Business marketing

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BUSINESS MARKETING

KARISHMA SIROHI

MBA 8TH SEM

IMS KUK

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KARISHMA SIROHI

KARISHMA SIROHI [email protected]

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UNIT 1

BUSINESS MARKETING

Industrial marketing is also referred to as B2B marketing, or business marketing or organizational marketing. Industrial marketing or business marketing is the marketing of products and services to business organizations. Business organizations include manufacturing companies, govt. undertaking etc.

Business markets consist of all organizations that purchases goods and services to use in the creation of their own goods and services. Their own goods and services are then offered to their customer. Generally, business markets consists of fewer but larger customers than consumers market and are involved in purchase of significantly large value having complex economic, and financial consideration.

Business marketing is the process of matching and combining the capabilities of the supplier with the desired outcomes of the business customer. Business marketing is the creation of value for business customer.

Business marketing is marketing products and services to other companies, govt. bodies, and other organizations.

Industrial Marketing is the human activity directed toward satisfying wants and needs of organizations through the exchange process.

Industrial Marketing consists of all the activities involved in the marketing of products & services to organizations, institutions etc, that use products and services in the production of consumer or industrial goods & services and to facilitate the operation of their enterprises.

Features of Business Marketing:

§ Size of the Market

– Relatively few Industrial Customers

§ Geographic concentration

– Not widely spread

§ Competitive nature of the market

– Oligopolistic buying


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KARISHMA SIROHI• control of the purchase of a commodity or service in a given market by a

small number of buyers

– Large firms tend to dominate many markets

§ Product Characteristics

– Technical

– Service & support more needed

1. There are very few customers in business marketing.2. Business marketing more direct means there are fewer channel levels involved.3. Business marketing emphasis on personal selling.4. There is involvement of various functional areas in both buyer and supplier firms.5. Purchase decisions are mainly made on rational/performance basis.6. Technical expertise is needed.7. There is stable interpersonal relationship between buyer and sellers.8. Product is very customized and various technical complexities are involved.9. In business marketing it is difficult to persuade the customer.10. Very large investment in involved.

§ Varying involvement levels in buyer seller relationship.

§ Shorter distribution channels

§ Emphasizes personal selling and negotiation.

§ Greater web integration in communication.

§ Unique promotional strategies

§ Consumption

§ Knowledge of customer’s customer

§ Marketing research

Business markets:

There are numerous differences between purchasing by organizations and purchasing byconsumers. Many of the differences are due to the fact that consumers purchase for personal consumption, and in most cases individuals within organizations do not. They purchase to satisfy needs of the organization. Other factors, too, influence the nature of business buying, making it different. These factors are the types of customers, the types of products they buy, the size and


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KARISHMA SIROHIlocation of customers, the complex processes and rigorous standards of purchasing, the nature of business relationships, and the nature of demand.

Types of business customer:

These are as follows:

1. Commercial enterprises: includes---a) Industrial distributors/dealers: these are those firms which purchases the

product for the further sale and distribution. E.g. middlemen, intermediaries.b) Original equipment manufacturer: When a company purchases a product or

service to be included in its own final product, the company is called an original equipment manufacturer (OEM). For example, General Motors may buy gauges for installation in the dashboards of its automobiles. In this instance, General Motors is an OEM.

c) Users: When GM purchases copier paper from Xerox, General Motors is considered a user, or the business equivalent of the final consumer. General


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KARISHMA SIROHIMotors is also a user of market research purchased from service bureaus such as Donnelly and JD Power as well as other services such as accounting and computer services.

2. Government customers: are the govt. agencies, public sector firms and govt. undertaking. it includes----

a) Public sector units: these are the govt. firms who purchases industrial product for their own use such as BHEL, ONGC etc.

b) Govt. undertakings: includes the department and sector which are regulated or owned by the govt. when they purchases the product for their own use then they are known as govt. customers.

3. Institutional customers: Institutions include organizations such as schools, hospitals and nursing homes, churches, and charitable organizations. It can be classified as:

a) Public institutions: are govt. hospitals, govt. colleges etc.b) Private institutions: are church, schools etc.

4. Co-operative societies: are the institutions established for the welfare. It includes:a) Manufacturing units: who involves in manufacturing sector. These units

purchases the products as raw material.b) Non-manufacturing units: these types of units purchases the product for their

own use.

Types of industrial products:

Products are generally classified on the basis of the type of organization purchasing the products and for what purpose.


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KARISHMA SIROHI1. Material and parts: goods that enter the final product directly consist raw material. The

cost of included items are treated by the purchasing company as part of manufacturing cost.

a) Raw material: these are the basic products that enter the production process with little or no alteration. They marketed to OEM’s or user customers.

b) Manufactured material: it includes raw materials that are subjected to some amount of processing before entering the manufacturing process.

c) Components parts: such as electric motors, batteries and instruments can be installed directly into products with little or no additional changes. When these products are sold to customers who use them in their production processes, they are marketed as OEM goods. The components parts are sold to the dealers or distributors who resell them to the replacement market.

d) Subassemblies: are typically made and supplied by vendors. Typically in the automobile industry, exhaust pipe is a subassembly for motorcycles and passenger cars.

2. Capital items: are those which are used in the production processes, and they wear out over certain time frame. They are normally treated as user customers.

a) Heavy equipment: these are major and long term investment items such as general purpose and special purpose machines, turbines, generators. These items are shown in the balance sheet as plant and equipment, and are fixed assets to be depreciated over a period of years if they are purchased outright.

b) Light equipment: which have lower purchase prices and are not considered as part of heavy equipment, are power operated hand tools, small electric tools. Purchases of accessories are either considered as current expenses with purchase prices taken as operating expenses.

c) Plant and building: these are the real estate property of a company. It includes the firm’s offices, plants, warehouses, and so on.

3. Supplier and services: suppliers and services support the operation of the purchasing organization. They do not become a part of the finished product. They are treated as operating expenses for the periods they are consumed.

a) Supplier: items such as paints, oils and pencils, stationery and paper clips belong to this category. These items are generally standardized and are marketed to a wide cross section of industrial users.

b) Services: companies need a wide range of services like building maintenance services etc.

Nature of Demands in B2B market:

The demand for the industrial products and services have the following features:


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a) Derived Demand: demand for industrial products and services are derived from ultimate demand for consumer products and services. Industrial demand is, therefore, called derived demand. For example demand for steel is derived from demand for cars, washing machines and so on, where steel is used.

b) Fluctuating demand: it has been found that the demand for the industrial products fluctuate more than the demand for consumer products. For instance, if the demand for consumer durable products like washing machine and mixers etc. increase by 10%, it can cause rise in demand for industrial products like paints, steel, and electrical motors by 100%. This is also referred as the acceleration effect, which indicates that the demand for business goods and services are generally more volatile than the demand for consumer goods and services.

c) Stimulating demand: as the demand for industrial products is derived from the ultimate demand for consumer products, it is logical that business marketers should carry out promotional program that directly reaches the ultimate consumers, so as to stimulate the demand for industrial products.

d) Joint demands: occurs when one industrial product is useful if other products also exist.e) Cross elasticity of demands: Demand is ‘elastic’ if the %age change in quantity

demanded is more than the %age change in price. Cross elasticity of demand is the responsiveness of the sales of one product to a price change in another product.

f) Reverse elasticity of demand: in this, a price increase can cause an increase in demand, and a price decrease would be followed by a decrease in demand---just opposite from what we would normally expect from business buyer.

g) Bull- Whip effect: it is the tendency of buyer of a product in short supply to buy more than they need in the immediate future.


Nature of Demand

Derived Demand

Fluctuating Demand

Joint DemandStimulatin

g Demand

Cross Elasticity of Demand

Reverse Elasticity of

Demand

Bull-Whip Effect

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Business marketing vs. consumer marketing

AREAS / CHARCTERISTICS IND MARKETS CONSUMER MATKETS

Market GEO ConcentratedFew Buyers

GEO DisbursedLarge no. Of Buyers (MassMarkets

Products Technically ComplexCustomized

Non – TechnicalStandardized

Service Very Important Somewhat importantBuyer Behavior Various Functional

specialists involvedMainly Rational buying decisions.Interpersonal relationship between buyers and sellers.

Family members involvedPhysiological / Psychological Social need based buying decisionsNon – Personal Relationship.

Channel More directMulti Channel

IndirectFew Channels with many layers

Promotional Importance to personal selling

Importance to Advertising.

Pricing Competitive bidding / Negotiated prices

MRP

Organizational buyer behavior:

Marketers must study this for developing effective marketing strategy.

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:


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KARISHMA SIROHIThe industrial purchasing/buying activities consists of various phases/stages of buying decision making process called ‘Buyphases’.

Phases in Buying Decision Process

§ Recognition of a problem or need.

§ Determination of the application or characteristics & quantity of needed product.

§ Development of specifications or description of needed product. Early Supplier Involvement (ESI) Program: Involving purchasing persons as

active members of cross-functional development teams.

§ Search for & qualification of potential suppliers.

§ Obtaining & analyzing supplier potential.

§ Evaluation of proposals & selection of suppliers.

§ Selection of an order routine. – Placements of orders, quantity, frequency, levels of inventory needed, follow-up of actual delivery to ensure delivery is as per schedule, payment.

§ Performance feedback & post-purchase evaluation.

Types of purchases or buying decision:

3 Common types of purchases / buying situations

i. New Task / New Purchase : Here, buyers have limited knowledge and experience of the new product/service. Hence, more information is obtained, more people are involved, 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.

Models of organisational buyer behaviour:

1. Webster and Wind ModelThis model considers four sets of variables: environmental, organisational, buying centre and individual.


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2. The Sheth model industrial buyer behaviour:


ELEMENTS

PRODUCT MARKETS

RELATIONSHIP

RESOURCESOBJECTIVES AND PLANS

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KARISHMA SIROHIUNIT 2

MARKETING PLANNING AND STRATEGY:

What is strategy???

A strategy is a plan of action designed to achieve certain defined objectives Strategy is a plan that aims to give the enterprise a competitive advantage over rivals. Strategy is about understanding what you do, knowing what you want to become, and most importantly focusing on how you plan to get there. A business strategy should develop or reiterate a formal mission statement—which we will discuss later in the chapter—and address four fundamental issues—which we take up now

Elements of business strategy:

A business strategy includes:

1. Product market: What markets do we serve with what products? We have to consider how well equipped we are to serve different groups, relative to the strength of our competition in those segments. There are various means to grow such as--A firm can seek greater market penetration—thatis, endeavor to gain a larger share of the market in which it currently competes with itsexisting products. Alternatively, a firm may pursue productdevelopment, trying to serve customers in markets where it already has a presence with a new array of products. Market development is the counterpart: Current products are taken to new markets. Lastly, an enterprise may pursue diversification, an aim to serve new markets with new products


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KARISHMA SIROHI2. Relationship: strategic alliance and partnership must be included as key facets of the

product market selection components of strategy. Alliances for new product development enable the firm to access technology and other types of resources that would be quite difficult to acquire or grow entirely within a single firm/.

3. Resources: Financial and other resource considerations lead up to the next key question: What level of investment in the product market? We may be trying to convert the business to cash byselling off assets or selling the whole operation. Indeed, a family business with no offspring willing to run it when Mom and Pop retire may follow this divestment strategy. On the other hand, significant investment will be needed if the firm is seeking to enter and secure a footing in new markets or grow its share in a mature market.

4. Objectives and plans: A business strategy also has to develop the detailed aims and action plans for the functional areas. A host of questions must be addressed in this portion of a strategy. Will special emphasis be given logistics for customer service or will the firm decentralize manufacturing to provide short supply linkages to key customers? Will the firm need a strong advertising campaign or will it need to support distributor activities that play key roles in product differentiation? The remainder of the marketing mix must also be tightly formulated. Advertising and distribution strategies must be worked out to support the intended positioning and product line strategies. The roles of the sales force with respect to each product and customer group (e.g., end user category or type of reseller) need to fit with the advertising and telephone marketing strategies. Also, pricing strategies need to be in harmony with the advertising, selling, distribution, and manufacturing strategies.


Setting the objectives

Environmental Analysis

Strategy Design

Implementation Plan Design

Strategy Implementation

Monitoring of Environment

Analysis of Performance Adjustments

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Marketing strategy development process:

Marketing Planning and Strategy is done to assess the opportunity and take benefit from opportunity prevailing in the market.


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The earlier figure shows hierarchy of strategies and organization structure of a large company.

§ Strategic management gives a direction to the firm and focuses on developing strategies to achieve long – term objectives & goals

§ A Strategic business unit (SBU) consists of an independent business or related business that has its own competitors and specific markets. In some large companies there are (product) divisions and each division has a divisional plan. Each SBU is headed by a manager who is responsible for strategic planning and performance of the SBU.

§ Operational Management maintains the direction given by strategic management, and concentrates on day-to-day issues of costs, revenue and profits.

Strategic planning process at corporate level:

The major steps involved are

Deciding corporate mission and objectives.

Establishing strategic business units (SBUs.)Allocation of resources to SBUs.Developing corporate strategies.


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(O p e ra tio n s M a n a g e m e n t)

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IM/12-3/19

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KARISHMA SIROHIStrategic planning process at business unit level:

The following steps are followed by the business – unit head.

Marketing planning process:

The head of marketing prepares the marketing plan (short-term up to one year) after going through “Marketing Planning Process”, which includes the following steps:

i) Analyzing marketing opportunities.(ii) Segmenting and selecting target market segments.(iii) Developing marketing strategies.(iv) Implementing and controlling the marketing plan.

The head of marketing now prepares the writhen document, called marketing plan, with the following steps.

Business marketing plan:

1. Situational analysis . Market, competitive, product, and macro – environmental analysis.


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KARISHMA SIROHI2. SWOT and Issues analysis

3. Marketing Objectives and goals

4. Marketing Strategy . Selection of target market segments, positioning, marketing mix, customer service and marketing research.

5. Action plans / Tactics

6. Marketing Budget

7. Implementation and control . Building marketing organization and control process.

8. Contingency plan.

Implementation of marketing plan:

It is a process that turns marketing plans into action plans and ensures that the tasks or activities of action plan are executed in as manner that achieves the marketing objectives and goals. For this the necessary organization structure and people are selected. Marketing resource management (MRM) software will help marketers to improve their decisions, and also in implementation and controls.

Control Process includes (a) setting goals, (b) measuring actual performance, (c) comparing goals and actual performance, (d) analyzing causes of deviations, if any (e) taking corrective actions, if needed.

Types of controls: (i) Strategic control, (ii) annual plan control (iii) efficiency control, (iv) profitability control.

ALLOCATION OF RESOURCES TO SBUs.

Two widely used models /tools are : (i) Boston Consulting group (BCG) model, called Growth –share matrix, (ii) General electric (GE) model, called Business Screen matrix.

What is an OPPORTUNITY????

The word opportunity comes from the Latin opportunitas, meaning fitness or advantage. It represents a favorable circumstance, a propitious moment, or a promising course of events that bodes well for the attainment of a goal. Marketing opportunities derive from the “fitness” of a company to serve a specific market. They result from a seller’s proximity, competencies, skills, and resources that can be brought to serve an identified customer or segment profitably. The seller’s ability to provide value is its competitive advantage in that particular arena.


Markets among current customer

Best customer

Customer maximization

New products

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1. Develop market among existing customers: this give a four step process to develop market among the existing customers---


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A firm can find opportunity in existing customer through:a) Best customers: How much of its marketing budget should a firm allocate to

efforts that serve its best customers? In the abstract, any firm should spend and spend until the payoffs from additional marketing efforts are no longer in excess of incremental expenditures. Spending until marginal revenue equals marginal costs, and marginal costs are rising is the basic profit maximization approach many of you learned in economics class. In practice, this approach can be followed for narrow promotions and some specific marketing expenditures.

b) Customer maximization: Many companies find that it is much easier to get current customers to do more business than it is to get business from prospective customers. Many of those who have never transacted with the company know the company and its products, but are just not interested.

c) New products: The same logic for increasing the volume of light and medium accounts applies to their potential for purchasing new products. Current customers know the company, its service standards, its dedication to quality, its technical


rank your best customer

maximise effort through collaboration effort

develop specific product for each customer

learn of special needs of your customer's customer

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KARISHMA SIROHIcapabilities, and more. With them the seller enjoys a level of credibility and trust that has yet to be measured and tested among noncustomers, even bright prospects. Thus, a marketing research company with a new forecasting technique or model is apt to develop and find keenest interest among its current clients.

2. Finding opportunities with customers: Opportunities to do additional business with current customers can be identified by informal and formal means. Feedback through the sales force and service and delivery personnel should be encouraged and rewarded. Their frequent contact with customers and empathic dialogue makes them attuned to developing customer needs. Empathic dialogue is active listening and identification with customer concerns, resulting in customer centered communication and problem solving.

a) Data warehousing: Some business marketers serve so many customers and execute so many transactions that account management—and other types of opportunities—are critically supported by sophisticated data management systems. Data warehousing uses centrally managed data from all functional areas of the organization (sales, purchasing, human resources, finance, accounts payable, etc.)—formatted to company standards—so that it may be accessed by authorized users through their personal computers for queries, custom reports, and analysis. To go beyond standard decile reports or promotion program summaries, business marketing managers need a repertoire of data analysis tools. Evoking images of the quest for riches, the term data mining describes the process of using numerous query tools and exploratory techniques to extract information from a database or data warehouse. Some of this process can be automated, as in systems programmed to recognize purchase patterns at the account level or market level, defined, say, by industry or geography.

b) Customer research: Astute readers should be asking a key question here: Before running the promotion, why not talk to several current customers to learn their priorities and circumstances? Indeed!The database supports two different research approaches: focus groups and sample surveys.

i. Focus group: Focus groups bring a small group of customers together to discuss a specific topic or issue. The moderator is an experienced professional, often with advanced behavioral science training. After providing a brief icebreaker and general introduction to the topic, the moderator generally tries to let the group carry on the conversation. His or her concentration should be on the discussion, along a general outline of topics needed to be covered in the discussion. Because the interview is taped, the moderator can let the grouptalk, with ample opportunity later to analyze comments and extract stimulatingquotations.


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KARISHMA SIROHIii. Surveys: Surveys can be administered to customers in four primary ways:

(1) personal interview, (2) mail, (3) telephones and (4) the Internet. Personal interviews allow good depth of questioning and probing. Answers can be clarified and feedback from product demonstrations or physical stimuli (e.g., a fabric or warning siren) can be ascertained. But the expense of sending interviewers to the field to secure elusive appointments and visit geographically dispersed customers is often prohibitive. Thus, a compromise approach may be some focus groups or an attempt to see customers one-on-one at a tradeshow. Questionnaires can be administered very efficiently by mail. But it is critical that the researcher design the survey with the nature of the current business relationship in mind. The recipient of the survey is a current customer, not a stranger. Thus, a number of imperatives govern the contact.

iii. Customer Visits: If spending time at a customer’s venue to test concepts and problem solve has value, it should come as no surprise that business marketers have been stepping up the frequency and complexity of customer visits.

3. The search for look-alike: a firm’s customers represent the intersection of its past marketing efforts and the competitive strengths of its offering to the target market. A business hasan opportunity to acquire new customers that “look like” existing customers when thefirm’s offering represents a good match to their needs and the firm hasn’t fully penetrated the segment. If the firm’s market share in the segment is already high, the segment may be practically saturated. The search for opportunity might be better directed elsewhere.

4. Acquisition of new customers: customers, their acquisition should be regarded as an investment.Most organizations make investment decisions on the basis of return on investmentrates, net present value, or months (years) to reach break-even. When University Hospital buys a new magnetic resonance imaging (MRI) system, it estimates a multiyearstream of revenue from patients against the installation outlay and projected operatingcosts.An increasing number of companies have begun to formalize a similar approach tocustomer valuation. Customer lifetime value (LTV) is an estimate of the net presentvalue of the stream of benefits from a customer, less the burdens of servicing the accountor managing the relationship.

To evaluate opportunities to acquire new customers, it is critical to segment the market in a judicious manner that enables the matching of company strengths to unmet or underserved customer need.


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KARISHMA SIROHIMarket segmentation:

It is a process of dividing the total market for a product into several segments or distinct group of customers. A market segment consists of a group of customers who have similar need or characteristics.

Market segmentation involves partitioning the general need for a solution to a class of problems into smaller clusters involving distinct markets. Business market task is to identify the segments and decide which segment to target.

Process of segmenting and targeting business markets:

• conduct marketing research to collect data on buying firms and competition• identify macro segments based on analysis of data• select those macro segments which satisfy company objectives and resources• evaluate each selected macro segment on whether it explains the differences in

buying behavior

(if yes, select the target macro segment based on specific criteria stop, and use the macro segment as target segments)

• if no, identify within each macro segment, meaningful micro segments• select the target micro segments based on earlier specified criteria• profile target segments based on buying organization

Segment criteria:

One’s objective in this process is to define good market segments. Good markets areidentifiable, accessible, and substantial.

1. Identifiable members of market segments can be enumerated and evaluated. Imagine a cardiologist who developed a healthy heart program for overworked and overweight executives. Is there a practical way to identify such individuals? The cardiologist might advertise her service and/or invite prospects to a power breakfast seminar or a free risk screening. Prospects might not be so willing to identify themselves, however, if the service were for coping withchemical addictions.

2. Accessibility means that members of a market can be reached or impacted by somedirected marketing activity.

3. The ability to approach or address known prospective customers is necessary but notsufficient to make an opportunity. That market must be substantial, promising sufficient business to justify the efforts to serve it. Customer lifetime value is a useful criterion in


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KARISHMA SIROHIan assessment of a target market. Unfortunately, a firm’s history with its current customers may provide very little basis for estimating the LTV of customers from entirely new markets.For taking the benefit of the segmentation there is the need for the continuous learning in the organization so that the organization can understand the current need and requirement of the customers.

Learning:

Learning is when we connect new information to what we already know. We can now define the learning organization as one that consistently creates and refines its capabilities by connecting new information and skills to known and remembered requisites for future success. Recognize implicit humility in this definition; it does not presume all success factors are known. It surely includes the endeavors by the organization to learn more about what are the requisites of future success.

Requisites of learning organization/Managing organizational learning:

Management scholars have only just begun to investigate how one creates and maintains

a learning enterprise.

1. Visionary leadership: visionary leadership for the learning organization must extend throughout the organization: the executive committee, the senior partners, the regional heads, and department and branch managers. Especially in the nebulous assignment “to improve capabilities to attain success” every supervisor is a role model in character—prudent, just, constant, and sober—aswell as a potential champion of innovation, skill development, risk taking, and successsharing.

2. Target and trajectory: It takes resources and plans to create a learning enterprise. When a firm’s leadership has determined to build a learning culture, a program and administrative structure must be designed. A timetable should be developed to specify when each enabling phase or critical event ought to take place.

3. Information system: The learning organization develops systems to gauge internalmatters: efficiency, employee morale, and cross-functional knowledge. Value systems en


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KARISHMA SIROHIcouraging honesty and information sharing and quashing the need to cover up errorswith the need to fix problems are part of the equation. Other systems must focus on the external environment. Competitive intelligence can be gained by talking to distributors, monitoring advertising and trade shows, reading corporate annual reports, tracking dialogue on the Internet, and more. Recognize good ideas from customers, competitors, foreign markets, and elsewhere.

4. Creating and striving: Vision, plans, and information are certain to be bland and feeble if not energized by creative effort. To create means to bring something into existence, to make something original. What does it take to be creative? Well, researchers in a variety of fields have told us that creative people tend to be or have:Curious, Persistent, Imaginative, Visual, thinker Sense of humor, Motivated and energetic Energetic Unique, etc.

5. Execution: Learning organizations know the competitive advantage to be gained from execution.

After learning the organization have to apply this learning into the organization. Organization starts production to fulfill the demand of its industrial customers. This leads to purchasing which means……..

Purchasing:

Purchasing is a strategic weapon. Companies like PPG that can source effectively can create a competitive advantage by building better value into their own products. Purchasing refers to a business or organisation attempting to acquiring goods or services to accomplish the goals of its enterprise. Business marketers can also make contributions to the value delivered by their customers. Astute business marketers find ways to offer more benefits at the same cost or else lower costs to benefit their strategic purchasing partners.

Purchasing’s contribution to the firm:

The three most important elements of the purchasing department’s function are

To Provide appropriate levels of supply of the right product or service At the correct level of quality


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KARISHMA SIROHI For the lowest t

Trends in purchasing:

1. Trimming purchasing cost2. Using the web3. Outsourcing4. Stronger relationship with sellers5. Cross functional teams6. Professinalism in purchasing

Purchasing in government:

Government is the largest single buyer, the largest single employer, and the largest landlord.

1. Political and Social Goals: In developing countries, such as many of the countries in

Asia, governments are very interested in developing their country’s infrastructure, or the transportation, communication, and other utilities. As a result, companies are snatching up infrastructure opportunities in many developing countries. The government also attempts to achieve social goals through compliance programs. Compliance programs are programs where purchasers must be in compliance with federal guidelines in order to be eligible to supplythe government. The government has used compliance programs to


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KARISHMA SIROHIadvance affirmativeaction programs for women, minorities, and the handicapped.Minority subcontracting programs are another way that the government encouragesthe development of minority-owned businesses. Minority subcontracting programs require general contractors and other major suppliers to allocate a certain percentage of thetotal contract to minority-owned subcontractors.

2. The department of defense: The Department of Defense is the largest single buying agency in the federal government, accounting for an estimated 80 percent of all government purchases. the Department of Defense developed many single-sourcing arrangements, in part because of the huge investment needed to develop weapon systems. Frequently, few vendors are even capable of bidding.

3. Non defense buying: The rest of the government uses the General Services Administration in a fashion similar to the DLA; in fact, the DLA makes most of its purchases through the GSA. TheGSA supplies government agencies with office space, facilitating services and products,and MRO items.

4. Marketing to the government

Ethics in purchasing:

Ethics???

Ethics are moral codes of conduct, rules for how someone should operate that can beutilized as situations demand. For ethical behavior to occur, the person must first recognize the ethical implications of the situation and then be motivated to act ethically. Knowledge of right and wrong isnot enough; the individual must want to do what is right. Situational factors, such asthe probability of getting caught, may influence some people’s behavior, whereas otherswill always do what they think is right (or what is wrong, depending on their moral state)no matter what the situation.

Ethical issues are:

1. Receiving gift


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KARISHMA SIROHI2. Access to information3. Encouraging ethical conduct

UNIT 3

PRODUCT LIFE CYCLE:

Product: A product is anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or a need.

Industrial product: The industrial product is defined not only as a physical entity, but also as a complex set of economic, technical, legal, & personal relationship between the buyer & the seller.

From customer’s point of view, a product is a combination of basic, enhanced, & augmented properties.

Basic properties are included in the generic product, with fundamental benefits sought by the customer.

Generic products are made differentiable by adding tangible enhanced properties like product features, styling, & quality.

Augmented properties include intangible benefits such as technical assistance, availability of spare parts, maintenance & repair services, warranties, training, timely delivery, & attractive commercial payment terms.

Layers of products:


CORE PRODUCT

BASIC PRODUCT

EXPECTED PRODUCTD

AUGMENTED PRODUCT

POTENTIAL PRODUCT

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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.

Industrial product life cycle and strategies:

The product life cycle theory or concept, used to determine marketing strategies. According to this theory products tend to go through different cycles or stages that begin when they are launched in the market.

1. Introduction stage: When the product is first introduced to the market and potential customers are learning what the product is and does, it is in the introduction stage. Sales are relatively low and profits are unlikely, as sales revenue is invested in creating awareness. If distributors or other intermediaries are needed, getting their


Factors determining

change in product strategy

Customer Needs

PLC

Govt. Policies /

Law

Technology

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Develop a trend analysis for the past 3-5 years based on information for a product on quality, value of sales, profit %, market share, no. of competitors & prices.

Analyze competitors’ market share, product performance, new product introduction, diversification or expansion plans.

Estimate & project sales & profits of the product over the next 3-5 years.

From the above analysis, fix the product’s position on its life-cycle curve.

KARISHMA SIROHIagreement to carry the product can be difficult because there is not yet a well-defined market for the product. For truly innovative products, this stage requires marketers to educate buyers (and channel members) as to the function of the product. Primary demand, or demand for that type of product, must be created. Marketing strategy: Some industrial products get accepted rapidly after introduction and others are accepted slowly. This depends upon changes in the user’s habits. For slowly accepted products, marketing strategy should concentrate on market development efforts. However, for products that are accepted fast or have a potential of rapid acceptance, the marketing strategy should be evolved to meet intense competition.

2. Growth stage: The second stage of the PLC is the growth stage, when sales and profits grow at a fast rate. Competition against an innovative product is most likely to enter the market in this stage, and vendors begin to differentiate their product in order to create secondary demand, or demand for a particular vendor’s offering. Significant marketing investment may still be required in order to create a position for the product separate from others in the market.Marketing strategy: as the product enters the growth stage, an industrial marketer should focus the marketing strategy on three key areas: (i) improve product design to offer more benefits or product features to cover wider segments of the markets; (ii) improve distribution so that product availability to customer is strong; (iii) reduce the price as increased volume of production lower the cost.

3. Maturity stage: the market. The third stage is the maturity stage, when sales level off. Note that sales can level off for a product category, in which case that market is said to be mature. Profits are relatively high and marketing expenses should begin to decline. A new product or vendor, however, can enter the market and take away sales at the expense of competitors.Marketing strategy: the marketing strategy when a product is in maturity or saturation stage should be: (i) enter new markets; (ii) keep the existing customers satisfied; and (iii) cut marketing, production and other costs to maintain profit margin.

4. Decline stage: The final stage is the decline stage, or that stage when sales decline and products are removed from the market. In this stage, competitions is more servere, and concurrently the sales and profits decline. Marketing strategy: strategy adopted by an industrial marketer is to either withdraw the product form the market or develop a substitute product for replacement, or reduce marketing and other expenses substantially to make some profits.

Locating industrial products in their life cycle:


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Developing product strategies for existing product:

Product portfolio:

Product portfolio management suggests managing all products simultaneously as you would a financial portfolio, balancing risk and return among all product investments. Most models involve a grid and suggest that product decisions should be based on where each individual product, product line, technology platform, or product category is along the combination of two dimensions. The BCG grid is the simplest of the grid models, with dimensions of market share and market growth. This model has been criticized for being too simple and too similar to the


Evaluate the performance of all existing products or product lines by using product evaluation matrix.

By using perceptual mapping technique, examine the relative strengths & weaknesses of the company’s products in comparison

to competitors’ products.

Based on the above analysis, decide the product strategies for the existing products.

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KARISHMA SIROHIproduct life cycle (which is also based on market growth). A more advanced model developed by General Electric is called the GE grid.

It has market attractiveness, or a composite measure of the potential for sales and profits in a particular market segment, and business strength, or the strength of our offering relative to other companies’ products, as its dimensions.

Attractiveness determinants include market size, growth rate, competitive structure, industry profitability, and environmental (legal, social, etc.) factors. Determinants of strength can include our market share, our growth rate, the company’s image, people resources, and other similar factors. In the upper left corner of the BCG matrix, products are considered stars because market growth is high in a market where we control a large amount of the total market. Stars create cash through high sales but require high levels of investment in order to maintain or increase market share in that growing market. The investment made is in the form of marketing and distribution, as stars require more advertising, more personal selling, and the development of appropriate distribution in order to gain market share.

The hope is to turn stars into cash cows, which have high market share and strength in a steady market and are those products that should contribute the most to the company’s profit. This contribution is possible because it should not take as much investment to maintain market share in a stable market as it does in a growth market; economies of scale and return on the investment of marketing dollars made when the market was growing should pay off.

Question marks are those products in high-growth markets that currently have low market share and may not be too strong. If the product’s position can be strengthened, then the potential is for the product to become a star and perhaps a cash cow when the market stabilizes. Question marks require a great deal of investment, using cash generated from cash cows, in order to be successful. Investment alone, though, is no guarantee of success. Success still requires wise investment into sound marketing strategy. Products with low share in a poor market are called dogs.

These products are usually thought to be in the decline stage of their life. Some products become dogs after beginning as question marks while others become dogs after a long life as cash cows. In most cases, dogs are not worth much investment and most companies want to withdraw dogs quickly from the market. Note that the PLC also involves two dimensions: time and sales. One property of time, however, is that you cannot go back. With product portfolios, products can move along both dimensions in either direction—if overmilked, a cash cow can become a dog, whereas with the right opportunity and investment, a dog can become a cash cow, for example. One problem with the use of portfolio matrices is that decision makers assume that products follow a PLC beginning as question marks, moving to stars, then cash cows, then dogs. The reality is that movement can occur between any two quadrants. Although it is unlikely that a dog can become a cash cow, it can happen.


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New product development:

New products are launched and old products withdrawn from the market at an increasingly rapid rate.

Classification of new products:

§ Products that are innovative & new to the world.

§ Products that are new to the company, but not new to the world.

§ Revisions or improvements to the existing products in the existing markets.

§ Additions to the existing product lines with additional markets.

§ Repositioning existing products to new market segments.

§ Products with substantial cost reductions without reduction in performance.

New product development process:


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1) Idea generation: the sales persons, customers, distributors, suppliers, design engineers etc. conceive of new product ideas. Industrial customers are a very important source of these ideas. One of the characteristics of industrial marketing is the buyer seller relationship and interdependence. The buyer has a specific problem which need to be solved by the supplier. An industrial organization can attract good ideas by using techniques such as brainstorming and attribute listing. In attribute listing technique, major attribute of an existing product are listed. Ideas are invited from a group of employees to search for an improved product by modifying each attribute. Further, an industrial firm should motivate employees to submit innovative and novel ideas in writing by offering recognition or payments to the employees submitting the best ideas.

2) Idea screening: the primary purpose of screening new product ideas is to select those ideas which are likely to succeed. There should be a carefully specified criteria and procedures for screening new product ideas. In some of the companies, the screening of ideas is done in two stages. In the first stage, the new product committee asks certain question or apply certain checks to the product ideas, as suggested below.

is the new product in line with the company’s long term objectives and strategies? Do we have adequate resources to make it successful?


Idea generationIdea screeningConcept development & testing

Is the new product in line with the long-term objectives & strategies?Do we have adequate resources?Is it useful to the customers?What is the future growth, market size, & competition?

A detailed version of the product idea that is stated in a meaningful customers’ terms.

The purpose is to develop an estimated projection of the sales, costs, & profitability of the new product for 5-7 years.Design Process Engr.

Tooling Mfg Final

product Testing

Alfa & Beta testingIntroduction at trade showsTesting at distributors/dealers showroomTest marketing

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KARISHMA SIROHI Is it really useful to customers by providing certain benefits, or solving a specific

problem?3) Concept development and testing: after a new product idea passes the idea screening

stage, the idea should be developed into a product concept. A product concept is a detailed of the product idea that is stated in a meaningful customer’s terms. Often, the firms develop the new product into different versions or alternative product concepts. Then each product concept is tested by getting reactions from the customers. Concept testing: in concept testing, the new product concepts are tested in prospective customers organizations. The concepts can be presented by developing three dimensional model or physical products. The physical presentation of the product can increase the reliability of the concept testing. Stereolithography technique creates computer generated three dimensional plastic prototypes which take very short time to get ready.

4) Business analysis: the purpose of business analysis is to develop an estimated projection of the sales, costs, and profitability of the proposed new product over 5-7 years. It is a detailed analysis in terms of (a) required investment in plant, equipment, working capital, and market development(b) market potential, sales forecasts, customer and competitive analysis,(c) costs of product development, manufacturing and marketing the product; (d) likely price levels, profitability and return on investment, and so on.

5) Product development: is a process in which engineers and technician create the desired product. The R&D department develops one or more prototype of the product concept. The development of a prototype will confirm or negate its ability to produce the product within the cost estimates and the performance parameters previously established.

6) Market testing: in industrial marketing, market testing is done by using different methods. These are: (a) alpha and beta testing, (b) introduction of the new product at trade shows;(c) testing in distributors/dealer showrooms, and (d) test marketing. The choice of the methods is depends on (i) the size and cost of the product, (ii) need for maintaining confidentially during market testing, and (iii) the readiness to launch the product in short span of time.

7) Commercialization: a product is commercialized or launched when it is introduced to a target market. It involves implementation of the various activities developed in an action plan as a part of the marketing plan. The activities include recruiting or hiring, training of sales force, price lists and so on.

The new product marketing plan should clearly define (a) the timing of market launc (b) marketing objectives and goals, (c) geographical strategy (d) the target market segment, (e) the marketing mix strategies.

Innovation:

Innovation implies not only creating new products, but also introducing new methods to improve any operations. An innovation is an idea, practice, or product perceived to be new by the relevant individual or group. The manner by which a new product spreads through a market is


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KARISHMA SIROHIbasically a group phenomenon. New products can be placed on a continuum from no change to radical change, depending on the market’s perception.

Allen & Hamilton identified six categories of new product in terms of their newness to the company and to the market place. They are:

New to the World

New product lines

Additions to the existing product lines

Improvements or revision to existing products

Repositioning

Cost Reductions

Features of innovation:

• Observability

– The degree to which the results of an innovation are visible to potential adopters

• Relative Advantage

– The degree to which the innovation is perceived to be superior to current practice

• Compatibility

– The degree to which the innovation is perceived to be consistent with socio-cultural values, previous ideas, and/or perceived needs

• Trialability

– The degree to which the innovation can be experienced on a limited basis

• Complexity

– The degree to which an innovation is difficult to use or understand.

Consumer adoption process of innovation:

– Awareness - the individual is exposed to the innovation but lacks complete information about it


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KARISHMA SIROHI– Interest - the individual becomes interested in the new idea and seeks additional

information about it

– Evaluation - individual mentally applies the innovation to his present and anticipated future situation, and then decides whether or not to try it

– Trial - the individual makes full use of the innovation

– Adoption - the individual decides to continue the full use of the innovation

Adopter categories:

• Innovators:

§ Interest in new ideas leads them out of local circle of peer networks

§ Clique of innovators regardless of geographical distance

§ Control of substantial financial resources

§ Ability to understand and apply technical knowledge

§ Must cope with high degrees of uncertainty

• Early Adopters:

§ More integrated part of local social system

§ Greatest degree of opinion leadership

§ The person to check with

§ Sought by change agents

§ Respected by their peers

§ Makes judicious innovation-decisions

• Early Majority:

§ Interact frequently with peers

§ Seldom hold leadership opinion positions

§ Will deliberate for some time

§ Innovation-decision period is longer

§ Most numerous - one-third of the members of the system

• Late Majority:

§ Adopt just after the average member of a system


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§ Adoption because of economic necessity

§ Also increasing pressures from peers

§ Skeptical and cautious in their approach

§ Peer pressure necessary

§ Most of the uncertainty must be removed• Laggards:

§ Last in a system to adopt

§ Point of reference is the past

§ Many are near isolates in the social network of their system

§ Interact primarily with others who have traditional values

§ Suspicious of innovations and change agents


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KARISHMA SIROHIHarvesting a product:

When the product no longer contributes to the firm’s success, then it is time to stop production and turn resources to more profitable ventures.

When to harvest a product:

1) If a product may be profitable and selling at a reasonable rate, but if investment (or cash) can be diverted to an even more profitable product, the company may decide to harvest the first product.

2) Or a product may not be profitable after overhead is allocated, but have a positive contribution margin otherwise. If the company were to stop selling that product, overhead would have to be reallocated elsewhere, perhaps making another product look unprofitable.

Challenges to harvesting

Products are managed by people, and sometimes people overinvest their egos in a particular product. This may make it difficult to halt producing a product, particularly if the product was designed by the owner, for example. Similarly, a product may not be eliminated because of the jobs that might be lost.

Marketing communication in Business Marketing:

The communication mix for industrial products and services is different from the promotion mix for most consumer goods. This is because of the technical nature of industrial products, the relatively smaller number of industrial buyers, and the complex nature of organizational buying process. The communication mix consists of personal selling, advertising, sales promotion, direct marketing, publicity and public relations.

Developing the Business Communication Programme:

The major steps in developing an effective communication or promotional programme are:

1) Determining the communication objectives:Communication objectives cannot be formulated in isolation. They are formulated based on the firm’s overall corporate and marketing objectives. For the purpose of determining communication objectives, firm must look at the three stages of buyer behavior:

§ Buyer’s awareness levels,

§ Changes in buyer’s attitudes; and


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§ Buying action.

These stages of buying are described by different models, called response hierarchy models. The marketer know that making customers aware of the company and its product is not enough for buying action. What is needed further is to develop favourable attitudes which may lead to the buying action.

2) Identifying the target audience:An industrial marketer must be clear about the target audience. In industrial marketing the target audience is identified at two levels. First, identify the buying organisations based on the target market segments, second level is the identification of the attitudes and buying factors used by the buying centre members in the organisations identified in the first level. It is important to assess the target audience’s current image of the company, its products, and its competitors. The company management should then purpose a desired image in contrast to the current image. This information’s can be obtained by conducting a marketing research study to understand the awareness levels and attitudes of the buying centre members towards the company and its products in relation to its competitors. The data will also be useful in developing message strategy and media plan.

3) Determining the promotional budget:The promotional budget consisting of advertising, sales promotion, direct marketing of companies industrial products or services are not large enough in comparison with those of the consumer products. There are four common methods used to set a promotional budget. These are: (1) affordable method, (2) percentage of sales method, (3) competitive parity method, (4) objective task methods.

§ Affordable method: many companies set the promotion budget based on what they think the company can afford. This method ignores the role of promotion as an investment and its impact on sales volume.

§ Percentage of sales method: the most common method used in industrial marketing to set the expenditure budget for promotion is a specified percentage of sales, either sales in the previous year or in the current year budgeted or forecasted sales.

§ Competitive parity method: some companies set their promotion budget by spending the same percentage of the sales on promotion as that of competitors. There are two arguments advanced for this method. One is that the average expenditure of the competitors would represent a collective wisdom of the industry. The other is that by maintaining parity with competitors, it would help to prevent promotion wars. However, both of these arguments are not valid because companies in the same industry differ substantially in terms of their objectives, resources, and opportunities.

§ Objective and task method: in this method, industrial marketers develop their promotion budgets by defining promotional objectives, determining the tasks that


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KARISHMA SIROHIshould be performed to achieve the promotional objectives, and estimating the costs of performing the tasks. The sum of these costs is the proposed promotional budget. This method is relatively logical.

4) Developing the message strategy:The message strategy indicates how to achieve the communication objectives. The message is developed to determine what to say to the target audience so as to achieve the desired results. In industrial marketing, the most common way of developing the message or appeal is through rational appeal. Industrial marketer should remember two important points while developing communication messages. First, typical industrial buyers are fairly well-informed or knowledgeable. Secondly, instead of the message discussing product features, the message should focus on customer benefits.

5) Selecting the media:Selection of the appropriate media depends on the target audience to be reached, the statement of the communication objective, and the promotional budget. The media selection also depends upon whether the advertiser wishes to penetrate a particular industry or cut across various industries.

6) Evaluating the promotion’s results:After implementing the promotional plan it is necessary for the industrial marketer to evaluate its impact on the target audience. An evaluation is done by measuring the awareness, attitude and actual purchase before and after the promotional plan is implemented. The evaluation task becomes easier if the data on awareness, attitude, and purchase have been collected by conducting a marketing research study before the promotional plan is implemented. The marketing research study conducted, after the promotional plan is implemented, involves asking the target audience whether they are aware of the company’s products, whether they recall the promotional message, their


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KARISHMA SIROHIprevious and current attitudes, whether and in how much quantity they have purchased the company’s products during the period.

7) Integrating the promotional programme:Many companies have recognized the importance of integrating the promotional plan and are adopting the concept of integrating marketing communications. The basic objective in integrating the various communication tools is to provide clarity, consisting, maximum impact, and cost effectiveness to the company’s communication plan. To achieve this objective, the following points are suggested:

§ The company should appoint a head of communication.

§ The company should build a database by measuring the result of the promotional plan in relation to the communication goals, the cost effectiveness of promotional media, and the message consistency.

§ Conduct training programmes for all the persons handling various communication tools so that they think of integrating the promotional programme.

Role of advertising in business marketing:

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

(i) Creating awareness.

(ii) Reaching members of buying center.

(iii) Increasing sales efficiency and effectiveness.

(iv) Efficient reminder media.

(v) Sales – lead generation.

(vi) Support channel members.

Advertising media 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.


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KARISHMA SIROHI(b) Promotional objectives and goals.

(c) Expenditure budget, by using the following formula:

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 tools are trade shows, sales contests, catalogues, demonstrations, and promotional novelties (gifts).

Importance/role of direct marketing:

• 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 on-line 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%.

• 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 morning to afternoon) are needed for effective telemarketing.


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KARISHMA SIROHI• On-Line Marketing can be done by establishing an electronic presence (by opening own

website or buying space on a commercial on-line service), placing ads on-line, 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.

• 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 clutter as the internet offers millions of web sites, and also as concerns on security and privacy

Role of publicity and public relation:

§ 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


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UNIT 4

SALES MANAGEMENT:

The sales function may be organised in many ways, depending somewhat on the choice of sales strategy.

The sales executive:

Depending on the size of the organization, the chief executive officer may fulfill the responsibilities and duties of the sales executive, or the marketing executive and sales executive duties may be combined into one position, or the sales executive position may be a stand-alone function. Irrespective of whether the person handles only sales duties or has other responsibilities as well, the sales executive is responsible for decisions such as the choice of sales strategy, the number and location of salespeople, the setting of sales quotas and designing of compensation plans, and sales forecasting.

Organizing of sales force:

The sales executive determines how many salespeople are needed to achieve the company’s sales and customer satisfaction targets. In addition, the executive must determine the type of salespeople needed. There are many types of salespeople, including telemarketing representatives, field salespeople, product specialists, and account specialists. Sometimes there is overlap in responsibilities, such as when a telemarketer supports a field salesperson—both have responsibility for the same account. Usually, however, there are different responsibilitiesassigned to different types of salespeople, and companies often have more than one type.

1. Geographic salesperson: The most basic sales force structure is to give each salesperson all accounts within a specified geographic area— here we have the geographic salesperson. Companies often combine geographic territories into branch or zone offices, which are further combined to create regions. Geographic salespeople are used when all products serve the same general types of buyers. Geographic reps are usually field salespeople (also called outside salespeople); that is, they call on accounts at the accounts’ locations. Inside salespeople can also be found in business markets; these salespeople sell at the company’s location. A telemarketer account manager is such a person. Inside salespeople also handle any walk-up business. When only a geographic structure is used, the organizational structure is likely to beline-and-staff. A line-and-staff organization is one where those who conduct the primary tasks of the department (in this case, sales) are part of the line—their managers are called line managers—and all support personnel are staff. Authority and responsibility move up and down the organizational line, not across. A salesperson’s responsibility for an account comes from the branch sales manager, who received that responsibility from the regional manager, who got it from the sales executive. In each


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KARISHMA SIROHImethod, the account salesperson has responsibility for specified accounts, rather than a

geographic area. One method is to specify new account responsibility to one group of salespeople and current account responsibility to another group. Companies also divide their accounts on the basis of size. Large customers, sometimes called key accounts, may have a salesperson assigned only to their account. The salesperson is called a Strategic Account Manager (SAM). These salespeople work with geographic salespeople to handle local needs, but all account planning, pricing, and even product development is managed by the SAM. Sometimes, a company may determine that a key account is a house account. A house account is handled by a sales executive and the company does not pay anyone commission on sales from the account.

2. Product specialist: When companies have diverse products using different technology platforms, their salespeople will specialize by product category. The need for technology expertise is too great for any one salesperson to understand, so the sales force is organized by product. Hewlett-Packard, for example, has separate sales forces selling computers, electronic test equipment, components, medical test equipment, and analytical test equipment. Each sales force is geographically organized, and some may have account managers as well. Product specialists must sometimes coordinate their activities with salespeople from other divisions.

3. Sales teams: In some industries, companies used product specialists to call on the same accounts, even the same buyers within each account. In response, companies began developing sales teams, headed by an account manager. In team selling, a group of salespeople handle a single account. Each salesperson brings a different area of expertise or handles different responsibilities. One type of team is the field salesperson and telemarketing support rep whom we’ve already discussed. Another type of team is used in multilevel selling, where members of a selling organization at various levels call on their counterparts in the buying organization.

4. Sales force size: The sales executive may select one or more of the preceding types of salespeople and structures, based on the relationship quality, the complexity or variety of


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KARISHMA SIROHIproducts, market size, and other factors. The sales executive is also responsible for determining how many of each type should be employed. The objective is to achieve the sales potential by providing each company that wants to buy the opportunity to buy.One approach to determining the optimum number of salespeople involves an analysis of the salesperson’s workload, or all of the activities that a salesperson must do tocover a territory. One method to determine workload focuses on sales potential and market position through use of the sales resource allocation grid. Market position means the strength of the company relative to competitors. It can be measured by market share, but should also reflect forecasts of future share. If a competitor has just introduced a new product that will capture a significant share of the market, it is foolish to consider only your current share. Sales potential is the total forecasted sales for the product category. The sales resource allocation grid provides insight not only into the amount of activity needed in a particular segment, but also into the strategy that should be used.

Directing the sales force:

Once the sales force is in place, there remains the question of directing their activities. Part of the sales executive’s responsibility is to ensure that the salespeople are working to achieve the company’s sales and customer service objectives. These control strategies often include quotas and compensation plans.

§ Quotas: Quotas are a useful control mechanism, as they represent a quantitative minimum level of acceptable performance for a specific time period. Two types of quotas are used: activity quotas and performance quotas. Activity quotas specify the number and type of activities that salespeople should do. Activity quotas are especially useful in situations where the sales cycle is long and sales are few, because activities can be monitored more frequently than sales. Activity quotas can be specified for many types of sales activities, such as number of current customer calls, demonstrations, proposal presentations, and other activities. Performance, or outcome, quotas specify levels of performance, such as revenue, gross margin, or unit sales in a period of time. Often, sales quotas are simply a breakdown of the company’s sales forecast. Other types of quotas, such as gross margin quotas, can be used to encourage salespeople to sell profitable products, not just the products that may be the easiest to sell. Companies may convert gross margin to points and then allow salespeople to achieve their quota by whatever mix of products they choose. A quota plan should also be complete, yet easy to understand. A complete quota system is one that covers all important criteria on which salespeople are judged. Yet, the quota system has to be understandable, or salespeople will ignore it. The flexibility to handle unforeseen events (such as labor and transportation strikes, fire, and floods) is another characteristic of a sound quota plan. Sound quota plans motivate salespeople by providing goals and feedback on their performance relative to management expectations.


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§ Compensation: The salesperson’s compensation is usually tied to how well he or she achieves quota. The salesperson needs an equitable, stable compensation system, but the company needs a system that encourages profitable sales and customer satisfaction. Sound compensation programs• Base rewards on results and efforts• Provide equal rewards for equal performance• Provide competitive rewards• Are easy to understand and implement.

§ Types of sales compensation: Straight Salary: Under the straight salary plan, a salesperson is paid a

fixed amount of money for work during a specified time. A quota system may be used to determine annual salary raises, but otherwise pay does not vary. Straight salary is best used when sales cycles are long, when a team of people is involved and individual results are difficult to measure, or when other aspects of the marketing mix (such as advertising) are important to closing the sale (such as may be the case for inside salespeople). Salary is also useful when the position requires more customer service activities than selling activities.

Straight Commission: A straight commission plan pays a certain amount for each sale, but there is no salary. The commission base, or the item from which the commission is determined, is usually unit sales, dollar sales, or gross margin. The commission rate is the amount paid per base item sold, and is usually a percentage (such as 10 percent of sales revenue or gross margin) or a fixed amount (such as $50 per sale).

Bonus: Bonuses resemble commissions, but a bonus is a lump sum payment for meeting a minimum standard of performance within a given period of time. The amount depends on total performance, not an individual sale. Bonuses motivate salespeople to overachieve quotas and can be used in conjunction with either commission or salary or a combination plan. A salesperson who has made quota with three months left in the year can be motivated to sell even more if a bonus is worthwhile.

Combination Plans: As stated earlier, most companies pay some combination of commission and/or bonus and a salary under a combination plan. Such plans are also called salary plus plans, because they pay salary plus a commission or plus a bonus. The salary portion can engender loyalty to the company and represent pay for activities that benefit the company more than the salesperson, whereas the commission or bonus portion can motivate the salesperson.


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KARISHMA SIROHIEvaluating the sales force:

Sales executives aren’t the only executives constantly evaluating the performance of their sales force. Every executive in the firm is interested in sales performance. Sales executives, however, are interested in more than total sales revenue; sales executives have to be concerned with sales productivity as well.

Five steps to evaluating sales force performance: the first step in any evaluation is to review the objectives for the activity being evaluated. Although setting objectives is part of every pla

nning process, results should be compared with what was desired so that overall objectives can be realized. The second step is to gather the appropriate performance data. In a sales setting, thismeans observing both performance and activity (both outcomes and effort). The thirdstep is to evaluate the influence of any uncontrollable factors. Based on these three steps, the company can then identify any problems or opportunities, which is the fourth step. These problems and opportunities are then fed into the strategic planning process and/or tactical actions are taken to minimize problems and take advantage of activities for the final step of the process.

Measures of performance: following are the ways to measures the performance:

§ Measuring productivity: When the measures of effort and output are combined, the sales executive can examine the efficiency of the salesperson or sales force. Combinations of activity and performance measures are productivity measures.

§ Balanced Performance: In addition to examining the productivity or output of individual reps, the sales executive must also examine the productivity of the overall sales force in order to make such decisions as quantity discounts and deleting products from the product line. Therefore, examining average order size, order mix (which products are purchased with other products), and sales by product are important factors to consider. Low sales of a particular product may signal low demand for the product, a need to train the sales force in how to sell that product, or a need to change compensation.

§ Customer Satisfaction: With Total Quality Management movement came the drive for customer satisfaction. Now many companies measure customer satisfaction regularly and set satisfaction objectives for their sales force. IBM measures customer satisfaction at both the executive and salesperson level. These satisfaction ratings are part of the


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KARISHMA SIROHIsalesperson’s performance evaluation—40 percent of salesperson compensation is tied directly to the ratings.

Channel management:

A marketing channel also called distribution channel or trade channel is defined as a set of interdependent organisation that makes a product or service available to customers for use. Business marketing channels are systems designed to close numerous gaps between the manufacture and use of products. Some of the gaps are between places. In other words, the link between the manufacturers and the customers is the channel of distribution. The market logistics also called physical distribution consist of delivering the completed products to customers and channel intermediaries.

Business channel may be:

Industrial channel can be structured in various ways.

1. Direct channel: in direct channel structures, the manufacturer perform all the functions or the task necessary to create sales and to deliver the products to industrial customers. These tasks include contacting potential customers, negotiating, communicating, selling, financing, product storage, and servicing.The direct distribution approach is viable when (a) the value of each transaction is large, (b) the selling includes extensive technical and commercial negotiations at various levels, including top management, (c) the buying process is lengthy, and (d) the industrial buyers insist on buying directly from the manufacturers.

2. Indirect channel: in indirect channel structures, the manufacturer and the intermediaries share the tasks between them. An indirect distribution approach is appropriate when, (a) the value of transaction or sales are low,(b) the manufacturer has limited resources, (c) the industrial buyers are widely dispersed, and (d) industrial buyers purchase many product items in one transaction.

Why business marketers use intermediaries??

Because,

Services performed by middlemen:

§ Buying: the distributor or dealer purchases products from the manufacturer for resale to industrial end-users.

§ Promotion and selling: the middlemen contact potential or existing customers, promote the product, negotiate, and secure orders.

§ Assorting: some middlemen bring together several related items from various sources to serve potential customers.


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KARISHMA SIROHI

§ Financing: the dealer/distributors purchase products and invest in the inventory. They also extend credit to customers while reselling the products. Thus, they help manufacturer to finance the marketing process.

§ Warehousing: the distributors or dealers must store the products properly at their warehouse to assure product availability in good condition to the industrial users.

§ Transportation: some middlemen also manage the physical movement of the product from their warehouse to customer’s locations. Many industrial customers consider prompt delivery as an important benefit.

§ Information: the middlemen have responsibilities to provide information both to their customers and suppliers. Customers need information about product features, prices, deliveries, and so on, while suppliers need information about competitors, customer requirements.

§ Risk taking: when middlemen buy a product, store it and then resale it there is a risk that the product may deteriorate, become obsolete, or may not be required by customers.

Why business customers buy from distributors???

Industrial marketer can market their products through distributors only if the industrial customers or users find it desirable to buy through distributors. A number of studies conducted on this subject indicate the following reasons:

§ Dependable delivery: the most important reason is fast and economical delivery. Dependable delivery enables the industrial buyer to reduce the inventory level and therefore, the inventory carrying cost. Often, the distributors deliver the goods without charging the freight. These are some of the savings in costs that are important, particularly for small scale manufacturers.

§ Information: useful information about the products of many manufacturers, like price, availability, and quality can be obtained from the local distributor. Sometimes, detailed technical information may not be available from the distributor’s salesman but the same can be obtained from the manufacturer.

§ Variety: there is an availability of products at the distributor’s shop, which meets most of the requirements of small scale manufacturers.

§ Liberal credit: often this is offered by the local distributors who are familiar with the financial needs of the local manufacturer/customer.

Types of channel intermediaries:

Intermediaries are classified on the basis of the number of functions they perform. A full function intermediary is the one who performs all or most of the distribution function. These middlemen are called industrial distributors. Some of the common types of industrial middlemen are manufacturers’ representatives also called agents, industrial dealers or distributors, brokers,


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KARISHMA SIROHIcommission merchants, and value added resellers as well as jobbers and manufacturer’s branch offices

1. Manufacturer’s representatives: they are also called agents or manufacturer’s agents. Their main function is to promote sales and secure orders. They also fulfill the market information function. However, they do not buy, store, or finance the transaction. They are paid a commission on sales which varies from industry to industry and also according to the tasks involved in the selling job. The manufacturer’s representatives are generally needed by small and medium sized industrial firms. These firms find it economical to have independent reps, who are paid commission only when the orders are generated. There is no other selling cost.

2. Industrial distributors (or dealers): industrial distributors or dealers are the most important intermediary in distribution channel. Typically industrial distributors are small and independent business firms serving narrow geographic market. They perform a variety of functions or tasks and that is why sometimes the distributors are called full function middlemen. The responsibilities or functions of industrial distributors are buying, storage, promotion, selling, offer credit etc.

3. Main categories:1. Brokers: these middlemen bring together buyers and sellers by providing

information on what is available and required. They may represent either the buyer or the seller and this relationship is a short term one. Their function is to find potential buyers, negotiate, and complete the sale. Brokers do not buy or handle products and are paid on commission basis. They deal with standard products or raw materials and their role is vital when information on markets and products is not available completely.

2. Commission merchants: these middlemen deal with bulk commodities such as raw materials. They have a short term arrangement with manufacturer of products which are sold in large quantities. They do not buy the material, but they perform the function of arranging inspection, physical handling, negotiating process, and completing sales. As they represent the manufacturers, their commission is paid by the manufacturers.

3. Value added resellers: in data processing (computer industry) new types of middlemen, called value added resellers, have emerged. The VARs customize the computer hardware and software to solve specific problems for specific industries. These intermediaries are specialists and provide valuable services to buyers and sellers.

4. Jobbers: they represent manufacturers of products that are sold in bulk like coal, iron ore, and chemicals. Jobbers take title to the goods that they sell. However, they do not store or take physical possession of the goods.

5. Manufacturer’s branch/ regional sales offices: the manufacturer also participates in the business marketing channel through its regional or branch sales


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KARISHMA SIROHIoffices. Generally, there are two types of branch or regional offices; stock carrying and non stock carrying offices. Typically goods are dispatched from the manufacturer’s factories to the branch/ regional warehouse of stock carrying offices in full truck loads. The spending less freight costs. Thereafter, the goods are distributed to business customer and distributors. The stock carrying branch or regional offices allow the manufacturer the benefits of lower freight costs and reliable delivery service to customers.

6. B2B Hubs: B2B market hubs are Internet sites that allow business suppliers and buyers to communicate and execute business transactions.

§ Aggregator hubs: allow sellers and buyers to connect and transact in highly fragmented markets. They provide wide exposure to participants on the hub and simplify transactions that otherwise are complicated by distance or incomplete information. Haggling is eliminated because prices are preset. These hubs serve specific industries or vertical markets, such as MetalSite. Other sites such as Grainger.com serve business across industries, horizontal markets.

§ Exchange hubs: serve as spot markets for commodity products such as fossil fuels and bulk chemicals. Altra-Energy and BuildPoint are exchange hubs.

§ Auction hubs: provide a market for unusual, tightly specified, or surplus products and services. In what is termed a forward auction, they allow buyers to bid on a product for sale; in a reverse auction, they allow multiple sellers to bid down a price on a product sought by a single buyer

Channel design:

Channel design is a dynamic process. It deals with developing new marketing channels and modifying the existing ones.


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KARISHMA SIROHI1. Developing channel objectives: channel objectives are derived from the firm’s

marketing objectives. The channel objectives should focus on customers’ need in terms of service levels required by the target market segments. The channel objectives vary depending on product characteristics. The channel objectives are developed based on three factors: marketing objectives, product characteristics and customer needs.

2. Analyzing channel constraints: the industrial marketer has to consider many constraining factors while selecting the channel structure. Some of these constraining factors are:

a) external environment (PEST, Legal environment)b) competition (competitive tactics of appointing exclusive distributors may result

in non availability of good distributors,c) Company (company’s constraints on financial resources may restrict the direct

distribution through company sales force to few high potential territories.d) product characteristics (for technical complex products like furnaces and power

transformers make it necessary to go for direct distributione) Customer (customer’s geographical locations determines whether a company of

an industrial marketers to have an indirect distributors with low cost intermediaries.

3. Analyzing channel tasks: the industrial marketer has to make a list of various tasks or functions to be performed to move the product from the manufacturer to the industrial customers. The next step in the analysis is to take objective and realistic decisions on which tasks can be performed effectively and efficiently by the company and which cannot be performed due to certain constraints.

4. Indentifying the channel alternatives: identifying the channel alternatives involves four major issues:

a) The types of intermediaries: it can be: Value added resellers Brokers Jobbers Commission merchants Agents Dealers,

b) Number of intermediaries: the industrial marketing firm has to decide how many intermediaries it should use for each type. There are three strategies:

Selective distribution: in this strategy, the industrial marketer selects a few intermediaries to cover a particular geographical area. The criteria for selection depend on the product characteristics and customer needs.

Intensive distribution: when customer demand availability of such products (lamps, tubes etc.) near to their factories, it is important to offer intensive distribution by placing the goods and services to as many distributors, as possible in a given market.


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KARISHMA SIROHI Exclusive distribution: when a manufacturer wants to have a few

intermediaries to handle the company’s goods and services, and these intermediaries must not carry competing products, such arrangements is called exclusive distribution. By granting exclusive distribution, the industrial marketer expects superior selling efforts and skills.

c) Number of channels: in industrial marketing use of more than one marketing channel is common. The benefit of multichannel marketing are: (i) increased market coverage; (ii) lower channel costs, and (iii) more customized selling.

d) Terms and responsibilities of channel members: the industrial marketer must spell out clearly the terms and condition, and the responsibilities of the channel members in the agreements that are prepared after discussion. The major points covered are:

Responsibilities or tasks or tasks: of both the parties should be spelt out to avoid future conflicts as to who will perform which tasks/service.

Sales policy: like the percentage of trade discounts to the distributors on the price list and the commission to agents or brokers on the sales value of invoices should be agreed along with any incentives.

Territory or market segments: to be covered by the intermediaries could be a source of legal issue due to restrictive nature of territory allocations.

5. Evaluating the channel alternatives: the factors or criteria that are used for evaluating each of the channel alternatives are:

Economic factor: economic performance of each channel alternative should be compared. For this, the industrial marketer is required to estimate the levels of sales revenue and selling costs of each channel alternative. The different levels of sales revenue can be optimistic, realistic. Similarly, the total costs of selling at the three levels of sales revenue can be estimated.

Control factor: the degree of control that the industrial marketer can exercise over the channels is an important factor. The company sales force channel gives the marketer the maximum control followed by manufacturer’s representative and broker channels.

Adaptive factors: in a rapidly changing market conditions, the industrial marketer must be able to control and modify the channel structure. At the same time there should be an agreement or commitment to each other among the channel members. The evaluation of channels must consider the degree of adaptability of the channels to the changes taking place in the market place.

6. Selection of channel structure: the selection of one or more channels out of the various available alternatives can be done on the basis of the channel design framework.

Managing or administering channel members:


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KARISHMA SIROHIIt includes:

1. Selecting Intermediaries.

2. Motivating Intermediaries.

(a) Partnering relationships.

(b) Reasonable discounts and commission.

(c) Distributor councils.

(d) Other motivational tools.

3. 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).

4. Evaluating Channel Members

Business marketing pricing decision:

What is price???

Price is the amount of money paid by a buyer to a seller for a particular product or service. Pricing is the process of determining what a company will receive in exchange for its product or service. Pricing factors are manufacturing cost, market place, competition, market condition, brand, and quality of product. Some business customers follow “Value-based pricing” by evaluating, suppliers’ offerings based on the concept of the suppliers offering equal to the difference between the perception of value (or benefits) and the cost to the 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 customers perceptions of product quality / performance, reliable delivery, warranty / after-sales service, reputation of the supplier, etc which are enhanced and augmented properties.

Cost to the buying firm includes basic Price, freight, transit insurance, installation, risks of product failure, delayed delivery, etc, Some customers are “price buyers”. Marketers, should


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KARISHMA SIROHIfollow transactional relationships & offer “basic properties”. Some other buyers are “loyal buyers”, for whom marketers should follow “relationship marketing” with partnering / collaborative approach and mutually acceptable prices.

Meaning:-

Pricing is a critical part of business marketing strategy. It is related to market segmentation strategy , product strategy , distribution strategy and promotion strategy.

Factors influencing pricing decision:

A business marketing firm has to consider many factors in its pricing decision. These factors are:

1. Pricing objectives: pricing objective should be derived from corporate and marketing objectives. Some of these objectives are described here.

§ Survival: a short term objective followed by some companies is survival if the factory production capacity is underutilized to a large extent, or unsold finished products have piled up, or due to intense competition, a firm is unable to sell its products. To keep the factory going and to convert the inventory to sales, as a part of survival objective, an industrial firm reduces prices. Profits are less important than survival.

§ Maximum short term profits: some companies try to set prices with the objective of maximization of short term profits. These companies estimate the market demand and costs at alternative prices and select the price that gives maximum current profits.

§ Maximum short term sales: some companies set prices with the objective of maximization short term sales revenue. For doing this, it is required to forecast the company sales over a period of time.

§ Maximum sales growth: some companies fix the prices of commodities as low as possible with the objective of maximizing sales volume and market share of its products.

§ Maximum market skimming: some companies set high prices in the initial stages of the product life cycle when they introduce new and innovative products. The new product is initially aimed at those market segments where demand is least sensitive to price, that is, customers in those market segments are willing to pay high prices for the product.


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KARISHMA SIROHI

§ Product quality leadership: a company may have an objective to be product quality leader in a market. The company, therefore, produces superior quality product and charges slightly higher prices than the competitors’ prices. This pricing objective results in higher profits.

2. Demand analysis: in measuring the price and demand relationship, the market researcher should control other factors like promotion and customer service which may also affect demand. The basic purpose of estimating the demand curve is to find out to what extent the demand for a product changes with the changes in prices. The demand curve sums up the price sensitivities of many buyers. The price elasticity of the demand is determined by the following formula:

Price elasticity of demand= % change in quantity demanded/% change in priceThe demand is likely to be less elastic under the following conditions: (a) there are few competitors, (b) no availability of substitute products from other industries, (c) the buyer think the higher prices are justified by normal inflation or changes in government policies on excise duty or sales tax.

3. Cost benefit analysis: when demand analysis is carried out, it is useful to undertake and analysis of benefits received and the costs incurred by the target customers in purchasing and using the product. Benefits can be categorized into hard and soft benefits. Hard benefits refer to the physical attributes of the product such as production rate of a machine, rejection rate of a component. Soft benefit includes company reputation, customer service, warranty period, customer training, and are more difficult to assess.

4. Cost analysis: company costs set the lowest point on the price range. Hence, pricing strategy or decisions must consider the costs involved. Generally, the total costs consist of the sum of the fixed costs and variable costs for a given level of production. Some of the cost elements fluctuate with volume, other cost elements vary over a period of time, and some are relevant to the pricing decisions.

5. Competitive analysis: an industrial firm should get the information on not only competitors’ prices and costs but also about the competitors’ product quality, technical expertise, and delivery performance.

6. Government regulations: business marketers must be aware of the effect of government regulations on pricing decisions. Marketers have to set the price according to the government laws and regulations.

Pricing decisions:

In pricing decision marketer take all the important decisions about the prices.

Pricing decision includes pricing strategies and pricing policies.


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Pricing decision

Pricing methods

cost based pricing

value based pricing

competiton based

pricing

Pricing strategies

competitive bidding and negotiation

pricing new products

pricing across the

product life cycle

Pricing policies

trade discount

cash discount

quantity discount

KARISHMA SIROHI1. Pricing methods: After

analysing the five factors, the business marketer is ready to make pricing decisions. Generally, pricing decision includes: (a) setting the basic price through pricing methods and pricing strategies, and (b) adjusting price list prices through pricing policies or price administration. The pricing methods can be:

a) Cost based pricing: one of the traditional methods of pricing is cost based or cost plus or markup pricing. The procedure followed is :

Estimate variable cost per unit Allocate a portion of fixed cost Add the supplier’s markup or target profit, assuming the quantity that will

be sold.– cost per unit= variable cost +fixed cost/ sale in numbers– cost-based price= cost per unit/ (1+target profit on sales)

cost based pricing method is used typically by construction companies by estimating the total project cost and adding a markup for profit. Marketing research agencies, CA’s and lawyers also use this method by adding a profit margin on their time and cost.

The arguments favoring this method are that it is fair to both buyers and sellers. Sellers do not take advantage of buyers when the demand becomes less, and sellers earn a fair return on investment. Second, suppliers can estimate costs more easily than they can estimate demand. Third, price competition is minimized, if all supplier firms use this method.

b) Value based pricing: in this method, the price is set based on the customer’s perceptions of the value of the product or market offering. Business marketers must deliver the value promised by their value proposition, and it is important that target customers must perceive this value. Business market managers use various marketing mix elements like advertising, the internet, trade shows to communicate and increase the value in buyer’s minds.


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KARISHMA SIROHIc) Competition based pricing: some business market managers follow competition

based pricing method by setting their prices in relation to what the competitors’ prices are. They set the price the same as the dominant competitor, or slightly higher or lower due to perceived difference in product quality, delivery service, or reputation. Any changes in the prices by the dominant competitor are copied by other players without much changes or thinking.

2. The pricing strategies: there is not much difference between the terms pricing methods and pricing strategies, as both are used for setting or establishing the basic or book prices, which is generally referred to as list prices. Some pricing strategies are:

a) Competitive bidding and negotiation: in negotiated pricing strategy, the buying organization negotiates not only prices but also technical specifications, delivery period, quantity to be purchased, payment terms, transportation costs, and so on. Many business firms first conduct technical negotiations and thereafter they go on to commercial negotiations. Negotiation pricing is similar to open bidding. A large volume of business in the industrial market is decided through competitive bidding. Competitive bidding can be either closed or open.In closed bidding(or sealed), the government or public sector buyer invites the potential suppliers through newspaper tender notices to submit written sealed bids. Typically, all the sealed bids are deposited by the potential suppliers in a tender box kept in the buyer’s office by a specified date and time. The sealed bids are then opened on a specified date and time in the presence of the representatives of the potential suppliers. Each bidder’s price and other commercial terms and read out. Subsequently, the orders are placed on the lowest price bidder who meets the desired specifications of the product. If the value of the tender is large, the govt. buyer may decide to place orders not only on the lowest price bidder, but also on the second lowest bidder and the third lowest bidder. In open (or negotiated) bidding the buyer asks the potential suppliers to submit bids. The buyer after studying the various offers, negotiates the commercial and technical aspects of the offers with the suppliers, and thereafter, finalises the orders. Open bidding is generally followed by commercial enterprices in private sector.

b) Pricing new products: there are two pricing strategies available for a new product which is the introductory stage of its life cycle. These are:

Skimming strategy: this strategy is used for a distinctly new product which is to be purchased by a market segment that is not sensitive to the initial high price. It has an advantage of recovering the investment in the development of the new product sooner by generating larger profits. An industrial marketer thereafter reduced the price to reach other market segments that are more price sensitive. The disadvantage of skimming strategy is that it attracts competition due to high profits.


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KARISHMA SIROHI Penetration strategy: this strategy is effective when, (i) price elasticity of

demand is high or the buyer are highly price sensitive; (ii) strong threat exist from potential competitors; and (iii) opportunity exists to reduce the unit cost of production and distribution with increase in volumes. In this strategy the supplier organisation plans to make its overall profits by selling a larger number of product items at a lower profit per item. Whereas in skimming pricing strategy, the selling firm aims to make its overall profits by selling fewer items at a higher profit per unit.

c) Pricing across product life cycle: pricing strategies vary as the industrial product moves through its economic life cycles. Pricing strategies for the other stages are:

Growth stage pricing strategy: during the growth stage of the product, new competitors enter the market and more customers start using the product. Industrial marketers, therefore, face a pressure of lowering the prices below the introduction stage. In the growing market, the industrial marketer tends to focus on product differentiation, product line extension, and building new market segments. Industrial buyers follow the purchasing policy of developing more than one supplier as more suppliers enter the market. This puts the pressure on the innovator firm to lower the price.

Maturity stage pricing strategy: in the maturity stage of the product, the competitors are well entrenched and aggressive. To increase sales volume, the marketer has to cut into the competitor’s market share. This can be achieved by adopting the pricing strategy of lowering the price to match the competitors’ price. Besides, industrial customers’ buying behaviour will take full advantage of the cost benefit analysis of various suppliers.

Decline stage pricing strategy: there are a number of pricing strategy open to the industrial marketer during the decline stage, depending on certain conditions. If the company has built a reputation of good product quality and dependable service, it need not cut the price but reduce the costs to earn some profits. Another strategy is to cut the prices to increase sales volume above break even volume and use the product to help sell other products in the product mix.

3. Pricing policies: industrial marketers deal with different types of customers who buy in various quantities and are located in various geographical locations. To account for these differences, pricing policies are evolved to adjust the base price of a product. Marketing firms do not set a single price, they set a price structure that covers different product items describe specification and size of product

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 various quantities and are located at different locations. The price list is adjusted with different types of discounts and allowances.


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KARISHMA SIROHI Price list is a statement of basic prices of a product, having various

sizes/specifications. Net price = price list (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 norms or functions performed). e.g. price list (100) – trade discount (15) = net price (85)

– Volume / Quantity discounts. Here, the objective is to encourage customers to buy larger quantities, which would reduce the costs of selling, inventory carrying and transportation. The quantity (or volume) discounts are given either on single orders over a period, usually one year (cumulative basis).

– Cash Discounts. The objective is to get prompt payments. If a credit customer pays the bill before dispatch or within 7-days of dispatch, the customer is given cash discount on the gross amount of bill. The extent of cash discount depends on the bank rate of interest. Give cash discounts thru’ credit notes and the cheques, instead of including it in the bills.

UNIT 5


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KARISHMA SIROHIEVALUATING AND CONTROLLING BUSINESS MARKEING EFFORT:

Control system:

The marketing control system is the system that measures actual performance against planned performance; measures productivity and profit by types of products, customers, or territories; and measures other key marketing variables such as customer satisfaction. A sound marketing control system is not just an income statement, totaling revenue and subtracting costs. A sound marketing control system is balanced and includes—in addition to financial information—operational measures, measures of productivity, process (or operations) effectiveness,and other elements that impact customer satisfaction.

The process of control, illustrated in Exhibit 15–1, is measuring performance,comparing performance against a standard, and then examining why performance waseither above or below standard. If performance was above standard, management wouldlike to duplicate those circumstances that led to greater performance. If performance wasbelow standard, then whatever barriers prevented standard performance should be identified and eliminated. Two important elements of a control process are the sensor, or measuring tool, andthe standard, or the goal against which performance is compared.1 Standards can beabsolute, such as a budget. Significant deviation under budget can be just as bad as deviation over budget if it means that opportunities are lost. Standards can also be a rangeof acceptable performance, called a tolerance range.

Dimensions of control:

There are, two dimensions of analysis and control that help us categorize and understand control processes. These dimensions are

– macro versus micro levels of control, and – inputs versus outputs.

Micro versus macro level of control


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KARISHMA SIROHIWhen the total organization is undergoing evaluation, the level of controlis macro. For some organizations, a macro control system may include divisional controlor strategic business unit (SBU) control if those operate as virtually stand-alone units;3M, for example, operates its 40+ divisions as independent companies. Anything less than that would be micro control, including analysis of a product line, a market segment.

§ Macro control: macro control was an ongoing process of forecasting the future andadjusting strategy based on current performance. A macro control system would provide the information necessary to evaluate whether to sell off a division.

§ Micro control: Micro control is an evaluation of a subset of the macro control system. Micro control processes can include evaluations of product lines, market segments, or functional areas. Micro control is also necessarily short-term oriented. At this level of control, for example, managers would compare annual or monthly performance of specific areas such as a sales office, the trade show program, and other areas against standards.

Input versus output analysis:


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Tools

Standard setting toolsBenchmarkingQuota and Target SettingBudget and Pricing Plans

Measurement toolsMarketing auditsCustomer satisfaction MeasurementAccounting Systems

Search toolsReporting SystemsInformation systemCase analysisexperimentationStatistical AnalysisPredictive Modeling

KARISHMA SIROHIAn income statement is probably the ultimate input–output analysis. The company putsmoney in (expenses) and hopes to take money out (revenue). What happens in betweenis the marketing program, as illustrated in Exhibit 15–3.

§ Input Analysis: For a long time, business marketers were most concerned with managing costs as the key input variable. The reasoning for such concern goes something like this: There is a cost associated with every action, thus the best way to manage inputs (to control actions) is to manage costs. Other inputs include price, marketing activities, and the costs associated with those activities. Price is considered an input variable because it is an input into the marketing process and must be managed.

§ Output analysis: Output analysis, therefore, includes more than just revenue; for a particular marketing activity, output analysis can include the number of leads gathered, or the number of demonstrations, or the number of displays set up in distributors’ locations.

Process of controlling marketing efforts:

Tools to control:

There are three types of tools in control systems: standard setting processes, measurement tools, and tools used to search for causes of variance.


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KARISHMA SIROHI1. Standard setting tools: The first type of tool used in any control process is the process

for setting a standard of performance. It includes:

§ Benchmarking: One type of standard is a benchmark, or the performance level of the best organization for that particular task. Benchmarks are just one type of standard; other standards are set by trade associations (such as quality standards) or reflect goals that management desires. Many industry associations are engaged in benchmarking studies to provide baseline comparisons for their industry.

§ Quota and Target Setting: Quotas are minimum acceptable levels of performance, usually associated with sales performance. As minimum levels of performance, quotas can represent the bottom of the tolerance range in sales performance. Sales quotas are often determined by estimating market potential for a particular product and then estimating the market share or penetration for the product based on historical performance and estimated impact of marketing plans.

§ Budgets and Pricing Plans: Budgets and pricing plans are tools of control systems that act as limits on marketing activities. A good pricing plan, optimizes sales while also maximizing profit. A sound pricing plan also provides guidance for salespeople when responding to customer requests. Budgets are like benchmarks and other standards, but in this case, budgets are usedto provide limitations and guidance on what can be spent rather than a goal to beachieved. Budgets are determined for personnel (how many people and at what cost), equipment, advertising, trade show activity, and so forth.

2. Measurement Tools: Another set of important tools for controlling marketing decisions are measurement tools. It includes:

§ Marketing audits: A marketing audit is a comprehensive and systematic evaluation of the firm’s marketing operation and the environment in which it operates. The audit gives marketing management the opportunity to step back and view the big picture, and then reexamine the details in order to make sure that all of the internal processes are contributing to strategic objectives. The audit also enables management to examine the environment to determine if the strategic objectives are most appropriate. There are six areas audited as part of the marketing audit:

– The environment: customers and competitors, government regulations, and other macro level factors: this is similar to the opportunity–threat analysis of a SWOT.

– Marketing strategy: goals, strategy; this is similar to the strengths–weaknesses analysis of a SWOT.

– Marketing orientation: an examination of the marketing culture; determining the company’s attitude toward the customer. Understanding the orientation is important, as it can be the basis for how processes are carried out and the resulting customer satisfaction.


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KARISHMA SIROHI– Marketing systems: an evaluation of the systems for marketing analysis,

planning, and control; seeks answers to questions such as “How does information flow from the market to decision makers?” and “Who is involved in planning for new products or new markets?”

– Marketing functions: an examination of the marketing practices, such as product development, sales force management, bidding, invoicing, shipping, promotion, and others, on the basis of financial and customer performance.

– Marketing productivity: seeks to answer questions concerning how well each functional area uses resources, such as people, money, and facilities.

A periodic marketing audit is good practice, regardless of the degree of learning orientation.

§ Customer satisfaction measurement: Customer satisfaction can be measured by surveys. Measuring satisfaction at the macro level can tell the company something about the overall marketing orientation of the firm and its performance relative to customer expectations. From a diagnostic perspective, though, management must find out what each of those determinants of satisfaction are and gather information about the company’s performance so that they can manage the processes that result in satisfied customers. Some customers create their own satisfaction indices.

§ Accounting systems: Accounting systems measure financial performance: costs and revenue. For a marketing manager, the key is to understand how costs are allocated so that the true profitability of any particular area, product, or market can be determined. The issue is how fixed costs and overhead are allocated. Any accounting system can take the direct cost of supplies and components and add those together to come up with the cost of a product. The challenge is adding into the cost of that product costs for management, office supplies, warehousing, and so forth. There are three approaches to cost allocation: full costing, contribution analysis, and activity-based costing (ABC).

– Full costing: Assume that a sales office sells two products. In the sales office are two sales teams: one responsible for selling product A and another that sells product B. In this example, we can directly allocate the cost of team A to the sales of product A to calculate the profit generated by product A. The challenge is what to do with overhead costs associated with running the sales office. At some point, a rule has to be established that allocates fixed costs to one product or the other. For example, assume one sales team sold both product A and product B and each represented 50 percent of the office’s sales. To determine the profitability of each


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KARISHMA SIROHIproduct, sales costs would be divided by two and then subtracted from the revenue of each product.

– Contribution Analysis: Contribution analysis allocates costs based on incremental costs along each step of the marketing process. Contribution costing is a form of value added, in that costs are added as they occur along the supply chain and profit (or contribution) can be calculated at any given point in the supply chain. Contribution costing works well in evaluating the overall cost containment practices and revenue generation of the sales office, but it does not allow management to examine issues within the office.

– Activity-Based Cost Accounting: ABC allocates fixed costs to products or other units (such as a sales office) according to the activity that creates or drives the cost. As another example, suppose 20 percent of leads generated from advertising are in the Atlanta region. If so, then 20 percent of the national advertising costs would be allocated to the Atlanta sales office. At the same time, however, we would like to allocate revenue to the advertising in order to determine the direct effectiveness of the advertising. In order to judge each method of lead generation fully, we must know both costs and revenue.

3. Search tools: Search tools are those tools that management uses to search for variance and causes of variance.

§ Reporting systems are formal mechanisms for creating and sharing information and generally involve the flow of information either up or down the organization. Reporting systems, therefore, serve several functions: They provide information used in forecasting, performance evaluation, and problem identification. At the macro level, reporting systems enable management to spot general trends, potential threats, and opportunities whereas at the micro level, reporting systems enable managers to identify and implement successful tactics and strategies or identify problem causes and eliminate them. Reporting systems are important for learning to occur because these are one set of mechanisms by which information is carried that enables such learning.

§ Information Systems: A reporting system represents the creation of information by gathering data, assembling them in a meaningful way, and then sharing them. An information system is the mechanism for storing information, providing access to the information, and manipulating that information. Part of the access–manipulation function is the ability to aggregate data from various sources and combine them in meaningful ways.

§ Case analysis is used as a method of explaining success or failure after the fact. When a new product is launched and is either successful beyond expectations or fails miserably, a case analysis should be conducted to examine potential causes.


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KARISHMA SIROHIThe hope is that successes can be replicated and failures avoided. Case analyses are also used by exhibit managers, advertising managers, and other marketing managers to understand performance.

§ Experimentation: Experimentation is one method used to identify causes of variance. An experiment is research to measure causality by changing one or more variables in order to see the effects on another variable. Firms using experimentation often create a reality tree. A reality tree begins with an outcome, usually an undesired effect. All possible causes are hypothesized and other effects of each cause are also listed. The list of possible causes can be narrowed down to one or a few by examining other outcomes of those causes. Then an experiment can be designed to isolate the impact of each cause.

Global business marketing:

Global marketing is a firm's ability to market to almost all countries on the planet. With extensive reach, the need for a firm's product or services is established. The global firm retains the capability, reach, knowledge, staff, skills, insights, and expertise to deliver value to customers worldwide. The firm understands the requirement to service customers locally with global standard solutions or products, and localizes that product as required to maintain an optimal balance of cost, efficiency, customization and localization in a control-customization continuum to best meet local, national and global requirements to position itself against or with competitors, partners, alliances, substitutes and defend against new global and local market entrants per country, region or city. The firm will price its products appropriately worldwide, nationally and locally, and promote, deliver access and information to its customers in the most cost-effective way. The firm also needs to understand, research, measure and develop loyalty for its brand and global brand equity (stay on brand) for the long term.

At this level, global marketing and global branding are integrated. Branding involves a structured process of analyzing "soft" assets and "hard" assets of a firm's resources. The strategic analysis and development of a brand includes customer analysis (trends, motivation, unmet needs, segmentation), competitive analysis (brand image/brand identity, strengths, strategies, vulnerabilities), and self-analysis (existing brand image, brand heritage, strengths/capabilities, organizational values).

Further, Global brand identity development is the process establishing brands of products, the firm, and services locally and worldwide with consideration for scope, product attributes, quality/value, uses, users and country of origin; organizational attributes (local vs. global); personality attributes (genuine, energetic, rugged, elegant) and brand customer relationships (friend, adviser, influencer, trusted source); and importantly symbols, trademarks metaphors, imagery, mood, photography and the company's brand heritage. In establishing a global brand, the brand proposition (functional benefits, emotional benefits and self-expressive benefits are


http://en.wikipedia.org/wiki/Brand_identity

http://en.wikipedia.org/wiki/Brand_image

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KARISHMA SIROHIidentified, localized and streamlined to be consistent with a local, national, international and global point of view. The brand developed needs to be credible.

A global marketing and branding implementation system distributes marketing assets (website, social media, Google PPC, PDFs, sales collateral, press junkets, kits, product samples, news releases, local mini-sites, flyers, posters, alliance and partner materials, affiliate programs and materials, internal communications, newsletters, investor materials, event promotions and trade shows to deliver an integrated, comprehensive and focused communication, access and value to the customers, that can be tracked to build loyalty, case studies and further establish the company's global marketing and brand footprint.

Elements of the global marketing

Not only do standard marketing approaches, strategies, tactics and processes apply, global marketing requires an understanding of global finance, global operations and distribution, government relations, global human capital management and resource allocation, distributed technology development and management, global business logic, interfirm and global competitiveness, exporting, joint ventures, foreign direct investments and global risk management.

The standard “Four P’s” of marketing: product, price, placement, and promotion are all affected as a company moves through the five evolutionary phases to become a global company. Ultimately, at the global marketing level, a company trying to speak with one voice is faced with many challenges when creating a worldwide marketing plan. Unless a company holds the same position against its competition in all markets (market leader, low cost, etc.) it is impossible to launch identical marketing plans worldwide. Nisant Chakram(Marketing Management)

1. Product: A global company is one that can create a single product and only have to tweak elements for different markets. For example, Coca-Cola uses two formulas (one with sugar, one with corn syrup) for all markets. The product packaging in every country incorporates the contour bottle design and the dynamic ribbon in some way, shape, or form. However, the bottle can also include the country’s native language and is the same size as other beverage bottles or cans in that same country.

2. Price: Price will always vary from market to market. Price is affected by many variables: cost of product development (produced locally or imported), cost of ingredients, cost of delivery (transportation, tariffs, etc.), and much more. Additionally, the product’s position in relation to the competition influences the ultimate profit margin. Whether this product is considered the high-end, expensive choice, the economical, low-cost choice, or something in-between helps determine the price point.

3. Placement: How the product is distributed is also a country-by-country decision influenced by how the competition is being offered to the target market. Using Coca-Cola as an example again, not all cultures use vending machines. In the United States,


http://en.wikipedia.org/wiki/Coca-Cola

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KARISHMA SIROHIbeverages are sold by the pallet via warehouse stores. In India, this is not an option. Placement decisions must also consider the product’s position in the market place. For example, a high-end product would not want to be distributed via a “dollar store” in the United States. Conversely, a product promoted as the low-cost option in France would find limited success in a pricey boutique.

4. Promotion: After product research, development and creation, promotion (specifically advertising) is generally the largest line item in a global company’s marketing budget. At this stage of a company’s development, integrated marketing is the goal. The global corporation seeks to reduce costs, minimize redundancies in personnel and work, maximize speed of implementation, and to speak with one voice. If the goal of a global company is to send the same message worldwide, then delivering that message in a relevant, engaging, and cost-effective way is the challenge. Effective global advertising techniques do exist. The key is testing advertising ideas using a marketing research system proven to provide results that can be compared across countries. The ability to identify which elements or moments of an ad are contributing to that success is how economies of scale are maximized. Market research measures such as Flow of Attention, Flow of Emotion and branding momentsprovide insights into what is working in an ad in any country because the measures are based on visual, not verbal, elements of the ad.

Advantages and Disadvantages

Advantages

The advantages of global market include:

Economies of scale in production and distribution

Lower marketing costs

Power and scope

Consistency in brand image

Ability to leverage good ideas quickly and efficiently

Uniformity of marketing practices

Helps to establish relationships outside of the "political arena"

Helps to encourage ancillary industries to be set up to cater for the needs of the global player

Benefits of eMarketing over traditional marketing


http://en.wikipedia.org/w/index.php?title=Branding_moment&action=edit&redlink=1

http://en.wikipedia.org/w/index.php?title=Flow_of_Emotion&action=edit&redlink=1

http://en.wikipedia.org/w/index.php?title=Flow_of_Attention&action=edit&redlink=1

http://en.wikipedia.org/w/index.php?title=Flow_of_Attention&action=edit&redlink=1

http://en.wikipedia.org/wiki/Global_Marketing

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§ Reach: The nature of the internet means businesses now have a truly global reach. While traditional media costs limit this kind of reach to huge multinationals, eMarketing opens up new avenues for smaller businesses, on a much smaller budget, to access potential consumers from all over the world.

§ Scope: Internet marketing allows the marketer to reach consumers in a wide range of ways and enables them to offer a wide range of products and services. eMarketing includes, among other things, information management, public relations, customer service and sales. With the range of new technologies becoming available all the time, this scope can only grow.

§ Interactivity: Whereas traditional marketing is largely about getting a brand’s message out there, eMarketing facilitates conversations between companies and consumers. With a two way communication channel, companies can feed off of the responses of their consumers, making them more dynamic and adaptive.

§ Immediacy: Internet marketing is able to, in ways never before imagined, provide an immediate impact. Imagine you’re reading your favorite magazine. You see a double-page advert for some new product or service, maybe BMW’s latest luxury sedan or Apple’s latest iPod offering. With this kind of traditional media, it’s not that easy for you, the consumer, to take the step from hearing about a product to actual acquisition. With eMarketing, it’s easy to make that step as simple as possible, meaning that within a few short clicks you could have booked a test drive or ordered the iPod. And all of this can happen regardless of normal office hours. Effectively, Internet marketing makes business hours 24 hours per day, 7 days per week for every week of the year. By closing the gap between providing information and eliciting a consumer reaction, the consumer’s buying cycle is speeded up.

§ Demographics and targeting: Generally speaking, the demographics of the Internet are a marketer’s dream. Internet users, considered as a group, have greater buying power and could perhaps be considered as a population group skewed towards the middle-classes. Buying power is not all though. The nature of the Internet is such that its users will tend to organize themselves into far more focused groupings. Savvy marketers who know where to look can quite easily find access to the niche markets they wish to target. Marketing messages are most effective when they are presented directly to the audience most likely to be interested. The Internet creates the perfect environment for niche marketing to targeted groups.

§ Cross cultural negotiation: The dimensions of culture, such as power distance, the context of the culture and the local work ethic is an area of marketing and social science that is closely related to Global marketing. The ability to discern cultural differences through initial assessment of another market is considered a critical enabler to progress in Global marketing.


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§ Adaptivity and closed loop marketing: Closed Loop Marketing requires the constant measurement and analysis of the results of marketing initiatives. By continuously tracking the response and effectiveness of a campaign, the marketer can be far more dynamic in adapting to consumers’ wants and needs. With eMarketing, responses can be analyzed in real-time and campaigns can be tweaked continuously. Combined with the immediacy of the Internet as a medium, this means that there’s minimal advertising spend wasted on less than effective campaigns. Maximum marketing efficiency from eMarketing creates new opportunities to seize strategic competitive advantages. The combination of all these factors results in an improved ROI and ultimately, more customers, happier customers and an improved bottom line.

Disadvantages

Differences in consumer needs, wants, and usage patterns for products

Differences in consumer response to marketing mix elements

Differences in brand and product development and the competitive environment

Differences in the legal environment, some of which may conflict with those of the home market

Differences in the institutions available, some of which may call for the creation of entirely new ones (e.g. infrastructure)

Differences in administrative procedures

Differences in product placement.

Differences in the administrative procedures and product placement can occur

Direct marketing

Customer retention and maximization

Use of internet in B2B marketing


http://en.wikipedia.org/wiki/Competitive

http://en.wikipedia.org/wiki/Product_development

http://en.wikipedia.org/wiki/Brand

http://en.wikipedia.org/wiki/Marketing_mix

http://en.wikipedia.org/wiki/Want

http://en.wikipedia.org/wiki/Need

http://en.wikipedia.org/wiki/Consumer

http://en.wikipedia.org/w/index.php?title=Closed_Loop_Marketing&action=edit&redlink=1

Business marketing

Business

business marketing emphasis

features of business

marketing products

business organizations

marketing of products

b2b marketing

organizational marketing

business markets