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CHAPTER 1

THE NATURE OF INDUSTRIAL MARKETING

Learning Objectives

UnderstandWhat is industrial (or Business toBusiness) Marketing?

KnowWhat are the differences in the characteristics of

industrial and consumer marketing? Find outWhy the demand for industrial goods and

services are called Derived demand ?

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(A) What is Industrial (Business) marketing?

It is marketing of products / Services to business firms.

In contrast consumer marketing is marketing products /

services to individuals & households.

(B) What is the difference between industrial marketing,

B2B marketing, Business marketing & Organizational

Marketing?

No Difference!

(C) What are the differences between Industrial& Consumer Marketing?

Basic tasks of marketing are same difference Exists in

the characteristics shown next.

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AREAS / CHARCTERISTICS IND MARKETS CONSUMER MATKETS

Market GEO Concentrated

Few Buyers

GEO Disbursed

Large no. Of Buyers

(Mass

Markets

Products Technically Complex

Customized

NonTechnical

Standardized

Service Very Important Somewhat important

Buyer Behavior Various Functional

specialists involvedMainly Rational buying

decisions.

Interpersonal

relationship between

buyers and sellers.

Family members involved

Physiological /Psychological Social need

based buying decisions

NonPersonal

Relationship.

Channel More direct

Multi Channel

Indirect

Few Channels with many

layers

Promotional Importance to personal

selling

Importance to Advertising.

Pricing Competitive bidding /

Negotiated prices

MRP

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SUMMARY OF CHAPTER-1

Industrial / Business Marketing is marketing ofproducts / services to business firms.

Differences between Industrial & Consumermarketing are seen in areas / Characteristics likeMarket, Product, Buyer Behavior, Channel,Promotion & Price.

Industrial Demand is derived from demand for

consumer goods / services.

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CHAPTER 2

UNDERSTANDING INDUSTRIAL

MARKETS AND ENVIRONMENT

LEARNING OBJECTIVES

Understand the types of industrial customers as well as

industrial goods and services.

Know the marketing implications for different types of

customers and products.

Understand the purchasing orientations and practices of

industrial customers.

Know types of environment and strategies to manage

external environment.

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(A) What are the types/classifications of Industrial/Business

customers? INTERMEDIARIES /MIDDLEMEN (DISTRIBUTORS)

OEMS

USERS

PUBLIC SECTORUNITS (BHEL)

GOVT. UNDERTAKINGS(RAILWAYS, DEFENCE UNITS)

PUBLIC INSTITUTIONS(GOVT. HOSPITALS)

PRIVATE INSTITUTIONS(SCHOOLS, COLLEGES)

MANUFACTURINGUNITS (SUGAR, MILK)

NON-MANUFACTURINGUNITS (BANKS, HOUSING)

COMMERCIALENTERPRISES

GOVERNMENTCUSTOMERS

INSTITUTIONALCUSTOMERS

CO-OPERATIVESOCIETIES

INDUSTRIAL /BUSINESSCUSTOMERS

FIG. TYPESOFINI/I

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FIG. CLASSIFICATION / TYPES OF INDUSTRIAL PRODUCTS / SERVICES

(B) How are Industrial Products / Services Classified?

Classification into 3 Groups shown below.

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RAW MATERIALS (IRON ORE, CRUDE OIL)

MANUFACTURED MATERIALS

(STEEL, FUEL OIL)

COMPONENT PARTS (BEARINGS, TYRES)

LIGHT EQPT (COMPUTERS, HAND TOOLS)

PLANT/BUILDING (FACTORIES, OFFICES)

SUPPLIES (LUBRICANTS, ELECTRICAL ITEMS)

SERVICES (LEGAL, COURIER)

MATERIALS& PARTS

(ENTER PRODUCT

DIRECTLY)

CAPITAL ITEMS(USED IN

PRODUCTION /OPERATIONS)

SUPPLIES /

SERVICES(TO SUPPORT

OPERATIONS)

INDUSTRIAL

PRODUCTS /SERVICES

SUB ASSEMBLIES (EXHAUST PIPE IN M.C.)

HEAVY EQPT (MACHINES, TURBINES)

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(C) Marketing Implications for different types of

products & customers?

i. For Materials & Parts,Direct selling is done to largeOEMs (Original Equipment Manufacturers) and users,but indirect selling through industrial distributors /

dealers becomes cost effective for smaller volumeOEMs and users.

ii. For Capital items,Direct selling through company salesforce is common, with extensive interactions ontechnical & commercial factors.

iii. For SuppliesIndustrial distributors / dealers are mostlyused but for marketing of services, word-of-mouthplays an important marketing role, with quality & priceof service as key factors.

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(D) Purchasing Orientations of Business Buyers

Business buyers/ Industrial customers follow one of the three

purchasing orientations:(i) Buying, (ii) Procurement, or (iii) Supply chain Management.

(i)Buying Orientation: The firm with buying orientation followsthe practice of (a) selecting lowest price supplier, (b) gainingpower over suppliers and (c) avoiding risk of buying from newsuppliers. It has a Short-term focus.

(ii) Procurement Orientation :The purchasing firm withprocurement orientation has a long-term focus. It achieves theobjectives of quality improvement and cost reductions byfollowing the practices of (a) collaborative relationship with majorsuppliers and (b) working closely with other functional areas in thecompany.

(iii) Supply chain Management Orientation : Here, the firmfocuses on improving the value chain from raw materials to endusers. This is achieved by (a) delivering superior value to endusers, (b) outsourcing non-core activities, (c) and supportingcollaborative relationships with major suppliers.

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(E) Purchasing Practices of Different Types of Industrial /

Business Customers

(i)Purchasing in commercial enterprises

InvolveTechnical & Commercial depts.

Major Tasks / Procedure:identifying, negotiating, selecting suppliers,

building relationship.

Purchasing to improve operational efficiency & contributeto firmscompetitive advantage.

(ii) Purchasing in Govt. units

DGS&D agencyfinalizes rate contracts for standard products for Govt.

units.

Main Tasks / Procedure :Registration of the firm & its Products,Tender Advertisements, no negotiation in Open tenders,

negotiations done in closed / limited tenders.

Orders Finalised on lowest bidders(suppliers offering Lowest prices /

Landed Costs)

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(iii) Purchasing in Institutions

If the Institute is a Govt. Hospital Purchasing practices ofGovt. units Followed

Similarly a private School / College follows practices of

commercial enterprises

However, better to study each major institution.

(iv) Purchasing in cooperative societies

Similar to Institutional purchase.

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(E) Types & Analysis of Environment IM/2-8/10

AIR & WATER POLLUTION

SOLID WASTE DISPOSAL

CONSERVING NATURAL RESOURCES

WATER, POWER, TRANSPORTATION

COMPANY LOCATION, IMAGE / REPUTATION

R & D & PRODUCTION FACILITIES

ECOLOGICAL

PHYSICAL

INTERNAL(S&W ANALYSIS)

MICRO(AFFECTS APARTICULARFIRM)

ENVIRONMENT

LOW-COST, SKILLED MANPOWER

H R & FINANCIAL RESOURCES

MARKETING EFFECTIVENESS

CUSTOMERS & COMPETITORS

SUPPLIERS

ECONOMIC

TECHNOLOGICAL

GOVT., POLITICAL, LEGAL

CULTURAL & SOCIAL

PUBLIC - PRESS, SHAREHOLDERS, INVESTORS &

PUBLIC INTEREST GROUPS

EXTERNAL(O&T ANALYSIS)

MACRO(AFFECTSALL FIRMS)

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(F) Strategies for Managing Changing External

Environment.

(i) Independent Strategies.

(ii) Cooperative Strategies.

(iii) Strategic Planning. It Aims at keeping the firmconsistently successful in changing marketing

environment by market oriented strategic

management.

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SUMMARY OF CHAPTER - 2

Types /Classifications of Industrial/ Business Customers are

(i) Commercial Enterprises, (ii) Government(iii) Institutional, (iv) Cooperative societies.

Industrial Products/Services are classified into

(i) Materials & Parts, (ii) Capital Items, (iii) Suppliers & Services.

Marketing strategies differ for different product & Customer types.

Industrial / business Buyers follow one of the three purchasing

orientations : buying, procurement, or supply chain management.

Purchasing practices vary for different types of customers. It is

important to understand it for each major customer. Types of environment are Ecological, Physical, Internal, & External,

Strategies used for managing changing external marketing environment

are : (i) Independent, (ii) Cooperative, (iii) Strategic Planning.

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CHAPTER3

THE NATURE OF INDUSTRIAL BUYING AND BUYING

BEHAVIOUR

Learning Objectives

Understand Organizational buying objectives.

Gain knowledge of buying activities, including different

phases in buying decision process, types of buying

situations; buygrid framework & its analysis.

Identify members of buying centers. Understand organizational buying behavior.

Know how industrial buyers choose and evaluate

suppliers.

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PURCHASING OBJECTIVES OF FIRMS

Reliability in delivery.

Consistent product Quality.

Lowest price (If delivery & Quality objectives are met)

Excellent pre & postsales services.

LongTerm collaborative relationship.

Industrial buyers try to achieve organizational purchasing

objectives & personal objectives like higher status, job

security, salary increments, promotions & social

relationships.

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Industrial Buying Decision Process

Marketers must study this for developing effective

marketing strategy.

In Consumer Marketing,Household / Individual consumer

/ Buyer makes buying decisions based on certain mentalstages 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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(A) PHASES IN INDUSTRIAL BUYING DECISION

MAKING PROCESS / BUYPHASES

PHASE1 :- Recognising A problem / need.

PHASE2 :- Determining Characteristics &Quantity of needed product / Service*.

PHASE3 :- Developing specifications of the product*. PHASE4 :- Searching & Qualifying Suppliers.

PHASE5 :- Obtaining & Analyzing suppliers offers*

PHASE6 :- Evaluating & Selecting Suppliers.

(shown on next slide) PHASE7 :- Selecting an order routine

PHASE8 :- PostPurchase evaluation

* These are in addition to five stages of consumer buying

decision process.

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A SUPPLIER EVALUATION SYSTEM.

ATTRIBUTE/

FACTOR

WEIGHT/

IMPORTANCE

SUPPLIERS

PERFORMANCE

SUPPLIERS

RATING

SCORE

PRICE 15 0.5 07.5

QUALITY 30 0.7 21.0

DELIVERY 25 0.6 15.0

SERVICE 20 0.7 14.0

FLEXIBILIY 10 0.4 04.0

TOTAL 100 61.5

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(B) Buying Situations / Buyclasses

3 Common types of purchases / buying situations

i. New Task / New Purchase :Here, buyers have limited knowledge and experience of thenew product/service. Hence, more information is obtained,more people are involved, risks are more, and decisions takelonger time.

ii. Modified Rebuy / Change in supplier :This situation occurs when the firm is not satisfied with theperformance of existing suppliers, or there is a change inproduct specs. Hence, the need for searching alternatesuppliers.

iii. Straight Rebuy / Repeat purchase :Here, the buying firm places repeat orders on suppliers whoare currently supplying certain products/services. Suchdecisions are routine, with less risks and less informationneeds, and can be taken by junior executives.

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(C) Buygrid Framework

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BUYPHASES BUYCLASSES

New Task Modified

Rebuy

Straight

Rebuy

1. Problem Recognition Yes May Be No

2. Characteristics of Product Yes May Be No

3. Product Specification Yes May Be No

4. Supplier Search Yes Yes No

5. Analyzing Supplier Offers Yes Yes May Be

6. Supplier Selection Yes Yes No

7. OrderRoutine Selection Yes Yes May Be

8. Post Purchase Review Yes Yes Yes

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BUYGRID FRAMEWORK ANALYSIS

All Phases are Applicable for a New Task.

Some Phases are Applicable for modified / Straight

Rebury.

New task situation is most difficult since buyers have lessknowledge, no experience & more people involved.

Modified Rebury is not difficult situation since it has few

activities.

Straight rebury situation is handled routinely, as repeat

purchases are made.

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(D) Buying Center roles & key members.

Roles of Buying center members are Initiators. First recognize problem / need. Any individual in buying

firmoften, users.

Buyers.Carry out purchase activities. They are purchase officers /executives.

User. Any person who uses the product / service.

Influencers.Influence buying decision. Technical people are oftenkey influencers.

Deciders.Make buying decisions. Senior executives are decidersfor high value & complex products. For straight rebuy / routinepurchase, junior purchase officer can decide.

Gatekeepers.They control / filter information & meetings withbuying center members. Often, P.A. / Junior person attached topurchase head is the gatekeeper.

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(E) Identifying key members of buying centre

Sales / Marketing personsmust identify important members ofbuying centre.

Buying centreconsists of individuals and groups who take part

in buying decision making process, have common objectives &

share common risks. It is also called purchase committee,

buying committee or decision making unit. Members of buying centre are

(i) Technical persons.Represent design,production/operations,

maintenance, Q.C., Industrial Engg. Depts.

(ii) Purchasers / Buyers.Purchase / Materials dept. persons.(iii) Accounts / Finance persons.

(iv) Marketing persons

(v) Top management persons.G. M. & above.

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(F) Organizational buying behavior

Industrial / business buyers are influenced by many

factors. Two most important factors are (i) Organizationalfactors / taskoriented objectives,like best product

quality, lowest price, dependable delivery.

(i) Personal factors / Non-task oriented objectives,such

as good increments, promotion, Job security, personalfavors.

When suppliers offers are similar, buyers can satisfy

organizational objectives from any supplier. Hence,

personal factors become important. However, when suppliers offers differ substantially,

buyers give importance to organizational factorsto satisfy

organizational objectives.

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Many models have been developed to explain

organizational buying behavior. One of the comprehensive

models is the Sheth model, described below.

The Sheth model of industrial buyer behavior,shown

below , focuses on (i) Psychological aspects of individual

buyers (Component 1), (ii) Conditions causing jointdecision making (Component 2), (iii) Conflict among those

involved in decision process & resolution of conflict

(Component 3).

Situational factors include economic conditions, labour

disputes, mergers & acquisitions. The model does not

explain their influence on buying process.

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Fig. : THE SHETH MODEL OF INDUSTRIAL BUYER BEHAVIOUR

Component (1) Component (2) Component (3) Situational Factors

Differences amongindividual buyerscaused by factors :

Background ofindividuals (Education,

role & life style).Their informationsources.Active SearchPerceptual Distortion

Satisfaction withpast purchases

Variables that Determineif buying decision isautonomous or joint :A) Product SpecificFactors :

Time PressurePerceived RiskType of Purchase

B) Company SpecificFactors :

Company SizeCompany OrientationDegree ofCentralisation

Methods used forconflict resolutionin joint-decisionmaking process :

Problem SolvingPersuasionBargainingPoliticking

Supplier orBrand Choice

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Environmental Variables

Physical, Technological

Economic, Cultural

Political and Legal

Labour unionsCustomer demands

Competitive practices

Supplier information

WEBSTER AND WIND MODEL

Organisation Variables

Objectives and goals

Organisation Structure

Purchasing Policies / Procedures

Evaluation & reward systems

Degree of decentralisation

Buying Centre Variables

Authority, Size

Key influencers

Interpersonal relationship

Communication

Organisation Buying Decisions

Choice of Suppliers

Delay decision & get more information

Make, Lease or buy

Do not buy

Individual Variables

Personal Goals, Values

Education, Experience

Expertise, Job Position

Lifestyle, Income

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CUSTOMER SERVICE

Important Customer Service Elements.Carry out market

survey to understand which of the following elements of

customer service are important to customers, what service

levels are expected by customers, the service levels offered

by the firm and its competitors.

(i) PreSales Service :Advising, Informing,Problem solving

(ii) DuringSales Service :Product availability,

ontime delivery, order cycle time, and information.

(iii) PostSales Service :Warranty, AMC, Repair,Installation & Training.

Develop superior service package.

Test, Set Goals, and Establish Control system

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SUMMARY OF CHAPTER - 3

Industrial marketers should understand that business buyerstry to achieve both organizational & personal objectives.

Industrial buying decision process consists of eight steps /

stages (buyphases) & three types of buying situations

(buyclasses).

Buygrid model combines buyphases & buyclasses.

Marketers must understand roles & key members of buying

centre, including key buying influencers.

Many factors influence organizational buying behavior, but

major factors are organizational ( or taskoriented ) objectivesand personal (nontask oriented ) objectives.

The Sheth model of industrial buyer behavior is comprehensive,

focusing of psychological & jointdecision making aspects.

Webster and wind model is also widely used & comprehensivemodel on buyer behavior.

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CHAPTER - 4

BUYER SELLER RELATIONSHIP

LEARNING OBJECTIVES :

Understand buyer sales rep. interactions. Types/range of relationships between

buyer & seller firms.

Customer relationship management (CRM)/ relationship marketing.

Methods used to influence industrial

customers.

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INDUSTRIAL BUYER-SALES REP. INTERACTIONS

Depend on their perceptions, behavior & roles.

Buyers have two major perceptions of sales reps.

(i) Stereotypetalkative, manipulative, excitable

(ii) Reputation of sales reps company.

Buyer Behavior towards sales rep depends on

organizational needs / objectives, buying centre

interactions and personal needs.

Buyers are not always rational / logical in buying decisions.

Role / behavior of sales rep. depends on his personal

needs, and expectations of his boss, peers, customers.

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BUYER-SELLER DYADIC INTERACTION FRAMEWORK

A Conceptual Framework by Dr. Sheth

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A buyer and a seller interaction is called Dyadic two persons

interactions, with above types of transactions.

Content includes organizational and personal needs of a buyer and a

seller.

Style includes manner and format of communicationtask

oriented, self oriented, or social / personal oriented.

Compatible

Content

IncompatibleContent

Ideal/Successful

Transaction

Inefficient

Transaction

InefficientTransaction

NoTransaction

Compatible Style Incompatible Style

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TYPES / RANGE OF RELATIONSHIP BETWEEN BUYER &

SELLER FIRMS

When buyer (or customer) and seller (or supplier) firms dobusiness, they have the following types and range ofbusiness / working relationships / exchanges.

Each business relationship is an exchange process ofobtaining a desired product / service by offeringsomething of value is return.

TransactionalRelationship

Value-AddedRelationship

Partnering /CollaborativeRelationship

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TRANSACTIONAL RELATIONSHIP is typically one timeexchange of a product / service, with lowest price /

economy and necessity as main factors. Some customersprefer it when many suppliers are available in a stablemarket. They switch purchases from one supplier toanother. Marketers also choose least profitable customersfor transactional relationships.

VALUEADDED RELATIONSHIPS / EXCHANGES.

Here the focus is to understand customer needs and meet

those needs better than competitors, to get maximumbusiness share.

These customers have medium sales and profit potentialsand have Procurement Orientations.

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CUSTOMER RELATIONSHIP MANAGEMENT (CRM) /

RELATIONSHIP MARKETING (RM) Conceptually same, methods / techniques to achieve

objectives are different.

Both CRM & RM aim at partnering / collaborative long-term relationships for mutual benefits of both parties.

CRMS objectives are to improve customer loyalty and

there by, companys profitability. For this, marketingstrategy is first developed, then investment is made insoftware system to gather data / information on eachvalued customer, and the same is made available to allemployees to give superior customer service.

RM aims at building relationships with key customers,distributors, and suppliers. This is done through financialand social benefits, and in addition, structural ties.

After 2-3 years, both firms evaluate their relationship

using sales, profits, prices, costs, & technology factors.

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METHODS USED TO INFLUENCE INDUSTRIAL

CUSTOMERS

Major methods : Sales presentation and Negotiation

Sales Presentations:For effective sales presentation, a sales

person should follow some guidelines :

i. Plan and collect information before sales presentation.

ii. Identify customer needs and satisfy them better than

competitors.

iii.Use AIDAS theory or any other theory of selling

(Attention, Interest, Desire, Action, Satisfaction)

Give importance to prompt customer service.

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NEGOTIATION : For negotiation with customers useI win, you win or win win style,with following

guidelines :a. Build an environment of trust & understanding.

b. Identify the problem areas.

c. Both sides work together, pooling ideas, information,

and resources.d. Regular frequency of concessions are important and not

the size of concessions.

e. Be responsive to corrections, if needed.

f. Avoid legalistic approach.g. Be polite and humble.

h. Importance should be on end results and not on

means.

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SUMMARY OF CHAPTER - 4

BUYERSELLER RELATIONSHIP

Industrial buyer and sales rep.s interactions depend on theirperceptions, behavior, & roles.

Interaction between two persons (buyer & seller) is called Dyadic,with various types of transactions, as per Dr. Sheths framework.

Buyer and seller firms have various types and range of

relationships: transactional, value added and partnering /collaborative.

Customer relationship management (CRM) and relationshipmanagement (RM) are conceptually same. Both aim atcollaborative / partnering longterm relationship for mutual

benefits of both parties. Sales promotion and negotiation are the major methods used to

influence industrial buyers.

Reciprocity and dealing with customers customers are the specialdealings between a buyer & a seller.

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CHAPTER 5

INDUSTRIAL MARKETING INTELLIGENCE ANDMARKETING RESEARCH

LEARNING OBJECTIVES :

1. Know Nature and Scope of IndustrialMarketing research.

2. Examine the Marketing ResearchProcess.

3. Understand Industrial MarketingIntelligence System.

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SCOPE OF INDUSTRIAL MARKETING

RESEARCH

Scope is vast. Some of the areas are:

i. Market share analysis .

ii. National and Geographical area-wisemarket potential.

iii. Competitors analysis.

iv. New product acceptance and potential

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MARKETING RESEARCH PROCESS

STEPS INVOLVED ARE :1. Identify the problem / opportunity and state

research objectives .

2. Develop research design / methodology.

3. Collect data / information.

4. Process and analyze the data.

5. Prepare research report.

There is no major difference in the process or

steps involved in marketing research for consumer

and industrial marketing .

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INDUSTRIAL MARKEING INTELLIGENCE SYSTEM

Marketing

Research

studies

Secondary

DataSource

Industrial

Marketing

Intelligence

System

Decision

SupportSystem

Market

ResponceMarket ingResear chstudi esSecond aryDat aSourc eIndust rialMarket ingIntellige nceSyste mDecisi onSuppo rtSystem Marke tRespon ce

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Industrial marketing intelligence system is developed to meet the

needs of industrial marketers for timely and continuous information

for effective decision making .

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NATURE OF INDUSTRIAL MARKETING

RESEARCH

1. Business Marketers rely more on Secondary data,and exploratory research (Through expertopinion).

2. Descriptive (or Survey) method is used more

often than experimental and Observationmethods, for collecting primary data.

3. Sample size is small due to small population.

4. Difficult to define sampling unit (or respondents),since buying decisions are made by manymembers of buying centre.

5. Respondents Cooperation and accessibility are

difficult for data collection.

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CHAPTER6

INDUSTRIAL MARKET SEGMENTATION, TARGET

MARKETING AND POSITIONING

LEARNING OBJECTIVES:

1. Know the Procedure followed for segmentingindustrial markets.

2. Identify the Variables (bases) used for

segmenting business markets.3. Evaluate and select the target market segments

and strategies.

4. Develop effective positioning strategies.

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VARIABLES (BASES) USED IN SEGMENTING

INDUSTRIAL (BUSINESS) MARKETS

Industrial market segmentation is done first based onMacro Variables , and then subdivided into MicroVariables, if necessary.

Macro Variables.These segmentation variables areidentified based on industry/organizational characteristicslike.

(i) Type of industry / Type of customer.

(ii) Company size / Usage rate.

(iii) Customer location / Geographical area.

(iv) End-use / Application / Benefits of a product.

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Micro Variables. Macro segments are furthersubdivided into microsegments, if needed.

Micro Variables are based on purchasing decisionslike

(a) Customer interaction needs,

(b) Organizational capabilities,(c) Purchasing policies,

(d) Purchasing criteria,

(e) Personal characteristics.

Sequential SegmentationProcess.Often,business marketers use more than one variable tosubdivide the market.

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PROCEDURE FOR DEVELOPING A POSITIONING

STRATEGY

Following steps are involved:(i) Identify which attributes / benefitstarget customers

consider important while buying a product / service. Thisinformation is obtained through a market research study .

The variables considered for differentiating a companysproduct from competing products are.

(a) Product variables,

(b) Service variables,

(c) Personal variables,(d) Image variables,

(ii) Select one or more major benefits (or attributes)to

differentiate the company from its competitors .

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(iii) Use Perceptual Mapping Technique.To decide

on positioning strategy, this technique is used,after getting customers perceptions through

marketing research.

(iv) Communicate Positioning Strategy. The firm

should decide and communicate its positioning

strategy to target customers, through sales force,

advertising in journals, internet, and trade shows

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Excellent

Product Quality

Strong

CustomerService

Low

Product Quality

1.0

0.8

0.6

0.4

0.2

.D

.C

.B- 0.2

- 0.4

- 0.6

- 0.8

- 1.0

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

.A1

A

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Weak

CustomerService

Perceptual Mapping

Technique

.

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SUMMARY OF CHAPTER 6

1. Procedure used in market segmentation includes (i) Marketing

research, (ii) Data analysis (iii) Profiling each segment.

2. Variables used for segmenting industrial markets include macrovariables and if needed, micro variables. Sequentialsegmentation process is often used.

3. Criteria used for evaluating market segments are (i) size andgrowth , (ii) Profitability (iii) Competitive analysis(iv) Company Objectives and Resources.

4. Target market strategies are (a) Concentrated or Nichemarketing, (b) Differentiated marketing, (c) Undifferentiatedmarketing strategy

5. Steps used for developing positioning strategy include :(i) Identifying attributes / benefits, (ii) Selecting one / moremajor benefits, (iii) Using perceptual mapping technique,(iv) Communicating positioning strategy.

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CHAPTER7

PRODUCT STRATEGY &NEW PRODUCT DEVELOPMENT

Learning Objectives

1. Define an Industrial Product.2. Understand Changes in the product strategy.

3. Know Product Life cycle (PLC) Theory and its application.

4. Develop Product strategies for existing products.

5. Understand new product development.6. Know impact of technology and high-tech marketing.

7. Learn Marketing of industrial services.

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CHANGES IN PRODUCT STRATEGY

Business marketers must understand that aproduct strategy is dynamic and flexible.

It changes due to changes in

(i) Customer needs.

(ii) Technology.

(iii) Government Policies / Laws.

(iv) Product LifeCycle.

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A General Model of Product LifeCycle (PLC)

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Rupees

IndustrySales

IndustryProfits

Maturity Decline

/ /

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APPLICATION OF PRODUCT LIFECYCLE THEORY

TO MARKETING STRATEGYIntroduction Stage: Marketing Strategy should focus onmarket development for slowly accepted products. Forrapidly accepted products, a competitive strategy

(Competitive pricing or Superior quality product ) shouldbe evolved.

Growth Stage:To take advantage of high growth of sales

and profits, the marketing strategy should concentrateon (i) Improving product design or adding productfeatures (ii) Improving distribution and (iii) Reducingprice, as increased sales and production reduce thecosts.

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Maturity StageAs competition increases and

profits decline, marketing strategy shouldconcentrate on (i) cutting costs, (ii) keeping existing

customers satisfied (iii) entering new markets.

Decline StageSince both sales and profits decline,

marketing strategy should focus on (i) substantial

reduction in costs, (ii) develop a substitute

product, (iii) withdraw the product slowly from themarket.

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PRODUCT STRATEGIES FOR EXISTING

PRODUCTSBusiness marketers should take the following steps :

1. Evaluate the performance of existing products by

using product evaluation matrix.2. Examine the relative strengths and weaknesses of

the companys products by using perceptual

mapping technique.

3. Decide the product strategies, based on above

analysis.

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Product Evaluation MatrixIM/7-9/20

Company Sales Decline Stable Growth

ProfitabilityIndustrySales

MarketShare

BelowTarget

Target AboveTarget

BelowTarget

BelowTarget

Target TargetAboveTarget

AboveTarget

Growth

Dominant

Average

Marginal

Stable

Decline

Dominant

Dominant

Average

Average

Marginal

Marginal

P

S

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PERCEPTUAL MAPPING TECHNIQUE

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HighQuality

High Price

Low Price

LowQuality

* *AA1

B

C

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Firm As product quality is perceived to be average by

customers, compared to its competitors B & C. Firm A

should try to move to a new position of superior quality ata reasonable (average) price to improve its profitability.

DECIDE PRODUCT STRATEGIES

(i) Maintain / Continue the product and its marketing

strategy.

(ii) Modify the product & change marketing strategy.(iii) Drop / eliminate the product.

(iv) Add new product.

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CLASSIFICATION OF NEW PRODUCTS(i) Products that are new to the world & innovative.

(ii) Products that are new to the company, but not new to the

world.

(iii) Improvements / Revision to the existing products.

(iv) Addition to the existing products.

(v) Repositioning existing products to new market segments

(vi) Products with substantial cost reductions without reduction in

performance.

NEW PRODUCT DEVELOPMENT PROCESS

It consists of 7 Stages :

(i) Idea generation, (ii) Idea Screening, (iii) Concept development

and testing, (iv) Business analysis, (v) Product development,

(vi) Market testing, & (vii) Commercialization.

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IMPACT OF TECHNOLOGY

Technological innovations create new products / servicesthatare new to the world. Examples of these innovations,called break through technology are :

(i) Technological inventions of 1940sof vacuum tube

and amplifier circuit created new products / serviceslike radio, wireless telegraphy, and telephone service.

(ii) Technological inventions of 1950s & 70softransistor, integrated circuit (IC), microprocessorshave applications in new products like TV sets, movieCameras, Computers, Calculators, Mobile phones,Printers etc.,

(iii) Digital revolutionof information technology and theinternet have improved company and consumer

capabilities.

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TYPES OF MARKETING SITUATIONS.

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BetterMousetrap

Marketing

High-techMarketing

High-fashionMarketing

Low-techMarketing

High

Low

Low

Market

High

Uncertainty

TechnologicalUncertainty

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MODIFIED TECHNOLOGY ADOPTION

LIFE CYCLE

This is suited to hightech marketing

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Deep Gap

Innovators

2%

13%

EarlyAdopters

34%34%

16%

Laggards

Time of Adoption of Innovations

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HIGHTECH MARKETING STRATEGY

1. Target a niche market.

2. Plan whole product properties.

3. Develop partnerships.4. Unique positioning strategy.

5. Effective Communication Strategy

6. MultiChannel distribution strategy.

7. Skimming pricing strategy.

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Marketing of Industrial Services

Classifications of Industrial Services

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MaterialsComponents

(Steel, Ball Bearings)

PersonalComputers

Hotelsfor

Conferences

GoodTransportation

PureTangibleProduct

MajorProduct,

MinorService

EqualProduct

&Service

MajorService,

MinorProduct

Pureintangible

service

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Unique Characteristics of services and

marketing Implications.

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Characteristics Marketing Implications Examples

1. Intangibility (cannot be seen / felt, before buying)

Buyers see evidence of service quality

Sellers tangibilise the intangible

Management

Consultancy & EDPs.

2. Inseparability (Production &

consumption at the same time)

Effective interaction depend on service

providers.

Requires effective recruiting and training

of service providers.

Repairs to machines

& Courier service.

3. Variability (Service quality varies)

Uniform quality is difficult

Focus on quality & automation

Management

education & marketing

research.

4. Perishability (Cannot be stored)

Demand fluctuates.Use methods to match demand &

capacity.

Airlines seats &Warehouse space.

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

Advantages of non-ownership :

reduction in costs & flexibility

Hotel and car rental

services.

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It means, deciding if a product should be continued, modified,dropped, or replaced.

New products are classified into six groups and consist of sevenstages of development process :- idea generation, ideascreening, concept development & testing, business analysis,product development, market testing, and commercialization.

In Hightech marketing situation, technology application and

market needs are difficult to predict . The technology adoptionlife cycle is modified to suit high-tech marketing.

Unique hightech marketing strategies include targeting aniche market, planning whole product, developing partnership,unique positioning, effective communication , multichannel

distribution and Skimming pricing. Industrial services are classified into various groups, and

include unique characteristics like intangibility, inseparability,variability, perishability & nonownership.

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CHAPTER8

INDUSTRIAL DISTRIBUTION CHANNELS &MARKETING LOGISTICS

Learning ob ject ives

1. Understand alternative channel structures.2. Know types of industrial intermediaries.

3. Understand steps involved in designing a channel.

4. Learn how to manage channel members.

5. Understand concepts of supply chain management,Logistics, and business logistics system.

6. Learn the tasks of physical distribution and total

distribution cost.

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Alternative Channel Structures Industrial channel structures include both direct and indirect channels.

Direct Channels.

Examples are direct selling through company sales force and directmarketing through on-line marketing, telemarketing and direct mail.

Direct channels are used typically when (i) Transaction value is large, (ii)Technical & commercial negotiations are held at various levels(iii) Buying process takes a long time (iv) Buyers want to buy directly frommanufacturers.

Indirect Channels.

Consists of intermediaries like distributors / dealers, manufacturers reps/ agents, value-added resellers (VARs), brokers and commissionmerchants.

Indirect channels are generally used when (i) Value of transaction / salesis low, (ii) The manufacturers resources are limited,(iii) Customers are geographically dispersed, (iv) Buyers purchase manyitems in one transaction.

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Types of Intermediaries

1. Industrial Distributors / Dealers.

They perform many functions like buying, storing, promoting,financing, selling, transporting and servicing certain geographicmarket, & are given discounts.

Major categories are (i) Generalline distributors, (ii) Specialized

distributors, and (iii) Combination house.

2. Manufactures Representatives / Agents.

They perform functions like promoting manufacturers products /services, getting orders, and colleting market information. They are

independent business firms, representing various manufacturerswhose products complement one another but are not competitive.

They are paid commission on the value of sales or orders booked.They do not buy, store or finance transactions.

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3. Value-added Resellers (VARs)

They are new type of intermediaries from computer industry. They

deal with computer hardware and software companies, customizethe same to solve specific problems of buying firms. They are paiddiscounts.

4. Brokers

They bring together buyers and sellers, when information is notavailable completely. They represent either a buyer or a seller, andtheir relationship is short term. They do not buy products &services and are paid on commission basis.

5. Commission Merchants.They represent sellers / manufactures, mostly with bulkcommodities like raw materials, to perform functions like arranginginspection, transporting, negotiating and selling. They are paidcommission on the value of sales.

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MANAGING CHANNEL MEMBERS

It 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 goalsetting;

(iii) Diplomacy; Mediation; Arbitration.

(iv) Vertical marketing system (VMS).

4. Evaluating Channel Members

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Concept of Supply Chain Management (SCM)

SCM includes activities of moving goods from raw material through

operations to final consumers, as shown in SCM Framework below.

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Main aims of SCMare (i) Reduce cost per unit, (ii) Reduce

waste & duplication, (iii) Minimize order to delivery cycle,

and (iv) Ensure superior delivery service. Firms adopting

SCM gain competitive advantage.

The aims are achieved by a network of interdependent firms

working together with partnering relationships to manage

and control various activities, in order to improve flow ofmaterials and information from suppliers to end users.

Firms involved in SCM are suppliers of raw materials &

components, transporters, distributors, material handling &

information processing firms.

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Logistics Management (LM)

LM plans and coordinates activities to achievesuperior customer service levels at lowest costs.

LM optimizes material flow within the firm, but

SCM extends integration of material flow tosuppliers suppliers and customers customers.

For better understanding, see figure on

business logistics system,which has two productmovement; physical supply and physical

distribution.

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B siness Logistics S stemIM/8-10/14

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Business Logistics System

Marketing Logistics(or Physical distribution) consists ofdelivering finished products to intermediaries andcustomers.

Physical Supply Industrial Manufactuer Physical Distribution

(or Marketing Logistics)

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TASKS OF PHYSICAL DISTRIBUTION (PD)

PD tasks are :

(i) Transportation, (ii) Warehousing, (iii) Inventory Control,(iv) Customer Service, (v) Packaging, (vi) Material Handling,(vii) Order Processing, (viii) Communication, (ix) Locations offactory & Warehouses.

Total Distribution cost and customer service are balanced by

(i) Minimizing total distribution cost, or (ii) Total systemsapproach through maximizing profits.

Total Distribution Cost = Transportation cost (Freight) +Warehouse cost + Inventory cost + Cost of lost sales due todelayed delivery.

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A firm must minimize total distribution cost, instead ofminimizing individual cost elements, to balance customer

service and total distribution cost.

Another approach, called total systems approach orchannel integration focuses on return on investment(ROI). Here, a firms channel members work together toimprove customer service, in order to get higher salesrevenue.

=Sales Revenue - Total Physical Distributor Cost

Capital Investment

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SUMMARY OF CHAPTER8

INDUSTRIAL DISTRIBUTION CHANNELS & MARKETINGLOGISTICS.

1. Industrial channel structures include direct and indirect

channels.

2. Types of industrial intermediaries are: industrial

distributors / dealers, manufacturers representatives

(or agents), valueadded resellers (VARs), brokers, and

commission merchants.

3. Procedure of channel design includes: developingchannel objectives, analyzing channel constraints and

tasks, identifying channel alternatives, evaluating

alternatives and selection of the channel (s).

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CUSTOMER SERVICE

Service Quality Gap: Gap between perceived

service and expected service. A firm may have astrategy of giving superior quality service thancompetitors and exceeding customersexpectations.

Factors that determine service quality bycustomers are:

(i) Reliability

(ii) Responsiveness(iii) Assurance

(iv) Empathy

(v) Tangibles

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Strategies followed by successful customer

service firms

(a) Top management commitment.

(b) Setting high-standards of service

quality.

(c) Monitoring system.

(d) Systematic approach to resolving

customer complaints.

(e) Satisfy both employees and customers .

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Developing customer service levels/ standards

Neither all customers nor all products need the same levelof service. Steps involved :

(i) Conduct marketing research study to find whichelements of customer service are important tocustomers.

(ii) Find needs / expectations of customers in quantitative

standards for the service elements.(iii) Get information on actual performance of the

company and its competitors from customers.

(iv) Analyse variance of actual performance with

standards.(v) Take corrective actions to minimise the variance.

Outstanding delivery service levels are achieved byintegrating logistics and through supply chainmanagement.

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4. Managing channel members consist of selecting andmotivating intermediaries, controlling channel conflicts,

and evaluating channel members.5. Supply chain management (SCM) includes activities of

moving goods from raw material through operations tofinal consumers. Logistics management optimizesmaterial flow within the firm, but SCM extends

integration of material flow to suppliers suppliers andcustomers customers.

6. Business logistics system includes physical supply andphysical distribution (or marketing logistics).

7. To balance total distribution cost and customer service,a firm can use any of the approaches: (i) Minimize totaldistribution cost, or (ii) Maximize profits (ROI) throughchannel integration.

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CHAPTER 9MANAGING THE PERSONAL

SELLING FUNCTION

Learning Object ives :

1. Understand the role of personal selling inbusiness marketing.

2. Know the business selling process.

3. Know characteristics of B2B selling , Team

selling approach, solution-oriented effort,Entrepreneurial Philosophy.

4. Understand management of major and nationalaccounts.

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(iv) Sales Presentation / Approach . Different methodsare used like (AIDAS Approach Attention, Interest,

Desire, Action, Satisfaction), or need satisfactionmethod.

(v) Overcoming Objections . Often prospects raiseobjections, which are real or practical and

psychological or hidden. These should be answeredsatisfactorily by the sales person.

(vi) Closing. Asking for an order or closing the sale isimportant. Sales person can use some of the closingtechniques.

(vi) Post - Sales service and Follow-up This includesdelivery, installation, training, payment collection,warranty service, and rejections /returns.

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Characteristics of B2B Selling

1. Promotional strategy focuses more on personalselling through companys sales force. Hence,salespersons are active in getting orders.

2. Adverting is used as a support to personal selling.

3. The sales person sells technical and non-technicalproducts, and uses problem solving approach

4. Typically, it takes a long time to know outcome ofsales efforts.

5. System selling approach is used by some businessmarketers, as it is preferred in some large industrial

projects or contracts.

6. Team selling approach is used for major customersand large value orders.

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Team Selling Approach

More companies are using team selling approach

for selling to major and national accounts

(customers) and technically complex products and

services. Sales team consists of sales representative,

technical support person, inside sales person, and

a senior sales/marketing manager.

Coordination is done by a sales rep, for a majorcustomer and a national accounts manager for a

national customer.

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SolutionOriented Effort

Two major roles of personal selling :

(1) A part of problem-solving capabilities,

(2) A part of communication ( or promotional)mix.

A sales person is a part of selling firms problem-solving abilities. He should identify and analysethe buying firms problem. He should then showhow his companys products and services can

solve the buyers problems, better thancompetitors. This is called solution-oriented effortor approach.

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MANAGEMENT OF MAJOR AND

NATIONAL ACCOUNTS

Both major and National accounts (orcustomers) have large (sales and profit

potentials). But there is a difference.

Complexity of customer

Large

Small

MajorAccount

NationalAccount

Dyadic

Interaction

Minor

Account

Sales

Potential

of

Customer

Simple Complex

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A major account has a large sales (and profit)

potential and is simple to serve or manage, as thecustomer has only one unit .

A national account has also a large sales (and

profit Potential), and is complex or difficult to

serve, because operating units re geographicallydispersed. In addition, for small value items

operating units are autonomous, but for large

value items, buying is centralized.

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SUMMARY OF CHAPTER-9

Personal selling has a greater role in business marketingthan consumer marketing.

Business selling process consists of prospecting,qualifying, preparation (or pre-approach), sales

presentation (or approach), overcoming objections,closing, post-sales service and follow-up.

B 2 B selling characteristics include problem solving,systems selling and team selling approaches.

Intrepreneurial philosophy results in consistently goodperformance.

Management of major and national accounts is done byteam selling, relationship marketing and support fromtop management and functional managers.

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CHAPTER10

BUSINESS (INDUSTRIAL)

COMMUNICATION

Learning Objectives :

1. Develop an effective communication(or promotional) program.

2. Understand the role of advertising

3. Understand the importance of salespromotion, publicity, public relation(PR), and direct marketing.

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DEVELOPING AN EFFECTIVE

COMMUNICATION / PROMOTIOAL

PROGRAMME FOR BUSINESS MARKETS

The steps involved are:

(i) Decide communication objectives.

(ii) Identify the target audience.

(iii) Decide the promotional budget.

(iv) Develop the message strategy.

(v) Select the media.(vi) Evaluate the promotions results.

(vii) Integrate the promotions programme.

Promotional Tools and Media in Business Markets

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Promotional Tools and Media in Business Markets

Promotional

Tools Advertising

Sales

Promotion

P. R. and

Publicity

Direct

Marketing

Personal

Selling

Print Media

Business

Publications

Trade

Journals

Industrials

directories

Promotional

Media

&

Supports

Trade shows

Exhibitions

CataloguesSales Consents

Promotional

novelties (gifts)

Seminars

DemonstrationPromotional

letters

Entertainment

Charitable

donations

Adopting

villages

Community

relations

News item in

pressTechnical

articles in

journals

Direct mail

Telemar-

keting

On-line

marketing

Sales calls

Sales

presentations

Team selling

Relationship

marketing

ROLE OF ADVERTISING IN BUSINESS MARKETING

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ROLE OF ADVERTISING IN BUSINESS MARKETING

While advertising is relatively less important thanpersonal selling in business marketing, it is usedas 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) Saleslead generation.

(vi) Support channel members.

ADVERTIING MEDIA USED AND SELECTION

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ADVERTIING MEDIA USED AND SELECTION

CRITERIA

The media generally usedfor industrial advertising are:(i) Business Publications.

(ii) Trade journals/ publicationsHorizontal and Vertical

publications.

(iii) Industrial directoriespublished by government and private

publishers (e.g. Tata Yellow pages).

Criteria used for selectionof advertising media are:

(a) Target audience and their media habits.

(b) Promotional objectives and goals.(c) Expenditure budget, by using the following formula:

=Cost per page

Circulation in thousand

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IMPORTANCE OF SALES PROMOTION

Sales promotion consists of short-term incentivetools 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 specialtyadvertising, or gifts), seminars, catalogues,

promotional letters, demonstration, andentertainment. Some of the frequently used toolsare trade shows, sales contests, catalogues,demonstrations, and promotional novelties (gifts).

IMPORTANCE / ROLE OF DIRECT MARKETING (DM)

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IMPORTANCE / ROLE OF DIRECT MARKETING (DM)

DefinitionDirect marketing is an interactive marketing system that

seeks a measurable response and /or transaction. Direct marketing isalso referred to as direct response marketing.

BenefitsFor 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 strategyless 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 mailis 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%.

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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, andalso as concerns on security and privacy

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ROLE OF PUBLICITY & PUBLIC RELATIONS

(PR)

Public Relations (PR)performs certain tasks to promote orprotect a companys image or its products. The tasks / functionsperformed by PR are: press relations, corporate communication,lobbying, and counseling. PR department deals with variouscategories of people like press, legislators, Govt. officials,

public, employees, suppliers, customers, and hence it tends toneglect marketing objectives.

Publicity or Marketing Public Relations (MPR)has morecredibility and lower cost compared to advertising, MPR

includes placing technical articles from the companys technicalpersons in trade journals, business magazines, and / or newspapers. MPR should be planned with advertising and should be

given larger budget allocation

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Summary of Chapter10

Steps involved in developing an effective communication programme for

business markets are (i) decide communication objectives, (ii) identify thetarget audience, (iii) decide the promotional budget, (iv) develop themessage strategy, (v) select the media, (vi)evaluate the promotions results,(vii) integrate the promotional Programme.

Advertising is used in business marketing mainly as a support to personal

selling.

Media used for industrial advertising are: business publications, tradejournals / Publications, and industrial directories.

Sales promotion consists of shortterm incentive tools to stimulategreater or faster purchase of a product / service by business customers.

Direct marketing and publicity ( also called as marketing public relationsMPR) have important roles. However, public relations (PR) tends toneglect marketing objectives, since it has to deal with several category of

people.

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CHAPTER 11

INDUSTRIAL (BUSINESS) PRICING STRATEGIES & POLICIES

Learning Object ives

1. Understand the special meaning of price.

2. Know the factors that influence pricingdecisions, i.e. price determinants.

3. Understand pricing strategies for different

product/market situations.4. Examine the pricing policies for various types of

customers.

5. Understand the role of leasing.

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Cost to the buying firm includes basic Price,

freight, transit insurance, installation, risks ofproduct failure, delayed delivery, etc,

Some customers are price buyers. Marketers,

should follow transactional relationships & offer

basic properties.

Some other buyers are loyal buyers, for whom

marketers should follow relationship marketing

with partnering / collaborative approach andmutually acceptable prices.

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FRAMEWORK OF PRICING DECISIONS(i) Pricing objectives

(ii) Customer analysis

(iii) Cost analysis

(iv) Competitors' analysis

(v) Govt. regulation / policies

Before taking pricing

decisions, a buying firm must

find "price determinants".(i.e. factors that influence

pricing decisions)

Two types of pricing decisions. IM/11-5/ 29

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Pricing strategies Pricing policies

Setting a price

(product / marketsituations)

Initiating a

price change

Responding to a competitor's

price change

Discounts

Geographical

pricing

Leasing

PRICE DETERMINANTS OR FACTORS INFLUENCING

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PRICE DETERMINANTS OR FACTORS INFLUENCING

PRICING DECISIONS

(i) Pricing objectives, (ii) customer analysis, (iii)cost analysis, (iv) competitive analysis, (v) Govt.policies.

1. Pricing Objectives

Are derived from corporate and marketingobjectives.

Some of the pricing objectives are survival,maximum shortterm profits, maximum shortterm sales, maximum sales growth, productquality leadership, etc.

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2. Customer (Demand) analysis

It includes demand analysis & cost - Benefit analysis

(i) Demand analysis. Using experimental research, itmeasures relationship between price and demand (orsales volume). It sums up how sensitive customers are tothe price changes. The formula is:

If PED is > 1, demand is elastic, & customers are pricesensitive

If PED is < 1, demand is inelastic, customers are lesssensitive to prices.

=% change in quantity demanded

% Change in price

(ii) CostBenefit Analysis IM/11-8/ 29

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Necessary to know target customers perceptions of benefits(or value) and costs.

Benefits are categorized into hard (or tangible) benefitslikequality, production rate, performance, etc. and soft (orintangible) benefitslike customer service, company reputation,warranty period, etc.

Cost includesprice, duties and taxes, freight, installation,

maintenance.

3. Cost Analysis.

A firms total cost of a product is the lowest point on the pricerange. Hence, for pricing decisions, the marketer must knowthe various types of costs like fixed, variable, total, direct, etc.for a product / service.

Costs vary based on production capacity (i.e. economies ofscale), and accumulated experience (i. e. learning curve) asshown.

Cost Economies of ScaleIM/11-9/ 29

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Cost

per

Unit

Quantity Produced per year

Cost

per

Unit

Accumulated Production

Experience /

Learning

Curve.Av. Cost Reduction

= 10-30%

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Break - Even Analysis is useful to consider different

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Sales

&

Costs

Sales Volume

Sales Revenue at P3

Sales Revenue at P2

Sales Revenue at P1

Total CostFixed Cost

Break - Even Analysisis useful to consider different

prices (P1, P2, P3), and its effect on sales revenue and profits.

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Many marketers have competitive level Pricing as apricing objective.

Marketers should get Competitors prices, discounts,costs, product quality, service, etc for cost/benefitanalysis, pricing and positioning strategy.

Competitors information can be obtained from various

sources.

5. Government Regulation/Policies

Govt. regulations are necessary to ensure fair play and to

protect consumers and small scale suppliers. Price-fixing / price cartels, price discrimination (e.g.

different discounts to distributors/dealers), and predatorypricing (e.g. dominant firm aiming to finish competitors)are not permitted (illegal as per MRTP act, for example)

PRICING STRATEGIES

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PRICING STRATEGIES

Pricing strategies vary as per product-marketsituations such as (i) Competitive bidding in

competitive markets, (ii) New product pricing, (iii)

Pricing across product life-cycle.

(i) Competitive Bidding

In business markets, large volume of purchasing is

done through competitive bidding, using eitherclosed (or sealed) bidding or open (or negotiated)

bidding method.

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In closed bidding, often used by the Govt. buyer,

sealed bids are invited through newspaper tendernotices. Sealed bids are opened in presences of

suppliers and orders are placed on the lowest

price bidder(s).

In open bidding, after receiving bids (quotations),the buyer negotiates technical and commercial

parts with suppliers, and then places orders. This

method is often followed by commercial

enterprises in private sector .

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An Application (example) of probabilistic Bidding StrategyIM/11-15/ 29

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

Bid

Price( Rs) (A)

Total Cost

Per Unit(Rs) (C)

Competitor'sLast Tender

Price(Rs) (B)

Profit (Rs)

=(A) - (C)T (A)

450

430

410

380

360

340

330

400

350

350

350

350

350

350

350

350

360

360

360

360

360

360

360

360

0.00

0.15

0.40

0.50

0.72

0.90

0.95

1.00

100

80

60

50

30

10

(10)

(20)

0

12.00

24.00

21.60

09.00

(9.50)

(20.00)

25.00

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(ii) New Product Pricing Strategy

In the introduction stage of a new product,two alternative pricing strategies areavailable(i) Skimming (high initial price) strategy, and

(ii) Penetration (low initial price) strategy.

Skimming Strategyis appropriate for a newproduct that is distinct, hightech, orcapital intensive, and purchased by amarket segment that is not sensitive to theinitial high price. The advantageis faster

recovery of investment by generating larger

Penetration strategyis appropriate when (i) buyers areIM/11-17/ 29

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gy pp p ( ) yhighly price sensitive, (ii) strong threat exists frompotential competitors (due to low entry barrier). Theselling firms objectiveis to achieve longterm profitsthrough high market share. The firm can also achievecost leadership thru economies of scale and experiencecurve, which gives competitive advantage.

(iii) Pricing Across Product LifeCycle (PLC)Marketing and pricing strategies vary as the productmoves across 4stages of PLC.

(a) Introduction stage. We have discussed pricing strategy

in this stage earlier in pricing a new product.(b) Growth stage. The firm lowers the prices to attract thenext layer of pricesensitive buyers. Also more suppliersenter the market and buying firms put pressure on theexisting suppliers to lower prices.

(c) Maturity stage. The firm may cut the prices to matchIM/11-18/ 29

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( ) y g y paggressive competitors prices by giving volume discounts,absorbing freight costs, or more credit. If industrialcustomers do cost - benefit analysis, a selling firm mayincrease prices or not make any change in prices due to itssuperior product quality.

(d) Decline stage. Pricing strategy varies depending on

conditions. (i) If buyers perceptions about the firmsquality of product / service is good, then the price neednot be lowered, but costs should be reduced to earnprofits, (ii) if the quality of product / service is equal oflower than competitors, a firm may cut prices, to increase

sales volume above breakeven volume, (iii) if somecompetitors have withdrawn, a firm may selectivelyincrease prices to less pricesensitive segments.

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If a firm is a market leader and wants to change the price,

it must anticipate reactions from customers andcompetitors.

The firm must study major competitorsobjectives,financial situations, production capacity utilizations, sales,

costs, and profits. It must also understand competitorsmind-set, by studying their business philosophy (orconcepts), culture, beliefs and past behaviors. Based onabove analysis the firm should predict competitorsresponse.

The firm must also understand that customers generallyprefer small price increases several times, rather than onesharp increase. Of course, customers would generallywelcome price cuts.

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p g p p g

A marketer should respond after answering the following

questions.(i) Why the competitor has changed the price?

(ii) Is the price change temporary or permanent?

(iii) What will happen to the companys sales and profits,

if it does not respond.(iv) What would be the reactions of other competitors.

The responses can be in several ways:

(a) maintain price and value (benefits), (b) matchcompetitors price, (c) develop and launch low-priceproduct item, (d) maintain price. The right responsedepends on the business situations faced by the firm.

PRICING POLICIESPurpose A firm evolves pricing policies to adjust basic

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Purpose.A firm evolves pricing policies to adjust basicprices (or price list) for different types of customers (like

OEMs, users, and dealers) who buy various quantities andare located at different locations. The price list is adjustedwith different types of discounts and allowances.

Price listis a statement of basic prices of a product, havingvarious sizes/specifications.

Net price= price list (or list-price) less discount (orallowances). Business buyers are more interested in netprice

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 equaland sufficient (as per industry norms or functionsperformed). e.g. price list (100)trade discount (15) = netprice (85)

Volume / Quantity discounts. Here, the objective is to

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Volume / Quantity discounts. Here, the objective is toencourage customers to buy larger quantities, which

would reduce the costs of selling, inventory carrying andtransportation. The quantity (or volume) discounts aregiven either on single orders over a period, usually oneyear (cumulative basis). For example,

Above discounts are applicable for all types of customersOEMs, users, and dealers / distributors.

Size of each

Purchase order

Yearly Total

Purchase

% Quantity

Discount

Less than 5 nos.,

5 - 10 nos.,

11 -15 nos.,

> 15 nos.,

Less than Rs. 5,000

Rs. 5,000 - 10,000

Rs. 10,000 - 15,000

> Rs. 15,000

Nil

upto 3

upto 6

upto 10

or

or

or

or

,

,

,

,

or

Cash Discounts. The objective is to get prompt payments.

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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 cashdiscount on the gross amount of bill. The extent of cashdiscount depends on the bank rate of interest. Give cashdiscounts thru credit notes and the cheques, instead ofincluding it in the bills.

Geographical Pricing

It includes decisions on how to price the companysproducts to customers located in different geographicareas. There are two alternatives :

(i) ExFactory Pricing. It means prices quoted are basedh i h f i f i h

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on the prices at the factory gate, i.e. freight

( transportation costs) and transit insurance costs are tothe customers accounts. Hence, the landed price (orcosts) to customers vary depending on their geographiclocations.

(ii) F.O.R. Destination Pricing. Here, the quoted prices

include freight costs. Transit insurance is a small amountto be covered by the customers open insurance policy.Hence, all customers get the product almost at the sameprice, despite different geographic locations. Marketeradds the average freight cost to the basic prices and then

prepares the pricelist, or absorbs the freight cost, ifcompetition demands.

Taxes and Duties. Knowledge of exciseduty, sales tax,octroi, entrytax, roadpermits etc is essential for salesand marketing persons, since they have an impact on the

ROLE OF LEASING.IM/11-25/ 29

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O O S G

Business buyers have options of either leasing or buying

capital items like machinery. The advantagesfor thelessee (asset user) are : (i) conserving capital, (ii) gaining

tax advantages, (iii) getting the latest products. The lessor

(asset owner) often earns good income from buying firms

who can not afford outright purchase.

A leaseis a contract (or an agreement) by which the asset

owner (lessor) gives the right to use the asset to another

party (lessee) in return for payment, over a specifiedperiod.

Types of Leases :

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Types of Leases :

(i) Financial (or fullpayment) leases, and(ii) operating (service or rental) leases

Financial leases. These are fullpayment,non - cancellable, long - term contracts and

fully amortised (sum of lease payments

purchase price of capital item)

>

Operating Leasesare service/rental leases, that are

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p g / ,cancellable, short-term contracts or agreements, and

are not fully amortised. The rates are higher than thoseof financial leases, because risk of obsolescence are ofthe lessor

Pricing Strategy

It is based on the firms marketing and pricingobjectives. Three possible alternatives are :

(i) Decide lease rate to favor leasing

(ii) Decide lease rate to favor outright purchase

(iii) Achieve balance between lease rate & sale rate.Some business marketing firms have representatives forgiving financial consultancy services to buying firms onleasing or buying.

SUMMARY OF CHAPTER 11

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SUMMARY OF CHAPTER11

In business marketing, price has a specialmeaning. For value buyers, value based pricing isappropriate.

Factors that influence pricing decisions (or price

determinants) are: (i) pricing objectives, (ii)customer analysis, (iii) competition analysis, (iv)cost analysis (v) government regulations/policies

Pricing strategies for different product-market

situations are: (a) competitive bidding incompetitive markets, (b) new product pricing (c)pricing across product lifecycle.

Initiating price changes and responding to

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Initiating price changes and responding tocompetitors price changes are also parts of

pricing strategies Pricing policies include adjustment of basic prices

(or price list) with different types of discounts likevolume, trade, and cash, as well as geographical

pricing. Leasing or buying options are available to

business buyers for capital items like machinery.Financial and operating are two types of leases.

Pricing strategies are made either to favourleasing or outright purchase, or balance betweenleasing and buying .

CHAPTER 12

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CHAPTER 12STRATEGIC PLANNING, IMPLEMENTING, AND

CONTROLLING IN INDUSRIAL MARKETING

Learning Object ives

Understand the characteristics of marketoriented organization.

Know the role of marketing in strategic planning

Examine the strategic planning process at

business unit level.

Understand preparation implementation and

control of industrial (or business )marketing plan.

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CHARACTERISTICS OF MARKETORIENTED

ORGANISATIONS

Firms achieve marketorientation by

managing the following factors.

(i) Shared values.

(ii) Organization structure, policies and

culture.

(iii) Strategic Planning.(iv) Needs or expectations of stakeholders.

IM/12-3/19Hierarchy of Strategies

B f d di h l f k i i i l i

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Before understanding the role of marketing in strategic planning, weshall first examine hierarchy of strategies.

OrganisationalLevels

OrganisationalStructure

Strategy hierarchy(Type of Management)

CorporateDivisional/

Business Strategy(Strategic

Management)Divisional /

Business Unit/ SBU

CorporateOffice

SBU

II

SBU

III

SBU

I

Marketing FinanceProduction

FunctionalStrategy

(OperationsManagement)

Functional

The earlier figure shows hierarchy of strategies and

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g y gorganization structure of a large company.

Strategic managementgives a direction to the firm andfocuses on developing strategies to achieve longtermobjectives & goals

A Strategic business unit (SBU)consists of anindependent business or related business that has itsown competitors and specific markets. In some largecompanies there are (product ) divisions and eachdivision has a divisional plan. Each SBU is headed by amanager who is responsible for strategic planning and

performance of the SBU.Operational Managementmaintains the direction givenby strategic management, and concentrates on day-to-day issues of costs, revenue and profits.

ROLE OF MARKETING IN STRATEGIC PLANNING IN

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A FIRM

Com panyLev elForm alNam eRoleof MarketingCorp orteCorpor teMarket ing

Togive informationonm arketsandtoensur ecustomerorient ation,forcorporat estrategydevelo pment.

Divisi onal/Busi nessUnit levelStrateg icMarket ingTocarr youtcustomer& competitionanalysis, fordeveloping businessstrategy, includingcompe titiveadvantag e,segmenting,t argeting,andpositioni ngstrategies.

Funci tonalMarket ingManagem entTodeve lopeshort-term marketingplanand strategy,coordi nation,andresource allocation.

CompanyLevel

FormalName

Role of Marketing

CorporteCorporte

Marketing

To give information on markets andto ensure customer orientation, forcorporate strategy development.

Divisional /BusinessUnit level

StrategicMarketing

To carry out customer & competitionanalysis, for developing businessstrategy, including competitiveadvantage, segmenting, targeting, and

positioning strategies.

FunctionalMarketing

Management

To develop short - term marketingplan and strategy, coordination, andresource allocation.

STRATEGIC PLANNING PROCESS AT CORPORATE LEVELIM/12-6/19

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The major steps involved are1. Deciding corporate mission and objectives.

2. Establishing strategic business units ( SBUs.)

3. Allocation of resources to SBUs.

4. Developing corporate strategies.

ALLOCATION OF RESOURCES TO SBUs.

Two widely used models /tools are : (i) BostonConsulting group (BCG) model, called Growthshare matrix, (ii) General electric (GE) model,called Business Screen matrix.

BCG Model : GrowthShare Matrix

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Stars

MarketGrow

thRate

Large Small

Rapid

Slow

1

5

Question marks

6

8

4

Cash Cow

3

2 7

Dogs

Relative Market Share

GE Model : Business Screen MatrixIM/12-8/19

Business Strength

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High Medium Low

Business Strength

High

Medium

Low

Selectivity /

Earnings

1

1

5

Major Business Strength factors : Market

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Major Business Strength factors: Market

share, product quality, unit costs, R&Dperformance, brand reputation, share

growth.

Major Market Attractiveness factors:Overall market size, annual market growth

rate, historic profit margin, competitive

intensity, technological requirements.

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The strategic planning gap can be filled by three

l i i ( ) i ifi i h ( )

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alternative strategies : (A) Diversification growth, (B)

Integrative growth, (C) Intensive growth

(C) Intensive Growth Strategy. Corporate management

should first review existing business, using Ansoffs

product-market expansion grid, shown hereafter :

Current Products

Market Penetration

Strategy

Product development

Strategy

Market developmentStrategy

( Diversification Strategy )

Current

Markets

New

Markets

New Products

( B) Integrative Growth Strategy includes

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