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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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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 ANDIM/9-9/12
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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.
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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.
Initiating price changesIM/11-19/ 29
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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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