., involve the following three factors:
i.
Operational Factors: Effective utilization of different technologies should be
practiced so that customers feel delighted while using services. A proper set of
instructions and indications must be provided to guide customers about using the
service. This may help the company to reduce their waiting time.
ii.
Locational Factors: These services are commonly purchased services, e.g., ATM or
dry clean services. Here, location plays a vital role as these services are provided at
particular locations.
iii.
Environmental Factors: These are storefront services where customers visit the
place for services. Therefore, the environment of that specific place should be
attractive enough to appeal to customers.
For example, banks must provide an elegant and sophisticated appearance,
advanced technology, quick services, etc., to their customers.
3) Goods Dominated Products: These products are tangible in nature and complemented
with supporting services. For example, one month warranty or toll-free services are mainly
offered by the company to increase the value of the product.
The strategy of associating supportive services with the main product is called ‘embodying.’
The term embodying is used by the IT industry, where companies use this strategy to enter
into an international market that is flooded with low-cost products with inappropriate userguidance.
The Nature of Service Design — Making the Invisible Visible
To understand the nature of service design, the chapter 2 of Service Design starts from
explaining why people need to design service. It makes me think about there is a definitely a
need for companies to spend lots of human resources and efforts to design their services
around specific product.
The author goes through the history of industrial designer, how their focus changed over
the time and go to why we need to design a service. Since we all like simplifying complex
things in a way we can access easier and simpler in the future, we wish the entire process
can be designed in a more intuitive way. For example, when we go to a conference, we
would like to know how we are going to involve more into the conference with a seamless
experience beforehand. That is why designing the service comes to place, with the help of
whole design, we can simplify the overwhelmed tasks or experience and interact with it
efficiently. Also, since I understand the difficulties of companies design some services, I
begin to realize how important for us to get a sense of the nature of service and how it is
different compare to product.”
Without designed services, we cannot fully deliver the value behind the products and then
convince customers to buy them. Also, I agree with the idea the human experience will be
fulfilling and satisfying when designers apply design consistency to all elements of a service.
The system and service is of great complexity and comprises many aspects. Designers role is
to integrate all the elements as a whole creating seamless experience for customers.
If we just simply ask people around us “what is service? could you list some services you
encountered before?”, people might not be able to answer. Most of them recognize
services when they experience them and thence it is convincing that service is more invisible
comparing with the product. I echo with the chapter that good service design should make
the “invisible” service visible. An immediate example came to my mind was the unboxing
experience of Everlane products. I recently bought shirts from Everlane, an American
clothing retailer that sells primarily online. Their branding image is selling everything
transparently and eco-friendly. Before experiencing the cloth I bought from Everlane, I
valued more on the products I bought rather than the package of that product. I usually got
my scissor to cut the package/box hardly to unpack. However, Everlane designed its package
to express their branding image — eco-friendly and sustainable. It used a resilient material
to make the packaging paper and closed the bag with Everlane sticker. There is also a
“Thank you” card put inside for customers.
Apply also designed their unboxing experience and service to convey the message that the
company is user-centered, detailed-oriented and constantly striving for perfection. The light
paper is wrapped around the products, such as Macbook Pro and iPad and they designed
part of it for customers to easily lift up the product from the box.
The unboxing experience, I would say, is a long-ignored touchpoint in a customer journey.
However, the companies like Everlane and Apple have noticed this touchpoint and made the
invisible touchpoint visible. They constantly think about what brand images they are trying
to build and deliver for customers. By establishing the relationship between services and
their product, customers can enjoy the whole process and be attracted, and the companies
then can make more profits and maximize their business value.
What Is a Service Blueprint?
Definition: A service blueprint is a diagram that visualizes the relationships between
different service components — people, props (physical or digital evidence), and processes
— that are directly tied to touchpoints in a specific customer journey.
Think of service blueprints as a part two to customer journey maps. Similar to customerjourney maps, blueprints are instrumental in complex scenarios spanning many servicerelated offerings. Blueprinting is an ideal approach to experiences that are omnichannel,
involve multiple touchpoints, or require a crossfunctional effort (that is, coordination of
multiple departments).
A service blueprint corresponds to a specific customer journey and the specific user goals
associated to that journey. This journey can vary in scope. Thus, for the same service, you
may have multiple blueprints if there are several different scenarios that it can
accommodate. For example, with a restaurant business, you may have separate service
blueprints for the tasks of ordering food for takeout versus dining in the restaurant.
Service blueprints should always align to a business goal: reducing redundancies, improving
the employee experience, or converging siloed processes.
Benefits of Service Blueprinting
Service blueprints give an organization a comprehensive understanding of its service and
the underlying resources and processes — seen and unseen to the user — that make it
possible. Focusing on this larger understanding (alongside more typical usability aspects and
individual touchpoint design) provides strategic benefits for the business.
Blueprints are treasure maps that help businesses discover weaknesses. Poor user
experiences are often due to an internal organizational shortcoming — a weak link in the
ecosystem. While we can quickly understand what may be wrong in a user interface (bad
design or a broken button), determining the root cause of a systemic issue (such as
corrupted data or long wait times) is much more difficult. Blueprinting exposes the big
picture and offers a map of dependencies, thus allowing a business to discover a weak leak
at its roots.
In this same way, blueprints help identify opportunities for optimization. The visualization
of relationships in blueprints uncovers potential improvements and ways to eliminate
redundancy. For example, information gathered early on in the customer’s journey could
possibly be repurposed later on backstage. This approach has three positive effects: (1)
customers are delighted when they are recognized the second time — the service feels
personal and they save time and effort; (2) employee time and effort are not wasted
regathering information; (3) no risk of inconsistent data when the same question isn’t asked
twice.
Blueprinting is most useful when coordinating complex services because it bridges
crossdepartment efforts. Often, a department’s success is measured by the touchpoint it
owns. However, users encounter many touchpoints throughout one journey and don’t know
(or care) which department owns which touchpoint. While a department could meet its
goal, the big-picture, organization-level objectives may not be reached. Blueprinting forces
businesses to capture what occurs internally throughout the totality of the customer
journey — giving them insight to overlaps and dependencies that departments alone could
not see.
Key Elements of a Service Blueprint
Service blueprints take different visual forms, some more graphic than others. Regardless of
visual form and scope, every service blueprint comprises some key elements:

Customer actions
Steps, choices, activities, and interactions that customer performs while interacting with a
service to reach a particular goal. Customer actions are derived from research or a
customer-journey map.
In the our blueprint for an appliance retailer, customer actions include visiting the website,
visiting the store and browsing for appliances, discussing options and features with a sales
assistant, appliance purchase, getting a delivery-date notification, and finally receiving the
appliance.

Frontstage actions
Actions that occur directly in view of the customer. These actions can be human-to-human
or human-to-computer actions. Human-to-human actions are the steps and activities that
the contact employee (the person who interacts with the customer) performs. Human-tocomputer actions are carried out when the customer interacts with self-service technology
(for example, a mobile app or an ATM).
In our appliance company example, the frontstage actions are directly linked to customer’s
actions: the store worker meets and greets customers, a chat assistant on the website
informs them which units have which features, a trader partner contacts customers to
schedule delivery.
Note that there is not always a parallel frontstage action for every customer touchpoint. A
customer can interact directly with a service without encountering a frontstage actor, like
it’s the case with the appliance delivery in our example blueprint. Each time a customer
interacts with a service (through an employee or via technology), a moment of truth occurs.
During these moments of truth, customers judge your quality and make decisions regarding
future purchases.

Backstage actions
Steps and activities that occur behind the scenes to support onstage happenings. These
actions could be performed by a backstage employee (e.g., a cook in the kitchen) or by a
frontstage employee who does something not visible to the customer (e.g., a waiter
entering an order into the kitchen display system).
In our appliance-company example, numerous backstage actions occur: A warehouse
employee inputs and updates inventory numbers into the point-of-sale software; a shipping
employee checks the unit’s condition and quality; a chat assistant contacts the factory to
confirm lead times; employees maintain and update the company’s website with the newest
units; the marketing team creates advertising material.

Processes
Internal steps, and interactions that support the employees in delivering the service.
This element includes anything that must occur for all of the above to take place. Processes
for the appliance company include credit-card verification, pricing, delivery of units to the
store from the factory, writing quality tests, and so on.
In a service blueprint, key elements are organized into clusters with lines that separate
them. There are three primary lines:
1. The line of interaction depicts the direct interactions between the customer and the
organization.
2. The line of visibility separates all service activities that are visible to the customer
from those that are not visible. Everything frontstage (visible) appears above this
line, while everything backstage (not visible) appears below this line.
3. The line of internal interaction separates contact employees from those who do not
directly support interactions with customers/users.
The last layer of a service blueprint is evidence, which is made of the props and places that
anyone in the blueprint has an exchange with. Evidence can be involved in both frontstage
and backstage processes and actions.
In our appliance example, evidence includes the appliances themselves, signage, physical
stores, website, tutorial video, or email inboxes.
What is a service blueprint?
First introduced in 1984 by G. Lynn Shostack in the Harvard Business Review, service
blueprint diagrams visually map out the steps in a service process, making it easier to design
a new process or to document and improve an existing one.
While simpler than UML (Unified Modeling Language) and BPMN (Business Process Model
and Notation), service blueprints offer a flexible, focused look at an organization’s service
processes and include the customer’s perspective. However, service blueprints aren’t just
another customer journey map. Both do include similar information––they draw from
customer research and aggregate findings into sample scenarios––but service blueprints
have a wider scope.
A customer journey map focuses on what customers experience when they interact with a
service or business, from specific actions or touchpoints to pain points. Service blueprints go
several steps deeper and combine the customer’s experience with all employee actions and
support processes that may or may not be visible to the customer.
Elements of a service blueprint
Service blueprints typically contain five categories that illustrate the main components of
the service being mapped out.
1. Physical evidence
What customers (and employees) come in contact with. Though first in line, it’s usually the
last element added.
Example: This category includes locations, like a physical store or the company website, but
also any signage, receipts, notification or confirmation emails, etc.
2. Customer actions
What customers do during the service experience.
Example: Customers might visit the website, talk to an employee (in person or online), make
a purchase, place an order, accept an order, or receive something.
3. Frontstage or visible employee actions
What customers see and who they interact with. For tech-heavy businesses, add in or
replace this category with the technology that interacts with the customer.
Example: Employees might greet a customer visiting a physical location, respond to
questions through chat, send emails, take an order, or provide status information.
4. Backstage or invisible contact employee actions
All other employee actions, preparations, or responsibilities customers don’t see but that
make the service possible.
Example: Employees might write content for the website/email/etc., provide approval,
complete a review process, make preparations, package an order, etc.
5. Support processes
Internal/additional activities that support the employees providing the service.
Example: Third-party vendors who deliver supplies, a carrier service, equipment or software
used, delivery or payment systems, etc.
Lines
Service blueprints also include lines to separate each category, clarifying how components
in a service process interact with each other. This allows employees and managers to better
understand their role and, most importantly, possible sources of customer dissatisfaction
within a service experience.
Optional categories
If you need more detail, you could also add a timeline to show how long each step takes,
some kind of success metric to measure goals, or the customer’s emotions throughout the
process.
Fundamentally, service blueprints center on the customer. They allow for a clear vision of
the service design, which in turn helps organizations refine their processes and deliver
pleasing, memorable customer experiences.
Benefits of using service blueprints
Because services aren’t tangible, it can be difficult to convince decision-makers and
executives that changes need to be made. It can be even more difficult to talk about specific
changes without first having a full picture of the process. Visualizing each step and each
interaction in the process takes away that vagueness and highlights areas for improvement.
Service blueprints empower organizations to optimize their service processes. Additional
benefits include:

Scalability and flexibility: Service blueprints accommodate as much or as little detail
as needed. They can show high-level overviews or intricate steps.

Cross-functionality and knowledge transferability: Employees and managers in longstanding or complex processes can easily lose sight of the bigger picture or how each
action affects other departments, fellow employees, or even the customer. Service
blueprints clarify interactions and reduce siloes.

Competition: Service blueprints allow you to compare what you want your service to
look like with what it looks like now, or you can compare your company’s services
with a competitor’s.

Failure analysis: Once you can see who is (or should be) doing what, it’s much easier
to diagnose what’s going wrong.
Service blueprints create a visible structure for implementing and achieving operational
goals. Their cross-functionality likewise fosters better communication between customers,
employees, and management, which increases the chances that companies will understand
their customers and respond to their needs while keeping their service processes free from
unnecessary complications and redundancies.
How to create a service blueprint
You can build a service blueprint diagram at any point in your service design.
1. Come up with a customer scenario
Whether you are creating a new process or mapping out an existing one, start with the
customer service scenario you want to explore. It may be beneficial, at this point, to include
real customers in the conversation to ensure that your scenario is as true to customers’ real
(or desired) experiences as possible.
2. Map out the customer experience
Whatever scenario you decide on, plot out the actions the customer will take in
chronological order.
3. Built out from the customer’s actions
Once you have the full customer service experience laid out, add the other categories––
frontstage and backstage actions, support processes, physical evidence, time, etc. to the
customer actions. What do employees do during each action the customer takes? What
support processes come into play?
3. Clarify lanes of responsibility and action
Use the different lines of separation to keep each category in its own clearly marked lane
and to illustrate the ways different actors interact during the service process:

Line of interaction: Where the customer interacts with the service and employees.

Line of visibility: Where the employee or organizational processes become invisible
to the customer.

Line of internal action: Where partners or employees who don’t have contact with
the customer step in to support the service.
4. Clarify cross-functional relationships
After mapping out each category, add another level of detail to your service blueprint by
including arrows. While you will already have laid out the steps in chronological order within
each lane, you can also show the relationships and dependencies that run across different
categories through arrows. If a shape has a single arrow, the exchange occurs in the
direction indicated. A double arrow shows that some agreement must be reached or that
the two shapes depend on each other in some way.
Together, these elements will help you see and find solutions to service processes and
customer experience issues.
What Is a Service Blueprint?
A service blueprint is, in essence, an extension of a customer journey map. A customer
journey map specifies all the interactions that a customer will have with an organization
throughout their customer lifecycle – the service blueprint goes a bit deeper and looks at all
the interactions both physical and digital that support those customer interactions and adds
a little more detail to the mix.
The blueprint is usually represented in a diagram based on swim lanes (each lane being
assigned to a specific category) with interactions linked between lanes (using arrows to
represent the flow of work).
What are the Benefits of Service Blueprinting?
Service blueprints fulfill a number of uses but most often they’re used for:

Improving a service. By understanding the original service in detail – it’s possible to
identify and eliminate or ameliorate pain points.

Designing a new service. A blueprint for a new service allows for the creation of
service prototypes and testing before a service is launched to customers.

Understanding a service. There are many services which have become so engrained
in corporate culture that they are no longer understood by anyone. Blueprints can
reveal silos and areas of opacity in existing processes.

Understanding the actors in a service. When there are many actors (customers,
suppliers, consultants, employees, teams, etc.) it can be very useful to have a
blueprint to help manage the complexity of a situation.

Transitioning a high-touch service to a low-touch service or vice-versa. Broadening
or narrowing the audience for a service requires careful consideration as to how that
might be achieved a blueprint can help guide the way for this.
What is a service blueprint?
A service blueprint is a diagram showing the connections between various service elements
specifically connected to customer journey touchpoints. It helps service managers and
improvers understand the service delivery process from the customers’ perspective.
It is used to divide a service into logical components in the design stage of service
development, such as customer contacts, physical evidence, etc. An in-depth examination of
the service process is another function of this tool.
Essential elements of the service blueprint
The service blueprint’s major components represent onstage and backstage workforce
actions. No matter how it looks or how much it covers, every service blueprint has some
essential parts:

Customer actions: This element is displayed at the top of the map since it is crucial
to developing the service plan. The steps, activities, decisions, and interactions a
consumer makes when considering, purchasing, or utilizing a service are included.

Physical Evidence: It stands for the actual evidence of the service and is situated at
the top of the diagram. The information is usually clearly displayed above each
contact point.

Frontage / Visible Employee Contact: These actions include what frontline contact
employees perform when interacting directly with clients.

Backstage / Invisible Employee Actions: The actions made by contact employees are
not visible to the customer. All non-displayed customer contact efforts include
phone calls and other actions that help the frontline.

Support processes: This covers all operations, interactions, and internal services
carried out by people who don’t contact employees to assist the contact employees
who deliver the service. They are hidden from the view of the consumers.
The following are some optional elements that you can add to a service blueprint:

Time: If you provide a service where time is crucial, you may use a timeline to show
how long you anticipate each stage of the process will take.

Emotions: Similar to how a customer journey map shows customer emotions at each
step, you may highlight employee feelings at each service delivery phase.

Metrics: To monitor your progress toward your objectives, you can include success
metrics in your service blueprint.
How to understand a service blueprint?
There are multiple approaches to understanding a blueprint service. Keep reading to learn
how to understand this method:

To understand the customer’s experience
Read the service blueprint from left to right while tracking the customer action category.
You may understand customer feedback by focusing on where they arrive, their decisions,
how involved they are in developing the service, and the physical proof of the service from
their point of view.

Understanding the function of contact employees
Examine the diagram horizontally, paying particular attention to the actions that are taking
place directly above and below the line of sight. Here you can see how effective and
efficient the process is, who interacts with the customer and how often, and if one or
numerous individuals handle a customer.

To understand how service elements integrate
Here, you must perform a vertical analysis of the blueprint. It will help you determine which
individuals and tasks are crucial for customer service. Focus on backstage actions that
support customer encounter points, supporting actions, and employee workflow.
Why is a service blueprint important?
The service blueprint can better understand an organization’s services, resources, and
processes. There are a few reasons why a service blueprint is important.

A service blueprint assists in evaluating the process’s logical flow, which aids in
locating any mistakes or roadblocks in the process and evaluating how efficient and
effective it is.

It helps understand what customers need and what they want as well as how they
feel when a service doesn’t work.

It can be used to identify and remove client-facing actions that are resourceintensive, resource-wasting, time-consuming, and harmful to the customer.

It helps find ways to improve the service delivery system and determine how much it
costs to deliver services.

It can also be used to coordinate front- and back-stage activities inside your
organization and understand cross-functional interactions.