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1.1 Introduction
1.2 The Concept of Industrial Marketing
1.3 Definition of Industrial Marketing
1.4 Characteristics: Industrial and Consumer Marketing
1.5 Demand in Industrial Market
1.6 Summary
1.7 Questions for Discussion
The motive of the lesson is to: understand the concept, meaning and importance
of industrial marketing; know the differences between industrial marketing and
consumer marketing; and learn the concept of demand for industrial goods and
services in the market.
The fundamentals of consumer marketing are equally applicable to the industrial
marketing. The work of the industrial market is exclusively different, as all the
forces of market that affect industrial demand. The managers of industrial
market must react in a different way to change the markets, develop products to
meet these changes, and market them in exclusively different ways to the target
and sophisticate customers while maintaining corporate policies. Therefore,
industrial marketers face many distinctive marketing situations not normally
encountered in the consumer market. Further, the industrial market has been the
backbone of the high standard of living enjoyed by consumers in past or since
the industrial revolution at global level. It is dynamic and challenging in any
nation's economic growth and development. As and when the principles,
knowledge, and practice of marketing cut across all industries, to market
effectively in the industrial market than it becomes compulsory for the policy
makers to study the industrial marketing differently and to understand the indus-
trial marketing problems.
The marketing concept for the business enterprises of industrial buyer is to
define the needs of a target market and modify the organization's product or
service to satisfy those needs more successfully than its competitors. The
marketing concept is applicable and important in both the industrial and
consumer markets due to the differences in terms of the nature of markets. It is
evident that consumer marketers have embraced the marketing concept more
fully than their industrial counterparts because Industrial customers like
organizations-businesses, institutions, and government agencies having unique
needs. The industrial marketing concept involves more than facilitating
exchange with these customers because it is based upon the structure of a
partnership between buyer and seller for the purpose of achieving the
organizational goals of both.
Generally, industrial organisations tend to be technically oriented-much more
interested in a particular product and its technical development. Many managers
in such firms are promoted out of engineering and research and development
departments. Sometimes technical values tend to dominate their decision-
making. When it happens, there is a risk of ―becoming so charmed with a
technical accomplishment or particular product parameters that the necessary
flexibility for responding to customer needs in a competitive market place
disappears. It is more serious in industrial marketing due to the complexity of
the problems customers are attempting to solve. For marketing effectiveness, the
product should always be regarded as a variable and should be viewed from the
perspective of the customer. Customer benefits and need satisfaction, rather than
the physical product, should be the center of attention. Further, customer
satisfaction should be dominant in all corporate decision making; so, it cannot
be the exclusive domain of the marketing department. Providing customer
satisfaction must involve all decision makers and will affect product design,
demand analysis, manufacturing techniques, resource utilization, and long-range
profits of the business-organisations.
Moreover, the understanding of the concept of industrial marketing is
compulsory for industrial marketing manger: to provide proper guidance and
stimulation for research and development of new products; to exploit and
develop markets for new products; to define the methods for promoting products
to customers considering the major increase in the cost of media advertising and
personal selling; to innovate in distribution and other areas to keep up with
changing requirements of industrial customers doing business on a multinational
basis; to meet stiff competition through modernised business; to refine and
modify product positioning; and to approach problems in the modern ways.
The word Industrial Marketing is also treated as Business-to-Business
Marketing, or Business Marketing, or Organizational Marketing. Industrial
marketing/business marketing is to market the products and services to business
organizations: manufacturing companies, government undertakings, private
sector organisations, educational institutions, hospitals, distributors, and dealers.
The business organizations, buy products and services to satisfy many objectives
like production of goods and services, making profits, reducing costs, and, so
In contrary, marketing of products and services to individuals, families, and
households is made in consumer marketing. The consumers buy products and
services for their own consumption.
Further, industrial marketing consists of all activities involved in the marketing
of products and services to organizations that use products and services in the
production of consumer or industrial goods and services, and to facilitate the
operation of their enterprises.
The companies/selling organizations that sell steel, machine tools, computers,
courier services, and other goods and services to business firms/buying
organizations need to understand the buyers' needs, purchasing power/resources,
policies, and buying procedures. They have to create value (benefit) for the
buying organizations (customers) with products and services and focus on
buying organizational needs and objectives. For example, a company
manufacturing and marketing precision steel tubes to bicycle, a manufacturer is
doing business marketing. Industrial marketer of the precision steel tube
company must understand the needs of bicycle manufacturers such as Hero
Cycle and Atlas Cycle, in terms of their quality requirements, applications of
tubes, availability or delivery on daily or weekly basis, and so on. Similarly, a
small and proprietary firm, giving technical advice (or services) to paint-
manufacturers is also doing business marketing.
The needs and objectives of industrial buyers are satisfied through the following
exchange processes.
1.3.1 Product Exchange
The features of a product or service involved have a significant impact on the
industrial exchange process. The ease of exchange depends upon the ability of
the seller to identify the buyer's needs and the product's potential to satisfy
those needs. If the exchange is good in terms of price, quality, quantity, and after
sale services then it will give a positive symbol for the customer loyalty in terms
of product/service loyalty.
2 Information Exchange The information consists of technical.4 CHARACTERISTICS: INDUSTRIAL AND CONSUMER MARKETING The basics of marketing management: deciding the target markets.3.3 Financial Exchange The granting of credit or the need to exchange money from one currency to another at the time of dealing with foreign buyers/customers are included in this exchange. buyers and sellers tend to work together. 1. developing products and services to meet the requirements of those markets.1. finding out the needs and wants of the target markets.4 Societal Exchange Societal exchange is important to reduce uncertainty between buyer and seller. and maintaining the long-term exchange relationship to one another. the distribution channels are short. exchanging product specific information over long periods of time. 1. not fully formalized or based on legal criteria until the end of the transaction period. 1. The industrial markets are geographically concentrated. and organisational questions: pre and post sale maintenance and servicing must be exchanged to the participants of business organisations. Products and services must be planned and designed to serve customers efficiently.3.3. To achieve it. and evolving marketing programmes or strategies to reach and satisfy target customers in a better and faster way than competitors apply to both consumer and industrial marketing. the buyers (or customers) are well informed. the buying organisations are highly organised and use . the customers are relatively fewer. avoiding short-term difficulties. economic. A number of aspects of an agreement between buyers and sellers in the industrial market are based on arbitration and mutual trust.
characteristics Relatively fewer buyers Mass markets Technical complexity. Table 1. Customised Standardised characteristics Service. through changes in advertising. the changes in industrial marketing strategy generally have company-wide implications.1: Differences between Industrial and Consumer Marketing Sr. However. Product 2. and Service 3. timely delivery and availability very Service.sophisticated purchasing techniques. many times the changes in marketing strategy are carried out within the marketing department. The differences between industrial and consumer marketing are as shown in Table 1. But in case of consumer marketing. 1. the purchasing decisions are based on observable stages in industrial marketing. it is difficult to separate industrial marketing strategy from the corporate (company) strategy. disbursed. Bases Industrial Markets Consumer Markets No. Geographically Geographically Market concentrated. Sometimes. delivery.1. sales promotion. and packaging strategies. Industrial marketing is more a responsibility of general management in comparison to consumer marketing. important availability somewhat Characteristics important .
the significant differences exist between industrial and consumer market characteristics that affect the nature of industrial marketing. for a consumer product like toothpaste or soap. only three or four customers may comprise the major portion of a total market. consisting of all the households . and competitive nature of the markets. Size of the Market: Compared to the great number of households that constitute the mass market for consumer goods and services. making Distinct Mental stages Shorter. Indirect. Buyer behavior rational/performance basis. Channel More direct. 5. Emphasis on personal selling Emphasis on advertising Characteristics Competitive bidding and Price negotiated prices. In the case of industrial markets. Multiple layers of Characteristics. List prices or maximum 8. Observable stages. Stable interpersonal Less technical expertise.4. it is common to find less than 20 companies to represent the total market for an industrial product or service. These differences are: size of market. Technical expertise. Characteristics List prices for standard retail price (MRP) products 1.1 Market Characteristics Basically. Purchase decisions are Purchase decisions are mostly made on mainly made on physiological/social/ 4. relationship between buyers and sellers Non-personal relationship Decision. Fewer intermediaries intermediaries/middlemen Promotional 7. 6. a mass market. In fact. For example. Involvement of various Involvement of family functional areas in both buyer members and supplier firms. psychological needs. Unobservable. geographic concentration.
in India. there are limited numbers of customers-mainly State Electricity Boards. educated employees. Competitive Nature: An additional difference between the two markets is the nature of oligopsonistic buying. 60 percent of all lead. organizations that are very large firms. oligopsonistic buying organisations (very large firms) tend to dominate many markets such as. they are larger in size. and engage in this volume purchasing on a repeat basis. In the industrial arena. They tend to concentrate in areas that have advanced teaching and research facilities and desirable living locales such as the Silicon Valley in Banglore. Such concentration occurs mainly because of natural resources and manufacturing processes. Manufacturers whose production processes add weight to their products tend to locate near customers. and 72 percent of all plate glass produced in the United States. While there are relatively few industrial customers. the Leh Hills. Only a handful of counties in California. For example. and Louisiana produce the bulk of our gas and oil. the geographic location of natural resources explains the concentration patterns of most energy-producing firms. while those whose processes subtract weight tend to locate near sources of input. large private and public sector organisations. purchase larger quantities. the small number of large automobile producers in the United States purchase 60 percent of all synthetic rubber. These oligopsonists' reactions to changes in one another's buying practices affect . large power transformers or high-tension switchgears. who seek both intellectual challenges and physical pleasures. Geographical Concentration: Industrial customers also tend to be concentrated in specific areas of the India such as Andaman Nikobar. tend to dominate many markets. Texas. exist. For instance. Further. oligopsonistic buying organizations. Manufacturers of computers and other advanced electronic products present an interesting case of plant location. in industrial arena.. Oklahoma. Such locations are chosen to facilitate the attraction of intelligent.
subsidized by government policies. Therefore. However.2 Product Characteristics In industrial marketing. steel strip for the manufacture of luggage bags) that the customer was not justified in rejecting his company product. then. is more apt to cross international boundaries than are demand and supply in the consumer market. The real risk in falling in love with the technical aspects of a product in industrial marketing is to ignore the flexibility in responding to customer's needs in a competitive market. but domestically as well. commit the serious mistake of trying to change the customer to fit the product. the purchases are made based on the specifications evolved by the buyers. Some companies.R. because of increasing improvements in foreign technology and marketing skills. as it was as per the relevant Indian standard specifications and that the customer's product specifications were more rigorous than the Indian . economic. therefore.industrial marketing strategy decisions.R. the products or services are generally technically complex and not purchased for personal use. the quality control manager of a ―cold rolled (C. 1. They are purchased as components parts of the products and services to be produced or serve the operations of the organisations. industrial organizations are more directly involved in international purchasing. and competitive changes than are their consumer counterparts.) steel strip‖ manufacturing company informed an important customer (who used C. Because of the importance given to the technical aspects of products. are more subject to world political. Industrial demand as well as industrial supply. Industrial marketers. For example. as a result. the major finished goods exports of industrialized nations tend to be industrial rather than consumer goods manufacturers. worldwide competition makes it more difficult for Indian suppliers of industrial goods to compete not only in foreign markets.4. Due to the fact that technological or cost-effective advantages override geo- graphical considerations.
standard specifications. after-sales service. acceptable payment and other commercial terms cost effectiveness. commercial/materials. other competitors supplied the product as per the needs and specifications of the customer. The relationships between the sellers and buyers are highly valued and they become stable in the long run because of a high degree of interdependence. The cost of selecting a supplier who cannot meet delivery requirements or who delivers an unsatisfactory product can be high. in consumer marketing the relationship between a buyer and a seller . administrative. and financial capabilities. the buying process is more difficult as compared to consumer marketing. As compared to consumer marketing. not only returned the entire rejections but also cancelled the balance orders. However. In contrary.4. Therefore. therefore. the purchasing firm must be certain of a potential supplier's technical. Thus. the customer refused to accept the product. The buying decisions generally take a longer time and involve many individuals from technical. 1. timeliness. such as compliance with product specifications product quality. because any delay in supply will have a significant impact on the production or operations. timely supply. The customer. as it was failing at the shop floor operations. and so on rather than on social and psychological needs. inter-organisational contacts take place and interpersonal relationships are developed. availability. there are negotiations and exchange of information between the specialists and representatives from both the buyer and the seller organisations. that is. who placed orders with them. Changes are few and occur relatively slowly. Subsequently. and finance departments.3 Buyer Behaviour In industrial marketing. certainly delivery or availability of product. After the initial offer made by a seller. Buyers charge problems in searching out and qualifying suppliers. The purchase decisions in industrial marketing are based on many factors. industrial customers place a greater importance on service.
Consumers change their purchasing habits frequently and the buying decisions are always based on physiological.is non-personal. social and psychological needs of the members of a family household.4 Channel Characteristics Inventory or stock control is very much important factor in the business organisations therefore the distribution channels are needed more direct from the manufacturer to the customer in industrial marketing. which are feasible in the industrial market than the consumer market as shown in Figure 1. But. in case of selling to small-scale customers or geographically scattered markets. or agents/representatives. the manufacturers use their own sales/marketing personnels to sell the products directly to major customers. which also helps in minimising the cost of marketing.4. Figure 1. 1. .1: Channel distribution in Industrial and Consumer market Industrial Market Consumer Market Producer Producer Sales force Representative Sales force Representative s Wholesaler Wholesaler Distributor Distributor Retailer Retailer Retailer Retailer Customer Customer Customer Customer Customer Customer Customer Often. There are a few channel alternatives.1. many manufacturers use either distributors/dealers.
the emphasis is given on advertising whereas. utilizing in-depth product knowledge and technical understanding of the buyers' needs. In industrial marketing.6 Price Characteristics The products are sold through the intermediaries/middlemen to the consumers based on the ―Price List‖ of the manufacturer or the maximum retail price (MRP) for the packaged products in consumer marketing. Advertising is used to lay a foundation for the sales call rather than serve as the primary communication tool. the importance is given to the personal selling through the company's sales force. the retailer reduces the price by passing on to the consumer a part of his discount due to different degrees of intensity of the competition. price is less critical factors for purchase decisions.In case of consumer marketing. Sales promotion activities tend to center on trade shows.4. as . 1. the competitive bidding (i. Sales people act more as consultants and technical problem solvers. a much larger expenditure budget is provided for advertising in consumer marketing in comparison to industrial marketing. traditional trade journals. Sometimes. catalogs and conducting technical seminars.5 Promotional Characteristics In consumer marketing. quoting a competitive price against a tender enquiry) becomes very important. 1. As a result. Some industrial advertisers use television to reach potential consumers. When there are no price negotiations in certain Government tenders.e. whereas industrial advertising normally stresses more factual and technical data. trade fairs.4. the primary means of reaching the market is through business magazines. in industrial (or business) marketing. and direct mail. Competitive bidding and price negotiations are very common in industrial marketing and financing arrangements are often considered part of pricing package. since the household consumers are geographically dispersed all over the country. the channel of distribution is longer with multiple levels of intermediaries/middlemen.
the demand for precision steel tubes does not exist in market. Cross elasticity of demand exists for some substitute products in industrial market. Therefore. and furniture (steel tables and chairs). The payment and other commercial terms are also negotiated at the time of price negotiation. It is demanded for the production of bicycles. But. which are consumed by the consumers. industrial demand is called derived demand. In industrial marketing. Sometimes. these differences in terms characteristics do not make a complete analysis. when the demand for a product depends upon its use along with the existence of other product or products.5. These concepts are detailed as follows: 1. 1. it is necessary to understand the concept of industrial demand in the market to analyse completely. the demand for industrial product is called joint demand. Almost private sector and some Government organisations. price negotiations are held to decide the prices and the volume of orders to be placed on various supplier firms. Dealer discounts. scooters.1 Derived Demand The single most important force in marketing of industrial products and services is derived demand. Therefore. Thus. For example.only the lowest bidders are considered for placement of orders.5 DEMAND IN INDUSTRIAL MARKET The demand for industrial products and services does not survive by itself. motorcycles. It is derived from the ultimate demand for consumer goods and services. The above discussion clarifies that there are many basic differences exist between consumer and industrial marketing. the demand for industrial goods and services is derived from consumer goods and services. the demand for precision . and volume discounts on the price list of standard industrial products are widely used in industrial marketing. Industrial customers buy goods and services for making the use in producing other goods and services and finally produced product/service sold to the consumers.
Thus. or do both. On the other hand. cannot buy only some of the items from a supplier as it does not contented the kit. they feel the business is on the upswing) their investment in capital goods and other industrial products will increase. a pumpsets cannot be used for pumping water. If businessmen of feel that there may be a recession in near future. An. scooters. machine tools. such as machinery and equipment (e.) that are used to produce other goods. quality. some industrial products do not have industrial . there is an increased production and sales of consumer goods. but also in anticipation of profit. etc. leather machinery.e. R&D and marketing departments. for joining the under ground telecom cables. consisting of different items.5. During the periods of recession. the purchases are made not only for the current requirements. and the quality of its products. the attitude of businessmen is very important. 1.g. which results in an increased demand for industrial goods. finance. In case of capital goods. textile machinery. or reduce the production. Similarly. For example. if the attitude of businessmen is favourable (i. the department of telecommunication (DoT). motor- cycles. during the period of prosperity. or reduced consumer demand. as it reflects the optimism or pessimism about the future. industrial firms reduce their inventories/stocks. This may be the right time for price increases and building stocks as ready availability and shorter delivery period becomes very important. Thus. On the other hand.2 Joint Demand Joint demand is common in the industrial market because it occurs when one industrial product is useful if other product also exists. so as to get information on changes in customers' sales. industrial marketing firm should be in close touched customers purchase.steel tubes is derived from the forecast of consumer demand for bicycles. if the electric motor or diesel engine is not availab1e. new product development. financial condition. and furniture. form the future usage. their purchases will be drastically curtailed. which requires a complete kit.
and so on. Apart from other advantages of aluminum doors and windows. the marketing persons working in the aluminum extrusion companies should recognize that the cross-elasticity of . the demand for aluminum is related to the prices of wood and steel for the doors and window frames. the total industry demand comes from the united needs of all the customers rather than price. but it is more imperative in industrial marketing as it can have a dramatic impact on the marketing strategy of an industrial firm. elegant looks. sensitive to changes in prices) for individual suppliers.demand. and hence it is relatively inelastic. 1. The reverse is applicable for changes in the prices of steel or wood. the cost comparison with steel and wooden door and window frames play an important role in the purchase decisions in the construction of houses. Thus. hospitals. hotels. between the various suppliers. but are demanded only if the other products are available from the industrial supplier. insensitive to changes in prices) for a particular industry. highly elastic (i. elasticity is the change in demand from a change in price.e. be highly elastic for anyone firm. as they are close substitutes. This is because. environment. a slight change in the price by one firm may create a major change in the quantity and thereby. but at the same time. Cross-elasticity of demand is the reaction of the sales of one product to a price change in another product. friendly in comparison to wood. and so on.3 Cross-Elasticity of Demand Simply. Aluminum extrusion companies regularly collect the information on cost of steel and wood.5. there is an impact on the sales of doors and windows made out of wood or steel. The demand for most of the industrial goods can be inelastic (i. This concern present in both consumer and industrial marketing.e. and advertise the advantages of use of aluminum in terms of negligible maintenance cost. For example. commercial offices. factories. Whenever there is a change in the price of aluminum due to changes in excise duty or other input costs. Though.
more of a general management function. affecting the various departments or functions in an organisation.demand exists for their products. therefore. if other product also exists. Joint demand occurs when one industrial product is required. institutions and middlemen in private and public sector organisations. buyer behavior. based on the changes in the demand for their customers' products. An industrial marketer must know how the demand for his products is likely to be affected by the changes in the prices of substitute products. service organisations.7 QUESTIONS FOR DISCUSSION . Industrial marketing strategy has company-wide implications and is.6 SUMMARY In all. It ought to be clear after going through this lesson that industrial marketing is more multifarious than consumer marketing and the marketing success depends on understanding the intricacies involved in it. The differences between industrial and consumer marketing exist in certain characteristics such as market. 1. Cross-elasticity of demand is the reaction of the sales of one product to a price change in another product. the concept of industrial marketing may be referred as marketing of goods and services to business organisations: manufacturing companies. 1. product. They must know that existence of cross-elasticity of demand for their products so as to recognise both direct and indirect competition. The demand for industrial products is derived from the ultimate demand for consumer goods and services. channel. It is. Because of the unique characteristics of derived demand. therefore. If the cross-elasticity of substitute products is high. the industrial marketing persons would anticipate any increase or decrease in the demand for their products. and Government undertakings. called as derived demand. and price. promotional. it indicates that these products compete in the same market.
Robert R. Delhi.1. References: 1.Reeder (2001). ―Industrial Marketing‖(1 st ed. Hawaldar. 5. Prentice-Hall International.) . 2. New Delhi. Ralph S. Do you agree to this statement? Explain your answer. Edward G. Helen (2000). 2. ―Industrial Marketing‖(4th ed. Industrial marketing is more complex than consumer marketing. New Delhi 4. TATA McGraw-Hill Publishing Company Limited. Macmillan India Limited.).Brierty & Betty H. 1985. . All India Traveller Book Seller Publishers And Distributors.Alexander & James S.Hiii. Illustrate with example why industrial demand is called derived demand. ―Service Marketing: Operation. Richard M. Krishna (2002).Cross (2003). 4. ―Industrial Marketing‖ (2nd ed. Explain the main differences between consumer and industrial marketing. K. 3. ―Strategic Industrial Marketing‖.Reeder. Define the concept of industrial marketing with the consideration of different industries of a nation. Woodruffe. Prentice-Hall of India Private Limited. 5.). 3. Management and Strategy‖. Explain the concept of joint demand and cross-elasticity of demand with examples from industrial marketing. Peter M. Chisnall (1985).
government. 2: INDUSTRIAL MARKET STRUCTURE 2. 2. are important to the functioning of their business . in one way or another. governmental organisations. know the influencing factors to marketing strategy in terms of type of customer being served and the product or service being marketed. The industrial market is characterised by wonderful diversity both in customers served and products sold. Effective marketing programs thus depend upon a thorough understanding of how marketing strategy should differ with the type of organisation being targeted and the products being sold. The industrial market is composed of commercial enterprises. and institutions whose purchasing decisions vary with the type of industrial good or service under consideration.2 Types of Industrial Customers 2.3 Industrial Products and Services 2.1 INTRODUCTION To develop an effective marketing plan. an industrial marketer needs to understand industrial markets.6 Summary 2. accessory equipment. Industrial distributors or dealers who in turn sell to other industrial customers.5 Purchasing Practices of Industrial Customers 2. and services are example of the types of products purchased by the variety of customers in the industrial market. spare parts.7 Questions for Discussion OBJECTIVES The objectives of this lesson are to: describe the diversity of industrial customers and the types of products and services they purchase. and to learn the characteristics of organizational purchasing. LESSON NO. and institutions buy a variety of products that. Component parts.1 Introduction 2. commercial businesses.4 Marketing Implications for different Customer and Product Types 2.
(iii) Institutions. 2. These are as shown as follows in the Figure 2. it is more useful from a marketing point of view to define them in such a way as to understand their purchasing needs at the time of examination of the varieties of products they purchase and how marketing strategy can be developed to meet their needs. since they purchase products for different uses. For the purpose. 2. However.1. General Motors.2. and Raven Company. (ii) Governmental Agencies. Computer Land. Knowing how this immense array of industrial customers' purchase and use products and what criteria are important in their purchasing decision is an important aspect of industrial marketing strategy.1 Commercial Enterprises Commercial enterprises are private sector.endeavours. industrial sellers understand the types of industrial buyers. .2 TYPES OF INDUSTRIAL CUSTOMERS Industrial customers are normally classified into four groups: (i) Commercial Enterprises. and (iv) Co-operative Societies. purchase industrial goods and/or services for purposes other than selling directly to ultimate consumers. profit-seeking organisations such as IBM.
Housing Units cooperative societies Thus. defense units al Public Institutions Government Hospital Custome Institutional rs Costomers Private Institutions School.1: Industrial Customers Industrial Distributor Intermediaries Commercial Original Equipment Exide for battery products Manufacturer Enterprises Users TVS-Suzuki is user for HMT machine tools Public Sector Units Maruti Udyog Limited Government Customers Government Indian Railways. are useful to the industrial marketer because they point out the ways of uses of products and services in buying firms. it is more logical to look at commercial enterprises: (i) industrial distributors or dealers. and (iii) users. (ii) original equipment manufacturers (OEMs). they are the industrial marketer's intermediaries. thus. these categories tend to overlap. acting in a similar capacity to wholesalers or even . Figure 2. State Electricity Industri Undertaking Board. 2 Industrial Distributors and Dealers Industrial distributors and dealers take title to goods. Colleges Manufacturing Units Maharashtra Sugar Cooperative Society Cooperative Customers Non-manufacturing Cooperative banks. As and when.
the largest purchasers of industrial products are Central and State Government departments. state electricity boards. Thus. to support its manufacturing process or to facilitate the business operations is referred as a user. 2. a car manufacturer buys a drilling machine to support the manufacturing operation and is referred to as a user.5 Government Customers In India. and others. telephones. In addition to above.4 Users An industrial customer. press. whereas the products which facilitate the operations of business like computers. and so on are the products which support manufacturing process. MRF). The same car manufacturer also buys batteries which is incorporated into cars and hence.3 Original Equipment Manufacturers (OEMs) These industrial customers purchase industrial goods to incorporate OEMs into the products they produce. sometimes there may be overlapping of categories means a manufacturer can be a user or an OEM.2. such as railways.2. and agencies. the intermediaries not only serve the consumer market but also they serve other business enterprises. fax machines. winding machines. and so on. These Government units purchase almost all kind of industrial products and .retailers. For example. They purchase industrial goods and resell them in the same form to other industrial customers. 2. it can be also referred to as an OEM. state transport undertakings. the product of the industrial marketer (MRF) becomes a part of the customer's (TELCO'S) product. who sells tyres to a truck manufacturer (say. Director General of Supplies and Disposal (DGS&D). 2. a tyre manufacturer (say. undertakings. government agencies. who purchases industrial products or services.2. drilling machines. TELCO). For instance. For example. would consider the truck manufacturer as an OEM. defense. or private and public institutions. department of telecommunication.
g. and steel that are the basic .2.1 Materials and Parts Goods that enter the product directly consist of raw materials. discussed as follows: 2. When the same firm purchases sugar for processing the cakes. They may be marketed as either OEMs or user customer. Acids. (ii) Capital items. colleges. 2.2. It can be manufacturing units (e. when a large bakery purchases natural gas to fire the ovens that are used to produce cakes. and universities are termed as institutional customers.. Manufactured Materials: Manufactured materials include those raw materials that are subjected to some amount of processing before entering the manufacturing process e. and component parts. An industrial marketing person needs to understand the purchasing practice of each institute so as to be effective in marketing the products or services. 2. it is an OEM.3 INDUSTRIAL PRODUCTS AND SERVICES The industrial products and services are classified into three broad groups: (i) materials and parts. 2.7 Cooperative Societies An association of persons forms a cooperative society.6 Institutions Public and private institutions such as hospitals. Some of these institutions have rigid purchasing rules and others have more flexible rules. it is a user customer.g. (iii) Supplies and services. manufactured materials. as part of manufacturing cost treats the cost of these items. fuel oil.3. Cooperative Banks. Raw Materials: These are the basic products that enter in the production process with little or no alternations. Cooperative Housing Societies).g. They are also the industrial customers.services and they represent a huge market. Cooperative Sugar Mills) or non-manufacturing organisations (e. The purchasing company. For instance. schools.
furnaces. an aluminum extrusion unit buys aluminum billets to manufacture aluminum-extruded products such as door and window frames. borrowing money for a period of time. if these are leased. dies. For example. Purchases of accessories are either considered as current expenses with purchase . When these products be sold to customers who use them in their production processes. turbines. office buildings and fixed equipments like machines. Capital items Capital items are used in the production processes and they wear out over certain time frame. by using an extrusion press. The component parts are also sold to the dealers or distributors. are power operated hand tools. Accessories/Light Equipment: Light equipment and tools which have lower purchase prices and are not considered as part of fixed plant. However. small electric motors. finances these items. batteries and instruments can be installed directly into products with little or no additional changes. Component Parts: Component parts such as electric motors. These are classified as follows: Installations/Heavy Equipment: Installations are major and long-term investment items such as factories. who resell them to the replacement market. Generally they are treated as a depreciation expense by the buying firm or user customers. jigs. Thus. As the unit purchase price of capital items is high. and earth moving equipment. For example. they are marketed as OEM goods.ingredients of many manufacturing activities. These items are shown in the balance sheet as plant and equipment. and are fixed assets to be depreciated over a period of years if they are absolutely purchased. the purchaser treats the cost for tax purpose as an expense. aluminum billets are called manufactured materials. MICO spark plugs are sold to a truck or car manufacturer. which is roughly equivalent to the expected life of the fixed assets. typewriters and computer terminals. as well as to automotive dealers/distributors throughout India. generators.
product leaflets/brochures help to industrial . Though. 2. marketing research services and others.prices taken as operating expenses in the year purchased. oils and greases. depreciated over a period of few years.3 Supplies and Services Supplies and services sustain the operation of the purchasing organisation. 2. courier services. the standard raw materials or components are sold through industrial dealers or distributors. housing. They do not become a part of the finished product. and obviously selling is done directly. warehouses. and so on. as it is cost effective. for smaller volume OEMs and users. and accounts/finance persons of buyer organisations as they influence buying or payment releasing decisions.3.4 MARKETING IMPLICATIONS FOR DIFFERENT CUSTOMER AND PRODUCT TYPES For large OEMs or users selling is done directly from a seller to a buyer organisation for materials and parts products. considerable interaction takes place between technical and commercial persons from both buyer and seller organisations. important for an industrial salesman to remains in close touch with purchase or materials department persons as well as with quality. They are treated as operating expenses for the periods in which they are consumed. Supplies: Items such as paints. marketing. auditing services. typewriter ribbons. production. Apart from personal contacts. It is therefore. pencils. It includes the firm's offices. Services: Companies need a broad range of services like building maintenance services. R&D. or they may be considered as fixed assets and therefore. parking lots. legal services. Generally. stationery and paper clips come under this category. plants (factories). In case the components are custom-made. Plant and Buildings: These are the real estate property of a business/ organisation. these items are standardized and marketed to a broad section of industrial users. soaps.
customer service. The company could. delivery dependability. maintain a leadership position in the competitive market due to its strategy of customer satisfaction through superior product quality and performance. all over India. which influence buying decisions. For example. delivery period. third party certificate for previous . For this. marketing. competitive prices and excellent customer service. delivery dependability. are product quality and performance. When component parts such as batteries and tyres are sold in the consumer replacement market. the factors. installation time.marketer in communicating product and other information. and customer rapport. the special purpose motors to the original equipment manufacturers (OEMs) such as pump manufacturers and compressor manufacturers. price. The field sales persons are trained in both technical and commercial aspects of selling and are required to establish a close rapport with various departments such as purchase/materials. quality. direct selling with extensive interactions. The company adopted a marketing strategy to sell its standard motors through a network of industrial dealers to small-scale manufacturers. Negotiations take considerable time on key factors such as price. and finance/accounts in the customers' organizations. payment terms. therefore. However. advertising and distribution through multiple channels all over the country becomes an important part of marketing strategy. R&D. In case of standard products. are sold directly through its sales persons located at various branches. For capital items like heavy machinery and construction of factories and office buildings. credit facilities. with differing share of business for various suppliers. involving top executives in both buying and selling organisations are very common. marketers either create a product differentiation through consumer advertising or sell on a competitive price basis. Crompton Greaves Ltd manufactures and markets a wide range of electrical motors ranging from fractional horse power (FHP) to large high tension (HT) motors. return on investment.
and locational convenience. payment terms. is used for marketing supplies for large-volume buying firms. trade journals. buying firms contact the selling firms to know their reputation by way of word of mouth. 2. For effective marketing of industrial products. for negotiations. and timeliness of service to meet the customer's needs. and yellow pages are used to generate awareness of the company and its products to the latent users and distributors/dealers. and finance from the selling organization not only decided the technical and commercial aspects at the time of submission of quotations/offers. the marketing strategy for a large furnace manufacturer was to directly sell its furnaces to the industrial buyers. The purchase or materials department persons generally make buying decisions based on dependable delivery. For example. and so on.5 PURCHASING PRACTICES OF INDUSTRIAL CUSTOMERS The industrial marketers market industrial goods or services at different types of customers such as commercial enterprises. price. Senior executives from marketing. engineering. In the strategy of marketing of service. The selling firm's efforts are on consultative or advisory nature. delivery and installation time. the buyers treated it as a capital item. price. it is significant to know the purchasing practices generally customized by the various . and institutional customers. Apart from price. meeting the technical parameters required by the customers and the performance of similar furnaces supplied earlier to other industrial customers played important role in securing high value orders. And distributors or dealers are used to market to diverse markets consisting of small and medium size companies. but also visited as a team. with the senior technical and commercial persons from the buyers' organizations. local newspapers. governmental customers. and continuation of the service depends upon the quality. Personal selling is the primary promotional method used which is used in industrial marketing. Advertising in magazines. Direct selling. As the value of each furnace was running into millions of rupees.jobs done.
R. supplier rating system. finance/cost accounting. purchase requisition (P. the material (against the P. select supplier(s). Thus. Further. get quotations.O.A. If yes.5.types of industrial customers. indicating action department taken If the material (required as per P. variety. production.1 Purchasing in Commercial Enterprises The purchasing practices depend upon the nature of business and the size of the commercial enterprise as well as the volume. then identify potential suppliers.) or indent to the purchase department (materials) department Check if the material required is in stock. material planning. quality.O. as follows: Responsible Step Activity Unit User department initiates the process by issuing User 1. and issue purchase order department (P. and technical complexity of the products purchased. An industrial marketer must understand a set of formal purchasing procedure and documentation motioned in a commercial enterprise.) 4.) is not in stock. materials. Follow-up with the supplier (if required) on delivery Purchase . 2. department and the P. Supplier 5. In large and medium size organizations. there are many persons who influence the purchase decisions in such organizations. value analysis and so on. The supplier (or vendor) acknowledges the P. and also senior management executives. the purchase decision makers involve from different departments viz. is filed.) is issued to the user Purchase 2. an industrial marketer must understand a set of formal purchasing procedure and documentation motioned in a commercial enterprise. Materials/purchase managers are professionals they must be well informed about price trends. Industrial buyers use the techniques viz.A. and negotiating skills. Purchase 3.R. engineering. These are shown in Table 2. economic order quantity. They make use of in-house technical expertise when required. commercial matters.1. negotiate.
Stores challan and P.R. on an average fifty to seventy per cent of sales revenue is spent on purchase in these organisations. for high value purchases and policy matters. with M.R. industrial engineering). purchase.O. and sometimes. Many commercial organisations have established a separate purchasing department to enhance the status of purchasing in manufacturing organisations. negotiating and selecting suppliers. finance or accounts. department The supplier dispatches the material and informs the dispatch details (such as invoice and lorry receipt 6. Supplier number and date. quality. Inspection material and issues Inspection report (I.A. 2. The major tasks in the purchasing process are identifying potential suppliers. purchasing can enhance operational efficiency by saving in material cost.2 Purchasing in Government Units . ensuring right quality and quantity of material at the right time. and thus contributing to the company's competitive advantage in the market. and a long-term business relationship with the suppliers. shows that a typical purchasing process in a large or medium size commercial organisation involves various departments.1. and I. transporter name) to purchase department On receipt of material. senior level executives are also involved. to accounts department for department payment and closes the order if it is executed fully Accounts or Accounts department checks all the above documents 10 Finance with P. by making available good quality material at the right time.O. production. and issues material receipt report (M.5.) department Purchase department issues supplier invoice along Purchase 9. invoice value.R.R. like technical (R&D. department Table 2. and issues payments to supplier. stores (or receiving department) checks the material against delivery 7. Therefore. because. stores.A.) Quality or Quality control (or inspection) department inspects the 8.
tender notices are advertised in national newspapers. and company details properly certified by a chartered accountant. tender enquiry is sent to . DGS&D is an agency.The Government units are the largest purchasers of industrial goods and services. state transport undertakings. based on which suppliers procure tender papers from the specified Government authority after paying a small amount of tender fees. the company is registered as approved supplier for those products consequently. an industrial marketer must understand the complexities involved in selling to Government units. the tender opening procedure of reading out the prices and other terms are not followed. After the tender offers are received in the ―tender box‖. as per the instructions given in the tender papers. In closed or limited tenders. For closed tenders or limited tenders. Though. department of telecommunications. and so on. delivery. and based on the favourable report from the Government inspector. the first step is to get the name of the company and the products registered with the Government units. the procedure of registration involves the submission of duly filled standard forms. Generally. There are many centers where State and Central Government units buy a variety of products required by railways. which finalises running contracts for various standard products on behalf of the Central Government. To compete successfully and to get more business. For standard products and services. defense units. The suppliers are then required to submit tender offers in sealed envelopes. duly signed by the signatory authority. the sealed covers are opened at the specified date and time in the presence of the representatives of the suppliers and then the prices. product leaflets. state electricity boards. In general. and other relevant terms are read out for the benefit of those attending the ―tender opening‖. other large Central and State Government units have their own procurement departments with a set of standard from and conditions to be fulfilled by suppliers. Some Government units depute their inspectors to inspect the company's manufacturing facilities. by certain specified time and date.
only limited (a few) suppliers who are registered with the Government unit for
certain category of non-standard products. The purchase orders are issued based
on the evaluation of tender offers, with or without negotiations with the
suppliers. The tender offers of various suppliers are kept secret and not made
known to suppliers. Based on the lowest prices or the lowest landed costs i.e.
adding all charges with basic price, the orders are released on the lowest bidder
who has quoted the lowest price or has the lowest landed cost, if other factors
such as technical specifications, delivery period, and payment terms are the
same as per tender enquiry. If the value of tender enquiry is small, the orders are
placed to one or two suppliers. If the tender value is large then the maximum
share of the total value is decided on the lowest bidder and the balance orders
are distributed to more than one bidder after other bidders agree to match the
lowest price. There may be small variations in the purchase procedures
described above in different Government or public sector units, but whatever are
the procedures or terms and conditions, the same are indicated in the tender
2.5.3 Institutional Purchasing
Institutional buyers are either the Government or the private organisations. If it
is a Government hospital or college then it normally follows the Government
purchase procedures. However, in cases of privately owned educational or other
type of institutions, the purchase procedures are similar to those followed by
commercial enterprises. An industrial marketer should study the purchasing
practices of each institutional buyer so as to be effective in marketing the
company's goods or services.
2.5.4 Purchasing in the Reseller's Market
Reseller market or replacement market consists of industrial dealers or dis-
tributors whose main goals are profits and sales volume. Therefore, the
intermediaries select a supplier based on product, quality and also based on the
policies of the supplier's product. An industrial dealer/distributor could deal
either exclusively with a supplier or manufacturer's product or may deal with
many competing firms of a product. Yet, the supplier related policies which
affect competitiveness of traders in the market are: sharing of local advertising
cost by the supplier, providing product leaflets or display materials, competitive
prices and trade discounts, flexible payment terms with credit facility, and so on.
Acceptance of some of these terms by a dealer would depend upon the relative
strengths of the dealer and the supplier and also on the consumer's acceptance
level of the supplier's products. The reseller or the dealer/distributor has to
ultimately abide by the policies of the supplier/manufacturer. In a competitive
market, both the reseller and the supplier have to work harmoniously as a team
so as to face the competition, increase the market share, and make sound profits.
If a reseller or a trader does not make a profit over a period of time from the
products or services of a manufacturer/supplier, he would most probably change
the supplier because he does not achieve the main goal of profitability.
2.5.5 Purchasing in Cooperative Societies
Industrial marketers should study the purchasing practices of each cooperative
society in order to become effective in marketing their goods and services. For
example, the cooperative sugar factories in Maharashtra and U.P. may adopt
different buying practices while purchasing sugar machinery, pumpsets,
compressors, etc. While making purchase decisions, their emphasis on the
factors viz. quality, delivery, price, payment terms, service and long-term
relationship with suppliers, also affect the purchase decision under
Selling in the industrial market is complicated by a broad spectrum of
customers. Commercial enterprises, governmental organizations, and institutions
give buying responsibility to individuals who are quite knowledgeable in their
particular markets. These individuals are often more realistic in assessing the
competitive value of a vendor's product than the vendor. Thus, they normally
identify, evaluate, and select suppliers, domestic or foreign, who provide the
greatest value. To formulate a successful industrial marketing strategy, it is
essential to know the administration of buying function in a diversity of markets
and situations; and also to know the bases viz. nature of the business, the size of
the firm, and the volume, variety, and technical complexity of the products
purchased by the industrial buyers.
1. Explain the different participants in industrial buying.
2. Discuss the types of industrial customers and their purchase practices in
3. What the types of industrial products and services?
4. What are the marketing implications for different customer and product
types in industrial marketing?
5. How does the government purchasing differ from the commercial
enterprises purchasing?
1. Hawaldar, K. Krishna (2002), ―Industrial Marketing‖(1 st ed.), TATA
McGraw-Hill Publishing Company Limited, New Delhi.
2. Richard M.Hiii, Ralph S.Alexander & James S.Cross (2003), ―Industrial
Marketing‖(4th ed.), All India Traveller Book Seller Publishers And
Distributors, Delhi.
3. Robert R.Reeder, Edward G.Brierty & Betty H.Reeder (2001),
―Industrial Marketing‖ (2nd ed.) , Prentice-Hall of India Private Limited,
New Delhi
4. Peter M. Chisnall (1985), ―Strategic Industrial Marketing‖, Prentice-Hall
International, 1985.
5. Woodruffe, Helen (2000), ―Service Marketing: Operation, Management
and Strategy‖, Macmillan India Limited, New Delhi.
3.1 Introduction
3.2 Purchasing Objectives of Industrial Buyer
3.3 Purchasing Activities of Industrial Buyers
3.4 Buying Situation Types
3.5 Decision Making Unit
3.6 Key Members in Buying Organisation
3.7 Models of Organisational Buying Behaviour
3.8 Modern Purchasing Activities
3.9 Summary
3.10 Questions for Discussion
To develop an effective marketing strategy, industrial marketers need to
understand the nature of industrial buying as well as the industrial buying
behaviour. The objective of the lesson are: to understand organizational buying
objectives; different phases in the buying decision process and buying situations;
to identify decision making units; to understand the models of organizational
buying behaviour.
Selling and buying are the two major pillars in industrial marketing. But,
buying (purchase) is an important function in an organization. To maintain an
adequate flow of goods and services into the operations; purchase department of
a firm develops organizational buying objectives and performs activities. The
behaviour of suppliers as well as potential users of the organization influences
the department. To know these influences, firstly we have to study the purchase
objectives of the industrial customers.
Some products meet the Indian Standard (IS) or British Standard (BS) specifications. The buyers consider price as an important objective. interruptions in production process due to rejections. the buyers like to buy at the lowest price consistent with availability and quality of the product. if delivery and quality objectives are met. . for delivery at the right time and place‖ to define what is ―right‖ for each dimension is the responsibility of management. but they fail on shop-floor when they are used on a machine. The objectives of the purchasing function are as follows: Delivery and availability of goods and services The prime objective of the purchasing department is to ensure that purchased goods and services are available or delivered when and where they needed. The untimely delivery of the purchased good/services may affect adversely performance of the purchase function. the objective of the purchase department in an organization is defined as ―buying the right items in the right quantity. Lowest price of the product Always. the vendor/supplier's reliability in delivery is the most important criterion at the time of vendor evaluation. On the other hand.2 PURCHASING OBJECTIVES OF INDUSTRIAL BUYER Basically. at the right price. because low price is worthless. if the product is not delivered when needed or if the quality of the product is unacceptable. It is significant to ensure consistency in quality of product to reduce the cost of inspection. and arranging replacements of rejected material.3. Product quality The quality of product should be consistent with the specifications and use of the product.
But. . salary increments. and post-purchase behaviour. To develop a good long-term supplier/vendor relationship and to develop new sources of supply. The industrial marketers ought to realise that it is important to satisfy the purchasing objectives of an industrial firm as well as the personal objectives of the buying members. evaluation. and personal favours. spare-parts availability. The understanding of these steps/phases of buying-decision making is helpful to an industrial marketer to develop an appropriate selling strategy. job security. 3. manufacturing firms spend more than fifty per cent of their sales revenue on purchase. Because. application or technical assistance.3 PURCHASING ACTIVITIES OF INDUSTRIAL BUYERS In consumer marketing. The industrial buyers try to achieve both objectives simultaneously. Supplier relationship Different industrial buyers have developed the purchase departments in their organisation. Resultantly. mutually beneficial relationships. and training. These objectives are also based on the company objectives. consumers make buying decisions based on certain mental stages such as need recognition. repairs and maintenance capability. Personal objectives of industrial buyers include higher status. in industrial markets the buying decision making process includes observable sequential stages involving many people in the buying organisation. if required. purchase decision. promotions and social considerations: friendship. industrial marketers need to understand that purchasing objectives. the buying members of an organisation are also influenced by both purchasing objectives of the firm and personal objectives. information search. These services include prompt and accurate information from suppliers.Services The industrial buyers need many types of services to accompany the purchase of goods for achieving the goals of organisation.
the same can be obtained from the outside sources. based on experience and also the quantity required to solve the problem.3. then the buying firm will try to answer questions such as: What type of products or services to be considered? What quantity of the product needed? and so on. or the material is not available as per requirement. These phases or steps are elaborated as follows: Recognition of Need of Industrial Buyer A smart marketer recognises the need/problem of industrial buyer originated within the firm. and Wind developed a process ―buyphases‖ having eight steps in buying-decision process in industrial market. For technical products. the buying organisation recognises the problem. . industrial engineering. there will be a better possibility of it being selected as a supplier. In 1967. or the machine supplied by him breaks down too often. or quality control) will suggest general solutions of the needed product. production. 3.2 Determination of the Characteristics and Quantity of Needed Product If the problem is recognized within or outside the buying organisation. if the required information is not available internally within the buying organization. Faris. the technical departments (R&D. Robinson. If an industrial marketer identifies a problem in the buying organisation and suggests how the problem could be solved.The purchasing activities of industrial buyers consist of various steps/phases in buying-decision-making process. The importance of each step depends upon the type of buying situation. either the user department or purchase department may suggest products or services. If the material supplied by the existing supplier is not satisfactory in terms of quality. For non-technical goods or services. The industrial marketers should understand both (step in decision-making process and the type of buying situations) to market the product or service. Nevertheless.
Firstly. and the buying situation. transportation . quotation.3 Development of Specification of Needed Product Stage 2 and 3 are closely related. 3.3. or institutions. the buying organisation. price.3. industrial directories. The qualifications of acceptable supplies may depend on the type of buying organization such as government undertaking. they have to obtain information about all available suppliers and secondly. in the third stage.3. It must include the product specification. the factors like quality of product or service. The search for potential suppliers is based on the various sources of information like trade journals. private sector commercial organisation. Industrial marketers have a great opportunity to get involved at this stage by helping the buyer organisation to develop product specifications and characteristics. delivery period. Furthermore. A supplier's proposal can be in the form of a formal offer. taxes and duties applicable. they have to decide the qualifying suppliers. or a formal bid. catalogues. payment terms. 3. submitted by the supplier to the buying organisation.3.5 Obtaining and Analysing Supplier Proposals If the qualified suppliers are decided then the buying organisation obtains the proposals by sending enquiries to the qualified suppliers. During this stage the purchase department takes the help of their technical personnel. outside sources such as suppliers or consultants. or if required. reliability in delivery. sales calls. It would give a definite advantage by ensuring that the needed product includes his or her company's product characteristics and specifications. and service are considered in qualifications of suppliers.4 Search the Qualified Potential Suppliers In this stage. and the decision-making members. the buying organisation searches for acceptable suppliers or vendors. After the general solution to the problem is determined in the second phase. develops a precise statement of the specifications or characteristics of the product or service needed. trade-shows. work-of-mouth.
the stages 4 and 5 may occur simultaneously. For technically complex products and services. frequency of order placement by buyers and delivery schedules to be adhered to by the supplier. The decision makers in the buying organization may evaluate each supplier on a set of agreed-upon attributes or factors. and the landed costs: includes the price after discount plus excise duty. 3. the quantity to be purchased from each supplier. and insurance.e. schedule. sales tax. and with acceptable quality. and so on. payment terms. as the buyer may contact the qualified suppliers to get the latest information on prices and delivery periods. deliveries. Further negotiations may continue with selected suppliers on prices. deliveries. The activities include placement of orders (i. cost of transit insurance. Each supplier is evaluated on each attribute by giving a weightage to each attribute proportionately or on rating scale basis. the buying process is stopped at this stage. services. a lot of time is spent in analyzing proposals in terms of comparisons on products.6 Evaluation of Proposals and Selection of Suppliers The industrial buyers evaluate the proposals of competing suppliers and selects one or more suppliers. purchase orders) with the selected suppliers.3. and any other relevant cost or free service provided.cost (or freight). For purchases of routine products or services. The supplier(s) who get the highest total score receives the business or the order from the buying organisation. If it is decided to make the item within the buying organization.7 Routine Order Selection In this stage the procedure of exchange of goods and services between a buyer and a seller is worked out.3. the supplier's proposals are compared with the cost of producing the needed item within the buying organization. The user department would not be satisfied until the supplier delivers the required item as per delivery schedule. 3. and the payment terms to be adhered to by the buyer. . If a buying firm faces a make-or-buy decision. freight.
a quick response to customers' complaints can result in good buyer-seller relationship. the phase of the buying-decision making process of customer firms. the industrial marketer must monitor the user satisfaction levels or complaints so that immediate corrective action can be taken before a major damage. The risks are more. the members of the decision-making unit review their earlier decision and decide to give a chance to the previously rejected supplier. and (iii) Repeat purchase. discussed as follows: 3. they have to obtain a variety of information about the product. The type of products. If not.8 Performance Feedback and post-purchase Evaluation In this final phase a formal or informal review regarding the performance of each supplier (or vendor) takes place. decisions may take longer time. For example. (ii) Change in supplier. He or she must check the feedback and evaluation process in the customer (buyer) organisation. and the purchasing situations also influence the marketing strategy of industrial seller. and more people are involved in decision making in the new purchase decisions.3. 3. In particular. the prices and so on.3. The user department gives a feedback on whether the purchased item solved the problem or not. Therefore.4 BUYING SITUATION TYPES There are three common types of buying situations namely (i) New purchase (or New task). when a firm decides to diversify into new purchase situations the buyers have limited knowledge and lack of previous experience.1 New Purchase The industrial buyers buy the item for the first time in this situation. The need for a new purchase may be due to internal or external factors. . In fact. The industrial vendor should recognize that marketing effort is no over after the order is received. the suppliers.4.
4. In such a situation.5 DECISION MAKING UNIT It is essential to understand the roles of buying-center members or decision- making units (DMUs) before identifying the individuals and groups involved in the buying-decision process. Therefore. 3.3. This is a routine decision with low risk and less information needs. the delivery period. certain attributes or factors can be used to evaluate the suppliers. and the payment terms remain the same in the reorder. as per the original purchase order. Generally. There may be uncertainty regarding the supplier who can best meet the needs of the buying firm. the modified rebuy situation occurs mostly when the buying firms are not satisfied with the performance of the existing suppliers. It is helpful to the industrial marketers to develop an effective promotion strategy. The roles of buying center members are as follows: .4. or the need arises for cost reduction or quality improvement. or marketing department asks for redesigning the product to gain some competitive advantage. the price. the buying firms do not change the existing suppliers if their performance is satisfactory. This means that the product. The change in supplier may also be necessary if technical people in the buying organization ask for changes in the product specification. As a result.3 Repeat Purchase If the buying organization requires certain products or services continuously and products/services had been purchased in the past then the situation of repeat purchase occurs.2 Change in Supplier This situation occurs when the organisation is not satisfied with the performance of the existing suppliers. search for information about alternative sources of supply becomes necessary. Even though. taken by a junior executive in the purchase department. the buying organisation reorders/places repeat orders with the suppliers who are currently supplying such items. 3.
Generally. 3. or R&D engineers. play the role of influencers by drawing specifications of products or services. . 3. for routine purchases the buyer (or purchase executive) may be the decider. They may be one or more individuals involved in the buying decision. supplier evaluation and selection.5.5.2 Buyers The major roles of buyers are obtaining quotations (or offers) from suppliers. Generally. users play the role of the initiators. negotiation.1 Initiators The initiators might be any individuals in the buying firm. senior executives are the deciders.3. maintenance engineers. But.4 Influencers Those individuals who influence the buying decision are known as influencers. quality control engineers have a substantial influence on purchase decisions.3 Users The user is those individuals who use the product or service that is to be purchased. 3. Often. They may be shopfloor workers. They may define the specifications of the needed product. Sometimes. and implementing purchasing policies of the organization. for high- value and technically complex products. who are experts or consultants. The influence of the users in purchasing decisions may vary from minor to major. although at times it may be difficult task. speed up deliveries. they are the purchase (or material) officers and executives. technical people such as designers. 3. individuals outside the organisation. Generally.5.5. the users of a product/service play the role of the initiators.5. Generally. It is very significant to identify the deciders.5 Deciders The deciders make the actual buying decisions. processing purchase orders.
the gatekeepers may control sales people's meetings with the members of the buying center. . maintenance manager. the functional areas. Gatekeepers are often the assistants or junior persons attached to purchase (or materials) manager. 3. The emphasis in the buying center is on the organizational groups i.e. as it may have a major impact on the firm's operations. The DMUs are useful tools which answers the question-Who are involved in buying decision in an industrial organization? It is defined as a body of all the individuals or groups participating in the buying decision process and who have interdependent objectives and share common risks. The top management in an industrial organisation consists of managing director. and vice-president of general manager. the top management in most firms got involved in the supplier selection. They are generally involved in purchase policy decisions such as diversification into a new product/project. Sometimes. production manager.5. quality control manager. and industrial engineers. and deciding the guidelines for purchase decisions.6 Gatekeepers The gatekeepers are those individuals who control (or filter) the flow of the information regarding products and services to the members of the buying center. must identify the individuals and groups who are the members of buying center.6 KEY MEMBERS IN BUYING ORGANISATION The following discussion clarifies different key members or DMUs in industrial buying decisions: Top Management For purchases of high value capital equipment. R & D manager. Generally. approval of purchase or materials department annual budgets and objectives. which participate in the buying decision process. director. industrial marketers.3. Technical Persons The technical persons are designers. presidents. After understanding the roles of DMUs.
Accounts/Finance Persons The contribution of finance/accounts persons are seen while finalising commercial terms such as modes of payment. financial approval of capital purchases. and so on. issuance of bank guarantees. They visit the factories of potential suppliers to achieve more information and assurance of manufacturing capability. top management. Purchasers Buyers are the individuals in the purchase or materials department. negotiations with suppliers. Buyer's influence on selection of suppliers is considerable. accounts or finance persons within an organization. They may be senior executives or managers. they are involved in most of the phases or steps of the purchase activities. and also. Marketing People When a purchase decision has an impact on the marketability of a firm's product. marketing people become influencers in the buying decision process. purchase officers or assistants.they are involved in product specification or description. For example. It also affects the satisfaction level of the customers. They are conscious of keeping good relations with other decision-making members within the organization and also with the suppliers. Generally. and so on. at junior levels. with suppliers or vendors externally. issuing payments to suppliers. The marketing manager insisted that suppliers should use good quality and thicker wood for packing the motors to minimize damage in transit. as well as. technical evaluation of offers received from suppliers. They coordinate with technical persons. . a manufacturing firm market the electric motors had to change its packing due to damages caused to the product in transportation. performance feedback on products supplied.
7 MODELS OF ORGANISATIONAL BUYING BEHAVIOUR The buying decisions of industrial buyers are influenced by many factors.3. job security. It considers four sets of variables: environmental. best product quality. or favour.1). increments. organizational. . and individual. Usually. or lowest price and personal factors or non-task objectives viz. like promotion. There are two models available to provide a comprehensive and integrated picture of the major factors that combine to explain organisational buying behaviour. industrial buyers pay more attention to organisational factors in order to satisfy the organisational objectives. When the suppliers' proposals are substantially similar. organizational buyers can satisfy organisational objectives with any supplier. personal treatment. When suppliers' offers differ significantly. These are: The Webster and Wind Model The Webster and Wind Model of organisational buying behaviour is quite a comprehensive model (Figure 3. and therefore personal factors become more important. which. these are influenced by organisational factors or task-oriented objectives viz. buying center. or dependable delivery. affect the buying-decision making process in a firm.
legal.E. The environmental variables include physical. Webster. pp 12-17. The environmental factors influence the buying decisions of individual organisations. . customer demands. organisation structure. 36. cultural. Jr and Y Wind. journal of Marketing. competition and supplier information.1: The Webster and Wind Model of Organisational Buying Behaviour Environmental Variables · Physical · Technological · Economic · Political and legal · Labour unions · Cultural · Customer demands · Competitive practices moreover pressures · Supplier information Organisational Variables · Objective/goals · Organisation structure · Purchasing policies and procedures · Evaluation and reward systems · Degree of decentralization in purchasing Buying Centre Variables · Authority Organisational Buying Decisions · Size · Choice of Suppliers · Key influencers · Delay decision and search for more information · Intepersonal relationship · Make. economic. technological. The organizational variables include objectives. April.Figure 3. industrial firms minimize the quantity of items purchased. in a recessionary economic condition. or lease. goals. or buy · Communication · Do not buy Individual Variables · Personal Goals · Education · Experience · Values · Job position · Lifestyle · Income Source: R. For example. political. 1972. labour unions.
2). which could be considered while developing marketing strategies by industrial marketers. and the individual variables. This model highlights the decision-making by two or more individuals jointly. and life style. The background of individuals depends upon their education. are that it is comprehensive. Professor Jagdish N Sheth developed the Sheth model.2 The Sheth Model In 1973. analytical. These variables particularly influence the composition and functioning of the buying center. the degree of centralization or decentralisation in the purchasing function in the buying organisation. The differences among the individual buyers expectations (Component 1) are caused by the factors: background of individuals. and that it identifies many key variables. degree of centralization in purchasing. The functioning of buying center is influenced by the organisational variables the environmental variables. role in the organization. perceptual distortion. The output of the group decision-making process of the buying center includes solutions to the buying problems of the organisation and also the satisfaction of personal goals of individual members of the buying centre.7. It includes three components and situational factors. developed in 1972. generally applicable. which determine the choice of a supplier or a brand in the buying decision making process in an organization. and satisfaction with past purchases. and also. It is difficult to measure perceptual distortion. The factor perceptual distortion means the extent to which each individual participant modifies information to make it consistent with his existing beliefs and previous experiences. and the psychological aspects of the decision-making individuals in the industrial buying behaviour (Figure 3. information sources. although techniques . 3.purchasing policies and procedures. However. active search. the model is weak in explaining the specific influence of the key variables. and evaluation and reward system. The strengths of the model.
The model does not explain their influence on the buying process. larger the size of the organization and higher the degree of decentralization. .2: The Sheth Model Component (1) Component (2) Component (3) Situational Factors 1) Differences Variables that determine Methods used for autonomous or joint among individual conflict resolution in buying decision: buyers caused by joint-decision making factors: (A) Product specific process: factors. mergers and acquisitions. Situation factors can be varied like economic conditions. 37. 1973. including ·Background of ·Time Pressure Supplier or ·Perceived risk individuals · Problem-solving ·Type of Purchase brand choice ·Active search o · Persuasion ·Perceptual (B) Company specific · Bargaining factors. sheth. more will be possibilities of joint-decision making. pp 50-56. Figure 3. ―A Model of Industrial Buyer Behaviour‖. The methods used for conflict resolution in joint-decision making process are indicated by the Component (3) in the model. Problem-solving and persuasion methods are used when there is an agreement about the organizational objectives. there are six variables. including distortion · Company size · Politicking ·Satisfaction with · Company orientation past purchases · Degree of centralisation Source: Jagdish N. October. which determine whether the buying decisions are autonomous or joint. labour disputes. journal of Marketing. In Component (2). bargaining takes place. If there is no such agreement. According to the Sheth Model.such as factor analysis and perceptual mapping are available for this purpose. Conflict about the style of decision-making is resolved by politicking.
and purchase. 3. It is used in many industrial organizations including institutions (such as universities and hospitals) and Government companies.e. and utilize the supplier's expertise. which are used in industrial buying processes. and increases the quality and productivity.2 Single Sourcing In this activity.8. in a typical purchase committee. These are discussed as follows: 3. Generally. the value of the function.4 Purchase Committee Some industrial buyers develop a formalized decision-making unit i. The practice makes possible for the buying and selling organizations to work closely together.8. purchase committee. the industrial customers place orders with only one supplier not to two or three suppliers. industrial engineering. It means all the eggs are not in one basket.8. 3.3 Value Analysis The industrial buyers to reduce cost with maintaining product reliability use the value analysis. It minimizes the inventory. It involves analyzing a product item by the function it performs. It uses creative technique like brainstorming and includes members of various departments such as production. and the alternate methods of performing the same function. marketing. design.3. The JIT delivery means that the buying and selling organizations work together closely to reduce costs. 3.8 MODERN PURCHASING ACTIVITIES There are some contemporary purchasing activities. The goal of JIT delivery is zero inventory and excellent quality of the material delivered by the supplier.8. involve the supplier from the design stage.1 Just-in-Time (JIT) It refers that the material arrives at the buyer's factory exactly when needed by the buyer. quality control. one or two individuals nominate in the decision- . This ensures nil rejection at the buyer's factory.
Ralph S. ―It is said that the industrial marketer's job is not over after getting an order from the industrial customer‖. The industrial marketers should also be aware of models of organizational buying behaviour and the up to date purchasing activities. 2. All India Traveller Book Seller Publishers And Distributors.).10 QUESTIONS FOR DISCUSSION 1. References: 1. Hawaldar. and should target the real sales efforts to those dominant members who influence the buying decisions. ―Industrial Marketing‖(4th ed. New Delhi.). Delhi. Explain the models of organisational buyer behaviour and their implication in the organisation.9 SUMMARY The purchasing objectives and purchasing activities of industrial buyers must be understood by the industrial marketers to formulate an effective marketing strategy. The industrial buyers are influenced by both purchasing objectives of the firm and personal objectives.making. and purchasing committee.Hiii. Identifying purchase committee individuals. . 3. Richard M. Further. their technical and commercial expertise. How industrial buying behaviour is different from consumer buying behaviour? What are the major factors that influence business buyers? 5. the individuals involved in buying- decision process have certain roles. 3. TATA McGraw-Hill Publishing Company Limited. buying decision process. single sourcing. Krishna (2002). Discuss the contemporary techniques of purchasing in industrial buying.Cross (2003). In what stage(s) of industrial buying decision making process the industrial marketers should get involved and what are the benefits of such an involvement? 2.Alexander & James S. such as just-in-time delivery. value analysis. and the organization structure are the important tasks to be performed by the effective industrial marketer. ―Industrial Marketing‖(1 st ed. Give the comment. The salesperson must provide information to all the members of the purchase committee. The industrial marketers should identify the key members of buying centre in each buying organization. K. 3. 4. their individual needs.
Brierty & Betty H. ―Service Marketing: Operation. Macmillan India Limited. ―Strategic Industrial Marketing‖.3. ―Industrial Marketing‖ (2nd ed. Edward G. .) . Robert R. Management and Strategy‖. Peter M. New Delhi.Reeder (2001). Prentice-Hall of India Private Limited. 5. Chisnall (1985). Woodruffe. Prentice-Hall International. New Delhi 4. Helen (2000).Reeder. 1985.
UNIT-II Strategic Industrial Marketing (S.the link with strategic planning o What's driving growth in business-to-business (B-2-B) o Industrial Marketing Strategy in India . To understand the importance of market segmentation and the bases in which it is done .T. Marketing Research . The basic objective of this chapter is : o to understand the meaning of Industrial / Business Marketing o Difference between Business and Consumer Marketing o Marketing planning .) . to develop a target market strategy .Marketing Information Systems and Marketing Research.P. To understand positioning of a product Understand Marketing Information Systems .
or use them to support their operations. Pitt and Honeycutt. J. business marketing courses are commonplace at many universities today. the practice of one purveyor of goods doing trade with another is as old as commerce itself. now publish studies on the subject regularly. and professional conferences on business-to-business marketing are held every year. however. What's more. governments and institutions. This began to change in middle to late1970s.Business marketing is the practice of organizations. or b-to-b marketing. including commercial businesses. Origins of business marketing In the broadest sense. facilitating the sale of their products or services to other companies or organizations that in turn resell them. notes that industrial marketing has been around since the mid-19th century. although the bulk of research on the discipline of business marketing has come about in the last 25 years. David Lichtenthal. 2001. Also known as industrial marketing. business marketing is also called business-to-business marketing. for short. In fact. . In his introduction to Fundamentals of Business Marketing Research. point out that for many years business marketing took a back seat to consumer marketing. A variety of academic periodicals. its history is more recent. professor of marketing at the City University of New York's Zicklin School of Business. such as the Journal of Business-to-Business Marketing and the Journal of Business & Industrial Marketing. which entailed providers of goods or services selling directly to households through mass media and retail channels. Dwyer and Tanner (2006) point out that more marketing majors begin their careers in business marketing today than in consumer marketing. Morris. As a niche in the field of marketing as we know it today. use them as components in products or services they offer.
and that is usually through direct mail efforts and trade journals. includes schools. institutions. government agencies. The third category. Business marketing vs. which are companies that purchase products for their own consumption. In fact. the U. who buy gauges to put in their cars. hospitals and nursing homes. institutions and resellers. consumer marketing Although on the surface the differences between business and consumer marketing may seem obvious. the negotiation process between the buyer and seller is more personal in business marketing. While that advertising is limited. resellers consist of wholesalers. Who is the business marketing customer? While "other businesses" might seem like the simple answer. and users. Dwyer and Tanner (2006) say business customers fall into four broad categories: companies that consume products or services. there are more subtle distinctions between the two with substantial ramifications. most business marketers commit only a small part of their promotional budgets to advertising. According to Hutt and Speh (2001). government is the biggest single purchaser of products and services in the country. While consumer marketing is aimed at large demographic groups through mass media and retailers. churches and charities.S. spending more than $300 billion annually. government agencies. Finally. The first category includes original equipment manufacturers. is the biggest. But this category also includes state and local governments. brokers and industrial distributors. The second category. . Dwyer and Tanner (2006) note that business marketing generally entails shorter and more direct channels of distribution. such as automakers. it often helps the business marketer set up successful sales calls.
The main problem with this process is that the ―environment‖ in which businesses operate is constantly changing. finance. of course.the link with strategic planning Businesses that succeed do so by creating and keeping customers. They do this by providing better value for the customer than the competition. Where does marketing planning fit in with the overall strategic planning of a business? Strategic planning (which you will cover in your studies of ―strategy‖ is concerned about the overall direction of the business. So a business must adapt to reflect changes in the environment and make decisions about how to change the marketing mix in order to succeed. Marketing has a key role to play in strategic planning. The objective of a strategic plan is to set the direction of a business and create its shape so that the products and services it provides meet the overall business objectives. . This process of adapting and decision- making is known as marketing planning. Marketing management constantly have to assess which customers they are trying to reach and how they can design products and services that provide better value (―competitive advantage‖). It is concerned with marketing.Marketing planning . human resource management and other business issues. because it is the job of marketing management to understand and manage the links between the business and the ―environment‖. But it also involves decision-making about production and operations.
many of which are inter-connected. The ability of a business to achieve profitable sales is impacted by dozens of environmental factors. consider the challenge faced by marketing management in a multinational business. in many small businesses there is only one geographical market and a limited number of products (perhaps only one product!). producing a wide range of products. It makes sense to try to bring some order to this chaos by understanding the commercial environment and bringing some strategic sense to the process of marketing products and services. How can such management keep control of marketing decision-making in such a complex situation? This calls for well-organised marketing planning. with hundreds of business units located around the globe. However. What are the key issues that should be addressed in marketing planning? The following questions lie at the heart of any marketing (or indeed strategic) planning process: • Where are we now? • How did we get there? • Where are we heading? • Where would we like to be? • How do we get there? • Are we on course? Why is marketing planning essential? Businesses operate in hostile and increasingly complex environment. For example. It can help to: .Sometimes this is quite a straightforward task. A marketing plan is useful to many people in a business.
" A 2003 study sponsored by the Business Marketing Association estimated that business-to-business marketers in the United States spend about $85 billion a year to promote their goods and services.8 . the dollar volume of transactions in the industrial or business market significantly exceeds that of the ultimate consumer market. they note that companies such as GE.$17.$10.9 Magazine Advertising -." For example.5 Promotion/Market Support -.$12. Dwyer and Tanner (2006) say the purchases made by companies. government agencies and institutions "account for more than half of the economic activity in industrialized countries such as the United States. DuPont and IBM spend more than $60 million a day on purchases to support their operations. Canada and France. • Identify sources of competitive advantage • Gain commitment to a strategy • Get resources needed to invest in and build the business • Inform stakeholders in the business • Set objectives and strategies • Measure performance How big is business marketing? Hutt and Speh (2001) note that "business marketers serve the largest market of all.3 Internet/Electronic Media -.$10. The BMA study breaks that spending out as follows (figures are in billions of dollars): Trade Shows/Events -.
Milwaukee. Syracuse..000 members in 19 chapters across the country.$1.$10.8 Telemarketing -. BMA.$3. and these changes are speeding up the pace of new product . N. Cincinnati-based HSR Business-to-Business.$5. What's driving growth in b-to-b The tremendous growth and change that business marketing is experiencing is due in large part to three "revolutions" occurring around the world today. Eric Mower and Associates.2 Market Research -. Wichita. Today. Among its members are a new breed of marketing communications agencies that are largely or exclusively business-to-business- oriented. Publicity/Public Relations -. Pitt and Honeycutt (2001).4 Directories -.$2. headquartered in Chicago. BMA traces its origins to 1922 with the formation of the National Industrial Advertising Association.$5. First is the technological revolution. according to Morris. They include Bader Rutter & Associates.4 Dealer/Distributor Materials -. Sullivan Higdon & Sink.Y.$9.1 The fact that there is such a thing as the Business Marketing Association speaks to the size and credibility of the industry.4 Other -. Technology is changing at an unprecedented pace. Kan. boasts more than 2.5 Direct Mail -. and Chicago-based Slack Barshinger..
many companies have downsized and reinvented themselves. . Marketing is taking the entrepreneurial lead by finding market segments. aggressiveness and innovativeness are the keys to remaining competitive today. Adaptability. Second is the entrepreneurial revolution. The strategic planning process consists of developing the company's mission. and details. action plans and control measures. The purpose of the situation assessment is to identify threats and opportunities posed by changes in the environment (environmental assessment). distribution and customer service. objectives and issues. objectives and goals. Companies are customizing marketing programs to individual accounts. Relationships. untapped needs and new uses for existing products. speed.and service development. business portfolio. responsibility. The third revolution is one occurring within marketing itself. models and concepts. Industrial Marketing Strategy in India Marketing planning involves the selection of a marketing strategy and the tactics of implementing it to reach a defined set of goals. They're also moving away from the mass market and the preoccupation with the transaction. current marketing situation. flexibility. marketing strategies. partnerships and alliances are what define marketing today. threats and opportunities. Controlling requires that various relevant aspects of performance be measured and compared with corresponding aspects of the plan. and functional plans. A large part of that has to do with the Internet. which is discussed in more detail below. Companies are looking beyond traditional assumptions and adopting new frameworks. and by creating new processes for sales. Marketing planning differs from Strategic market planning in three ways: time horizon. The cookie-cutter approach is out. To stay competitive. theories. The components of marketing planning are executive summary.
Application Engineering. are available to help corporate management determine the SBUs that should be built. customer needs. and opportunity. Corporate strategic planning involves four planning activities. In particular. evaluate competitors' current Product-Market portfolio. A marketing strategy has to take several factors into account. The second activity calls for identifying the company's strategic business units (SBU). harvested. challenger. SBUs are business units that can benefit from separate planning. and be managed as independent profit centers. . direction. Its customer groups. The third activity calls for allocating resources to the various SBUs based on their market attractiveness and company business strengths. Follow the Full Product Life cycle. There are three basic approaches for strategy formulation for new products. face specific competitors. they are useful to evaluate the firm's current Product-Market portfolio. and technologies define a business. A well-developed mission statement provides employees with a shared sense of purpose. Develop New Products. including those by Boston Consulting Group and General Electric. follower or nicher. or divested. specifically whether it is a market leader.The issue of strategy formulation and planning for any new product or market is dependent on the product life cycle. Several portfolio models. maintained. project the firm's future competitive situation and guide the development of a Strategic Intelligence System. Follow the Leader. The essential task is to identify a proper product market combination where the barriers to entry are at a minimum. The tools described provide powerful support for the Formulation of marketing strategies. The fourth activity calls for expanding present businesses and developing new ones to fill the strategic- planning gap. There are four major marketing strategies depending on the timing of the technologically intensive firm's entry into an industry. and Me-too products. the prime one being the company's position in the particular market. The first is developing a clear sense of the company's mission.
and governmental market. such as advertising. The selection of a suitable forecasting technique depends on (a) identification of new opportunities or threats (b) identification of potential markets and (c) market estimation and product specification. many organizations have found that what works well in the consumer market fails to do so in the industrial market. for instance. successful industrial marketing strategy depends more on other functional areas. may market to such diverse segments as the commercial.need for a lengthy time frame in industrial marketing can arise from a variety of reasons. each of which will require a unique marketing plan Second. institutional. engineering.The. in the industrial marketing arena requires a higher degree . then. for instance. selling. and product management. most industrial marketers face diverse markets that must be reached through a multiplicity of channels-each requiring a different marketing approach. When marketing emphasizes tailor-made products and fast deliveries. like long lead times. planning in the industrial market is largely dependent on. or constrained by. and technical services. in contrast to consumer marketing. long life cycles of many existing industrial products and alternative sources of resources on a long4erm basis. Planning. Two significant differences between these markets appear to account for this phenomenon. Strategic Planning In The Industrial Market While the basic principles of planning apply in both markets. A producer of communication equipment. manufacturing. unlike the consumer market where products are normally' marketed through one or two channels. the activities of other functional areas-for example. manufacturing must be prepared to follow through with product output. First. Where the elements of planning in consumer marketing can often be contained within specific areas of marketing.
Develop organizational structures that explicitly incorporate marketing and non- marketing considerations. Potentials conflict also exists between marketing and manufacturing in such areas as sales casting and production planning.of integrated effort across functional areas and a closer relationship with overall corporate strategy than in the consumer market. as Wind and Robertson point out. Perhaps this is due to what may be referred to as "functional isolation. planning in the industrial arena must be a collaborative effort between all key functional areas. Functional Conflict While successful planning depends on cooperation between the different functional areas. but "marketing concepts."4 That is. methods and inputs are frequently ignored in the decision perspectives of other business function & While marketing should take the lead in defining market segments. the isolation between marketing and other functional areas may continue until we: Find solutions to the inherent conflict between marketing and other functional areas. Begin using marketing decision models that are based on relevant input from other functional areas 'besides marketing. too often industrial firms concentrate planning efforts in the marketing department. failing to recognize the interdependency between marketing and other functional areas. Unfortunately. needs. and R&D. whenever tasks and objectives are different or unclear between two or more departments a strong tendency for disharmony exists. segments. and between marketing and R&D in the new product development . manufacturing. Functional Isolation While planning in the industrial market is as sophisticated as it is in the consumer arena. and opportunities and in determining what it will take to satisfy the various markets and. not only does marketing tend to ignore its interface with other areas such as finance.
power and knowledge.We need a technical expert to soothe customers even though they really do not have a problem. Alleviating conflict begins with developing an understanding of the basic causes of interdepartmental conflict.Engineering always goes by the book. Why can't we have reasonable Quality at reasonable costs. rapid company growth. However. Conflict can also arise differences in how departmental individuals perceive their prestige. Budget constraints. Alleviating Conflict. Trying to package so many products and hold costs down is extremely poor that it makes our products hard to sell. As discussed in Chapter five conflicts arises due to the fact that each area is evaluated and rewarded on the different criteria. when conflict begins to diminish the ability of the organization to coordinate the . Technical . Warranty. We could get sued for false advertising. they don't understand that you have to bend a little.We're limited in what we can design because we have to keep it simple for marketing either the customer nor our marketing department understand the product and how it is supposed to work The information that marketing includes is so exaggerated. and the rapid peace of technological change can also yield potential areas of conflict. the inherent complexities of the different functional areas and the different perceptions of the individuals involved. Some degree of conflict is necessary and can be very constructive in that it promotes more efficient and effective use of the company's resources.
and (3) formal and informal inter functional contacts (e. weaknesses. Marketing executives. is top management's responsibility. Conflict can only be alleviated when an atmosphere of cooperation is created through (1) promotion of clear and straightforward corporate policies. We must design so many products withnumerous options that it is hard tomaintain quality and keep costs down. We don't have enough manpower hold the hand of some pet customers of marketing. . can assist in alleviating conflict by building their marketing plans around each functional area's ability to service the firm's markets and customers and by analyzing the strengths. including manufacturing people in sales meetings and marketing people in product design decision meetings or establishing squash courts for noon-hour use by all company members). it becomes counterproductive and impedes the organization's effectiveness in achieving its primary goals.g. and competitiveness of each respective area.. Alleviating conflict. even an invalid one.efforts of its various' functional areas. (2) evaluation and reward systems that stress inter functional cooperation and responsiveness. however. Marketing wants us to pay the full amount of every claim. however. similar to analyzing customers and competitors.
Targeting the market(s) o Undifferentiated o Concentrated o Multi-segmented 3. willingness and authority to purchase such products (conditions needed for an exchange). have needs for products in a product class and who have the ability. Consumer Intend to consume or benefit. but not to make a profit. Developing the marketing strategy . Analyzing consumer demand 2. as individuals or organizations. Developing a Target Market Strategy A Product will not sell by itself. we need to develop a target market . Organizational/Business For: o Resale o Direct use in production o or general daily operations.Developing a target market strategy has three phases: 1. After drawing a strong strategy plan. Types of markets: 1. It needs the best of strategies. 2.What is a Market? A market is: An aggregate of people who.
1. one's level of income. A demand schedule can be constructed that shows the quantity demanded at each given price. the price of substitute goods.00 per Kg. For example. they are: Homogeneous Demand-uniform.3 per kg. The main determinants of the quantity one is willing to purchase will typically be the price of the good. Eg. Clustered Demand-consumer demand classified in 2 or more identifiable clusters. Automobiles: o luxury . It can be represented on a graph as a line or curve by plotting the quantity demanded at each price. However. It can also be described mathematically by a demand equation.5. The capacity to buy is sometimes used to characterise demand as being merely an alternate form of supply. As marketers we need to aggregate consumers with similar needs. We need to identify demand patterns. and the price of complementary goods. Do all potential customers have similar needs/desires or are there clusters? What are the demand patterns ? A marketer can normally identify 3 demand patterns. everyone demands the product for the same reason(s). personal tastes. the same consumer may be willing to purchase only 1 Kg if the price is Rs. Selecting Target Markets by Analyzing Demand Demand is the quantity of a good that consumers are not only willing to purchase but also have the capacity to buy at the given price. a consumer may be willing to purchase 2 Kgs of potatoes if the price is Rs. Identification of demand could be done by asking the following questions and analyzing the same.
Single Marketing Mix consists of: 1 Pricing strategy 1 Promotional program aimed at everybody 1 Type of product with little/no variation 1 Distribution system aimed at entire market . need to offer hundreds of shades of lipstick. Cosmetic market. a) Undifferentiated Approach (Total Market Approach) – This approach does not differentiate the market according to any variable. or demand is so diffused it is not worthwhile to differentiate. 2. Nirma Detergent soap – for any kind of stain. This would include 3 approaches in which a marketer can target its consumers. can identify how the consumers can be targeted. o cheap o Sporty o Spacious Diffused Demand-Product differentiation more costly and more difficult to communicate Eg. In this case a Single Marketing Mix for the entire market identified is laid out. Homogeneous market. for any kind of person or cloth one soap. Targeting The Market After analyzing the demand pattern we as marketers. Firms try to modify consumer demand to develop clusters of at least a moderate size. try to make demand more homogeneous. Eg. All consumers have similar needs for a specific kind of product.
In today's competitive market this approach is out-dated and could cause a product to fail. This approach is popular when large-scale production began. Market segmentation is the process of dividing a total heterogeneous market into market groups consisting of people who have relatively similar product needs. groups or organizations with one or more characteristics that cause them to have relatively similar product needs. Well there is another set of people who believe the higher the price better he quality of product. A market segment consists of individuals. In this case the major objective is to maximize sales. There are two Market Segmentation Strategies (remember these are strategies and not the basis of segmentation. which will be discussed later). . Examples include Staple foods-sugar and salt and farm produce. as the competition is very high and the availability of alternatives are very extensive. It can be understood that Individuals with diverse product needs have heterogeneous needs. The would like the best of products at a very economical price. b) Market Segmentation Approach. Indians are very price conscious people. If this approach is incorporated into an organization it must be able to develop and maintain a single marketing mix. there are clusters of needs. The elements of the marketing mix do not change for different consumers. all elements are developed for all consumers. The purpose is to design a Marketing Mix (s) that more precisely matches the needs of individuals in a selected market segment(s).
In this strategy the objective is not to maximize sales. attracting a large portion of one section while controlling costs. PROS include: It allows a firm to specialize in one product/ one market group can focus all energies on satisfying one group's needs A firm with limited resources can compete with larger organizations. It the company is small or new to the field. Concentration Strategy. it is efficiency. A firm that does targeting of only one segment with a unique marketing mix is referred as concentrated marketing strategy. CONS include: Puts all eggs in one basket. it may decide to go for concentrated strategy. Examples include: ROLEX. May have trouble expanding into new markets (especially up-market). Multi-segment strategy (or also called as differentiated marketing strategy) Here targeting is inclusive of many segments using individual marketing mixes is called differentiated marketing strategy. Small shift in the population or consumer tastes can greatly affect the firm. different marketing plan for each segment. Anyone wear one. the firm will try to offer a product suitable for every purse. ii.i. This approach combines the best attributes of undifferentiated marketing and concentrated marketing. Here 2 or more segments are sought with a Marketing Mix for each segment. purpose and . In this strategy.
watches ranging from Rs. personality by adoption this strategy.Marriott Suites. using different packaging etc.Permanent vacationers 2.....Residence Inn. Example: Titan.Economy Lodging 3.. Costs and resources and increased marketing costs through selling through different channels and promoting more brands.. Less risk.Extended Stay 4. executive watches to sports watches. water proof…. Can achieve same market coverage as with mass marketing.Business Travelers PROS include: Shift excess production capacity.. it hopes to strengthen the overall identification of the company with the product category. not relying on one market. CONS include: Demands a greater number of production processes.. 250 to more than a lakh.Fairfield Inn. Marriott International: 1. etc.Courtyard By Marriott. Price differentials among different brands can be maintained Contact Lens!! Consumers in each segment may be willing to pay a premium for the tailor-made product. Must be careful to maintain the product distinctiveness in each consumer group and guard its overall image (Contact lenses) . plastic to the hardest of metal.
So what if you are the only red-haired singer who only knows how to play a G minor chord? Does your target market consider this a good thing? Positioning is important because you are competing with all the noise out there competing for your potential fans attention. brand. positioning is the technique by which marketers try to create an image or identity in the minds of their target market for its product. or organization. positioning is how your target market defines you in relation to your competitors. It is the 'relative competitive comparison' their product occupies in a given market as perceived by the target market. Simply. A product's position is how potential buyers see the product. The term was coined in 1969 by Al Ries and Jack Trout in the paper "Positioning" is a game people play in today's me-too market place" in the publication Industrial Marketing. This is considered a benefit by your target market Both of these conditions are necessary for a good positioning. you have a chance at getting their attention. POSITIONING In marketing. . Positioning is something (perception) that is done in the minds of the target market. What makes you unique 2. Positioning is expressed relative to the position of competitors. If you can stand out with a unique benefit. A good position is: 1.
3)where it will be produced. Classical industrial location theory is founded on the work of Alfred Weber. Products comprised of ubiquitous materials will usually be produced near market locations to reduce transporation costs. Local materials are found only at specific locations. 2. and 4) form whom it will be produced. These phases correspond to the 4 primary questions of economic geography: 1) what will be produced. Only localized raw materials attract production. Marketing Information 1. The best location for a manufacturing plant is the point at which the total transportation costs are minimized. For example. and distribution. Weber's system is often called the least cost approach because he assumed that such locations are optimal. 3. Manufacturing involves 4 distinct phases. These phases are selection. 2)how it will be produced. 2) the cost of distributing the finished product.It is important to understand your product from the customer's point of view relative to the competition. he assumed the existence of a single marked point. In normal cases. 4. production. Ubiquitous materials are universally distributed. Changing the form of a raw material increases its use or value. The increase in labor power is termed value added by manufacturing. flour milled from wheat is more valuable than the raw grain. assembly. Raw materials are classified into two categories: 1) ubiquitous and 2) local. Weber considered 1) the cost of assembling raw materials. and 3) the total transportation costs. .
Today. high speed computers assess numerous variables to find the best location. Finding the optimal scale of production is an attempt to . Flexible manufacturing processes. and capital. Spatial variability in the cost of land and the availability of skilled or unskilled labor impact the location of production processes. 8. 9. The scale of production indicates the volume of a firm's total output. Companies that can adjust to the speed and flexibility of economic relations are in a superior competitive position. 7. Three primary factors influence the method and cost of production after the materials have been assembled at a point. Liquid capital is used to pay wages and other operating costs. Liquid capital is more mobile than fixed capital. There are two forms of capital: 1) fixed capital and 2) liquid or variable capital. The optimal scale may determine whether a business expands existing facilities or builds branch plants. Locational decisions are influenced by prior developoment patterns. 10. Plants may be located at nonoptimal sites in order to utilize existing infrastructure. The time required to transport materials and transmit information has decreased substantially in the past 50 years. Fixed capital includes equipment and plant buildings. The Varignon frame is a mechanical device of weights.5. This is called industrial inertia. These are land. 6. such as Just-in-time manufacturing are adaptations to technological change. Fixed capital is a primary reason for industrial inertia. strings. The weight and weight-losing properties of raw materials are critical factors influencing industrial location. Technological change has greatly impacted production processes. and pulleys formerly used to identify the best location for a plant. labor.
2) product orientation. Verticle integration occurs when a firm controls more of the elements in the production process. such production linkages. The combination of at least two of these formats is called a matrix structure. and 4) customer orientation. but also facilitates the use of relatively unskilled labor. Companies organize themselves hierarchically in a variety of ways to administer and coordinate their activities. 13. and commodities among countries. Horizontal integration occurs whan a firm gains an increasing market share of a given niche of a particular industry. Growth takes place through integration and diversification. Forward integration occurs when a firm begins to control the outlets for it products. and larger size and scope of operations. The emergence of agglomeration economies. Advantages which MNC's possess include superior knowledge. product design. The bacis formats are 1) functional orientation.eliminate or reduce diseconomies of scale (diminishing returns). technology. 11. The division of labor is a critical component of mass production. . Division of labor not only speeds up production. service linkages. Backward integration occurs when a firm takes over operations previously the responsibility of its suppliers. This includes the purchase of raw materials or distribution facilities. 14. 12. Mergers between similar firms is an example of this process. managerial skills. and marketing linkages. may also be related to the development of scale economies. 3) geographic orientation. The role a multinational corporation (MNC) symbolizes is that of an effective agent for transferring capital.
which begins with a product's development and ends when it is replaced with something better. Real time information systems reduce bureaucracy by using self-managed teams. These innovations include downsizing. 17. Particularly significant are adjustments made in response to major shocks or stresses placed on an enterprise. 16. Business process reengineering refers to a major innovation in the manner in which organizations conduct their business. Kondratiev hypothesized that industrial countries experience successive waves of growth and decline. Shifts may be inspired by technical and organizational developments internal to the industry or changes in the external environment. a period of diminished growth. These are called Kondratiev cycles. and a period of stability or decline. These stages include an initial period of experimentation. Each cycle lasts for approximately 50-60 years. real time information systems. 19. is important geographically because products at different stages of production tend to be manufactured at different places within corporate systems. The product life cycle. Downsizing reduces the number of employees. and strategic information systems.15. Corporate production systems undergo continuous locational adjustment. . 18. Industries tend to pass through several stages. such as the oil-price hikes of 1973. a period of rapid growth. Strategic information systems use technology to improve a firm's competitive ability.
which was formed last year with the merger of WorldWide . in the business marketing world. For example.W. others have. The impact of the Internet The Internet has become an integral component of the customer relationship management strategy for business marketers. Infomediaries. are search engine companies that also function as brokers. the Internet ushered in an enthusiasm for collaboration that never existed before--and in fact might have even seemed ludicrous 10 years ago. They charge companies fees to find information on the Web as well as for banner and pop-up ads and search engine optimization services. two new types of resellers have emerged as by-products of the Internet: infomediaries and metamediaries. Metamediaries. or middlemen. Dwyer and Tanner (2006) note that business marketers not only use the Internet to improve customer service but also to improve opportunities with distributors. General Motors and DaimlerChrysler entering into a joint venture? That's exactly what happened after all three of the Big Three began moving their purchases online in the late 1990s. such as Google and Yahoo. According to Anderson and Narus (2004). All three companies were pursuing their own initiatives when they realized the economies of scale they could achieve by pooling their efforts. with DaimlerChrysler representing the third partner. a decade ago who would have imagined Ford. including Agentrics. While this exchange did not stand the test of time. such as W. Thus was born what then was the world's largest Internet business when Ford's Auto-Xchange and GM's TradeXchange merged. multivendor and multiservice marketspace in return for commissions on sales. Grainger. LLC. are companies with robust Internet sites that furnish customers with multiproduct. With the advent of b-to-b exchanges.
Marketing Research (Chapter 8) is the information gathering arm of IT. or GNX. Agentrics serves more 50 retailers around the world and more than 300 customers. 3 key elements link the organization to its customers: Information Technology Micro Marketing Relationship Marketing Information technology (IT) IT designed computer and communication systems to satisfy organizations information needs.Retail Exchange and GlobalNetXchange. and its members have combined sales of about $1 trillion. IT is the framework for the day-to-day management and structuring of information gathered regularly from sources outside and inside the organization: Data Inputs------>Processing-------->Information Outputs ^ | | | --------------Feedback-------------- DATA----------->PROCESSING--------------->INFORMATION . Hutt and Speh (2001) note that such virtual marketplaces enable companies and their suppliers to conduct business in real time as well as simplify purchase processes and cut costs.
Effective IT Provides a continuous flow of information. Difference between DATA and INFORMATION. but have not been able to use. Inputs: o Accounting records o Information from 1-800 #s o Transaction Information o Frequent User Programs o Public Information o Survey Information Processing-classifying information and developing categories for meaningful storage and retrieval. advertising expenses. sales. re: prices. o Processing element of IT has allowed marketers to merge (essentially) their transactional databases with their customer profile databases.. Identify problem in 10 calls. Marketers can then determine which information-the output-is useful for decision making.000 o Customer service reps on 1-800 lines have computer info o Customer service major IT expense . o Customer relations. competition and distribution expenses.. locate/identify problems more quickly. not information. not 10. Recent Developments in IT: o Enabled marketers to effectively utilize the information they have been storing for years. Feedback enables adjustments to the input. it was therefore data.
catalogs Relationship Marketing. New model..direct mail. . o $1bn spent in 1994 on IT Micro Marketing (Database marketing) An Organizations efforts to collect: o demographic o media o consumption profiles of customers.. sell one product to as many customers as possible (target market).long-term Old model.. o Lower inventory costs.. now companies have the technology to have a 1 2 1 (few) relationship with their customers. In order to target customers more efficiently marketers can use multi variable segmentation incorporating Buyer Behavior information and Demographic information.one-to-one. one-to-one Focus on the life-time value of the customer (LVC) instead of the individual transaction.. What people have done in the passed (Purchase) is a better predictor to future behavior than any other characteristic/variable Use frequent user programs to collect data on heavy user customers..renegotiate with suppliers etc. sell as many products to one person.. Customers always had a 1 2 1 relationship with companies. Media....
potential that a single firm within an industry expects to obtain . good when only a few customers (business markets). Market Potential--Industry wide. Executive judgment--swayed by recent experience. medium term or long term. Then estimate the proportion for the company. characteristics of market. based only on passed experience Surveys--Customer. indicates association not causal relationships. same for each area. potential-sales potential Buildup approach: # of potential buyers purchases * # buyers in area. Breakdown approach: economic-mkt. cycle. Methods: Choice depends on costs. type of product. Sales forecast surveys. need to specify time frame and level of industry marketing activities. stability of historical data. Sales Potential--Maximum % of Mkt. expensive.absolute limit. rely on customer estimates. seasonal and random factor Correlation method. time span of the forecast.Evaluating the Markets and Sales Forecasting Need to measure the sales potential of the chosen markets. expert forecast surveys Time Series Analysis--trend. Can be short term. then add areas to calculate total market potential. purpose of the forecast. Actual instead of potential. regression analysis. . availability of required information and forecasters expertise and experience. Sales penetration= Actual sales/Sales potential Developing Sales Forecasts Sales forecast is the amount of a product that a company actually expects to sell during a specific period at a specified level of marketing.
wants and desires of their target markets. Marketing Research Introduction In order to implement the marketing concept. intended. Other companies can manipulate. needs. must be conducted in a systematic manner involves a series of steps/processes data may be available from different sources research applies to any aspect of marketing that needs information findings must be communicated to the appropriate decision maker . marketers require information about the characteristic. systematically collecting and analyzing information. Need to approach the research in a logical manner. It is the function that links the consumer (customer) and public to the marketer through information. & recommending actions to increase an organizations marketing activities. actual vs. Can see changes in MM. Marketers will generally use more than one method. Difference between good and bad research can depend on the quality of the inputs. Market tests. other companies can see offering. Definition: Marketing research is the process of defining a marketing problem & opportunity. Future Marketers will look at the sales potential of a customer (LCV) for all its products as opposed to the market of one product with the use of relationship marketing.
e.There are 5 steps in the marketing research process. Alternatives---decision maker has control Uncertainties--uncontrollable factors Decision maker must: 1.. (goals may be unrealistic) Need to probe beneath the superficial symptoms. Therefore query news group with your ideas to better define your research needs perhaps. (University students/local residents) May need to use exploratory research here.to determine the unfulfilled needs/wants within specified target market(s). it is an overall approach. Marketing Plan.. not a rigid set of rules. Assess the decision factors Different sets of variables. Research objective specifies what information is needed to solve the problem. before conclusive research.. alternatives and uncertainties that combine to give the outcome of a decision. Determine the principal alternatives that can be considered reasonable approaches to solving the problem. . refine your ideas before developing your hypothesis!! 2.i. 1. IE conflicts between or failures in attaining objectives.. reasonable outcomes of research. Defining and Locating the problem Usually a departure from some normal function.
PRO Inexpensive. independent therefore credible. as well as students of the University of Delaware would frequent a Bagel Store. DE. survey of buying power. Accounting data. Can have more than one hypothesis in a study. Secondary inside or outside the organization. Marketing Research Corporation of America. An informed guess or assumption about a certain problem or a set of circumstances. that cannot be obtained through primary research. Collect Relevant Information Concepts Developing Hypothesis Drawn from previous research and expected research findings. 3. Secondary data collection Internal database data (MIS). Methods Collecting the data Two types of data. methodology maybe unknown. The major uncertainties that can affect particular alternative and result in it being a GOOD OR POOR SOLUTION TO A PROBLEM. magazines. Primary. multiple sources available. quick to obtain. all findings may not be public. dated. As information is gathered researchers can test the hypothesis. reliability may be unproven. Residents of Newark. syndicated data services. 4. government data. CON maybe incomplete. obtain info. obsolete. .
must consider dates. reliability can be determined. IE Wall Street Journal. it includes: o Who collects the data? o What should be collected? o Who or what should be studied? o What technique of data collection should be used? o How much will the study cost? o How will data be collected (personnel)? . available to firm and secret from competitors. no conflicting data from different sources. Primary data collection Information "collected specifically for the purpose of the investigation at hand". Dictionary of Marketing Terms. census of population/manufacturing/retail trade. External = government. Business Week. Research Design The frame work or plan for a study that guides the collection and analysis of data. PRO Fits the precise purpose of the organization. sales figures. regular publications. profit and loss statement. Commercial research houses: for a fee as a subscriber IE AC Nielsen. costly.SOURCES: internal = budgets. information is current. some information cannot be collected. methodology is controlled and known. all research reports. CON Time consuming. When a thorough analysis of secondary research provides insufficient information for a marketing decision to be made. only way to fill a gap.
A population "universe". o Random sampling. Survey Methods o Mail-wide area.. limited funds. judgmental.. Survey to news group is an example of quota sampling. sampling error cannot be measured statistically. population divided into groups re: a common characteristic. all elements. Must include a cover letter to explain survey!! news group. o How long will data collection be? Gathering Data Sampling To select representative units from a total population. non-probablistic. random sample each group o Area sampling..electronic survey . Sampling procedures are used in studying the likelihood of events based on assumptions about the future. units or individuals that are of interest to researchers for a specific study. need incentive to return the questionnaire Mail panels. equal chance for each member of the population o Stratified sampling. IE all registered voters for an election.. as above using areas o Quota sampling.will be non- probablistic. consumer purchase diaries. mainly used in exploratory studies to develop a hypotheses.
increased information. Can use demonstration. get more information but it is costly and getting harder to accomplish. gauge visual reactions. WATS.o Telephone-speed. o In home (door-to-door) interview. lifestyles. Questions can be adaptive depending on the responses. Almost half of major consumer goods and services orgs. needs and desires can be explored in a flexible and creative manner. computer assisted telephone interviewing. Need to weight for this. informal. immediate reaction is negative. Consumer attitudes. o Mall intercepts-interview a % of people passing a certain point. non-response can be explored. Questionnaire Construction Designed to elicit information that meets the studies requirements. respondents complete self administered questionnaires conducted in shopping malls. mall surveys get a more honest response than telephone surveys. less structured. Questions should be: o clear o easy to understand . Cadillac used this method to determine that they should be promoting safety features. o Personal interviews-flexibilty. Regarding social behavior. Can be conducted in shopping malls. Questions are open ended. Most favored method among those surveyed. behaviors. There is a bias toward those that spend alot of time in malls. use this technique as a major expenditure. o Focus groups-observe group interaction when members are exposed to an idea or concept. On site computer interviewing.
keep it short!! Demographic questions at the end!!.. Four basic types of questions are: o Open ended o Dichotomous o Multiple choice..-) Would parents really know?! . Must maintain impartiality and be very careful with personal data. o Scaled (lickert) Time frame must be stipulated so that it does not drag on.categories of income! Are you a strong or weak supporter of overnight summer camping for your children? What does strong/weak mean!? No middle ground answer! Do your children behave themselves well at summer camp? Yes [ ] No [ ] Of course they do .... Need to define objectives before designing the questionnaire.. o directed towards meeting an objective. Only ask needed questions.Always!! Always attach an explanatory cover letter!! Example of poor questions from a survey sent to parents of children that went on summer camp: What is your income to the nearest hundred dollars? Should not be at the beginning! Should use multiple choice.
How many camps mailed literature to you last April. Can be combined with interviews. To avoid bias must avoid being seen. Observation avoids the central problem of survey methods. Nielsen techniques for media.-) Do you think it is right to deprive your child of the opportunity to grow into a mature person through the experience of summer camping? Of course not!! Observation Methods Record overt behavior. do the results make sense. Mechanical observation devices. . this April? No-one will remember! What are the most salient and determinant attributes in your evaluation of summer camps? What do you mean . scanner technology. don't always accept them at face value. IE get demographic variables. "How long does a McDonald's customer have to wait in line". 5. 6. note physical conditions and events. If this is the only method. then there is no data indicating the causal relationships. IE cameras. motivating respondents to state their true feelings or opinions. Find a Solution The best alternative that has been identified to solve the problem. eye movement recorders. Evaluate the results Coke.
More manufacturers are using new technologies to move toward ―mass customization‖ in their product offerings. All references used must be included with the paper. For many organizations. Has the company been successful? The paper must include at least three current references and should be about 5-8 pages long (double spaced). & recommending actions to increase an organizations marketing activities. especially those under 30. systematically collecting and analyzing information. or ease of use derived from a broad range of product offerings? 2. One benefit is that it may help improve a company's image. Define market research. Consumers. etc. Would it be easier to convince a company to enter into a long term supplier-customer relationship if you offered them savings through vertical integration of product offerings. objectives. It is the function that links the consumer (customer) and public to the marketer through information. 3. . Assignments 1. Use the Web and library to collect information. Cause marketing has become a very powerful marketing tool (this is discussed in my notes). Solution Marketing research is the process of defining a marketing problem & opportunity. relationship marketing is more important than any individual transaction. will purchase brands that they believe are more likely to help improve the world. Choose at least three products and show how they are using cause marketing. because these long-term relationships can yield greater overall profitability. Discuss their strategy. Have you seen a similar move among marketers? If so explain such a trend Self.Learning Methods 1. target market.
Solution Collecting the data Research Design Gathering Data Survey Methods Questionnaire Construction Find a Solution Evaluate the results 4. Identify the steps used in the research process. Understanding the demand and supply need 3.2. With this in mind. This is not an individual activity. analyzing their content. You are expected to work with your team in locating the ads. and discussing the segmentation issues. Explain how businesses make the place decision as part of the marketing mix. Explain how businesses use market research. and then design advertising campaigns that will reach and persuade these customers to purchase the product. Identify the emphasized product attributes involved in each ad. you are to collect print ads for five different brands of the same product. Describe the consumer segments that are the apparent targets. The Business and Marketing Perspective: Analysis of Product Advertisements. . Understanding the market c. It is the job of marketing departments within business organizations to conduct research on potential consumers. Group Projects 1. Decision making b. Solution a.
Best Business Books. Additional Resources Business Marketing Association . Pitt. Reid. References Anderson. (2004) Fundamentals of Business Marketing Research. Sage Publications Inc. and Learning. McGraw-Hill/Irwin Greco. Richard E. Leyland F. 2005 Hutt. Come to class ready to give a brief oral report of your work (all term members participating). Robert. an Imprint of The Haworth Press. Jr. and Narus.. All members of the group must sign this report. (2004) Business Market Management: Understanding. 7th Edition. Earl Dwight (2001) Business-to-Business Marketing: A Strategic Approach. Inc.. and Plank. 2004. 3rd Edition.. (2006) Business Marketing: Connecting Strategy. (2001) Business Marketing Management: A Strategic View of Industrial and Organizational Markets.. Thomas W. Harcourt Inc. James C. Have a brief report of your activities and conclusions ready to hand in at the end of your oral report (2-3 pages). and Honeycutt. Creating. BtoB magazine.. Tanner. David A.. 2nd Edition. Morris. Business Marketing Association (2003) "Marketing Reality Survey" Dwyer. Inc. Michael H. James A. Michael D. Pearson Education. and Delivering Value. F. John A. (2005) "Past indicates promising future for b-to-b direct. June 13. Speh. Relationships. John F.
To understand changes in the product strategy To learn how to develop product strategies. To know the commercial terms and conditions prevailing in the industrial markets. Materials and parts. Based on these two criterions the industrial goods and services can be conveniently classified into three broad groups. To examine the special meaning of price in industrial marketing To know the factors that influence industrial pricing decision To learn about pricing strategies for different product and market situations. and 3.org/wiki/Business_marketing" UNIT—III INDUSTRIAL MARKETING Learning Objectives: To understand the types of industrial goods and services To know the product life cycle theory and its application to marketing strategies. 2. Supplies & services. CONTENTS: Classification of industrial goods & services Types of industrial product lines New product development Industrial product life cycle & Strategies Pricing of industrial products . Capital Items. Institute for the Study of Business Markets Retrieved from "http://en.wikipedia. 1. they are. .
copper. fish. They basically enter the production processes of the buying organization in their natural state. They include both farm products and natural products. Examples of such raw materials used in the production process includes the basic products like iron ore. fruits. a) Raw Materials: These are the basic products that enter the production process with a very little alteration or without any alteration. The cost of these items is treated by the purchasing company as pat of manufacturing cost. gold. Classification of Industrial Products and Services . crude oil. They are processed only to the level required for economical handling and transporting. vegetables etc. Materials & Parts: Goods that enter the product that directly consist of raw materials. manufactured materials and component parts. silver.1.
steel chemicals etc. b) Manufactured Materials & Component Parts: Manufactured Materials & Parts undergo more initial processing before entering the manufacturing process. Some items of equipments. gold and silver to be used in making communication instruments. fuel oil & Steel are the examples of manufactured or processed materials that are the basic ingredients of many manufacturing activities. TV tubes. Since such items are vitally important to proper operations of expensive machines that they are attached to. 2. Motor Cycle tyres and automobile batteries which can be installed directly into products with little or no additional changes. becomes part of the buying firm's Capital structures than a current expense. Acids. fuel oil. The examples of components parts include bearings. The examples for manufactured materials are Acids. Capital items include. Component parts on the other hand include small motors. such as automatic measuring and control devices should also be included in this category even though they are not expensive and their cost is often charged to current expense.AT & T purchases substantial quantities of copper. they are often bought in much the some manner as the machines themselves. small motors and gauges etc. The cost of such items therefore. a) Heavy Equipment/Installations. b) Light equipment/Accessories c) Plant & Building a) Heavy Equipment/Installations: These categories include large machineries whose unit purchase prices are so great that expenditures to them are apt to be charged to a capital account. Capital Items: Capital items are those which are used in the production processes and when they worn-out a portion of their original cost is assigned to the production process as deprecation. . batteries. Tyres.
etc. The minor equipments and accessories are sold through many retail outlets and there is hardly any direct relationship between producer and buyer of such equipments. It includes factories. paper. Since the unit price of heavy equipment is very high. pencils. Its unit price is lower than major equipment and is not considered as a part of heavy equipment. . for example enables it to stamp a variety of shapes and sizes. warehouses. its purchase may involve financial problems for the buyer. The substitution of dies or parts in a standard stamping machine. godowns. Fractional Horse Power Motors. and Special or Single purpose machines. The cost of such minor equipment is charged to current expenses. Standard machines can be adopted with minor adjustments to several types of work with in the general type of operation they are designed to perform. oils. greases. printer cartridges. firms that market such equipment must usually be prepared to arrange loans for their customers. b) Light equipment/Accessories: Minor or light equipment is a machinery used in an ancillary capacity. These items are standardized and used by a wide cross section of industrial users.Heavy equipment is of two general types—Multipurpose or Standard machines. soaps. Supplies & services: Every organization requires operating supplies such as paints. Such a machine could become useless if the end product is changed so that the intricate operation is no longer needed. Therefore. Multipurpose equipment can be used by a number of different industries or by many firms in the same industry. c) Plant & Building: These are the real estate property of a firm. Single purpose machines on the other hand are designed to perform one particular operation and no other. small tractors and small lathes are examples of Minor equipments. 3. offices. typewriter ribbons.
and attractive commercial terms. with fundamental benefits sought by customers. enhanced. available of spare parts. The augmented properties include intangible benefits such as technical assistance. profits. and personal relationship between the buyer and the seller. Like supplies services are considered as expense items. To achieve the twin objectives. warranties. The product package as expected by the prospective customers should be well understood by the industrial marketer. competition. styling and quality. maintenance and repair services. technical. training.Business services include maintenance and repair support and advisory support. and customer acceptance. custo0mer training and management development programmes. modifying & dropping an existing product and developing the new product. timely delivery. The explosive growth of the internet has increased the demand for a range of electronic commerce services such as delivering technical support. Definition of an Industrial Product: Industrial product is defined as a complex set of economic. Generic products are made differentiable by adding tangible enhanced properties such as product features. . Services: The rapid growth of business services is governed by four important factors which are explained below. and (ii) To evolve guidelines for reviewing the performance of the existing products by using the parameters such as sales. Basic properties are included in the generic product. the product strategies are formulated. legal. While developing product strategies the industrial marketer should consider two important objectives such as (i) To ensure that the product-mix is in line with the overall objectives and marketing objectives of the organization. A product is a combination of basic. The product strategies include important aspects such as continuing. and augmented properties.
Warehousing etc. advertising etc. Services like supply chain management. For example. the consultation services associated with the sale of computers is as important as computer itself. With this growth the demand for services like information processing. manufacturing out put is continued to growing. computer enabled services. 2. I) Products supported by services: The services which accompanied the physical product are equally important like the product itself. Services in the industrial market can be grouped into two categories such as Products supported by services and Pure services. are in an increasing trend. HR. the trend is towards going for outsourcing these activities. Advancement in computer security systems. An industrial marketer can create a differential advantage for the firm through such product support services. customer service and support are done through internet apart from other usual ITES. Growth of Manufacturing Sector: Despite the decline in the number of manufacturing employees. E—Business: The Internet is creating new business opportunities and directing the organizations to do the business in different forms and ways.1. 3. A significant portion of the revenue for an industrial distributor comes from the product support services. therefore resulting in the wide opening up of business service sector. Out Sourcing: It is a common phenomenon that the present day organizations are getting the services done from outside services provide. . 4. environmental control systems for office and factory buildings are examples for the effect of innovations on business services. As a result more and more small and large service providers have entered the business services sector. Payrolls. In an area where the company is not expertised such as information management functions. Innovations: The innovations in the field of science and technology have contributed for increasing demand in the area of business services.
A wide range of such pure business services included insurance. . However. a critical element in the buyer-seller relationship is the effectiveness of the individual who actually provides the services. Services cannot be stored. With the rise of competition in the professional services industry. but there is a time gap between the production and consumption of products.II) Pure Services: A pure service is one which is marketed on their own right not associated with intangible product. transportation and such allied services. Services are generally consumed as they are produced. Pure services are very significant from business point of view as they constitute the major portion of the total corporate purchases. the service providers such as accountants. Services are deeds. Services are consumed at the time of production. Services are highly variable but products are highly standardized. Services are more intangible than manufactured goods and manufactured goods are more tangible than services because services are actions or performance they cannot be seen or touched. Business services are those market offerings that are intangible dominant. consultants and financial advisers have found it imperative to develop highly focused marketing programmes. There are several basic differences between goods and services. Services differ in the amount of equipment and labour that are utilized to provide the service. Services are intangible. consulting. Products are tangible. few services are totally intangible. The universally recognized difference between goods and services is intangibility. Services cannot be stored but products can be stored. banking. The quality of the service output may vary each time it is delivered. advance its reputation as a leader in the field and strengthen its relationships with existing clients. process and performances. Such marketing programmes enable the service providers to pre establish a relationship with a client.
Industrial Services: Here. New Product Development: New Product Development process is the process by which the product ideas are generated. directed and converted into products. and 7. 3. Product line decisions include the addition. Proprietary or Catalog Products: These items are offered only in certain configurations and produced in anticipation of orders. they are. An external source of ideas . Idea Generation: The Industrial marketer should be consciously search for new product idea and to their sources both inside and outside the company. Market Testing. The product line decisions in case of such products centre on offering the proper mix of options and accessories. assessed. Custom built Products: These items offered as a set of basic units with numerous accessories and options. Industrial Product lines can be categorized in to four types. 2. the firm provides not an actual product but its capability on area such as maintenance. R&D experts. Commercialization 1.Types of Industrial Product Lines: Product lines of industrial firms differ from those of consumer firms. Internally the new product ideas may come from sales staff that is close to customers. deletion or repositioning of products within the line. Idea generation 2. Idea Screening 3. 1. technical services etc. from top management. There are seven stages in the process of new product development. 1. 4. Product Development 6. Custom Design Products: These Products are created to meet the requirements of one or a few of customers. Business Analysis 5. Concept Development & Testing 4.
Ideas are invited from a group of employees to search for an improved product by modifying each attribute. and availability of materials are also to be considered apart from several legal considerations. 2. It is also necessary to judge the technical viability of the product idea. marketing methods etc.includes channel members such as distributors or customers. The Physical presentation of the product . The product concept that has the strongest reacti9n from the customers is selected. the competitive situation. In attribute listing technique. An industrial marketer can get good ideas by using techniques like brainstorming and attribute listing. 3. It is the usual practice to develop different versions of product concept and each product concept is assessed by getting response from the customers. important attributes of existing products are listed. screening of new product ideas will be undertaken. Major considerations in the screening of a new product idea includes expected profit potential. the general adoptability of the company to the new product and the volume of investment that would be necessary for the implementation of the new product idea. Marketing consideration includes the size of the market. Production considerations such as facilities required. Specified criterion and procedure should be set for screening new product ideas. cost of production. Concept Development & Testing: After the screening of the new product idea it should be developed into a product concept. A Product concept is a detailed version of the product idea that is expressed in a meaningful terms. An industrial firm should encourage the employees to present innovative and creative ideas by offering recognition or rewards to the employees submitting the best ideas. Idea screening: In order to select the product ideas which are likely to succeed. The concept can be presented by developing physical product or three dimensional models. Concept Testing: The new product concepts are tested in a prospective customer organization.
(a) Alpha & Beta Testing. The new product concept will more on to the next stage. costs and profitability of the proposed new product will be developed. cost of product development. likely price levels.e. Market Testing: Market testing is done by using different methods such as. profitability and Return on investment etc. customer and competitive analysis. Business Analysis: In the Business Analysis.will increase the reliability of the concept testing. 6. People with reasonably fair experience and skills in strategic planning. Product Development: Product development is a process of creating desired product by the technicians. The three dimensional model techniques create computer generated three dimensional plastic proto-types which takes very short time to get ready. (d) Test Marketing. equipment. product development. The ability to produce the product with in the estimated cost will be confirmed or negated by the development of the prototype. Market potential. i. (c) Testing in distributor/dealer show rooms. The decision makers in the prospective customer organization are contacted and interviewed with various questions on their experience of using such products. 5. 4. (b) Introduction of the new Product at trade shows. marketing. The R&D department develops one or more prototypes of the product concepts. sales forecast. The answers so obtained will enable the company to decide on the strengths of the new product. only if the projected sales and profits fulfill the company's long term objectives or goals. It is an elaborate analysis which is expressed in terms of investment required for the installation of the plant. manufacturing and marketing the product. and engineering could be given the task of business analysis. People who have proposed the new product idea should not be assigned with the task of business analysis because of excessive optimism or vested interest by such persons. investment in working capital. An estimated projection of the sales. . finance.
The performance of the product in the users' firm. also they should interact with the user firm's technical team. The company will have very short span of time to introduce the product. The reactions of the customers. . their purchase intentions can be assessed in such trade shows. © Dealer show rooms: The distributors or dealers show rooms or display rooms can be considered as best spots for product testing. The company should ready to execute the orders with I the reasonable time. (a) Alpha and Beta Testing: When a product is tested internally with in the organization which as characteristic of high price with new technologies such testing is called Alpha testing. preference and actual sales can be recorded under this method as this method uses the normal selling situation. The limitation of testing the new product in trade shows is that it also gets exposed to the competitors. if the new industrial product is sold through such channel. (b) Trade Shows: One commonly used method of market testing is introduction of the new product at trade shows where usually large number of prospective customers is exposed to the new product. the degree of confidentiality to be maintained during market testing and the preparedness to introduce the product with in a short period. If the results of Alpha testing is satisfactory the company will go for the next stage of Beta testing at the potential users' organization.The method to be adopted for testing depends on the cost and size of the product. The customer's attitudes. It is the duty of the marketing team to identify the user firms who would allow confidential testing of the new product at their factories. any problems confronted when the product is under use should be checked and addressed properly with the marketing and technical team. The product testing is conducted to assess the operating cost and performance standards. also the orders placed by the potential customers will be taken care.
the market information received from test marketing will help the company in taking effective decisions. Commercialization: An industrial product is launched when it is introduced to a target market. maintaining adequate stocks at the company warehouses and or with dealers/distributors. product catalogues. Industrial Product Life Cycle & Strategies Like living beings products have life cycle. 7. Along with sales training required material such as price list. This method is used by many industrial marketers through their sales force. The Product Life Cycle is depicted by the sales curve of the product since its introduction.. training of sales force etc. According to the Product Life Cycle theory. price lists.(d) Test Marketing: In normal marketing situations the test marketing method is used to test the product in a limited geographical area. would be taken up at this stage. Factors . introductory advertisement. commercialization. After market testing. The activities such as customer service. At the dividing line between the growth and the maturity stages the profit curve is at its peak. the company management takes a decision to go ahead with the next stage i.e. When the product is launched on full scale basis. The commercialization process involves execution of the various activities developed in an action plan as a part of the marketing plan. sales volume continues to increase at a decreasing rate but the profits fall. are given to the sales personnel. Sophisticated network techniques such as PERT and CPM can be used by industrial marketers to ensure proper coordination and timely completion of all the activities concerning the launching of new industrial product. product catalogue etc. products tend to go through different cycles of stages that begin when they are launched in the market and ends when they are eliminated from the market. In the maturity stage.
II).such as changing technology. This point should be kept in mind while estimating return on investment during the business analysis stage of new product development process. Figure: I: A General Model of the Product Life Cycle The PLC concept advocates that different strategies are needed at different stages. One such case is the pattern of high tech products like computer & telecommunication goods. changing competition. growth stages are long but the maturity and decline period are short (Fig. The introduction. . This concept also highlights the significance of long-range planning for new product. changing needs of the customers will have a strong bearing on the behaviour pattern of Product Life Cycle. but in certain cases the products may not follow the set pattern. In case of these products the new product development cost and time are high. This is because of rapid change in technology. Usually most of the industrial products follow a set pattern in its PLC as shown in figure (I) above.
the demand remains relatively inelastic in a monopolistic market. cement etc. Due to the absence of competition the sales doesn't experience a decline. . Once the competition becomes intense the situation would change and sales would show a decline (Fig. Figure: II: Product Life-Cycle for High-tech Product The Products such as steel.III).
In the beginning part of maturity stage. or new models by bringing major changes to the existing products. Marketing strategies for Industrial Products at different stages of PLC Introduction Stage: Depending upon the changes in the users habits some of the industrial products are accepted rapidly after introduction and others are . fights back the competition in maturity stage by reducing the price. As a result of the efforts of the company to launch a new industrial product for the first time in the market. This is due to the competition in terms of low prices. builds more intensive distribution. Usually growth stage brings profit. profit reaches its highest level and afterwards sales reach peak level in the later part of maturity stage. better services and aggressive promotions by competitive firms. The marketing costs go up and profit starts declining. to match the competition spends more money on promotion. Figure: III: Product Life-Cycle for Commodity Product Another point worth consideration in the PLC concept is that the profit from a product reaches its highest level before sales reach its peak.
Hence price should be reduced. 1. As a result of increased competition the profits will be reduced. Growth Stage: During the growth state the marketing strategies of an industrial marketer should focus on three important areas. To find out the ways and means of satisfying the existing customers 3. For products that are accepted fast. 3. To cut production. 1.accepted a bit slowly. the marketing strategies which meet intense competition should be evolved. Decline Stage: This stage is characterized by sever price competition and concurrent decline in sales and profit. Under this stage an industrial marketer should adopt the strategy of withdrawing the existing product from the market or introduce a new product as a replacement or reduce marketing or other costs to make some profits. Improve Product design to offer more benefits 2. . Maturity Stage: In maturity stage the number of competitors entering the market will increase. marketing and other costs to maintain profit margins. The marketing strategies to be adopted for an industrial product in the maturity stage are. For slowly accepted industrial products marketing strategies should concentrate on market development efforts. Improve distribution network to enable the customers' easy availability of the product. As a result of increased volume of production the cost will be lowered. To enter the new market 2. If these strategies are not implemented by industrial marketers in the growth stage. it becomes easy for the competitors to enter the market because of non- availability of the product and high profits due to high prices.
The team of specialists is needed to achieve the synergy between commercial and technical functions. technical and production capabilities are required. The factors responsible for the failure of new industrial products are listed below. Most of the new products are blind imitations of the existing products and they are not predominantly different from the existing product. The success rate for consumer products is above 25% while the success rate for new Industrial Products is around 45%. As the company wants to recover the cost of product design.Factors responsible for the success and failure of new industrial products: Many studies have been conducted to assess the success or failure rate of new products. To convert the product concept in to product development and commercialize the same. too quickly. Due to poor product design and other reasons the new industrial products are failed to understand the market expectations. The Success factors for the new Industrial Products: 1. it fixes a very high price for industrial products than the value perceived by the customers. 3. 3. hence failed to deliver expected performance. 2. The uniqueness from the product superiority over the existing products is the most important success factor. . product development etc.. Most of the industrial products failed to satisfy the potential customers. The level of understanding of the company about the needs and wants of the target markets and converting the same in to action plans. 1. 2. The major reason for such failure is inadequate coordination between marketing functions and R&D.
Product Strategies for existing products: Industrial marketing firms have to
adopt the following three important steps for developing long term product
strategies for existing individual products and products lines.
1. Assessing the performance of all the existing products or product lines by
using product evaluation matrix.
2. Examining the relative strengths and weakness of the firm's products in
comparison to competitors' products by using perceptual mapping technique.
3. Deciding the product strategies for the existing products based on the above
Product Evaluation Matrix: Yoran Wind & Henry ClayCamp have developed
a technique called product evaluation matrix to be used to assess the product
performance. Performance parameters of a product such as industrial sales,
company sales, market share and profitability are combined in the matrix.
Industry sales are represented on vertical axis and are grouped as growth, stable
or decline. Company sales are assessed on horizontal axis and are grouped as
growth, stable or decline. In the same manner profitability is classified as below
target and above target and market share as dominant, average or marginal.
These classification need to be defined by the marketing manager depending on
the situation prevailing in the industry. For example, if the market share is less
than 10 percent, it is evaluated as marginal, market share between 10 and 30
percent is considered as average, and more than 30 percent as dominant. Let us
apply the same classification of market share to a company having two products.
Product P has a dominant market share of 50 percent. The average growth of
company sales in the past three years is 40 percent. Industry sales have grown at
the rate of 35 percent per year for the past three years and profitability is as per
expectations. The marketing strategy for product P is to continue or maintain
the leadership position by expanding the total market demand, protect the
present market share, and try to increase its market share, if the Industry sales
remain constant. Product S has an average market share of 13 percent, the
growth of company sales by 16 percent in the past three years is considered
stable compared to industry sales growth of 17 percent, and profitability is
below the expectations. The company's sales, market share, and profitability of
product S needs to be improved to position S1, as shown in table. For this, the
industrial marketer should use the perceptual mappi9ng technique to compare
the relative strengths and weaknesses of product S with that of the competitors
products. At the time of deciding the
Product Evaluation Matrix
suitable market—challenger strategies, environmental factors such as political,
legal, economical and technology should be considered.
Perceptual Mapping Technique: To study the strengths and weaknesses of a
firm's product in comparison to that of the competitors' products, the perceptual
mapping technique is used by industrial marketers. The concept of perceptual
mapping technique has been explained here under with an example. The
position of three manufacturers of product ‗A' based on market research study
conducted by the firm ‗X', customer service and product quality are the two
purchase attributes considered most important by the industrial customers. The
ratings on these two attributes based on the customers' perception of the three
leading supplier firms are shown below.
Firm x's quality is perceived inferior to the competitors y & z. However, firm
x's after sales services is perceived for superior to its two major competitors.
Firm x can reposition itself from position ‗x' (old) to x1 (new position) by
improving its product quality substantially and maintaining its superior service.
After improving its product quality, firm x can fix its price little higher than its
competitors. This would improve the performance of the product in terms of
High Quality
New position
* y*
Weak service Strong service
Old position
Low Quality
Perceptual Mapping Technique
Choice of Product Strategies: The industrial marketer can decide one of the
strategic options based on product evaluation matrix and perceptual mapping as
given below:
1. To continue the product with its existing marketing strategy
2. To modify the product and change the marketing strategy
3. With draw the product
4. Add new Product
It is very vital to identify the causes of unsatisfactory product performance.
Sales, market share and profitability are important quantitative performance
parameters but they cannot indicate the reasons for poor product performance.
It will be useful to understand the perceptions of customers, specifically
opinions on R&D, design, sales, production, finance and marketing team. By
such an understanding the industrial marketer will develop number of factors for
the unsatisfactory performance of the product. Cost reductions, improving the
product quality, enhancing the product features are some of the corrective
measures with which the product performance can be improved.
Pricing of Industrial Products:
Meaning: The industrial marketers should understand the various aspects of the
pricing, since pricing is the most critical part of industrial marketing strategy.
Different strategies such as market segmentation strategy, product strategy, and
promotion strategy are related to pricing strategy. In order to achieve the dual
objective such as to meet the company objective and satisfy the market needs,
the industrial marketer has to integrate the various strategies.
When the members of buying committee of a buying firm, purchase a particular
industrial product, they are buying a given level of technical service, product
quality, and delivery reliability. The other elements such as the reputation of the
supplier, friendship, a feeling of security and other personal benefits flowing
the total product includes much more than its physical attributes. (1) Product specific attributes (2) Company related attributes and (3) Sales personal related attributes. In the same way the cost of industrial products includes much more than the seller's price. . seller and competitor Characteristics of Industrial Prices: Morris has identified seven distinguishing characteristics of Industrial prices.from the buyer-seller relationship are also important. Hence. Therefore. Pricing environment:The relationship between buyer. decisions on pricing and products are inseparable and must be balanced with in the firm's market segmentation plan. In figure given below it can be observed that the bundle of attributes expecting by the buying committee are fall under three categories.
The complimentary and substitute product sold by the same company should be considered at the time of deciding price for industrial goods. change in interest rates. the decision regarding pricing is more flexible. fluctuation in exchange rates etc. Prices can be resolved through negotiation in many a cases. discounts. In most of the cases the industrial prices are established by competitive bidding on a project by project basis. It is intertwined with product promotion and distribution strategies. This problem is particularly critical for the marketer locked into long term contract with no escalation clause. . The real price an industrial customer pays is quite different from the list price. training cost. Industrial prices are affected by several economic factors such as inflation. Price is not an independent variable. Hence. 4. 6. industrial pricing is often characterized by an emphasis on fairness. 7. changing the premiums and discounts that are offered. 3. financing cost. 5. changing the time and place of payment and also in numerous other ways prices can be changed. Compare to product and distribution decisions. Factors Influencing pricing decision: The factors influencing pricing decision of an industrial marketing firm is explained below. 2. trade in allowances etc.1. By changing the quantity of goods & services provided by the seller. this is because of the factors like delivery and installation cost. Industrial buyers who are experienced and able to estimate the vendors' approximate production costs expect the increasing price to be justifiable on the basis of either increasing cost or improvement in product.
Estimating demand and cost is very difficult. For the survival of the firm it reduces the prices to convert the inventory into sales. d) Market penetration: Based on the assumption that the market is price sensitive and that the low prices will increase sales. The survival is more important than prices. The belief behind such an objective is that by maximizing sales revenue in the short run the firms will have growth in terms of market share and also have profit maximization. The competitors' reactions and legal implications are not considered by the companies adopting this objective. a) Survival: Survival is one of the short term objectives for many industrial companies. The other assumptions underlying are low prices will discourage entry of potential competitors and highest volume . Some of the pricing objectives which industrial firms can pursue are discussed below. These firms estimate the market demand and costs at alternative prices and select the price that maximizes the present profits.I. b) Maximum short term sales: To maximize the sales revenue in the short run is the pricing objective for some firms. Due to intense competition and other reasons the firm may be unable to sell its products. the prices of products are fixed as low as possible by some firms with the objective of maximizing sales volume and market share of its products. This objective emphasizes on short term profit maximization rather than long term performance and customer relationships. Survival is only a short term pricing objective and in the long run the firm must increase its prices to cover total cost and end up with some profits. Pricing Objectives: The Objectives of pricing should be derived from the firm's marketing and corporate objectives. The prices are fixed in such a way that they cover variable cost and a part of fixed cost so that the company continues in business. c) Maximum short term profits: Setting prices with the objective of maximization of profit in the short run may be pricing objective of some of the marketing firms.
f) Product-quality Leadership: By producing superior quality products and charging little higher prices than the competitors price the industrial marketing firm may have an objective to be product quality leader in the market. The new product is initially aimed at those market segments where demand is least sensitive to price. Demand Analysis: The concepts of demand curve and price elasticity are very useful in understanding the relationship between demand or sales volume and price. To maximize sales revenue and profits is the objective in market skimming. g) Other pricing objectives: The other pricing objectives such as to meet or prevent the competition. The assumption made in this strategy is that different prices can be charged to different segments of customers at different times. II. The basic purpose of estimating demand curve is to determine the extent of change in demand for a product with the change in . This pricing objective results in higher profits. In measuring the price and demand relationship. to avoid government intervention etc. to stabilize the market.will reduce the production and distribution cost and leads to higher profits in the long run. There is also a possibility that the competitors will be attracted because of high profits resulting from high prices in this strategy. may be considered as objectives of pricing by many industrial marketers. the other factors like promotion and customer service should be controlled since these factors also affect the demand. The prices are lowered as the time passes and sales slow down to attract new customers from price sensitive market segments. The firm skims maximum revenue and profits by adopting the skimming objective of pricing. e) Maximum market skimming: In the initial stages of the product life cycle high prices are fixed by some firms when they introduce new and innovative products.
The demand curve indicates the degree of price sensitivity. III. company reputation etc. such as customer training. Soft benefits includes those benefits which are very difficult to assess. and/or 3) The buyers think the higher prices are justified by normal inflations or changes in government policies on excise duty or sales tax and other. The price sensitivities of many buyers will be summed up in demand curve. customer services. The demand is inelastic if it changes very less with a small change in price and the demand is elastic if it changes substantially with a small change in price. The benefits can be grouped into soft and hard benefits.prices. the demand for these products is relatively inelastic. . warranty period.Cost-benefit Analysis: To formulate an appropriate pricing strategy it is very essential to have an analysis of the costs and benefits of the industrial product from the customer's point of view. Since the industrial products are technically sophisticated. The following formula is helpful in determining the price elasticity of demand: Percentage change in quantity demanded Price elasticity of demand: ---------------------------------------------------------- Percentage change in Price Conditions determining Price elasticity of demand: The Demand is likely to be inelastic under the following conditions: 1) There are few competitors 2) Non availability of substitute products from other industries.
freight. Life cycle costing takes into consideration the price. The cost of production stoppage due to failure of machine may also be included while calculating the machine cost though it is difficult to estimate such cost accurately. The industrial marketer should evaluate the possible cost/benefit trade-off decisions made by the industrial buyer. The costs for an industrial customer mean price plus other expenses that are incurred in purchasing and using the product. Cost Analysis: Pricing strategy or decision of a company must consider the costs involved. installation. Generally the total cost consists of the variable cost and fixed costs for a given level of out put. the cost of a new oil refinery machine purchased by oil mill includes price. energy usage. transit insurance. material and labour costs over the useful life of the product. The understanding of cost benefit analysis will enable the industrial marketer to set an appropriate price. freight. The life cycle costing concept can be used by the industrial buyer at the time of purchasing the capital items and estimate the total cost of the product over its life span. . maintenances. Some of the cost elements vary over a period of time. other cost elements fluctuate with volume. energy. The classification of costs and their description is given in the following table for the better understanding of the cost concept. The cost data are relevant to the pricing decisions. If the quantum of discount offered by industrial marketer as an incentive for purchase of large stock can be considered by the industrial buyer if the quantum of discount is more then the cost of carrying the inventory.Hard benefits are the physical attributes of the products such as production rate of machine. repair and maintenance. The industrial marketer must identify and classify the cost for making profitable pricing decisions. For example. rejection rate of component and price/performance ratio.
4. Direct costs: Fixed or variable costs that are incurred directly for a specific product or sales territory. Fixed costs or overheads are incurred irrespective of production levels or sales volume. Total costs: Sum of the fixed and variable costs for any given level of production are called fixed costs. 2. Semi variable costs have components of both fixed and variable costs. Semi variable costs: Costs that vary with changes in output but not in direct proportion to quantities produced. . Fixed costs: Costs that do not vary with production or sales. Examples are selling expenses. Indirect costs: Fixed or variable costs that can be traced indirectly to sales territory or a product. Variable costs: Costs that vary in direct proportion to the levels of production. 5. 6. interest charges. and managerial salaries. Examples are raw materials and direct labour costs. 3. and raw material. freight. Examples are rent. They are called variable because the total variable cost varies with the number of units produced.Classification of Costs/Types of Costs: Cost Elements Descriptions 1. Examples are production overhead and quality control that are indirectly assigned to a product. Examples are equipment repair and maintenance costs.
7. Allocated costs: Costs that support a number of activities but
cannot be objectively assigned to a specific
product or a market. Theses costs are usually
allocated across business groups or divisions by
some arbitrary criterion. Examples are
administrative overhead and corporate advertising.
Cost behaviour at different levels of output:
For fixation of appropriate price, the industrial marketer should know how the
cost varies at different levels of output. By building a large plant size the firm
may use economies of scale. To illustrate, a company is planning to
manufacture special type of fittings used for lamps. The following table shows
the average total cost per unit of fittings at three alternative production volumes
per year. If the company plans to sell 30,000 fittings it should build a
production capacity of 30,000 units which will bring down the unit cost to
Rs.209. The average total cost per unit decreases as the production volume
increases. However, the average total cost per unit increases as the production is
increased to 40,000 units. The company should therefore plan to produce
30,000 units per year which is the optimum size. Since the fixed costs are
spread over on more units with each unit bearing a smaller element of fixed cost.
This is the reason for reduction in the average total cost per unit. The economies
of scale should be taken as an advantage by the industrial marketer to make
enough profits.
While fixing the price the industrial marketer should consider the competitor's
price and price elasticity of demand. By economies of scale and learning curve
concept the industrial marketer should consider reducing the variable cost and
fixed cost.
Cost Elements Yearly Production Volume
15, 000 Units 20,000 Units 30,000 Units
Rs. /Unit Rs./Unit Rs./Unit
Fixed Costs:
Executive Salary 30 25 15
Marketing personnel
Salary 30 25 20
Tax and Insurance 4 3 2
Depreciation 60 47 30
Interest on Capital 60 47 30
Total Fixed Cost per Unit 184 147 97
Variable costs:
Direct Labour 50 50 50
Direct materials 45 45 45
Factory supplies 7 7 7
Inventory carrying 10 10 10
Total variable cost per unit 112 112 112
Average total unit cost 296 259 209
IV. Competitive analysis: Competitive level pricing is considered as an
important pricing strategy by many industrial marketers. The information on
product quality, technical expertise, and delivery performance of the competitor
should be analyzed along with the price and cost information. The information
on the product quality, prices and delivery performance of the competitor's
product can be obtained by the industrial marketer through his sales force. By
appointing a marketing research firm the industrial marketer can get the
competitors information. Based on the available information about the
competitors the industrial marketer can use price as a mechanism to position the
product. The industrial marketer is considering a change in price he has to
forecast the reactions of competitors and customers. An industrial marketer
must study the actual sales, costs corporate objectives, financial situations,
utilization of production capacity and strengths and weaknesses. The reactions
of the competitors should be anticipated soon after collecting the information on
competitors. A competitor's response depends on his mindset. The competitors
are likely to respond when the number of industrial buyers is less, the buyers are
aware of price change and the products are similar.
V. Government Regulations: Though we are living in free market economy the
industrial marketers should know the effect of government regulations on
pricing decisions. The price discrimination by offering cash, volume or trade
discount to distributors or dealers is prohibited. A company must offer the same
discount structure to its intermediaries otherwise it will be treated as price
The Predatory pricing is not permitted. When a firm with dominant position
reduces its pricing structure leads to predatory pricing. Under such a situation
the smaller firms cannot operate in a profitable manner.
Pricing Strategy: After the analysis of pricing objectives, demand, costs,
competition and government regulations, the appropriate pricing strategy should
be formulated by the industrial marketer. Pricing strategies vary as the
industrial product moves through its life cycle. The pricing strategy is a key
factor in each of the four cells of Product Life Cycle.
Introductory Stage Pricing Strategy: There are two pricing strategies
available for a new product which is in the introductory stage of its life cycle.
These are: (a) Penetration Strategy, and (b) Skimming Strategy. An industrial
marketer must analyze the price from the angle of the buyers. How soon the
firm should try ton recover the investment on the new product is another
important factor to be considered by the industrial marketer.
(a) Penetration Strategy: When the price elasticity of demand is high or the
buyers are highly price sensitive, strong threat exists from potential competitors
and opportunity exists to reduce the unit cost of production and distribution with
increase in volumes the penetration strategy is effective. The firm can draw on
experience curve effect and can also achieve the economies of scale. This would
give the company a strategic advantage of cost leadership over the competitors.
The firm can adopt the pricing objective of long term profit through large
market share instead of short term profit objectives.
(b) Skimming Strategy: For distinctly new product meant for a market
segment that is not sensitive to the initial high price the skimming strategy can
be adopted. The greatest advantage of this strategy is that it focuses on
recovering the investment at an early stage by generating moiré profits. The
price will be reduced at the latter stages to reach other market segments that are
more sensitivity to price. The limitation of the skimming strategy is that more
competitors are attracting due to high profits. The products that are distinctive
with sophisticated technology and capital intensity are suitable to adopt this
Growth Stage Pricing Strategy: As the new competitors enter the market and
more customers start using the product at growth stage the industrial marketer
face the pressure of reducing the prices below the introduction stage. At this
stage the industrial marketer focuses his attention on product differentiation,
product line extension and building new market segments at this stage. As more
suppliers enter the market the industrial buyers follow the purchasing policy of
buying from more than one supplier. Therefore, the innovator firms are under
the pressure to reduce the price.
Maturity Stage pricing strategy: The competitors are very aggressive in the
maturity stage. The industrial marketer has to cut into competitors' market
share to increase sales volume. By adopting the low price strategy to match the
competitor's prices the industrial marketer can achieve the high volume of sales.
Decline Stage Pricing Strategy: At the decline stage the industrial marketer
has a wide choice of pricing strategies subject ton certain conditions. The firm
need not cut the price but reduce the cost to earn sum profits provided it has
built a reputation of high product quality and dependable services. Another
major strategy is to reduce the prices to increases sales volume above breakeven
leasing is an arrangement between the leasing firm or the lessor and the user or the lessee. which are explained below. which becomes available to it for working capital or further expansion. 4.volume of sales and use the product to help sell other products in the product mix. or alternatively a market purchase price is negotiated on the lease termination. 1. This is so in case . Financial Lease: The financial lease is for a basic term during which the lease is non-cancellable. Leasing: Leasing which is an alternative to selling capital goods is a common thing in industrial marketing. Leveraged lease: Leveraged lease is an arrangement where two or more lessors may jointly acquire the asset and lease it to the lessee. the former arranging to purchase the capital equipment for the use of the latter. The length of this basic period is determined primarily by the economic life of the asset. a day etc. The sale and lease back transaction: The sale and lease back transaction provides for an arrangement by which an entity that owns a given asset may sell it to the leasing company. and is usually shorter than the expected life. 2. and lease it back. Basically. This arrangement provides some means by which the company may continue to use the asset after the expiry of the basic lease period. There are four types of leases. The lessee has to pay the lessor in the form of rentals and the lessor remains owner of the equipment during the specified period. Operating lease: Operating Lease refers to a short-term lease of an asset for an hour. This enables the lessee to immediately defreeze the money that it had locked into the original asset. 3.
of very large assets, where a single lessor may not be capable of acquiring it or
may not be willing to shoulder the whole risk associated with it.
Key terms associated with Pricing of industrial products:
1. List price: List price is a base price or the basic price of a product consisting
of various sizes or specifications. It is the published statement of basic prices
which is sometimes distributed to the customers. The list price statement
indicates the effective date of its applicability and mentions the extra charges for
optional product features, the excise duty, freight, sales tax, octroi, and transit
insurance. The net price is worked out based on list price less discounts or any
other concessions. The net price is most important to the organizational buyers
because that is the price which is applicable to the industrial buyer after
subtracting discounts and concessions.
2. Trade Discounts: The trade discounts are offered to the intermediaries such
as dealers and distributors. The amount of trade discount depends on the
particular industry norms or the functions performed by the intermediaries.
3. Quantity Discounts: A quantity discount is granted to industrial customers
who buy large volumes. It is a price reduction given by subtracting the volume
discount from the list price. The quantity discounts are justified as they reduce
the cost of selling, inventory carrying, and transportation. The quantity
discounts are given either on individual orders or on a series of orders over a
longer period of time, usually one year. The basic idea behind offering quantity
discount is to encourage customers to buy larger quantities and to maintain their
loyalty. The decision on the amount of quantity discount depends on demand,
costs, and competition analysis.
4. Cash discount: To ensure prompt payments cash discounts are offered to
customers in industrial marketing. It is discount applicable on the gross amount
of the bill, provided customer pays the bill within the stipulated period from the
date of invoice.
5. Geographical Pricing: Geographical pricing refers to the location at which
the price is applicable. Geographical pricing strategy is influenced by a number
of factors such as the location of the company's plant, the location of the
competitors' plants and their pricing strategies, dispersion of customers, extent
of transport costs, demand and supply conditions and competitive environment.
In geographical pricing, there are generally two methods of price basis which
are stated in the offers or quotations submitted by a seller to a buyer. These are
(i) Ex-factory and (ii) FOR destination.
(i) Ex-Factory: ―Ex-factory‖ means the prices prevailing at the factory gate.
When a seller quotes to a buyer ―ex-factory price', it means that the freight and
transit insurance costs are to the buyer's account. In other words, the seller will
charge the costs of freight and insurance to the buyer. The more distant
customers' landed costs are higher because of freight cost.
(ii) FOR Destination or FOB Destination: When a seller quotes to a buyer
―FOR destination or FOB destination‖ (free on road/free on board destination),
it means the freight costs are absorbed by the seller or included in the quoted
prices. However, transit insurance costs, which are small amounts, are generally
absorbed by the seller, but sometimes the goods are dispatched under the open
insurance policy of the buyer. In this method of price basis, all the customers
get the product at the same price irrespective of their locations from the seller's
factory premise. If the quotation or the price list is on FOR destination basis,
generally the industrial marketer estimates the average freight and insurance
costs and adds the same to the basic product prices. Absorbing these costs is
rarely done by a seller; it is done only in an intense competitive situation to get
business from a particular customer.
An Industrial product is not only a physical entity but also a complex set of
economic, technical, legal, and personal relationships between the buyer and the
seller. Due to changes in customer needs, technology, government regulations
and product life cycle the product strategies are required to be changed in
industrial marketing.
The Product Life Cycle concept is used to determine different marketing
strategies at different stages of the PLC. The shapes of the PLC may vary for
certain industrial products, and the location of a particular product on its life-
cycle will depend on competition, industry profits and industry sales-growth.
After evaluating the performance of existing products, the product strategies for
existing products are developed. The alternative product strategies available
for existing products are: continue the existing products and its strategy modify
the product and its strategy, eliminate the product, or add new products. A new
product development is a difficult but necessary task for the profitable growth of
a firm, which should analyze the factors responsible for the success and failure
of new industrial products. The various stages of new industrial product
development process are: (a) Idea generation, (b) Idea screening, (c) concept
development and testing, (d) business analysis, (e) product development, (f)
market testing, and (g) commercialization.
Industrial services are classified into two categories such as products supported
by services and pure services. The unique characteristics of services are: (a)
intangibility, (b) inseparability, (c) variability, (d) perishability, and (e) non-
ownership. These unique characteristics of services have their own marketing
Before making the pricing decisions, the factors which influence the pricing
decisions must be considered. These factors are: pricing objectives, demand
analysis, cost analysis, competitive analysis, and government regulations.
The important pricing objectives are survival, maximum short-term profits,
maximum short-term sales, market penetration, market skimming, and product
quality leadership. Demand analysis includes estimation of demand schedule
and cost-benefit analysis. Industrial marketers must measure the relationship
between price and demand for their products. For an effective price-setting,
understanding how industrial customers evaluate cost/benefit is important.
The concepts of economies of scale, experience curve and break even analysis is
a useful tool for cost reduction and cost control. Depending on product and
market situations, such as competitive market, new products, and product life-
cycle the pricing strategies vary. Different pricing strategies are used when the
product moves across Introduction, growth, maturity and decline stages.
Industrial customers are given different types of discounts on the basic prices.
The industrial marketer should respond with appropriate pricing strategies when
the buyer is under the consideration of alternatives of buying versus leasing.
Discussion questions:
1. ―Industrial Product is defined not only as a physical entity but also as a
complex set of economic, technical, legal and personal relationship between the
buyer and the seller‖—Elucidate.
2. Why industrial marketers have to make changes in the product strategy?
3. What steps would you follow for developing product strategies for existing
products? What alternative strategies are available to the industrial marketers
for existing products?
Why industrial marketers should not overlook the difference between the price and the total cost? 9. The Marketing Mode.. New York 4. what6 factors would you convey to your team members as critical to ensure the success of the new product? 5. Write short notes on the following: (a) Pricing over the product life cycle (b) Geographical pricing © Leasing (d) Characteristics of Industrial Prices 10. New York . 2. Theodore Levitt. McGraw Hill Book Co. The marketing Imagination: New Expanded Edition. Explain with suitable examples how the pricing objectives influence the pricing decisions. Theodore Levitt. 7. 6. Principles of Marketing. 3.Stanton. Ltd. how would you respond if you are marketing similar products to the same market segments and why? 8.. What type of easing would you select for a company which wants to give a choice to its industrial customers of buying or leasing its Computerized Nmerical Control Machines? References: 1. William J. the unique service characteristics and their marketing implications. Fundamentals of Marketing. Prentice Hall of India Pvt. Philip Kotler. McGraw-Hill Book Co.4. The Free Press. If a major competitor reduces the prices of cement by 5 percent. Explain with examples. If you are in a new product development team.
Hutt.B. INTRODUCTION 2. Michael D. Business Marketing management. ―How do you Know When the Price is Right?‖ Harvard Business Review. Institute for the study of Business Markets. Mcmilan Publishing Company. Industrial and Organizational Marketing. 8.Krishnan.Wilson. Pennsylvania State University. Singapore. al. David T. OBJECTIVES 3.A strategic view of industrial and organizational markets.Establishing channel objectives .Analyzing needs of the customer .Speh. 9. College of Business Administration.S.T. Michael H.K. A. Publishers and Distributors. Harvard Business Review.. The new meaning of quality in the information age.S. Robert J.Prahalad and M. New Delhi.Considering channel constraints . CHANNEL DESIGN PROCESS .Dolan. New York 6. Thomas W. Industrial Marketing.Morris. Richard M. 10. ―Pricing Industrial Products and Services‖. C. ******** UNIT IV FORMULATING CHANNEL STRATEGIES AND PHYSICAL DISTRIBUTION DECISIONS CHANNEL DESIGN AND MANAGEMENT 1. Thomson south western. 7.5.Hill et.
OBJECTIVES: By studying this chapter. A good industrial channel creates the communication and physical supply linkages with existing and potential customers.Evaluating alternate channels 4. LOGISTICS Logistical management Physical Distribution Impact of Physical Distribution on Middlemen SUMMARY SELF-ASSESSMENT QUESTIONS CHANNEL DESIGN AND MANAGEMENT 1.Selecting the intermediaries . Understand the steps involved in the Channel Design process . INTRODUCTION It is very important that a distribution channel is properly aligned to satisfy the needs of channel members and also for the success of any industrial marketing strategy. . CHANNEL MANAGEMENT DECISIONS . we will try to – .Listing channel tasks . Channel designing is a dynamic process that consists of either developing the new channels or modifying the existing ones.Motivating channel members . 2.Evaluating Channel Performance 5.Managing Channel Conflicts .Identifying channel alternatives . Recognize to identify and evaluate the channel alternatives .
CHANNEL DESIGN PROCESS: Designing an appropriate industrial channel and managing it is a tough and continuing task. number of channels. A channel structure consists of types and number of middlemen. Channel Design Process Analyzing Customer Needs Establish Channel Objectives Consider Channel Constraints & List Channel Tasks Identify Channel Alternatives Evaluate Channel Alternatives Select the Channel Member Fig: Steps involved in channel design process Let us understand each of the stages of design process in detail: a. Understand the logistics and the logistics management . A well designed channel structure helps to achieve the desired marketing objectives. Appreciate the Channel Management decisions that involve motivating channel members and managing channel conflicts . The various steps that are involved in channel design are given in the following figure. . Analyzing the needs of the customer: . terms and conditions of channel members. Understand the process of Marketing Logistics/Physical Distribution 3.
the environment. Channel objectives keep varying depending on the characteristics of the products. products like HVAC (Heating. while a customized non-standard product requires company sales force to sell directly. Different customers have different levels of service requirements. b. .When a marketer designs a marketing channel. Competition: If a competitor has been very successful through direct service then it may force all other firms also to adopt the same strategy of direct selling. competition. c. Company: If a company has financial limitation as constraint. he must understand the service output levels desired by the target customers. product characteristics and the level of service output desired by the target customers. The marketing channel designer has to know at this stage itself that providing superior service output means increased channel costs and higher prices for customers. Profit considerations and asset utilization must be reflected in channel objectives and the resultant design. Ventilation and Air-conditioning) are either sold by the company or its franchised dealers. Establishing channel objectives: Channel objectives are a part of and result from the company's marketing objectives that need to be stated in terms of targeted service output levels. ensured availability of varied products compared to the low potential customer. Considering channel constraints: The industrial marketer develops his channel objectives keeping into consideration various constraints like the company. It should be the endeavour of the channel members to minimize the total channel costs and still provide with the desired level of service outputs. For example. A high potential customer needs to be offered effective and professional service backup. then it may restrict its direct distribution approach through company sales force to few high potential customers.
The careful analysis of customer needs. . producers use economical ways to sell the products to avoid additional costs. legal regulations are the environmental factors that affect channel design. Eg. a company manufacturing pumpsets depend on distributors to sell them to customers who are located at distant locations but they would use their own sales force to serve those customers who are of high potential. They have to first make a list of various tasks to be performed. the next step of identifying and evaluating channel alternatives starts. considering constraints and listing the channel tasks form the backbone of channel design process. Customer: The industrial marketers depends on intermediaries to offer services to customers who are either giving less business or are located at far-off places and prefers to serve the nearby or high potential customers by themselves. establishing objectives. Once these aspects are delineated individually. For instance. d. Product characteristics: As already mentioned.Environment: Economic conditions. take objective and realistic decisions on which tasks can be effectively performed by the company and which cannot be performed due to certain constraints. Listing channel tasks: The industrial marketers have to creatively structure the necessary tasks or functions to meet customer requirements and company goals. the law looks down upon those channel arrangements that tries to build a monopoly market or minimize competition. If an industrial marketer is providing customized machinery to his customer. During recession. complex and non-standard products require direct distribution without any intermediaries. Similarly. identify the critical tasks. then he deals directly with him rather than involving any intermediary to understand the customer needs better.
Selective distribution: The industrial marketer selects few intermediaries to distribute the products to the target customer. the number of channels and the terms and responsibilities of each channel members. have better control. standard products that are purchased more frequently and have less unit value like raw materials and other convenience goods are distributed intensively i. products are stocked in numerous outlets so as to make them available to varied customers on demand. . incur less costs and finally expect a better than average selling effort. They may either go for intensive. brokers. They have to consider various factors like the tasks to be performed. industrial distributors. Intensive distribution: In this strategy. This gives the marketer to develop a good working relation with the selected intermediaries. commission merchants or value-added resellers. Identifying channel alternatives: There are four issues that are involved in identifying the channel alternatives. Number of intermediaries: The manufacturers have to settle on the number of intermediaries they wish to use in their channel structure. product and market conditions before selecting either manufacturer's representatives or agents. The types of business intermediaries: There are different types of intermediaries that the industrial marketers should identify. the number of intermediaries. They are: the types of business intermediaries. credit terms and other services. The manufacturer expects aggressive selling by the intermediaries and tries to have control over their pricing policies.e. They are not allowed to handle the competitor's products. Exclusive distribution: This strategy helps to enhance the product image and is more prevalent in consumer markets where some intermediaries exclusively deal and distribute the products of one manufacturer.e. The marketers should search for innovative or combination of marketing channels. selective or exclusive distribution. promotion strategy.
However. Conditions of sale: It should be clearly mentioned well in advance about the discounts offered by the manufacturers to the distributors. f. The degree of adaptability of channels to the market situations. replacement of defective parts also should be appropriately stated. Evaluating alternate channels: There are several channel alternatives available to the industrial markets. the commission to be paid to the agents or brokers. the industrial marketers need to take care of possible channel conflicts like proper demarcation of territory to channel members to sell and serve the customers in their respective areas.Number of channels: Industrial marketers need to serve various market segments. Other terms relating to warranty period. Terms and responsibilities of Channel Members: There are various terms and conditions which the industrial marketer must make clear to the participating channel members like the responsibilities and tasks. This multi-channel approach helps them not only to increase their market share but also reduce their costs. They have to determine the best among the alternatives by evaluating them based on the following criteria: The economic performance of the channel. Responsibilities and tasks: In order to avoid any future disagreements. Each should comply with the commitments about their individual responsibilities and tasks to be performed. Territorial rights: The territory between the distributors should be well demarcated so as to avoid any future confusion that may lead to legal issues. there should be clarity in the roles of both the industrial marketers and the channel partners. . The degree of control exercised on them. This necessitates them to use more than one channel for distributing and marketing their products. conditions of sale and territorial rights that would enable both of them to enhance their performance.
Many of the industrial marketers believe that sales will be more from company sales force as they exclusively concentrate on company's product. The channel member is the most preferred and appropriate choice if the sales volume is below LB as it involves lower selling costs. the company should have its own sales force if sales level crosses L B to reduce the selling costs. The possible reasons for this could be the agency having many sales people with it or its sales force are much motivated with the commission offered by the company or the customers prefer to deal with agents who have extensive contacts.Economic Performance:- Different channel alternatives generate different levels of sales and incur different levels of costs. The marketing manager has to similarly estimate the total costs of selling through different channel members. An industrial marketer has to pose a question whether sales generation would be more by direct selling through company sales force or through the channel members. . But as channel member keeps getting more commission with increased sales. But it may also happen that the intermediary can sell more than the company sales force. Otherwise. they show more aggressiveness as their career depends on company's success and finally customers prefer to deal with the company directly. This level is called as the break even level. its cost to company keeps rising. There is one level of sales (LB) where the total selling costs for both are same. As shown in the given figure the Selling Cost of having channel members is lower than setting up a company's sales force. they are given proper training to sell the product.
Channel Member (Agent) Company Sales Force Selling Cost (in Rs.) Break Even Level LB Sales Level (in Rs. The distributor may concentrate more on those products that earn him high products rather than following the instructions of the manufacturer to . An industrial marketer exercises different levels of control over different channel members. The degree of control is more on company sales force and least on distributors.) Fig: Comparing alternative channels based on economic factors Degree of control: This is another important factor while evaluating the channel alternatives.
Each channel member should be committed to the agreement they have with other members. exposure in other fields. Motivating the channel members: After selecting the middlemen.push less preferred products. their reputation. Thus. etc. a channel that effectively satisfies the needs of a customer better than the competitors should find a place in the manufacturer's priority list. Selecting the intermediaries: Selecting the intermediaries is not part of channel design as some intermediaries leave the channel while others are terminated by the manufacturer. motivate them. control any channel conflicts and evaluate the performance of channel members. Though the terms and conditions that made them join the channel is a motivating factor. Such evaluation is generally based on the experience possessed by the intermediaries. their past history. type of clientele possessed. The industrial marketer must be able to control as well as modify the channel structure. their number of years in the line of business. Similarly an agent entertains his potential customers most rather than concentrating on manufacturer's product. CHANNEL MANAGEMENT DECISIONS: After a company completes the task of choosing a channel alternative. the industrial marketer needs to continuously motivate them to do their job better to achieve long-term success. 4. the channel members should have the capacity to adapt themselves to the changing environment. it has to start the process of selecting the intermediaries. growth and profit records.. It involves finding out the distinct characteristics possessed by the intermediaries. Degree of adaptability of channel members: With the market changing dynamically. it . future growth potential. Selecting the best intermediary is a continuous process that is sometimes a more difficult task as producers have to work hard to get qualified middlemen.
Understanding the needs and wants of the middlemen is the first step of motivation process.must be further supplemented by training and encouragement. This digital revolution helped in reducing costs and improving customer service both by the manufacturer and distributor thus nurturing their partnership. Depending on the motivational technique used by the manufacturer. policies and terms of jobs to be performed by both the parties in order to avoid any future conflicts. Partnership: Manufacturers enter into an agreement or partnership with their intermediaries that list the objectives. discounts/commission. The system also helps to check the slow moving products at the distributor's end. Positive motivators like higher margins. slow delivery. Cooperation: Most of the manufacturers use the carrot and stick approach to gain cooperation from middlemen. acknowledgements are electronically processed and sent to the distributors. The compensation . along with threats like reduction in margins. allowances etc. The EDI helps the company to fill up the stock automatically at the channel member once it reaches the minimum reorder level. generates a purchase return order based on which the products are returned back to the company. All relevant invoices. are used to increase business. and distributor councils. Offering discounts/commissions: Another motivating factor for intermediaries is the offering of discounts/commissions by the manufacturers. Manufacturers generally try to maintain relationship with their distributors by motivating through cooperation. terminating the contracts etc. there would be varying levels of support from the middlemen. The manufacturer has to do a SWOT analysis of the distributors before implementing this approach. A good example of partnership is Vendor Managed Inventory System (VMI) where effective communication happens between the vendor and channel members through the assistance of electronic data interchange (EDI). special prices. partnership.
The middlemen should be considered by the manufacturers as their working partners rather than as customers. Customer dealings: This is another common source of conflict that generally happens where the manufacturer tries to cater to large customers directly and . Managing Channel Conflicts: A well designed distribution channel though has several benefits as observed. several other practices should also be considered like arranging seminars. immediate response to queries through call centers etc.. conducting training programs. Establishing distributor councils: Manufacturers establish distributor councils to get closer to their distributors through the company executives. Apart from above motivators. There are several differences and problems that still exist between the manufacturers and the distributors due to various simple and intricate reasons like – Dissimilar objectives: If the objective of manufacturer is to offer good customer service to develop long-term relationship while that of distributor is to somehow make short-term profits. newer techniques should be used that helps to increase the business and strengthen the relationship among both. Less interest on products by the distributors: If distributors concentrate on those manufacturer's products where they earn more profits or which are fast moving in the market. sponsorships for annual retreats. planning promotional schemes and then implementing them. These councils help both the manufacturer and the middlemen to mutually plan various activities like sharing market information. then it creates a conflict between him and the other manufacturers on whose products the distributors do not focus. then it gives rise to conflict among the two. it is not the ultimate for the manufacturers.is offered taking into account the expenses incurred and the services provided by the intermediaries. With the advancement in information technology.
makes the distributors serve the small customers thus making them earn less profit and hampering their business growth. It instigates a need for the industrial marketers to assess the areas of conflict and take corrective measures. They include – Creating an effective communication set-up: There should be effective communication between the manufacturer and the other members of the channel network. . Dissimilar views: If the manufacturer is of the view that a promotional scheme would increase the business while the distributor feels that it would decrease their margins as it involves cost. then it causes conflict. Commission to distributor: If the distributor demands more commission while the manufacturer feels the existing commission is too high and denies the same. reducing costs. Involving mediators: A third party in the form of arbitrator or mediator enters in- between the two parties among whom conflict arises and tries to solve their problems by eliminating disagreement. There are different ways in which channel conflict can be controlled. Setting joint goals: All the channel members jointly set the goals they wish to achieve by coming to a common agreement. This can happen through frequent interactions with the channel members where they can discuss the common issues and sort them out. increasing market share.. A dispute in the channel network can seriously affect the performance of channel members. improving quality of service etc. increasing profits. then conflict arises. The goals set by them can be anything in common that range from customer satisfaction. Territorial problems: When the areas among the distributors are not properly demarcated then it leads to conflict as one tries to enter the other's territory to get business.
generation of new customers. Sometimes.Evaluating Channel Performance: The performance of the channel is said to be effective if the channel members are able to reach the overall objectives smoothly. This calls for periodic evaluation of their performance where various parameters like meeting the sales target. their cooperation and service levels. LOGISTICS An inefficient and untimely delivery can make the customers to terminate their relationship with the manufacturer and go in search of a new supplier. . manufacturers terminate their services with middlemen if they are unable to meet their expectations or shape up as required.. at their place of choice. 5. ontime delivery to customers. This helps in the systematic flow of products. and provide better customer service Supply chain management deals with all the activities in the channel network that begins with procuring the raw material by the manufacturer till delivering the goods in the hands of the end user. are taken into consideration. maintaining the required inventory levels. This means that products must be delivered to the customers as and when required by them. etc. cut down on delivery time. Hence. An efficient SCM helps the channel network to reduce average cost per customer. The entire network is well connected with the organizations in the chain dependent on each other who mutually cooperate and work together. services and information from the manufacturer to the intermediaries and then to the customers. minimize wastage and prevent duplication. while maintaining the quality. there should be proper supply chain management (SCM) systems in any channel network that calls for substantial investment of resources in the entire process. The aspects where the middlemen score less during the evaluation process are analyzed and discussed with them where they are motivated to improve upon those areas.
and other related supplies necessary for the manufacturing process. supply chain management crosses the boundaries of organization extending material flow integration upwards to suppliers and also descending down to customers. component parts. Logistics basically represents two primary product movements – (i). (ii). This comes under the purchase function (Materials Management). Physical distribution.Logistical management Logistics is a military term that refers to the management of various activities like transportation. concerned with supply of raw materials. The given figure illustrates the nature of business logistics system. While logistics management helps to optimize the flow of material within the organization. This comes under the marketing management that is also called as Marketing Logistics. Our focus in this chapter is on the Physical Distribution (Marketing Logistics) which is a very important part of industrial marketing strategy. Physical supply. Materials Management Marketing Logistics Physical supply Industrial Physical distribution (Source of supply) Manufacturer (Source of demand) Raw materials supply point (Production & Storage Points) Markets . concerned with delivering the finished product to customers and the middlemen. warehousing right from the stage of processing the raw materials by the manufacturer to convert it into finished goods till they are made available to the customer for use. inventory.
S.No Tasks Key aspects 1 Transportation An important activity that involves movement of goods from the manufacturer to the customer. 3 Inventory Ensures that right mix of products are available at . improve customer service. and minimize time that finally helps to gain customer loyalty. An efficient delivery system helps to reduce the costs.Raw materials Raw material storage Components Supplies Manufacturing process Finished goods storage Fig: The Industrial Logistics System Physical Distribution (Marketing Logistics) Marketing logistics is the process of delivering the finished goods to the intermediaries as well as customers. Hence. A particular logistics activity cannot be performed without evaluating its impact on other areas. the objective of maximized customer service may develop into a conflict with the objective of minimized distribution cost. A physical distribution system involves various tasks (as given in the table below) that interact with each other and play an important role in the overall performance of the logistics system. total cost approach has to be considered to manage such inconsistency. 2 Warehousing A place where goods are stored till they are made available in the market place when needed. For instance.
the total cost of distribution is considered instead of the individual cost of the elements of physical distribution as the decision made for one logistical variable affects all or some of the other logistics variables. handling moving to and from storage. Management right place/time in sufficient quantity 4 Packaging Protects the products. and (ii) the level of logistical service provided to the customers. maximizes use of warehouse space. Planning planning of warehouse facility utilization. For example. In this approach. Starts the physical distribution process 7 Production Goods are made available for inventory. loading and unloading operations 6 Order processing Communicates requirements to appropriate locations through inventory management. transportation requirement 8 Customer service Establishes customer service levels with marketing objectives as well as cost limitations 9 Plant location Facilities planning (factory and warehouse location) to ensure capacity & reduce transportation costs Table: Physical Distribution Tasks Total Cost Approach (Trade-off approach) The total cost approach focuses to balance two essential variables: (i) total distribution costs. maintains product identity 5 Materials Maximizes speed. This may necessitate extra productions . The total cost approach is designed in such a way that it tries to achieve a combination of cost and service levels that maximizes the profits to the company and the channel members. if inventory is reduced below the required quantity in order to reduce inventory costs. it may result in stockouts and increase in order backlogs. minimizes cost of order-picking.
warehousing) involves a cost trade off as these cost elements are sometimes in economic conflict with one another. he should set goals of customer service levels for each service element. Once the important elements of customer service are determined by the industrial marketer. manager must be willing to trade-off a cost increase in one activity for a larger cost decrease in another activity that should finally result in reduced total logistics costs.to provide the stockout items and air-freight them at high cost to customers whose production stopped due to non-delivery of products. Thus. Each element of service (as given in the figure below) has different levels of importance that the industrial marketer should recognize. Service cost tradeoff: Service aspect is the other half of the total cost approach. Thus. All this would finally lead to reduction in future orders from the unsatisfied customers due to poor delivery performance.e. It is to be understood that all customers or products do not require same level of service. the total cost substantially increased. inventory. The cost involved in providing the level of service must be evaluated in light of the revenue generated. to save a small individual cost. Customer Service Pre-Sales At the time of sales Post-sales Advising Maintaining inventory Warranty Technical Speedy delivery with Annual Maintenance Ease of Ordering accuracy Contract Patronage awards Product substitution Installations/Repairs Training Figure: Elements of customer service Physical distribution impact on middlemen: . compare the actual with goals and finally take corrective actions to minimize the difference. transportation. The interactions among logistics activities (i.
Marketing logistics is considered to have a viable benefit of providing finer customer service at low delivery cost that is to be regarded as a long-term strategic issue. delaying the delivery of products will result in intermediary trying to avoid the manufacturer's products and searching for another company. handling of materials etc. the shipment consolidation programs where the distributors in particular area are encouraged to place all their orders on the same day or transport their orders through a common truck. system. This needs to be well understood by the industrial marketers who have to plan accordingly to avoid such inefficiencies.. Therefore. Develop proper MIS system: The marketer should create online network with his distributor through the use of information technology tools that helps him to know the inventory levels and provide more stock on time. Just in Time (JIT). For instance. The physical distribution cannot be easily replicated by the competitors as it entails high costs in terms of investments in people. This helps to improve the overall operational efficiency and also brings in consistency within the system. money and time. at all the organizations of the channel members. This leads to slow down of business and customer dissatisfaction. With many concepts emerging like outsourcing. Standardize the procedure: He should try to standardize the various activities and operational procedures involved like product packing. the marketer needs to take several steps as given below that would help him to improve the physical distribution system. For example. and Total Quality Management (TQM) there is a big role and scope for logistics in the future. Integration: The industrial marketer should properly integrate the physical distribution with the channel members that helps to improve the overall marketing effectiveness. SUMMARY .An ineffective performance of physical distribution system will impact the operations of the intermediaries.
The intermediaries need to be continuously motivated by means of offering them various benefits and facilities. identifying channel alternatives. an industrial marketer has to go through certain stages that are involved in designing a superlative channel system. the industrial marketers follow the total cost approach that involves a trade-off and balances the total distribution cost and the service level to the customers. establishing channel objectives. evaluating alternate channels and selecting the intermediaries. Certain measures like developing a . Physical supply and Physical distribution are the two product movements of logistics. As channel design and management is a difficult and an incessant task. Any conflicts arising between the intermediaries due to various reasons need to be solved by the industrial marketer. The various steps that are involved in channel design process are analyzing needs of the customer. Logistics deals with optimizing the activities like transportation. warehousing of the raw materials at the manufacturer's end from the stage of processing till conversion to finished goods that are ready for customers' use. listing channel tasks. the entire channel performance has to be evaluated and necessary control measures need to be taken in order to enhance the performance of the entire channel network. Finally. During physical distribution. A physical distribution system needs to be well planned in order to avoid inefficiency that impacts the intermediaries.Channel designing is resorted to by the industrial marketer when he has to develop either a new channel system or modify an existing one. Physical distribution (a part of Marketing Logistics) involves the delivery of finished products to the intermediaries and the end users. inventory. considering channel constraints. The industrial marketer also has to take appropriate decisions on channel management by selecting the right intermediaries based on the various steps.
2nd Edition. Michael D Hutt and Thomas W Speh. What is the need for channel designing and what are the various stages involved in the process? 2. The Dryden Press . How do you establish a channel objective in the channel design process? 3. SELF-ASSESSMENT QUESTIONS 1. What is Physical Distribution and explain the total cost approach? 11. What are the elements of customer service? REFERENCES: 1. 5. What are the various channel constraints and tasks an industrial marketer faces in the channel design process? 4. 4th Edition. Ralph S Alexander and James S Cross. How does physical distribution impact the intermediaries and how can we improve the physical distribution system? 12. What are the different techniques used to motivate the channel members? 7. Industrial Marketing. What are the issues involved in identifying channel alternatives? Explain. What are the parameters on which channel alternatives are evaluated? 6. Richard M Hill. Tata McGraw Hill 3. Krishna K Havaldar. What are the reasons for channel conflicts and how they can be managed? 9. Industrial Marketing Management. Industrial Marketing. How do you evaluate channel performance? 10. How does the industrial marketer select the intermediaries? 8. standardizing the operational procedures and integration of physical distribution with channel members can be taken by the industrial marketer to improve the performance of physical distribution and improve marketing effectiveness.good MIS system. AITBS Publishers and Distributors 2.
Brokers .Industrial Distributors & their categories .Manufacturer's Representatives . The Functions and Responsibilities of Distributors e. Direct Channel structure b. THE STRUCTURE OF INDUSTRIAL CHANNEL a. Reasons Industrial Customers prefer Distributors f. Indirect Channel structure c. Types of Industrial Middlemen .Drop Shippers d. OBJECTIVES 3.Commission Merchants . THE NATURE OF INDUSTRIAL DISTRIBUTION CHANNELS 4. INTRODUCTION 2.Value-added Resellers (VARs) . Manufacturer and Distributor – Partners in progress SUMMARY SELF-ASSESSMENT QUESTIONS .FORMULATING CHANNEL STRATEGIES AND PHYSICAL DISTRIBUTION DECISIONS CHANNELS OF DISTRIBUTION 1.Jobbers .
it has the immediate responsibility to distribute and sell them to the industrial and institutional customers. Channels are the tools used by management to move the goods from the place of production to the place of consumption. manufacturers. INTRODUCTION: When a company or a manufacturer produces goods or services. retailers. the title of goods gets transferred from sellers to buyers. educational institutions. and other formal organizations. In the progression. The industrial customers generally constitute of wholesalers. 2. . public utilities. governments. Understand the types of industrial middlemen. OBJECTIVES: By studying this chapter. Understand the reasons why distributors are preferred by industrial buyers. a network or channel that helps to flow the goods from the producer to the consumer through a set of interdependent organizations (intermediaries) is called distribution channel or trade channel or marketing channel. . There are various intermediaries who are involved in a distribution and selling process helping the manufacturers to make their goods reach the end users. CHANNELS OF DISTRIBUTION 1. we will try to - . hospitals. Understand the nature and structure of the industrial distribution system . Appreciate the functions performed and the responsibilities undertaken by distributors. . their role and importance in the distribution channel . Appreciate the ―partners in progress‖ relationship between the manufacturer and distributor. Thus.
the industrial markets tend to have fewer channels of distribution. This indirectly demands investment in training and physical facilities for the industrial organizations. Geographical Distribution: The industrial distributors are concentrated highly in the industrial markets they serve and certain other places that have large number of industries like large towns and cities. THE NATURE OF INDUSTRIAL DISTRIBUTION CHANNEL: The nature of industrial distribution channel is quite different from the consumer goods distribution channel. inventory control. order processing and selection of marketing channels. managing finances etc that help in serving the consumers better. The type of product. Even the industrial channel is shorter in size as organizational buyers expect immediate product availability. 3. planning promotional activities. technical expertise and prompt after-sales service. The intermediaries stock the products they are distributing thereby assuming part of the burden of marketing the product and maintaining close contact with customers. This necessitate taking important decisions like devising effective communication tools. the services of warehouses for safe storage of goods. Unlike consumer organizations. . Size: Unlike consumer markets. The industrial organizations carry on certain important functions till the products reach the consumers – like utilizing the services of transportation companies for distribution. the decisions taken by the industrial organizations on distribution channels is of great significance as the decisions involved are of long-term nature that cannot be changed frequently.Industrial distribution is unique as there are several different methods of channeling the products and services to industrial consumers. the selling price of the product and technical knowledge required to sell the product all play a considerable role in selecting the proper sales or distribution channel. There are various factors that affect the distribution of industrial goods.
To cater to large-volume customers. Mixed channels: A combination of direct and indirect channels is used by some industrial marketers to cater to different market segments or when they have some resource constraints. Industrial manufacturers tend to depend more heavily on each member of the channel and may do more to support that channel member.Intermediary characters: The intermediaries involved in industrial marketing are technically qualified who maintain very close relationship with industrial organizations. brokers and agents are some types of intermediaries used by industrial marketers to reach customers. In case of large geographical territories. due to resource constraints they use their agents called as ‗manufacturers' representatives'. Industrial distributors. and to cover small scale organizations. industrial firms generally use their own sales force. . they use independent distributors.
Fig: Industrial Marketing Channel (with various levels) MANUFACTURER Zero One MANUFACTURER'S REPRESENTATIVE Level Level Channel Channel Two INDUSTRIAL MANUFACTURER'S DISTRIBUTOR SALES BRANCH Level Channel INDUSTRIAL DISTRIBUTOR INDUSTRIAL CUSTOMER Zero level – Manufacturer to Customer One level – Single intermediary involved Two level – Two intermediaries are involved in the channel network 4. the entire task necessary to create sales and to deliver the products to industrial customers is performed by the manufacturers themselves. THE STRUCTURE OF INDUSTRIAL CHANNEL: There are different ways in which an industrial channel can be structured. The various tasks involved in this process are contacting the . Some of the industrial channel structures are direct while some are indirect. Direct Channel Structures: In direct channel structures. g.
the industrial buyer insists on buying directly from the manufacturer. storing the products. electrical wiring materials and supplies. iron and steel products. communicating and negotiating with them. the selling includes extensive technical and commercial negotiations at various levels. Indirect Channel Structures: In indirect channel structures. Some of the examples of direct channel are direct sales (through the company sales force) and direct marketing (through direct mail. transportation and providing related services. Indirect distribution is used in industrial chemicals. including top management. the value of transaction or sales are low. value-added resellers. Internet marketing) b. . jobbers. commission merchants. and the manufacturer has limited resources. the industrial buyers purchase many product items in one transaction. financing and selling. and the value of each transaction is large. etc. An indirect distribution approach is appropriate when – the industrial buyers are widely dispersed. construction materials. Some of the examples of indirect channel are manufacturer's representatives (or agents). the various tasks discussed above is shared both by the manufacturer and the intermediaries.. This approach is viable to the company only if – the buying process is lengthy. industrial dealers or distributors. general industrial machinery.potential customers. brokers. commission merchants. drop shippers. telemarketing.
Brokers: Brokers are the middlemen who represent either the buyer or the seller. drop shippers Fig: The Industrial Channel Structure c. Different types of industrial middlemen are manufacturers' representatives (also called agents). Types of Industrial Middlemen: The industrial middlemen are the intermediaries used by the manufacturers to deliver their products to the end users. commission merchants. jobbers. value- added resellers. their target market apart from excellent contacts with the buyers. Direct Eg: manufacturer's representatives (or agents). industrial dealers or distributors. They provide relevant information on market conditions to the manufacturers as well as customers. jobbers. The agents particularly have good knowledge about the product. brokers. Manufacturers' Representatives: The manufacturer's representatives (sales agents or manufacturers' agents) are very commonly seen middlemen who secure orders from existing and potential customers. Generally small and medium-sized industrial firms use the services of agents in territories with low market potential. value-added resellers (VARs). commission marketing merchants. Mail. They are paid a certain amount of pre-specified commission on sales and other tasks performed to make the sales. commission merchants. Telemarketing. They are categorized based on the number and the extent to which they specialize in the performance of certain functions. Agents are cost-effective for them because commission is paid as per the orders generated. Industrial Channel Structure Direct Channel Indirect Channel (manufacturers perform the entire (Manufacturers and intermediaries share the tasks task) between them) Eg: Company sales force. They help the manufacturer to find potential buyers and vice versa and take the commission when sales process is complete. drop shippers. industrial dealers or distributors. Internet brokers. .
promotion and selling. Value-added Resellers (VARs): They add some value or feature to an existing product and sell to end-users as a new package. and equipment used in the operation of a business. They are offered trade discounts on the price list of the products as their compensation. Their general functions include getting the raw materials inspected. They receive the commission based on the net sales value as is compensated to agents and brokers. electrical equipment and supplies. They are referred to as the supermarkets of industry. They are paid commission by the manufacturers when they perform certain functions. original equipment manufacturer (OEM) supplies. The products stocked by them include maintenance. Because of increase in specialized markets. Specialized distributors limit their inventories to specific product range like bearings. Because of such varied functions. power tools and conveyors etc. The third category called the combination house sell directly to industrial customers as well as some other retailers or dealers. Categories of Industrial Distributors: Industrial distributors are categorized as general line distributors or mill supplies houses that stock wide variety of products and sell to a diversified group of customers. Industrial Distributors: Industrial Distributors are the important and most preferred middlemen that are typically small and independent serving narrow geographic markets. and offering credit. This is found often in the . office equipment and supplies. such as hand tools. their numbers are increasing. repair and operating (MRO) supplies. they are sometimes referred to as full function intermediaries. transportation and warehousing. The second type of distributors known as specialized distributors specializes in products they handle or customers they serve. They perform functions like buying. negotiating during sales and finally close the sales. or abrasives etc.Commission Merchants: They deal with large quantities of items like raw materials.
Customers would purchase a computer from the reseller to either save time or if they do not have the skills to build a unit themselves. he has to borrow the services of different middlemen who act as a vital link in the distribution network to pass on the . including storage. catalog and internet advertising. e. By doing this. Middlemen send single unit orders for products to manufacturers. insurance. offer advertising material and reduce inventory requirements. Drop Shipping is generally used by web site owners (like amazon. iron ore etc. and what amount to charge for shipping the goods to the customers. Jobbers: They get orders from the customers and pass them to the manufacturers. Manufacturers providing drop shipping services can gain additional sales. If he does not use this privilege. Drop Shippers: When an online marketer has certain concerns like where to get the goods from. that are transported in huge quantities and do not require assorting or grouping of products. the company has added value above the cost of the individual computer components.com). shop owners and mail order firms who do not stock inventory of the products sold for future delivery through mail order.computer industry. where to store them until they are sold. The Functions and Responsibilities of Distributors: Nothing prevents a producer from meeting his customers directly and effecting sales. who in turn drop ship the merchandise direct to the customers of the middlemen. then drop shippers come to the rescue of such marketers who work with merchants to move the products. and personnel by spending nothing on inventory. Though they do not handle the goods physically in any form. where a company purchases computer components and builds a fully operational personal computer. shift advertising costs to middlemen. or major stocking distributors. Jobbers specialize in marketing bulky products like coal. overhead. they take the title to the products they sell. Middlemen who initiate drop ship orders shift the risks of stocking inventory to the supply source.
. Providing pre-sales and after-sales services to the customers through their technical service personnel. to the customers and competition. market demand etc. . Some of the common reasons include – Delivery: Industrial customers particularly the small scale manufacturers find the distributors to be more reliable who delivers them goods in less time and at a lesser price. price etc. the industrial marketers find it more suitable to use their services rather than doing all the things by themselves. Such tasks should be outsourced to those intermediaries who have the expertise to perform them effectively and efficiently. to the manufacturers. (Various grades of products are sold to different end users at different prices) Transporting the product from warehouses to customers' place Providing information on product features. Reasons Industrial Customers prefer Distributors There are many reasons why industrial customers buy from distributors. A full function intermediary or the distributor performs all or most of the distribution functions like – Purchasing products from the producer to resell back to the industrial buyers Promoting the product through ads.. f. they should analyze certain functions that are very important for them but cannot be performed effectively due to reasons like cost effectiveness or service inefficiency. But. This helps them reduce their inventory level as well as the inventory carrying cost. negotiating by offering discounts and securing orders from customers Extending credit to customers while reselling the products Storing the products safely at warehouses and ensuring its availability to the customers Inspecting and testing the product.production to the actual users. and assigning distinct quality grades. As the intermediaries perform all or most of the above functions.
The assistance from the manufacturer could be in the form of – providing increased margins or financial help that stimulates the distributor to increase inventory levels improving distributor's performance through deploying its sales force where supplemental technical support can be provided or joint sales calls can be done imparting technical and general training to the distributor personnel to improve their effectiveness and strengthen the bond Simultaneously. Manufacturer and Distributor – Partners in progress Though there would be lot of conflicts and disputes existing between the manufacturer and the distributor. both need to maintain good relationship that help them to be partners in progress. Besides above. g.Information: Distributors provide relevant information on various products like technical information. Eventually. the efforts of . quality that helps the customer select and buy the best. In addition. the distributors should also execute all their basic functions and meet their responsibilities (that have been discussed earlier) in a systematic way that would help the manufacturer perform better. availability. The manufacturer should provide the distributor with all the assistance that is economically feasible to enhance the distributor's performance. price. Credit: The distributor offers credit facility to his reputed and credible buyers whenever they purchase from him. they should recognize the significant trends unfolding in the industry by understanding the market dynamics and forecasting its future directions. Variety: The distributor stocks variety of products at one place that caters to all the requirements of the industrial buyers. it is the relationship and best customer service that matters the most to the customers to prefers a particular distributor.
Explain the need for channel distribution in industrial marketing? 3. distributors. providing information to customers and suppliers. offer varied products. financing or giving credit to buyers. The other way is the indirect channel structure where different kinds of intermediaries are involved like the agents. What are direct and indirect channel structures? .both the 'partners in progress' should be to grow together that can happen only through mutual coordination and understanding each other in a better way. 4. Who are the intermediaries in channel distribution? Explain their specific role. How does industrial distribution channel differ from the consumer goods distribution channel? 2. What are the factors that affect the distribution of industrial goods? (Hint: Refer nature of industrial distribution channel) 5. providing technical support. give liberal credit apart from providing the requisite information about the product. The distributors are preferred by the industrial customers as they find them more dependable. jobbers. Industrial distribution is quite distinct compared to the channels used for consumer goods or services. SELF-ASSESSMENT QUESTIONS 1. It carries out the distribution through the direct channel structure that involves the company's sales force and the direct marketing through various means. Most of the above services are performed by the distributors because of which they are called as full function intermediaries. transporting. Commission Merchants. SUMMARY There are various channels that are involved in a distribution system that help the manufacturer to deliver the goods to the end-users. price and other related items. Finally. warehousing. grading. brokers. drop shippers. promoting and selling. the manufacturer and the distributors should be partners in progress who has to understand each other and solve any conflicts arising between them. There are various functions these intermediaries perform that vary from buying the product. Value added Resellers.
Tata McGraw Hill 3. Tools and Media for implementation . Implementing c. The Dryden Press PROMOTIONAL STRATEGIES FOR INDUSTRIAL GOODS AND SERVICES SALES PROMOTION. INTRODUCTION 2. AITBS Publishers and Distributors 2. DIRECT MARKETING 1. What are the functions of industrial distributors? 8. Planning b. Krishna K Havaldar. 4th Edition. Commission Merchants b. Meaning and Definition b. Brokers c. PUBLICITY 5. PUBLICITY AND PUBLIC RELATIONS. Industrial Marketing. Need for sales promotion c. Write a brief on the following a. Why do industrial customers prefer distributors? 9. 2nd Edition. Richard M Hill.6. Methods of sales promotion 4. How do jobbers and drop shippers differ from each other. PUBLIC RELATIONS a. OBJECTIVES 3. Industrial Marketing. How can the manufacturer and distributor be ―Partners in progress‖? 7. Michael D Hutt and Thomas W Speh. Value-added Resellers REFERENCES: 1. Ralph S Alexander and James S Cross. Industrial Marketing Management. SALES PROMOTION a. 10.
Understand the various techniques of sales promotions . OBJECTIVES After studying this lesson. It is used to increase the sales by impressing the customers. you would be able to – . 6.Recognize the need for a company to use sales promotion . persuade and influence the decision making power of prospective and existing customers. offering free gifts. Online marketing channels SALES PROMOTION. PUBLICITY AND PUBLIC RELATIONS.Understand the concept of direct marketing in industrial product promotion Meaning and Definition Sales promotion is an activity used by the industrial marketer to boost the immediate sales of a product or service. DIRECT MARKETING a. Direct Mail b. DIRECT MARKETING INTRODUCTION Promotion strategy is used by the industrial marketers to inform.Understand the meaning and definition of sales promotion . There are different techniques used in a sales promotion activity like a free-sample campaign. arranging . rewarding them and also motivating the sales force to get more business. The objectives of promotional strategy vary from company to company where some companies use the strategy for capturing selected markets while others use it to increase or stabilize the sales and to give additional information and added value of their products.Appreciate the need for publicity and public relations in industrial organizations . Telemarketing c.
Some of the techniques they can use are as follows: Trade Shows (or Exhibitions) Trade shows present the manufacturers an occasion to exhibit and demonstrate their products to a large number of customers in a short period of time. It is about stimulating customers to buy a product.demonstrations or exhibitions. NEED FOR SALES PROMOTION a) to introduce a new product in the market b) to influence the public with the help of new uses of the product c) to increase the frequency of purchase by each buyer d) to encourage dealers to stock more goods e) to withstand in the competitive field f) to increase the sales by imparting special training to salesmen and by window display METHODS OF SALES PROMOTION There are many sales promotional methods available for industrial marketers. occasion to sell the products to the customer directly where no intermediaries are involved . They are the second most important promotional activity for industrial marketers after personal selling. etc. organizing competitions with attractive prizes. Trade shows offers several advantages for industrial marketers like – . More than any other element of the promotional mix. sales promotion is about ―action‖. one-to-one contact with the potential buyers and existing customers that increases the awareness on company and its products . temporary price reductions. telemarketing. door-to-door calling. building database of prospective customers . It is not designed to be informative – a role which advertising is much better suited to. using personal letters. building goodwill and relationship with the potential buyers . Trade shows are generally organized by trade associations annually at a particular location or at some exhibitions where in companies lease some space to display and demonstrate their products to the potential customers.
Hence. Samples are used mostly to make an entry in the prospective customer's place.opportunity to get new product ideas due to customer interactions . Based on the different catalogs collected from different suppliers. service requirements.pulling/attracting the customers to visit one place is very difficult Catalogs: Catalogs are the printed form of direct marketing promotional tools used by industrial marketers to provide information about their products especially if they have long product lines with different shapes. The company sales force meets the potential buyers and explains the product features by offering catalogs. anti-virus software is offered free through . etc. demonstrating non-portable (bulky) equipment that is otherwise difficult to take to each prospect . Samples: Samples are the free or charged offerings given to the prospective buyers as a part of product development program. it is one of the expensive form of promotion .generating leads for new business There are certain disadvantages also with trade shows like – .a good break for the newly joined salespersons who get on the job training by interacting with varied customers . . Eg. a potential buyer compares the features of different products and seeks quotations from the supplier who provides best quality product at economical price.discovering new and innovative products of competitors . a catalog should try to provide all the relevant information that a buyer is seeking from the company about a particular product (specific catalog) or all the products in general (general catalog). A medical representative offering a sample of tablets to the doctor that can be distributed to the needy patients There are various ways in which a sample can be distributed. A catalog commonly contains information like product specifications. performance data. sizes or other features. it is very difficult to identify the potential customer among the huge audience visiting the exhibition . illustrations and drawings. application of products. A promotional literature can be sent through post.
Seminars: Seminars are conducted by the industrial marketers by making audio-video presentation through the technical experts of the company. cars are offered for a test drive when personal visits are made to a dealer. Since good correspondence and writing skills are the requisite for this. bulkiness. Promotional letters: This is one of the effective form of promotion where in personalized letters are sent to individual customers along with catalogs and coupons giving technical specifications about an existing or new products which are to be launched. weight. Depending on the amount of sales generated.Internet. there should be special correspondence section who can take advise from salesperson regarding the kind of letters to be sent and to whom it should be addressed. Sometimes samples cannot be distributed because of the cost involved. Sometimes samples are charged by the suppliers to ensure that customers really test them and also to control the huge costs involved in offering them free. toxicity and intricate design. The seminar is followed by a question and answer session for the benefit of buying . Letters to customers at regular periods is a good way of keeping in touch with them particularly in case of products that are purchased infrequently. The cost of promotional letter is very less compared to the personal visits made by the sales force and it also receives good attention. free shampoo sachets are offered through dealers when some product is purchased. Sales Contests: There are various sales contests that are held by different industrial organizations in order to boost the morale of their employees and other intermediaries. Samples have a chance of being misused or taken away by the salesperson and ―sample hounds‖ who are not genuine prospects for the products. gifts or foreign trips. employees and dealers are offered incentives in the form of cash prizes.
pens. Entertaining a customer depends on the type of products. Publicity helps to generate sales leads and improves relationship with customers. unusual and eye- catching. policies of buyer's organization and the buyer's culture. The common promotional novelties include diaries. useful to the customers and have multiple impacts. Promotional novelties are offered according to the type of customers . Publicity has very high credibility in the eyes of organizational buyers as the sponsor does not pay anything for publicity and it is not a part of any promotional program. Promotional novelties should be generally inexpensive. It is the least costly promotional alternative available for the company that is very effective. This helps in creating a favourable image about the company and also to establish new contacts with various technical people from the buying organization. calendars. such kind of act is known is publicity. medium for middle management and low cost for junior management positions. Technical . the nature of products. bags etc. PUBLICITY When any significant news about a product is made known to the people through a published medium like radio.costly for senior management. newspaper or otherwise. Entertainment: Manufacturers of highly standardized industrial products use entertainment for promotional purposes. the circumstances for the seller and the government regulations governing them. Promotional Novelties: These are the small gift items given by the company to existing and potential customers with their company name and logo printed on it.organizations where technical information is provided to them relating to their nature of activity. key chains. television. Entertainment can have either positive or negative effects depending upon the buying situation.
e. shareholder. DIRECT MARKETING This is a recent activity that has come up and is used extensively by the industrial marketers. PUBLIC RELATIONS: Public Relations Department is located at the top level of the company and it deals with every body i. A direct marketing channel does . if any new product is launched by any company. legislators. Hence. customers. there are some associated costs attached to it. preparing the matter (through professional writers. government and press. proof reading. telemarketing and online marketing channels. It comprises of a range of programs that are planned to promote a good image about a company or its individual products. employees. publicity should be well integrated with other promotional tools in order to have effective marketing communication.articles published in trade journals about a company or products with the identity of authors (such articles are called as signed articles) improve the image of the company and the products. the costs incurred are very less. suppliers. And the important job of this department is to maintain relations with people and build a good image about the company in their eyes (e. etc) for news release and arranging for it to be placed in the right magazine by contacting the respective editors. They form as a good source of information for customers. Though publicity is free.g. But compared to other promotional tools. the MD or Chairman calls for a press conference and explains about the product and its features and release in the market) Public Relations is much broader in scope than publicity. The costs incurred are for reasons like obtaining space in the journal or magazine for writing an article. The various tools used in direct marketing are direct mails. taking approvals by sending to Head Office.
advertisement etc.. industrial directories. Direct Mail: The existing and prospective customers are mailed promotional letters. catalogues. As the cost involved in direct marketing activity is much less compared to the cost of company sales force directly meeting the customers. Generally. company's database etc. they should be careful about the selection of target audience as wrong identification would waste the entire efforts. ... Though this is one of the cheapest tool used by the industrial marketers. trade publications. Telemarketing: In this process. Telemarketing helps the companies to reduce their sales force and increase the sales volume provided the companies have trained personnel who can talk effectively over phone. mailing list brokers. etc. Sometimes. telephone companies. Even the prospects' correct contact details should be available to avoid wastage of mails. prospective customers are contacted through telephone and provided with all the required information and then converted to sales lead depending on their interest towards the company product. many industrial organizations prefer this tool. This tool aids the sales force to gain entry into prospective customer's office where prospective customers are identified beforehand and are informed about the company products. by the industrial marketers where they are provided with necessary information about the company's products and services and any schemes or offers it has. CDs. people who are self-interested in a company and seek information about a product or service also call the company after getting telephone numbers from various sources like telephone directory. This helps the potential customers to respond the company that in turn would send its sales force to meet them personally and close the sales. mailing lists are obtained by companies from websites.not involve any intermediary and the sale is done by the company by directly contacting the target customer.
reach. The environment of an organization consists of employees. and accessing and retrieving the information is fast. Sales promotion is carried by using various sources like trade shows and exhibitions. publicity brings lot of credibility to a company or its product. telemarketing and online marketing. offering samples. government and press. SUMMARY Sales promotion is used by the industrial marketers to increase their sales by offering benefits and facilities to the customers. But. customers. suppliers. Direct marketing is the process where a company directly interacts with the customers without involving any intermediary. offering promotional novelties and entertaining the customers. it does not make sense using this channel. There are various reasons why a company does sales promotion. There are certain advantages of online marketing like being very cost-effective as even small organizations can use it. shareholders.Online marketing channels: These are the recent tools that have come up after the advent of internet and information technology. communicate and sell to organizational buyers. catalogs. intermediaries and employees. unless an user has a computer system with modem attached and is computer literate. Creating awareness to the masses by using any media without involving any promotional cost is called as publicity. They are used by many industrial marketers for direct marketing of their products where they use this tool to find. . A cheaper promotional tool compared to others. The tools used are direct mail. The art of maintaining good relationship with the internal and external environment of an organization is known as public relations. arranging seminars. conducting sales contests. writing promotional letters.
Industrial Marketing. Industrial Marketing Management. Ralph S Alexander and James S Cross. The Dryden Press . Krishna K Havaldar. How does publicity help the industrial marketer? 8. Tata McGraw Hill 3. What the advantages and disadvantages of Trade shows? 4. How does a catalog differ from promotional letter? How do they both help the industrial marketer in sales promotion 5. a sales contest and entertainment act as sales promotion tool? 7. Industrial Marketing. Michael D Hutt and Thomas W Speh. 4th Edition. What is direct marketing? How does it help industrial marketer? 10. AITBS Publishers and Distributors 2. How does a seminar. Public Relations act as a tool for effective marketing. Differentiate a sample from a promotional novelty? How they can be effectively used by an industrial marketer? 6. 2nd Edition. Explain? 9. Richard M Hill. Explain about online marketing channels that are used as part of direct marketing? REFERENCES: 1.SELF ASSESSMENT QUESTIONS 1. What are the different methods of sales promotion? 3. What is sales promotion? Why do industrial marketers go for it? 2.
ADVANTAGES AND DISADVANTAGES OF PERSONAL SELLING 4.PROMOTIONAL STRATEGIES FOR INDUSTRIAL GOODS AND SERVICES PERSONAL SELLING 1. QUALITIES OF A SUCCESSFUL SALESPERSON 6. Expense Control 7. Organizing and allocating of sales force e. Compensation f. Training c. SALES FORCE MANAGEMENT a. SELLING PROCESS AND THE ROLE OF SALESPERSON 5. Supervision d. Selection of sales personnel b. INTRODUCTION 2. Designing the sales territory d. Motivation e. OBJECTIVES 3. Industrial Selling Environment b. DEPLOYMENT OF INDUSTRIAL SALES FORCE a. Sales Resource Opportunity Grid f. Dyadic Interaction . Deciding on the size of the sales force c.
OBJECTIVES After reading this lesson. you would be able to – -know the advantages and disadvantages of personal selling -appreciate the selling process and the role of sales person in the entire process .INTRODUCTION Personal selling is one of the oldest forms of promotion. Its role is very dominant in industrial markets because of less number of potential customers present compared to the consumer markets and the large amount of money purchases involved. Some of the advantages are – . This is advantageous to the industrial buyers as all their problems are solved in a single go by one party who would take the responsibility if anything goes wrong.understand the qualities of a successful sales person . Personal selling is the primary demand stimulating force in the industrial marketer's promotional mix. The industrial marketers too have competitive advantage by adopting this strategy.management of industrial sales force ADVANTAGES AND DISADVANTAGES OF PERSONAL SELLING There are various advantages of personal selling that help an organization to promote the products effectively and increase the sales. It involves the use of a sales force who orally communicates about the company's products or services to the potential buyers with an intention to make a sale. The job of personal selling starts after determining the target segment in the organization's market.know how to effectively manage a sales force . industrial marketers have to carefully manage and integrate personal selling into organization's marketing mix. This will also lead to maximize its effectiveness and efficiency. As the cost per sale through personal selling is too high. The sales force in most of the industrial organizations follow the ―systems selling‖ approach where they recognize the entire problems faced by their buyers and offer them total solutions rather than just selling the product.
In addition. the sales team has a good opportunity to respond directly and promptly to any of the customer's queries and concerns Personal selling helps in passing on large amounts of technical data or other complex product information to the customers. There are certain disadvantages of personal selling like the cost of employing a sales force (recruiting and maintaining) is expensive. Prospecting: Prospecting is the first step in the sales process that refers to identifying a list of potential organizational buyers. Personal selling is a one-to-one activity where customers get personal attention. travel. It therefore becomes important to understand their role during each of the steps in order to further enhance their performance and clinch any deal successfully. company and new products. It is the role of the salesperson that helps the organization to increase its sale and reach its objectives. Other supplementary support to make sales calls like car. also adds on to the cost. SELLING PROCESS AND THE ROLE OF SALESPERSON There are different steps that are involved in a selling process and the salesperson has a significant role to play in each of the steps. mobile phone etc. they need to be offered incentives in order to achieve sales. This gives an opportunity to understand the customer needs better and make an effective sale The marketing manager can customize the sales message accordingly depending upon the needs and types of customers As there is two-way communication process in personal selling. In addition to the basic pay package. a sales person can meet only one customer at a time that makes it a costly affair of reaching a large audience. There are various sources from which . Personal selling gives the sales force a chance to demonstrate the product effectively and clarify any doubts on the spot Frequent meetings between sales force and customers provide an opportunity to build long-term relationships. 1. This indirectly educates the customers and updates them on latest happenings on the industry.
It should be the endeavor of the sales person to let the prospect do most of the talking during the presentation. commercially-available databases or mail lists. They should know that closing does not . Many sales people are weak and hesitate or lack the confidence to ask for the order. The salespeople have to systematically structure the prospecting activities in order to identify only those potential customers who fit the profile and have genuine interest to buy the product or service. the sales people also develop a preliminary overall strategy for the sales process keeping in mind that the strategy may have to be refined as they learn more about their prospects. During this phase. Communicating: This step involves the sales professionals communicating with the organizational buyers and trying to understand their current needs. identifying key decision makers among the buyers.salespeople get the list of prospective buyers. Their responsibility should be restricted to address the needs of the organizational buyers as far as possible. inspecting or testing the product directly. 3. company sales records and in-house databases. and a wide variety of other sources. planning and creating a sales presentation to address the identified and likely concerns of the prospect. (4) Selling: Selling is the process of delivering the products or services to the customer's satisfaction and receiving the payment after adequately addressing any of their final objections or obstacles. directories. and setting call objectives. public records. their current use of products. The product is demonstrated by the sales people by means of audio visual presentations such as slide presentations or product videos. 2. Handling Objections: The course of objection handling includes the prospective buyers holding. They should have the ability to convince them by showing that they truly understand them and care about their needs. trade shows. Some of the sources include referrals.
at right time. Many of the salespeople often overlook the servicing/follow-up aspect which is a very important part of the selling process. when they would like the delivery to happen or what they would lose if they do not place the order now. credit facility to induce the buyer. After an order is received.involve literally asking for order. If the customer experiences any problems during the process. additional purchases. the salesperson also offers discounts. . the sales professionals should take the responsibility to intervene and become the advocate of customers to ensure their satisfaction. This has the probability of leading to new needs. and also referrals and testimonials which can be used as sales tools. This ensures that the product was received by the customer in good condition. They can ask some related questions like what color the buyers like. 5. which model or size they would prefer. with proper installation and at the place as required by the customer. The salesperson should confirm through the follow-up whether the entire process was acceptable to the customer. Depending upon the situation. it is in the best interest of everyone involved that the salesperson should follow up with the prospect. This is a critical step in creating customer satisfaction and building long-term relationships with customers. Servicing: The industrial marketers should provide their customers with efficient service from the point of sale till the goods are delivered and also after the post-sale. It also ensures whether adequate training on product usage was given to the customer before they handle the delivered product/equipment. It helps to maintain a good and long term relationship with customers and gives supplementary revenue to the organization.
Selecting of sales personnel: Personal selling starts with selecting the salesperson who acts as the representative of an organization.QUALITIES OF SUCCESSFUL SALESPERSON: Any salesperson in order to be successful should posses the following qualities that would help them to reach high in their career path. ability to clinch the orders/deals fast 4. inviting more questions from the customers and handling objections by giving convincing answers 7. ensuring prompt and quality service to the customers 5. having wide contacts within the industry 9. There are various steps that are involved during the sales force management. 1. these are the most preferred ones by the industrial organizations. frequently motivate them by offering compensations. organizing the place of work in a better way 8. They also give their sales team proper product training. creating good impression and getting more business Though there are many other qualities that a successful salesperson should possess. SALES FORCE MANAGEMENT Sales force management is one of the important task for industrial marketing managers where they take great care in selecting the right personnel who can help them to increase their sales. good listening skills to understand the customer's requirements better 6. very good knowledge about the products 2. They help to create an image and reputation of the company apart from increasing the sales by offering various products and services to the industrial buyers. supervise their performance. zeal to give an effective presentation to customers 3. they offer other services like technical . In addition to giving the details on product features to their prospective buyers. and at the same time control the expenses incurred. They should have the qualities like – 1.
well-disciplined. Sources of candidates: To get good candidates with required qualities. recommendations. honest. ideas. dot. adaptable to situations. customers. the industrial marketers depend on various sources. Most of the industrial organizations look for these common characteristics because of the nature of their business and the kind of selling that is involved. and sharing their experience. recruitment consultants Sometimes. suppliers. sound with product technicalities. All these call for careful and proper selection of sales person. handle huge sales volumes. god presenter. persistent. . All these qualities give them a priority and preference to get short listed for the next process of selection. the sources available to get the right candidates and the use of various selection aids. understand the customer's needs and solve their technical problems. The selection process is based on the personal profiles of the candidates. candidates imply walk-in if the company is a reputed one just to try their luck or to just keep their database with the HR department of the company. Some of the sources include – Publications – business newspapers. well qualified.assistance. other departments/employees of the organization Placement agencies – head hunters. they pass on their requirements to Research & Development department or the production personnel who are suggested to manufacture the products as per customer's needs. friendly and considerate.com portals. trade magazines Institutes – engineering/management colleges for campus placements References – existing sales force. They also posses the skills that are required to negotiate with professional buyers. the salespeople represent the buyers wherein after understanding their needs. innovative. etc. Personal Profile: There are certain characteristic features that an ideal candidate for the selection of industrial sales force should possess. At times. The prospective salesperson should be a self-starter.
It is very essential in this competitive world that sales people must be effective in discharging their duties by learning new ongoing techniques. strengths. strategies etc. Company's information – where sales people are informed about the company's history. It helps them to do effective sales by spending considerable time and money training their salespersons frequently. discounts and any other offer .Selection aids: When a candidate has to be short listed. resume/bio-data that gives their qualification/experience and other details Tests – that tests the candidate's technical/sales knowledge References – that provide confidential report/performance/aptitude report about the candidate. complete details of company's performance during the last few years and future plans Company's promotional activities – where sales people are updated on the various promotional activities a company is carrying out like the promotional schemes. Training: The main objective on any organization is to improve the sales. objectives. Training plays a crucial role in this aspect for many of the industrial organizations.e. key persons. organizational structure. Any good sales training program content will have – Product information – where sales people are given complete details of the product line and their features so that they can easily explain and address to customer's queries Market information – where sales people are provided with complete information of customers and competitors. This also helps to check the credentials of the candidate Interview – where candidate's personality is judged and an appraisal created based on the impression created by him 2. behaviors. Some of the aids they rely on are – Candidate's formal application i. there are various aids used by the industrial organizations that help them to select the best personnel. their needs. weaknesses. increase the service levels and build the image of the company and its products.
Supervision is prime responsibility of the Branch Manager or the immediate supervisor to whom the salesperson reports. group/individual presentations. role plays. Selling skills – that is very important for the sales people. case discussions. etc. They learn to develop the selling skills. business games. Supervision: Sales force is directed to perform the selling job in accordance with marketing objectives and sales policies of the company. sales presentation. They have the sole responsibility of guiding the day-to-day activities of . Fig: Training class for sales people Usually a sales trainee is trained generally by a Branch Manager or his supervisor. 3. There are different methods of training that can be use like lectures. personal counseling. product demonstrations. The training process has to continue until the trainee becomes perfect in his job. on-the-job training. It is said to be successful only when the actual sales achieved by the trainee after the training is more than what he has achieved before the training. negotiating skills and Customer Relationship Management.
It should be on par with market and the salesperson should be able to understand it easily and clearly. boosting their morale. Establishing standards of performance. The other supervisory activities of the sales supervisor includes – Communicating and implementing company policies and strategies Counseling on problems and deficiencies of sales force. both through formal setting of goals or targets and setting an example for others to follow.the sales people (task assignment). As . Since most of the sales persons are in the field away from the supervisor and colleagues. This sometimes requires the intervention of the sales supervisors who should express their confidence in the sales person's ability and continuously keep guiding and advising them. it should give certain degree of financial security or stability to the salesperson that should be related to what they do. 4. 5. evaluating the sales and revenue in a particular location. they experience fluctuations in their morale and motivation because of negative responses from customers and frustrations. Motivation: Motivation is the process of arousing and sustaining goal- directed behavior induced by the expectation of satisfying individual needs. Motivation also calls for maintaining simultaneous discipline when poor performance of the salespersons is due to their negligence. For a sales compensation to be effective. It is very important for the sales force to have high morale as it helps them to achieve sustained high levels of performance. maintaining cordial and healthy working atmosphere. Creating a favorable work environment and working relationship with sales persons Continuous training and development of sales representatives and Clarifying the responsibilities or expectations clearly to the sales people. etc. allocating territory to each salesperson. Compensation: Sales compensation is given to attract and motivate the sales people to excel in their job.
followed by the ‗variable amount' like the commissions. This is generally offered to the agents or brokers along with the sale people. As these expenses are reimbursed based on their actual expenditure incurred. entertainment expenses that are given as per the company policy come under the ‗reimbursements' or expense allowance. incentives etc. the logical and ideal method of compensation for sales force is generally by paying straight salary. Bonus: They are based on sales volume or the profits of the company. Their travel and other expenses like boarding lodging. The third component offered as perks or ‗fringe benefits' includes leave travel assistance. this should not be strictly considered under sales compensation. Whenever a salesperson is compensated. they are paid commission and bonus apart from their regular fixed salary. industrial sales are uneven with huge orders at erratic intervals. This is generally offered to such kind of employees who are not in sales related jobs. Direct commission: Commission is based on the value of sales volume where certain percentage of sales value is given. Since the job of sales people involves lot of missionary work before closing any sales. The important one is the 'fixed amount' which is the basic stable income he receives. savings in income tax at higher salary levels etc. Incentive: A monetary benefit paid by the company to the employees who invest extra efforts to achieve additional sales Combination of salary and Incentive Combination of salary and perks Combination of salary + Incentive + perks . pension or superannuation scheme. A company offers different types of compensation plan to its employees like – Direct salary: It is a fixed amount paid to an employee every month for his work. Other compensations offered to them consists of various incentives that indirectly motivates them to increase their sales figure. They are generally given either half-yearly or yearly. personal or group insurance scheme. it has four components attached to it. medical reimbursement.
Different companies adopt different combinations of remunerating their employees. whatever expenses salespersons incur. 6. Expense Control: There are certain expenses which the salespersons incur and the company needs to compensate them in order to keep up their morale. There are different methods of controlling an expense account of salesperson like the automatic allowance. such allowance is called as per diem allowance. A tight expense account makes the salesperson to bear some expenses from their regular compensation while a liberal one will give them an additional source of income. Automatic allowance: In this method. per diem allowance and reimbursement. This method is beneficial to the company as paperwork and maintenance of records is eliminated. Per Diem allowance: When a salesperson is given some fixed amount per day or per mile of traveling. it affects a salesperson's enthusiasm if they are not reimbursed with the amount. Even the salesperson will not spend liberally as he has to spend money from his pocket that indirectly affects the sales. But the compensation for sales force commonly comprises of salary along with perks and incentives. they have to spend out of their regular compensation that contains an increment to cover such expenses. etc. This method has a . The various expenses covered by an expense account include traveling. But it also has a disadvantage as the company will not know how much increment should be added to the salary to cover the expenses. lodging boarding and customer entertainment. that are incidental to living away from home. Though expense account is not part of the compensation system. This is to take care of the missionary work done by the sales persons for the company.
how the territory has to be designed. For claiming this. Their ideas and suggestions play an important role in developing. The best way to expense control is to avoid the ‗expense cooking' done by the sales people where they claim more than what they actually incur. managers need to have effective control over it. making them aware of the company policies. etc. This has an advantage of salesperson spending more to close a sale. traveling..disadvantage of difficulty in determining the amount of money to be paid and the salesperson may also not spend the actual amount. how the selling effort has to be organized and allocated. Sales force play a vital role in industrial marketing as they help in proliferation of marketing concept. counseling them on ethics and moral values etc. DEPLOYMENT OF INDUSTRIAL SALES FORCE Deployment of sales force involves taking certain decisions like what should be the size of the sales force. improving and customizing the existing products. Reimbursement: Whatever expenses a salesperson incurs during his sales process like making telephone calls. he has to maintain a detailed expense account and submit it to his supervisor. are claimed by him in the form of reimbursement. They have immense talent of negotiating and coordinating with various departments and also the ability of effectively using the exiting product in alternative ways. Some control measures include imparting proper training. Their ability to negotiate in this field and their search for new ways of marketing the products makes them the best people to judge the various alternatives methods as they deal with potential customers. Though it is less in industrial sales due to high income-levels. . The management also can audit the same and review the expenditure incurred and control them. hotel expenses.
influencing and controlling their sales efforts. play a vital role in influencing their behavior. The industrial marketer has to decide how many times his sales person has to visit each class of customer in a year Then he has to calculate the total visits per year by multiplying the number of customers in each class with the number of visits to each of them The marketer then estimates the average number of visits each sales person can make in a year Based on the above calculations. marketing. they get influenced in the process. Though a specialist or an agent is given the buying responsibility. . and then develop a continuous rapport. They need to identify their potential buyers and the main decision makers among them. This necessitates the industrial marketers to respond to such environment with proper planning. Their internal environment of the organization like the production. finance etc. The total visits per year are divided by the average number of visits a sales person can make in a year. organizing. the marketer can decide on the number of sales persons required. Most of the companies follow the workload approach method to determine the sales force size.Industrial Selling Environment: As industrial selling is specifically to organizational buyers who exhibit varied behaviors during the buying process. It consists of several steps like – First the customers are classified into three categories of A. give them a sales presentation. Deciding on the size of the sales force: It is very important to have an ideal sales force team as it directly affects the company sales and costs. and external environment like the government. B and C based on their sales potential with highest potential customer in A category and the least potential in C category. the industrial environment becomes more complex. A typical buying process entails more than one organizational member who provides input into decision making. technological changes etc.
The total visits per year come to 2750. 2750/550 = 5 Designing the sales territory: The industrial marketer has to decide on the sales territory to avoid any conflict between the sales force by avoiding their entry into each other's territory and grabbing the business. Then the industrial marketer decides that his salesperson should visit the A category of customers 50 times in a year. a market survey is conducted by the marketing manager to determine the sales potential of each control unit. Thirdly. after determining any difficulties faced by the sales force in covering certain areas.For instance. As per step 5. sales resource opportunity grid. necessary adjustments are done. Organizing and allocating of Sales Force: Sales force is organized based on different parameters such as location. customer groups. As per step 3. Secondly. product. . The designing of sales territory comprises of following steps – First a basic geographic location that controls the entire operations is selected. B category of customers 25 times in a year and C category of customers 15 times in a year. say a company has 100 customers in C category. 75 customers in B category and 25 customers in A category spread across the country. for him to make 2750 visits in the entire year. Then. he needs 5 sales persons. Then the final sales territories are decided. This is generally a major city or town where more of industries are located. the geographic control units are combined into approximate sales territories Finally. 100x50 + 75x25 + 25x15 = 2750 The marketing manager based on the past history and feedback from his present sales force estimates that a sales person makes 550 visits per year on an average.
This helps the sales persons to understand their customer's needs better. Customer groups: The sales force in this method is structured based on the customer segments they serve. and percentage of salesperson's selling time that is the competitive advantage or strength of the company within PCU. potential buyers. The sales resource strength includes the number and length of sales calls/visits. This type of specialization is adopted with products that are technically complex where the sales persons can influence the buyer easily. A portfolio or planning and control units (PCU) consists of the products. it has to take care to avoid certain things like duplication of sales calls (where two or more salespersons try to meet the same buyer in different times) that is very common in this. then he would be used to market just that particular product. It helps him to . Though this way of organizing the sales force is quite expensive for the organization. number of salespersons. customers. understand their buying behavior. It is easy for sales person to look after sales in a particular location and spend considerable time in making calls by improving the rapport with the potential customers. The grid in the given figure helps the marketing manager to allocate the salespersons based on the opportunity available from the PCU after assessing the optimality of sales force deployment decisions across PCUs. Sales Resource Opportunity Grid One more method used by the marketing managers to allocate sales force to various customers or territories is called as Sales Resource Opportunity Grid. or a few products and even a single product. Product: When a salesperson has some expertise in some specific category of product.Locations: Locations are defined as a part of geographical area. the key decision makers thus catering to the needs of such customers. or territories that are the opportunities in terms of sales potentials for the industrial marketers.
assign opportunity.modify the size of his sales force. The sales persons exchange their ideas. deciding in the allocation of the sales calls. goals. It should . The negotiation process starts during the interactions where plans. assign high position and take p p level of sales resource to advantage of high o r take the advantage opportunity PCUs or else t Low u shift the resources to other n i PCUs t y As PCUs offer stable As PCU offers little/low opportunity. make changes in the sales territories. share information with the potential buyers thereby assisting them to meet their requirements of purchase decisions. P C Sales resources to be U As PCU offers high directed to improve its High O opportunity. needs and intentions of the buyer and salesperson are discussed. The individual perception of both the parties about each other establishes some kind of boundaries in the interaction process. keep minimal moderate level sales or nil sales resources or resources to keep current otherwise ignore the PCUs position strength High Low Sales Resource Strength Fig: Sales Resources Opportunity Grid Dyadic Interaction There is a process of exchange between the industrial buyer and the seller in an industrial selling environment.
supervise their activities. and continuously motivate them by providing compensation and other benefits with simultaneous control over them as well as the costs. design the sales territory. SUMMARY: Personal selling is the use of company's sales force to sell the products to the potential organizational buyers by using various strategies. providing them huge data relating to company or product. customizing the message as per the buyer's requirement. The industrial sales force needs to be deployed perfectly as the industrial environment is very complex. It is one of the important promotional activity. provide them with the required products and continue the relationship even after the sales. Personal selling has an advantage of meeting customers directly. A sales person has several roles to play in each of the sales process in order to convert a prospect into a customer. SELF_ASSESSMENT QUESTIONS 1. How do you as an industrial marketer select the sales personnel? 5. trust and cooperation over a period of time thus creating a dyadic interaction. The marketer needs to decide on the size of the sales force. Its disadvantages include being very costly affair due to various expenses involved in it. What is personal selling? What are its advantages and disadvantages? 2. The important task for sales managers is to manage the sales force.be the endeavour of the marketers that they meet the requirements of the buying organizations through their sales force and develop relationship. They need to select the right personnel. What are the contents of good training program? . train them effectively. What is the role of a sales person in each of the selling process? 3. What are the qualities of a successful sales person? 4. To achieve the sale. he needs to have various qualities that help him to understand his customer's needs better. demonstrating the product effectively and building long- term relationship. allocate the sales force and maintain dyadic interaction with the customers.
The Dryden Press PROMOTIONAL STRATEGIES FOR INDUSTRIAL GOODS AND SERVICES ADVERTISEMENT 1. 2nd Edition. Industrial Marketing Management. SUMMARY 9. How is an industrial sales force deployed? 9. Industrial Marketing. INDUSTRIAL COMMUNICATION PROGRAM 4. Industrial Marketing. EFFECTIVENESS OF ADVERTISING 7. ROLE OF ADVERTISING 5. Ralph S Alexander and James S Cross. AITBS Publishers and Distributors 2. OBJECTIVES OF ADVERTISING 6. Michael D Hutt and Thomas W Speh. Explain work load method of determining sales force size with an example? 10. Tata McGraw Hill 3. Richard M Hill. How do you control the expenses of sales force? 8. SELF-ASSESSMENT QUESTIONS . Krishna K Havaldar. 6. INTRODUCTION 2. OBJECTIVES 3. Explain the Sales Resources Opportunity Grid? REFERENCES: 1. LIMITATIONS OF INDUSTRIAL ADVERTISING 8. What are the various compensations offered to the sales person? 7. 4th Edition.
This makes the industrial marketers to change their promotional strategy for industrial goods and services. Of all the promotional mix. all the elements of promotional mix needs to be well integrated with personal selling with proper coordination in order to develop an effective communication strategy. publicity. sales promotion. These tools help them to build awareness. inform about the product features thus assisting the company sales force and other intermediaries to increase their sales. The promotional mix used by the industrial marketer consists of advertising. . develop company image. Understand the role of advertising in industrial marketing . OBJECTIVES: By going through this lesson. Measure the effectiveness of advertising . Understand how to develop an effective communication strategy . ADVERTISEMENT INTRODUCTION The industrial products are technical in nature that have very few buyers compared to the consumer products. we will try to – . Realize the limitations advertising has for the industrial products and services INDUSTRIAL COMMUNICATION PROGRAM: Any industrial communication or promotion program in order to be effective has to follow certain steps. The various steps that are involved for effective industrial communication program are as given below. Recognize the advertising objectives for industrial products and services . public relations. personal selling and direct marketing. However. personal selling is the most important because industrial products are technical in nature and they involve lot of direct interactions by the company people with the industrial customers.
For instance. develop favourable attitude and bring in a strong desire among the customers to buy their products. All this requires the use of combination of communication media. the attitudes of the target customers and their buying action. it would be ideal to go for personal selling by meeting the customers directly. This helps the company to change itself accordingly and keep upto the expectations of its target audience. its competitors are known. This calls for the marketer to collect varied data from the market regarding the present awareness levels about the company and its products. The availability of such data is prerequisite for the industrial marketers to set their communication goals.Establishing the objectives of communication: The objectives of communication or industrial promotion are derived from the marketing objectives and entire company's objectives. Accordingly. Some of the common methods that are generally used by the industrial marketers are – . Then their awareness. while to inform about distinct product features that has an advantage over the competitor's. Such information is generally obtained by carrying out a research study. Determining the promotional budget: This is the most difficult task for any industrial organization as how much budget it should allocate for promotional activities. attitudes and buying factors need to be identified where their opinion about the company. There are different methods that are followed by different companies as per their individual policies and convenience. its products. the marketers have to increase the awareness levels. if the objective of the organization is to enter a new market and create product awareness. it would be apt to advertise in any magazine or journal. Identifying the target audience: The target market can be identified by segmenting the target market and then identifying the buying organization.
a certain percentage of it is fixed as promotion budget. d. sales promotion.. Competitive parity method: In this method. As the industrial buyers are knowledgeable. Developing message strategy: Message strategy is developed by creating rational appeal rather than moral or emotional appeal that are used in consumer goods. public relations and publicity. b. the industrial marketer is influenced by the competitor and spends the same percentage of sales as promotion as spent by the competitor i. Affordable method: The budgets are set as per the affordability of the company. the budget available and the objective of the communication. The total of these costs form the promotional budget. c. This has the disadvantage that promotional budget is not considered as an investment that would impact the sales volume. a.e. Media selection: This depends on the kind of target audience to be reached. Objective and task method: In this method. the industrial marketer defines the promotional objectives and determines the tasks to be performed to achieve those objectives and estimates the cost of performing such tasks. the message should focus on the benefits to the customer rather than on the product features. This is developed by conducting a market survey to find out the satisfaction needs sought by target audience. the industrial marketer should make an ideal choice to select the media that would enhance his product sales. Percentage of sales method: Most of industrial marketers use this method where based on the sales figure of previous year or the budgeted current year sales. . maintaining parity with the competitor. With different promotional tools available like advertising. direct marketing and personal selling.
development (SMS). Directories. the attitude. by company television Seminars. This involves carrying out research study to find out the changes in the levels of awareness. Trade Social mails. The difference before and after the implementation of the promotional plan is identified. Exhibitions. Promotional community mobiles sales calls. internet marketing trade gifts. Entertainment. programs. activities like message on sales force. Integrating promotional program: The industrial marketer has to integrate the various communication tools so that the communication plans of the company are clear. shows. Corporate e-mails. postal Product magazines. Fairs. letters. relationship billboards. consistent and cost effective. contests. responsibility telemarketing. hoardings. It is preferred less by the industrial marketers compared to personal selling as they get to meet the customers . presentations journals. ROLE OF ADVERTISING IN INDUSTRIAL MARKETING Advertising is the most preferred promotional tool in the consumer market rather than in the industrial market. attitude and buying action of the target audience. donations publications sponsorships Press releases Evaluating the promotion: The various promotional activities carried out by the industrial marketer are evaluated by measuring the difference in awareness levels. This calls for conducting training programs for the people handling the various communication tools. and the actual purchases of the target audience. Table: Different media available for the industrial marketers Advertising Sales Public Direct Personal promotion Relations and Marketing selling Publicity Newspapers.
But still advertising is used to a good extent by the industrial marketers to assist their sales force and intermediaries to generate more leads. Industrial purchasing decisions are typically joint decisions that insist an industrial marketer to focus on all the individuals involved for a particular purchase. But. advertisement that becomes the only means of communicating fills the gap by reaching important buying influencers who are sometimes inaccessible to the industrial sales force. increase the salesperson's opportunity to create a sale.personally and understand their needs better in personal selling. It facilitates the company by enhancing its brand image. OBJECTIVES OF ADVERTISING: Any industrial marketer uses advertising as a promotional tool as it performs so many functions that help him to achieve the following objectives: Create awareness: The industrial advertising creates awareness about a supplier or his products to the potential industrial buyers who are unaware about the availability of their products in the industrial markets. In such cases. The advertising budget for industrial goods is far less compared to that of consumer goods. These places could be . Before understanding the role of advertising in industrial marketing. Reaching inaccessible places: There are places that are not reachable by the company sales force and there are important decision makers for purchase of industrial products who cannot be met by the sales force. we must be aware that there are certain forces that shape and influence organizational buying decisions. Studies have also shown that an industrial salesperson does not reach even six to seven out of ten purchase decision influencers. industrial marketer should have an integrated and well planned advertisement strategy that blends properly with personal selling efforts. to have an increased efficiency and effectiveness of the overall marketing strategy. Advertising plays an important role in industrial marketing strategy by supporting and supplementing personal selling efforts.
etc. advertising in trade journals. For example. business magazines that are read by R&D Managers. Besides above. remind them about a product or a company. Thus. then the effectiveness of advertising is determined by comparing the cost of advertising with the volume of sales generated. when a product is sold solely depending on the advertising.reached easily through advertising. Similarly. Its effectiveness is measured by evaluating its performance against the advertising objectives. Reduce cost: A single advertising reaches a vast number of people that comes out cheaper than a single salesperson meeting so many people personally and explaining them in details about the company's products. influence their attitudes. advertising not only reduces cost but also saves time of the company. EFFECTIVENESS OF ADVERTISING: The evaluation of industrial advertising is a very complex task. Improve sales: Advertising helps salespersons to improve their sales by increasing their sales efficiency and effectiveness as people are already aware of their company. support and motivate the distribution channel members and sales agents. Advertising is said to be effective if its objectives are reached with the given amount of budget specified for it. products. For instance. some other objectives of advertising are to provide relevant information to the potential buyers. the advertising cost effectiveness for a business publication is measured by using the formula: Cost per thousand = Cost per page / Circulation in thousand . Thus. then the number of queries received forms the basis for evaluating advertisement effectiveness. when the objective is to generate new leads. engineers help the companies to reach their target audience.
They include measuring the target markets where the advertising is aimed and the extent to which the advertising succeeded in reaching the target markets. measuring the motives of target audience before and after advertising. Such tasks are achieved by personal selling. The industrial marketers have to be aware of such limitations as it would help them to utilize the benefits of advertising to its maximum even within the given limits. Industrial advertising cannot substitute personal selling but it can definitely support. Advertising can and should be used only for creating awareness and providing information. preference. Advertising cannot achieve the task of creating conviction and purchase. Knowledge. objection handling. . Advertising cannot create any product preference as this requires live demonstration with explanation . recognition etc. Providing exhaustive information. Its purpose would be lost and the cost increases if it tries to give all the details. The limitations of industrial advertising are – . measuring the extent to which the advertising message is registered. and measuring the extent to which different media succeeded in reaching the target market with the given message. supplement and complement that effort . recall.There are certain areas which need to be measured in order to evaluate advertising effectively. LIMITATIONS OF INDUSTRIAL ADVERTISING Though advertising is assisting the industrial marketers to reach their goals in effective way. convincing and converting a prospect into a customer that consumes lot of time should be allowed to be handled by the direct sales force team .. awareness. are some other specific types of evaluations required to measure the advertising effectiveness. there are certain limitations of industrial advertising.
SELF-ASSESSMENT QUESTIONS 1. disseminating information. What are the different methods of allocating promotional budgets? 4. media selection. the promotional strategy for industrial goods is different than consumer goods. motives. reducing costs. reminding. reaching inaccessible places. What is the role of advertising in industrial marketing? 2. publicity. The primary areas that are used for evaluating advertising are markets. It cannot create any specific preference for any product that leads to its sale. Advertising helps the industrial marketer in various ways like creating awareness. its performance has to be measured against its objectives.SUMMARY: Due to technical nature of industrial products. Advertising has certain limitations that an industrial marketer has to understand in order to use it effectively. saving time. determining promotional budgets. Some of its limitations are it cannot substitute personal selling and can be used only for creating awareness by giving message. How is the advertising effectiveness measured? 5. enhancing the performance of distribution channel members and sales agents. What are the limitations of industrial advertising? 6. changing attitudes. How can industrial marketer use advertising to his best use? 3. improving sales. identifying target audience. public relations. To evaluate the effectiveness of advertising. There are various steps involved to achieve effective industrial communication program like establishing the communication objectives. evaluating the promotion program. media and the overall results. sales promotion. The preference for personal selling is more in industrial product promotion than the use of advertising. Industrial marketers use advertising to create awareness about the product and the company that enhances the sales effectiveness of company sales force and other intermediaries. An advertisement that reached its objectives is said to be effective and vice versa. messages. integrating promotional program. developing message strategy. What is competitive parity method? .
Compare and contrast between personal selling and advertising? 9. Richard M Hill. What are the different media used for advertising by industrial marketers? REFERENCES: 1. 4th Edition. Industrial Marketing Management. 2nd Edition. AITBS Publishers and Distributors 2. Tata McGraw Hill 3. The Dryden Press . 7. Ralph S Alexander and James S Cross. Krishna K Havaldar. How can advertising help you to reach inaccessible place? 10. Industrial Marketing. Explain the role of advertising in industrial marketing 8. Industrial Marketing. Michael D Hutt and Thomas W Speh.
and plans to achieve them. which make up the guidance system of an enterprise. Since the enemy is not likely to accommodate him by revealing what they plan to do. The unique features of marketing strategy and its major supporting elements are discussed below. Unit V THE CONCEPT OF STRATEGY Marketing is carefully meshed with production. finance. the commander must base his strategic decisions or assembled intelligence . research. and organizational. Supporting the strategy and contributing to its implementation are plans for the operations. It is a set of directions which specifies which choices a firm will make in every situation. The Marketing Activities of industrial products are an integral part of the company's total operating system. purchasing. The term strategy is derived from strategic. The military commander is charged with a mission and must allocate and position of forces under him in a way which offers the greatest probability of achieving it. a word which the Greeks used to describe what the commanding officer did in a military campaign. logistical. Together. these constitute a hierarchy of objectives. logistics and organization called for by the strategy. and other functions of the business so as to make the maximum contribution to company objectives. A strategic plan is one which describes the allocation of a firm's resources which the management believes will achieve the corporate mission with the greatest efficiency over the long run. Strategy The word strategy carries the connotation of a skillful plan. operational. These may be designated as strategic. it is useful to identify the major types of plans by which operations of an enterprise are directed. Therefore. A plan is a goal-directed system of action. Some have more precisely defined a strategy as a complete plan.
promotion. a product mix. process. strategy defines products. The mission of a military operation is generally to defeat the enemy. It must also be decided whether the company should be a leader or a follower. the determination of their prices. and distribution.about the enemy. i. Due to the diversity of needs to penetrate and hold their markets. the terrain over which military operations will be conducted. and the makeup of channels through which they reach customers. 1. It should possess those properties which fit the needs of target markets. these aims have to be refined and qualified in order to match between the capabilities of an enterprise and opportunities it seeks to exploit.. pricing. many industrial firms find it necessary to produce a number of product lines. and retrieve information. Another strategic consideration is whether the principal source of new products should be internal or external. store. and any other factors which have a bearing on the ability of his forces to function as well as those of the enemy. Since a product is simply a bundle of properties. It identifies the markets and market segments for which products are or will be designed. Product definition.e. the stimulations of demand for them. The mission of a business enterprise might be to move materials. But business is not warfare. the means by which operations will be financed. Its major elements are product and service definition. or to supply mobile power. In a business sense. . or to transmit. The mission of a military commander is decided by his government. and the emphasis which will be placed on the safety of capital against income. However. Marketing Strategy: It is that part of the company's strategic plan which deals with the development of its products and services. These are decisions which would change over time as environmental conditions of an enterprise change.
and the most effective way to supplement both with such supporting efforts as displays. It is particularly important that channel strategy recognize the emergence of new customer groups. operator training. exhibitions and demonstrations. long-range decisions regarding it need to be carefully integrated with decisions concerning the other four elements of strategic planning for marketing. few new products can be generated internally. negotiating royalty arrangements with them. Promotion involves decisions on at least three key issues: how to use advertising. What does fit into this concept are such activities as pre-scale engineering studies. Service definition: Service can be defined as any activity undertaken for the purpose of helping customers. as well as such conventional post-sale activities as financing. and the impact of these . Channels: The marketing channel is an extension of the manufacturing enterprise itself. Promotion : Promotion is the function of inducing customers and prospective customers to buy the company's products in quantities and at prices which yield satisfactory profits. technical consultation. impending changes in existing groups. or acquiring the companies which make them. trade shows. Customer service is a core element in the strategic plan. For this reason many companies elect such alternatives as copying the unpatented products of other firms. 4. and performance testing. 5. 3. purchasing outright the manufacturing and sales rights to products. to what extent personal selling should be employed. Without a substantial commitment to research and development effort. 2. Pricing: Since price may seldom be the dominant factor in making a sale. channel strategy should embrace both the internal marketing units of a firm and the external intermediaries. installation and maintenance.
or price of equipment may be changed profoundly and abruptly by changes in technology.on customer needs. the demand for a material. The analysis which precedes the formulation of marketing strategy includes both the situation analysis and the analysis of potential markets. supply item. The divisions are not necessarily universal. component. It involves the application of marginal analysis. In spite of the lack of adequate means to forecast the results of marketing action. FORMULATING STRATEGY The planning process is divided into several steps or stages. Preliminary Analysis The technical nature of most industrial goods complicates market planning For example. It should also be recognized that the chronological implications of this sequence of steps found there is largely false. Other writers and practitioners may prefer other breakdowns perhaps as good as or better than this one. Choice of strategy components The central problem in choosing the components of a marketing strategy is to find the combination of components which will produce the maximum net revenue. This is possible with direct mail advertising or promotional material designed to bring in orders. . A shift in patronage by any one buyer can subtract heavily from the sales volume of one supplier and add substantially to that of another. While carrying out the current plan. The uncertainty of total demand for the individual firm is aggravated by the small number of large users which characteristics many industries. although these factors are an issue in all elements of the strategic plan. But it is very difficult to forecast the results of any marketing action unless they can be measured. the marketing manager cannot avoid trying to do so. management must be preparing others for the future. Recently.
much has been devoted to improve both measurement and forecasting in this area. 1. One segment may buy the manufacturer's product in standard grades.through the manufacturers own sales force. direct distribution may be required for the latter. still others are linked to the character and situation of the firm itself. it is often possible to predict outcomes with sufficient confidence to formulate strategies effectively. the industrial marketer has a choice of three types of structural arrangements. Is the market horizontal or vertical? If a product can be sold only to the members of one or a few industries. others are related to the peculiarities of the product. 2. Indirect to users . Once management has accumulated some experience with estimates.through agents or wholesale distributors. While indirect distribution may be suitable for the former. while another may want special quality variations. CONDITIONS INFLUENCING CHANNEL STRUCTURE Some conditions which influence the choice of channel structure arise from the nature of the market. Direct to users . FORMULATING CHANNEL STRATEGY Formulating the channel strategy involves an analysis of conditions which have a bearing on the best choice among structural alternatives and on the relationship between them and the manufacturer which will be most productive. Mixed structure . 3. In general. and the number of firms in each industry is . with or without a network of branch warehouses. The choice of an indirect channel system involves the choice of a selective (only one or a few outlets in each market area) or intensive (a number of outlets in each market area) relationship.the nature of the structural network differs with the segmentation of the market.
the probable volume of sales in a market area is small. To what extent are the possible purchasers concentrated geographically? The tendency toward localization of industry makes it possible to market direct to the user many industrial products whose small sales volume would preclude the possibility of selling direct. and in the hope of getting quantity discounts. If. If 70 or 80 percent of the total possible sales volume of a product is concentrated in one or two limited market areas direct marketing is viable. direct marketing may prove profitable. Closer contact can be maintained with customers and prospective customers. In the past. or even a tub-file inventory punched card. and the sales are usually improved by this method. and the chances of economically reaching all or a large portion of them usually are enhanced by selling through distributors. Many firms have streamlined purchasing by setting up continuing relations with selected suppliers with whom orders are placed by telephone. . the market is horizontal and the product must be sold to buyers in many industries. direct distribution is the most profitable method. materials. Is the market potential large or small? If the nature of the product is such that a substantial volume of sales is available in the average area served by a single salesman or branch warehouse. A few salesmen will be needed to make direct contact with all probable users. even to retailers. unpriced simplified purchase order. the purchasing officer must select one or two distributors and place all his orders with them. the number of buyers is large.small. If. it was common for purchasing officers in large firms to insist on buying direct in order to avoid paying the distributor's margin. on the other hand. on the contrary. the direct method may be too expensive. This increases the importance of the distributor as an outlet for the makers of many supplies. For this system to work. if they were consumer goods.
It also may be expected to decrease the effectiveness of the limited franchise arrangement. Merely . To streamline the expensive order procedures the following points are to be considered. Intensive distribution. or intensive. The decision to pursue a selective rather than an intensive strategy. In the former instance there are two basic alternatives: selective distribution is one in which the firm sells through one or a limited number of outlets in each market area or segment. What is the gross profit margin? How volatile is the price? Must the product he installed? How much technical service does the product require in use? How important is quality? How bulky is the item? What kind of repair and maintenance service does the user need and how much? What is the firm's size and financial position? What arc the seller's marketing objectives? RELATIONSHIPS IN THE INDIRECT CHANNEL The manufacturer's choice of indirect channel relationships may be separated into those of a strategic nature and those which are matters of policy.and component parts. whereby the manufacturer markets through only one or two distributors in a market area. based on a number of circumstances. is one in which all outlets in a given market segment will be utilized. he may be able to gain complete coverage of his total market rather quickly. How far it will go and how long this method of buying will last are unanswered questions. or vice versa. If the manufacturer elects to market through all outlets of the chosen type or types that will buy his products.
The manufacturer can designate one distributor as his sole outlet in a given area and make a valid contract to this effect. there is apt to be fairly uniform quality of distributor performance throughout a manufacturer's market. Perhaps the most serious drawback is that the manufacturer puts all his marketing eggs in one basket. On the other hand. However. since one could expect to find both good and poor distributors in every market area. many of whom would be handling his product. The manufacturer who follows a selective strategy constantly faces the risk of losing an outlet in at least one of his marketing areas. Moreover. The spirit of cooperation between manufacturer and middleman tends to produce a higher quality of marketing effort by selected distributors and agents than under an intensive . and in the meantime being without good representation there.by the laws of chance at least one outlet in each market area should be willing to handle his product. he must fit the chosen outlets into mosaics of areas in which they operate to be sure that all parts of the market are covered. the degree of cooperation the manufacturer receives from his several outlets covering the same territory is likely to be small because none receives preferential treatment and each is competing with the others in the sale of the manufacturer's product. he cannot legally make a contract that requires the distributor to refrain from handling the products of a competitor. that of the manufacturer. The selective strategy when carried to the extent of the exclusive franchise can be exclusive on only one side. Selective distribution: If the manufacturer pursues a selective strategy. He also has the problem of adjusting claims to territories where the trading areas of two or mo re selected outlets overlap. a selective strategy tends to generate a much close working relationship with the manufacturer.
HOW ARE PRICES SET? Price still remains one of the most important elements determining company market share and profitability. The most common mistakes are these: Pricing is too cost oriented. The selective strategy also is likely to provide the manufacturer with a better distributor sales force to sell his product than would be possible with any other indirect alternative. This manifests itself in more aggressive and active cooperation in promotional programs. price . with resulting reductions in order-handling costs. This is especially important to the maker of highly technical products or those that require technical service. pricing and price competition are the number-one problems faced by many marketing executives. The savings will probably not be commensurate with the reduction in number of accounts. Price is the only element in the marketing mix that produces revenue.strategy. The Manufacturer whose pursues a selective strategy can expect some savings in marketing cost. price is not revised often enough to capitalize on market changes. it is clearly to his benefit to have his salesmen properly trained by sending them to the producer's factory and by cooperating in other training programs the manufacturer may develop. Price is also one of the most flexible elements of the marketing mix. Setting one price for all buyers is a relatively modern idea. Yet many companies do not handle pricing well. If a distributor knows that the business he develops for a product in his territory belongs to him and can be served by no one else. the average order is likely to be larger. Generally. Since the outlets would be fewer. and greater willingness to equip him to render the kind of service called for by the manufacturers. At the same time. prices were set by buyers and sellers negotiating with each other. Salesmen can usually spend more of their calling time in constructive effort to move the product into the hands of users and less of it in the struggle to get an order.
companies will often establish a pricing department to set prices or assist others in determining appropriate prices. In large companies. This department reports either to the marketing department. market segments. production managers. Others who exert an influence on pricing include sales managers.How should a price be set on a product or service for the first time? 2. When should the company initiate a price change. This happens when the firm develops or acquires a new product. when it introduces its regular product into a new distribution channel or geographical area. railroads. finance managers.is set independent of the rest of the marketing mix rather than as an intrinsic element of market-positioning strategy. In industries where pricing is a key factor (aerospace. and when it enters bids on new contract work. finance department. oil companies). In small companies. The seven levels are as follows: Segment Example (Automobiles) Ultimate Mercedes-Benz . pricing is typically handled by division and production managers. and how should it respond to a competitor's price change? SETTING THE PRICE Pricing is a problem when a firm has to set a price for the first time. and purchase occasions. or top management. The firm must decide where to position its product on quality and price. Top management sets the general pricing objective and policies and often approves the prices proposed by lower levels of management. A company can position its product in the middle of the market or at three levels above or three levels below the middle. prices are often set by top management rather than by marketing or salespeople. and accountants. How should the price be adapted over time and space to meet varying circumstances and opportunities? 3. Companies handle pricing in a variety of ways. Now let us examine three questions: 1. and price is not varied enough for different product items.
Thus pricing strategy is largely determined by the prior decision on market positioning. including price. (4) analyzing competitors' prices and offers. But Cheaper Hyundai Price Alone Yugo This scheme suggests that the seven positioning levels of products don't compete with each other. The clearer a firm's objectives. Survival 2. Maximum Current Profit 3. For example. (5) selecting a pricing method. At the same time. if a recreational-vehicle company wants to produce a luxurious truck camper for affluent customers. If the company has selected its target market and market positioning carefully. Each possible price will have a different impact on such objectives as profits. In the following paragraphs. we will describe a six-step procedure for price setting: (1) selecting the pricing objective. the easier it is to set price. but only compete within each group. then its marketing-mix strategy. (3) estimating costs. the company might pursue additional objectives. and (6) selecting the final price. (2) determining demand. 1. Luxury Audi Special Needs Volvo Middle Buick Ease/Convenience Escort Me Too. sales revenue. A company can pursue any of six major objectives through its pricing. Maximum Current Revenue . will be fairly straightforward. and market share. this implies charging a high price. SELECTING THE PRICING OBJECTIVE The company first has to decide what it wants to accomplish with the particular product. The firm has to consider many factors in setting its pricing policy.
Price-Quality Effect. Buyers are less price sensitive when part of the cost is borne by another parry. Shared-Cost Effect. Maximum Sales Growth 5. End-Benefit Effect. Buyers are Jess price sensitive when the product is assumed to have more quality. Product-Quality Leadership FACTORS AFFECTING PRICE SENSITIVITY The demand curve shows the market's purchase rate at alternative prices. Total-Expenditure Effect. Buyers are less price sensitive when they cannot store the product. Difficult-Comparison Effect Buyers are less price sensitive with they cannot easily compare the quality of substitutes. Buyers are less price sensitive they are less aware of substitutes. Buyers are less price sensitive the lower the expenditure is to their income. prestige. or exclusiveness. The first step is to understand the factors that affect buyers' sensitivity. Buyers are less price sensitive when the product is more unique. Nagle has identified nine factors: Unique-Value Effect. Maximum Market Skimming 6. Buyers are less price sensitive when the product is used in conjunction with assets previously bought. It sums the reactions of many individuals who have different price sensitivities. Inventory Effect. SELECTING A PRICING METHOD . 4. Substitute-Awareness Effect. Buyers are less price sensitive the lower the expenditure is to the total cost of the end product. Sunk-Investment Effect.
The firm determines the price that would yield its target rate of return on investment (ROI). Markup Pricing. The most elementary pricing method is to add a standard markup to the product's cost. for example. Markups are generally higher on seasonal items (to cover the risk of not selling). This pricing method is used by public utilities that are constrained to make a fair return on their investment. and competition is not likely to lead to the optimal price. value pricing. Does the use of standard markups to set prices make logical sense? Generally. which raises its automobiles to achieve a 15 to 20% ROI. Lawyers. perceived-value pricing. We will examine the following price-setting Methods: markup pricing. accountants. and other professionals typically price by adding a standard markup to their costs. The price will be somewhere between one that is too low to produce a profit and one that is too high to produce any demand. The pricing methods will 'hen lead to a specific price. target-return pricing. Customers' assessment of unique product features in the company's offer establishes the ceiling price. perceived value. no. Companies resolve the pricing issue by selecting a pricing method that "includes one or more of these three considerations. going-rate pricing. Some sellers tell their customers they will charge their cost plus a specified markup. Given the three Cs—the customers' demand schedule. Target pricing is used by General Motors. Target-Return Pricing. and competitors' prices—the company is now ready to select a price. aerospace companies price this way to the government. slower moving items. Any pricing method that ignores current demand. the cost function. and sealed-bid pricing. . and demand-inelastic items. Construction companies submit job bids by estimating the total project cost and adding a standard markup for profit. specialty items. items with high storage and handling costs.
The latter is really a "more for more" pricing philosophy. Market research is needed to establish the market's perception of value as a guide to effective pricing. more. Perceived-Value Pricing. paper. It is a matter of reengineering the company's operations to truly become the low-cost producer without sacrificing quality. not the seller's cost. or fertilizer. The smaller firms "follow the leader. In recent years. says that the price should represent an extraordinary bargain for consumers. The firm might charge the same. Sellers with an underestimated view will charge less than they could. They see the buyers' perceptions of value. Value pricing is not a matter of simply setting lower prices on one's products compared to competitors. Value pricing. Value Pricing. The key to perceived-value pricing is to accurately determine the market's perception of the offer's value. They use the non price variables in the marketing mix to build up perceived value in the buyers' minds. Sellers with an inflated view of their offer's value will overprice their product. Value pricing is not the same as perceived-value pricing. and to lower one's prices significantly in order to attract a large number of value-conscious customers. Companies are basing their price on the product's perceived value. or less than its major competitor(s). firms normally charge the same price. In oligopolistic industries that sell a commodity such as steel. as the key to pricing. on the other hand. It says that the company should Price at a level that captures what the buyer thinks the product is worth. several companies have adopted value pricing by which they charge a low price for a high-quality offering. GOING-RATE PRICING In going-rate pricing. the firm bases its price largely on competitors' prices with less attention paid to its own cost or demand." They change their prices when the market leader's prices change rather than when their own . Price is set to capture the perceived value.
demand or cost changes. SEALED-BID PRICING Competitive-oriented pricing is common where firms bid for jobs. Higher- quality cars were likewise perceived to be higher priced than they actually . the lower its chance of getting the contract. Psychological Pricing. without letting the difference increase or decrease. Where costs are difficult to measure or competitive response is uncertain. SELECTING THE FINAL PRICE The preceding pricing methods narrow the price range from which to select the final price. Many consumers use price as an indicator of quality. The going price is thought to reflect the industry's collective wisdom as to the price that would yield a fair return and not jeopardiz e industrial harmony. Going-rate pricing is quite popular. firms feel that the going price represents a good solution. On the other hand. A study of the relationship between price and quality perceptions of cars found the relationship to be operating in a reciprocal manner. Some firms may charge a slight premium or slight discount. Thus minor gasoline retailers usually charge a few cents less than the major oil companies. Sellers should consider the psychology of prices in addition to their economics. The firm bases its price on expectations of how competitors will price rather than on a rigid relation to the firm's costs or demand. Higher- priced cars were perceived to possess (unwarranted) high quality. but they preserve the amount of difference. the company must consider additional factors. and winning normally requires submitting a lower price than competitors. It cannot price below cost without worsening its position. the higher it sets its price above its costs. In selecting the final price. Yet the firm cannot set its price below a certain level. The firm wants to win the contract.
Buyers carry in their minds a reference price when looking at a particular product. brands with low quality and low advertising charged the lowest prices. Farris and Reibstein examined the relationship between relative price. Brands with average relative quality but high relative advertising budgets were able to charge premium prices. When alternative information about true quality is available. Conversely. past prices. The positive relationship between high prices and high advertising . When this information is not available. price becomes a less significant indicator of quality. Consumers apparently were willing to pay higher prices for known products than for unknown products. Reference-price thinking is also created by stating a high manufacturer's suggested price. The reference price might have been formed by noticing current prices. Sellers often manipulate reference prices in pricing their product. If a company wants a high-price image instead of a low-price image. 3. For example. it should avoid the odd-ending tactic. a seller can place its product among expensive products to imply that it belongs in the same class. relative quality. 2. price acts as a quality signal.were. and relative advertising for 227 consumer businesses and found the following results: 1. or by pointing to a competitor's high price. THE INFLUENCE OF OTHER MARKETING-MIX ELEMENTS The final price must take into account the brand's quality and advertising relative to competition. or by indicating that the product was priced much higher originally. dresses found in the more expensive department are assumed to be of better quality. Department stores will display women's apparel in separate departments differentiated by price. or the buying context. Brands with high relative quality and high relative advertising obtained the highest prices.
The contemplated price must be/consistent with company pricing policies. Management must also consider the reactions of other parties to the contemplated price. fi* market leaders. Loss-Leader Pricing. companies will temporarily pric their products below the list price and sometimes even below cost. / Impact of Price on Other Parties. PROMOTIONAL PRICING Under certain circumstances. Their aim is to insure that the salespeople quote prices that are reasonable to customers and profitable to the company. held most strongly in the later stages of the product lifs cycle. Promotional pricing takes several forms. and dealers feel about it ? Will the company sales force be willing to sell at that price or complain that the price is too high? How will competitors react to this price? Will suppliers raise their prices when they see the company's price? Will the government intervene and prevent this price from being charged? In the last case. But manufacturers typically disapprove of their brands being used as loss leaders because this can dilute the brand image as well as cause complaints from other retailers who charge the list price. Company Pricing Policies. marketers need to know the laws affecting price and make sure that their pricing policies are defensible. but these laws have been revoked. Here supermarkets and department stores drop the price on well-known brands to stimulate additional store traffic. Manufacturers have tried to restrain middlemen from loss-leader pricing through retail-price-maintenance laws. . Many companies set up a pricing department to develop pricing policies and establish or approve pricing decisions. and for low-cost products. How will the distributors.
Cash Rebates. They may have given a price break to those who intended to buy a car without stimulating others to think about buying a car. and the loan may apply only to expensive cars. low-interest financing is appealing. although low-interest financing attracts customers to auto showrooms. Thus linens are promotionally price*" every January to attract shopping-weary customers into the stores. Law-Interest Financing. the car price is not discounted much with this kind of loan. when repeated. This is a way of reducing the "price. The company can promote sales by adding a free warranty offer or service contract. Sellers will establish special prices in certain seasons to draw in more customers. Instead of lowering the price. Special-Event Pricing. Warranties and Service Contracts. They stimulate sales without costing the company as much as would cutting the price. The reason is that many buyers buy the product but fail to mail in the coupon for a refund. The rebates can help the manufacturer clear inventories without cutting the list price. the company can offer customers low-interest financing. it offers it free or at a reduced price if the customer will buy. Rebates also appear in consumer-packaged-goods marketing. The initial rebates were effective. Auto makers announced 3% financing and in one case 0% financing to attract customers. However. Since many auto buyers finance their auto purchases. they seemed to lose their effectiveness." . Auto manufacturers have offered rebates several times in recent years to stimulate sales. but. Instead of charging for the warranty or service contract. many don't buy when they learn that a large down payment is required. Consumers are offered cash rebates to encourage their purchasing the manufacturer's product within a specified time period. the loan must be paid back in 30 months instead of 60 months.
DISCRIMINATORY PRICING Companies will often modify their basic price to accommodate differences' in customers. locations. First. for example. members of the lower price segments must not be able to resell the product to the higher price segment. the practice must not breed . they waste company money that could have been put into longer-impact marketing tools. products. Here different customer groups are charged a different prices for the same product or service. and they lose their effectiveness for the individual company. and so on. This involves putting an artificially high price on a product and offering it at substantial savings. Product-Form pricing. If they do not work. Second. For price 'discrimination lo work certain conditions must exist. market must be segmentable. and the segments must show different intensities of demand. Public utilities vary their energy rates to commercial use. Discriminatory pricing takes several forms: Customer-Segment Pricing. Third. Here prices are varied by season. If they work. Fifth. Museums will charge lower admission fee to students and senior citizens. the problem is that competitors will copy them rapidly. Companies must research these promotional pricing tools and make sure that they are lawful in the particular country. such as building up product quality and service and improving the product image through advertising. cost of segmenting and pricing the market must not exceed the extra revenue derived from price discrimination. Here different versions of the product are priced differently but not proportionately to their respective costs. Fourth. Psychological Discounting. Time Pricing. competitors must not be able to understand the firm in the higher price segment. Discriminatory Pricing occurs when a company sells a product or service at two or more Prices that do not reflect a proportional difference in costs.
If the byproducts have value to a customer group. and the profit can be made on the usage fees. Amusement parks charge an admission fee plus fees for rides over a certain minimum. In this case. petroleum products. Since . the firm searches for a set of prices that maximizes e profits on the total product mix. namely. Byproduct Pricing. Thus an auto manufacturer might offer an option package at less than the cost of buying all ihe options separately. The manufacturer should accept any price that covers more than the cost of disposing of them. that will affect the pricing of the main product. Sixth. Two-Part Pricing. Pricing is difficult because the products have demand and cost interrelationships and are subject to Product-Line Pricing. Thus telephone users pay a minimum monthly fee plus charges for calls beyond the minimum number. A theater company will price a season subscription at less than the cost of buying all the performances separately. As a result of deregulation in several industries. If the byproducts have little value and are in fact costly to dispose of. The service firm faces a problem similar to captive- product pricing. there are often byproducts. The fixed fee should be low enough to induce purchase of the service. Service firms often charge a fixed fee plus a variable usage fee. then they should be priced on their value.customer resentment and ill will. Any income earned on the byproducts will make it easier for the company to charge a lower price on its main product if forced to by competition. In producing processed meats. PRODUCT-MIX PRICING Price. Product-Bundling Pricing. and other chemicals. Companies normally develop product lines rather than single products. competitors have increased their use of discriminatory pricing.setting logic has to be modified when the product is part of a product mix. how much to charge for the basic service and how much for the variable usage. Sellers will often bundle their products at a set price. the particular form of price discrimination must not be illegal.
watches. cameras. To stem the losses. Several circumstances might lead a firm to cut its price. the company might trigger a price war. for example. cut its subcompact car prices by 10% on the West Coast. Several American industries—automobiles. General Motors. consumer electronics. Another circumstance is a declining market share. product improvement. Suppose a medical equipment supplier's offer includes free delivery and training. INITIATING AND RESPONDING. the savings on the price bundle must be substantial enough to induce them to buy the bundle. as competitors try to hold on to their market shares. The customer is asking the seller to "unbundle" its offer. A particular customer might ask to forego the free delivery and training in order to get a lower price. TO PRICE CHANGES After developing their pricing strategies. Here the firm needs additional business and cannot generate it through increased sales effort. and steel— have been losing market share to Japanese competitors. if the supplier saves $100 by not supplying delivery and it reduces the customer's price by $80.customers may not have planned to buy all of the components. Initiating Price Cuts. But in initiating a price cut. . The seller could actually increase its profit through unbundling if it saves more in cost than the price reduction that it offers to the customer for the particular items which are eliminated. . One circumstance is excess capacity. It may abandon "follow-the-leader" pricing and resort to "aggressive" pricing to boost its sales. some American companies have resorted to more aggressive pricing action. Thus. the supplier has increased its profit by $20. companies will face situations where they may need to cut or raise prices. Some customers will want less than the whole bundle. where Japanese competition is strongest. or other measures. for example.
But this strategy also involves high risks. Either the company starts with lower costs than its competitors or it initiates price cuts in the hope of gaining market share. it can raise its prices. Customers will shift to another lower-price firm that comes along. 3. 2.. Companies often raise their prices by more than the cost increase in anticipation of further inflation or government price controls. I People Express some years later fell into these traps. Companies will also initiate price cuts in a drive to dominate the market through lower costs. A low price buys market share but not market loyalty. A major circumstance provoking price increases is cost inflation. fearing that cost inflation will erode their profit margins. Companies may have to cut their prices in a period of economic recession. The higher-priced competitors may cut their prices and may have longer staying power because of deeper cash reserves. Companies hesitate to make long-run price commitments to customers. 1. Rising costs unmatched by productivity gains squeeze profit margins and lead companies to regular rounds of price increases. A successful price increase can increase profits considerably. Another factor leading to price increases is over demand. put customers on . Shallow-Pockets Trap. Many companies need to raise their prices. Fragile-Market-Share Trap. Consumers will assume that the quality is below that of the higher-priced competitors. When a company cannot supply all of its customers. Fewer consumers are willing to buy higher-price versions of a product. which would lead to falling costs through larger volume and more experience. Low-Quality Trap. Initiating Price Increases. this is called anticipatory pricing. People Express waged an aggressive low-price strategy and gained a large market share. Marketing Strategies 19-2 shows several ways in which a seller of a high-price product can adjust its price and/or marketing mix in facing a declining demand situation.
.) • Reducing or removing product features to reduce cost. The possibilities include the following: • Shrinking the amount of product instead of raising the prio (Hershey Foods maintained its candy bar price but trimmed i size.) » Removing or reducing product services. Quaker Oats produces the successful cereal/called Quaker Oats Natural. • Using less-expensive packaging material cr pfomcirag larger package sizes to keep down packaging cost.) • Substituting less-expensive materials or ingredients. (Many cand bar companies substituted synthetic chocolate for real chocola to fight the price increases in cocoa.) The best action to take is not always obvious. which contains several ingredients. The company's sales force should help customers find ways to economize. There are other ways that the company can respond to high costs < demand without raising prices. Nestle maintained its size but raised the price. or both. The following price adjustments are common: The price increase should be accompanied by company communications explaining why price are being increased. The "real" price can be increased in several ways. • Reducing the number of sizes and models offered. such as almonds and raisins. whose prices jumped during a recent. each with a different impact on buyers. free delivery. such as installation.allocation. (Sears engineered down a number of its appliances so they could oe priced competitively with those sold in discount stores. or long warranties. • Creating new economy brands (The Jewel Food Stores introduced 170 generic items selling at 10 to 30% less than national brands to offer to price-conscious consumers.
knowing that such a move also involves a risk. and sales fell. whereas they hardly notice higher prices on low-cost items that they buy infrequently. Customers are most price sensitive to products that cost a lot and/or are fought frequently. or finding cheaper substitutes. or the quality has been reduced. namely. may carry some positive meanings to customers : The item is "hot" and might be unobtainable u/nless it is bought soon. This forced the company to reconsider ways to cost-reduce the ingredients. or the spller is greedy and is taking advantage of customers. operating. / A price increase. the item represents an unusually good value. and suppliers and may provoke government reaction as well. the/firm is in financial trouble and may not stay in business to supply future pacts. Customers do not always put a straightforward interpretation on price changes.inflation. A seller can charge more than competitors and still get the business if the customer can be convinced that the total lifetime costs are lower. and servicing the product over lifetime. which would normally deter sales. competitors. But the price elasticity was high. Here we will consider customers' reactions. Quaker Oats saw two choices. . some buyers are less concerned with the product's price than the total costs of obtaining. In addition. and it pays to wait. A price cut can be interpreted in the following ways: The item is about to be replaced by a new model. or cost- reducing the ingredients by including fewer almonds and raisins. raising the price. the price will come down even further. Customers' Reactions to Price Changes Any price change can affect customers. the item is faulty and is not selling well. It decided against changing the ingredients and raised the price. distributors.
the company must estimate each close competitor's likely reaction. The challenge is -o read the competitor's mind by using inside and outside sources of information. this estimate amounts to an analysis of atypical competitor. If it has a profit-maximization objective. and the buyers are highly informed. it is likely to match the price change. If the competitors do not react uniformly because of critical differences in size. the\ company will have to figure out what lies in the competitor's self-interest. How can the firm anticipate the likely reactions of its competitors ? Assume that the firm faces one large competitor. One is to assume that the competitor reacts in a set way to price changes. the product is homogeneous. its reaction can be anticipate The other is to assume that the competitor treats each price change as a fresh challenge and reacts according to self-interest at the time. such as increasing. Competitors are most likely to react where the number of firms is small. it may react on some other strategy front. the advertising budget or improving the product quality. If the competitor has a market-share objective. say. In this case. The competitor's reaction can be estimated from two vantage points. that the company is doing poorly and trying to boost its sales. customer loyalty. then separate . The competitor's current financial situation should be researched. or that the company wants the whole industry to reduce prices to stimulate total demand. a company price cut : The competitor can surmise that the company is trying to steal the market. or policies.Competitors' Reactions to Price Changes as A firm contemplating a price change has to worry about competitors' well as customers' reactions. The problem i complicated because the competitor can put different interpretations on. If all competitors behave alike. In this case. When there are several competitors. along with recent sales and capacity. and corporate objectives. market shares.
or generate leads for sales people. must be coordinated with personal selling efforts so that they contribute to the effectiveness of communication strategy. as well as other industrial marketers. Advertising. for instance. Advertising.analyses are necessary. in the form of trade shows and specialty advertising. And publicity. however. Advertising. enhance the company's reputation. advertising. THE USE OF ADVERTISING IN THE INDUSTRIAL MARKET . If some competitors will match the price change. While personal selling is often the most important aspect of the industrial marketer's communication strategy (due to the technical complexity of many products and the extensive negotiation process involved in the selling of industrial goods). is "one of the most important sources of information used by industrial customers" in their buying decisions. Trade shows. sales promotion. Thus. advertising. is used to lay a foundation for the sale by providing information on the company and its products and by reaching unknown or inaccessible buying influencers. sales promotion. there is good reason to expect that the rest will also match it. Rarely can they substitute for an effective sales call. and publicity also play a critical role in the development of communication strategy. sales promotions. PROMOTIONAL STRATEGY Obviously. also supplements the selling effort in a variety of ways. they can also reduce the number of sales calls required to close a sale. because of its high credibility. sales promotion. and publicity play an important role in the promotional mix of Hunter and Ready. are not only used to create awareness and generate sales leads. for instance. and publicity. and publicity are primarily used to create awareness. Sales promotion. disseminate information on products. it is important for industrial marketers to understand how these variables support the selling function and what is important in formulating and developing an effective communication program.
as well as the supplier's market offering. These influencers. Additionally. through requests for further information called for in ads. for various reasons including the inability to get past purchasing agents. however. coupled with buyers' expectations and unique information needs. it creates awareness. Not only is industrial advertising an effective means of reaching inaccessible or unknown buying influencers. buyers normally select a supplier after moving through several phases of the purchasing decision process. making it possible for sales people to contact them. Rarely is advertising employed by itself in the industrial arena. Reaching Buying Influences. studies have indicated that on the average for every ten buying influencers. Also. (3) describing those characteristics and quantities. Industrial advertising is an effective means of creating awareness of the industrial supplier. The complexity of most industrial products. Creating Awareness. for sales people to make contact with all the various individuals who may be involved in a purchasing decision. do read trade magazines and general business publications and can be reached through advertising. enhances the effectiveness of the sales call. Executive turnover is a never-ending problem. It is not uncommon for industrial sales people to be unaware of individuals within a firm who may be in a position to exert influence on a purchasing decision. moving up in the organization. or changing jobs. unknown influencers often identify themselves. (2) determining characteristics and quantities of a needed item. however. buying influencers are often inaccessible to sales people. In fact. This is particularly true when deploying a new salesperson or when calling on a new customer for the first time. Buying influencers are constantly moving out of their areas of responsibility. (4) searching . It is not possible. increases the overall efficiency of the selling effort. requires personal contact. salesperson reaches only three to four. As discussed in Chapter Four. and is an important ingredient in creating and maintaining demand at the distributor level. These phases include (1) recognizing a need.
While middlemen are interested in the producer's support activities. For some industrial producers. Increasing Overall Sales Efficiency. marketers of such products frequently need to remind users and potential users of their firms' unique capabilities or make them aware of new products and services. but unjustifiable. and (6) evaluating proposals and selecting suppliers. because they are positioned so closely to ultimate consumers. when buyers are exposed to a firm's industrial ads. advertising maybe the only way of efficiency reaching broad groups of buyers. (5) acquiring and analyzing proposals. which helps to assure that the advertiser is given favourable consideration when specifications are written and suppliers selected (phases 3 and 6). sales people are more effectively. In fact. Manufacturers who use middlemen must support those intermediaries' efforts by ensuring that end markets are aware of their products. according to one study. its reputation. The cost of reaching large numbers of buyers through personal contact cannot only be prohibitive. and its record in the industry. resellers. and the firm's sales personnel are rated considerably higher on product knowledge. service. When buyers are aware of a company. their opinion of the firm improves. Additionally. Enhancing the Sales Call. Effectively planned advertising enhances the sales call by arousing interest in the supplier's offering and by helping to create supplier preference. Supporting Channel Members. dollar sales per call are higher. Effective industrial advertising creates awareness or alerts potential purchasers to problems within their operations (phase 1) and identifies the supplier's company and its products as offering possible solutions to those problems (phases 2 and 4). and enthusiasm. They will also want to know what profit .for and qualifying sources. its products. because little or no product differentiation exists between many industrial supplies. particularly producers of industrial supplies. are even more concerned with consumer acceptance.
Specialized business publications. and The Wall Street Journal (tend to be read by business professionals across all industries because of their general business editorials. and industrial directions) direct marketing (direct mail. The choice of one or the other. or optimize the goals of reach and frequency. General business publications (e. Business Week. such as Consulting Engineer and Electronic News address the information needs of readers with specialized knowledge in technical areas such as engineers and electricians and also cut across industries. Vertical publications are directed toward a specific industry and may be read by almost anyone from the person on the assembly line to the company president. . Fortune. tasks. Horizontal publications deal with specific functions. or who are interested in a particular technology such as chemicals. catalogs. other specialized business publications—Iron Age and Steel. and data sheets). and what the producer is doing in the way of consumer advertising and other promotional support activities. trade publications. General Business and Trade Publications. reach common influencers across industries. or some combination thereof. or technologies and cut across industry lines. Purchasing. is dictated by the desire to penetrate a particular industry.g.they can expect on a product.. Industrial publications. and Chemical Week are targeted to individuals across industries who have responsibility for a specific task or function such as advertising or purchasing. their choices generally center on whether to use print media (business magazines. telemarketing. for example—are targeted to individuals in a specific industry. or both. General business and trade publications are classified as either horizontal or vertical. such as Advertising Age. INDUSTRIAL ADVERTISING MEDIA While some industrial advertisers use traditional consumer media when they serve their advertising objectives. However.
their basic purchasing tool. containing 60. and there are also a number of private ones. and for many buyers. a London-based advertising agency. it also experiences less competition form the receiver's other business needs.000 industrial companies selling everything from copper tubing to orchestra pits. Every state has an industrial directory. which buys as many as 300 sets a year.. Since the message exposure occurs away from the office. many of which have been distributed by departments of commerce and state. "TV is the medium for reaching small businessmen. The main advantage of directory advertising is that is a highly credible medium. In fact. who are a mass audience. the Register has practically no competition." The Thomas Register consists of nineteen volumes.000 sets are in use overseas. such as Sweet's architectural catalog. Collins. in spite of wasted circulation. many inexperienced American manufacturers have been able to develop some international business. which is the job we have to do. According to Sarah Lang.. an account executive for Wight. Although there are similar publications. cna be very effective because it tends to experience a minimum of competition from other industrial advertisers. One disadvantage is that unless buyers purchase directories for use. which generates "$400 million in daily direct response sales or about $102 billion a year for its advertisers.000 product headings and listings from 123. Directory Advertising.. Consumer media. One of the Register's biggest users is General Electric. diverting some to its overseas divisions. the Register estimates that as many as 30. advertising in this medium is not seen. Where market .000 pages of 50. and Scott. Rutherford. Consumer Media. Thus. One of the most popular industrial directories is the New York-based Thomas Register.It is also the most effective for shifting attitudes.
In addition to trade magazines and general business publication. industrial marketers are 'turning to direct mail as never before. because of its potential to gain the reader's full attention. for example. Direct mail can be extremely wasteful if prospects are not clearly identified. and flexible with regard to timing. Direct Mail. and data sheets. When carefully conceived. For example. Xerox has more than tripled its" sales for low-end products through the use of direct mail. support the sales force. to reach their markets. or communicate with industrial distribution. Direct mail offers the advertiser numerous advantages over the use of business or trade publications. consumer media may also provide an excellent Way of reaching a market. toll-free answering service. industrial marketers also utilize various other vehicles. highly selective. telephone.coverage is limited geographically. he began to advertise heavily on television. has been quite successful in his use of television for generating sales inquiries. numerous industrial marketers are also making more use of the telephone as a means of enhancing the efficiency of their overall communications program." There are. however. It is relatively low in cost. In fact. catalogs. business or trade publication advertising. Additionally. Advertising messages can be developed and targeted toward a precisely defined market to introduce a new product. It is also often . Direct Marketing. One industrial supplier of food equipment. and backed it with direct mail and classified ads in local newspapers and a 24-hour. When it was discovered that the average sales call cost $200. with the increasing sophistication of computer technology. direct-mail advertising can provide a greater impact than can an advertisement in trade or business publications. promote the corporate image. definite disadvantages in using direct mail. and it offers considerable space for telling the "full story. or as an alternative to. Direct mail is an especially useful tool that is frequently employed in conjunction with. such as direct mail.
When obtaining mailing lists from outside sources. face-to-face selling. According to recent studies. Telemarketing. The use of telemarketing. (3) generate sales leads. IBM. Most organizations utilize both.1.0. According to one study of 249 industrial sales and marketing managers. It may also never get past the secretary to the intended recipient. 73. and (4) to handle marginal accounts. It is relatively easy to develop mailing lists that contain the names.2. approximately 20 percent of the industrial firms in the United States. 70. which is increasing at the rate of twenty-five percent a year. mailing list houses such as Dun & Bradstreet's Marketing Services Division or National Business Lists. or functions are known. 73. is viewed as a means of complementing. however. (The number above . use telemarketing to generate nearly $100 billion in yearly sales. These activities may be through incoming calls (calls originating with the customer) or outgoing calls (calls originating with the company). lists obtained through trade show leads. (2) support field sales representatives. direct-mail programs should be carefully conceived and directed toward a specific target audience whose names. To avoid these problems. care should be taken to make certain that the lists are up to date. Mailing lists can be secured from trade publications. the major uses of telemarketing are (1) to qualify sales leads. job titles. and the company's own marketing information system. however that outgoing telemarketing offers the largest future growth potential as the cost of face-to-face sales continues to increase. including Xerox. title. rather than replacing. 73. industrial directories.thought of as "junk mail" and tends to be tossed aside without ever being read.6. It is interesting to note. and NCR. Telemarketing is a marketing communications toll that employs trained specialists who utilize telecommunications and information technologies to conduct marketing and sales activities. and functions of the audience to be reached.
clearly established target markets. and (4) poor human resource planning. however. performance data. The major reasons attributed to failure in the use of telemarketing. and additional opportunities for business. thus.indicates the percentage of firms studies that used telemarketing for the reasons given. however. telemarketing also enhances the effectiveness of publication and direct-mail advertising. most manufacturers provide their distributors with loose-leaf catalogs so that non inventories items can be located and ordered quickly from the catalog. however catalogs can speed up the purchasing process by providing information. Catalogs and Data Sheets. are (1) lack of commitment. are catalogs alone used to make a purchasing decision. Successful telemarketing. They merely provide buyers with a basis of comparison with other companies' products once a decision has been made to purchase a particular product. Catalogs and data sheets are an important part of a firm's promotional effort because of their unique ability to support the selling function. Data sheets provide detailed technical information on such things as product dimensions. Industrial customers use catalogs to compare product. When a toll-free number is included in print and direct-mail advertising. prospects can easily respond and get immediate information while the advertised message is still fresh in their minds. product applications. Thus.) When used effectively. (2) improper facilities. Catalogs also support the efforts of distributors because it is not always possible for them to carry in inventory all the items a manufacturer supplies. Rarely. however. according to Benein. requires specific goal setting. are an important complement to the personal selling effort. Sales people seldom . and cost savings and. When properly prepared and effectively distributed. and careful planning. (3) lack of formal scripts. efficiencies. and prices of potential suppliers. securing recognition for the company.
Data sheets should include enough technical and product performance information to assist customers in their decision making and should be left by sales people with the appropriate decision makers. to enable the company and its sales people to become favourably known to current and potential customers. Promotional variables must be artfully integrated if communication objectives are to be achieved most effectively. then. When data sheets are prepared so that key selling points and technical information are presented in a clear. . In designing an effective publicity program. Many of the principles that are followed in developing consumer advertising programs are not only applicable but are necessary in developing an effective industrial promotional program. It should be designed. The objective of industrial advertising. buying decisions are often made when a salesperson is not present. to motivate distributors of industrial goods. DEVELOPING THE INDUSTRIAL PROMOTIONAL PROGRAM Today's economic conditions call for careful consideration of the elements that are essential in developing an effective communication program—whether it is industrial or consumer oriented. is to communicate something about the company and its products. to convey specific and technical information regarding the characteristics of a particular product(s). credible manner they can be powerful sales tools. for instance. the industrial marketer must be aware of the fact that publicity is most effective when it is used to complement the total promotional program.have all the answers that technical buyers require. to help sales people in their selling effort. and to reach those who either directly or indirectly influence the buying of industrial goods. Further. persuasive.
if not impossible. While increased sales are usually the ultimate objective desired. pinpointing the impact of advertising on sales is a difficult job indeed. price. Advertising objectives. An effective advertising program is built around careful consideration of advertising objectives. then. it is difficult. or in terms of generating sales leads. such as increased consumer demand for end products. Figure depicts how communication strategies evolve from corporate objectives. They must be formulated on the basis of the firm's overall corporate and marketing objectives. competitive actions. advertising objectives must specify exactly what is to be accomplished in terms of the marketing objective. For instance. the advertising budget. to set the direction for creating. Advertising Objectives. The first step in developing an effective advertising plan begins with the formulation of advertising objectives. The advertising objective. measurable. Marketing objectives indicate what is to be accomplished through advertising to achieve corporate objectives. and they must be stated in specific. coordinating. and evaluating the entire promotional program. Personal selling. a company sets the direction for its desired business performance. however. In the development of corporate objectives. and the message strategy. to link advertising directly to sales. if the corporate objective is to increase return on stockholders' equity by five percent. management chooses the strategies and actions necessary to achieve those objectives. the marketing objective may be to increase sales by thirty percent. Thus. product performance. also affect sales levels. Once established. Whatever the marketing objective. cannot be formulated in isolation. should be stated in terms of increasing product knowledge. Advertising objectives should never be stated in terms of increasing sales. and other factors. realistic and . the audiences to be reached.
obtainable terms that delineate what is to be accomplished within a specific period of time. others use a variety of other methods. APPROPRIATING ADVERTISING FUNDS Since industrial advertising accounts for fourteen percent of all American advertising spending. and controlled advertising experiments." two other conventional . Advertising appropriations are approached in a variety of ways depending on the philosophy of the particular company. To monitor the effectiveness of these promotional expenditures. for example. In addition to the "what can we afford method. by market segments and audiences. market share. it is an important element in the marketing budget. frequency of purchase. on the other hand. Research suggests. catalogs. An advertising appropriation should not be a "catch- all' for other promotional expenses. The appropriation of funds for advertising involves considerations of the cost of purchased space or time in advertising media (including the cost of direct mail) and the cost of producing the advertisements that appear in the purchased media over a specific time period. While some firms use such computer simulations for experimenting as ADVISOR. generally one year. Computer models are built on a series of situations such as the life-cycle state of the product. advertising appropriations should not include trade shows. and by geographic areas. by time frames. To ensure that expenditures budgeted for advertising can be effectively monitored. These outlays should be monitored separately to evaluate their individual effectiveness. details how advertising dollars are to be expended from monies appropriated for advertising for individual campaigns by media. however. profit patterns. or other promotional outlays. An advertising budget. and concentration of sales. promotion funds should be appropriated and budgeted separately. that industrial marketers have tended to rely on arbitrary methods for developing promotional budgets.
Rule of Thumb. The costs involved in implementing the advertising program become the basis for determining the advertising appropriation. the objectives may be scaled down and strategies adjusted accordingly. Recent studies suggest that the popularity of the "objective-task" method for setting the industrial advertising budget is increasing. Thus. Objective Task. moving from a fourth or fifth ranking in popularity in the 1970s to second in the 1980s. say. this method ignores all other business conditions that might be suggesting to totally opposite strategy. to advertising) or on the basis of industry averages. advertising increased when sales increase and decreases when sales decrease. for instance. particularly where advertising is a relatively small percentage of the total communication budget. Such rule of thumb methods for appropriating advertising dollars are quite common in industrial marketing. When advertising dollars are fixed as a percentage of sales. For instance. The objective task technique is a relatively logical method for establishing the advertising allocation in that the steps involved (see Table) in developing the advertising program formulate the bases for appropriating advertising funds. Program . The costs involved in implementing the bases for appropriating advertising funds. funds can be allocated on the basis of past sales (two percent of sales. The problem with this method of allocation is that it violates the basic marketing principle that marketing activities stimulate demand and thus sales. If the appropriation appears to be too high. In developing the appropriation.appropriation techniques used by industrial advertisers are the rule-of-thumb and the objective-task techniques. A rule of thumb relates advertising expenditures to some other measure of company activity in a consistent way. the company's financial position is also considered.
Determine reach. and continuity needs communication objectives) 5. Estimate necessary promotional funds to achieve media and communication objective Introduce a new product. Determine appropriating media to reach audiences 6. generate sales leads Engineers. frequency. Establish other promotional support needs 7.Increase product awareness. Determine marketing objectives 2. Business or trade publications Publicity. data sheets Pre. incentives. Determine control measures 8. increase market share or sales. and how long will it be necessary to run the campaign to achieve the desired results.results are also monitored in light of appropriate revisions for the next planning period. Determine advertising objectives 3. Determine audiences to be reached 4. Steps in the Objective-Task Method of Appropriating Advertising Funds Examples 1. how often must the message be repeated to have impact. purchasing How wide is the market.and post-testing Computer simulation of media costs . production.
DEVELOPING MESSAGE STRATEGY Message strategy specifies how advertising objectives are to be achieved by defining the theme for the communication program and the company image (positioning) desired in the marketplace. Further. He needs to make correct decisions heavily dependent on performance and value facts. The important aspect of the objective-task method is that is forces the firm to think in terms of objectives and whether they are being accomplished. Advertising messages must be formulated on the basis of how the supplier's product(s) can assist in solving customer problems and relate to the . the context of business/industrial advertising is the reader's work. while techniques for measuring advertising effectiveness are improving. lies in the difficulty of determining in advance the amount of funds that will be needed to reach specific objectives. advertisers are using this method more and more. however. where products. When industrial buyers make purchases. frustration and status attainment can play a large role in a business buyer's mind. though. The major drawback of the task method. they are still not sufficient in many areas. they are buying physical products. Although emotions such as fear. industrial advertising must provide the reader with useful information regarding these intangible benefits. service and even the ads themselves often must promise satisfaction for strong emotional desires. industrial buying criteria generally center on technical rather than emotional issues: Unlike the consumer marketplace. they are in a deeper sense purchasing problem-solving benefits and abilities to improve operations. those desires to achieve are best served and those fears are best assuaged by the performance and value benefits attached to a business decision. As these techniques become more exact. Thus. anxiety. Additionally. though.
advertising messages should be developed around what is really important. while heating and air- conditioning consultants were more concerned with plant noise levels. then. . emphsizing the major concerns of the audience as they relate to their business needs or objectives. For instance. or straight exposition. Thus. Research. Determining the requirements of the audiences to be reached is the key element in developing message strategy. Identifying Audience Needs. Advertising messages can be developed around case histories. message objectives might have been stated in terms of "Advertise Acme Widget's economical operating cost and maintenance advantages compared to the XYZ product. Testimonials. Information needs and responses will vary across influencers. audience participation." Keep the Message to Important Specifies.needs of the particular target audience. Case Histories. To reach the production engineers. short stories. has indicated that many industrial advertisers do not understand the major considerations that influence their markets. Table emphasizes the ingredients that are essential to successful industrial advertising. in one stud} of industrial cooling system purchases. This approach is quite useful when an audience can be reached through very specialized trade journals since readers tend to share common experiences. operating cost and energy savings were of major concern to production engineers. Case histories use the experience of the user and show readers how they can benefit by purchasing from the supplier. Industrial buyers tend to purchase on the basis of a few specifics. Many industrial advertisers attempt to cover too much in their advertising messages. testimonials. however. Testimonials are similar to case histories except that those giving testimonials are usually chosen from well-known companies.
Straight Exposition. The successful ad presents the selling proposition in logical sequence. 10. when communication strategy is enhanced through comparison to competitors. The successful ad backs up the promise. 5. 3. . Table : Copy Chasers Criteria 1. This approach uses a straight forward narration regarding the company's product and its uses. 2. not the source. Audience Participation."Business Marketing. Source : "Our Choice: 1984's Best Business/Industrial Print Ad. Successful advertising reflects the company's character. January 1985. short stories are often effective. 9. 114-128. 6. The most commonly used message approach. 4." 8. pp. Short Stories. 7. This approach involves asking readers to complete quizzes or mathematical calculations to obtain some of the message's information. one that is generally respected by industrial buyers. While research has shown that only a small percentage of industrial companies use the strictly comparative format fo advertising. The successful ad talks "person to person. Reprinted with permission. Audience participation is a unique way to get readers involved in the advertising message. The successful ad has a high degree of visual magnetism. The successful ad selects the right audience. Successful advertising is easy to read. Successful advertising emphasizes the service. is the straight exposition. The successful ad invites the reader into the scene. The successful ad promises a reward.
An effectively developed media plan in the industrial market involves consideration of (1) the number of different target audiences to be reached (reach). (4) media selection. unless the message is carefully designed around the needs of the target audience. and beliefs. For example. One -time ads are generally ineffective as several exposures are necessary before a message has an impact. it will be disregarded or improperly interpreted. However. As the number of message exposures increases. In developing the advertising message it must be remembered that buyers tend to screen out messages that are inconsistent with their attitudes. and (5) scheduling. the Borg-Warner campaign in Figure 15-3 has been running for more . When the same message is repeated over and over for a long period of time and has both long continuity and high frequency. wear-out effects can be severe. Developing the Media Plan. In developing message strategy. then. Frequency. (2) the number of times they should be reached for the message to have impact (frequency). it tends to tune out the message. both the number of individuals who remember it and the length of time they can recall it increases. Thus. different message strategies must be developed and delivered through media that addresses their interests. the advertiser may want to build in variety yet maintain the overall theme and positioning strategy. then. Reach. over exposure of a message can be wasteful. To reach these buying influencers with a message that address* s their needs. In the typical industrial purchase. Continuity. When an audience experiences wear-out effects. In justifying the media plan on the basis of frequency. (3) the length of time the campaign is to run (continuity). They also tend to interpret information so that it conforms to their beliefs. needs. multiple buying influencers are involved: influencers with unique information needs and interests who read different types of publications. media planners must assume some response function that relates to the number of exposures.
It would make little sense to pay the higher costs of advertising in publications read in several industries than the lower costs charged by publications directed at only those few industries in which the advertiser's product is used. Editorial Comment. Business publications are also listed by such services as the Standard Rate and Data Service's Business Publications and the Business Publication Rates and Data Directory. media planners must carefully assess these variables. frequency. advertisements feature different product categories and different advertising messages. Circulation. and the verified Audit circulation via SIC codes. and the functional areas of key buying influencers are not well defined.than five years. Thus. Three organizations. To define the audiences of particular publications accurately. and the cost of advertising space. of their member businesses. Selection also depends on circulation. the Business Publications' Audit of Circulation. and circulation figures. closing dates for ad placements. media planners use the circulation audits of business publications. Media Selection. While the theme "Watch Borg-Warner" is continuously maintained. which provide information on editorial content. and the efficiency with which the media can be utilized to maximize reach. as noted. the ability of the media to reach the audience. Determining the best mix of reach. . where many industries are potential users. the Audit Bureau of Circulation. and continuity goals within budgetary constraints. and continuity is directly related to media selection and scheduling. On the other hand. Selection of the appropriate media focuses on the target audience to be reached. publications that cut across industries and functional areas can produce the best results. frequency. Media selection also depends on whether the advertiser wishes to penetrate a particular industry or cut across various industries. advertising rates. editorial content. and Cost.
scheduling might call for heavier advertising at the beginning of the campaign with periodic pulsing at regular intervals throughout the year to keep influencers reminded of the product's existence. twenty six inserts per year in the weekly. and fifty-two inserts per year in the daily. Scheduling in business or trade publications depends on whether they are monthlies. For advertising to achieve recognition. for example. Controlled circulations are free and are mailed to a selected list of individuals. require six inserts per year in the monthly. Thus. If the advertising objective is to achieve recognition. function. and purchasing responsibilities. the recipient pays the subscription price to receive it.Controlled Circulation. or dailies. weeklies. a weekly. Scheduling. scheduling of advertising inserts to achieve frequency objectives might. Business and trade publications are circulated on a paid basis or a controlled basic. users of controlled circulation publications can more accurately evaluate which target markets their publications reach and whether their advertising dollars are being properly expanded. If the media plan incorporates the use of a daily. chosen by the publisher on the basis of their unique position to influence purchase decisions. their job title. Scheduling also depends on the objectives of the advertising program. When a publication is available on a paid basis. To qualify. If it is to introduce a new product. . it takes time. scheduling might call for a steady year-round campaign. recipients must designate their profession or occupation. and a monthly publication.