Importance of Derived Demand in B2B Marketing - Essay Example

? of Executive summary This report aims to discuss commercial transaction that occurs between two businesses for instance, manufacturer, and a wholesaler. Solid works will be the subject of discussion because it engages much in marketing activities that attracts people to their advertised products. Solid Works it positioned in the middle of value addition chain that aims at satisfying clients. The company has segmented the market on basis of demographic in, which the company has considered engineering firms it needs to serve under the construction industry. In terms of technology, the company has established the need of aligning the company with emerging technologies. Additionally, the company considers Loyalty of each client paramount and in doing this, looks for ways how to be loyal to customers. The report explores much on marketing strategies that helps organization to concentrate on the greatest opportunities to increase their earnings and attain a sustainable competitive advantage. Many companies adopt the need of having marketing strategies in running their businesses centered on shopper, consumer and retailer need. Due to stiff competition, the company has taken a lot of time to evaluate opportunities that would enhance success. The purpose of this has been to evaluate companies of the same nature and assemble them to offset the marketing program. The company has established that it is from consumer’s needs that their productivity is informed and achieves a notable growth. Introduction Business to Business popularly known as B2B is a commercial transaction that occurs between two businesses as in the example of a manufacturer and a wholesaler (Block & Block, 2005) . The term was coined with the main purpose being to differentiate between electronic communication that was taking place between businesses and consumers. The term has been used mostly to describe the business transactions that take place between two businesses in an online scenario. Therefore, B2B marketing mostly involves sending and receiving mails plus other activities that take place in the online environment. This report seeks to explore the concept of derived demand and B2B marketing. Objectives The main objectives of this paper are to find out how a company (SolidWorks in this case) that is involved in B2B marketing: 1. Estimates derived demands 2. Evaluates business segmentation opportunities 3. Develops a new channel strategy that is aligned to one business segment About SolidWorks SolidWorks is a software engineering (CAD softwares) which mostly sold to mechanical engineers (Brennan, 2011). The company engages so much in marketing activities by use of links that lead people to their site where they have advertised their products. Derived Demand and B2B marketing Derived demand in marketing term can be defined as the requirement that comes up as a result of purchasing another product. This mostly occurs in cases where the consumer has bought the product with the main purpose being to use it for purposes of production (Bruhn, 2003). The main reason for this is that the purchase of these products is normally due to desire to have their final products. In the case of the software manufacturing company Solidworks, there are a number of ways in which it determines the derived demand in which it decides to respond. All the demand in B2B chain are as result demands that are made somewhere by the consumer. SolidWorks being a software development company relies on engineers who want to design either bridges, houses or other building designs that the consumer has demanded for (Christopher & Ballantyne, 2002). However, the value chain is still incomplete because the consumer sought the services of the mechanical engineer and the engineer sought the service of a software developer who in turn sought the service of the person who developed the programming language. The position that the company is in the chain of value addition determines the contact that it has with the consumer (Bernadson & Toole, 2007). The company is only associated with mechanical engineers because it sells to them soft wares that they use to design what the consumer wants from them. Evaluation of Business segment opportunities It has to be understood that the difference between a consumer market and business to business is not the kind of products but the manner in which the products themselves are exchange between them and the relationship that exists between the two (Dwiyyer and Tanner, 2008). There is a complexity in the purchase decision making as observed in the SolidWorks case. There are many business segment opportunities that are presented by the market and the company has to take a lot of time just evaluating these opportunities. The research and development staff of the company to keep an eye over changes in the demands of the customer and inform the company on whether to venture into that line or not (Ellis, 2008). External consultants are also brought in to offer technical advice when evaluating the various business opportunities that have been presented and on rare occasions are the decisions of the company reached upon by just an individual (Fill & Fill, 2005). The main purpose of evaluating the business market segment is to arrive at a list of companies that are like minded and put them together with an aim of offsetting the marketing program. It also allows for increased opportunities to carry out business Development of a new channels strategy that is aligned to one business segment It should be noted that businesses that operate in a B2B market normally find it difficult if supply of a certain product is interrupted. SolidWorks for example uses JAVA language in all its programming duties and if the company ceased to supply it with latest versions of the programming language, the company will find it difficult to start using another programming language and sell it to the same market. Although other options that can be switched to are readily available to the company, doing this requires a lot of time because an abrupt decision will have implication on both the cost and time on the company. There are several lines or segments that the company chose and if a change occurs in this line. There is need therefore for carry out evaluation before moving to the next segment (Ford et al, 2008). The size of customers is also a factor when considering whether to get into the new segment or not. In most cases, B2B business is normally characterized by a small number of customers. The main advantage of this is that it provides grounds for more opportunities in terms of building good relationship with the customer (Little & Marandi, 2007). The way in which the benefits of the products are being marketed is also a determinant of whether or not the company decides to develop into interests in the company (Michael & Naude, 2002). The manner in which products are also marketed determines a lot as to whether the company can choose that segment or not. For example, it has to chose between developing software that are sold to mechanical engineers and software such as those meant to teach children some learning. A close analysis Derive demands that determine the company’s production A demand by the consumer serves as the beginning point for the value addition chain. As a software developing company and especially CAD, SolidWorks is placed in the middle of value addition chain that is aimed satisfying the client. The client approaches the engineer with his or her demand of what is to be set up (Wright, 2004). On his side, the engineer keenly looks at the demand that has been made by the client and makes up his mind on what he can be able to do about it. At the end, he has to look at all the materials that are required for the work to be complete. The item that he wants to come up with is in form of a structure and therefore needs a design of it. It should be noted that the engineer has many options that he can choose from when it comes to designing the client’s structure but decides that for it to be neat, it must be computer generated. This is the point when SolidWorks comes in to satisfy the need of the engineer by developing a computer Aided design (CAD) software and selling it to him. Implication of the company from derived demands The company gets to understand that it is from the needs of the consumer that their productivity is informed. The company forms the mid way in the chain of value addition of the product that the consumer wants to get. The market base of the company is wholly determined and controlled by mechanical engineers and their decision whether to use CAD that is designed by the company or any other company. The market base is therefore determined by among other factors the decision that is reached upon by engineers who are working on the project. The questions that the company therefore needs to answer are like who makes decision and when marketing their product, whom should they communicate in an effective way. CAD software is something that is fixed within the cycle of production and the company after assessing needs to find out what will be the effect if changes were made to the product. What additional items will they offer engineers when marketing the product to them so as to attract their interest in it? The company should also seek to compare itself with other developers of the software in the markets since all of them target the same customer and the manner in which they market it can make a difference. It should also focus on stretching its brand across other sections in which software is needed in order maximize on the profit while at the same spreading its wings. The scenario however presents so many challenges that need careful examination before being handled by the company as implied by the derived demands influencing its productivity. Market segmentation strategy B2B companies seek benefit because of their placement in the purchase decision-making clients. The main purpose of market segmentation is to ensure that various markets have been targeted and specifically defined by the company. By finding different subtle, the business is being given a marketing age that can be utilized well to broaden its income. SolidWorks is a company that has ensured that it has segmented its market because it targets a specialty market to buy its product. Clients with varying needs have been recognized by the company and the increase in the segmented groups ensures that the company is able to grow as fast as possible. Before segmenting the market, the company went through a number of things that made it possible for it to reach the conclusion on the factors to base on when segmenting its market. Trade and association publications were thoroughly used in deciding which market to be placed in which segment. An informal factor and cluster analysis was carried out which involved looking at what other competitors were offering and also talking to key buyers of the software The following are some of the bases upon which SolidWork has segmented its market: Demographic The company considered the number of engineering firms that it needs to serve as those under the construction industry. The sizes of the companies were also paid to special attention and the capacity to deliver a bigger market was the priority of the company. The geographical location of the firm was also a consideration and where the company carries out its construction activities in relation to the number of clients that it receives. Operating variable This was considered in terms of technology that both the company and the client will have utilized. It being a Software firm that seeks to serve people who are in the construction industry, it was important to note those clients who use the software on a regular basis and those who purchased it periodically to serve them. The capabilities of those who are to be served were also classified based on those who present few demands to those who constantly seek the services of the company. Situational factors Customers were also classified on the basis of how fast they wanted the software as compared to those who needed it but not that urgent. Those clients who give big and urgent orders for the software are given the first priority while those who place orders that are not that urgent are placed in the same segment and served as one entity. Personal characteristics The characteristics of the seller and buyer are important in determining the segmentation of the market. This is because it works to establish the relationship that is there between the two groups of people. The relationship that is established between the company and all its customers is however constant because all of them are of high educational standard and are both risk taking individuals who make up the company. Loyalty of each client was also considered with the main question being how to serve loyal customers to the company. Current segment in the company At the moment, the company has various market segments that it advertises and sells its product. The segments include those of customers who are loyal to the company and purchase the software each and every time (Journal of Business-to-Business Marketing, 2011). The other section of customers comprises those who use the CAD software once in a while in their constructions. There is also a segment of its market that is considered the largest because it deals with real estate development and makes frequent visits to the company for the purpose of obtaining the software. These segments can be said to be well divided bearing in mind all the factors that were put into consideration. The divisions are appropriate in serving the company’s clients because they provide a platform upon which all clients can be understood. This is necessary especially when dealing with a diverse group of clients whose needs cannot be understood if they are placed together in one segment. Segmentation theory The market segmentation theory states that there is no relationship that exists between short term and long term interest rates. The theory further states that there is no relationship between long term and short term market because the two are found in different categories (Journal of Business-to-Business Marketing, 2011). Most investors have been found to have set their goals on long term maturity basis thus neglecting the short term. The buyer and the seller in each of the maturity cannot be replaced for the other and therefore the notion is wrong. With application of the knowledge above, it can be argued that another segment that is yet to be recognized by SolidWork software company is that comprising individuals who purchase their software but not on a regular basis. The company recognizes customers who purchase the product on long-term basis but fail to recognize those who do it on short term basis. Design of marketing channel The marketing channel that is used by the company is on that targets specific people who are thought to be the beneficiaries of the product being advertised. Value networks and marketing channels that are used by any given company determine whether it is going to be successful in the end or not. The company has a marketing model that begins with the customer at the far end who comes up with what he or she and then the engineer who decides on whether to use their software comes for designing purposes or not. The system is faulty and therefore needs adjustment especially in the way the customer is informed of the product. In the example below, a channel strategy for the segment that consists of people who purchase the software from the company on an irregular pattern is illustrated. Effectiveness of the channel The strategy above aims at reaching clients who have been left out by the company and therefore forming another segment of their own. According to the segmentation theory, the two cannot be substituted for a group that purchases the software on a regular basis. There are two strategies that can be used to get to them and they include either handling them as a special group or treating them as being equal to those who purchase the software. The design is effective but there is need to ensure that improvements are incorporated into it. Conclusion To sum up, the report has discussed a commercial transaction that occurs between two businesses for instance, manufacturer, and a wholesaler. Solid works has been the subject of discussion through it engages much in marketing activities that attracts people to their advertised products. Solid Works it positioned in the middle of value addition chain that aims at satisfying clients. The company has segmented the market on basis of demographic in, which the company has considered engineering firms it needs to serve under the construction industry. In terms of technology, the company has established the need of aligning the company with emerging technologies. Additionally, the company considers Loyalty of each client paramount and in doing this, looks for ways how to be loyal to customers. 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