B to B Marketing

Module 1: Overview of B to B Marketing

B2B (business-to-business) marketing is marketing of products to businesses or other
organizations for use in production of goods, for use in general business operations (such as
office supplies), or for resale to other consumers, such as a wholesaler selling to a retailer.
B2B marketers generally focus on four large categories:
 Companies that use their products, like construction companies who buy sheets of steel to
use in buildings.
 Government agencies, the single largest target and consumer of B2B marketing.
 Institutions like hospitals and schools.
 Companies that turn around and resell the goods to consumers, like brokers and
wholesalers.

A B2B marketing plan must be focused in delivery and broad in application. This means that
while consumer marketing can advertise very specifically (one mass-consumed product
advertised through print, television commercials and the Internet) to a wide audience, B2B
marketing cannot. Instead, it needs to brand itself very broadly (through email, corporate image
and technical specifications) to a very specific customer.
Business marketers can develop and decide how to employ their B2B plan by identifying and
understanding the importance of the following topics:
 The product or service: When marketing to consumers, there is an emotional
component involved. Individuals are drawn to products because of how they make them
feel. With B2B customers, the buyers are trained professionals who care about the quality
of products, their cost-saving and/or revenue-producing benefits, and the service provided
by the host company.
 The target market: Many B2B marketers are able to focus on very niche industries
which reflect specialized needs. While this can make marketing a bit more
straightforward, it also requires a high level of knowledge outside of marketing
specialists.
 Pricing: Businesses are usually more concerned with cost, value, and revenue potential
than consumers. However, they can also be more readily convinced to pay top dollar – as
long as B2B marketers do an excellent job of convincing them that the product, quality
and customer service will be worthwhile.
 Promotion: B2B marketers need to be experts not only of marketing and advertising, but
experts within their fields. Once this happens, they will learn the best ways to market to
this field, whether it is through blogs, journals, tradeshows or word of mouth. B2B
marketing very rarely employs traditional media like TV and radio commercials. (See
also Promotional Marketing)

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classification of business goods

Entering Goods:

Entering goods can be split up into materials and components.

Materials

 Raw Materials– These are products obtained through mining, harvesting, fishing, etc. They
stand at the very beginning of the production inputs and are unprocessed. They are key
ingredients in the production of higher-order products.
 Processed Materials– These are products created through the processing of basic raw
materials. Thus, in contrast to raw materials, they have already been worked on and are
processed in some way. Sometimes, the processing refines original raw materials while in
other cases the process combines different raw materials to create something new. For
example, several crops including corn and sugar cane can be processed to create ethanol.

Components

Components are made out of materials, but may not be produced by the company itself. Often,
components are bought-in from specialized companies and enter the production process directly.

 Basic Components– Basic components are products used within more advanced
components. These are often built with raw material or processed material. An example is
electrical wire.
 Advanced Components– These are products that use basic components to produce
products that offer a significant function needed within a larger product. An advanced
component does not stand alone as a final product! For instance, in computers the
motherboard contains many basic components. However, without the inclusion of other
products, like memory and processor, it would have little value.

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  Product Components– These are products used in the assembly of a final product,
although they could already function as a stand-alone product. An example would be dice
included as part of a children’s board game.
 Foundation Goods:

Foundation goods mainly include installations and equipment.

 Installations – Installations refer to facilities such as buildings and offices. Without

them, running the business and producing goods would not be possible.
 Equipment– These are products used to help with production activities. An example
would be a conveyor belt used on an assembly line.
 Facilitating Goods:
 Facilitating goods are products and services that help an organization achieve its
objectives. They indirectly contribute to the production of goods:
 MRO (Maintenance, Repair and Operating) Products– These are products used to
assist with the operation of the organization but are not directly used in producing goods
or services. Office supplies, cleaning supplies and copiers as well as parts for a truck fleet
and natural gas to heat a factory fall into this category.

Industrial customers
Business customers, also known as industrial customers, purchase products or services to use in
the production of other products. Such industries include agriculture, manufacturing,
construction, transportation, and communication, among others. They differ from consumer
markets in several respects. Because the customers are organizations, the market tends to have
fewer and larger buyers than consumer markets. This often results in closer buyer-seller
relationships, because those who operate in a market must depend more significantly on one
another for supply and revenue. Business customers also are more concentrated; for instance, in
the United States more than half of the country’s business buyers are concentrated in only seven
states. Demand for business goods is derived demand, which means it is driven by a demand for
consumer goods. Therefore, demand for business goods is more volatile, because variations in
consumer demand can have a significant impact on business-goods demand. Business markets
are also distinctive in that buyers are professional purchasers who are highly skilled in
negotiating contracts and maximizing efficiency. In addition, several individuals within the
business usually have direct or indirect influence on the purchasing process.
Factors influencing business customers
Although business customers are affected by the same cultural, social, personal, and
psychological factors that influence consumer customers, the business arena imposes other
factors that can be even more influential. First, there is the economic environment, which is
characterized by such factors as primary demand, economic forecast, political and regulatory
developments, and the type of competition in the market. In a highly competitive market such as
airline travel, firms may be concerned about price and therefore make purchases with a focus
on saving money. In markets where there is more differentiation among competitors—e.g., in the
hotel industry—many firms may make purchases with a focus on quality rather than on price.
Second, there are organizational factors, which include the objectives, policies, procedures,
structures, and systems that characterize any particular company. Some companies are structured
in such a way that purchases must pass through a complex system of checks and balances, while
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other companies allow purchasing managers to make more individual decisions. Interpersonal
factors are more salient among business customers, because the participants in the buying
process—perhaps representing several departments within a company—often have different
interests, authority, and persuasiveness. Furthermore, the factors that affect an individual in the
business buying process are related to the participant’s role in the organization. These factors
include job position, risk attitudes, and income.
The business buying process
The business buying process mirrors the consumer buying process, with a few notable
exceptions. Business buying is not generally need-driven and is instead problem-driven. A
business buying process is usually initiated when someone in the company sees a problem that
needs to be solved or recognizes a way in which the company can increase profitability or
efficiency. The ensuing process follows the same pattern as that of consumers, including
information search, evaluation of alternatives, purchase decision, and post-purchase evaluation.
However, in part because business purchase decisions require accountability and are often
closely analyzed according to cost and efficiency, the process is more systematic than consumer
buying and often involves significant documentation. Typically, a purchasing agent for a
business buyer will generate documentation regarding product specifications, preferred supplier
lists, requests for bids from suppliers, and performance reviews.

Components of industrial market

1. Research. Do your homework. In order to obtain a true understanding of your customers,
markets, and target audience you need to uncover hidden issues, problems, dislikes,
opportunities, improvements, etc. You need to ask questions. Allow discussion to take place with
your customers and gather information on insight and sentiment. Enough research will enable
you to not only identify what your customers want but it will empower you to work out what
they want before they do.

2. Differentiate. Customers don’t care about you at all. They’ve got way too many choices than
ever before, and way less time. And in a world where we have too many choices and too little
time, the obvious thing to do is just ignore things. According to Seth Godin, the thing that’s
going to decide what gets talked about, what gets done, what gets changed, what gets purchased,
what gets built, is: ‘Is it remarkable?’ And ‘remarkable’ is a really cool word, because we think it
just means ‘awesome’, but it also means ‘worth making a remark about’. And that is the essence
of where marketing is going.

3. Engage. What marketers used to do is make average products for average people. That’s what
mass marketing is and it’s dead. The strategy we want to use now is to make the best products to
market to the right customers, because they care. These are the people who are obsessed with
something. And when you market to them, they’ll listen, because they like listening – it’s about
them. And if you’re lucky, they’ll tell their friends and it’ll spread through the entire market.
Suddenly, your target audience will begin to take notice and engage for all the right reasons. Not
for what you do, or how you do it. But why you do it. Philip Kotler advocates this in all his
books – he calls it, “Creating, communicating and delivering value to a target market at a profit.”

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4. Purpose. As a marketer, you need to be driven by a cause, by a higher calling, a guiding
purpose, even a belief. You need to believe in why you do what you do. If you talk about what
you believe, you will attract those who believe what you believe. This will allow you to
influence and ultimately to change the minds and hearts of your stakeholders. Let’s think back to
the product life cycle. The first 2.4% is made up of innovators, the next 13.5% early adopters, the
next 34% early majority. The rest is made up of your late majority and your laggards. If you
want your idea to be accepted, you need a tipping point. And that’s the point where the
innovators, early adopters and majority outweigh the average (the majority and laggards).

5. Leadership. Industrial marketers can now hold a position of power. To do this they need to
inspire and excite. Whether they are communications experts, research managers, or creative
directors. We follow those who lead, not because we have to, but because we want to. We follow
those who lead, not for them, but for ourselves. And it’s those who challenge, create change and
have the ability to inspire the people around them who will win with their marketing.

Comparison between industrial and consumer market

Market Structure
Industrial Markets:
• Geographically concentrated – Auto component manufacturers in Pune, Gurgaon etc
• Relatively Fewer Buyers
• Oligopolistic Competition (A market condition in which sellers are so few that the
actions of any one of them will materially affect price and have a measurable impact on
competitors.)

Consumer Markets:
• Geographically Dispersed – Demand for buying cars is dispersed
• Mass Markets, Many Buyers
• Monopolistic Competition

Products
Industrial Markets:
• Can be technically complex – Axles for railway wagons
• Customised to user preference
• Service, delivery and availability very important
• Purchased for other than personal use – Ministry of Railways purchases for the Indian
Railways Consumer Markets:
• Standardised – rail travel
• Service, delivery and availability only somewhat important
• Purchased for personal use
Buyer Behaviour
Industrial Markets:
• Professionally Trained Personnel – Purchase of sterile pumps by a biotech or pharma
plant
• will involve quality control department, purchase etc
• Functional Involvement at many levels – Departmental heads will decide jointly
• Task Motives predominate

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Consumer Markets:
• Individual Purchasing – an OTC product will be choice of consumer. Aspirins etc are
sold by many pharma companies
• Family involvement, influence
• Social/ psychological motives predominate

Buyer –Seller Relationship

Industrial Markets:
• Technical Expertise an asset – engineers are hired by companies selling railway
equipment
• Interpersonal relationships between buyers and sellers
• Significant information exchange – a pharma company will explain in detail the specs of
a tableting machine
• Stable, long term relationships encourages loyalty

Consumer Markets:
• Less technical expertise – expensive consume durables like home theatres may be
purchased on simple technical specs
• Non personal relationships
• Less exchange of information – OTC products are purchased on simple advertising and
drugs on doctors prescription
• Changing short term relationship

Channels
Industrial Markets:
• Shorter, more direct – Automotive component manufacturers will sell directly to car
• manufacturers

Consumer Markets:
• Indirect, multiple linkages – car owners buy
• auto parts through a distribution channel

Promotion
Industrial Markets:
• Emphasis on direct selling – Sale of packaging material to companies making toiletries
and allied products will involve a large amount of personal interphase

Consumer Markets:
• Emphasis on advertising – Soap like Lux may be purchased on advertising appeal of film
stars

Price
Industrial Markets:

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 • Competitive bidding or the result of a complex purchase process – purchase of a nuclear
power plant or fighter planes may involve a complex purchase process involving many
ministries and the final price would be various rounds of competitive bidding

Consumer Markets:
• List or predetermined prices – In some developed countries power can be bought from
various sources at different prices

Business to Business (B2B) Marketing Mix

• Product

Offer something of value to your client.

If you want to purchase a laptop for one of your family members, would you simply go and pick
up any brand available in the market? The answer is NO.Infact nobody does that. Similarly
business buyers also invest in something which would yield higher profits. The products must
have right features and should stand out. Never under estimate your client. Your client will
definitely find out what your competitors are offering.

Your product must look good and function as per the requirements of the buyer.

Organization Z sells bulk SMS service to Organization X (An educational institute) which
further uses the service to send text messages to existing students and also to potential
admissions. Organization X has a database of around 50,000 students (including existing and
new students) where as the bulk SMS service by Organization Z can send text messages to only
10,000 students and not more than that.

• Price

Business buyers generally pay more prices than individual consumers as they purchase in bulk.
Business marketers must know how to structure their pricing, provided their brand is strong.

• Promotion

Promotion refers to methods of communication, a business marketer uses to promote his brand
among his clients. Remember your brand must stand apart from the rest. You really need to
interact with your clients well. Promoting one’s brand successfully increases the sales and
eventually earns profits for the organization.

Brands can be promoted through business meetings, web meetings, e-mails, circulating
newsletters, brochures, pamphlets and so on. Organize trade shows and invite all your potential
and existing clients on a common platform. Give a nice demonstration of your products and
services. Interact with your clients as much as you can. Don’t let them go with a single doubt in
their mind. Do not forget to collect their business cards. You will definitely need their contact
details later for follow ups.

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 • Place

It always pays to provide the products and services at the right place which is convenient and
easily accessible for the client.

Market characteristics

• Measurable
Consumers who belong to a particular target market and segment should be clearly identifiable.
The characteristics to include or exclude in identification of a market segment are also well
defined and measurable. Target markets are quantifiable in terms of population, income and age
bracket, among other factors.
• Accessible
Market segments should be accessible in terms of geography and economy. To enable
accessibility of goods and services, there should be use of appropriate marketing strategies. This
is because the marketing strategy used for one group should differ from the strategy used for
another, as their needs differ. For example, different age groups have different fashions, styles
and consume different products. The way of communicating to this market segment should
correspond to the relevant needs of consumers in this segment.
• Profitable
A market segment should be large enough to be worth pursuing. The main aim of market
segmentation is to be able to tailor marketing techniques toward specific segments. This enables
a firm to enjoy economies of scale while at the same time fulfilling consumers’ needs. The
amount of disposable income the target market is willing to spend in purchasing the goods and
services should be enough to enable the firm to earn profits. For example, if a product’s target
market is young consumers, the price range should be attainable, considering that majority of the
young people are dependent on their parents or guardians.
Market Responsiveness
Consumers in a given market segment should be responsive to the products meant for them.
Unless consumers in market segments are willing to respond to the products developed, there is
little reason to develop these products. The success of products introduced in the markets
depends on whether they meet consumer or organization needs. Consumers’ decisions on
whether to purchase or not to purchase will be an indicator of the performance of the product in
the market.

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Module 2 Demand for Industrial Goods and Buyer Behaviour

Important Demands for Industrial Marketing are as follows:

1. Derived demand
2. Joint demand
3. Price insensitivity
4. Price sensitivity
5. Reverse elasticity
6. Cross elasticity

1. Derived demand:
The demand for Industrial goods is ultimately derived from the demand of consumer goods.
Thus animal hides are purchased because consumers want to buy shoes, purses and other leather
goods. If the demand for the consumer goods slackens so will the demand for all Industrial goods
entering to their production. For this reason the industries must closely monitor the buying
pattern of ultimate consumers.

For example, the demand for steel and cement does not exists in itself. It is demand for the
constructed houses which are purchased in turn by customers. The boom in apartments and flats
in the mid 90’s led to the surge in demand for those products. Thus a forecast of the real estate
scenario in general and construction industry in particular has to be monitored, to understand the
demand for steel and cement.

In case of capital goods such as equipment and machinery that are used to produce other goods
the purchases are made not only for the cement requirements but also in anticipation of profits
from the future usage. Thus if the businessman foresee or feel that there may be a recession in
near future, their purchases will be drastically curtailed.

2. Joint Demand:
Joint demand occurs when one product requires the existence of others to be careful while
exceptions may be found. Most products require several components, parts or ingredients.
Example; A bakery require flour, salt, preservatives, yeast in the production of bread. If one of
the ingredients cannot be obtained other purchases will be curtailed or discontinued. Joint
demand situations can also be affected by changes in product specifications.

Industrial customers often prefer to buy from one supplier rather than purchase individual
products from different suppliers. The individual products required do not have individual
demand, but are demanded only if the “other” products are available in the supplier line.

3. Joint Demand:
Joint demand occurs when one product requires the existence of others to be careful while
exceptions may be found. Most products require several components, parts or ingredients.
Example; A bakery require flour, salt, preservatives, yeast in the production of bread. If one of
the ingredients cannot be obtained other purchases will be curtailed or discontinued. Joint
demand situations can also be affected by changes in product specifications.

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Industrial customers often prefer to buy from one supplier rather than purchase individual
products from different suppliers. The individual products required do not have individual
demand, but are demanded only if the “other” products are available in the supplier line.

4. Price Sensitivity

Price sensitivity is the degree to which the price of a product affects consumers' purchasing
behaviors. In economics, price sensitivity is commonly measured using the price elasticity of
demand. For example, some consumers are not willing to pay even a few extra cents per gallon
for gasoline, especially if a lower-priced station is nearby.

The price sensitivity of a product varies with the level of importance consumers place on price
relative to other purchasing criteria. For example, customers seeking top quality goods are
typically less price sensitive than bargain hunters.

5.Stimulating industrial demand

Because of the nature of industrial demand the influence of final consumer is well recognised.
One way which industrial marketers attempt to increase sales is by stimulating increases in
demand of ultimate consumers.

By directing advertising to ultimate consumers, industrialists can often increase consumer

demand for final products, which in turn, increases their industrial sales. Industrial advertising to
ultimate consumers is also a method of increasing goodwill and achieving a favorable position
with industrialists immediate customers.

6. Fluctuating Demand:

The demand for business goods and services tends to be more volatile than the demand for
consumer goods and services. This is especially true of the demand for new plant and equipment.
A given percentage increase in consumer demand can lead to much larger percentage increase in
the demand for plant and equipment necessary to produce the additional output.

Economists refer to this effect as the acceleration effect. Sometimes a rise of only 10% in
consumer demand can cause as much as 200% Industrial demand for products in the next period.
This sales volatility has led many business marketers to diversify their products and markets to
achieve more balanced sales over the business cycle.

Industrial Buying and Buyer Behaviour

(note)

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Factors affecting industrial buying decision
1. Environmental Factors
Business buyers are heavily influenced by factors in the current and expected economic
environment , such as level of primary demand , the economic outlook etc. Business buyers are
also affected by technological , political and competitive developments in the environment . The
business buyers must watch these factors , determine how they will affect the buyer and try to
turn these challenges into opportunities
• Economic Developments
• Technological Changes
• Political and Regulatory developments
• Competitive developments
• Culture and Customs
Economic Factors:
The economic conditions of the market determine how much an industry can buy and sell. Thus,
emerging changes in the economic environment which shall affect industrial marketing both in
India and internationally must be closely monitored.

As noted earlier, the industrial demand is a delivered demand and depends on the consumers’
purchasing power, income, taxes, fashion etc. When the country was passing through a recession
in the late 1990s the consumers had tightened their belts and had limited their purchases.

The consumer durable industry, for example, television, fridge, microwave oven, washing
machine etc. was badly hit which in turn had hit the component suppliers of these goods. Hence
the demand for raw materials, components parts and associated services also tightened.

Natural Factors:
India is a country of extremes. When one part of the country is having heavy rainfall some other
parts endures drought. The drought like situation in Northern India has affected many a industry.
The earth quakes and floods in the northern states of India like Orissa and Gujarat have had
direct impact on the industries. The industrial marketers must have an alternate strategy or a
contingency plan during calamities that are forecast-able or those that could be predicted.

Technological Factors:
Technological developments and changes affect the profitability and market acceptance of a
company. The electric car “Reva” by Maini group of companies is a technological innovation. It
is yet to catch up in India due to reasons like there are no stations on either highways or in the
city for recharging and it is a very small car. But Mr. Chetan Maini, the man behind the electric
car is leaving no stones unturned.

They have already ventured into some North Indian cities and have exported to Europe. This
technology is successful and would revolutionise the automobile industry. This industry is also
being revolutionised by some car makers who are still working on a prototype which has buttons
to change gears and increase acceleration instead of clutch and gear box. No industry today
whatever is printing and packaging industry or an. It firm can ignore technological changes. As a
marketer, he must be aware of the changes and make flexible strategies to adapt to these changes.

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Social /Cultural Factors:
Cultural customs, habits, norms and traditions greatly influence the structure and function of an
organisation as well as interpersonal relationships of organisational members. In India it is
“Durability” that is important whereas in USA it is “style” that is appealing. Say product whether
industrial or targeted to the consumer must be careful when appealing to customers with respect
to the cultural values and representations.

Political/Legal Factors:
Government influence on the Industrial marketing environment. From the time of Jawaharlal
Nehru to the time of Mr. Atal Behari Vajapayee there has been major influence of the
Government in the industry to protect the Indian industries’ foreign investment or for that matter,
foreign participation of any kind has not been allowed in the areas of defence, steel, drugs,
fertilisers, machine tools etc.

2. Organizational Factors
Each buying organization has its own objectives , policies , procedures , structure and systems
and the business marketer must understand these factors well. Questions can arise : how many
people are involved in the buying decision ?; who are they ? What are the evaluative criteria ?
What are the company’s policies and limits on its buyers ?

Organizational Factors
• Objectives
• Policies
• Procedures
• Organizational
• Structure
• Systems

3. Interpersonal
The buying center usually includes many participants who influence each other , so interpersonal
factors also influence the business buying process. Participants may influence the buying
decision process because they control rewards and punishments , are well liked , have
a special relationship with other important participants. Business marketers must try to
understand these factors and design strategies that take them into account

• Authority
• Status
• Empathy
• Persuasiveness

4. Individual
Each participants in the business buying decision process brings in personal motives ,
perceptions and preferences. These individual factors are affected by personal characteristics
such as age income ,education , professional identification , personality and attitudes towards
risks
• Age

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 • Income
• Education
• Job Position
• Personality
• Attitudes

Industrial Buying Behavior Models

The buying decisions of industrial buyers are influenced by many factors. Usually, these are
influenced by organisational factors or task-oriented objectives viz. best product quality, or
dependable delivery, or lowest price and personal factors or non-task objectives viz. like
promotion, increments, job security, personal treatment, or favor. When the suppliers proposals
are substantially similar, organizational buyers can satisfy organisational objectives with any
supplier, and therefore personal factors become more important. When suppliers offers differ
significantly, industrial buyers pay more attention to organisational factors in order to satisfy the
organisational objectives. There are two models available to provide a comprehensive and
integrated picture of the major factors that combine to explain organisational buying behavior

1.Webster-Wind model

The environmental variables include physical, technological, economic, political, legal, labor
unions, competition and supplier information. For example, in a recessionary economic
condition, industrial firms minimize the quantity of items purchased. The environmental factors
influence the buying decisions of individual organisations. The organizational variables include
objectives, goals, organisation structure, purchasing policies and procedures, degree of
centralization in purchasing, and evaluation and reward system. These variables particularly
influence the composition and functioning of the buying center, and also, the degree
of centralization or decentralization in the purchasing function in the buying organisation. The
functioning of buying center is influenced by the organisational variables, the environmental
variables and the individual variables. 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 cente. The strengths of the
model, developed in 1972, are that it is comprehensive, generally applicable, analytical, and that
it identifies many key variables, which could be considered while developing marketing
strategies by industrial marketers. However, the model is weak in explaining the specific
influence of the key variables.

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2. Sheth model

In 1973, Professor Jagdish N Sheth developed the Sheth model of Organizational Buying. This
model highlights the decision-making by two or more individuals jointly, and the psychological
aspects of the decision-making individuals in the industrial buying behavior It includes three
components and situational factors, which determine the choice of a supplier or a brand in the
buying decision making process in an organization. The differences among the individual buyers
expectations (Component 1) are caused by the factors: background of individuals; information
sources; active search; perceptual distortion; and satisfaction with past purchases. The
background of individuals depends upon their education, role in the organization, and life style.
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. It is difficult

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to measure perceptual distortion, although techniques such as factor analysis and perceptual
mapping are available for this purpose. In Component (2), there are six variables, which
determine whether the buying decisions are autonomous or joint. According to the Sheth Model,
larger the size of the organization and higher the degree of decentralization, more will
be possibilities of joint-decision making.

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. If there is no such agreement, bargaining takes
place. Conflict about the style of decision-making is resolved by politicking. Situation factors
can be varied like economic conditions, labour disputes, mergers and acquisitions. The model
does not explain their influence on the buying process

3. The Buy grid model

The buy grid model is a version of a theory developed as a general model of rational
organizational design making, explaining how companies make decisions (Dwyer and Tanner,
2006). The buy-grid model has three components, which are: the buy-phases, the buy-class (buy
situation) and the buying centres.

The buy-phases Organizational buying behaviour can be described by using the buy-phases
(Dwyer and Tanner, 2006) which helps in the explanation of the various steps that are involved
in a typical organizational purchase decision making process.

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 Step 1, need recognition: the organizational buying process is a form of problem solving
resulting from a buying situation that is created when someone (the purchasing manager,
the consulting manager or as regulatory requirement) in the organization recognizes a
problem that can be solved through some buying action so that the discrepancy between a
desired outcome and the prevailing situation can be resolved
.

 Step 2, defining the product-type needed: the organization needs to identify the type of
product/service that can help solve the problem.

 Step 3, developing detailed specifications: after defining the type of product or service
that can be used to solve the problem, a detailed specification is drawn.

 Step 4, search for qualified suppliers: the organization needs to look for the information
of supplier from the diverse channel such as Internet webpage, fairs, network associates,
etc.

 Step 5, acquisition and analysis of proposals: after having all the information from the
relevant suppliers, the organization should analyse the information according to their
criteria and standard.

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  Step 6, evaluation and selection of a supplier:

The BUYCLASSES are:

1. New Tasks
The first-time buyer seeks a wide variety of information to explore alternative purchasing
solutions to his organisational problem. The greater the cost or perceived risks related to the
purchase, the greater the need for information and the larger the number of participants in the
buying centre.

2. Modified Rebuy
The buyer wants to replace a product the organisation uses. The decision making may involve
plans to modify the product specifications, prices, terms or suppliers as when managers of the
company believe that such a change will enhance quality or reduce cost. In such circumstances,
the buying centre proved to require fewer participants and allow for a quicker decision process
than in a new task buyclass.

3. Straight Rebuy
The buyer routinely reorders a product with no modifications. The buyer retains the supplier as
long as the level of satisfaction with the delivery, quality and price is maintained. New suppliers
are considered only when these conditions change. The challenge for the new supplier is to offer
better conditions or draw the buyer's attention to greater benefits than in the current offering.

Buy phases
1. Phase 1: Recognition of a Problem:
The purchasing/buying process begins when someone in the company recognises a problem or
need that can be met by acquiring goods or services.

The common events that lead to this phase could be:

 The company decides to develop a new product and needs new equipment and materials to
produce this product.

 It decides to diversify or expand and hence requires a multitude of new suppliers.

 Purchasing Manager assesses an opportunity to obtain lower prices or better quality.

 A machine breaks down and requires replacement or new parts.

 Purchased materials turn out to be unsatisfactory and the company searches for another
supplier.

Early emolument in the new task/problem recognition phase offers the marketer an advantage
over competitive suppliers.

17
2. Phase 2: Description of the need:
This phase involves determination of the characteristics and quantity of the needed item. The
general characteristics could be reliability, durability, price etc. and the marketer along with the
purchasing manager, engineers and users can describe the needs.

The questions that could be posed are:

i. What performance specifications need to be met?

ii. What types of goods and services should be considered?

iii. What are the application requirements? and

iv. What quantities would be needed?

The answers to such questions will give the marketer a general description of the need which will
be the input for the next phase.

3. Phase 3: Product Specification:

Obtaining the input from the second phase, the buying organisation has to develop the technical
specifications of the needed items. In this phase, the product is broken down into items. The
items in turn are sorted into standard ones and new ones which need to be designed.

The specifications for both are listed. As a marketer, he must involve himself and his technical
and financial counterpart to determine the feasibility and also to elaborate the services they can
offer to develop and supply the product. Unless it is a known supplier many companies do not
encourage the supplier participation at this stage. Customer relationship plays a vital role here.

4. Phase 4: Supplier Search:

This phase pertains to the search for the qualified suppliers among the potential sources. The
marketer has to ensure that he is in the list of potential suppliers. For this to happen, he has to
make periodic visits to all potential companies and create awareness. Brochures have to be
circulated and advertisements placed in specific media like trade journals. This phase only
involves making a list of qualified suppliers.

5. Phase 5: Proposal Solicitation:

The lists of qualified suppliers are now further shortened based on some critical factors. For
example, if the buyer is not willing to try any new firm which has not been in the market for
more than three years, it can delist those suppliers. Then the purchasing departments ask for
proposals to be sent by each supplier.

6. Phase 6: Supplier Selection:

Each of the supplier’s presentations are rated according to certain evaluation models. The buying
organisation may also attempt to negotiate with its preferred suppliers for better prices and terms
before making a final decision.

18
7. Phase 7: Order Routine Specification:
After the suppliers have been selected, the buyer negotiates the final order, listing the technical
specifications, the quantity needed, the expected time of delivery, return policies, warranties etc.
In case of maintenance, repair and operating items, buyers are increasingly moving towards
blanket contracts rather than periodic purchase orders.

8. Phase 8: Performance Review:

The final phase in the purchasing process consists of a formal or informal review and feedback
regarding product performance as well as vendor performance. The buyer may contact the end
user and ask for their evaluations which are in turn given to the supplier or he may rate the
supplier on several criteria using a weighted score method or the buyer might also aggregate the
cost of poor supplier performance to come up with adjusted costs of purchase including price.

Module 3: Industrial Market Segmentation, Targeting & Positioning and

Relationship Marketing

Industrial Market Segmentation

Industrial market segmentation is a scheme for categorizing industrial and business customers
to guide strategic and tactical decision-making, especially in sales and marketing. While
government agencies and industry associations use standardized segmentation schemes for
statistical surveys, most businesses create their own segmentation scheme to meet their particular
needs

Webster describes segmentation variables as “customer characteristics that relate to some

important difference in customer response to marketing effort”. (Webster, 2003)[1] He
recommends the following three criteria:

1. Measurability, “otherwise the scheme will not be operational” according to Webster.

While this would be an absolute ideal, its implementation can be next to impossible in
some markets. The first barrier is, it often necessitates field research, which is expensive
and time-consuming. Second, it is impossible to get accurate strategic data on a large
number of customers. Third, if gathered, the analysis of the data can be a daunting task.
These barriers lead most companies to use more qualitative and intuitive methods in
measuring customer data, and more persuasive methods while selling, hoping to
compensate for the gap of accurate data measurement.
2. Substantiality, i.e. “the variable should be relevant to a substantial group of customers”.
The challenge here is finding the right size or balance. If the group gets too large, there is
a risk of diluting effectiveness; and if the group becomes too small, the company will
lose the benefits of economies of scale. Also, as Webster rightly states, there are often
very large customers that provide a large portion of a suppliers business. These single
customers are sometimes distinctive enough to justify constituting a segment on their
own. This scenario is often observed in industries which are dominated by a small
number of large companies, e.g. aircraft manufacturing, automotive, turbines, printing
machines and paper machines.

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 3. Operational relevance to marketing strategy. Segmentation should enable a company to
offer the suitable operational offering to the chosen segment, e.g. faster delivery service,
credit-card payment facility, 24-hour technical service, etc. This can only be applied by
companies with sufficient operational resources. For example, just-in-time
delivery requires highly efficient and sizeable logistics operations, whereas supply-on-
demand would need large inventories, tying down the supplier’s capital. Combining the
two within the same company - e.g. for two different segments - would stretch the
company’s resources.

Requirements for effective segmentation

There are many ways to segment a market, but not all segmentations are effective. For
example, buyers of table salt could be divided into black and brown hair customers. But hair
color obviously does not affect the purchase of salt. Furthermore, if all salt buyers bought the
same amount of salt each month, believed that all salt is the same, and wanted to pay the same
price, the company would not benefit from segmenting this market.

Measurable
The size, purchasing power, and profiles of the segments can be measured. Certain segmentation
variables are difficult to measure. For example, there are approximately 30.5 million lefthanded
people in the United States, which is nearly the entire population of Canada. Yet few products
are targeted toward this left-handed segment.

Accessible
The market segments must be effectively reached and served. Suppose a fragrance company
finds that heavy users of its brand are single men and women who stay out late and socialize a
lot. Unless this group lives or shops at certain places and is exposed to certain media, its
members will be difficult to reach.

Substantial
The market segments are large or profitable enough to serve. A segment should be the largest
possible homogeneous group worth pursuing with a tailored marketing program. It would not
pay, for example, for an automobile manufacturer to develop cars especially for people whose
height is greater than seven feet.

Differentiable
The segments are conceptually distinguishable and respond differently to different marketing
mix elements and programs.
If men and women respond similarly to marketing efforts for soft drinks, they do not constitute
separate segments.

Actionable
Effective programs can be designed for attracting and serving the segments. For example,
although one small airline identified seven market segments, its staff was too small to develop
separate marketing programs for each segment.

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Macro and micro segmentations

Organizational markets can be segmented on the basis of various factors that can be broadly
classified into macro segmentation and micro segmentation

Macro segmentation:
To segment organizational market, a company can use macro segmentation variables like an
organization’s size, its location and the industry it is a part of.

 Organizational size:
A large organization may buy the same product as a smaller one, but it would buy differently. A

large organization will buy in larger lots and will have a formal buying process. It will have

specialized departments like those of purchase and quality control, with each one having an
individual mandate. It is also likely to demand more services and discounts.

The company’s list price should take into account the volume discounts that large clients will

inevitably ask for and its salespeople should be good negotiators. A company may have to design

a unique marketing mix to serve each of its major clients, and it may need to have dedicated
salespeople to serve each one of them.

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It may happen that a company’s profitability in serving large clients is low, and hence it is not

wise to ignore smaller clients, who do not want extensive services and deep discounts. A

company may develop a business model for serving large number of small clients, which may

not necessarily be less profitable than another company’s business model of serving few large
clients.

 Industry:
The industry that an organization is part of largely determines what it would buy. An industry

has a unique requirement of products, buys in a particular manner and requires certain level of
quality in the product that it buys.

Therefore, a company may be selling a product like computers to clients in different industries,

but it cannot sell in the same way and sell the same computer to its clients in different industries.

Though companies in an industry may buy slightly differently from each other, it is possible to

design a marketing mix for an industry, which a company can then tweak for different buyers in
the industry.

Therefore, it is important that a company makes an in depth study of the requirements of an

industry, before it starts to woo companies of that industry.

 Geographical segmentation:
There are regional variations in purchasing practices and needs. Companies operate within the
constraints of their national cultures.

In an American company, a purchase manager may have the full authority to make a purchase

decision, whereas in a Japanese company, a purchase manager may have to build consensus
among various stakeholders before he can make a purchase decision.

Micro segmentation:

22
Each company buys differently from other companies in its industry, and a seller needs to
develop a detailed understanding of how each company buys.

It is important that salespeople spend considerable time in understanding the roles that different

functions play in the buying process and their individual mandate. It is also important to

understand the buyer’s philosophy in terms of its emphasis on quality, its view on price and its
intent of developing long term relationship with the sellers.

 Choice criteria:
A company’s choice criteria will depend on how it has decided to compete in its own market.

Therefore, a buyer will not budge on quality because it is making a premium product, and
another will not budge on price because it is making a value-for-money product.

A seller needs to understand what each one of its buyers is trying to achieve for its target market

to know how it would buy—the buyer who is buying premium products will be willing to pay a

higher price if the seller offers to increase quality of its products, and the buyer who is buying

value-for – money products will be willing to buy products of lower quality if the seller offers to
reduce its price.

Therefore, a seller needs to have different marketing mix when its buyers have different choice
criteria, and salespeople will need to emphasize different benefits with different clients.

 Decision making unit structure:

In an organization, a large number of people influence the purchase decision. Though a Decision

Making Unit or a DMU does not exist on a formal organizational chart, its members exert

tremendous influence on how a buying process will proceed and who will finally be selected as a
supplier.

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Who the members of DMU are, depends on what product is being bought and whether the

product has been bought earlier. For example, if a buyer is contemplating outsourcing

manufacturing of a component of a new product, the DMU may consist of product developers,

process engineers, quality engineers, manufacturing engineers, assembly engineers and

purchasers.

But, if a buyer is contemplating buying grease for its machines, the DMU may just consist of

manufacturing engineers and purchasers. If the product has been bought earlier, the DMU might

just consist of quality engineers and purchasers, because the supplier has already been evaluated
on parameters which are important to the buyer.

Now, the task is to ensure that products of consistent quality are delivered on time. It also

depends on the industry the buyer is part of. In one industry, top management may make the

decision, in another, engineers may play a role, and in yet another, purchasers may play a role.

The selling approach that a company will adopt will depend heavily on the priorities of the
members of the DMU.

 Decision making process:

The size of the DMU depends on the type of the product which is being bought, and whether the

product has been bought earlier. The buying process will be longer if the size of the DMU is

large because the suppliers will be evaluated on all the parameters that are important to all the
members of the DMU.

For example, quality engineers will ensure that the supplier is capable of meeting quality

standards, and product developers will ensure that the component serves the function for which it

has been designed. Therefore, a seller needs to be willing to expend resources and time to deal

with a large DMU. The buying process is short when the size of the DMU is small, and also
when the product has been bought earlier.

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  Buy class:
It is helpful to categorize organizational purchases into straight rebuy, modified rebuy and new

task. Whether a particular purchase is straight rebuy, modified rebuy, or new task, will affect

how long the buying process will take, who the members of the DMU will be and what would be

their choice criteria. Once a seller has categorized a purchase into one of the buy class, he can
estimate the amount of time and resources he will have to expend to clinch a deal.

When a company is buying an item for the first time, it will prefer suppliers who will have the

patience to educate the buyer company. It will also be suspicious of sellers as it does not really
know the credibility of the sellers.

The sellers will have to demonstrate a lot of patience as the buyer will evaluate lots of options

and get into a lot of consultation before settling on a supplier (new task). When the company is

already buying the item but only wants to alter the specifications of the product or the conditions

of purchase, it will expect the incumbent supplier to make the required changes and retain the
order.

New suppliers can make a pitch but they have to compete hard against the incumbent supplier

because of its proximity to the buyer (modified rebuy). The incumbent supplier should get the

order when the buyer continues to buy the same item in the same way. New suppliers can make a
pitch but they have to prove that they are decisively better than the incumbent (straight rebuy).

 Purchasing organization:
Decentralized versus centralized purchasing is an important variable due to its influence on the

purchase decision. Centralized purchasing is associated with purchasing specialists who become

experts in buying a product or range of products. They are more familiar with cost factors, and
strengths and weaknesses of suppliers than decentralized generalists.

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The opportunity for volume buying means that their power to demand price concessions from

suppliers is enhanced. In centralized purchasing systems, purchasing specialists have greater

power within the DMU with respect to technical people like engineers.

In decentralized purchasing, users and technical personnel have a lot of influence and it is

important to understand their requirements. A purchaser may ultimately negotiate the price and
place the order, but the choice of the user and technical person is respected by the purchaser.

Centralized purchasing segment could be served by a national account team whereas

decentralized purchasing segment might be covered by territory representatives.

 Organizational innovativeness:
Marketers need to identify the specific characteristics of the innovator segment since these are

companies that should be targeted first when new products are launched. Follower firms buy the
product but only after innovators have approved it.

Approaches of market segment

Nested approach to segmentation

Taking the Wind & Cardozo model, Bonoma & Shapiro[2] extended this into a multi-step
approach in 1984. As the application of all the criteria recommended by Wind and Cardozo and
subsequent scholars who expanded upon their two-stage theory became increasingly difficult due
to the complexity of modern businesses, Bonoma and Shapiro suggest that the same / similar
criteria be applied in multi-process manner to allow flexibility to marketers in selecting or
avoiding the criteria as suited to their businesses. “They proposed the use of the following five
general segmentation criteria which they arranged in a nested hierarchy:

1. Demographics: industry, company size, customer location

2. Operating variables: company technology, product/brand use status, customer capabilities
3. Purchasing approaches: purchasing function, power structure, buyer-seller relationships,
purchasing policies, purchasing criteria
4. Situational factors: urgency of order, product application, size of order
5. Buyers’ personal characteristics: character, approach

26
The idea was that the marketers would move from the outer nest toward the inner, using as many
nests as necessary”. (Kalafatis & Cheston, 1997).[3] As a result, this model has become one of the
most adapted in the market, rivalling the Wind & Cardozo model head-on. One of the problems
with the nested approach “is that there is no clear-cut distinction between purchasing approaches,
situational factors and demographics". Bonoma and Shapiro are aware of these overlaps and
argue that the nested approach is intended to be used flexibly with a good deal of managerial
judgment” (Webster, 2003).

Bottom-up Approach (Kotler Model)

Kotler suggests a “build-up” approach, where masses of customer data are studied and
similarities searched to make up segments that have similar needs, i.e. "assessing the customer
base quantitatively and grouping them – i.e. building up – the segments based on similarities in
purchasing attitude" (Kotler, 2001).

When starting the segmentation process, instead of seeing customers as identical, the build-up
approach begins by viewing customer as different and then proceed to identify possible
similarities between them. "In a turbulence market (pretty much all markets today), using a
build-up approach is more suitable than a breakdown approach” (Freytag & Clarke, 2001).

Targeting and Positioning

One of the most significant uses of industrial market segmentation schemes is to

make targeting and product positioning decisions. Companies chose to target some segments and
downplay or avoid other segments in order to maximize their competitive advantage and the
likelihood of success.
“There is a critical difference in emphasis between target market and [target] audience. The term
audience is probably most useful in marketing communication”. (Croft, 1999) Target markets
can include end user companies, procurement managers, company bosses, contracting companies
and external sales agents. Audiences, however, can include individuals that have influence over
purchasing decision, but may not necessarily buy a product themselves, e.g. design engineers,
architects, project managers and operations managers, plus those in target markets.
Croft quotes Friestad, Write, Boush and Rose (1994) as stating that because the purpose of
advertising is to persuade, consumers become sceptical of its methods and approaches [and
indeed intentions]. However, while this may be entirely true in consumer marketing, the level of
trust and reliance on marketing communication by industrial customers is fairly high due to the
professional experience and knowledge of the industrial buyer. Some even appreciate advertising
because it keeps them informed of the products and services available in the market.

Supplier Segmentation

In the area of marketing, industrial market segmentation usually refers to the demand side of the
market, the goal being for companies to segment groups of potential customers with similar
wants and demands that may respond to a particular marketing mix. When companies also work
with potentially different suppliers, segmenting the supply side of the market can be very

27
valuable as well. There are many supplier segmentation approaches in the literature:
Parasuraman (1980),[4] Kraljic (1983),[5] Dyer et al. (1998),[6] Olsen and Ellram
(1997),[7] Bensaou (1999),[8] Kaufman et al. (2000),[9] van Weele (2000),[10] Hallikas et al.
(2005),[11] Rezaei and Ortt (2012).[12]
Parasuraman (1980) proposed a stepwise procedure to implement this approach: Step 1: Identify
the key features of customer segments Step 2: Identify the critical supplier characteristics Step 3:
Select the relevant variables for supplier segmentation, and Step 4: Identify the supplier
segments.
Kraljic (1983) considered two variables: profit impact and supply risk. The profit impact of a
given supply item can be defined in terms of the volume purchased, the percentage of total
purchase cost or the impact on product quality or business growth. Supply risk is assessed in
terms of the availability and number of suppliers, competitive demand, make-or-buy
opportunities, storage risks and substitution possibilities. Based on these two variables, materials
or components can be divided into four supply categories: (1) non-critical items (supply risk:
low; profit impact: low), (2) leverage items, (supply risk: low; profit impact: high), (3)
bottleneck items (supply risk: high; profit impact: low), and (4) strategic items (supply risk: high;
profit impact: high). Each category requires a specific supplier strategy.
To see the theoretical bases of, and to review, different supplier segmentation approaches see
Day et al. (2010), and Rezaei and Ortt (2012).
Rezaei and Ortt (2012) considering two dimensions "supplier willingness" and "supplier
capabilities" defined supplier segmentation as follows.
"Supplier segmentation is the identification of the capabilities and willingness of suppliers by a
particular buyer in order for the buyer to engage in a strategic and effective partnership with the
suppliers with regard to a set of evolving business functions and activities in the supply chain
management".
Considering two levels low and high for the two dimensions, suppliers are segmented to four
segments.

Other bases of segmentation

Practically, following bases (customer characteristics and/ or behavioural bases) are used for
segmenting industrial markets:

1. Geographic Bases:
Company needs to perform tasks differently to treat customers residing in different geographical
regions.

28
On the basis of geographical bases, industrial buyers can be segmented into following

segments:
ADVERTISEMENTS:

i. Distance:
Local market, regional, domestic (national) market, and International market.

ii. Location of Industrial Unit:

Rural and Urban Customers.

ADVERTISEMENTS:

iii. Area and Climate:

Area specific segmentation considers place-specific bases such as hilly, desert, valley, plains,

etc., while climate-based classification includes segmenting market on the basis of level and

intensity of humidity, heat, cold, rains, etc. Different buyers located at different places need to be
treated differently. Separate marketing programme must be prepared for each of these groups.

2. Types of Industry:
Company’s products are used in different industries. Relevant industries should be considered

for segmenting market and, as per suitability, one or more industries can be selected as the target
market to be served.

Possible segments include:

i. Auto Industry

ii. IT Industry

iii. Chemical industry

29
iv. FMCG (Fast Moving Consumer Goods) Industry

v. Textile industry

vi. Iron and steel Industry

vii. Cement Industry

viii. Engineering Industry

ix. Agro processing industry

x. Service Industry, etc.

As per company’s products, it selects one or more relevant industry as target customers and
formulates appropriate marketing mix for each of the segments.

3. Type of Business Operation:

Industrial units perform different activities. Each of them differs in term of their nature of
activities/operations and requirements.

On that base, we can classify industrial customers into several segments, such as:
i. Manufacturing Units

ii. Assembling Units

iii. Processing Units

iv. Distributing units

v. Retailing Business

30
vi. Consultancies and Services Units, etc.

Some products are commonly used for different business operations. Companies dealing with

these products can supply or sell to different customers. Different marketing strategies are
necessary as these customers elicit different response patterns.

4. Consumption Rate/ Size:

On the basis of order size and/or annual consumption, industrial buyers can be segmented in

certain distinct groups. A company can select suitable one or more customer groups as target
market.

Sized-based segmentation includes:

i. Heavy Users

ii. Medium Users

iii. Light Users

Particularly, price and promotion strategies must be designed differently to meet expectations of
varied groups.

5. Ownership Factor:
Ownership exhibits different response. A firm needs to treat them differently. A company can
select one or more customers to serve.

Ownership-based segmentation leads to following segments:

i. Sole Proprietary Firms and Partnership Firms

ii. Private Companies

iii. Pubic companies and Public Sector Units (PSUs)

31
iv. Government as a Customer

v. Corporations

vi. Defence Department

vii. Cooperative Societies

viii. Community Organisations

ix. Religious and Missionary Organisations.

6. Buying Methods:
Industrial buyers purchase products on different ways. Every method requires different treatment

in terms of formality, timing of ordering and executing, profit margin, and overall procedures to
be followed.

Benefits of market segmentation

 Determining market opportunities
 Adjustments in marketing appeals
 Developing marketing programmes
 Designing a product
 Media selection
 Timing of marketing efforts
 Efficient use of resources
 Better service to customers
 Assist in distribution strategies

Criteria for segmentation variables

Geographic Market Segmentation

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The first group of market segmentation criteria is based on geographic variables. Geographic
market segmentation divides the market into geographical units, which can be nations, states,
regions, cities or even neighborhoods.

Demographic Market Segmentation

Demographic market segmentation is all about people. It divides the market into segments based
market segmentation criteria that tell us something about the population: age, gender, family size
etc. Worthy of note is the fact that demographic market segmentation variables are the most
popular bases for consumer market segmentation. The reason is that consumer needs and wants
are often interrelated with demographic variables. Also, demographic variables are rather easy to
measure in contrast to many others.

Psychographic Market Segmentation

Market segmentation criteria of psychographic nature allow to divide the market into segments
based on variables such as social class, lifestyle and personality.

Behavioral Market Segmentation

Behavioral market segmentation divides a market into segments on basis of consumer

knowledge, attitudes, uses or responses to a specific product.

Multiple Criteria Market Segmentation

In order to segment markets appropriately, you must combine the most relevant segmentation
criteria for your company and product. The combination of market segmentation criteria should
lead to market segments that are measurable, accessible, substantial and actionable. The result
should be precise, better-defined target groups.

Market targeting

A target market is the market a company wants to sell its products and services to, and it includes

a targeted set of customers for whom it directs its marketing efforts. Identifying the target market
is an essential step in the development of a marketing plan. A target market can be separated

33
from the market as a whole by geography, buying power, demographics and psychographics.

Market targeting is a process of selecting the target market from the entire market. Target market

consists of group/groups of buyers to whom the company wants to satisfy or for whom product is
manufactured, price is set, promotion efforts are made, and distribution network is prepared.

Procedure of Market Targeting:

Market targeting procedure consists of two steps:

1. Evaluating Market Segments:

Evaluation of market segments calls for measuring suitability of segments. The segments are
evaluated with certain relevant criteria to determine their feasibility.

To determine overall attractiveness/suitability of the segment, two factors are used:

i. Attractiveness of Segment:
In order to determine attractiveness of the segment, the company must think on

characteristics/conditions which reflect its attractiveness, such as size, profitability,

measurability, accessibility, actionable, potential for growth, scale of economy, differentiability,

etc. These characteristics help decide whether the segment is attractive.

ii. Objectives and Resources of Company:

The firm must consider whether the segment suit the marketing objectives. Similarly, the firm

must consider its resource capacity. The material, technological, and human resources are taken
into account. The segment must be within resource capacity of the firm.

2. Selecting Market Segments:

When the evaluation of segments is over, the company has to decide in which market segments

to enter. That is, the company decides on which and how many segments to enter. This task is
related with selecting the target market. Target market consists of various groups of buyers to

34
whom company wants to sell the product; each tends to be similar in needs or characteristics.

Philip Kotler describes five alternative patterns to select the target market. Selection of a suitable
option depends on situations prevailing inside and outside the company.

Alternative Strategies (Methods) for Market Targeting:

Basically five alternative patterns/strategies are available.

Company may opt for any one of the following strategies for market targeting based on the

situations:

1. Single Segment Concentration:

It is the simplest case. The company selects only a single segment as target market and offers a

single product. Here, product is one; segment is one. For example, a company may select only

higher income segment to serve from various segments based on income, such as poor,

middleclass, elite class, etc. All the product items produced by the company are meant for only a
single segment.

Single segment offers some merits like:

(1) Company can gain strong knowledge of segment’s needs and can achieve a strong market
position in the segment.

(2) Company can specialize its production, distribution, and promotion.

(3) Company, by capturing leadership in the segment, can earn higher return on its investment.

It suffers from following demerits like:

(1) Competitor may invade the segment and can shake company’s position.

35
(2) Company has to pay high costs for change in fashion, habit, and attitude. Company may not
survive as risk cannot be diversified.

Mostly, company prefers to operate in more segments. Serving more segments minimizes the
degree of risk.

2. Selective Specialization:
In this option, the company selects a number of segments. A company selects several segments

and sells different products to each of the segments. Here, company selects many segments to

serve them with many products. All such segments are attractive and appropriate with firm’s
objectives and resources.

There may be little or no synergy among the segments. Every segment is capable to promise the

profits. This multi-segment coverage strategy has the advantage of diversifying the firm’s risk.

Firm can earn money from other segments if one or two segments seem unattractive. For
example, a company may concentrate on all the income groups to serve.

3. Product Specialization:
In this alternative, a company makes a specific product, which can be sold to several segments.
Here, product is one, but segments are many. Company offers different models and varieties to

meet needs of different segments. The major benefit is that the company can build a strong

reputation in the specific product area. But, the risk is that product may be replaced by an
entirely new technology. Many ready-made garment companies prefer this strategy.

4. Market Specialization:
This strategy consists of serving many needs of a particular segment. Here, products are many
but the segment is one. The firm can gain a strong reputation by specializing in serving the

specific segment. Company provides all new products that the group can feasibly use. But,
36
reduced size of market, reduced purchase capacity of the segment, or the entry of competitors
with superior products range may affect the company’s position.

5. Full Market Coverage:

In this strategy, a company attempts to serve all the customer groups with all the products they

need. Here, all the needs of all the segments are served. Only very large firm with overall

capacity can undertake a full market coverage strategy.

Market differentiation

A promotional strategy employed to create a particularly strong hold in a specific market. While
adopting market differentiation method, a firm would produce several variations of the basic
product which will be marketed in different sections of the market under the same umbrella
brand, which provides the parent brand a wide range of coverage and thus helps in creating a
sense of dominance across the various segments of the market.

It helps the brand to acquire a large mind share amongst the prospective and current consumers
due to its presence in as many categories as possible. With the technology reaching masses and
rise in disposable income, there is a market demand of various version of the product so that the
different needs of different type of consumers is satiated. Every market and its corresponding
customers are important. Let us understand this concept with the help of an example –

Mobile phones are a part of nearly everyone’s daily life. Although it is a recent invention but
still, it is hard to imagine our life without it. Different type of consumers need different type of
phones and firms provide products which satisfies those needs. Samsung is the leading mobile
phone company in the world with the strongest presence in that market. It adopted the strategy of
market differentiation and provided products that serve different types of consumers and their
needs. The different types of products are – Feature phones (For Ex – Guru), Touch screen (Non
Smart phones) (For Ex- Rex), Low end Smart phones (For Ex – Ace), Mid-Range Smart Phones
(For Ex – Galaxy S Duos) and High End Smart phones (For Ex – Galaxy S Series latest versions)
and Phablets (Note series latest versions)

Market Positioning
What is market position? In marketing and business strategy, market position refers to the
consumer’s perception of a brand or product in relation to competing brands or
products. Market positioning refers to the process of establishing the image or identity of a brand
or product so that consumers perceive it in a certain way.

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For example, a car maker may position itself as a luxury status symbol. Whereas a battery maker
may position its batteries as the most reliable and long-lasting. And a fast-food restaurant chain
may position itself as a provider of cheap and quick standardized meals. A coffee company may
position itself as a source of premium upscale coffee beverages. Then a retailer might position
itself as a place to buy household necessities at low prices. And a computer company may
position itself as offering hip, innovative, and use-friendly technology products.

Partnering/Relationship Marketing and CRM

Partner relationship management (PRM) is a combination of the software, processes and

strategies companies use to streamline business processes with partners who sell their products.

Definition

Partner relationship management (PRM) is a business process by which an organization

incorporates policies, procedures and methodologies to deliver, manage and maintain its
relationships with external business partners.

PRM systems are often web- or cloud-based and typically include a partner portal, customer
database, and other tools that allow companies and partners to manage leads, revenues,
opportunities and sales metrics. Partner relationship management systems also track inventory,
pricing, discounting and operations.

PRM systems are a set of tools that can allow you to better organize and manage channel
relationships. A PRM system can be looked at as both a technology solution and a business
philosophy. The core functional components of PRM should include:

 Training & Certification Management

 Marketing Communications Support
 New Product Introduction
 Sales Productivity Tools
 New Partner Ramp-up (Channel Partner On-Boarding)
 New Hire Ramp-up

Companies today are struggling to meet increasing customer expectations and needs, while
dealing with shifting market conditions and economic swings. Working to outmaneuver
competitors these days involves building highly effective internal and external relationships that
ensure that you have the ability to support your company’s mission and meet evolving growth
initiatives. The strategy of maintaining open dialogue among your channel partners has become
crucial for innovation and overall success. In today’s economy you must develop and maintain

38
connections that provide the resources your channel partners need to grow and strengthen their
business, which translates into success for your company.
CRM or Customer Relationship Management is a strategy for managing an organization’s
relationships and interactions with customers and potential customers. A CRM system helps
companies stay connected to customers, streamline processes, and improve profitability.

What can CRM Systems do?

From a software perspective, CRM allows you to centrally record a number of things that are
currently stored on spreadsheets, notepads, phones and in people’s heads to make sure everyone
is aware and everyone is working to the same goal – providing a better customer experience and
winning more business. CRM systems as standard can:
 Centralize all customer information – This allows you to centrally store all the contact
information, all the relationships (within your organization and with other organizations)
 Record all communication – important emails, phone calls and letters as well as the
marketing activity they have received. This can be from everyone in the organization so
you know who said what and removes the need for forwarding/CC’d emails to lots of
people internally.
 Manage all quotes/orders – the number of quotes sent, any revisions, the number that
has been converted to an order. Get an idea of who has the best win/loss ratio as well as
finding the customers who ask for quotes but never convert to orders.
 Manage all cases/complaints – make sure everyone who speaks to a customer knows of
any issues the customer is having. Resolve the issue quickly and make sure a sales rep
knows about any active complaints before they attempt to sell to the customer – there is
nothing worse than a salesperson making a sales call oblivious to a complaint.

Differences between CRM and PRM

PRM is similar to customer relationship management (CRM) in that companies use CRM
systems to monitor the marketing, sales and service process of customer relationships. When
working directly with a customer, a sales rep can target the consumer and work one-to-one with
that potential customer. While CRM does help with the relationship between a business and a
customer, it's much more focused on the C and M of CRM -- once it converts a lead into a
customer, it's about managing that next purchase. When working with partners, companies need
to put more emphasis on the relationship aspect, as it's the goal of both the partner and the
managing company to profit from the relationship. To effectively do that requires a different type
of management and thinking, including more negotiation in the selling process.

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Lifecycle models of buyer-supplier relationship

Attempts have been made to develop a model of the evolution and development of buyer
relationship over time. Two such models, one developed by David Ford and the other by Dwyer,
Schurr and Oh are summarized in a table.

According to the model of Dwyer et al., the relationship is brought to a close in the last phase.
The final stage in the Ford model represents the relationship in its most developed form. For
example, one cannot rule out the possibility of even such a relationship coming to an end later. If
there is such a drastic change in the technology that the supplier's product is no more required by
the buyer, or the buyer or seller finds a substantially better alternative, the partnering should end.

The Cox mode

lCox presents a step ladder of external and internal relationships.The steps in the ladder of
contractual relationships each represent a higher level of assetsspecialty and strategic

importance to the form of the specific goods and services. Eachstep also represents relative

degrees of power between the relationships participants. Thefirst step (lowest step) in the

ladder is adversarial arms length relationships, followed bypreferred supplier, then single

sourcing, then network sourcing, and finally Strategicsuppliers’ alliance each at a

higher step of the ladder than the preceding one.Stratgicsupplier alliance is the final stage

before a firm considers a complementary supplier to beso important that vertical integration

through merger and acquisition is undertaken. Co-destiny is a Japanese concept that describes
a relationship in which the supplier is treatedas an ex t ensi on of t he bu ye r’s com pan y

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and vice versa. These relationships arecharacterized by extensive information sharing,

long term partnering and a greater scopeof products purchased form one supplier. .A d v e r s a r i a l

l e v e r a ge : U p t o t h e m i d 1 9 8 0s a p p r o a c h i n g t h e m a r k e t p l ac e o n a n adversarial

basis was the norm. Purchasers multisourced, negotiated short term contracts,maintained

secrecy regarding costs sales and product design and made (or received) noimprovement
suggestions to (or from) suppliers

Module 4: Industrial Product and Pricing Decisions

Product Decisions

Decisions regarding the product, price, promotion and distribution channels are decisions on the
elements of the "marketing mix". It can be argued that product decisions are probably the most

41
crucial as the product is the very epitome of marketing planning. The decision whether to sell
globally standardised or adapted products is too simplistic for today's market place.

Industrial product

Industrial goods are made up of machinery, manufacturing plants and materials, and any other
good or component used by other industries or firms. Consumer goods are ready for the

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consumption and satisfaction of human wants, such as clothing or food. Consumer goods are not
used in the production of other goods, while industrial goods are.

1) Material & Parts

The goods that enter the manufacturers products completely are classified as Materials and parts.
In this, there are two types of materials commonly used for Industrial goods classification.

a) Farm products – Farm products are products which can be re produced or recycled easily.
They are present in ample amount. However, due to their nature, they are perishable and have to
be handled accordingly. But because they are commonly used, there is hardly any marketing
applied to them. Some common products include cheese, eggs, fruits and vegetables, cotton,
wheat etc.

b) Natural products – Natural products are products occuring naturally in the earth and hence
they cannot be recycled or re produced. Petrol or Diesel or oil (commonly used) are products
which occur naturally and can be classified as an Industrial product. These products are found in
bulk and the rarer they are, the higher the value. Price is totally dependent on reliability
of supply and keeps changing. Government intervention for these products is high too.

2) Manufactured Materials and parts

Raw material which has to be manufactured is classified as manufactured materials. And Many a
times, small manufacturers manufacture smaller parts which are used in larger machines like
an Automobile. These are manufactured parts, and they are the 2nd type in classification of
industrial products.

a) Manufactured Materials – If we use the iron supplied to us to make a final product then, we
have manufactured a material and that is the industrial product that we supply. Similarly, Yarn is
woven into cloth to make the final material – dresses and clothes. Any process which requires
raw material to be processed to give final products is a part of manufactured materials
classification. The pricing and marketing of the product in this case depends on the raw material
being used. So if the yarn which is used to make the cloth is very high quality, the pricing of the
end product will be high and the marketing will also be premium marketing.

b) Manufactured Parts – Using the same example above, if we are making smaller units which
play their role in larger products, then we are manufacturing parts as an industrial product. Ball
bearings are the perfect example of Manufactured parts. Now, there are so many ball bearings
manufacturers out there, that their marketing has become tedious as there is no or very
less differentiation possible. Hence, pricing and availibility of manufactured parts becomes a
major issue instead of advertising, branding or marketing.

3) Capital items

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To make any manufacturing business or large scale industry possible, capital items are used.
They are important in the classification of industrial products. Capital items generally fall under
the Assets column of the balance sheet. These are items necessary for the functioning of the
organization, and very useful to be invested in for the long term. Due to their very nature, these
capital items have a residual value to the company. And hence a company which has large
capital, has to ensure that it has large revenue, otherwise Capital (which is a fixed cost) will
bring the company down. There are two types of capital items

a) Installations – Large installations such as factories, warehouses and other buildings are
capital items which require long time installation and are used for an even longer time. There are
very few people in between when an installation is bought by a company. Design is critical to
such installations and there is absolute absence of Marketing in installations. The only thing
installations can be used for is to reinforce the reputation of the company (Example – ACC has
17 manufacturing plants).

b) Equipments – Equipments are both – heavy machineries as well as a utility to the

organization using them. Equipments in case of factories will be caterpillars, trucks, cranes and
what not. Equipment in case of industrial services will be computers, hardware and design
equipment, printers, copiers etc. All these are equipments which are assets. They have a short
span of life when compared to installations, but as compared to the life span of normal operating
supplies (paper, pen) they have a longer life span. These equipments are sold mainly through
intermediaries, though larger the equipment, more is the involvement of the branddirectly. In the
sale of equipments, personal selling plays a major role as compared to marketing and advertising.

4) Supplies

Any short term goods or material which is necessary for the day to day operations or a company
or businesses is termed as supplies. A simple exam is A4 sized paper. Can you imagine the
amount of paper it takes to make a company like Accenture work? A single office might need
1000’s of papers a day for print outs.

Supplies are marketed via intermediaries and not directly through companies. The reach of the
supplies manufacturers needs to be far and wide and regular supply of the product is more
important then marketing. Supplies are divided in 2 formats

a) Maintenance and repair supplies – Paints are a form of maintenance supplies and Asian
paints is the leader in that. Cleaning services are another form of maintenance.

b) Operating supplies – Pen and paper, notepads, lubricants for automobiles are part of the
operating supplies needed on a day to day basis. Kangaro is an excellent brand which comes to
mind when it comes to staplers and staple pins.

5) Business services

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A major product and a growing industry in the classification of industrial products is Business
services. Business services are generally third party services given to businesses and they are in
form right now because businesses do not want to spend the time or the energy on getting regular
things running. Hence they either use Business advisory services or business maintenance
services.

a) Business advisory services – Any business out there requires a Chartered accountant. This
accountant can be hired or it can be a firm which handles the business. Similarly legal,
consulting, advertising, marketing are all business agencies within themselves which provide
services to industries. These advisory services are on the rise because of the growing economy
of developing nations.

b) Maintenance and repair services – There is a difference between repair goods and repair
services. Where paint is a repair good, a repair service is window cleaning or printer and copier
repairing, something which is best left to the professionals. And there are many professionals out
there who pick industrial contracts for an annual year towards repair and maintenance of day to
day products and equipments within an organization.

Product lifecycle (refer marketing management 1)

he product life cycle has 4 very clearly defined stages, each with its own characteristics that
mean different things for business that are trying to manage the life cycle of their particular
products. The product life cycle is an important concept in marketing. It describes the stages a
product goes through from when it was first thought of until it finally is removed from the
market. Not all products reach this final stage. Some continue to grow and others rise and fall.

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Introduction Stage – This stage of the cycle could be the most expensive for a company
launching a new product. The size of the market for the product is small, which means sales are
low, although they will be increasing. On the other hand, the cost of things like research and
development, consumer testing, and the marketing needed to launch the product can be very
high, especially if it’s a competitive sector.

Growth Stage – The growth stage is typically characterized by a strong growth in sales and
profits, and because the company can start to benefit from economies of scale in production, the
profit margins, as well as the overall amount of profit, will increase. This makes it possible for
businesses to invest more money in the promotional activity to maximize the potential of this
growth stage.

Maturity Stage – During the maturity stage, the product is established and the aim for the
manufacturer is now to maintain the market share they have built up. This is probably the most
competitive time for most products and businesses need to invest wisely in any marketing they
undertake. They also need to consider any product modifications or improvements to the
production process which might give them a competitive advantage.

Decline Stage – Eventually, the market for a product will start to shrink, and this is what’s
known as the decline stage. This shrinkage could be due to the market becoming saturated (i.e.
all the customers who will buy the product have already purchased it), or because the consumers
are switching to a different type of product. While this decline may be inevitable, it may still be
possible for companies to make some profit by switching to less-expensive production methods
and cheaper markets.

Extending the Product Life Cycle

What can businesses do to extend the product life cycle?

1. Extension strategies extend the life of the product before it goes into decline. Again
businesses use marketing techniques to improve sales. Examples of the techniques are:
2. Advertising – try to gain a new audience or remind the current audience
3. Price reduction – more attractive to customers
4. Adding value – add new features to the current product, e.g. improving the specifications
on a smartphone
5. Explore new markets – selling the product into new geographical areas or creating a
version targeted at different segments
6. New packaging – brightening up old packaging or subtle changes

New product development

New product development (NPD) covers the complete process of bringing a new product to
market

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New-product development is the development of original products, product improvements,
product modifications, and new brands through the firm’s own product development efforts.

 Idea Generation
The development of a product will start with the concept. The rest of the process will ensure that
ideas are tested for their viability, so in the beginning all ideas are good ideas (To a certain
extent!)
Ideas can, and will come, from many different directions. The best place to start is with a SWOT
analysis, (Strengths, Weaknesses, Opportunities and Threats), which incorporates current market
trends. This can be used to analyses your company’s position and find a direction that is in line
with your business strategy.
In addition to this business-centered activity, are methods that focus on the customer’s needs and
wants. This could be:

 Under-taking market research

 Listening to suggestions from your target audience – including feedback on your current
products’ strengths and weaknesses.
 Encouraging suggestions from employees and partners
 Looking at your competitor’s successes and failure

 Idea Screening
This step is crucial to ensure that unsuitable ideas, for whatever reason, are rejected as soon as
possible. Ideas need to be considered objectively, ideally by a group or committee.
Specific screening criteria need to be set for this stage, looking at ROI, affordability and market
potential. These questions need to be considered carefully, to avoid product failure after
considerable investment down the line.

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  Concept Development & Testing
You have an idea and it’s passed the screening stage. However, internal opinion isn’t the most
important. You need to ask the people that matter – your customers.
Using a small group of your true customer base – those that convert – the idea need to be tested
to see their reaction. The idea should now be a concept, with enough in-depth information that
the consumer can visualize it.

 Business Analysis
Once the concept has been tested and finalized, a business case needs to be put together to assess
whether the new product/service will be profitable. This should include a detailed marketing
strategy, highlighting the target market, product positioning and the marketing mix that will be
used.
This analysis needs to include: whether there is a demand for the product, a full appraisal of the
costs, competition and identification of a break-even point.
 Product Development
If the new product is approved, it will be passed to the technical and marketing development
stage. This is when a prototype or a limited production model will be created. This means you
can investigate exact design & specifications and any manufacturing methods, but also gives
something tangible for consumer testing, for feedback on specifics like look, feel and packaging
for example.
 Test Marketing
Test marketing (or market testing) is different to concept or consumer testing, in that it
introduces the prototype product following the proposed marketing plan as whole rather than
individual elements.
This process is required to validate the whole concept and is used for further refinement of all
elements, from product to marketing message.
 . Commercialization
When the concept has been developed and tested, final decisions need to be made to move the
product to its launch into the market. Pricing and marketing plans need to be finalised and the
sales teams and distribution briefed, so that the product and company is ready for the final stage.
 Launch

A detailed launch plan is needed for this stage to run smoothly and to have maximum impact. It
should include decisions surrounding when and where to launch to target your primary consumer
group. Finally in order to learn from any mistakes made, a review of the market performance is
needed to access the success of the project.

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New product development can be made much simpler and focused, with a higher likelihood of
success, by following these steps to guide you.

Classification of New Products

From the analysis of PLC, it is clear why the companies should launch new products in the
market. The prime success factor behind new-product development is unique and superior
product.

This led them to propose a 6-stage classification as shown below.

1) New-to-the-world products:
These types of new products create an entirely new market. For example, introduction of
products like laptops and palmtops has created a new market of mobile computing.

2) New product lines:

New products may allow a company to enter an established market for the first time. Philips has
developed flat TV to target a new segment of already crowded CTV market.

3) Additions to existing product lines:

New products can supplement a company’s established product lines. For instance, McDonald’s
introduced pudina flavoured burgers for Indian consumers.

4) Improvements and revisions of existing products:

These are the new products that replace existing products by providing improved performance or
greater perceived value. For example,

Microsoft replaced its MS-DOS by Windows as an improved, user-friendly GUI (Graphical User

Interface) based operating system. They also updated Windows regularly and launched the
versions of Windows 95, 98, 2000 and XP.

5) Repositioning:

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Existing products can be targeted to new markets or market segments. For example, Sahara
Airlines is revising its fares to target the railway AC 2/3 tier passengers.

6) Cost reductions:
New products may be developed that provide similar performance at lower cost. The mobile

service providers like Airtel, Hutch and Reliance India Mobile are introducing new post-paid
schemes with low rental and outgoing facility.

Product Revitalization /Elimination.

Industrial Pricing

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 The price is the amount of money that is paid to an industrial seller by an industrial
purchaser. As well as, there is a significant difference between the total costs to the buying firm
and the price. The total cost includes transportation cost of products, transit insurance cost and
installation cost as well as risks, such as product failure, the delays in supply and lack of
technical support other than the product’s price.

Pricing Objectives

 Survival: A short-term objective which is taken into the implementation when the
organization is underutilizing its production capacity to a large extent or the firm has a
large unsold stock of products at its stores or there is an intense level of competition in
the market place.
 Maximum short-term profits: In this case, a firm attempts to maximize its short term
profits. Companies following this objective select the price that yields the maximum
current profits. Those organizations usually do not consider of legal Implications and
long-term customer relationships.
 Maximum short-term sales: Focuses upon maximizing short-term revenue. Through
this, companies expect to acquire growth and market share.
 Market penetration: Here, firms fix prices as low as possible with the aim of getting a
high sales volume and market share. In this, organizations believe that high volume of
sales will decrease production and distribution costs, and yield high profits as well as
keep competitors out of the market.
 Product quality leadership: In this, the aim is to produce superior quality products more
than rivals. As well as, a firm following this will charge a price which is slightly higher
than the competitors’ prices. And this objective yields a high level of returns.

Pricing New Products

 Skimming strategy
This strategy is utilized for distinctive new products for which customers are not sensitive to
initial high prices. In this, the firm has the capability of recovering its investment in product
development by generating high profits. The disadvantage here is the high profits attract
competitors into the market. So, this strategy is appropriate for products that are distinct,
technology focused or capital intensive-the factors creating entry barriers to rivals. As well as,
this strategy is useful when the demand curve is stable over a period of time and the cost of
production declines with the application of experience curve.

This strategy is employed only for a limited duration to recover most of the investment made to
build the product. To gain further market share, a seller must use other pricing tactics such as
economy or penetration. This method can have some setbacks as it could leave the product at a
high price against the competition. A skimming strategy would generally be supported by the
following conditions:

 Having a premium product. In this case, “Premium” does not just denote high cost of
production and materials- it also suggests that the product may be rare or that the demand
is unusually high. An example would be a USD 500 ticket for the World Series or an USD
80,000 price tag for a limited-production sports car such as this.

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  Having legal protection via a patent or copyright may also allow for an excessively high
price. Intel and their Pentium chip possessed this advantage for a long period of time. In
most cases, the initial high price is gradually reduced to match new competition and allow
new customers access to the product.

 Penetration strategy
This strategy is commonly used when price elasticity of demand is high or buyers are highly
price sensitive, strong threats from potential customers and opportunities to decrease the unit cost
of production and distribution with increase in production volume.

n the introductory stage of a new product’s life cycle means accepting a lower profit margin and
to price relatively low. Such a strategy should generate greater sales and establish the new
product in the market more quickly. Penetration pricing is the pricing technique of setting a
relatively low initial entry price, often lower than the eventual market price, to attract new
customers. The strategy works on the expectation that customers will switch to the new brand
because of the lower price. Penetration pricing is most commonly associated with a marketing
objective of increasing market share or sales volume, rather than to make profit in the short term.
The advantages of penetration pricing to the firm are as follows:

 It can result in fast diffusion and adoption. This can achieve high market penetration rates
quickly. This can take the competitors by surprise, not giving them time to react.
 It can create goodwill among the early adopters segment. This can create more trade
through word of mouth.
 It creates cost control and cost reduction pressures from the start, leading to greater
efficiency.
 It discourages the entry of competitors. Low prices act as a barrier to entry.
 It can create high stock turnover throughout the distribution channel. This can create
critically important enthusiasm and support in the channel.
 It can be based on marginal cost pricing, which is economically efficient.

Pricing across Product Life Cycle

The pricing strategies in introduction phase of the PLC were discussed in pricing new products.
Other strategies are expected to be elaborated here.
 Growth Stage Pricing Strategy
In growth stage, more new customers enter into the
market began buying the firm’s products. Here, industrial
marketers lower the product price as well as they focus on
product differentiation, product line extension and
building new market segments.
 Maturity Stage Pricing Strategy

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Here, competitors are aggressive in the market. In this, a company has to cut its competitors’
market share to increase its sales. The strategy is to lower prices to match the competitors’ prices

 Decline Stage Pricing Strategies

There are three strategies.
 If the company has a reputation on good product quality or dependable service, do not cut
price but reduce costs to earn some profits.
 Cutting prices to increase sales and using a product to help to sell other product.
 Selective increases in prices in markets that are not price sensitive.

Industrial Pricing Policies

Mainly, industrial marketers are dealing with different kinds of customers, such as users,
Original Equipment Manufacturers (Caterpillar and Toyota) and dealers. These pricing policies
are to adjust the base (or list price) of a product. Basically, industrial marketers set a price
structure that covers different product items with different sizes and product specifications.
1. List Price
This is called as Price List also. It is a base price of a product consisting various sizes and
specifications. This is a published statement of basic prices and given to the customers. This
statement implies the effective date of its applicability and shows the extra charges for optional
product features, such as the excise duty, freight, sales tax, or transit insurance (if applicable).
The net price is calculated based on list price less discounts (trade, volume and cash discounts).
The net price is very important for buyers since it is the price that should be paid after deducting
discounts.
2. Trade Discounts
Trade discounts are offered to marketing intermediaries, such as dealers and distributors. The
amount of trade discount given depends upon the particular industry norms and the functions
performed by those intermediaries. Further these trade discounts should be uniform to all
industrial intermediaries.
3. Quantity Discounts
A quantity or volume discount is given to customers who buy in large quantities as well as this is
a price reduction given by deducting the quantity discount from the list price of the product.
These discounts can be given either on individual orders (noncumulative basis) or on a series of
orders over a longer period of time, usually one year (cumulative basis). The purpose of this is to
encourage customers to buy in larger quantities and maintain customer loyalty. The amount of
quantity discounts depends on demand, costs and competition.
4. Cash Discounts
Commonly, cash discounts are given to encourage customers for prompt payments. This is
applicable on gross amount (basic price plus excise duty plus sales tax) of the bill and this is
granted to customers who pay bills within a stated period from the date of invoice.
5. Geographical Pricing
Pricing the company’s products based upon the different geographical locations of buyers.
Mainly, this happens since the company has to undergo different transportation costs and transit

53
insurance when delivering products to various locations. Here, there are two methods in
geographical pricing.

 Ex-Factory: here, transportation costs and transit insurance costs should be incurred by
the buyer. “ex-factory” means the prices prevailing at factory gate.
 FOR Destination or FOB Destination: this means free on road/free on board destination.
In this transportation (freight) costs are absorbed by the seller or include in the quoted
price. Although the small transit insurance costs are absorbed by the seller, commonly,
average transportation costs and transit insurance costs are included to the basic product
price. In this method, all customers get the product at the same price irrespective of their
location from the seller’s factory premises. However, in the intense competition sellers
can the whole transportation and transit insurance cost

6. Transfer pricing

A transfer price is the price at which divisions of a company transact with each other, such as the
trade of supplies or labor between departments. Transfer prices are used when individual entities
of a larger multi-entity firm are treated and measured as separately run entities. A transfer price
can also be known as a transfer cost.

Aims & Objective Of Transfer Pricing:

o Transfer pricing minimizes the tax burden or arranging direction of cash flow:
o Transfer pricing results in shifting profits:
o Shifting of Profits- Tax avoiding not the only object:
7. Leasing.

A lease is a contract outlining the terms under which one party agrees to rent property owned by
another party. It guarantees the lessee, also known as the tenant, use of an asset and guarantees
the lessor, the property owner or landlord, regular payments from the lessee for a specified
number of months or years. Both the lessee and the lessor face consequences if they fail to
uphold the terms of the contract.

Factors affecting pricing

A. Internal Factors:
1. Cost:
While fixing the prices of a product, the firm should consider the cost involved in producing the

product. This cost includes both the variable and fixed costs. Thus, while fixing the prices, the
firm must be able to recover both the variable and fixed costs.

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2. The predetermined objectives:
While fixing the prices of the product, the marketer should consider the objectives of the firm.

For instance, if the objective of a firm is to increase return on investment, then it may charge a

higher price, and if the objective is to capture a large market share, then it may charge a lower
price.

3. Image of the firm:

The price of the product may also be determined on the basis of the image of the firm in the

market. For instance, HUL and Procter & Gamble can demand a higher price for their brands, as
they enjoy goodwill in the market.

4. Product life cycle:

The stage at which the product is in its product life cycle also affects its price. For instance,

during the introductory stage the firm may charge lower price to attract the customers, and
during the growth stage, a firm may increase the price.

5. Credit period offered:

The pricing of the product is also affected by the credit period offered by the company. Longer

the credit period, higher may be the price, and shorter the credit period, lower may be the price
of the product.

6. Promotional activity:
The promotional activity undertaken by the firm also determines the price. If the firm incurs

heavy advertising and sales promotion costs, then the pricing of the product shall be kept high in
order to recover the cost.

B. External Factors:

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1. Competition:
While fixing the price of the product, the firm needs to study the degree of competition in the

market. If there is high competition, the prices may be kept low to effectively face the
competition, and if competition is low, the prices may be kept high.

2. Consumers:
The marketer should consider various consumer factors while fixing the prices. The consumer

factors that must be considered includes the price sensitivity of the buyer, purchasing power, and
so on.

3. Government control:
Government rules and regulation must be considered while fixing the prices. In certain products,

government may announce administered prices, and therefore the marketer has to consider such
regulation while fixing the prices.

4. Economic conditions:
The marketer may also have to consider the economic condition prevailing in the market while

fixing the prices. At the time of recession, the consumer may have less money to spend, so the
marketer may reduce the prices in order to influence the buying decision of the consumers.

5. Channel intermediaries:
The marketer must consider a number of channel intermediaries and their expectations. The

longer the chain of intermediaries, the higher would be the prices of the goods.

Module 5 Industrial Marketing Communication and Logistics

Industrial Marketing Communication

Industrial marketing, also known as business-to-business (B2B) marketing, is a branch of

communications and sales that specializes in providing goods and services to other businesses,
rather than to individual customers

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 Marketing communications uses different marketing channels and tools in combination:
Marketing communication channels focuses on any way a business communicates a message to
its desired market, or the market in general. A marketing communication tool can be anything
from: advertising, personal selling, direct marketing, sponsorship, communication, promotion
and public relations

The industrial marketing process

The first step in developing an industrial marketing plan is the same as developing any
kind of marketing plan: identify the customer. The producer must understand what kinds of
businesses would benefit from the product. This creates a foundation and focus for the rest of the
marketing plan.
Next, the producer needs to tailor their introduction to prospective clients. Though old-fashioned,
face-to-face networking is alive and well in the business-to-business world, it is increasingly
important to have a strong online presence. Potential clients will always research a company
before negotiating a sale of its product. A website with detailed but not overly specific content
about the company and its products serves as a great introduction.
In our previous example of the chocolate bar manufacturer, they might create an aesthetically
pleasing, well-written website talking about their company's history and the candy they produce.
They would then augment the effectiveness of the website by adding a regularly updated blog
about new products, or post on social networks informing users about the locations where they
can buy their chocolate.
Once a potential client is interested in the product, the producer should shift focus from the
general introduction of its web presence to more personalized meetings and presentations. Even
if the client isn't ready to sign a contract right away, getting to know them with professional,
non-pushy contact can be of great benefit.
Communication with potential clients through email, phone conversations, and in-person
presentations helps nurture the business relationship. Professionals at the chocolate manufacturer
might send product samples with personalized notes to develop a strong impression ahead of a
business meeting.
Once the client is ready to discuss the details of a contract, the marketing phase is nearly over.
The focus of all materials for this specific client should shift to maintaining a good working
relationship. The chocolate manufacturer should have a solid plan with its accounts managers for
how to compose emails and conduct phone conversations with representatives of the candy store,
as well as how to inform them about new products. Because the store is no longer a new client,
all communications should be customized to their specific experience with the producer.
Marketing Communication Mix
Marketing is a broad business function that includes product research and development,
merchandising and distribution processes and pricing, as well as communication or promotion.
The communication mix refers to specific methods used to promote the company or its products
to targeted customers. Some depictions of the promotional mix include five elements, while
others add a sixth -- event sponsorship.

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  Advertising

Advertising is often the most prominent element of the communication mix. In fact, marketing
and advertising are often misconstrued as the same thing. Advertising includes all messages a
business pays to deliver through a medium to reach a targeted audience. Since it involves the
majority of paid messages, companies often allocate significant amounts of the marketing budget
to the advertising function. While it can be costly, the advertiser has ultimate control over the
message delivered, since it pays the television or radio station, print publication or website for
placement.
 Personal Selling

Personal selling is sometimes integrated with the direct marketing element. However, many
companies make such extensive use of a sales force that it is important to consider this
component distinctly. Distribution channel suppliers use salespeople to promote products for
resale to trade buyers. Retail salespeople promote the value of goods and services to consumers
in retail businesses. Selling is more emphasized by companies that sell higher-end products and
services that require more assertive efforts to persuade customers to buy.
 Discounts and Promotions

Sales promotions or discounts are similar to advertising in that they are often promoted through
paid communication. However, sales promotions actually involve offering a discounted price to a
buyer. This may include coupons, percent-off deals and rebates. Along with ads to promote deals
and coupon mailers, companies use exterior signs and in-store signage to call customer attention
to the discounts. Goals of this communication tool include increasing revenue and cash flow,
attracting new customers and clearing out extra inventory.
 Public Relations

Public relations is sometimes somewhat similar to advertising in that much of it involves

messages communicated through mass media. The major difference is you don't pay for the time
or space for the message. A television or newspaper feature story mentioning a business, for
instance, isn't paid for and can provide brand exposure. The downside of PR is that you don't
always control the messages. You can try to influence them through press releases and invites for
media coverage, but the media could put a negative spin on the story.

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  Direct Marketing

Direct marketing includes some aspects of both sales promotions and personal selling. It is
interactive communication with customers where the company's message seeks or implores a
response from targeted customers. E-mail and direct mail are common formats. These messages
are sent to customers with special offers or calls to action, often promoting limited-time deals or
new product launches. Mail-order clubs, online or print surveys and infomercials are other
examples of direct marketing communication.
 Event Sponsorship

Event sponsorship is the element sometimes left out of the five-element communication mix.
Many models include it within advertising. Event sponsorship occurs with a company pays to
have a presence at a sports, entertainment, nonprofit or community events. The sponsorship may
include a mix of benefits including booth representation during the event to hand out samples,
gifts and literature, name mention during the event and ad spots connected to the event.

Salient features of business marketing communication

Elements of Business Communication:

Business communication involves six basic elements. They are as follows:

1. Message:
This is the subject-matter which is transmitted or passed by the sender to the other party or group
of persons. This might be opinion, order, suggestion, attitude, feeling, view, etc.

2. Sender:
He/she is the person who intends to make contact for passing information and understanding to
other person.

3. Receiver:
The person to whom the message is meant for is known as receiver or communicate.

4. Channels:

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Information is transmitted through certain channels (e.g., radio, television, telephone, letter, e-
mail, etc.). The media is selected by the sender considering various factors.

5. Symbols:
These are the words, actions and signs which are passed on by the sender while communicating
with the receiver.

6. Feedback:
When the receiver acknowledges the message of the sender and responds back to him/her,
feedback takes place. Without feedback communication is incomplete.

Features of Business Communication:

Business Communication has certain features or characteristics which enable us to distinguish it

from other communication.

A communication to be business communication must be:

1. Practical,

2. Factual,

3. Clear and brief,

4. Target-oriented,

5. Persuasive.

1. Practical:
Effective business communication deals with the practical aspect of the information explaining

why, how, when and the like queries. It avoids impractical, imaginary, unnecessary or repetitive
information to eliminate waste of time. It conveys important information to the receiver.

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2. Factual:
In general a business message contains facts and figures in place of overall idea. Important date,

place, time, etc. should be clearly mentioned in a business communication.

3. Clear and Brief:

The language used in business communication should be simple, clear, brief and without

ambiguity. Sometimes charts, photographs, diagrams, etc. are used to condense or clarify the
information.

4. Target-Oriented:
A business communication must have a specific objective and must be planned properly so that
the objective can be achieved.

5. Persuasive:
Business communication often plays a persuasive role. It persuades an employee to perform

his/her duties, a customer to buy a product or service etc. The basic characteristics mentioned
above are related to the message or information of the communication.

The process of business communication has certain other characteristics. They are:

1. Integral Part of Management Process:

Communication encompasses those activities by which the ideas, opinions and decisions of the

managers are conveyed to the subordinates of different ranks. It also involves the exchange of
facts, feelings, suggestions and responses between the superiors and subordinates.

Communication, in this way, puts the people into action, guides and directs their activities,

regulates and co-ordinates them for proper work performance. A manager, thus, performs the

management functions through communication and managerial positions become the

communication centres to receive information from various sources for its transmission to
relevant points.

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So, communication is a part and parcel of management function, and is, thus, an integral part of

management process. That is why, Chester I. Bernard remarks, “the first executive function is

to develop and maintain a system of communication”.

2. Two-Way Traffic:
Communication does not only mean its downward movement from superior to the subordinates it

implies both the transmission and reception. So, when conveying any information, a manager

should know its reactions and responses. Otherwise, managerial task of guiding and directing
will be ineffective.

A man should, thus, not only speak, inform and order, but should also be able to listen, answer

and interpret. Communication, therefore, involves two-way traffic from the managers to the

employees and from the employees to the managers. It is not complete unless the message has
been correctly understood by the receiver and its response becomes known to the sender.

3. Mutual Understanding:
The basic purpose of business communication is to bring about understanding between

individuals in the organisation. It is an important element for establishing human relationships. A

leader can lead and a manager can direct effectively by establishing perfect understanding with
the subordinates, peers and superiors in the organisation.

The greater the degree of understanding presents in the communication the more possibility that
human action will proceed in the direction of accomplishing the goals.

4. Pervasive:
The subject-matter of business communication covers a wide range and extends to all

functions—purchases, production, sales, finance, recruitment, wages, dividends, market

standing, innovation, productivity, etc. It also moves through all levels of management—

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upward, downward and sideways. Business communication is, thus, said to be a pervasive
function.

5. Continuity:
Communication is an ever-present activity and without it an organisation cannot exist.

Communication is as necessary to an organisation as blood circulation in a living body.

Therefore, the managers should ensure that adequate and smooth communication flows in all
directions.

Breakdown of communication results in misunderstanding, creation of unfavorable attitudes,

hostility and conflict. So, communication must be a continuous process and move up, down and
sideways for active participation of all concerned.

6. Specific:
A business communication is generally specific in nature. It means that a particular

communication should deal with a single subject at a time. This is necessary for the effectiveness

of communication. Multiplicity of subject in a communication has the possibility of creating

confusion which is dangerous to sound management. It must be specific with regard to the
information intended to be conveyed or received.

7. Result and not Cause:

Sound communication is the result of competent management, not the cause of it. Business

communication is a means to an end and acts as a tool in the hands of the managers. Successful

handling of this tool depends upon the competence of the managers. It is not an independent
activity, rather an essential ingredient of managerial function.

So, good communication does not produce good manager. But good manager is nearly always a
good communicator. Misconception of management process often leads to poor communication.

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8. Internal and External:
Business communication is primarily internal. It is, thus, a part of administrative function and

intended to apply to the members belonging to an organisation. Orders, instructions, suggestions

and even public notice announcing the annual general meeting of a company are some of the
examples of internal communication.

But nowadays, many communications move beyond the organisational horizons and touch the

outside population exceeding the organisation’s own (e.g., advertisement). Business

communication may thus be internal and external.

9. Different Types:
Business communication may be of different types—formal, informal, upward, downward,
sidewise, written, oral, etc.

10. Feedback:
A communication cannot be complete unless and until feedback or response of the recipient is

made. Feedback may be written, oral or gestural. Sometimes mere silence may also constitute a
feedback.

Objectives of Business Communication:

1. Giving Information:
2. Persuasion:.
3. Conveying Suggestion:.
4. Advice:
5. Motivation:
6. Training:
7. Instruction, Guidance and Counselling:
8. Giving Warning and Appreciating Good Work:
.

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Personal Selling

Personal selling is where businesses use people (the "sales force") to sell the product after
meeting face-to-face with the customer.

The sellers promote the product through their attitude, appearance and specialist product
knowledge. They aim to inform and encourage the customer to buy, or at least trial the product.

Personal selling Process

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 Personal selling is a form of selling that many companies rely on heavily to promote and
move their products. The personal selling process involves seven steps that a salesperson must
go through with most sales. Understanding these seven steps can help improve your individual
sales or the sales of your company.

1. Prospecting
The first step in the process involves prospecting. With this step in the process, sales
representatives look for new customers that they can potentially sell their products to. This can
be done by cold calling or by going out into the market and talking to people. This part of the
process is a numbers game, and the sales representative has to contact many people.

2. Pre-Approach
The pre-approach is the second step in the personal selling process. At this time, the sales
representative prepares for the first contact with the potential customer. During this stage, the
sales representative looks at any information that he may have about the customer. He may
practice his sales presentation and do anything necessary to prepare for it.

3. Approach
The approach is the next step in the process and it is also one of the most important. During this
step, the sales representative takes a minute or two to try to get to know the prospect. This phase
usually involves some small talk to warm up the prospect and help them open up.

4. Presentation
During this stage of the process, the sales representative makes a presentation. This can involve
demonstrating the product or service and showing the customer why they need it. The sales rep
should focus on the features and benefits of the product or service during this part of the process.

5. Overcome Objections
In some cases, the sales representative will have to overcome objections by the customer. Many
customers have questions and concerns at this point of the sales process. If the sales
representative can answer the questions and overcome any objections successfully, the barriers
for a successful sale will be removed.

6. Closing
After the objections have been removed, the only thing left to do is close the sale. This can
involve writing up an invoice and providing any final information to the customer. At this stage
of the process, you may need to negotiate the final sales price and any payment terms.

7. Follow Up
The follow up is the last stage in the personal sales process. After the product or service has been
delivered, the sales representative follows up with the customer to find out if they are pleased. If
there were any issues with the product, the sales rep can work with the customer to get them

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resolved. If the customer is happy, the sales rep can also try to obtain additional referrals from
the customer.

Types of industrial salesmen

1. The Manufacturer’s Salesman

There are three main types of salesmen employed by the manufacturer, viz.

 The pioneer or missionary type who introduces distribution for new products;

 The salesman who merely re-sells and renders service to the wholesalers, distributors and
dealers; and

A Salesman who is required to introduce a new product must, of necessity, be aggressive,

imaginative and have complete confidence in himself.

2. The Wholesaler’s Salesman

Before an article reaches the hands of the consumer it goes through a number of channels of

distribution; the main channels being the wholesalers and the retailers. The wholesaler is really

the middleman between the manufacturer and the retailer or the store from which the consumer
makes his-purchase.

A salesman employed by a wholesaler must call on his customers, who are retailers, at regular

intervals. The catalogue would normally contain numerous types of articles, sometimes running
into thousands of items.

3. The Retail Salesman

Retailers generally employ two types of salesman, viz., (1) the “indoor” or retail store salesman
who works inside the store, and (2) the “outdoor” or “travelling” salesman.

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 4. Specialty Salesman
A salesman required to sell specialty goods must have great imagination and perseverance as the

salesmanship involved is highly creative. A specialty article is generally of high price, is

irregular from the point of view of time of purchase, and involves personal selection on the part
of the purchaser.

A specialty salesman is thus one who specialises in selling a product or a service as against the
salesman who sells a line of product.

5. The Industrial Salesman

The industrial salesman sells to industries or manufacturers or business houses. Technical service

is generally required in case of the sale of technical products. It is often the salesman’s job to
communicate technical innovations.

The industrial salesman generally requires greater sophistication than the salesman who merely

sells consumer products to wholesalers or retailers. This is particularly because there are

differences in the requirements of industrial purchasers or prospects when compared with

personal consumers.

6. The Importer’s Salesman and Indent Business

The responsibility of the exporter’s salesman, that is, a salesman who specialises in the export of

goods of his company, is very complex. He has to supply the needs of foreign markets and has,
therefore, to select very carefully the distributors for the goods.

The distributor must be given adequate and complete information about the product and should
be even assisted in analysing the market.

Management of sales force

Salesforce is an information system used in CRM marketing and management that help
automate some sales and Salesforce management functions. They are often combined with

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a marketing information system, in which case they are often called customer relationship
management (CRM) systems.
In order to establish a dynamic Salesforce strategy and business process, Salesforce relies on
goals, plans and direction. In order to put in place your strategy and business process, specific
procedures must be implemented:

Identifiable sales force management processes:

 Setting targets and objectives based on inputs.
 Assigning roles responsible for achieving objectives
 Control processes for ensuring objectives are being achieved within a given time frame, a
given market
 System management to handle automation

Sales management is the process of developing a sales force, coordinating sales operations,

and implementing sales techniques that allow a business to consistently hit, and even surpass, its
sales targets.

The Three Key Aspects of Sales Management

There are three “umbrellas” to manage within the sales process:

 Sales Operations

 Sales Strategy

 Sales Analysis

Training for sales force

A highly trained sales force can sell even the most mediocre product. Naturally, you want to give
your sales team the knowledge and tools it needs to succeed. Your sales force needs knowledge
in three major areas--your product, your industry and general sales skills. By offering a well-
rounded training program, new staff will be up and running in no time and old staff members
will be able to constantly improve their sales skills.

 Provide hands-on product knowledge training

 Send out new sales staff to watch experienced sellers
 Update your staff periodically on your industry
 Create a sales reference library

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  Teach your representatives to use the tools that can help them succeed.
 Use E-Learning to Educate
 Keep Training Short but Consistent With Micro-Learning
 Reward Specific Achievements

 Field Train and Provide Detailed Feedback

 Share Success Stories

Organizing sales force

Sales force organization is the process of allocating and managing sales resources to meet
sales and marketing objectives. The organization reflects the number of sales representatives and
their skills, the size of the product range, the location of customers and prospects, and the market
sectors in which a company operates. An effective sales force organization provides account and
geographic coverage, minimizes wasted resources and time, and ensures a higher probability of
attaining sales quotas, according to consultancy Baker Communications.
 Strategy
Align your sales organization with your overall business strategy. Choose a regional sales force
structure if you plan to grow your business in different territories. Create a structure based on
different market sectors if you aim to increase market share in specific sectors such as financial
services or manufacturing. Set up a structure based on customer size if you want to focus on
growing business with high-potential accounts.

The sales force organization must align with overall sales and marketing strategy. Companies
that aim to grow their business in different domestic or export territories should organize their
sales force along regional lines. If a company wants to increase share in specific industry sectors,
such as defense or manufacturing, it should organize the sales force by market sector. Companies
with a small number of major customers must focus sales force resources on serving those
customers. To service a large number of smaller customers, a company may choose to appoint
distributors, with members of the sales force taking responsibility for developing sales through
the distributor network, rather than selling directly.
 Location
Allocating resources to sales territories is an important element of sales force organization.
Companies with customers across the country divide their market by convenient geographical
groupings, such as north, south, east and west. Companies that serve industries with a geographic
concentration, such as Silicon Valley for information technology companies, Washington for

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government agencies or Detroit for automotive manufacturers, may create a regional
organization focused on territories that reflect their key market sectors.
 Specialization
Sales force organization takes account of a company’s skills and specializations. A company
with complex technical products, for example, might organize its sales force by product line. It
would recruit sales representatives with good technical knowledge or invest in product training
programs so that the sales force can provide a high level of technical service to customers.
Companies with specialist knowledge of customer issues in specific market sectors organize the
sales force by sector, positioning themselves as experts in the sector.
 Support
A key element in sales force organization is the support available to the direct sales effort.
Companies can improve sales force productivity by using a telemarketing team to cover time-
consuming tasks, such as setting appointments, qualifying prospects or taking routine, low-value
orders. Building relationships with marketing to develop lead generation programs can improve
the quality of sales force prospecting
 Structure
Structure your sales force to provide adequate coverage for your important sales regions. If you
sell products throughout the U.S., divide the country into regions that your sales team can cover
easily without excessive travel. Choose a simple structure, such as north, south, east and west, if
each territory offers similar sales potential. With a larger sales force, subdivide those territories
or appoint some team members to concentrate on regions with higher sales potential.
 Focus on important customers
Focus on important customers. If you have a small number of customers who account for the
majority of your sales, include a key account manager in your sales-force structure. A key
account manager takes responsibility for managing relationships with your most important
customers and ensuring that they receive a high standard of service. Protecting key accounts is
vital, because the loss of a large customer could damage your business. If retailers or distributors
are important to your business, appoint a member of the sales force to work with them. The
representative takes responsibility for placing products in your distributor network and for
working with distributors to help them increase sales of your products to their own customers.

Industrial Marketing Logistics

Marketing logistics involve planning, delivering, and controlling the flow of physical
goods, marketing materials and information from the producer to a market as necessary to meet
customer demands while still making a satisfactory profit. Maintaining an organization’s

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competitive edge means understanding and implementing an effective marketing logistics
strategy regarding product, price, place and promotion. These four functions of marketing
logistics help the organization to reach the target customers and deliver the products or services
sold by the organization to these customers.

Recently logistics and marketing have been treated in companies as separate areas. The reasons
of that fact were the following
 Traditional treatment and mechanical division of marketing and logistics function, but
meaning of logistics in gaining and maintaining of competitive edge was small (logistics
was treated and organized as a transportation and warehousing department),
 Showing off a role of logistic costs from the point of view of a growth of company
effectiveness and success (cost approach was against marketing market orientation,
which caused separation of marketing and logistics),
 underestimation in practice of goods physical route management and its information
conditions in aspect of integrated marketing management (not long ago marketing
management was restricted to product’s strategy, price and promotion; rarely a marketing
department was responsible for all aspects of integrated management in the sphere of
distribution and delivery with conscious logistics including).

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The service of deliveries and logistic services for clients, as a multidimensional logistics effect,
occupies a central place among other marketing instruments. Commonly with such instruments
like product’s policy, price and promotion, logistics is used — in the framework of marketing
strategy — to achieve the highest level of quality of customers’ satisfaction and their fulfillment
from trade contacts

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Four Functions of Marketing Logistics
 Product Delivery
 Price
 Promotion
 Place

Components/ functions of logistics

 Customer Service

Customer service is a multi-dimensional and very important part of any organization's logistics
effort. In a broad sense, it is the output of the entire logistics effort; that is, customer service and
some resulting level of satisfaction are what the logistics system ultimately provides the buyer.
However, many organizations do have a more narrow functional vew of customer service as
something they actually perform. For example, a firm may have a customer service department
with customer service employees that handle complaints, special orders, damage claims, returns,
billing problems, etc. For all intents and purposes, these employees are the organization as far as
many buyers are concerned, so their role in the overall logistics system becomes crucial.
Disappointment at this level can lead to dissatisfaction with the organization as a whole that
effectively neutralizes the entire logistics effort.

 Inventory Management

Inventory management deals with balancing the cost of maintaining additional products on hand
against the risk of not having those items when the customer wants them (i.e. the cost of lost

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sales). This task has become more complex as firms have gradually lowered inventory levels.
The challenge in this situation is to manage the rest of the logistics system to accommodate the
lack of inventory so that customer service does not suffer. However, all of the interest in
reducing inventories notwithstanding, the fact remains that inventory management is still
necessary for serving customers in many markets.

 Transportation

Transportation refers to the physical movement of goods from a point of origin to a point of
consumption . It can involve raw materials being brought into the production process and/or
finished goods being shipped out to the customer. Transportation has assumed a greater role in
many logistics systems for two reasons. First, the liberalization of transportation laws in many
countries has provided opportunities for knowledgeable managers to obtain better service at
lower prices than they could in the past. Second, as inventory levels have dropped in response to
the popularity of just-in-time (JIT) strategies, transportation is frequently used to offset the
potentially damaging impact on customer service levels that would otherwise result from those
inventory reductions.

 Storage and materials handling

Storage and materials handling addresses the physical requirements of holding inventory.
Storage encompasses the tasks necessary to manage whatever space is needed; materials
handling is concerned with the movement of goods within that space. Thus, the former would
consider issues related to warehouse number, size, layout, and design: the latter would focus on
the systems needed to move goods into, through, and out of each facility. Obviously, an
organization's inventory policies have a direct impact on their storage and handling needs. Thus,
one result of the move to smaller inventories is the requirement for less storage space.

 Packaging

Packaging focuses on protecting the product while it is being shipped and stored. Too much
packaging increases costs while inadequate protection can result in merchandise damage and
ultimately, customer dissatisfaction. Furthermore, since every bit of packaging is ultimately
discarded, logistics managers must also consider the societal costs associated with waste
disposal. Increasingly, firms are working to develop materials that provide requisite levels of
protection yet are recyclable or quickly biodegradable.

 Information Processing

Information processing is what links all areas of the logistics system together. The growth of
reasonably priced computers and software has put sophisticated management information
systems within the reach of even the smallest organization. Indeed firms are now linking their
internal logistics information systems with those of their vendors and customers as a means of
adding more value to the entire chain. Such an open exchange of information can result in faster

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order placement, quicker benefit delivery, and greater accountability throughout the logistics
process.

 Demand Forecasting

Demand forecasting addresses the need for accurate information on future customer needs. The
logistics system ensures the right products and / or services are available to meet customer
requirements. Logistics requirements necessitate going beyond market sales forecasting to obtain
specific data on the timing, mix, and quantity of benefits desired by buyers. Without this
information, the logistics system runs the risk of compromising customer satisfaction rather than
enhancing it.

 Production Planning

Production planning can be included under logistics because manufacturing needs components
and raw materials in order to make finished goods that are, in turn, demanded by a customer.
Thus, production planning is arguably at the center of the entire logistics process, yet it is often
viewed as a stand-alone entity with its own objectives and agenda. The risk here is that
production rather than customer needs becomes the primary focus, a situation that can lead to
customer dissatisfaction.

Supply chain management

Supply chain management (SCM) is the broad range of activities required to plan, control
and execute a product's flow, from acquiring raw materials and production through distribution
to the final customer, in the most streamlined and cost-effective way possible.
SCM encompasses the integrated planning and execution of processes required to optimize the
flow of materials, information and financial capital in the areas that broadly include demand
planning, sourcing, production, inventory management and storage, transportation --
or logistics -- and return for excess or defective products. Both business strategy and specialized
software are used in these endeavors to create a competitive advantage.
SCM Processes

 Planning – the plan process seeks to create effective long- and short-range supply chain
strategies. From the design of the supply chain network to the prediction of customer
demand, supply chain leaders need to develop integrated supply chain strategies.
 Procurement – the buy process focuses on the purchase of required raw materials,
components, and goods. As a consumer, you're pretty familiar with buying stuff!
 Production – the make process involves the manufacture, conversion, or assembly of
materials into finished goods or parts for other products. Supply chain managers provide
production support and ensure that key materials are available when needed.
 Distribution – the move process manages the logistical flow of goods across the supply
chain. Transportation companies, third party logistics firms, and others ensure that goods
are flowing quickly and safely toward the point of demand.

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  Customer Interface – the demand process revolves around all the issues that are related
to planning customer interactions, satisfying their needs, and fulfilling orders perfectly.

Seven Principles of SCM

 Principle 1: Segment customers based on the service needs of distinct groups and adapt
the supply chain to serve these segments profitably.
 Principle 2: Customize the logistics network to the service requirements and profitability
of customer segments.
 Principle 3: Listen to market signals and align demand planning accordingly across the
supply chain, ensuring consistent forecasts and optimal resource allocation.
 Principle 4: Differentiate product closer to the customer and speed conversation across
the supply chain.
 Principle 5: Manage sources of supply strategically to reduce the total cost of owning
materials and services.
 Principle 6: Develop a supply chain-wide technology strategy that supports multiple
levels of decision making and gives clear view of the flow of products, services, and
information.
 Principle 7: Adopt channel-spanning performance measures to gauge collective success
in reaching the end-user effectively and efficiently.

What Is a Distribution Channel?

The distribution function of marketing is comparable to the place component of the marketing
mix in that both center on getting the goods from the producer to the consumer. A distribution
channel in marketing refers to the path or route through which goods and services travel to get
from the place of production or manufacture to the final users. It has at its center transportation
and logistical considerations.
Business-to-business (B2B) distribution occurs between a producer and industrial users of raw
materials needed for the manufacture of finished products. For example, a logging company
needs a distribution system to connect it with the lumber manufacturer who makes wood for
buildings and furniture.
Business-to-customer (B2C) distribution occurs between the producer and the final user. For
instance, the lumber manufacturer sells lumber to the furniture maker, who then makes the
furniture and sells it to retail stores, who then sell it to the final customer.

Types of distribution

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  Intensive Distribution:
Intensive distribution aims to provide saturation coverage of the market by using all available

outlets. For many products, total sales are directly linked to the number of outlets used (e.g.,

cigarettes, beer). Intensive distribution is usually required where customers have a range of

acceptable brands to choose from. In other words, if one brand is not available, a customer will
simply choose another.

 Selective Distribution:
Selective distribution involves a producer using a limited number of outlets in a geographical

area to sell products. An advantage of this approach is that the producer can choose the most

appropriate or best-performing outlets and focus effort (e.g., training) on them. Selective

distribution works best when consumers are prepared to “shop around” – in other words – they
have a preference for a particular brand or price and will search out the outlets that supply.

 Exclusive Distribution:
Exclusive distribution is an extreme form of selective distribution in which only one wholesaler,
retailer or distributor is used in a specific geographical area.

When the firm distributes its brand through just one or two major outlets in the market, who

exclusively deal in it and not all competing brands, it is said that the firm is using an exclusive

distribution strategy. This is a common form of distribution in products and brands that seek a
high prestigious image.

Channel systems

The marketing channel is one of the key drivers for strategies around the marketing mix, i.e.
product, price, place and promotion.

 The channel flow is a flow which relates different agencies involved in the distribution of
goods and products.

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  The channel structure is referred to as the combination of different channel members in
achieving organization’s marketing mix strategy.

 The marketing channel consists of various players like manufacturers, producers,

wholesalers and retailers. Manufacturers and producers develop their own marketing
channel to reach the end user. However, not all manufacturers have the expertise in
managing channel participants. Therefore, they need wholesalers and retailers for
distribution of goods.

 There are three types of wholesalers; merchant wholesalers, agents and producer’s branch
offices. Merchant wholesalers usually have good capacity of storing and managing
goods. In contrast, agent works as middlemen for producers and end users. Retailers are
responsible for selling goods and products to end users.

Types of Marketing Channels

 Manufacturer to Customer

Manufacturer makes the goods and sells them to the consumer directly with no intermediary,
such as a wholesaler, agent or retailer. Goods come from the manufacturer to the user without an
intermediary or middleman. For example, a farmer may sell some produce directly to customers.
For example, a bakery may sell cakes and pies directly to customers.
 Manufacturer to Retailer to Consumer

Purchases are made by the retailer from the manufacturer and then the retailer sells the
merchandise to the consumer. This channel is used by manufacturers that specialize in producing
shopping goods. For example, clothes, shoes, furniture and fine china. This merchandise may not
be needed immediately and the consumer may take her time and try on the items before making a
buying decision. Manufacturers that specialize in producing shopping goods prefer this method
of distribution.
 Manufacturer to Wholesaler to Customer

Consumer’s can buy directly from the wholesaler. The wholesaler breaks down bulk packages
for resale to the consumer. The wholesaler reduces some of the cost to the consumer such as
service cost or sales force cost, which makes the purchase price cheaper for the consumer. For
example, shopping at some of the warehouse clubs, the customer may have to buy a membership
in order to buy directly from the wholesaler.
 Manufacturer to Agent to Wholesaler to Retailer to Customer

Distribution that involves more than one intermediary involves an agent called in to be the
middleman and assist with the sale of the goods. An agent receives a commission from the

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 producer. Agents are useful when goods need to move quickly into the market soon after the
order is placed. For example, a fishery makes a large catch of seafood; since fish is perishable it
must be disposed of quickly. It is time consuming for the fishery to contact many wholesalers all
over the country so he contacts an agent. The agent distributes the fish to the wholesalers. The
wholesalers sell to retailers and then retailers sell to consumers.

Multi-channel marketing system

Multichannel marketing refers to the practice of interacting with customers using a

combination of indirect and direct communication channels – websites, retail stores, mail order
catalogs, direct mail, email, mobile, etc. – and enabling customers to take action in response –
preferably to buy your product or service – using the channel of their choice. In the most
simplistic terms, multichannel marketing is all about choice.

Establish a multichannel marketing platform

You may have heard the saying, "If all you have is a hammer, everything looks like a nail." The
concept certainly applies to marketing, and that’s why it’s so important to establish a
multichannel marketing platform. And by "multichannel marketing platform," we mean one that
includes processes and technology to support:

 Campaign management, including capabilities for segmentation, workflow creation and

campaign execution.

 Advanced analytics, including predictive analytics and campaign optimization.

 Advanced execution, including capabilities for content management, event triggering, real-time
decision making and next-best-offer management for both inbound and outbound marketing
programs.

 Response attribution, including the ability to perform marketing mix optimization, scenario
planning and marketing attribution analysis.

 Digital marketing, including capabilities that expand marketing beyond traditional channels to
newer channels, including the Web, email, mobile, video, etc.

By establishing a multichannel marketing platform, you will be able to integrate traditional and
emerging channels. You will also greatly simplify the creation and execution of cross-channel
campaigns by enabling marketers to create, in essence, a single campaign that can be replicated
across various channels. And all this puts the holy grail of marketing within your grasp –

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reaching the right person with the right offer through the right channel at the right time, while
reducing costs and improving the effectiveness and performance of your marketing efforts.

Direct Channel of Distribution

A direct channel of distribution describes a situation in which the producer sells a product
directly to a consumer without the help of intermediaries. A direct chain of distribution may
involve face-to-face sales, computer sales or mail order but does not involve any form of
distributor other than the original producer. Chains of distribution that involve nonaffiliated
retailers or wholesalers cannot be described as direct channels of distribution and are instead
classified as indirect chains of distribution.

Direct channels tend to be expensive to establish, sometimes demanding substantial capital

investment in warehouses, logistics, transport vehicles, and driving staff. After its components
are in place, however, a direct channel is likely to be more economical and efficient in operation
than an indirect channel. Direct selling, though in some cases difficult to manage on a large
scale, often gives manufacturers better connections to consumer bases than do indirect channels.

Direct marketing aims at a specific audience or consumer profile to stimulate a direct

response to the product or service marketed and to measure the response. Direct marketing can
be intrusive and annoying when businesses don’t use it in comprehensive marketing strategies.
The most popular direct marketing methods are by (1) Direct Mail, (2) Telemarketing, and (3)
Online.

Indirect Distribution

The most challenging part of indirect distribution channels is that another party has to be
entrusted with the manufacturer's products and customer interaction. However, the most
successful logistics companies are experts at delivering receivables in a way that most
manufacturers cannot be.

The most challenging aspect of indirect distribution channels is the necessity to entrust third-
party middlemen with product handling and customer interaction. The most successful of such
intermediary logistics agents, however, are adept at product deliveries in ways that most
manufacturers are not. Indirect channels also free manufacturers from delivery system startup
costs. In harmonious relationships, they are much simpler and more cost-effective to manage
than are direct distribution channels.

Indirect channels also free the manufacturer from any startup costs. With the right relationship,
they are much simpler to manage than direct distribution channels. indirect marketing typically

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 involves a third-party distributor or seller. Indirect marketing does not aim at a specific consumer
audience as does direct marketing. An example of indirect marketing is the traditional storefront
window display. The retailer’s commercial space comes between the producer and the consumer;
therefore, it is indirect.

Indirect marketing enables businesses to attract a large and diverse consumer pool. Indirect
marketing through third parties provides businesses with access to amenities that they do not
have, retail space as an example. However, indirect marketing affects product profit margin
direct marketing cuts out the third-party middleman for larger returns.

Channel conflicts

Channel conflict is a situation in which channel partners have to compete against one another or
a vendor's internal sales department.

Impact of channel conflict

When channel conflict and disintermediation occurs, the consequences can be far-reaching for
both channel partners and their vendors.

Channel partners face not only the loss of the potential deal, but also the resources they invested
in the sales cycle. In the IT industry, the sales process can be expensive, and it often takes
extensive periods of time before a transaction is finalized.

Types of Channel conflict

1. Vertical Channel Conflict: This type of conflict arises between the different levels in the same
channel.
E.g.The conflict between the manufacturer and the wholesaler regarding price, quantity,
marketing activities, etc.
2. Horizontal Channel Conflict: This type of conflict arises between the same level in the same
channel.
E.g. The conflict between two retailers of the same manufacturer faces disparity in terms of sales
target, area coverage, promotional schemes, etc.
3. Multichannel Conflict: This type of conflict arises between the different market channels
participating in the common sale for the same brand

.
E.g. If a manufacturer uses two market channels, first is the official website through which the
products and services are sold. The second channel is the traditional channel i.e. through
wholesaler and retailer. If the product is available at a much lower price on a website than is
available with the retailer, the multichannel conflict arises.
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Causes of Channel conflict

 Goal incompatibility

 Ambiguous Roles

 Different Perceptions

 Manufacturer dominating the Intermediaries

 Lack of Communication

Channel Conflict Management

Definition: The Channel Conflict arises when the channel partners such as manufacturer,
wholesaler, distributor, retailer, etc. compete against each other for the common sale with the
same brand.

It can be managed by;

 Subordinate Goals

 Exchanging employees

 Trade associations

 Diplomacy, Mediation and Arbitration

Factors influencing channel design.

The selection of a proper channel of distribution is very important. A number of factors influence
this decision

(A) Product Considerations:

The nature and type of product helps in determining a decision about channel of distribution.

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(i) Price of Product:
(ii) Weight
(iii) Standardisation
(iv) Product Nature

(B) Market Considerations:

The nature and type of market and customers influence a decision for selecting
channels of distribution.

(i) Market Size

(ii) Nature of Customers
(iii) Location of Buyers

(C) Consumer Considerations:

The quantity to be purchased and the number of customers also influence the selection of a
particular channel of distribution.

(i) Number of Customers

(ii) Quantity to he Purchased

(D) Middlemen Considerations:

The impact of middlemen’s commission on price and their effect on sales will help in deciding
about the channel of distribution.

(i) Availability
(ii) Cost
(iii) Effect on Sales

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