130712587 25312089 Industrial Marketing Hawaldar for Test Only Chap1 2 3 4 6 7

8/12/2019 130712587 25312089 Industrial Marketing Hawaldar for Test Only Chap1 2 3 4 6 7

1/167

This ppt has all the chapters from Krishna K Havaldar. But we have only Chapters1,2,3,4,7 Hope this helps ;)


2/167

CHAPTER 1

IM/1-1/5

THE NATURE OF INDUSTRIAL MARKETING

Learning Objectives Understand What is industrial (or Business to Business) Marketing? Know What arethe differences in the characteristics of industrial and consumer marketing? Find out Why the demand for industrial goods and services are called Derived demand?


3/167

(A) What is Industrial (Business) marketing?

IM/1-2/5

It is marketing of products / Services to business firms. In contrast consumer marketing is marketing products / services to individuals & households. What is the difference between industrial marketing, B2B marketing, Business marketing &Organizational Marketing?

(B)

No Difference! (C) What are the differences between Industrial

& Consumer Marketing? Basic tasks of marketing are same difference Exists in thecharacteristics shown next.


4/167

IM/1-3/5AREAS / CHARCTERISTICS Market IND MARKETS GEO Concentrated Few Buyers CONSUMER MATKETS GEO Disbursed Large no. Of Buyers (Mass Markets Non Technical Standardized Somewhat important Family members involved Physiological / Psychological Social need based buying decisions Non Personal Relationship. Indirect Few Channels with many layers Importance to Advertising. MRP

Products Service Buyer Behavior

Channel

Technically Complex Customized Very Important Various Functional specialists involved Mainly Rational buying decisions. Interpersonal relationship between buyers and sellers. More direct Multi Channel Importance to personal selling Competitive bidding / Negotiated prices

Promotional Pricing


5/167

IM/1-4/5

(D) Why Industrial Demand is called Derived Demand ?Because Industrial demand is derived from (or depends on) demand for consumer goods / services.

E.G. Steel is demanded for production of consumer durable products like Cars & Refrigerators, which are demanded by household consumers. Hence, Demand for Steelis derived from forecast of consumer demand for Cars, Refrigerators, Washing Machines, Etc.,


6/167

SUMMARY OF CHAPTER-1

IM/1-5/5

Industrial / Business Marketing is marketing of products / services to businessfirms. Differences between Industrial & Consumer marketing are seen in areas / Characteristics like Market, Product, Buyer Behavior, Channel, Promotion & Price.

Industrial Demand is derived from demand for consumer goods / services.


7/167

CHAPTER 2

IM/2-1/10

UNDERSTANDING INDUSTRIAL MARKETS AND ENVIRONMENTLEARNING OBJECTIVES Understand the types of industrial customers as well as industrial goods and services. Know the marketing implications for different types of customers and products. Understand the purchasing orientations and practices of industrial customers. Know types of environment and strategies to manage external environment.


8/167

IM/2-2/10 (A) What are the types/classifications of Industrial/Business customers? INTERMEDIARIES /MIDDLEMEN (DISTRIBUTORS) COMMERCIAL ENTERPRISES OEMS USERS

GOVERNMENT CUSTOMERS INDUSTRIAL / BUSINESS CUSTOMERS INSTITUTIONAL CUSTOMERS

PUBLIC SECTOR UNITS (BHEL) GOVT. UNDERTAKINGS (RAILWAYS, DEFENCE UNITS) PUBLIC INSTITUTIONS (GOVT. HOSPITALS) PRIVATE INSTITUTIONS (SCHOOLS, COLLEGES)

MANUFACTURING UNITS (SUGAR, MILK) CO-OPERATIVE SOCIETIES NON-MANUFACTURING UNITS(BANKS, HOUSING)

F I G . T Y P E S O F I N D U S T R I A L / B U S I N E S S C U S T O M E R S


9/167

IM/2-3/10 (B) How are Industrial Products / Services Classified? Classificationinto 3 Groups shown below.RAW MATERIALS (IRON ORE, CRUDE OIL) MATERIALS & PARTS (ENTER PRODUCT DIRECTLY) MANUFACTURED MATERIALS (STEEL, FUEL OIL) COMPONENT PARTS (BEARINGS, TYRES) SUB ASSEMBLIES (EXHAUST PIPE IN M.C.) INDUSTRIAL PRODUCTS / SERVICES CAPITAL ITEMS (USED IN PRODUCTION / OPERATIONS) SUPPLIES / SERVICES (TO SUPPORT OPERATIONS) LIGHTEQPT (COMPUTERS, HAND TOOLS) HEAVY EQPT (MACHINES, TURBINES) PLANT/BUILDING (FACTORIES, OFFICES) SUPPLIES (LUBRICANTS, ELECTRICAL ITEMS) SERVICES (LEGAL, COURIER)

FIG. CLASSIFICATION / TYPES OF INDUSTRIAL PRODUCTS / SERVICES


10/167

IM/2-4/10 (C) Marketing Implications for different types of products & customers?

i.

For Materials & Parts, Direct selling is done to large OEMs (Original EquipmentManufacturers) and users, but indirect selling through industrial distributors /dealers becomes cost effective for smaller volume OEMs and users. ii. For Capital items, Direct selling through company sales force is common, with extensive interactions on technical & commercial factors. iii. For Supplies Industrial distributors / dealers are mostly used but for marketing of services, word-of-mouthplays an important marketing role, with quality & price of service as key factors.


11/167

(D) Purchasing Orientations of Business Buyers

IM/2-5/10

Business buyers/ Industrial customers follow one of the three purchasing orientations: (i) Buying, (ii) Procurement, or (iii) Supply chain Management. (i) Buying Orientation : The firm with buying orientation follows the practice of (a) selecting lowest price supplier, (b) gaining power over suppliers and (c) avoidingrisk of buying from new suppliers. It has a Short-term focus. (ii) Procurement Orientation : The purchasing firm with procurement orientation has a long-term focus. It achieves the objectives of quality improvement and cost reductions by following the practices of (a) collaborative relationship with major suppliers and(b) working closely with other functional areas in the company. (iii) Supply chain Management Orientation : Here, the firm focuses on improving the value chainfrom raw materials to end users. This is achieved by (a) delivering superior value to end users, (b) outsourcing non-core activities, (c) and supporting collaborative relationships with major suppliers.


12/167

IM/2-6/10 (E) Purchasing Practices of Different Types of Industrial / Business Customers(i) Purchasing in commercial enterprises Involve Technical & Commercial depts. Major Tasks / Procedure: identifying, negotiating, selecting suppliers, buildingrelationship. Purchasing to improve operational efficiency & contribute to firm'scompetitive advantage. (ii) Purchasing in Govt. units DGS&D agency finalizes rate contracts for standard products for Govt. units. Main Tasks / Procedure : Registration of the firm & its Products, Tender Advertisements, no negotiation in Open tenders, negotiations done in closed / limited tenders. Orders Finalised on lowest bidders (suppliers offering Lowest prices / Landed Costs)


13/167

IM/2-7/10 (iii) Purchasing in Institutions If the Institute is a Govt. HospitalPurchasing practices of Govt. units Followed Similarly a private School / College follows practices of commercial enterprises However, better to study each major institution. (iv) Purchasing in cooperative societies Similar to Institutionalpurchase.


14/167

(E) Types & Analysis of Environment IM/2-8/10AIR & WATER POLLUTION ECOLOGICAL SOLID WASTE DISPOSAL CONSERVING NATURAL RESOURCES WATER, POWER, TRANSPORTATION PHYSICAL LOW-COST, SKILLED MANPOWER COMPANY LOCATION, IMAGE / REPUTATION ENVIRONMENT INTERNAL (S&W ANALYSIS) R & D & PRODUCTIONFACILITIES H R & FINANCIAL RESOURCES MARKETING EFFECTIVENESS MICRO (AFFECTS A PARTICULAR FIRM) CUSTOMERS & COMPETITORS SUPPLIERS ECONOMIC MACRO (AFFECTS ALL FIRMS) TECHNOLOGICAL GOVT., POLITICAL, LEGAL CULTURAL & SOCIAL PUBLIC - PRESS, SHARE HOLDERS, INVESTORS & PUBLIC INTEREST GROUPS

EXTERNAL (O&T ANALYSIS)


15/167

IM/2-9/10 (F) Strategies for Managing Changing External Environment.

(i) (ii) (iii)

Independent Strategies. Cooperative Strategies. Strategic Planning. It Aims at keeping the firm consistently successful in changing marketing environment by market oriented strategic management.


16/167

SUMMARY OF CHAPTER - 2Types /Classifications of Industrial/ Business Customers are (i) Commercial Enterprises, (ii) Government (iii) Institutional, (iv) Cooperative societies.

IM/2-10/10

Industrial Products/Services are classified into (i) Materials & Parts, (ii) Capital Items, (iii) Suppliers & Services. Marketing strategies differ for different product & Customer types.

Industrial / business Buyers follow one of the three purchasing orientations : buying, procurement, or supply chain management. Purchasing practices vary for different types of customers. It is important to understand it for each major customer.

Types of environment are Ecological, Physical, Internal, & External, Strategiesused for managing changing external marketing environment are : (i) Independent,(ii) Cooperative, (iii) Strategic Planning.


17/167

CHAPTER 3

IM/3-1/16

THE NATURE OF INDUSTRIAL BUYING AND BUYING BEHAVIOURLearning Objectives Understand Organizational buying objectives. Gain knowledgeof buying activities, including different phases in buying decision process, types of buying situations; buygrid framework & its analysis. Identify members of buying centers.

Understand organizational buying behavior. Know how industrial buyers choose and evaluate suppliers.


18/167

IM/3-2/16

PURCHASING OBJECTIVES OF FIRMS Reliability in delivery. Consistent product Quality. Lowest price (If delivery &Quality objectives are met) Excellent pre & post sales services. Long Term colaborative relationship. Industrial buyers try to achieve organizational purchasing objectives & personal objectives like higher status, job security, salary increments, promotions & social relationships.


19/167

Industrial Buying Decision Process Marketers must study this for developing effective marketing strategy.

IM/3-3/16

In Consumer Marketing, Household / Individual consumer / Buyer makes buying decisions based on certain mental stages like (i) Problem (Need) Recognition, (ii) Information Search (iii) Evaluation (iv) Purchase decision (v) Post Purchase Behavior In Industrial Marketing, Buying Decision making process is observable, involving many people in buying firm & includes sequential activities / stages / phases, as follows:


20/167

IM/3-4/16

(A) PHASES IN INDUSTRIAL BUYING DECISION MAKING PROCESS / BUYPHASES PHASE 1 :- Recognising A problem / need. PHASE 2 :- Determining Characteristics Quantity of needed product / Service*. PHASE 3 :- Developing specifications ofthe product*. PHASE 4 :- Searching & Qualifying Suppliers. PHASE 5 :- Obtaining& Analyzing suppliers' offers* PHASE 6 :- Evaluating & Selecting Suppliers. (shownon next slide) PHASE 7 :- Selecting an order routine PHASE 8 :- Post Purchasvaluation * These are in addition to five stages of consumer buying decision process.


21/167

IM/3-5/16

A SUPPLIER EVALUATION SYSTEM.ATTRIBUTE/ FACTOR PRICE QUALITY DELIVERY SERVICE FLEXIBILIY WEIGHT/ IMPORTANCE 15 30 25 20 10 SUPPLIER'S PERFORMANCE 0.5 0.7 0.6 0.7 0.4 SUPPLIER'S RATING SCORE 07.5 21.0 15.0 14.0 04.0

TOTAL

100

61.5


22/167

(B) Buying Situations / Buyclasses IM/3-6/163 Common types of purchases / buying situations

i. New Task / New Purchase : Here, buyers have limited knowledge and experienceof the new product/service. Hence, more information is obtained, more people areinvolved, risks are more, and decisions take longer time. ii. Modified Rebuy /Change in supplier : This situation occurs when the firm is not satisfied with the performance of existing suppliers, or there is a change in product specs. Hence, the need for searching alternate suppliers. iii. Straight Rebuy / Repeat purchase : Here, the buying firm places repeat orders on suppliers who are currently supplying certain products/services. Such decisions are routine, with less risks and less information needs, and can be taken by junior executives.


23/167

IM/3-7/16

(C) Buygrid FrameworkBUYPHASES New Task 1. Problem Recognition 2. Characteristics of Product 3. Product Specification 4. Supplier Search Yes Yes Yes Yes BUYCLASSES Modified Rebuy May Be May Be May Be Yes Straight Rebuy No No No No

5. Analyzing Supplier Offers6. Supplier Selection

YesYes

YesYes

May BeNo

7. Order Routine Selection8. Post Purchase Review

YesYes

YesYes

May BeYes


24/167

BUYGRID FRAMEWORK ANALYSIS IM/3-8/16 All Phases are Applicable for a New Task.

Some Phases are Applicable for modified / Straight Rebury. New task situation is most difficult since buyers have less knowledge, no experience & more people involved. Modified Rebury is not difficult situation since ithas few activities.

Straight rebury situation is handled routinely, as repeat purchases are made.


25/167

IM/3-9/16 (D) Buying Center roles & key members.Roles of Buying center members are Initiators. First recognize problem / need. Any individual in buying firm often, users. Buyers. Carry out purchase activities. They are purchase officers / executives. User. Any person who uses the product/ service. Influencers. Influence buying decision. Technical people are often key influencers. Deciders. Make buying decisions. Senior executives are decidersfor high value & complex products. For straight rebuy / routine purchase, juniorpurchase officer can decide. Gatekeepers. They control / filter information & meetings with buying center members. Often, P.A. / Junior person attached to purchase head is the gatekeeper.


26/167

IM/3-10/16

(E) Identifying key members of buying centre Sales / Marketing persons must identify important members of buying centre. Buying centre consists of individuals and groups who take part in buying decision making process, have common objectives & share common risks. It is also called purchase committee, buying committee or decision making unit. Members of buying centre are (i) Technical persons. Represent design,production/operations, maintenance, Q.C., Industrial Engg. Depts. (ii) Purchasers / Buyers. Purchase / Materialsdept. persons. (iii) Accounts / Finance persons. (iv) Marketing persons (v) Topmanagement persons. G. M. & above.


27/167

(F) Organizational buying behaviorIM/3-11/16 Industrial / business buyers are influenced by many factors. Two most importantfactors are (i) Organizational factors / task oriented objectives, like best product quality, lowest price, dependable delivery. (i) Personal factors / Non-taskoriented objectives, such as good increments, promotion, Job security, personalfavors. When suppliers' offers are similar, buyers can satisfy organizational objectives from any supplier. Hence, personal factors become important. However, when suppliers' offers differ substantially, buyers give importance to organizational factors to satisfy organizational objectives.


28/167

Many models have been developed to explain organizational buying behavior. One of the comprehensive models is the Sheth model, described below.

IM/3-12/16

The Sheth model of industrial buyer behavior, shown below , focuses on (i) Psychological aspects of individual buyers (Component 1), (ii) Conditions causing joint decision making (Component 2), (iii) Conflict among those involved in decision process & resolution of conflict (Component 3). Situational factors include economic conditions, labour disputes, mergers & acquisitions. The model does not explain their influence on buying process.


29/167

IM/3-13/16Component (1)Differences among individual buyers caused by factors : Background of individuals (Education, role & life style). Their information sources. Active Search Perceptual Distortion Satisfaction with past purchases

Component (2)Variables that Determine if buying decision is autonomous or joint : A) ProductSpecific Factors : Time Pressure Perceived Risk Type of Purchase B) Company Specific Factors : Company Size Company Orientation Degree of Centralisation

Component (3)Methods used for conflict resolution in joint-decision making process :

Situational Factors

Problem Solving Persuasion Bargaining Politicking

Supplier or Brand Choice

Fig. : THE SHETH MODEL OF INDUSTRIAL BUYER BEHAVIOUR


30/167

WEBSTER AND WIND MODELEnvironmental Variables

IM/3-14/16

Physical, Technological Economic, Cultural Political and Legal Labour unions Customer demands Competitive practices Supplier information

Organisation Variables

Objectives and goals Organisation Structure Purchasing Policies / Procedures Evaluation & reward systems Degree of decentralisation

Buying Centre Variables

Organisation Buying Decisions

Authority, Size Key influencers Interpersonal relationship Communication

Choice of Suppliers Delay decision & get more information Make, Lease or buy Do

not buy

Individual Variables

Personal Goals, Values Education, Experience Expertise, Job Position Lifestyle,Income


31/167

CUSTOMER SERVICE

IM/3-15/16

Important Customer Service Elements. Carry out market survey to understand whichof the following elements of customer service are important to customers, whatservice levels are expected by customers, the service levels offered by the firmand its competitors. (i) Pre Sales Service : Advising, Informing, Problem solving (ii) During Sales Service : Product availability, ontime delivery, order cycletime, and information. (iii) Post Sales Service : Warranty, AMC, Repair, Installation & Training. Develop superior service package. Test, Set Goals, and Establish Control system


32/167

IM/3-16/16

SUMMARY OF CHAPTER - 3 Industrial marketers should understand that business buyers try to achieve bothorganizational & personal objectives. Industrial buying decision process consists of eight steps / stages (buyphases) & three types of buying situations (buyclasses). Buygrid model combines buyphases & buyclasses. Marketers must understandroles & key members of buying centre, including key buying influencers. Many factors influence organizational buying behavior, but major factors are organizational ( or task oriented ) objectives and personal (non task oriented ) objectives. The Sheth model of industrial buyer behavior is comprehensive, focusing of psychological & joint decision making aspects. Webster and wind model is also widely used & comprehensive model on buyer behavior.


33/167

CHAPTER - 4

IM/4-01/11

BUYER SELLER RELATIONSHIPLEARNING OBJECTIVES :

Understand buyer sales rep. interactions. Types/range of relationships between buyer & seller firms. Customer relationship management (CRM) / relationship marketing. Methods used to influence industrial customers.


34/167

IM/4-02/11

INDUSTRIAL BUYER-SALES REP. INTERACTIONS Depend on their perceptions, behavior & roles.

Buyers have two major perceptions of sales reps.(i) Stereotype talkative, manipulative, excitable (ii) Reputation of sales rep's company.

Buyer Behavior towards sales rep depends on organizational needs / objectives, buying centre interactions and personal needs. Buyers are not always rational / logical in buying decisions. Role / behavior of sales rep. depends on his personal needs, and expectations ofhis boss, peers, customers.


35/167

BUYER-SELLER DYADIC INTERACTION FRAMEWORKA Conceptual Framework by Dr. ShethCompatible Style Compatible Content Incompatible Content Incompatible Style

IM/4-03/11

Ideal/Successful Transaction Inefficient Transaction

Inefficient Transaction No Transaction

A buyer and a seller interaction is called Dyadic two persons' interactions', with ve types of transactions. Content includes organizational and personal needs ofa buyer and a seller. Style includes manner and format of communication task oriented, self oriented, or social / personal oriented.


36/167

TYPES / RANGE OF RELATIONSHIP BETWEEN IM/4-04/11 BUYER & SELLER FIRMS When buyer (or customer) and seller (or supplier) firms do business, they have the following types and range of business / working relationships / exchanges.Transactional Relationship Value-Added Relationship Partnering / Collaborative Relationship

Each business relationship is an exchange process of obtaining a desired product/ service by offering something of value is return.


37/167

IM/4-05/11 TRANSACTIONAL RELATIONSHIP is typically one time exchange of a product / service, with lowest price / economy and necessity as main factors. Some customers prefer it when many suppliers are available in a stable market. They switch purchases from one supplier to another. Marketers also choose least profitable customers for transactional relationships.VALUE ADDED RELATIONSHIPS / EXCHANGES. Here the focus is to understand customerneeds and meet those needs better than competitors, to get maximum business share. These customers have medium sales and profit potentials and have Procurement Orientations.


38/167

IM/4-06/11 COLLABORATIVE/ PARTNERING RELATIONSHIPS.

The focus is to build strong social, economic, service and

technical ties between customer and supplier firms inorder to achieve mutual benefits. The criteria used for selecting business customers for

partnering relationships are technological contributions,mutual dependence, supply chain management orientations, and high sales & profit potentials.


39/167

IM/4-07/11 CUSTOMER RELATIONSHIP MANAGEMENT (CRM) / RELATIONSHIP MARKETING (RM)Conceptually same, methods / techniques to achieve objectives are different. Both CRM & RM aim at partnering / collaborative longterm relationships for mutual benefits of both parties. CRM'S objectives are to improve customer loyalty and there by, company's profitability. For this, marketing strategy is first developed, then investment is made in software system to gather data / information on each valued customer, and the same is made available to all employees to give superiorcustomer service. RM aims at building relationships with key customers, distributors, and suppliers. This is done through financial and social benefits, and inaddition, structural ties. After 2-3 years, both firms evaluate their relationship using sales, profits, prices, costs, & technology factors.


40/167

IM/4-08/11 METHODS USED TO INFLUENCE INDUSTRIAL CUSTOMERS Major methods : Salespresentation and Negotiation Sales Presentations: For effective sales presentation, a sales person should follow some guidelines : i. Plan and collect information before sales presentation. ii. Identify customer needs and satisfy them better than competitors. iii.Use AIDAS theory or any other theory of selling (Attention, Interest, Desire, Action, Satisfaction) Give importance to prompt customer service.


41/167

IM/4-9/11 NEGOTIATION : For negotiation with customers use I win, you win or win wn style, with following guidelines : a. Build an environment of trust & understanding. b. Identify the problem areas. c. Both sides work together, pooling ideas,information, and resources. d. Regular frequency of concessions are important and not the size of concessions. e. Be responsive to corrections, if needed. f. Avoid legalistic approach. g. Be polite and humble. h. Importance should be on endresults and not on means.


42/167

SPECIAL DEALINGS BETWEEN BUYER & SELLER

IM/4-10/11

RECIPROCITY. It means buying a product / service from a customer and selling a product / service to a supplier. It occurs when products are similar and price competition is less. Generally, both purchase managers and sales managers dislike.In practice, the procedure becomes complex. It should be kept at minimum level.DEALING WITH CUSTOMERS' CUSTOMERS With coordination and planning, a business marketer can promote its products to customers' customer, if a need arises. E.G. Aircraft engine manufactures promote their engines to Air lines (aircraft buyers), inaddition to aircraft manufacturers.


43/167

SUMMARY OF CHAPTER - 4BUYER SELLER RELATIONSHIP

IM/4-11/11

Industrial buyer and sales rep.'s interactions depend on their perceptions, behavior, & roles. Interaction between two persons (buyer & seller) is called Dyadic,with various types of transactions, as per Dr. Sheth's framework. Buyer and sellerfirms have various types and range of relationships: transactional, value addedand partnering / collaborative. Customer relationship management (CRM) and relationship management (RM) are conceptually same. Both aim at collaborative / partnering long term relationship for mutual benefits of both parties. Sales promotion and negotiation are the major methods used to influence industrial buyers. Reciprocity and dealing with customers' customers are the special dealings between abuyer & a seller.


44/167

CHAPTER 5

IM/5-1/6

INDUSTRIAL MARKETING INTELLIGENCE AND MARKETING RESEARCHLEARNING OBJECTIVES :

1. Know Nature and Scope of Industrial Marketing research. 2. Examine the Marketing Research Process. 3. Understand Industrial Marketing Intelligence System.


45/167

IM/5-3/6 SCOPE OF INDUSTRIAL MARKETING RESEARCH

Scope is vast. Some of the areas are : i. Market share analysis . ii. National and Geographical area-wise market potential. iii. Competitors' analysis. iv. New product acceptance and potential


46/167

MARKETING RESEARCH PROCESSIM/5-4/6STEPS INVOLVED ARE : 1. Identify the problem / opportunity and state research objectives . 2. Develop research design / methodology. 3. Collect data / information. 4. Process and analyze the data. 5. Prepare research report. There is no major difference in the process or steps involved in marketing research for consumer and industrial marketing .


47/167

IM/5-5/6 INDUSTRIAL MARKEING INTELLIGENCE SYSTEMMarketing Research studies

Secondary Data Source

Industrial Marketing Intelligence System

Decision Support SystemMarketing Research studies Secondary Data Source Industrial Marketing Intelligence System Decision Support System Market Responce

Market Responce

Industrial marketing intelligence system is developed to meet the needs of industrial marketers for timely and continuous information for effective decision making .


48/167

SUMMARY OF CHAPTER-5

IM/5-6/6

Industrial marketing research rely more on exploratory and descriptive (i.e. survey) methods . The scope of industrial / business marketing research is vast . There is no major difference in the process or steps involved in marketing research for consumer and industrial marketing. Industrial marketing intelligence system is developed to meet the needs of business marketing for timely and continuous information for effective decision making.


49/167

NATURE OF INDUSTRIAL MARKETING RESEARCH

IM/5-2/6

1. Business Marketers rely more on Secondary data,and exploratory research (Through expert opinion). 2. Descriptive (or Survey) method is used more often than experimental and Observation methods, for collecting primary data. 3. Sample size is small due to small population. 4. Difficult todefine sampling unit (or respondents), since buying decisions are made by manymembers of buying centre. 5. Respondents' Cooperation and accessibility are difficult for data collection.


50/167

CHAPTER 6

IM/6-1/9

INDUSTRIAL MARKET SEGMENTATION, TARGET MARKETING AND POSITIONING LEARNING OBJECTIVES : 1. Know the Procedure followed for segmenting industrial markets. 2. Identify the Variables (bases) used for segmenting business markets. 3. Evaluate andselect the target market segments and strategies. 4. Develop effective positioning strategies.


51/167

PROCEDURE USED IN MARKET SEGMENTATION

IM/6-2/9

The procedure has 3 steps .1. Conduct marketing research to collect data / information on existing and potential buyers, and competitors. 2. Carry out data analysis by using statistical techniques of factor and cluster analysis in order to identify different segments. 3. Profile each segment by its characteristics like application (or/use), location, volume of requirements, etc.


52/167

IM/6-3/9

VARIABLES (BASES) USED IN SEGMENTING INDUSTRIAL (BUSINESS) MARKETS Industrial market segmentation is done first based on Macro Variables , and then subdivided into Micro Variables, if necessary.

Macro Variables. These segmentation variables areidentified based on industry/organizational characteristics like. (i) Type of industry / Type of customer. (ii) Company size / Usage rate. (iii) Customer location / Geographical area. (iv) End-use / Application / Benefits of a product.


53/167

IM/6-4/9

Micro Variables. Macro segments are further subdivided into micro segments', if needed. Micro Variables are based on purchasing decisions like (a) Customer interaction needs, (b) Organizational capabilities, (c) Purchasing policies, (d) Purchasing criteria, (e) Personal characteristics. Sequential Segmentation Process. Often, business marketers use more than one variable to subdivide the market.


54/167

EVALUATING MARKET SEGMENTS

IM/6-5/9

Criteria / factors used for evaluating each market segment are : (i) Size and Growth . (ii) Profitability Analysis . (iii) Competitive Analysis . (iv) Company Objectives and Resources

TARGET MARKET STRATEGIESBased on above criteria, business marketer selects one or more market segments as target segments. Next , the marketers should decide which of the following broad target market strategies the company should adopt (a) Concentrated or Niche marketing strategy, (b) Differentiated marketing strategy (c) Undifferentiated marketing strategy


55/167

PROCEDURE FOR DEVELOPING A POSITIONING STRATEGY

IM/6-6/9

Following steps are involved :(i) Identify which attributes / benefits target customers consider important while buying a product / service. This information is obtained through a market research study . The variables considered for differentiating a company's product from competing products are. (a) Product variables, (b) Service variables, (c) Personal variables, (d) Image variables,

(ii) Select one or more major benefits (or attributes) to differentiate the company from its competitors .


56/167

IM/6-7/9

(iii) Use Perceptual Mapping Technique. To decide on positioning strategy, thistechnique is used, after getting customers' perceptions through marketing research.

(iv) Communicate Positioning Strategy. The firm should decide and communicate its positioning strategy to target customers, through sales force, advertising injournals, internet, and trade shows


57/167

Excellent Product Quality1.0

IM/6-8/9

.A1 .CStrong Customer Service1.0 0.8 0.6 0.4 0.2

0.8 0.6 0.4 0.2 - 0.2 - 0.4 - 0.6 - 0.8 - 1.0

.D

- 0.2

Weak Customer Service

.B

- 0.4- 0.6

. APerceptual Mapping Technique

- 0.8 - 1.0

Low Product Quality


58/167

SUMMARY OF CHAPTER 61.

IM/6-9/9

2.3. 4.

5.

Procedure used in market segmentation includes (i) Marketing research, (ii) Dataanalysis (iii) Profiling each segment. Variables used for segmenting industrialmarkets include macro variables and if needed, micro variables. Sequential segmentation process is often used. Criteria used for evaluating market segments are(i) size and growth , (ii) Profitability (iii) Competitive analysis (iv) Company Objectives and Resources. Target market strategies are (a) Concentrated or Niche marketing, (b) Differentiated marketing, (c) Undifferentiated marketing strategy Steps used for developing positioning strategy include : (i) Identifying attributes / benefits, (ii) Selecting one / more major benefits, (iii) Using perceptual mapping technique, (iv) Communicating positioning strategy.


59/167

CHAPTER 7PRODUCT STRATEGY & NEW PRODUCT DEVELOPMENT

IM/7-1/20

Learning Objectives 1. Define an Industrial Product. 2. Understand Changes in the product strategy. 3. Know Product Life cycle (PLC) Theory and its application.4. Develop Product strategies for existing products. 5. Understand new productdevelopment. 6. Know impact of technology and high-tech marketing. 7. Learn Marketing of industrial services.


60/167

IM/7-2/20 DEFINITION AND MEANING OF AN INDUSTRIAL PRODUCT

Definition : Its is a physical thing as well as a Complex set of economic, technical, legal and personal relationship between a buyer and a seller. Meaning of a Total Product Package : It includes basic properties (with fundamental benefits), enhanced properties (with tangible benefits), and augmented properties (with intangible benefits).

In a competitive market, business marketers must understand target customers' perceptions of a total product package and offer the same better than competitors.


61/167

IM/7-3/20

CHANGES IN PRODUCT STRATEGY

Business marketers must understand that a product strategy is dynamic and flexible. It changes due to changes in (i) Customer needs. (ii) Technology. (iii) Government Policies / Laws. (iv) Product Life Cycle.


62/167

IM/7-4/20

A General Model of Product Life Cycle (PLC)Industry Sales

Rupees Industry Profits

Maturity

Decline


63/167

IM/7-5/20

APPLICATION OF PRODUCT LIFE CYCLE THEORY TO MARKETING STRATEGYIntroduction Stage : Marketing Strategy should focus on market development for slowly accepted products. For rapidly accepted products, a competitive strategy (Competitive pricing or Superior quality product ) should be evolved.Growth Stage :To take advantage of high growth of sales and profits, the marketing strategy should concentrate on (i) Improving product design or adding productfeatures (ii) Improving distribution and (iii) Reducing price, as increased sales and production reduce the costs.


64/167

IM/7-6/20

Maturity Stage As competition increases and profits decline, marketing strategyshould concentrate on (i) cutting costs, (ii) keeping existing customers satisfied (iii) entering new markets. Decline Stage Since both sales and profits decline, marketing strategy should focus on (i) substantial reduction in costs, (ii) develop a substitute product, (iii) withdraw the product slowly from the market.


65/167

IM/7-7/20

PRODUCT STRATEGIES FOR EXISTING PRODUCTSBusiness marketers should take the following steps : 1. Evaluate the performanceof existing products by using product evaluation matrix. 2. Examine the relativestrengths and weaknesses of the company's products by using perceptual mapping technique. 3. Decide the product strategies, based on above analysis.


66/167

PERFORMANCE EVALUATION OF EXISTING PRODUCTS

IM/7-8/20

Example : A material handling Co. (i) Product = P (Pallet Truck) Last 3 year's average performance figures are Industry sales growth = 25%, Company sales growth =30% Market Share = 30% (Dominant) , Profitability = As per Target. (ii) Product= S (Stackers) Industry Sales growth = 16% (Stable) ; Company Sales Growth = 15% (Stakers) Market Share = 12% (Average) ; Profitability = Below Target.


67/167

Product Evaluation MatrixCompany SalesIndustry Sales Market Share Profitability Below Target

IM/7-9/20Growth

DeclineTarget Above Target Below Target

StableTarget Above Target Below Target

Target

Above Target

Dominant

P

Growth

Average Marginal

Dominant

Stable

Average Marginal

S

Dominant

Decline

Average Marginal


68/167

IM/7-10/20

PERCEPTUAL MAPPING TECHNIQUEHigh Price

B High Quality A Low Quality

*1

* AC

Low Price


69/167

IM/7-11/20 Firm A's product quality is perceived to be average by customers, compared to its competitors B & C. Firm A should try to move to a new position of superior quality at a reasonable (average) price to improve its profitability.

DECIDE PRODUCT STRATEGIES(i) Maintain / Continue the product and its marketing strategy. (ii) Modify theproduct & change marketing strategy. (iii) Drop / eliminate the product. (iv) Add new product.


70/167

CLASSIFICATION OF NEW PRODUCTS

IM/7-12/20

(i) Products that are new to the world & innovative. (ii) Products that are newto the company, but not new to the world. (iii) Improvements / Revision to the existing products. (iv) Addition to the existing products. (v) Repositioning existing products to new market segments (vi) Products with substantial cost reductions without reduction in performance.

NEW PRODUCT DEVELOPMENT PROCESSIt consists of 7 Stages : (i) Idea generation, (ii) Idea Screening, (iii) Concept development and testing, (iv) Business analysis, (v) Product development, (vi)Market testing, & (vii) Commercialization.


71/167

IMPACT OF TECHNOLOGY

IM/7-13/20

Technological innovations create new products / services that are new to the world. Examples of these innovations, called break through technology are : (i) Technological inventions of 1940s of vacuum tube and amplifier circuit created newproducts / services like radio, wireless telegraphy, and telephone service. (ii)Technological inventions of 1950s & 70s of transistor, integrated circuit (IC),microprocessors have applications in new products like TV sets, movie Cameras,Computers, Calculators, Mobile phones, Printers etc., (iii) Digital revolution of information technology and the internet have improved company and consumer capabilities.


72/167

IM/7-14/20

TYPES OF MARKETING SITUATIONS.

High Technological Uncertainty Low

Better Mousetrap Marketing Low-tech Marketing Low

High-tech Marketing

High-fashion Marketing High

Market Uncertainty


73/167

IM/7-15/20

MODIFIED TECHNOLOGY ADOPTION LIFE CYCLE This is suited to hightech marketingDeep Gap Innovators2%

34%13% Early Adopters

34%16% Laggards

Time of Adoption of Innovations


74/167

HIGH TECH MARKETING STRATEGY

IM/7-16/20

1. 2. 3. 4. 5. 6. 7.

Target a niche market. Plan whole product properties. Develop partnerships. Unique positioning strategy. Effective Communication Strategy Multi Channel distribution strategy. Skimming pricing strategy.


75/167

IM/7-17/20

Marketing of Industrial Services Classifications of Industrial ServicesMaterials Components (Steel, Ball Bearings) Pure Tangible Product Personal Computers Hotels for Conferences Good Transportation Pure intangible service

Major Product, Minor Service

Equal Product & Service

Major Service, Minor Product


76/167

IM/7-18/20

Unique Characteristics of services and marketing Implications.Characteristics 1. Intangibility (cannot be seen / felt, before buying) 2. Inseparability (Production & consumption at the same time)

Marketing Implications Buyers see evidence of service quality Sellers tangibilise the intangible Effective interaction depend on service providers. Requires effective recruiting and training of service providers. Uniform quality is difficult Focus on quality & automation

Examples Management Consultancy & EDPs. Repairs to machines & Courier service.

3. Variability (Service quality varies) 4. Perishability (Cannot be stored)

Management education & marketing research.

Demand fluctuates. Use methods to match demand & capacity. Advantages of non-ownership : reduction in costs & flexibility

Airlines seats & Warehouse space.

5. Non-ownership (Buyer uses a service, but cannot own it)

Hotel and car rental services.


77/167

SUMMARY OF CHAPTER 7

IM/7-19/20

PRODUCT STRATEGYS & NEW PRODUCTS DEVELOPMENT. Industrial Product is a physical thing and also a complex set of economic, technical, legal and personal relationship between a buyer and a Seller. Product Strategies are changed due to changesin customers needs, technology, government policies or laws, and product life cycle Product life cycle (PLC) concept is used to develop marketing strategies atdifferent stages of PLC. Product strategies for existing products are developedby (i) evaluating the performance of existing products, using product evaluationmatrix , (ii) Studying the strengths and weaknesses of existing products, using perceptual mapping technique.


78/167

IM/7-20/20It means, deciding if a product should be continued, modified, dropped, or replaced. New products are classified into six groups and consist of seven stages ofdevelopment process :- idea generation, idea screening, concept development & testing, business analysis, product development, market testing, and commercialization. In High tech marketing situation, technology application and market needs are difficult to predict . The technology adoption life cycle is modified to suit high-tech marketing. Unique high tech marketing strategies include targeting a niche market, planning whole product, developing partnership, unique positioning,effective communication , multi channel distribution and Skimming pricing. Industrial services are classified into various groups, and include unique characteristics like intangibility, inseparability, variability, perishability & non ownership.


79/167

CHAPTER 8

IM/8-1/14

INDUSTRIAL DISTRIBUTION CHANNELS & MARKETING LOGISTICS Learning objectives1. 2. 3. 4. 5. 6. Understand alternative channel structures. Know types of industrial intermediaries. Understand steps involved in designing a channel. Learn how to manage channel members. Understand concepts of supply chain management, Logistics, and business logistics system. Learn the tasks of physical distributionand total distribution cost.


80/167

Alternative Channel Structures

IM/8-2/14

Industrial channel structures include both direct and indirect channels. DirectChannels. Examples are direct selling through company sales force and direct marketing through on-line marketing, telemarketing and direct mail. Direct channelsare used typically when (i) Transaction value is large, (ii) Technical & commercial negotiations are held at various levels (iii) Buying process takes a long time (iv) Buyers want to buy directly from manufacturers. Indirect Channels. Consists of intermediaries like distributors / dealers, manufacturer's reps / agents,value-added resellers (VARs), brokers and commission merchants. Indirect channels are generally used when (i) Value of transaction / sales is low, (ii) The manufacturer's resources are limited, (iii) Customers are geographically dispersed, (iv) Buyers purchase many items in one transaction.


81/167

Types of Intermediaries1.

IM/8-3/14

Industrial Distributors / Dealers.They perform many functions like buying, storing, promoting, financing, selling,transporting and servicing certain geographic market, & are given discounts. Major categories are (i) General line distributors, (ii) Specialized distributors,and (iii) Combination house.

2.

Manufactures' Representatives / Agents.They perform functions like promoting manufacturers' products / services, gettingorders, and colleting market information. They are independent business firms, representing various manufacturers whose products complement one another but arenot competitive. They are paid commission on the value of sales or orders booked. They do not buy, store or finance transactions.


82/167

IM/8-4/143.

Value-added Resellers (VARs)They are new type of intermediaries from computer industry. They deal with computer hardware and software companies, customize the same to solve specific problems of buying firms. They are paid discounts.

4.

BrokersThey bring together buyers and sellers, when information is not available completely. They represent either a buyer or a seller, and their relationship is shortterm. They do not buy products & services and are paid on commission basis.

5.

Commission Merchants.They represent sellers / manufactures, mostly with bulk commodities like raw materials, to perform functions like arranging inspection, transporting, negotiating and selling. They are paid commission on the value of sales.


83/167

CHANNEL DESIGN The procedure / steps are as follows;(i) (ii) (iii) (iv)

IM/8-5/14

It includes developing new channels and modifying the existing channels.

Developing channel objectives; Analyzing channel constraints; Analyzing channeltasks; Identifying channel alternatives. These include the following issues : (a) Types of intermediaries. (b) Number of intermediaries. (c) Number of channels.

(v) Evaluating the channel alternatives. The criteria used are: (a) Economic factor (b) Control factor (c) Adaptive factor (vi) Selection of the channel (s).


84/167

IM/8-6/14

MANAGING CHANNEL MEMBERSIt includes :1. 2. Selecting Intermediaries. Motivating Intermediaries. (a) Partnering relationships. (b) Reasonable discounts and commission. (c) Distributor councils. (d)Other motivational tools. Controlling Channel Conflicts (a) Sources of channel conflicts. (b) Controlling conflicts by (i) Effective communication network; (ii)Joint goal setting; (iii) Diplomacy; Mediation; Arbitration. (iv) Vertical marketing system (VMS). Evaluating Channel Members

3.

4.


85/167

IM/8-7/14

Concept of Supply Chain Management (SCM)SCM includes activities of moving goods from raw material through operations tofinal consumers, as shown in SCM Framework below.


86/167

IM/8-8/14

Main aims of SCM are (i) Reduce cost per unit, (ii) Reduce waste & duplication,(iii) Minimize order to delivery cycle, and (iv) Ensure superior delivery service. Firms adopting SCM gain competitive advantage. The aims are achieved by a network of interdependent firms working together with partnering relationships to manage and control various activities, in order to improve flow of materials andinformation from suppliers to end users.


87/167

IM/8-9/14

Logistics Management (LM)LM plans and coordinates activities to achieve superior customer service levelsat lowest costs. LM optimizes material flow within the firm, but SCM extends integration of material flow to suppliers' suppliers and customers' customers. For better understanding, see figure on business logistics system, which has two productmovement; physical supply and physical distribution.


88/167

Business Logistics SystemPhysical Supply Industrial Manufactuer

IM/8-10/14

Physical Distribution (or Marketing Logistics)

Marketing Logistics (or Physical distribution) consists of delivering finished products to intermediaries and customers.


89/167

IM/8-11/14TASKS OF PHYSICAL DISTRIBUTION (PD) PD tasks are : (i) Transportation, (ii) Warehousing, (iii) Inventory Control, (iv) Customer Service, (v) Packaging, (vi) Material Handling, (vii) Order Processing, (viii) Communication, (ix) Locations offactory & Warehouses.

Total Distribution cost and customer service are balanced by (i) Minimizing total distribution cost, or (ii) Total systems approach through maximizing profits. Total Distribution Cost = Transportation cost (Freight) + Warehouse cost + Inventory cost + Cost of lost sales due to delayed delivery.


90/167

IM/8-12/14 A firm must minimize total distribution cost, instead of minimizing individual cost elements, to balance customer service and total distribution cost. Another approach, called total systems approach or channel integration focuses on return on investment (ROI). Here, a firm's channel members work together to improve customer service, in order to get higher sales revenue.

=

Sales Revenue - Total Physical Distributor Cost Capital Investment


91/167

SUMMARY OF CHAPTER 8

IM/8-13/14

INDUSTRIAL DISTRIBUTION CHANNELS & MARKETING LOGISTICS. 1. 2. Industrial channelstructures include direct and indirect channels. Types of industrial intermediaries are: industrial distributors / dealers, manufacturers' representatives (or agents), value added resellers (VARs), brokers, and commission merchants. Procedure of channel design includes: developing channel objectives, analyzing channel constraints and tasks, identifying channel alternatives, evaluating alternativesand selection of the channel (s).

3.


92/167

CUSTOMER SERVICE

IM/8-13A/

Service Quality Gap : Gap between perceived service and expected service. A firmmay have a strategy of giving superior quality service than competitors and exceeding customer's expectations. Factors that determine service quality by customers are : (i) Reliability (ii) Responsiveness (iii) Assurance (iv) Empathy (v) Tangibles


93/167

Strategies followed by successful customer service firms (a) Top management commitment. (b) Setting high-standards of service quality. (c) Monitoring system. (d) Systematic approach to resolving customer complaints. (e) Satisfy both employees and customers .

IM/8-13B/


94/167

IM/8-13C/ Developing customer service levels/ standards Neither all customers nor all products need the same level of service. Steps involved : (i) Conduct marketing research study to find which elements of customer service are important tocustomers. (ii) Find needs / expectations of customers in quantitative standards for the service elements. (iii) Get information on actual performance of the company and it's competitors from customers. (iv) Analyse variance of actual performance with standards. (v) Take corrective actions to minimise the variance. Outstanding delivery service levels are achieved by integrating logistics and through supply chain management.


95/167

IM/8-14/144. Managing channel members consist of selecting and motivating intermediaries,controlling channel conflicts, and evaluating channel members. Supply chain management (SCM) includes activities of moving goods from raw material through operations to final consumers. Logistics management optimizes material flow within the firm, but SCM extends integration of material flow to suppliers' suppliers and customers' customers. Business logistics system includes physical supply and physical distribution (or marketing logistics). To balance total distribution cost andcustomer service, a firm can use any of the approaches: (i) Minimize total distribution cost, or (ii) Maximize profits (ROI) through channel integration.

5.

6. 7.


96/167

IM/9-1/12

CHAPTER 9MANAGING THE PERSONAL SELLING FUNCTIONLearning Objectives : 1. Understand the role of personal selling in business marketing. 2. Know the business selling process. 3. Know characteristics of B2B selling , Team selling approach, solution-oriented effort, Entrepreneurial Philosophy. 4. Understand management of major and national accounts.


97/167

IM/9-2/12

Role of Personal Selling in Business Marketing Personal selling or direct selling through company sales force plays greater role in business marketing than consumer marketing Major roles of personal selling(i) A part of problems solving capabilities of the company. (ii) A part of the company's communication or promotion mix . (iii) Gives an effective customer service .


98/167

Business Selling Process

IM/9-3/12

No magic formula for making a sale. But chances of making a sale improves, if the following sales process is followed. The major steps in selling process are : (i) Prospecting. It is searching or identifying prospective or likely customers from various sources. (ii) Qualifying . Prospective customers are screened by qualifying criteria like expected volume, location & financial strength. (iii) Preparation / Pre-approach. Sales person should prepare plan before making sales presentation by obtaining all relevant information about the customer and competitors through personal visits and websites.


99/167


100/167

Characteristics of B2B Selling

IM/9-5/12

1. Promotional strategy focuses more on personal selling'' through company's sales foce. Hence, salespersons are active in getting orders. 2. Adverting is used as asupport to personal selling. 3. The sales person sells technical and non-technical products, and uses problem solving'' approach 4. Typically, it takes a long time to know outcome of sales efforts. 5. System selling approach is used by some business marketers, as it is preferred in some large industrial projects or contracts.6. Team selling approach is used for major customers and large value orders.


101/167


102/167

Solution Oriented Effort

IM/9-7/12

Two major roles of personal selling : (1) A part of problem-solving capabilities, (2) A part of communication ( or promotional) mix. A sales person is a part ofselling firm's problemsolving abilities. He should identify and analyse the buying firm's problem. He should then show how his company's products and services can solve the buyer's problems, better than competitors. This is called solution-oriented effort or approach.


103/167

Intrapreneurial Philosophy

IM/9-8/12

Intrapreneurship means entrepreneur within a company. When sales and marketing persons, who are employees, behave and act like owners of the company, they haveadopted entrepreneurial philosophy. Such persons take initiative, are proactiveand creative, and give superior value to customers. Firms that follow Intrapreneurial philosophy show consistently good performance.


104/167

MANAGEMENT OF MAJOR AND NATIONAL ACCOUNTS Both major and National accounts (or customers) have large (sales and profit potentials). But there is a difference.Sales Potential of CustomerLarge

IM/9-9/12

Major Account Dyadic Interaction Simple

National Account Minor Account Complex

Small

Complexity of customer


105/167

IM/9-10/12

A major account has a large sales (and profit) potential and is simple to serveor manage, as the customer has only one unit . A national account has also a large sales (and profit Potential), and is complex or difficult to serve, because operating units re geographically dispersed. In addition, for small value items operating units are autonomous, but for large value items, buying is centralized.


106/167

How to Manager Major & National Accounts

IM/9-11/12

Objective. To become the preferred or sole supplier with adequate profits. Strategy / plan. Team selling. For a major customer, the team should include branch /regional managers, sales representative and technical support person. For a national account, the team consists of a national accounts manager, branch sales representatives, logistics executive, and technical person. Relationship marketing. The teams build long-term collaborative or partnering relationships by using approaches like financial and social benefits, and structural ties. Support fromtop management and functional executives should be assured.


107/167

IM/9-12/12

SUMMARY OF CHAPTER-9 Personal selling has a greater role in business marketing than consumer marketing. Business selling process consists of prospecting, qualifying, preparation (orpre-approach), sales presentation (or approach), overcoming objections, closing, post-sales service and follow-up. B 2 B selling characteristics include problem solving, systems selling and team selling approaches. Intrepreneurial philosophy results in consistently good performance. Management of major and national accounts is done by team selling, relationship marketing and support from top management and functional managers.


108/167

IM/10-1/10

CHAPTER 10 BUSINESS (INDUSTRIAL) COMMUNICATION

Learning Objectives : 1. Develop an effective communication (or promotional) program. 2. Understand the role of advertising 3. Understand the importance of sales promotion, publicity, public relation (PR), and direct marketing.


109/167

IM/10-2/10

DEVELOPING AN EFFECTIVE COMMUNICATION / PROMOTIOAL PROGRAMME FOR BUSINESS MARKETS

The steps involved are : (i) Decide communication objectives. (ii) Identify thetarget audience. (iii) Decide the promotional budget. (iv) Develop the message strategy. (v) Select the media. (vi) Evaluate the promotion's results. (vii) Integrate the promotion's programme.


110/167

IM/10-3/10 Promotional Tools and Media in Business Markets

Promotional Advertising ToolsPromotional Media & Supports Print Media Business Publications Trade Journals Idustrials directories

Sales PromotionTrade shows Exhibitions Catalogues Sales Consents Promotional novelties (giftSeminars Demonstration Promotional letters Entertainment

P. R. and PublicityCharitable donations Adopting villages Community relations News item in press chnical articles in journals

Direct MarketingDirect mail Telemarketing On-line marketing

Personal SellingSales calls Sales presentations Team selling Relationship marketing


111/167

IM/10-4/10 ROLE OF ADVERTISING IN BUSINESS MARKETING

While advertising is relatively less important than personal selling in businessmarketing, it is used as support to personal selling. The functions performed by advertising are

(i) (ii) (iii) (iv) (v) (vi)

Creating awareness. Reaching members of buying center. Increasing sales efficiency and effectiveness. Efficient reminder media. Sales lead generation. Support channel members.


112/167

IM/10-5/10 ADVERTIING MEDIA USED AND SELECTION CRITERIA The media generally used for industrial advertising are: (i) Business Publications. (ii) Trade journals/ publications Horizontal and Vertical publications. (iii) Industrial directories published by government and private publishers (e.g. Tata Yellow pages). Criteria used for selection of advertising media are: (a) Target audience and their media habits. (b) Promotional objectives and goals. (c) Expenditure budget, by using the following formula:Cost per page = Circulation in thousand


113/167

IM/10-6/10

IMPORTANCE OF SALES PROMOTION Sales promotion consists of short-term incentive tools to stimulate greater or faster purchase of a product / service by business customers. Some of the business promotion tools are : Trade shows (or exhibitions), sales contests, promotional novelties (or specialty advertising, or gifts), seminars, catalogues, promotional letters, demonstration, and entertainment. Some of the frequently used toolsare trade shows, sales contests, catalogues, demonstrations, and promotional novelties (gifts).


114/167

IM/10-7/10IMPORTANCE / ROLE OF DIRECT MARKETING (DM) Definition Direct marketing is an interactive marketing system that seeks a measurable response and /or transaction. Direct marketing is also referred to as direct response marketing. Benefits For business marketers, benefits of DM are many: Can personalise / customise communication messages, builds a continues relationship with each customer, can measure responses from alternative media, and direct relationship marketing company strategy less visible to competitors. Main Channels or tools of DM. Direct mail, telemarketing and online marketing. In addition, kiosk marketing and catalog marketing are also DM channels, but are less popular in India. Direct mail is not only paper based postal service or courier service, but can be fax mail, e-mail, or voice mail. Direct marketers send not only letters, but also audio and videotapes, CDs, and diskettes. Response rate is about 2%.


115/167

IM/10-8/11 Telemarketing uses telephone to contact existing customers, to attract new customers, or to take orders. Telemarketing gives immediate feedback, identifies and qualifies prospects, and reduces sales force travel costs. Both inbound (incoming calls from prospects / customers) and outbound (out going calls) are important. Practice, training, pleasant voices and right timing (late morningto afternoon) are needed for effective telemarketing. On-Line Marketing can be done by establishing an electronic presence (by openingown website or buying space on a commercial on-line service), placing ads online, and using e-mail. A web site should be attractive on first view and interesting enough to encourage repeat visits. Marketers use on-line marketing to find, reach, communicate and sell to business customers.


116/167

IM/10-9/11

Major Benefits to marketers are: Lower costs, relationship building and quick adjustments to changing market conditions. Major Benefits for buyers are: convenience, information availability, and less hassle. Although small & medium size marketers can reach global markets at affordable costs, there is chaos and clutteras the internet offers millions of web sites, and also as concerns on security and privacy


117/167

IM/10-10/11

ROLE OF PUBLICITY & PUBLIC RELATIONS (PR)Public Relations (PR) performs certain tasks to promote or protect a company's image or its products. The tasks / functions performed by PR are: press relations,corporate communication, lobbying, and counseling. PR department deals with various categories of people like press, legislators, Govt. officials, public, employees, suppliers, customers, and hence it tends to neglect marketing objectives.Publicity or Marketing Public Relations (MPR) has more credibility and lower cost compared to advertising, MPR includes placing technical articles from the company's technical persons in trade journals, business magazines, and / or news papers. MPR should be planned with advertising and should be given larger budget allocation


118/167

Summary of Chapter 10

IM/10-11/11

Steps involved in developing an effective communication programme for business markets are (i) decide communication objectives, (ii) identify the target audience, (iii) decide the promotional budget, (iv) develop the message strategy, (v) select the media, (vi)evaluate the promotions results, (vii) integrate the promotional Programme. Advertising is used in business marketing mainly as a support to personal selling. Media used for industrial advertising are: business publications, trade journals / Publications, and industrial directories. Sales promotionconsists of short term incentive tools to stimulate greater or faster purchaseof a product / service by business customers. Direct marketing and publicity ( also called as marketing public relations MPR) have important roles. However, public relations (PR) tends to neglect marketing objectives, since it has to deal with several category of people.


119/167

IM/11-1/29

CHAPTER 11INDUSTRIAL (BUSINESS) PRICING STRATEGIES & POLICIES

Learning Objectives 1. Understand the special meaning of price. 2. Know the factors that influence pricing decisions, i.e. price determinants. 3. Understand pricing strategies for different product/market situations. 4. Examine the pricingpolicies for various types of customers. 5. Understand the role of leasing.


120/167

IM/11-2/ 29

SPECIAL MEANING OF PRICE Some business customers follow Valuebased pricing by evaluating, suppliers' offerings based on the concept of the suppliers offering equalto the difference between the perception of value (or benefits) and the cost tothe buying firm. These are value buyers, and marketers should attempt to have value added relationship, if suppliers have purchasing orientations. Perception of value in value-based pricing is made up of several elements like


121/167

IM/11-3/ 29

Cost to the buying firm includes basic Price, freight, transit insurance, installation, risks of product failure, delayed delivery, etc, Some customers are pricebuyers. Marketers, should follow transactional relationships & offer basic properties. Some other buyers are loyal buyers, for whom marketers should follow relatihip marketing with partnering / collaborative approach and mutually acceptable prices.


122/167

IM/11-4/ 29

FRAMEWORK OF PRICING DECISIONSBefore taking pricing decisions, a buying firm must find "price determinants". (i.e. factors that influence pricing decisions)(i) Pricing objectives (ii) Customer analysis (iii) Cost analysis (iv) Competitors

analysis (v) Govt. regulation / policies


123/167

Two types of pricing decisions.

IM/11-5/ 29

Pricing strategies

Pricing policies Discounts Geographical pricing

Setting a price (product / market situations)

Initiating a price change Responding to a competitor

s price change Leasing


124/167

IM/11-6/ 29

PRICE DETERMINANTS OR FACTORS INFLUENCING PRICING DECISIONS

(i) Pricing objectives, (ii) customer analysis, (iii) cost analysis, (iv) competitive analysis, (v) Govt. policies. 1. Pricing Objectives Are derived from corporate and marketing objectives. Some of the pricing objectives are survival, maximum short term profits, maximum short term sales, maximum sales growth, productquality leadership, etc.


125/167

IM/11-7/ 292. Customer (Demand) analysis It includes demand analysis & cost - Benefit analysis (i) Demand analysis. Using experimental research, it measures relationship between price and demand (or sales volume). It sums up how sensitive customers are to the price changes. The formula is:= % change in quantity demanded % Change in price

If PED is > 1, demand is elastic, & customers are price sensitive If PED is < 1,demand is inelastic, customers are less sensitive to prices.


126/167

IM/11-8/ 29 (ii) Cost Benefit Analysis Necessary to know target customers' perceptions of benefits (or value) and costs. Benefits are categorized into hard (or tangible) benefits like quality, production rate, performance, etc. and soft (or intangible) benefits like customer service, company reputation, warranty period,etc. Cost includes price, duties and taxes, freight, installation, maintenance.3. Cost Analysis. A firm's total cost of a product is the lowest point on the price range. Hence, for pricing decisions, the marketer must know the various types of costs like fixed, variable, total, direct, etc. for a product / service. Costs vary based on production capacity (i.e. economies of scale), and accumulated experience (i. e. learning curve) as shown.


127/167

Cost per Unit

Economies of Scale

IM/11-9/ 29

Quantity Produced per year

Cost per Unit

Experience / Learning Curve. Av. Cost Reduction = 10-30%

Accumulated Production


128/167

IM/11-10/ 29 Break - Even Analysis is useful to consider different prices (P1, P2, P3), and its effect on sales revenue and profits.

Sales & Costs

Sales Revenue at P3 Sales Revenue at P2 Sales Revenue at P1 Total Cost Fixed Cost Sales Volume


129/167

4. Analyzing Competition Many marketers have competitive level Pricing as a pricing objective. Marketers should get Competitors' prices, discounts, costs, product quality, service, etc for cost/benefit analysis, pricing and positioning strategy. Competitors' information can be obtained from various sources.

IM/11-11/ 29

5. Government Regulation/Policies Govt. regulations are necessary to ensure fairplay and to protect consumers and small scale suppliers. Price-fixing / price cartels, price discrimination (e.g. different discounts to distributors/dealers),and predatory pricing (e.g. dominant firm aiming to finish competitors) are notpermitted (illegal as per MRTP act, for example)


130/167

IM/11-12/ 29

PRICING STRATEGIESPricing strategies vary as per product-market situations such as (i) Competitivebidding in competitive markets, (ii) New product pricing, (iii) Pricing acrossproduct life-cycle.

(i) Competitive Bidding In business markets, large volume of purchasing is done through competitive bidding, using either closed (or sealed) bidding or open (or negotiated) bidding method.


131/167

IM/11-13/ 29

In closed bidding, often used by the Govt. buyer, sealed bids are invited through newspaper tender notices. Sealed bids are opened in presences of suppliers andorders are placed on the lowest price bidder(s). In open bidding, after receiving bids (quotations), the buyer negotiates technical and commercial parts with suppliers, and then places orders. This method is often followed by commercial enterprises in private sector .


132/167


133/167

An Application (example) of probabilistic Bidding Strategy IM/11-15/ 29Bid Price ( Rs) (A) 450 430 410 400 380 360 340 330 Total Cost Per Unit (Rs) (C)350 350 350 350 350 350 350 350 Competitor

s Last Tender Price (Rs) (B) 360 360360 360 360 360 360 360 0.00 0.15 0.40 0.50 0.72 0.90 0.95 1.00 Profit (Rs) T (A) = (A) - (C) 100 80 60 50 30 10 (10) (20) 0 12.00 24.00 25.00 21.60 09.00 (9.50) (20.00)

Rs.60 corers tender from Dept. of Telecomm. (DOT) for underground cable jointingkits. The company ghosted Rs.400/- per kit (expected maximum profit). Tender opening revealed, it was L4.L1 was Rs. 330/-, L2=350, L3=Rs 380/- The company estimates of B and P(A) were incorrect.


134/167

IM/11-16/ 29

(ii) New Product Pricing Strategy

In the introduction stage of a new product, two alternative pricing strategies are available (i) Skimming (high initial price) strategy, and (ii) Penetration (low initial price) strategy. Skimming Strategy is appropriate for a new product that is distinct, hightech, or capital intensive, and purchased by a market segment that is not sensitive to the initial high price. The advantage is faster recovery of investment by generating larger


135/167

IM/11-17/ 29 Penetration strategy is appropriate when (i) buyers are highly price sensitive, (ii) strong threat exists from potential competitors (due to low entry barrier). The selling firm's objective is to achieve long term profits throughhigh market share. The firm can also achieve cost leadership thru' economies of scale and experience curve, which gives competitive advantage.

(iii) Pricing Across Product Life Cycle (PLC)Marketing and pricing strategies vary as the product moves across 4 stages of PLC. (a) Introduction stage. We have discussed pricing strategy in this stage earlier in pricing a new product. (b) Growth stage. The firm lowers the prices to attract the next layer of price sensitive buyers. Also more suppliers enter the market and buying firms put pressure on the existing suppliers to lower prices.


136/167

IM/11-18/ 29 (c) Maturity stage. The firm may cut the prices to match aggressivecompetitors' prices by giving volume discounts, absorbing freight costs, or morecredit. If industrial customers do cost - benefit analysis, a selling firm may increase prices or not make any change in prices due to its superior product quality. (d) Decline stage. Pricing strategy varies depending on conditions. (i) Ifbuyers' perceptions about the firm's quality of product / service is good, then theprice need not be lowered, but costs should be reduced to earn profits, (ii) ifthe quality of product / service is equal of lower than competitors, a firm maycut prices, to increase sales volume above break even volume, (iii) if some competitors have withdrawn, a firm may selectively increase prices to less price sensitive segments.


137/167

Initiating price changes IM/11-19/ 29 If a firm is a market leader and wants to change the price, it must anticipate reactions from customers and competitors. The firm must `study major competitors' objectives, financial situations, production capacity utilizations, sales, costs, and profits. It must also understand competitors' mind-set, by studying their business philosophy (or concepts), culture, beliefs and past behaviors. Based on above analysis the firm should predict competitor's response. The firm must also understand that customers generally prefer small price increases several times, rather than one sharp increase. Of course, customers would generally welcome price cuts.


138/167

Responding to competitors' price changes

IM/11-20/ 29

A marketer should respond after answering the following questions. (i) Why the competitor has changed the price? (ii) Is the price change temporary or permanent? (iii) What will happen to the company's sales and profits, if it does not respond. (iv) What would be the reactions of other competitors. The responses can be in several ways: (a) maintain price and value (benefits), (b) match competitors price, (c) develop and launch low-price product item, (d) maintain price. The right response depends on the business situations faced by the firm.


139/167

PRICING POLICIES

IM/11-21/ 29

Purpose. A firm evolves pricing policies to adjust basic prices (or price list)for different types of customers (like OEMs, users, and dealers) who buy variousquantities and are located at different locations. The price list is adjusted with different types of discounts and allowances. Price list is a statement of basic prices of a product, having various sizes/specifications. Net price = pricelist (or list-price) less discount (or allowances). Business buyers are more interested in net price Types of discounts : Trade, quantity (or volume), and cash.Trade discounts. It is offered to traders or intermediaries (dealers / distributors / stockiest ) and it should be equal and sufficient (as per industry normsor functions performed). e.g. price list (100) trade discount (15) = net price (85)


140/167

130712587 25312089 Industrial Marketing Hawaldar for Test Only Chap1 2 3 4 6 7

Documents