Industrial Marketing

Industrial Marketing
This book is a part of the course by Jaipur National University, Jaipur.

This book contains the course content for Industrial Marketing.
JNU, Jaipur
First Edition 2013
The content in the book is copyright of JNU. All rights reserved.

No part of the content may in any form or by any electronic, mechanical, photocopying, recording, or any other
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JNU makes reasonable endeavours to ensure content is current and accurate. JNU reserves the right to alter the
content whenever the need arises, and to vary it at any time without prior notice.
Index
I. Content....................................................................... II
II. List of Figures...........................................................IX
III. List of Tables............................................................ X
IV. Abbreviations..........................................................XI
V. Case Study.............................................................. 127
VI. Bibliography.......................................................... 132
VII. Self Assessment Answers................................... 133
Book at a Glance
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Content
Chapter I........................................................................................................................................................ 1
Nature of Industrial Marketing................................................................................................................... 1
Aim................................................................................................................................................................. 1
Objectives....................................................................................................................................................... 1
Learning outcome........................................................................................................................................... 1
1.1 Introduction............................................................................................................................................... 2
1.2 Industrial Classification............................................................................................................................ 3
1.3 Industrial Demand..................................................................................................................................... 4
1.3.1 Derived Demand....................................................................................................................... 4
1.3.2 Joint Demand............................................................................................................................ 4
1.4 Cross-elasticity of Demand....................................................................................................................... 4
1.5 Industrial Marketing Vs Consumer Marketing......................................................................................... 5
1.6 Major Differences Between Consumer Marketing and Industrial Marketing ......................................... 5
1.7 Factors....................................................................................................................................................... 5
1.7.1 Market Characteristics ............................................................................................................. 5
1.7.2 Product Characteristics............................................................................................................. 5
1.7.3 Buyer Behaviour....................................................................................................................... 6
1.7.4 Channel Characteristics............................................................................................................ 6
1.7.5 Promotional Characteristics...................................................................................................... 6
1.7.6 Price Characteristics................................................................................................................. 7
Summary........................................................................................................................................................ 8
References...................................................................................................................................................... 8
Recommended Reading................................................................................................................................ 8
Self Assessment.............................................................................................................................................. 9
Chapter II.....................................................................................................................................................11
Understanding the Industrial Market........................................................................................................11
Aim................................................................................................................................................................11
Objectives......................................................................................................................................................11
Learning outcome..........................................................................................................................................11
2.1 Industrial Market..................................................................................................................................... 12
2.2 Important Features of the Industrial Market........................................................................................... 12
2.3 Need for Understanding Industrial Markets........................................................................................... 12
2.4 Industrial Customers............................................................................................................................... 12
2.4.1 Commercial Enterprises.......................................................................................................... 13
2.4.2 Government Customers.......................................................................................................... 13
2.4.3 Institutional Customers........................................................................................................... 13
2.4.4 Co-operative Societies............................................................................................................ 13
2.5 Classification of Industrial Products and Services.................................................................................. 13
2.5.1 Materials and Parts.................................................................................................................. 13
2.5.2 Capital Items........................................................................................................................... 14
2.5.3 Supplies and Services............................................................................................................. 14
2.6 Industrial Purchasing System.................................................................................................................. 14
2.6.1 Commercial Enterprises Purchasing System.......................................................................... 14
2.6.2 Government Purchase System................................................................................................ 14
2.6.3 Institutional Purchasing.......................................................................................................... 15
2.6.4 Purchasing in the Resellers’ Market....................................................................................... 15
2.6.5 Purchasing in Co-operative Societies..................................................................................... 15
Summary...................................................................................................................................................... 16
References.................................................................................................................................................... 16
Recommended Reading.............................................................................................................................. 16
Self Assessment............................................................................................................................................ 17
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Chapter III................................................................................................................................................... 19
Industrial Marketing Environment........................................................................................................... 19
Aim............................................................................................................................................................... 19
Objectives..................................................................................................................................................... 19
Learning outcome......................................................................................................................................... 19
3.1 Introduction............................................................................................................................................. 20
3.2 Business Environment............................................................................................................................ 21
3.3 Factors Influencing the Industrial Marketing Environment.................................................................... 21
3.3.1 Micro-environmental Factors................................................................................................. 21
3.3.2 Macro-environmental Factors................................................................................................. 22
3.3.2.1 Governmental, Political and Legal........................................................................... 22
3.3.2.2 Economic Environment............................................................................................ 22
3.3.2.3 Technological........................................................................................................... 23
3.3.2.4 Social........................................................................................................................ 23
3.3.2.5 Public........................................................................................................................ 23
3.4 Managing the Industrial Marketing Environment................................................................................... 24
3.4.1 Independent Strategies............................................................................................................ 24
3.4.2 Co-operative Strategies........................................................................................................... 24
3.4.3 Strategic Planning .................................................................................................................. 25
Summary...................................................................................................................................................... 26
References.................................................................................................................................................... 26
Self assessment............................................................................................................................................ 27
Chapter IV................................................................................................................................................... 29
Industrial Buying and Buying Behaviour................................................................................................. 29
Aim............................................................................................................................................................... 29
Objectives..................................................................................................................................................... 29
4.1 Introduction............................................................................................................................................. 30
4.2 Purpose of Industrial Buying.................................................................................................................. 30
4.3 The Industrial Buying Decision Process................................................................................................. 31
4.3.1 Problem Recognition.............................................................................................................. 31
4.3.2 Need Description.................................................................................................................... 32
4.3.3 Product Specification.............................................................................................................. 32
4.3.4 Vendor/Supplier Search.......................................................................................................... 32
4.3.5 Proposal Solicitation............................................................................................................... 32
4.3.6 Vendor Selection..................................................................................................................... 33
4.3.7 Purchase Routine Selection.................................................................................................... 33
4.3.8 Post-purchase Evaluation........................................................................................................ 33
4.4 Buying Centre......................................................................................................................................... 33
4.4.1 Buying Centre Roles................................................................................................... 34
4.4.1.1 Initiators................................................................................................................... 34
4.4.1.2 Influencers................................................................................................................ 34
4.4.1.3 Buyers...................................................................................................................... 34
4.4.1.4 Deciders.................................................................................................................... 34
4.4.1.5 Gatekeepers.............................................................................................................. 34
4.4.2 Important Members of the Buying Centre.............................................................................. 34
4.4.2.1 Top Management Persons........................................................................................ 34
4.4.2.2 Technical Persons..................................................................................................... 35
4.4.2.3 Persons in the Purchase/ Materials Department....................................................... 35
4.4.2.4 Finance/Accounts Persons....................................................................................... 35
4.4.2.5 Marketing Persons.................................................................................................... 35
4.5 Major Buying Decisions taken by Business Buyers............................................................................... 35
4.5.1 Straight Re-buy....................................................................................................................... 35
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4.5.2 Modified Re-buy..................................................................................................................... 35
4.5.3 New Tasks............................................................................................................................... 35
Summary...................................................................................................................................................... 37
References.................................................................................................................................................... 37
Self Assessment............................................................................................................................................ 38
Chapter V..................................................................................................................................................... 40
Industrial Market Segmentation, Targeting and Positioning................................................................. 40
Aim............................................................................................................................................................... 40
Objectives..................................................................................................................................................... 40
5.1 Introduction............................................................................................................................................. 41
5.2 Market Segmentation.............................................................................................................................. 41
5.2.1 Profiling.................................................................................................................................. 42
5.3 Benefits of Market Segmentation........................................................................................................... 42
5.4 Limitations of Market Segmentation...................................................................................................... 42
5.5 Requirements for Effective Segmentation.............................................................................................. 43
5.6 Macro and Micro Segmentation.............................................................................................................. 43
5.6.1 Macro Segmentation............................................................................................................... 43
5.6.2 Micro Segmentation................................................................................................................ 44
5.7 Target Market.......................................................................................................................................... 44
5.8 Evaluation of Market Segmentation....................................................................................................... 44
5.9 Selecting the Target Segments................................................................................................................ 45
5.10 Target Market Strategies....................................................................................................................... 45
5.10.1 Concentrated Marketing....................................................................................................... 45
5.10.2 Differentiated Marketing...................................................................................................... 46
5.10.3 Undifferentiated Marketing.................................................................................................. 46
5.11 Niche Marketing................................................................................................................................... 46
5.12 Positioning............................................................................................................................................ 46
5.12.1 Positioning Strategies........................................................................................................... 47
5.12.2 Types of Positioning............................................................................................................. 47
5.12.3 Communicating the Company’s Positioning........................................................................ 47
Summary...................................................................................................................................................... 49
References.................................................................................................................................................... 49
Self Assessment............................................................................................................................................ 50
Chapter VI................................................................................................................................................... 52
Industrial Product Decisions...................................................................................................................... 52
Aim............................................................................................................................................................... 52
Objectives..................................................................................................................................................... 52
6.1 Introduction............................................................................................................................................. 53
6.2 Factors for Change in Product Strategy.................................................................................................. 53
6.3 Marketing Strategies During the Different Stages of Product Lifecycle ............................................... 54
6.3.1 Introduction Stage................................................................................................................... 54
6.3.2 Growth Stage.......................................................................................................................... 54
6.3.3 Maturity Stage......................................................................................................................... 55
6.3.4 Decline Stage.......................................................................................................................... 55
6.4 New Product Development..................................................................................................................... 55
6.4.1 Success Factors for Products.................................................................................................. 56
6.4.2 Steps in New Product Development....................................................................................... 56
6.4.2.1 Idea Generation........................................................................................................ 56
6.4.2.2 Idea Screening.......................................................................................................... 56
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6.4.2.3 Concept Development and Testing.......................................................................... 57
6.4.2.4 Business Analysis..................................................................................................... 57
6.4.2.5 Product Development............................................................................................... 57
6.4.2.6 Market Testing.......................................................................................................... 57
6.4.2.7 Commercialisation................................................................................................... 58
6.5 Marketing of Industrial Services............................................................................................................. 58
6.6 Classification of Industrial Services....................................................................................................... 58
6.6.1 Unique Characteristics of Services......................................................................................... 58
6.7 Marketing Strategies for Industrial Service Firms.................................................................................. 60
6.7.1 Service Differentiation............................................................................................................ 60
6.7.2 Service Pricing........................................................................................................................ 60
6.7.3 Service Promotion................................................................................................................... 60
6.7.4 Service Distribution................................................................................................................ 60
Summary...................................................................................................................................................... 61
References.................................................................................................................................................... 61
Self Assessment............................................................................................................................................ 62
Chapter VII................................................................................................................................................. 64
Industrial Pricing........................................................................................................................................ 64
Aim............................................................................................................................................................... 64
Objectives..................................................................................................................................................... 64
7.1 Introduction............................................................................................................................................. 65
7.2 Characteristics of Industrial Prices......................................................................................................... 65
7.3 Factors Affecting Pricing........................................................................................................................ 66
7.3.1 Pricing objectives.................................................................................................................... 66
7.3.1.1 Survival.................................................................................................................... 66
7.3.1.2 Maximum Current Profit.......................................................................................... 66
7.3.1.3 Maximum Current Revenue..................................................................................... 66
7.3.1.4 Maximum Sales Growth.......................................................................................... 66
7.3.1.5 Maximum Market Skimming................................................................................... 67
7.3.1.6 Product Quality Leadership...................................................................................... 67
7.3.1.7 Other Pricing Objectives.......................................................................................... 67
7.3.2 Demand Analysis.................................................................................................................... 67
7.3.3 Determining Price Elasticity of Demand................................................................................ 68
7.3.4 Cost Analysis.......................................................................................................................... 68
7.3.5 Competitive Analysis.............................................................................................................. 69
7.3.6 Government Regulations........................................................................................................ 69
7.4 Industrial Pricing Policies....................................................................................................................... 69
7.5 Key Terms Associated with Pricing........................................................................................................ 70
7.5.1 List pricing.............................................................................................................................. 70
7.5.2 Net Price................................................................................................................................. 70
7.5.3 Discount Pricing..................................................................................................................... 70
7.5.4 Legal Consideration to Discount Pricing................................................................................ 71
7.6 Geographical Pricing.............................................................................................................................. 72
7.6.1 Ex-factory............................................................................................................................... 72
7.6.2 FOR Destination..................................................................................................................... 73
7.7 Taxes and Levies..................................................................................................................................... 73
Summary...................................................................................................................................................... 74
References.................................................................................................................................................... 74
Self Assessment............................................................................................................................................ 75
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Chapter VIII................................................................................................................................................ 77
Industrial Distribution Channels.............................................................................................................. 77
Aim............................................................................................................................................................... 77
Objectives..................................................................................................................................................... 77
8.1 Introduction............................................................................................................................................. 78
8.2 Factors Affecting the Nature of Industrial Channels.............................................................................. 78
8.2.1 Geographical Distribution....................................................................................................... 78
8.2.2 Channel Size........................................................................................................................... 78
8.2.3 Characteristics of Intermediaries............................................................................................ 78
8.2.4 Mixed System ........................................................................................................................ 79
8.3 Classification of Industrial Intermediaries.............................................................................................. 79
8.4 Manufacturer’s Representatives.............................................................................................................. 79
8.5 Industrial Distributors or Dealers............................................................................................................ 79
8.5.1 Brokers.................................................................................................................................... 80
8.5.2 Commission Merchants.......................................................................................................... 80
8.5.3 Value Added Resellers (VAR)................................................................................................. 80
8.5.3.1 Market Coverage...................................................................................................... 80
8.5.3.2 Marketing Control.................................................................................................... 80
8.6 Functions of Distributing Channels........................................................................................................ 81
8.7 Factors Influencing Channel Design....................................................................................................... 81
8.7.1 Market Coverage Objectives.................................................................................................. 81
8.7.2 Product Characteristics........................................................................................................... 82
8.7.3 Customer Service Objective................................................................................................... 83
8.7.4 Market and Customer Characteristics..................................................................................... 84
8.7.5 Company Characteristics/ Objective...................................................................................... 84
8.7.6 Competitor’s Characteristics................................................................................................... 84
8.7.7 Environmental Characteristics................................................................................................ 84
8.8 Control Channel Conflicts...................................................................................................................... 84
8.9 Logistics Management............................................................................................................................ 84
8.9.1 Logistics and Physical Distribution........................................................................................ 84
8.9.2 Contribution of Marketing Logistics...................................................................................... 85
8.9.3 Logistics Management to Supply Chain Management (SCM)............................................... 85
8.10 Legal Issues in Channel Management.................................................................................................. 85
Summary...................................................................................................................................................... 87
References.................................................................................................................................................... 87
Self Assessment............................................................................................................................................ 88
Chapter IX................................................................................................................................................... 90
Industrial Marketing Communication...................................................................................................... 90
Aim............................................................................................................................................................... 90
Objectives..................................................................................................................................................... 90
9.1 Introduction............................................................................................................................................. 91
9.2 Communication Mix............................................................................................................................... 91
9.3 Developing the Industrial Communication Programme......................................................................... 91
9.3.1 Determine the Communication Objectives............................................................................. 92
9.3.2 Identifying the Target Audience.............................................................................................. 92
9.3.3 Determine the Commercial Budget........................................................................................ 92
9.3.4 Develop the Message Strategy................................................................................................ 92
9.3.5 Select the Media .................................................................................................................... 93
9.3.6 Evaluate the Promotional Results........................................................................................... 94
9.3.7 Integrate the Promotional Programme.................................................................................... 94
9.4 Role of Industrial Advertising................................................................................................................. 94
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9.5 Role of Sales Promotion......................................................................................................................... 95
9.6 Publicity and Public Relations................................................................................................................ 97
9.7 Role of Direct Marketing........................................................................................................................ 97
Summary...................................................................................................................................................... 98
References.................................................................................................................................................... 98
Self Assessment............................................................................................................................................ 99
Chapter X.................................................................................................................................................. 101

International Industrial Marketing........................................................................................................ 101
Aim............................................................................................................................................................. 101
Objectives................................................................................................................................................... 101
Learning outcome....................................................................................................................................... 101
10.1 Introduction......................................................................................................................................... 102
10.2 Choosing the International Market..................................................................................................... 102
10.3 Entry Strategies for the International Market..................................................................................... 103
10.4 Fairs and Trade Shows........................................................................................................................ 103
10.5 Tie-up with Larger Company.............................................................................................................. 103
10.6 Tie-up with a Local Company............................................................................................................. 103
10.7 Licensing and Franchising.................................................................................................................. 103
10.8 Packing and Shipping......................................................................................................................... 104
Summary.................................................................................................................................................... 105
References.................................................................................................................................................. 105
Recommended Reading............................................................................................................................ 105
Self Assessment.......................................................................................................................................... 106
Chapter XI................................................................................................................................................. 108

Managing the Personal Selling Function................................................................................................ 108
Aim............................................................................................................................................................. 108
Objectives .................................................................................................................................................. 108
Learning outcome....................................................................................................................................... 108
11.1 Introduction......................................................................................................................................... 109
11.2 Importance of Personal Selling........................................................................................................... 109
11.3 Merits of Personal Selling................................................................................................................... 109
11.4 Limitations.......................................................................................................................................... 109
11.5 The Selling Process............................................................................................................................. 109
11.6 Management of the Sales Force...........................................................................................................111
11.6.1 Recruitment and Selection...................................................................................................111
11.6.2 Training................................................................................................................................111
11.6.3 Supervision and Motivation . ..............................................................................................111
11.6.4 Developing...........................................................................................................................112
11.6.5 Compensation......................................................................................................................112
11.6.6 Evaluation and Control........................................................................................................112
Summary.....................................................................................................................................................113
References...................................................................................................................................................113
Recommended Reading.............................................................................................................................113
Self Assessment...........................................................................................................................................114
Chapter XII................................................................................................................................................116
E-Business...................................................................................................................................................116
Aim..............................................................................................................................................................116
Objectives....................................................................................................................................................116
Learning outcome........................................................................................................................................116
12.1 Introduction..........................................................................................................................................117
12.2 E-Commerce........................................................................................................................................117
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12.3 Important Parts of E-commerce...........................................................................................................117
12.4 Business to Business Forms of E-Commerce......................................................................................118
12.4.1 The Inter-organisational System..........................................................................................118
12.4.2 Electronic Markets.............................................................................................................. 120
12.5 Marketing Strategy for the Electronic Marketplace............................................................................ 120
12.5.1 Segmenting and targeting................................................................................................... 120
12.5.2 Product Differentiation and Positioning............................................................................. 121
12.5.3 Marketing Mix Strategy...................................................................................................... 121
12.5.3.1 Product Strategy................................................................................................... 121
12.5.3.2 Pricing Decision................................................................................................... 121
12.5.3.3 Distribution Channel............................................................................................ 122
12.5.3.4 Promotion Strategy............................................................................................... 122
Summary.................................................................................................................................................... 123
References.................................................................................................................................................. 123
Recommended Reading............................................................................................................................ 124
Self Assessment.......................................................................................................................................... 125
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List of Figures
Fig. 1.1 Industrial marketing........................................................................................................................... 3
Fig. 3.1 Industrial marketing environment................................................................................................... 20
Fig. 4.1 Industrial buying.............................................................................................................................. 30
Fig. 4.2 Vendor supplier research................................................................................................................. 32
Fig. 12.1 Internet..........................................................................................................................................118
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List of Tables
Table 1.1 Differences between consumer marketing and industrial marketing.............................................. 5
Table 4.1 Industrial buying........................................................................................................................... 30
Table 4.2 Vendor supplier research............................................................................................................... 32
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Abbreviations
CII - Confederation of Indian Industries
CST - Central Sales Tax
EDI - Electronic Data Interchange
EFT - Electronic Funds Transfer
FOB - Free on Board
FOR - Free On Road
OEM - Original Equipment Manufacturers
SCM - Supply Chain Management
SST - State Sales Tax
STP - Segmentation Targeting Planning
UTI - Unit Trust of India
VAR - Value Added Resellers
WTO - World Trade Organisation
www - World Wide Web
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Chapter I
Nature of Industrial Marketing
Aim
The aim of this chapter is to:
• introduce industrial marketing
• state the basic functions of economy
• highlight industrial classification
Objectives
The objectives of this chapter are to:
• discuss industrial demands
• explain cross-elasticity of demand
• state the factors of differences between industrial marketing and consumer marketing
Learning outcome
At the end of this chapter, the students will be able to:
• differentiate between industrial marketing and consumer marketing
• explain extractive industry, manufacturing industry and constructive industry
• state the factors of industrial marketing
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1.1 Introduction
Marketing is the process of performing market research, selling products and/or services to customers and promoting
them via advertising to further enhance sales. It generates the strategy that underlies sales techniques, business
communication and business developments. It is an integrated process through which companies build strong
customer relationships and create value for their customers and for themselves.
• In industrial marketing, the basic concepts of marketing remain the same as we find in consumer marketing.
Industrial marketing is quite challenging and the marketers have to understand the nature of industrial
marketing.
• Basically industrial marketing is also referred as ‘Business Marketing’ or ‘Organisational Marketing’. It means
that industrial marketing is the marketing of products and services to business and other organisations for use
in the manufacturing and marketing of other products and services.
• Business organisations include manufacturing companies, government organisations, private sector, banking
and insurance institutions, educational institutions, hotels, hospitals, etc.
• Business organisations buy products and services for producing other goods and services for making profits.
• On the other hand, consumer marketing is the marketing of products and services to households. Here, the
consumers buy products and services for their own consumption.
• In industrial marketing, neatly arranged organised activities relating to business are undertaken by the marketers
with the intention of early capture of new markets and to make possible effective distribution of goods in regular
markets as well as in new markets.
• Every industrial unit acts as a consumer because they buy and use raw materials; consume electric power, energy
and fuel on a large scale so as to produce a variety of goods required by the people in the society.
• This activity as a part of the industrial marketing system makes possible the creation of demand, regular flow
of goods in the market so as to equalise supply and demand in the market. It helps in the proper functioning of
an economy.
• In every market, there is a flow and backflow of products. In a market system there are three elements or parties
namely:
producers
buyers
sellers
• In every economy, three basic functions are performed:
Production – creates demand for machinery, materials and manpower which are the basic needs of
production.
Distribution – makes the finished goods available in different markets according to the needs of buyers.
Consumption – results into creation of continuous demand.
• Industrial units perform the tasks of converting raw materials and processed goods into finished goods.
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Consumers
product quality
and safety, high
Management Public opinion
reputation, high
Team – – socially
benefits
market, responsible
position, behaviour, good
reputation track record
Employees Governments –
- job secu- legal
rity, reputation, compilations, job
ethical creation
employment
Product
Supplers NGOs –
– product socially respon-
strength, reputa- sible behaviour,
tion, market good track record
strength
Distribu-
tion partners Competitors –
– product Media – product strength,
strength, reputa- social, ethical reputation,
tion, market environment, market strength
access animal welfare,
financially respon-
sible behaviour
Fig. 1.1 Industrial marketing
1.2 Industrial Classification

The term industry may be classified into three broad industries:
Extractive industry
Manufacturing industry
Constructive industry
The marketers marketing the industrial products must determine such marketing strategies to become more competitive
than their competitors as far as reaching and satisfying the target customers are concerned.
• Extractive industry
Extractive industries are those industries which are involved in the extraction of mineral resources, coal mines,
oil, iron ore, etc., which are generally demanded by manufacturing units as their important raw materials. In fact,
extractive industries are sources of raw material to manufacturing units.
• Manufacturing industry
The manufacturing units are required to make optimum use of raw material by using new techniques and manufacturing
the finished goods and services.
• Constructive industry
Construction industries require cement, iron, steel, windows, doors, etc., for constructing bridges, offices, buildings,
roads, dams, etc. It is therefore concluded that there should always be a regular flow of raw materials to the
manufacturing units.
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1.3 Industrial Demand

• The nature and the factors which determine the demand for industrial goods are different than those for consumer
goods.
• The demand for industrial goods and services exists on the basis of demand for consumer goods and services.
It is therefore called ‘derived demand’.
• The demand for industrial products may also depend upon its use along with the existence of other product or
products and therefore is called ‘joint demand’.
1.3.1 Derived Demand

• Industrial customers buy goods and services for producing the same which are finally sold to the consumers.
Hence the demand for industrial goods and services is derived from consumer goods and services.
• For example, if there is demand for garments, then for producing garments, the industrial customer will buy
fabrics which will generate demand for yarn and finally demand for cotton.
• In case of capital goods, such as machinery and equipment, the purchases are made on the basis of anticipated
profits from the usage of such machines and equipment which shall be used to produce goods.
• The purchases from industries depend on the consumer demand and accordingly industrial firms control their
inventory looking at the demand pattern.
• An industrial firm should always be in touch with the customer’s needs and requirements, changing trends and
preferences. With this, they are able to take decisions in developing new products and creating value-addition
in its products.
• Understanding the market conditions, financial conditions and competitor’s activities, the industries may forecast
and plan for the demand of industrial products.
1.3.2 Joint Demand

• Many industrial products are characterised by joint demand. This is because the manufacturer of finished goods
may demand an individual product only when it is supplied with other set of goods.
• For example, in generating electric power, only electric generator is not sufficient unless it is run by diesel
engine. Hence, there is a joint demand for both generator as well as diesel engine.
• The technology used also causes joint demand.
• For example, a firm which uses a particular type of machine would need raw materials and accessories and other
items which are compatible with that machine.
1.4 Cross-elasticity of Demand

• Cross-elasticity of demand is the responsiveness of sales of one product to a price change in another product
which could be a substitute product or complementary product.
• An industrial marketer must know how the demand for his product is likely to be affected by the changes in
the prices of substitute products.
• Substitutions of several materials are taking place in the industrial markets.
• For example, fibre is replacing metal; aluminium is replacing steel and wood.
• It is therefore necessary that the marketer must keep updated information on prices of other substitute products
as well.
• The cross-elasticity of substitute is always positive i.e., the prices of one product and demand for other substitute
products always move in the same direction. In other words, the more positive the ratio, the higher the cross-
elasticity of substitute products.
• For complementary products, the cross-elasticity of demand is negative i.e., the price of one product and quantity
of complementary product move in opposite direction.
• For example, if the prices of petrol rises, the demand for automobiles could decrease.
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1.5 Industrial Marketing Vs Consumer Marketing
• The basic task of marketing management applies in both industrial marketing and consumer marketing. These
tasks include, deciding the target markets, understanding the needs and demands of them, producing products
and services and making marketing strategies to reach and satisfy those target customers.
• There are differences between the characteristics of consumer and industrial markets.
• In the industrial market, markets are relatively concentrated and the channels of distribution are shorter; buyers
are organised, have different purchasing techniques and there are multiple influences contributing to purchasing
decisions.
• Industrial marketing creates its own set of conditions for marketing decisions.
• In consumer marketing, marketing strategies are carried out within the marketing department through changes
in advertising, sales promotion and packaging.
• However, the industrial marketing strategy is very close to corporate strategy.
1.6 Major Differences Between Consumer Marketing and Industrial Marketing
Areas Industrial markets Consumer markets

Mass markets, Geographically
1. Market characteristics Fewer buyers, Geographically concentrated
Disbursed
2. Product characteristics Technical, customised Standardised
Involvement of family members,
Purchase decisions mainly made on rational/ Purchase decisions on
3. Buyer's behaviour performance basis, Involvement of buyer and physiological, psychological
supplier firms, Technical expertise or social needs, Less technical
expertise.
Direct. Indirect.
4. Channel characteristics
Few intermediaries/ middlemen Multiple layers of intermediaries
Competitive bidding and negotiating prices,
5. Price characteristics Maximum retail price
List prices for standard products.
6. Promotional character-
More of personal selling Advertising
istics
Timely delivery and availability of products Availability, delivery and ser-
7. Service characteristics
and services very important vices important
Table 1.1 Differences between consumer marketing and industrial marketing
1.7 Factors
1.7.1 Market Characteristics
• For consumer goods and services, there are large numbers of households dispersed all over the country while
in case of industrial markets there are a limited number of companies to represent the total market for industrial
products or services.
• The number of industrial customers is relatively very small, ranging from one to several thousands; however
for many consumer products like soaps or toothpastes, a mass market exists consisting of several millions of
consumers in India.
1.7.2 Product Characteristics

• In consumer goods marketing, most of the products are standard.
• Products are bought in ones and twos and services are important.
• In industrial marketing, the products or services are customised and technically complex.
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• The purchases are made in large quantities or high value equipment on the basis of specifications made by the
buyers.
• Service is a strategic weapon in industrial marketing and there is more focus on cost of maintenance of
equipment.
• In industrial marketing, greater importance on timely delivery or availability of product is given because any
delay in supply will have a major impact on production or operations.
1.7.3 Buyer Behaviour

• In industrial marketing, the buying process is more complex as compared to consumer marketing.
• The purchase decision is based on factors like product specification, product quality, delivery, commercial terms,
after sales services, cost effectiveness, etc.
• In purchasing of industrial goods, functional departments like technical, production, commercial and finance
department are involved. Generally it takes a longer time to make purchasing decisions.
• There are negotiations between the buyer and the seller.
• The relationship between customer and manufacturer is more important and is also inter-dependent.
• In consumer marketing, family involvement can be seen while purchasing the goods and services.
• The buying decisions are often impulse buying or based on social/psychological or emotional motives.
• Negotiations take place less frequently and personal relationships between customer and manufacturer are less
important.
1.7.4 Channel Characteristics

• There are fewer channel levels in industrial marketing as compared to consumer marketing.
• In industrial marketing, the distribution channel is more direct from the manufacturer to the customer.
• The manufacturers sell directly to major customers through their own sales persons.
• The manufactures may have distributors/dealers or agents/ representatives who are responsible for selling to
small scale industries.
• This helps in minimising the cost of marketing.
• In consumer marketing, there are long channels with multiple levels of intermediaries because the household
consumers are geographically dispersed all over the country.
• Normally, sales are done through retail outlets which are spread throughout the country.
1.7.5 Promotional Characteristics

• In consumer marketing, advertising and sales promotion are more popular promotional tools.
• Companies spend large amounts on advertising and sales promotion.
• In industrial marketing, personal selling is a powerful tool and it is done through the company’s sales force.
• Companies may reach their potential customers through direct-mailing or through advertisements in trade
journals and business magazines.
• They can also participate in exhibitions or trade shows as business promotion activities.
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1.7.6 Price Characteristics
• In consumer marketing, goods are mostly sold on price-list or the maximum retail price.
• Retailers may also give certain discounts to consumers depending on the market competition or for increasing
their sales.
• In industrial marketing, pricing becomes a major factor in buying decisions.
• Competitive bidding and price negotiations are very common.
• In case of government purchases, lowest bidders are considered for the placement of orders.
• In some cases, the government buys only those goods that have rate contracts with DGS&D (Director General
of Supplies and Disposals).
• The payment and other commercial terms are also negotiated at the time of price negotiations.
• In some cases, the volume of orders depends upon the prices offered by the manufacturers.
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Summary
• Marketing is the process of performing market research, selling products and/or services to customers and
promoting them via advertising to further enhance sales.
• In industrial marketing, the basic concepts of marketing remain the same as we find in consumer marketing.
Industrial marketing is quite challenging and the marketers have to understand the nature of industrial
marketing.
• The demand for industrial products may also depend upon its use along with the existence of other product or
products and therefore is called ‘joint demand’.
• The demand for industrial goods and services exists on the basis of demand for consumer goods and services.
• Cross-elasticity of Demand is the responsiveness of sales of one product to a price change in another product
• In consumer marketing, marketing strategies are carried out within the marketing department through changes
in advertising, sales promotion and packaging.
• Service is a strategic weapon in industrial marketing and there is more focus on the cost of maintenance of
equipment.
• The buying decisions are often impulse buying or based on social/psychological or emotional motives.
• In industrial marketing, the buying process is more complex as compared to consumer marketing.
• In consumer marketing, advertising and sales promotion are more popular promotional tools.
• In consumer marketing, goods are mostly sold on price-list or the maximum retail price.
• Under price characteristics the payment and other commercial terms are also negotiated at the time of price
negotiations.
References
• Webster, F.E. Jr., 1995. Industrial Marketing Strategy, 3rd Edition; Wiley.
• Davidow, W.H., 1986. Marketing High Technology, Free Press.
• Kotler, P., 1993.; Marketing Places; Free Press.
Recommended Reading
• Hutt, M.D., 2009. Business Marketing Management: B2B, 10th Edition, South-Western College Pub.
• Levinson, J.C., 1990. Guerrilla marketing Weapons: 100 Affordable Marketing Methods, Plume.
• Garland, D.S., 2010. Smarter, faster, Cheaper: Non-Boring, Fluff-Free Strategies for Marketing and Promoting
Your Business, Wiley.
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Self Assessment
1. Which of the following is false?

a. Marketing generates the strategy that underlies sales techniques, business communication, and business
developments.
b. Industrial marketing is quite challenging and the marketers have to understand the nature of industrial
marketing.
c. Business marketing is quite challenging and the marketers have to understand the nature of industrial
marketing.
d. Business organisations buy products and services for producing other goods and services for making
profits.
2. ___________ creates demand for machinery, materials and manpower which are the basic needs of
production.
a. Production function
b. Distribution function
c. Consumption function
d. Buyers function
3. Who performs the tasks of converting raw materials and processed goods into finished goods?
a. Buyers
b. Industrial units
c. Business units
d. Managers
4. The __________ are required to make optimum use of raw material by using new techniques and manufacturing
the finished goods and services.
a. extractive industries
b. construction industries
c. industrial units
d. manufacturing units
5. The demand for industrial products may also depend upon its use along with the existence of other product or
products and therefore is called __________.
a. joint demand
b. derived demand
c. distribution function
d. cross-elasticity of demand

a. Cross-elasticity of Demand is the responsiveness of sales of one product to a price change in another product
b. Many industrial products are characterised by joint demand.
c. Many industrial products are characterised by derived demand.
d. The demand for industrial goods and services exists on the basis of demand for consumer goods and services.
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7. Which of the following is true?

a. Joint Demand is the responsiveness of sales of one product to a price change in another product which could
be a substitute product or complementary product.
b. Derived Demand is the responsiveness of sales of one product to a price change in another product which
could be a substitute product or complementary product.
c. Cross-elasticity of Demand is the responsiveness of sales of one product to a price change in another product
which could not be a substitute product or complementary product.
d. Cross-elasticity of Demand is the responsiveness of sales of one product to a price change in another product
8. What takes place less frequently?

a. Negotiations
b. Business
c. Profits
d. Demand
9. In ___________, there are long channels with multiple levels of intermediaries because the household consumers
are geographically dispersed all over the country.
a. corporate marketing
b. consumer marketing
c. industrial marketing
d. strategic marketing

a. Companies spend large amounts on advertising and sales promotion.
b. Companies may reach their potential customers through direct-mailing or through advertisements in trade
journals and business magazines.
c. The payment and other commercial terms are also negotiated at the time of price negotiations.
d. Companies spend fewer amounts on advertising and sales promotion.
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Chapter II
Understanding the Industrial Market
Aim
• discuss the important features of industrial market
• classify the types of industrial customers
• explain the classification of industrial products and services
Objectives
• explain the industrial purchasing system
• state the government purchase system
• discuss capital items
Learning outcome
At the end of this chapter, the student will be able to:
• explain the industrial market
• discuss the need to understand industrial market
• classify the various purchasing systems
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2.1 Industrial Market

Industrial market is a concept which is different from the regular market of consumer goods.
• The consumer goods markets exist at different locations, mostly in towns and villages.
• Mobile retailers, establishments, shops, consumer stores, departmental stores, etc. together form a market, where
a number of buyers and sellers come together and perform business transactions.
• In the real sense, industrial markets do not exist but still supply and demand take place in the industrial market.
2.2 Important Features of the Industrial Market

Following are the important features of the industrial market:
• There is a continuous supply and demand for a large variety of items. The quantity of goods demanded and
supplied is on a large scale.
• Economies of large scale can be easily availed by suppliers as well as buyers.
• This market forms one segment of the total market in the economy.
• Most of the transactions in these markets take place indirectly i.e., through agents.
• Agreements are made between the buyers and sellers for the supply of goods and services on certain terms and
conditions.
• Most of the supplies are made on credit basis with some exceptions.
• Industrial markets are the markets where there are regular demands for raw materials, spare parts, components,
fuel, power and for finished goods.
2.3 Need for Understanding Industrial Markets

• An industrial marketer needs to understand industrial markets for developing an effective market plan.
• Every industrial unit whether large or small, is involved in buying activities and investments of funds in purchasing
a variety of items for producing goods.
• Knowledge of the market becomes essential for them to make the right type of investments so that they can get
better returns on these.
• Knowledge of trends as to rising prices or declining prices can always help an industry to take decisions in
buying the quantity.
• It can even help them in postponing their decisions or cancelling their supply orders with an advance notice to
the sellers.
• Overall, the effect of the macro environment can always help a marketer to take strategic decisions for their
industry.
• Understanding the industrial market is essential even for distributors and agents in the market because market
information enables decision making for their own business.
• They can make the choice of products and producers for shouldering responsibility as distributors, as sole
agents, commission agents, etc.
• Every entrepreneur can protect the interest of its own unit with the knowledge of industrial markets and can
always have competitive advantage.
• Since there is globalisation of trade due to the liberalisation policy, the industry needs to understand the changing
market environment to make a successful marketing strategy.
2.4 Industrial Customers

The industrial customers are classified into four groups, which are:
• Commercial enterprises
• Government customers
• Institutional customers
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• Co-operative societies
2.4.1 Commercial Enterprises

• These are those enterprises that have profit as an essential motive of their buying.
• On the basis of the type of ownership of enterprise, business buyers may be classified as public sectors, private
sectors and joint sectors.
• Commercial enterprises mainly consist of:
The industrial distributors and dealers who purchase industrial goods and resell them to other industrial
customers. They are intermediaries or middlemen of an industrial marketer.
Original Equipment Manufacturers (OEMs) who purchase industrial goods to incorporate them into the
products they produce.
For example, Spark plug company (MICO) which sells plugs to two wheeler manufacturers would consider the
two-wheeler manufacturer as an OEM.
Users: When an industrial customer purchases industrial products or services to support its manufacturing
process or to facilitate business operations, they are classified as users.
For example, drilling machines, press and winding machines support manufacturing processes
while telephones, computers and fax machines facilitate business operations.
2.4.2 Government Customers

Central and State Government department undertakings and agencies such as railways, defence, state electricity
board, telecommunication department, etc., are the largest purchaser of industrial products in India.
2.4.3 Institutional Customers

Private and public institutions such as government hospitals, prisons, schools/colleges, banks, etc., are classified as
institutional customers. Each institute has different purchasing practices, having different rules and regulations.
2.4.4 Co-operative Societies

This is an association of people. It can be manufacturing units or non-manufacturing units. Example: Amul, Co-
operative banks
2.5 Classification of Industrial Products and Services

• Industrial product is a term which covers a very wide range of products i.e., from office pins to computers and
big machines.
• Industrial products are classified on the basis of products and services entering into the production process and
their relative cost.
2.5.1 Materials and Parts

• These goods enter the product directly. These consist of raw materials, manufactured materials, component
parts and sub-assemblies.
• The cost of these items is treated by the purchasing company as a part of the manufacturing cost.
• Basic products like iron ore, crude oil, fish, fruits, vegetables, etc., are examples of raw materials.
• It may be marketed to user customers.
• Raw materials are the basic products that are used in the production process for manufacturing the final
product.
• Manufactured materials are those raw materials which are subject to the sum amount of processing before
entering the manufacturing process. Acids, fuel oil, steel and chemicals are such examples.
• Component parts are semi finished parts and can be installed directly into products. Batteries, plugs, bearings,
etc., are few examples.
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• Normally the component parts are also sold to the dealers or distributors who resell them to the replacement
market.
• Sub-assemblies are semi-finished goods like the exhaust pipe in a motorcycle.
2.5.2 Capital Items

• These are used in the production process and can be classified as heavy equipment, light equipment and plant
and buildings.
• Heavy equipments are major and long-term investment items.
• These items are taken as fixed assets; since such items are of high value, these are usually financed by borrowing
money for a period of time.
• Furnaces, machines, turbines, generators, etc., are heavy equipments.
• Light equipment and tools are of lower values and are not considered a part of heavy equipment.
• Hand tools and computer terminals are some examples of light equipments. These may also be considered as
fixed assets of the company and therefore depreciated over a period of few years.
• Plant and buildings are real-estate property of a company. Real estate includes the firm’s offices, plants,
warehouses, housing, etc.
2.5.3 Supplies and Services

• These goods/services support the operation of the purchasing organisation.
• Items like paints, fuel, packaging material, lubricants, stationery, etc., belong to this category.
• Legal auditing, advertising, courier, marketing research, etc., are services which may be required by the
company.
2.6 Industrial Purchasing System

Industrial purchasing is totally different as compared to individual consumer purchases due to the nature of business,
size of the enterprise as well as volume, variety and technical complexity of the products purchased. Since the
industrial marketers sell their products to different types of industrial customers, it is important to know the purchasing
practices adopted by those industrial customers.
2.6.1 Commercial Enterprises Purchasing System

• In large and medium size organisations, persons from different departments like production, finance and
engineering are usually involved in taking purchase decisions.
• Various functional heads who are experts in material planning, supplier rating system, value-analysis, price
trends and negotiating skills act as influencers in purchasing decisions. Such organisations normally have their
own purchasing procedures and documentation.
• They strictly follow the laid down procedures and documentation.
• The major tasks taken by such enterprises are identifying potential suppliers, negotiating and selecting suppliers,
ensuring right quality and quantity of material at the right time and developing long-term business relationships
with suppliers.
• Such enterprises always look into savings in material cost and getting good quality materials at the right time.
• It makes the company’s product pricing competitive and increases the overall profitability of the enterprise.
2.6.2 Government Purchase System

• Industrial marketers must understand the purchasing system followed in government units in case they want to
get business from the government units.
• Central and State Government undertakings and public sector units are included in government units and they
are the largest purchasers of industrial goods and services.
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• In government units, the name of the company and products are normally registered.
• The registration is done after certain registration procedures followed and inspection done by the inspectors of
these government units.
• These inspectors look at the company’s manufacturing facilities and their capability in supplying goods to the
government units.
• Tenders are advertised in newspapers and the authorised suppliers are required to submit tender offers in sealed
envelopes as per the instructions given in the tender papers.
• In the tender form, the supplier clearly mentions the specifications of products, the prices, the delivery schedule
and other relevant commercial terms and conditions.
• The tender is normally opened before the tender committee and the person offering the lowest price and the
required delivery period are normally rewarded the order.
• In some cases, there may be negotiations with the suppliers before awarding the purchase order.
• The DGS&D is an agency which finalises the running contracts for various standard products (fans, tubes, bulbs)
on behalf of the central government. Such products are bought by government units on rate-contract prices
decided by DGS&D from all the government units.
2.6.3 Institutional Purchasing

• Institutional buyers like hospital, colleges which are government organisations normally follow the government
purchase procedures.
• Privately owned institutions follow purchase procedures similar to commercial enterprises.
2.6.4 Purchasing in the Resellers’ Market

• Industrial dealers or distributors are appointed by manufacturers to sell their products for the replacement
market.
• These industrial dealers normally work for profits and sales volume.
• They select a supplier on the basis of the brand name of the supplier, the product quality and the pricing
policy.
• These distributors sometimes represent the supplier also for supplying goods to the industry.
• The supplier supports these industrial distributors by introducing them to various industries, supporting them
with advertising inputs and providing them with leaflets or display materials.
• These suppliers offer competitive prices and trade discounts, credit facilities and service facilities to such
distributors/dealers.
• The dealer/distributor works in harmony with the supplier and makes all effort to beat the competition, increase
the business share and make reasonable profits.
• Industrial distributors/dealers will remain loyal to the supplier till he makes profits, otherwise switch over to
another supplier.
• Some of the dealers/distributors deal exclusively with one company while some of them deal with different brands.
• Any supplier dealing with industrial dealers or distributors in the reseller market must take care of their profits
since the main objective of an industrial dealer is to earn profits.
2.6.5 Purchasing in Co-operative Societies

• Co-operative societies, while making purchase decisions emphasise on factors such as quality, delivery, price,
payment terms, service and long term relationship with supplier.
• Co-operative societies normally follow the practices which are followed in institutional purchasing.
• Each co-operative society may have some differences in buying practices. Therefore, industrial marketers should
try to understand the purchasing practices of each co-operative society in order to be effective in marketing
their goods and services.
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Summary
• Industrial market is a concept which is different from the regular market of consumer goods.
• An industrial marketer needs to understand industrial markets for developing an effective market plan.
• Every industrial unit whether large or small is involved in buying activities and investments of funds in purchasing
a variety of items for producing goods.
• Central and State Government department undertakings and agencies such as railways, defence, state electricity
board, telecommunication department, etc. are the largest purchasers of industrial products in India.
• Industrial product is a term which covers a very wide range of products i.e. from office pins to computers and
big machines.
• Raw materials are the basic products that are used in the production process for manufacturing the final
product.
• Heavy equipments are major and long-term investment items.
• Light equipment and tools are of lower values and are not considered a part of heavy equipment.
• In large and medium size organisations, persons from different departments like production, finance and
engineering are usually involved in taking purchase decisions.
• Industrial marketers must understand the purchasing system followed in government units in case they want to
get business from the government units.
• The DGS&D is an agency which finalises the running contracts for various standard products (fans, tubes, bulbs)
on behalf of the central government.
• Industrial dealers or distributors are appointed by manufacturers to sell their products for the replacement
market.
• Co-operative societies, while making purchase decisions emphasise on factors such as quality, delivery, price,
payment terms, service and long term relationship with supplier.
References
• Webster, F.E. Jr., 1995. Industrial Marketing Strategy, 3rd Edition, Wiley.
• Kotler, P., 1993., Marketing Places, Free Press.
Recommended Reading
• Hutt, M.D., 2009. Business Marketing Management: B2B; 10th Edition; South-Western College Pub.
• Levinson, J.C., 1990. Guerrilla marketing Weapons: 100 Affordable Marketing Methods; Plume.
Your Business; Wiley.
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Self Assessment
1. ___________ is a concept which is different from the regular market of consumer goods.
a. Industrial market
b. Stock market
c. Commodity market
d. Consumer market

a. The consumer goods market is at different locations mostly in towns and villages.
b. Economies of large scale can be easily availed by suppliers as well as buyers.
c. Economies of small scale can be easily availed by suppliers as well as buyers.
d. Most of the supplies are made on credit basis with some exceptions.

a. Every business unit whether large or small is involved in buying activities and investments of funds in
purchasing a variety of items for producing goods.
b. Every industrial unit whether large or small is involved in buying activities and investments of funds in
c. Every industrial unit whether large or small is not involved in buying activities and investments of funds in
d. Every industrial unit whether large or small is involved in selling activities and investments of funds in
4. Knowledge of ___________ as to rising prices or declining prices can always help an industry to take decisions
in buying the quantity.
a. business
b. stock market
c. industry
d. trends
5. Who has profit as an essential motive of their buying?

a. Commercial enterprises
b. Government customers
c. Institutional customers
d. Co-operative societies
6. Private and public institutions such as government hospitals, prisons, schools/colleges and banks are classified
as ___________.
a. commercial enterprises
b. government customers
c. institutional customers
d. co-operative societies
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a. Heavy equipments are major and long-term investment items.
b. Light equipments are major and long-term investment items.
c. Furnaces, machines, turbines and generators are heavy equipments.
d. Light equipment and tools are of lower values and are not considered a part of heavy equipment.
8. In __________, the name of the company and products are normally registered.
a. industrial units
b. government units
c. industrial market
d. commercial enterprises
9. Who appoints the industrial dealers or distributors to sell their products for the replacement market?
a. Manufacturers
b. Wholesalers
c. Customers
d. Distributors
10. Who finalises the running contracts for various standard products (fans, tubes, bulbs) on behalf of the central
government?
a. DGS&D agency
b. Industrial units
c. Customer
d. Commercial enterprises
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Chapter III
Industrial Marketing Environment
Aim
• introduce the industrial marketing environment
• discuss business environment
• classify the factors that influence the industrial marketing environment
Objectives
• discuss how to manage the industrial marketing environment
• explain the independent and co-operative strategies of industrial marketing environment
• state the micro and macro environmental factors
Learning outcome
• explain independent strategies
• describe the cooperative strategies
• state strategic planning
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3.1 Introduction
• Industrial buyers and sellers operate in a changing dynamic environment.
• The environment in which business functions can be divided into semi-controllable and uncontrollable
environment.
• Micro-environments are semi-controllable environments which are managed by the organisation.
• The organisation makes strategies on the basis of the ‘marketing mix’ and achieves their organisational
objectives.
• The uncontrollable environment is also known as ‘external’ or ‘macro environment’.
• The macro environment is uncontrollable by managers because it is outside the organisation’s purview.
• Political, legal, economic, technological, social, cultural and natural environments are external or uncontrollable
environments.
• Natural environments are also termed ‘ecological environments’.
• The industrial marketer should also understand the government influences over the marketing environment since
the government is both, a regulator and a customer.
• In the present market scenario, marketers will also have to analyse and understand international as well as
modern trends in industrial marketing.
• The industrial marketing environment starts with identifying industrial markets, market opportunity,
understanding changes in customer needs, identifying technological innovation, considering changes taking
place in governmental, political and legal factors.
• The industrial marketer needs to have a continuous monitoring of the industrial environment, mainly external
environment so as to identify new opportunities and threats.
General
public Gove-
Consumers rnment
Competitors Interest
groups
Environmental
Legal/ behaviour
Courts Firm Media
Employees Scientific
community
Financial Share-
institutions holders
Suppliers
Fig. 3.1 Industrial marketing environment
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3.2 Business Environment
• An organisation’s business environment encompasses both, the external environment and the internal
environment.
• An organisation has to understand the external environment in order to operate effectively in the marketplace.
It should also be able to adopt itself to changing circumstances to survive in business.
• The external environment of a firm essentially includes:
Political environment
Economic environment
Technological environment
Cultural and social environment
• An organisation must understand the effect of the above environment and determine its future.
3.3 Factors Influencing the Industrial Marketing Environment

The industrial marketing environment basically has micro-environmental factors and the macro-environmental
factors.
3.3.1 Micro-environmental Factors

• This consists of customers, competitors and suppliers. These forces affect individual firms differently. Each firm
has different customers, different competitors and different suppliers.
• Customer’s needs, preferences and expectations keep on changing.
• It is important for industrial marketers to do market research and understand the changes taking place in the
customer’s needs.
• The bargaining power of buyers is one of the factors which must be taken into consideration by industrial
marketers. It may affect their profits and market share.
• Competition is becoming stiffer and therefore understanding of competition is the need of industrial
marketers.
• Competition in an industry is determined not only by existing competitors but also by other market sources such
as customers, suppliers, potential entrants and the existence of substitute products.
• Understanding the level of competition is important because the level of profits depends to a large extent upon
the level of competition.
• An industrial marketer needs to gather information on competitors’ strengths, weaknesses and strategies.
• The marketers must also have information regarding new entrants to an industry who may bring in new capacity
and capture the market share from the existing players.
• Competition may also arise due to close-substitute products.
• The industry marketer should always be vigilant about substitute products since the existence of a substitute
limits the price which can be charged for a product and therefore the profitability of the company.
• Industrial marketers can always have information about the competition and accordingly they can make their
marketing strategy regarding the product mix, pricing, distribution and communication with the target market
segments.
• The inward flow of material to the organisation is known as inputs. These materials are a part of the factors of
production i.e. raw materials, component parts and capital goods and services which are supplied by the supplier
firms to buyer firms as input for using production of industrial goods and services.
• The success of any firm is highly dependent on its relationship with its suppliers of inputs.
• The interdependent relationship between a supplier and buyer firm is very important in relation to industrial
growth.
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• There must be commitment to quality and service between the supplier and the buyer since any interruption in
the flow of inputs affect the entire industrial chain.
• To have a smooth flow of inputs, it is also required to have knowledge of external environmental factors.
3.3.2 Macro-environmental Factors

These factors are as follows:
• Governmental, political and legal
• Economic environment
• Technological
• Social
• Public
3.3.2.1 Governmental, Political and Legal

• Political forces influence the legislations and government rules and regulations under which the firm operates.
Every company faces political constraints in the form of tax programmes, minimum usage legislation, pollution
and pricing policies, administrative activities and many other actions. This is done by the government with
objective to protect consumers, companies and the local environment. These laws, rules and regulations affect
the company’s profit.
• However, there are other political actions such as patent laws, government subsidies and product research grants
that support business activities.
• Thus, political forces influence the organisation both positively and negatively. Industrial marketers are benefited
by anticipating and influencing government actions.
• Political activity also influences the supplier function, customer function and the competitor function.
• The supplier function is influenced by political activity when any private business is dependent on government-
owned resources. This dependence affects the firm’s strategies.
• As regards the customer function, government demand for products and services can create, sustain and enhance
or eliminate many market opportunities.
• Similarly, when the government takes precautions to protect consumers and local industries, its decision greatly
affects business.
• Political environment includes the stability of governments, their policies towards business and international
trade restrictions.
• Industrial marketers should be vigilant and have a careful watch on changing political, governmental and legal
factors and should develop complementary plans that can help them in exploiting opportunities.
3.3.2.2 Economic Environment

• Every market is unique and consumption patterns change as the wealth of the consumer changes in various
segments of the market.
• The various economic factors which need to be monitored are prime interest rates, inflation rates, currency rates,
fiscal policy, growth of GNP, investment, level of disposable income, industrial production, etc.
• Industrial marketers must examine the changes in business cycle and economic environment.
• In case the economy shows recessionary trends, the demand for consumer products will be low and as a result
industries will be producing less therefore, the demand for raw materials, components and capital goods will
decrease.
• However, if the economy shows growth trends, more consumer products will be in demand and accordingly the
demand for raw material, component and capital goods will increase.
• Hence, changes in the economic environment must be monitored as these affect the willingness and ability of
the industrial organisations to buy and sell.
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3.3.2.3 Technological
• The technological environment comprises factors related to materials and machines used in manufacturing
goods and services.
• The rate of change of technology influences the decisions in various organisations. This has a major impact on
both industrial buyers and sellers.
• Technological innovations determine how organisations compete and thrive in the marketplace.
• Rapid changes in technology are forcing industrial firms to bring in new technologies and work on research
and development, production engineering and manufacturing for responding effectively to the technological
changes.
3.3.2.4 Social
• The social environment is an important factor as changes in the values, beliefs, attitudes, opinions and lifestyles
in society create potential opportunities for an organisation.
• The cultural, demographic, religious, educational and ethnic conditioning of individuals in society affects the
social environment.
• For a company to grow, it is necessary to take advantage of societal changes.
• The impact of changes in the cultural and social environment are felt more for consumer products and accordingly
the industry’s requirements for raw material, component and capital goods and service changes.
• However, if industrial firms decide to have joint ventures with organisations from different cultures, then it is
required to understand the social and cultural aspects of both the countries.
3.3.2.5 Public
Public are distinct groups that have an actual or potential interest or impact on each firm’s ability to achieve its
respective goals. Some of these groups are:
Financial institutions
Press
Public interest groups
General public
• Financial institutions
Financial institutions invest in organisations by buying shares of a firm.
They are more concerned with the operational efficiency of the organisation.
They extend their influences by voting for or against management policies.
They exert an influence on the management of the firm if they are not satisfied with certain policies of the
firm.
• Press
The Press is an independent moderator of the image of the organisation. It can help or hinder the reputation
and business of an industrial firm’s goods and services.
The publicity given by the press can be positive or negative.
In 1998, the Unit Trust of India (UTI) received negative publicity in the press and television for its most
popular “US-64 scheme”.
• Public interest groups

They are increasingly influencing business decisions in the industrial marketing area. These groups support
environmental and ecological causes, women rights, child labour or even minority welfare.
The various public interest groups limit the freedom of suppliers and buyers in the industrial markets.
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Many tannery units in Kanpur faced protests against child labour from public interest groups.
• General public
The general public is not as co-coordinated and integrated as interest groups but the general public shows
its reaction when a large population is affected.
For example, leakage of gas from the Union Carbide factory in Bhopal and the reaction of the general public
against the company.
3.4 Managing the Industrial Marketing Environment

• Industrial firms should influence, modify or respond to the changes in the marketing environment.
• The manipulation of ‘marketing mix’ elements such as product, place, price and promotions are not sufficient
to exploit opportunities or safeguard against the threats that arise from the dynamics of the marketing
environment.
• Industrial marketers should always gather a lot of information on the relevant external environment.
• The industrial marketer must collect information regarding change in government, political, economic,
technological factors.
• They should carry out marketing research and understand changes in customers’ needs.
• They should monitor all the information regarding the competitor’s activities, technological innovation and
should know the changes in demand of major customers and the total market.
• This information helps industrial marketers to design detailed strategies, to contact and/or utilise the marketing
environment.
• There are three types of strategies to achieve the objective of responding proactively and creatively for managing
the external environment:
Independent strategies
Co-operative strategies
Strategic planning
3.4.1 Independent Strategies

• The strategies that are implemented by an industrial firm utilising the resources at its disposal are known as
‘independent strategies’.
• The industrial firm tries to reduce environmental uncertainty, making independent strategies on the basis of its
initiative and strength.
• A firm can always make aggressive pricing strategies or differentiating its product superiority through product
development to overcome the competitor’s strategies.
• Likewise, the company may always handle political and legal regulations using its influence with political
parties.
• The company may create a positive image by carrying out environmental controls and creating awareness in
public through advertising.
• However, independent strategies are not enough to fight against the environment completely but can always
reduce the impact of environmental uncertainties.
3.4.2 Co-operative Strategies

• Co-operative strategies involve understanding and cooperation between various firms, groups and industries.
• Cooperation may be implicit or explicit.
• Cooperative strategies also exist between competitors if the same environment threatens all of them.
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• Indian firms may have implicit or explicit understanding on pricing with competing firms and can form price
syndicates or cartels. However, the legislation may not allow them to create monopoly.
• The Confederation of Indian Industries (CII) and The Federation of Indian Chamber of Commerce and Industries
protect the Indian industries from unfair political or legal regulations of the government.
• To counteract threats posed by the technological environment, the company can opt for joint ventures with
technologically superior companies.
3.4.3 Strategic Planning

• Industrial firms on the basis of forecast of the external environment can always look into their strengths and
weaknesses.
• The firm can strategically plan to achieve its long-term objectives and goals.
• This strategic planning may be on the ‘marketing mix’ elements to expand its markets from the domestic to the
international market.
• The firm can always take strategic decisions on diversifying through backward, forward or horizontal
integration.
• When a company seeks ownership or control of its supply system, it is called backward integration.
• Taking ownership or increase control of its distribution system is called forward integration and seeking ownership
or control of some of its competitors by a company is called horizontal integration.
• Conclusively, we can say that survival and success of industrial firms depends mainly on the above three strategies
in a dynamic external environment.
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Summary
• Industrial buyers and sellers operate in a changing dynamic environment.
• The environment in which business functions can be divided are semi-controllable and uncontrollable
environment.
• The uncontrollable environment is also known as ‘external’ or ‘macro environment’.
• Political, legal, economic, technological, social, cultural and natural environments are external or uncontrollable
environments.
• An organisation’s business environment encompasses both, the external environment and the internal
environment.
• Competition in an industry is determined not only by existing competitors but also by other market sources such
as customers, suppliers, potential entrants and the existence of substitute products.
• The industry marketer should always be vigilant about substitute products since the existence of a substitute
limits the price which can be charged for a product and therefore the profitability of the company.
• The interdependent relationship between a supplier and buyer firm is very important in relation to industrial
growth.
• There must be commitment to quality and service between the supplier and the buyer since any interruption in
the flow of inputs affect the entire industrial chain.
• Political environment includes the stability of governments, their policies towards business and international
trade restrictions.
• The technological environment comprises factors related to materials and machines used in manufacturing
goods and services.
• The social environment is an important factor as changes in the values, beliefs, attitudes, opinions and lifestyles
in society create potential opportunities for an organisation.
• Public are distinct groups that have an actual or potential interest or impact on each firm’s ability to achieve its
respective goals.
• Financial Institutions invest in organisations by buying shares of a firm.
• The Press is an independent moderator of the image of the organisation.
• The strategies that are implemented by an industrial firm utilising the resources at its disposal are known as
‘independent strategies’.
• The Confederation of Indian Industries (CII) and The Federation of Indian Chamber of Commerce and Industries
protect the Indian industries from unfair political or legal regulations of the government.
References
• Hunter, V., 1997. Business to Business Marketing; 2nd Edition, McGraw-Hill.
• Bingham, F.G., 2005. Business Marketing; 3rd Edition, Irwin/McGraw-Hill.
• Wedel, M., 2000. Market Segmentation: Conceptual and Methodological Foundations (International Series in
Quantitative Marketing), 2nd Edition, Kluwer Academic Publishers.
Recommended Reading
• Bly, R., 1998. Business-to-Business Direct Marketing: Proven Direct Response Methods to Generate More
Leads and Sales, 2nd Edition, McGraw-Hill.
• Mullin, B., 2007. Sport Marketing, 3rd Edition, Human Kinetics.
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Self assessment
1. ___________ are semi-controllable environments which are managed by the organisation.

a. Macro-environment
b. Micro-environments
c. Natural environments
d. Ecological environments

a. An organisation’s business environment encompasses both, the external environment and the internal
environment.
b. An organisation has to understand the external environment in order to operate effectively in the
marketplace.
c. An organisation has to understand the internal environment in order to operate effectively in the
marketplace.
d. The industrial marketer needs to have a continuous monitoring of the industrial environment, mainly external
environment so as to identify new opportunities and threats.

a. Micro-environmental factors consist of customers, competitors and suppliers.
b. Political environment factors consist of customers, competitors and suppliers.
c. Economic environment factors consist of customers, competitors and suppliers.
d. Cultural and social environment factors consist of customers, competitors and suppliers.
4. ____________ influence the legislations and government rules and regulations under which the firm
operates.
a. Political trends
b. Political environment
c. Political forces
d. Political activities
5. Which factor is responsible for changes in the values, beliefs, attitudes, opinions and lifestyles in society?
a. Economic environment
b. Public environment
c. Social environment
d. Technological environment
6. What is uncontrollable environment also known as?

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7. ____________ should be vigilant and have a careful watch on changing political, governmental and legal factors
and should develop complementary plans that can help them in exploiting opportunities.
a. Industrial marketers
b. Political activities
c. Political environment
d. Political forces
8. What comprises factors related to materials and machines used in manufacturing goods and services?
a. Micro-environments
b. Macro-environment
c. Ecological environments
d. Technological environment
9. ___________ includes the stability of governments, their policies towards business and international trade
restrictions.
a. Political trends
b. Political environment
c. Political forces
d. Political activities
10. What are natural environments also termed as?

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Chapter IV
Industrial Buying and Buying Behaviour
Aim
• introduce students to industrial buying
• explain them the purpose of industrial buying
• highlight on industrial buying decision process
Objectives
• discuss various roles of buying centres
• analyse the important members of the buying centre
• explain the major buying decisions taken by business buyers
Learning outcome
• discuss about buying centres
• describe industrial buying and its purpose in detail
• explain roles of buying centres
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4.1 Introduction
Industrial Buying in some ways is similar to consumer buying since it is not the industry (organisation) making the
buying decisions but people within those organisations. But, the industrial marketer must understand the significant
differences in order to succeed in the industrial market. Industrial buyers search for efficient suppliers or vendors
who can deliver goods as per the requirements of the industries.
In an industry, there is a separate department called purchase department whose function is to develop organisational
buying objectives and perform activities so as to have regular and adequate flow of goods and services into the
operations and see that the work of the firm does not suffer.
Fig. 4.1 Industrial buying
4.2 Purpose of Industrial Buying

• Industrial buyers make purchase decisions in order to satisfy their goals.
• Organisations have the goals of producing a good, providing a service or reselling an item and therefore buying
products and services that will effectively engage in these activities.
• We can say that the buying objective of an organisation is to buy the right items in the right quantity at the right
price for delivery at the right time and place.
• The firm may manufacture products (Bajaj, Tata); provide services (Indian Airlines, Banks, LIC); or resell items
(Westside, Lifestyle).
• Buyers may be for profit operations or non-profit, product or service-oriented, governmental or private.
• In all cases, organisational buying takes place in order to produce a product, provide a service or engage in
resell.
• Organisational Buying, therefore, is the decisions making process by which organisations establish the need for
purchased products and services, and identify, evaluate and choose among alternative brands and suppliers.
• Today, organisational buying activities have evolved significantly in most companies.
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• Even small companies have a purchase department headed by a specialist and influenced by various competing
factions such as engineering, quality control, the user and senior management.
• In this current complicated environment, the purchasing specialist attempts to satisfy the organisation’s products
or service needs in a complex process. He is required to balance relationships with suppliers, colleagues, superiors,
product specifications, trade regulations, price, his/her personal reputation and other factors.
• The personal objective of industrial buyers includes higher status, job security, salary increments, promotions,
social consideration, etc.
• Industrial marketers should understand that it is important to satisfy not only the purchasing objectives of an
industrial firm but also the personal objectives of the buying members. It is therefore important for industrial
buyers to achieve both, organisational purchase objectives and personal objectives.
4.3 The Industrial Buying Decision Process

• Industrial buyers do not buy goods and services for personal consumption or utility. They buy these goods and
services to make money, or to reduce operating cost or to satisfy social or legal obligations. In fact, buying is
an organisational decision making process.
• To buy the needed goods, industrial buyers move through a purchasing or procurement process.
• There are 8 stages in the buying decision process which are as follows:
Problem recognition
Need description
Product specification
Vendor/supplier search
Proposal solicitation
Vendor selection
Purchase routine selection
Post-purchase evaluation
4.3.1 Problem Recognition

• The recognition of a problem or need may originate within the buying firm or may also be recognised by the
smart marketer. It can arise because of a difference of sufficient magnitude between the desired state and the
actual state of affairs. Either external or internal stimuli may be the cause of problem recognition.
• For example, an organisation may learn externally of new packaging equipment for its manufacturing operation
through a visit to a trade show, and advertisement seen in a trade magazine or sales call by a supplier’s
representative. Such information could cause the manufacturer to realise that increased speed, greater cost
savings, and less downtime could result from purchasing the proposed equipment.
• Internally, the most common events leading to problem recognition are the following:
A machine breaks down and requires replacement or new parts.
Quality of material supplied by the existing supplier is not satisfactory, and the company searches for
another supplier.
Development of new product and therefore need for new equipment and materials to produce this
product.
A manager feels an opportunity to obtain lower prices or better quality.
• In all these instances, whether external or internal stimuli are involved, problem recognition occurs in order to
solve problems or take advantage of new opportunities.
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4.3.2 Need Description

• Once the problem is recognised, the buyer must determine the quantity and the characteristics of the item needed.
This is not difficult for general items but for technical products, the industrial buyer will have to consult with
engineers, users and so on to define the general characteristics.
• For determining the characteristics of the item, the buyer may use the knowledge and information within the
buying organisation and if in case it is not available, then in that case it can also be obtained from outside
sources.
4.3.3 Product Specification

• After the need has been recognised and described, the buyer must specify the details of the product or services
needed. It can be done by the using department to communicate exactly what is needed by them.
• Sellers can take the opportunity to assist the buyer in describing needs and writing specifications and
characteristics.
• These specifications may include detailed performance requirements, product attributes, service support needs,
etc.
4.3.4 Vendor/Supplier Search
Fig. 4.2 Vendor supplier research
• The buyer now tries to identify companies who may be appropriate suppliers of the specified product.
• The buyer can do a computer search; ask for recommendations from other companies through trade advertisements
and through trade shows.
• Suppliers who lack the required production capacity or have poor reputation will be rejected by the buyers.
• Once the suppliers qualify, the buyer may wish to visit to confirm their manufacturing facilities and also meet
their personnel.
• The buyer may finalise the suppliers and such suppliers may be put on the list of approved suppliers.
• The marketer must work to blend the correct promotional mix so that potential buyers are aware of the firm,
have a favourable image of it and consider it as a supplier.
4.3.5 Proposal Solicitation

• The buyer will now request qualified suppliers to send their proposals based on the product specifications.
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• Suppliers who respond to their request will submit a proposal by sending a catalogue, making a sales call, or a
detailed written offer specifying product or service features, terms of supply and price.
• Even the buyer may request giving a presentation of their proposal.
• Hence, it is required that the marketers must be skilled in researching, writing and presenting proposals.
4.3.6 Vendor Selection

• The buyer evaluates the proposals of qualified suppliers and selects one or more suppliers.
• The buyer may go for further negotiations with the selected suppliers on prices, payment terms, deliveries,
service backup, guarantee period, etc.
• The decision makers may rate the suppliers on various attributes or factors like quality, delivery, price, service,
flexibility, etc. and can select a supplier on the basis of the total score earned by particular supplier.
• However, the rating and priorities of factors can differ from product to product.
• It is important for the buying organisation to decide how many suppliers to use.
• Many businesses prefer multiple suppliers so that they will not be totally dependent on one supplier and they
will also be able to compare the prices and performances of competing suppliers.
4.3.7 Purchase Routine Selection

• This stage involves placing an order with a vendor who processes it and supplies the product.
• The buyer must mention all the terms and conditions like technical specifications, quantity needed, time of
delivery, return policies, warranties, price and terms of payment while placing an order with a vendor.
• The product supplied by the vendor as per the specification is then received, approved and payment is made.
• Normally, the companies negotiate a contract to cover purchases over a period of time instead of sending a
purchase order for each purchase in a straight re-buy situation.
4.3.8 Post-purchase Evaluation

• In the last step, the buyer reviews the performance of the particular supplier. This is an important stage in
providing feedback so that the buyer and seller will be better able to work as a team.
• The management may always review the supplier’s performance periodically. This feedback regarding product
quality, delivery and post sales service helps the buyer to make decisions about continuing or switching to
another supplier.
• The buyer can also give vendors their feedback so that they can always modify and improve their performances
to serve customers’ need in a better manner.
4.4 Buying Centre

• The buying centre comprises of those people in the organisation who interact during the buying decision
process.
• The buying centre is sometimes also referred to as the decision making unit or buying group.
• The decision making unit may vary in size based on:
How novel, complex and important the purchase decision is.
How centralised, formalised and specialised the organisation is.
• Most of the buying decisions are made through the interaction of the buying centre.
• The buying centre is the basic unit of analysis focusing on a particular purchasing decision, the organisational
member is involved in the purchase and their communication and influence flows during the decision making
process.
• Industrial marketers must understand the buying centre roles and accordingly develop an effective promotional
strategy.
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4.4.1 Buying Centre Roles

Like the members of a family, the members of a buying centre exhibit certain roles. In the context of organisational
buying, these roles are:
4.4.1.1 Initiators
• They are the first to recognise a need for the product or service in the organisation.
• They perceive a discrepancy between desired goals and actual performance.
• They are often the users of a product/ service and play the role of initiator.
• They often initiate the buying process and may help develop product specification.
• They also provide feedback about product performance based on their use.
4.4.1.2 Influencers
• They are the individuals who may directly or indirectly influence purchase decisions by supplying information
for evaluating alternatives or by defining buying specifications related to design, quality, delivery, etc.
• Generally, research and development, design engineering, production engineering and manufacturing personnel
may have a substantial influence on purchase decisions.
• Sometimes, individuals outside the organisations who have knowledge, expertise on the issue can also be
influencers by giving their strong advice regarding product specifications or services.
4.4.1.3 Buyers
• They are the formal authority to select vendors and negotiate the terms of purchase.
• Buyers may also participate in setting specifications for the purchase.
4.4.1.4 Deciders
• They have the formal or informal authority to select suppliers and make the final buying decision.
• Deciders are often the most important members of the buying centre to a vendor organisation but they may also
be difficult to identify.
• For routine purchases the buyer may be the decider.
• But for high value and technically complex products, senior executives are the deciders.
4.4.1.5 Gatekeepers
• They control various forms of information flowing into the buying centre.
• They are often the assistants or junior persons attached to the purchase or materials manager.
• They may significantly influence purchase decisions because they play a role in identifying the organisation’s
buying alternatives.
• The industrial marketers must identify individuals with their roles as buying centre members.
• Unless and until industrial marketers are clear about the roles of the buying centre members, they will not be
able to make their strategies for selling their products.
4.4.2 Important Members of the Buying Centre
4.4.2.1 Top Management Persons

• Managing Director, President, Vice-President or General Manager are the top management persons.
• They take decisions in making purchase policies, approval of annual budgets and deciding the purchases of
high-value capital equipment.
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4.4.2.2 Technical Persons
• Design Engineers, Production Manager, Maintenance Manager, Quality Control Manager and Industrial Engineers
are the technical persons.
• They are involved in product specifications, technical evaluation of offers received from suppliers, negotiations
with suppliers and performance feedback.
• These persons may also inspect the manufacturer’s industry to be insured about their production capacity.
4.4.2.3 Persons in the Purchase/ Materials Department

• They may be senior executives or managers and at junior levels, purchase officers or assistants.
• They are involved in various phases of the purchase activities.
• They coordinate with top management persons as well as technical persons and also with suppliers and
vendors.
4.4.2.4 Finance/Accounts Persons

These persons normally take part in finalising commercial terms such as modes of payment, financial approval of
capital purchases and issuing of payments to suppliers.
4.4.2.5 Marketing Persons

Marketing people are the influencers in the buying decision process. The marketing people always insist on good
quality products with good quality of packaging to minimise the rejection of goods and services or damage in
transit.
4.5 Major Buying Decisions taken by Business Buyers

The business buyer faces many decisions in making a purchase. The number of decisions depends on the type of
buying situation which is as follows:
4.5.1 Straight Re-buy

• It is a buying situation where the purchasing department reorders on a routine basis.
• The buyer normally buys things from those suppliers who are on their approved list. The buyer normally chooses
that supplier who has supplied goods and services in the past and the buyer is satisfied with the supplier as far
as the product and service quality is concerned.
• Many a times the buyer has annual contracts with the suppliers and places their indents annually with clear
instructions for the supply of goods and services.
• Sometimes, the buyer tries to get products from new vendors to check the scope of getting products on better
terms and conditions.
• These suppliers are normally given small orders and in case they supply good products with better terms and
conditions, the orders can be enlarged subsequently.
4.5.2 Modified Re-buy

• The modified re-buy describes situations where the buyer wants to modify product specifications, prices, delivery
requirements or other terms. In such cases, additional decision participants on both the sides are involved.
• The existing suppliers have to protect the account since there is always a possibility that out-suppliers may take
it as an opportunity to propose a better offer to get some business.
4.5.3 New Tasks

• The purchaser buys a product or service for the first time in such situations. In case the cost of the product is
high or there is a higher risk, more number of decision participants is required.
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• In such situations, the marketer tries to reach as many key buying influencers as possible and provide helpful
information and assistance.
• New buying tasks passes through several stages such as awareness, interest, evaluation, trial and adoption.
• At each stage, different communication tools are required to be employed by the marketers so as to make a
communication impact at every stage.
• In the new task situation, the buyer has to take many decisions like product specification, price limits,
delivering terms and times, service terms, payment terms, order quantities, acceptable suppliers and the selected
supplier.
• Different decision participants influence each decision and the order varies in which these decisions are
made.
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Summary
• Industrial Buying in some ways is similar to consumer buying since it is not the industry (organisation) making
the buying decisions but people within those organisations.
• Industrial buyers make purchase decisions in order to satisfy their goals.
• Industrial marketers should understand that it is important to satisfy not only the purchasing objectives of an
industrial firm but also the personal objectives of the buying members.
• Industrial buyers buy goods and services to make money, or to reduce operating cost or to satisfy social or legal
obligations.
• The buying centre comprises of those people in the organisation who interact during the buying decision
process.
• Industrial marketers must understand the buying centre roles and accordingly develop an effective promotional
strategy.
• Deciders are often the most important members of the buying centre to a vendor organisation but they may also
be difficult to identify.
• Gatekeepers control various forms of information flowing into the buying centre.
• The marketing people always insist on good quality products with good quality of packaging to minimise the
rejection of goods and services or damage in transit.
• New buying tasks passes through several stages such as awareness, interest, evaluation, trial and adoption.
References
• Johnston, W.J., 1981. Patterns in Industrial Buying Behaviour, Praeger Publishers.
• Coe, J., 2003. The Fundamentals of Business-to-Business Sales & Marketing, 1st Edition, McGraw-Hill.
Recommended Reading
• Levinson, J.C., 1990. Guerrilla marketing Weapons: 100 Affordable Marketing Methods; Plume. p272.
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Self Assessment
1. ____________ in some ways is similar to consumer buying since it is not the industry (organisation) making
the buying decisions but people within those organisations.
a. Organisational Buying
b. Straight re-buy
c. Industrial buying
d. Corporate buying

a. Industrial buyers make purchase decisions in order to satisfy their goals.
b. Consumer buyers make purchase decisions in order to satisfy their goals.
c. Industrial buyers search for efficient suppliers or vendors who can deliver goods as per the requirements
of the industries.
d. Buyers may be for profit operations or non-profit, product or service-oriented, governmental or private.

a. Industrial buyers do not buy goods and services for personal consumption or utility.
b. Industrial buyers buy goods and services for personal consumption or utility.
c. Industrial buyers do not buy goods and services to make money, or to reduce operating cost or to satisfy
social or legal obligations.
d. Industrial buyers buy goods and services to make money, or to increase operating cost or to satisfy social
or legal obligations.
4. ____________ can take the opportunity to assist the buyer in describing needs and writing specifications and
characteristics.
a. vendors
b. purchasers
c. suppliers
d. Sellers
5. _________ who lack the required production capacity or have poor reputation will be rejected by the buyers.
a. vendors
b. purchasers
c. suppliers
d. Sellers

a. The management may always review the supplier’s performance periodically.
b. The feedback regarding product quality, delivery and post sales service helps the buyer to make decisions
about continuing or switching to another supplier.
c. The buyer can also give suppliers their feedback so that they can always modify and improve their
performances to serve customers’ need in a better manner.
d. The buyer can also give vendors their feedback so that they can always modify and improve their performances
to serve customers’ need in a better manner.
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7. What comprises of people in the organisation who interact during the buying decision process.
a. Buying centre
b. Industrial market
c. Industrial buying decision process
d. Purchasing

a. The buying centre is sometimes also referred to as the decision making unit or buying group.
b. The buying centre is the basic unit of analysis focusing on a particular purchasing decision, the organisational
member is involved in the purchase and their communication and influence flows during the decision making
process.
c. Industrial marketers must understand the buying centre roles and accordingly develop an effective promotional
strategy.
d. The buying centre is sometimes also referred to as the decision making unit or selling group.
9. In which buying situation the purchasing department reorders on a routine basis?

a. Straight re-buy
b. modified re-buy
c. new buying task
d. buying centre
10. Who are involved in product specifications, technical evaluation of offers received from suppliers,
negotiations?
a. Persons in purchase
b. Persons in material department
c. Persons in account
d. Technical persons
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Chapter V
Industrial Market Segmentation, Targeting and Positioning
Aim
• introduce market segmentation
• explain market research
• discuss the benefits of market segmentation
Objectives
• state the limitations of market segmentation
• analyse the requirements for market segmentation
• explain macro and micro segmentation
Learning outcome
At the end of this chapter, the student will be able to:
• define niche marketing
• explain the limitations and benefits of market segmentation
• discuss target market in detail
• explain undifferentiated marketing
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5.1 Introduction
• The business market is made up of large numbers of diverse categories of customers. These customers may be
business and non-business customers, companies (public, private), multinationals, manufacturers, marketers,
service firms, single product line firms, multiple product line firms, etc.
• The product requirement for diverse categories of customers is different. Their purchase policies are
different.
• Therefore, companies will have to look into their resources and competence to efficiently serve all categories
of customers.
• It is not possible for companies to serve all the customer groups efficiently.
• It is therefore necessary for a company to identify the right category of customers which it can successfully
serve and to formulate the right marketing strategy for the chosen customer groups. This process involves three
steps which are considered as an important strategic marketing decision.
• Strategic marketing involves identifying distinctive customer groups and their characteristics, selecting the
right market segment which the company can successfully serve and determining the right positioning strategy
for each of the selected segment and drawing up an appropriate marketing strategy based on that. According to
Kotler, “The heart of modern strategic marketing is Segmenting, Targeting, and Positioning described as STP
marketing”.
5.2 Market Segmentation

• The market consists of buyers and buyers differ in one or more respects. They may differ in their requirements
of purchasing power, geographical location, buying attitudes and purchasing practices.
• The industrial organisation has to decide to serve customers on the basis of any of these variables and its own
resources.
• Market segmentation is the process of dividing the total product for a product or services into several segments
or distinct groups of buyers.
• Each group of buyers is homogeneous and may require separate benefits from the product.
• Market segmentation may be defined as the sub-dividing of the heterogeneous market into groups of homogeneous
customers so as to facilitate effective target marketing. “Market segmentation is a strategy for selecting customers,
for differentiating customers according to differences in the way they respond to the marketing effort, for
choosing among alternative market opportunities, and for tailoring marketing strategies to those distinctive
opportunities.”
• The basis of segmentation differs between business goods and consumer goods and services.
• In case of consumer goods and services, demographic and social cultural factors are widely used, while they
are hardly significant in industrial market segmentation because of the fact that the factors which influence the
buying decision are task oriented.
• In market segmentation, an industrial marketing firm has to follow the following steps:
Marketing research
Analysis
Profile or Outline
Marketing research
• In industrial marketing, secondary research is done for collecting information on the markets from the company’s
past data, on-line database, library, industry association, etc.
• Generally, the secondary research is adequate to identify market segments.
• However, if the organisation finds the data inadequate, they can always go for market surveys and collect the
information from the existing and potential industrial buyers.
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• The survey must be for knowing major purchasing factors considered by buyers and their present and future
requirements and the purchasing policy adopted by them. They can also survey the buying behaviour of buyers
and the market share of different competitors and their policies on pricing, payment terms, after sales service,
distributions and promotions.
Analysis
The data collected from the secondary and primary research is to be analysed using statistical techniques. They
should try to analyse the data and identify different segments which are homogenous. Analysis of the data must be
done very carefully; otherwise it may even misguide the marketers.
5.2.1 Profiling
Each segment is outlined by its specific characteristics. These characteristics are as follows:
use of the product
volume of requirements
location
types of industry
purchasing approaches
purchasing function
buyers’ personal characteristics
buying behaviour
The industrial marketer should follow the above procedures for segmenting the market for their products or services.
Since the customers’ needs/requirements also change with the change in other environmental factors over a period
of time, the marketers must carry out the exercise on STP periodically.
5.3 Benefits of Market Segmentation

The important benefits of market segmentation are listed below:
• Identification of relevant variables for market segmentation helps to understand the important factors influencing
demand for a product.
• Market segmentation provides more incentive into buyer behaviour.
• Market segmentation helps to draw up a clear picture of the structure of the market.
• Market profiling provides relevant details including customer preference competitive conditions, market size,
behaviour characteristics, etc. of the different segments.
• Market segmentation helps to understand the relative attractiveness of the different segments.
• Market segmentation is a pre-requisite for target marketing.
• It helps matching the company’s objectives and resources with the market opportunity.
• The marketers can make a budget allocation of resources effectively to various segments.
• It is essential for the formulation of effective marketing strategies and approaches to compare marketing
opportunities and creating competitor advantage.
5.4 Limitations of Market Segmentation

• In case the market is small consisting of few customers or may be a single large customer, then market
segmentation may not be beneficial or practical.
• The limitations of market segmentation are as follows:
Increase in marketing expenses
Difficulty in segmenting due to greater differences in customer characteristics, buying practices, product
applications, etc.
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• Industrial marketers must look at the expense part especially in case of inventory carrying cost, advertising cost
and transportation cost; otherwise market segmentation will be quite expensive and time-consuming.
5.5 Requirements for Effective Segmentation

The selection of variables used for the segmentation of the industrial market should meet five characteristics in
order to achieve effective segmentation. The five requirements given below are the criteria used for the selection
of segmentation variables by industrial marketers. However, the industrial marketer must look into the important
aspect of remaining competitive in the market at least for a reasonable period ahead.
• Measurable
It is essential to access the commercial attractiveness of market segments. It should therefore be possible
to estimate the sales potential or the quantity of product required by customers.
The information must be quantifiable which will determine whether the segment is substantial or not.
• Substantial
A market segment must be substantial i.e. it is large and profitable enough to serve.
A segment should be the largest homogeneous group worth going after with a tailored marketing
programme.
A market segment which is not substantial for one company could be substantial for another one. It all
depends on the size of the company and its objectives.
• Accessible
A market segment may be accessible if it can be effectively reached and served. It should be possible to
exploit well the potential of the market segment if it is possible to effectively promote and distribute the
products in that segment.
Accessibility thus refers to the degree to which a market segment can be reached through a unit marketing
programme.
• Differentiable
The segments should be distinguishable and should respond differently to separate marketing plans or
strategies.
For example, if public sector and private sector organisations respond similarly to the relevant set of marketing
strategies, then it does not make sense to regard them as different segments.
• Actionable
A market segment is relevant to a company only if it can effectively tap the potential of that segment. If a
company does not have the competence and resources to serve a particular market segment, that segment
is not actionable by the company.
5.6 Macro and Micro Segmentation
5.6.1 Macro Segmentation

• Macro segmentation involves the sub-dividing of the market into sub-groups based on industry groups, type of
organisation, size, product requirements, geographical location or product application.
• Most of the macro segmentation variables are easily identifiable.
• The information on macro variables can be obtained through business magazines, government publications and
company sources.
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• The macro segmentation which is the traditional non-behavioural segmentation of the business market is the
grouping of buyers based on their general characteristics.
• Macro segmentation though very useful, is not sufficient for efficient marketing.
• Fine tuning of the marketing strategy needs an incite to the behavioural characteristics of the buying unit. Macro
segmentation should therefore lead to micro segmentation of the market.
5.6.2 Micro Segmentation

• Micro segmentation is a homogenous group of customers within the macro segment. While macro segmentation
is based on the general overall characteristics of the buyers, micro segmentation is based on the behavioural
characteristics of the buyers.
• It pertains to characteristics of the decision making process and the buying structure within customer organisation.
This includes such factors as the position of the buying centre in authority and communication networks, the
amount of influence held by key departments, demographics and personality characteristics of key members of
the buying centre, perceived importance of the purchase, and the relative importance of specific attributes in
the organisation buying decisions, attitude towards vendors.
• The strategic implications of micro segmentation lie primarily in the promotion strategy than product, price or
distribution refinements.
• Decisions influenced by segment differences at the micro level include selecting individuals in the buying
organisation, design of sales presentation to stress specific product features, selection of advertising media to
reach decision influences, budgeting the total amount of selling efforts required as a function of the degree of
perceived risk.
• The data of information required for developing micro segmentation is more difficult and costly as it has to be
obtained through company salespersons or by conducting market service.
5.7 Target Market

After segmenting the market into potential segments, the company should evaluate the various segments. On the
basis of evaluation, they should select the target segments and should make the market strategy which they will
adopt for the target market.
5.8 Evaluation of Market Segmentation

There are four factors which are employed by an industrial marketing firm to evaluate the different market
segments:
size and growth
profitability analysis
competitive analysis
company objective
• Size and growth

The industrial marketing firm should find out the market potential of each market segment. They should
find out the current and future market potential by using demand forecasting methods.
The growth characteristics of the market segment can be easily worked out on the basis of long term market
potential which is forecasted. With this, the marketer will understand the size and the estimated market
growth of each segment.
• Profitability analysis
Market potential, sales forecast and profitability are three elements which are involved in analysing the
profitability of each potential segment.
Market potential is the estimate of quantity and value of product purchased by the total market in a specified
time period.
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Sales forecast is the estimate of the company’s share out of the market potential in a specified time
period.
Profitability is the difference between the estimated sales revenue and the marketing cost in the same time
period.
It is important to make the sales forecast right since the marketing costs such as sales force, advertising
and sales promotion, etc. are done looking at the sales forecast. In case the sales forecast has not been done
correctly, profitability will be low.
• Competitive analysis
An industrial marketer must carefully analyse the strengths and weaknesses of existing and potential
competitors so as to make such strategy to penetrate a particular market segment.
The strengths and weaknesses of major competitors must be assessed in each marked segment with respect
to areas of manufacturing, R&D, technical service, product quality, finance, advertising, distribution and
management reputation.
• Company objective
An industrial marketer must look into whether each potential segment is in relation with the firm’s long-term
objectives. It should also look into its resources in relation to the competitor’s resources.
Unless the resources are superior to those of the competitors’ it will be difficult to be in line with the success
factors for each segment.
5.9 Selecting the Target Segments

After evaluating several market segments based on various criteria, the company will be in a position to decide
which and how many segments it should select as its target segments. This decision can be made by using advanced
computerised systems called decision support systems. Once the target segment is selected, the industrial marketer
can decide the strategy the firm will adopt.
5.10 Target Market Strategies

There are three broad strategies which an industrial organisation can adopt. These are:
• Concentrated marketing
• Differentiated marketing
• Undifferentiated marketing
5.10.1 Concentrated Marketing

• In the simplest case, a single segment forms the target market of a company and all marketing efforts are
concentrated on this segment. It is similar to the focus strategy.
• This strategy is normally done by a company whose resources are limited.
• Such a company concentrates its knowledge and tailor’s its strategy to service a particular segment far better
than its competitors.
• They build up their reputation and increase their business by concentrating its effort on specific segments.
• In case, such a company aims for the total market, there is always a possibility that such firms will sooner or
later vanish from the market.
• These companies employ the strategy of a narrow range of products/services accompanied by high quality, high
price and a selective promotional and distribution strategy.
• The concentrated marketing strategy has more risk since all the efforts are made on a particular segment and, in
case the demand from that segment declines or the target segment has been overpowered by a larger competitor,
then such companies with limited resources may find themselves in trouble.
• It is therefore required that marketers must concentrate on more than one market segment.
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5.10.2 Differentiated Marketing

• The differentiated marketing strategy essentially involves market segmentation and a separate marketing strategy
for each of the target segment. It develops a separate marketing strategy for each of its chosen segments.
• Making different marketing strategies for different target markets increases overall costs since product
development, promotional cost, production and administration cost may be separate for each segment.
• However, the company achieves its objective of higher sales volume and a better position in the chosen market
segments.
• Hence, the differentiated marketing strategy is always higher in cost but it brings higher sales to the company.
• Industrial firms should always look into the aspect of how much profits they are earning because of the
differentiated marketing strategy since it is not necessary that the company will also make higher profits.
• Over segmentation must be avoided by the industrial firms.
5.10.3 Undifferentiated Marketing

• The undifferentiated marketing strategy is characterised by market aggression. It treats the whole market as a
single unit and they try to tap the entire market with a single marketing strategy.
• The marketers may be using this strategy due to the standardised products or services sold to a market. They
do not feel the need for differentiation among customers.
• The undifferentiated strategy is advantageous in comparison to the differentiated marketing strategy since it
keeps down the total cost including advertising, marketing research, inventory and production.
• However, such companies are not in a position to build up higher sales in case the competitors follow a
differentiated marketing strategy.
• Industrial marketers should always try to have a better marketing mix to differentiate them from the competitors
even though their products are similar or standardised.
• Pricing, promotional and distribution strategies should be evaluated and made competitive to stop the decline
in sales by such industrial marketers who are adopting the undifferentiated marketing strategy.
• Conclusively, the following criteria can be made which are useful to industrial marketers in selecting a target
market strategy:
Concentrated marketing strategy to be chosen by such companies who have limited resources.
A firm can follow either concentrated or undifferentiated marketing strategy if a new product is being
introduced.
The marketers must follow the strategy of major competitors especially when a major competitor has the
differentiated marketing strategy.
Any company will gain by using either the differentiated or concentrated marketing strategy if competitors
use the undifferentiated marketing strategy.
5.11 Niche Marketing

• A niche is a more narrowly defined customer group. This customer group requires products or services tailored
specially to the individual needs and preferences.
• Niche marketing helps an organisation to provide such products or services that are especially produced to the
customer’s individual preferences and desire.
• The objective of niche marketing is to satisfy more effectively and profitably than competitors by reaching
potentially unsatisfied markets.
• The marketers try to use all their capabilities and strengths which are best matched with the customer needs.
5.12 Positioning
• Industrial marketers decide the target markets that should make the positioning strategy for each target
market.
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• The consumer’s mind is often flooded with messages of a large number of offerings of different companies.
• Many companies promote the same type of product. Therefore it becomes very difficult to gain space in the
consumer’s mind even for a differentiated product.
• A company must try to create a distinctive imprint about the company’s product in the minds of consumers.
This objective is achieved by the marketers by deciding a positioning strategy which clearly differentiates the
company and its products/ services from those of competitors.
• Thus, positioning is defined as the distinct place a product or service occupies in the minds of target customers
relative to competing products. So positioning is basically how the firm wants its products or services perceived
by target customers. For example, TATA is associated with quality; SONY is associated with technology in the
minds of customers.
• A company’s product may not have superiority over the competitor’s product with reference to all the attributes
or variables. It is also not possible to position a product in relation to all the differences.
• Positioning therefore involves a major decision as to which distinctive factor/factors will form the core of
positioning.
5.12.1 Positioning Strategies

There are a number of factors on which positioning may be made:
• Attribute positioning: Positioning can be based on certain specific attributes of the product. The purpose of
positioning on the basis of attribute is to make the target customer understand the capability of the company to
offer various competing products with respect to important attributes.
• Benefit positioning: Any distinctive use of the product becomes the core of positioning like, low operating
cost, energy saving by machine, pollution free product.
• Cost positioning: Low cost like low price of the product or the low cost per unit of output by machine is a very
effective positioning factor in business marketing.
• Application/ User positioning: A product may be positioned with reference to its use/application or the customer
group it is meant for. For example: business hotel.
• Segment positioning: Products may be positioned with reference to specific segments. For example: The Federal
Bank had positioned itself in the past as a farmer’s bank.
• Competitor’s positioning: A positioning strategy applicable in some cases is directly against the competitor.
• Quality positioning: Product quality can also be sometimes used for positioning.
• Product category positioning: The positioning strategy is associated with a product class or category. For
example: Chinese Restaurant, Highway Restaurants.
5.12.2 Types of Positioning

The different types of positioning are:
• Variety based positioning: It is based on producing a subset of an industry, products or services. The focus
essentially is on product or service varieties not on customer segment.
• Need based positioning: Here, the focus is on most of the needs of particular groups of customers. This strategy
is appropriate when there are groups of customers with different needs and when a tailored set of activities can
serve those needs best. This strategy is of targeting a particular segment of consumers.
• Access based positioning: It is applicable when the needs of different set of customers are similar but the best
ways of accessibility are different due to factors like geography or customer scale.
5.12.3 Communicating the Company’s Positioning

• It is important for industrial marketers to communicate the positioning strategy effectively to the target
markets.
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• In the industrial market it is through personal selling, sales promotion and advertising that the proper
communication can be made.
• The industrial marketers must choose the most effective media of communication according to their positioning
strategy.
• However the industrial marketer should find out customer perceptions through an independent marketing research
agency before deciding on the positioning strategy.
• Many a times, practicing managers ignore this aspect which results into ineffective decisions.
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Summary
• Strategic marketing involves identifying distinctive customer groups and their characteristics, selecting the right
market segment which the company can successfully serve and determining the right positioning strategy for
each of the selected segment and drawing up an appropriate marketing strategy based on that.
• Market segmentation is the process of dividing the total product for a product or services into several segments
• The basis of segmentation differs between business goods and consumer goods and services.
• Analysis of the data must be done very carefully; otherwise it may even misguide the marketers.
• Market segmentation is a pre-requisite for target marketing.
• A market segment must be substantial i.e. it is large and profitable enough to serve.
• The segments should be distinguishable and should respond differently to separate marketing plans or
strategies.
• Macro segmentation involves the sub-dividing of the market into sub-groups based on industry groups, type of
organisation, size, product requirements, geographical location or product application.
• Micro segmentation is a homogenous group of customers within the macro segment.
• The strategic implications of micro segmentation lie primarily in the promotion strategy than product, price or
distribution refinements.
• Market potential is the estimate of quantity and value of product purchased by the total market in a specified
time period.
• Profitability is the difference between the estimated sales revenue and the marketing cost in the same time
period.
• The undifferentiated marketing strategy is characterised by market aggression.
• A niche is a more narrowly defined customer group.
• Industrial marketers decide the target markets that should make the positioning strategy for each target
market.
References
• Bingham, F.G., 2005. Business Marketing; 3rd Edition, Irwin/McGraw-Hill.
Recommended Reading
• Kister, T.C., 2005. Maintenance Planning and Scheduling: Streamline your Organisation for a Lean Environment,
Butterworth-Heinemann.
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Self Assessment

a. The business market is made up of large number of diverse categories of customers.
b. The product requirement for diverse categories of customers is different. Their purchase policies are
different.
c. The product requirement for diverse categories of customers is different. Their purchase policies are
same.
d. The market consists of buyers and buyers differ in one or more respects.
2. ___________ is the process of dividing the total product for a product or services into several segments or
distinct groups of buyers.
a. Market segmentation
b. Marketing research
c. Business Strategy
d. Financial Strategy

a. The basis of targeting differs between business goods and consumer goods and services.
b. The basis of planning differs between business goods and consumer goods and services.
c. The basis of segmentation does not differ between business goods and consumer goods and services.
a. The basis of segmentation differs between business goods and consumer goods and services.
4. In industrial marketing, what is done for collecting information on the markets from the company’s past data,
on-line database, library, industry association, etc?
a. Primary research
b. secondary research
c. market research
d. market segmentation

a. The data collected from the secondary and primary research is to be analysed using statistical techniques.
b. Market research is the process of dividing the total product for a product or services into several segments
c. Market targeting is the process of dividing the total product for a product or services into several segments
d. Market segmentation is the process of dividing the total product for a product or services into two segments
6. A market segment must be __________ i.e., it is large and profitable enough to serve.
a. measurable
b. accessible
c. differentiable
d. Substantial
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a. Macro segmentation involves the sub-dividing of the market into sub-groups based on industry groups, type
of organisation, size, product requirements, geographical location or product application.
b. Most of the macro segmentation variables are easily identifiable.
c. The micro segmentation which is the traditional non-behavioural segmentation of the business market is the
grouping of buyers based on their general characteristics.
d. The macro segmentation which is the traditional non-behavioural segmentation of the business market is
the grouping of buyers based on their general characteristics.
8. Market potential, sales forecast and profitability are three elements which are involved in analysing the
__________ of each potential segment.
a. compatibility
b. company objective
c. profitability
d. size and growth
9. ___________ of the data must be done very carefully; otherwise it may even misguide the marketers.
a. Primary research
b. Analysis
c. Profiling
d. Market research
10. What may be defined as the sub-dividing of the heterogeneous market into groups of homogeneous customers
so as to facilitate effective target marketing?
a. Market segmentation
c. Business strategy
d. Financial strategy
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Chapter VI
Industrial Product Decisions
Aim
• discuss the factors for a change in product strategy
• explain the changes in product strategy
• state product life cycle theory
Objectives
• explain the method of developing product strategies for existing products
• analyse the new industrial product development
• discuss marketing strategies for industrial services
Learning outcome
• describe industrial product strategy
• explain the changes and factors of product change in detail
• define industrial product
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6.1 Introduction
• Once a company has segmented the market, chosen its target customer groups and determined the desired market
positioning, it is ready to develop, launch appropriate and successful products.
• The products or the services offered from an industrial firm must ultimately satisfy the customer’s needs, only
then we can call them successful products or services.
• The marketing department along with various other departments such as R&D, engineering, material,
manufacturing plays a vital role in the product development process.
• A company can opt for two different ways in developing new products:
it can develop new products in its own laboratories
it can contract with independent researchers or new product development firms to develop specific products
for the company.
• Many companies pursue growth through both, acquisitions and new product development.
• An industrial organisation, while developing product strategies must consider:
that the product mix is in line with the overall company and marketing objectives
to review the performance of existing products in terms of sales, profits, competition and customer
acceptance.
• The industrial organisation then can decide whether to continue with existing products, to drop or modify some
of the existing products and the development of new products.
6.2 Factors for Change in Product Strategy

Industrial marketers must understand that a product strategy is flexible and dynamic. Industrial firms are required
to make changes in their strategy because of changes in:
Customer needs
Technology
Government policy or laws
Product Lifecycle
• Customer needs
In a competitive market, an industrial firm must monitor changes in the needs of its target customers if they
really want to survive and succeed in a competitive market.
The industrial firm should make changes in its product as per changes in the needs of their customers since
the needs of the customer keep on changing because of changes in their environment.
Since industrial products are also customised products, it is required that industrial firms have a close relation
with their customers to clearly understand their changes in needs and accordingly offer the products.
• Technology
In today’s situation, the changes in technology are quite frequent; therefore the industrial marketer should
always look into the effect of changes in technology.
They may require either product modification or even make their existing product obsolete.
Industrial firms must take the help of technology to keep their product updated and more serviceable to
their customers.
• Government policy and laws

The industrial firm may require a change in product strategy because of changes in government policies
and the laws.
Government policy may guide firms regarding which products to manufacture in market.
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The policies can also restrict or liberalise the entry of private sector firms in a few specific areas.
For example; insurance and telecommunication have been liberalised for the entry of private sector firms.
• Product lifecycle
Industrial firms may determine marketing strategies using the product lifecycle theory or concept.
According to the theory, products tend to go through different stages like introduction stage, growth stage,
maturity and decline stage.
At every stage, the contribution of the product in terms of sales and profits to the industrial firm changes.
Therefore, to maintain growth in sales and profits, industrial firms should closely monitor the contribution
of the product at different stages.
The industrial firms then can decide to drop, modify or develop new products.
6.3 Marketing Strategies During the Different Stages of Product Lifecycle
6.3.1 Introduction Stage

• At the introduction stage, there are products which are accepted rapidly after the introduction and some of the
products are accepted slowly.
• Products which take a fairly long period for customers to learn their applications or to be accepted are normally
high learning products.
• The customer requires more time to learn the application of such products and enjoy the utility of such
products.
• For slowly accepted products, the marketers must develop aggressive promotional strategies which should aim
at creating widespread awareness of the product, quickening, learning and gaining trial by early adopters.
• Publicity, personal selling and trade journals are often very important media of promotion.
• The marketing strategy should concentrate more on market development efforts. In case of products that are
accepted fast, the marketing strategy should be evolved to meet intense competition.
• Distribution tends to be exclusive or selective with high distributive margins to justify heavy promotional
spending.
• The price skimming or penetration strategy may be adopted depending on the product and market characteristics
at the introduction stage by the industrial marketers.
6.3.2 Growth Stage

• It is generally characterised by:
Fast growth in sales because of increasing consumer acceptance and expansion of marketing.
Growing profits because of growing sales and decrease in the fixed production cost and marketing cost per
unit.
Increase in competition.
Market segmentation and the introduction of different models of the product.
• An industrial marketer must focus the marketing strategy on the following key areas-
To achieve wider market penetration, the market should be segmented.
More models of the product, with more benefits and innovative product features should be introduced.
Intensive and extensive distribution should be done so that product availability to customers is strong.
Dealer margins should be high enough to keep them interested.
Logistics management becomes more important.
The increase in the scale of operation may facilitate price reduction, increased volume of production,
lowering the cost.
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• If the above strategies are ignored by an industrial marketer, competitors are encouraged to enter the market
and disturb the existing industrial marketer.
6.3.3 Maturity Stage

• As the product enters the maturity stage, the number of competitor’s increases. The stage of maturity is
characterised by:
saturation of sales
intense competition
falling profits because of high promotional expenditure and falling margins
cost cutting and product improvement
• The marketing strategy during this stage would be characterised by efforts to maintain the market share. The
industrial marketer may decide to enter new markets.
• The industrial marketer must make strategies to keep the existing customer satisfied.
• He should make efforts to cut cost to maintain its profit margin. Product improvement efforts must be intensified.
6.3.4 Decline Stage

• Maturity stage is generally followed by decline of the market for the product. The decline stage is characterised
by:
entry of new products which compete with the product
decline in sales
decline in profits
• For industrial products, the decline tends to proceed rapidly since new technologies may make established
products obsolete.
• The marketing strategy adopted by an industrial marketer is to:
withdraw the product from the market
develop a substitute product for replacement
Reducing marketing and other expenses to manage profits like promotion would be cut to the minimum
required.
6.4 New Product Development

• New product development is a challenging task for the industrial marketers. Though new product development
is complex and difficult, it is a vital and necessary task for the industrial marketer for maintaining the growth
of the organisation.
• Companies that fail to develop new products are exposing themselves to great risk in the present competitive
market.
• Existing products are vulnerable to consumer needs and tastes, new technologies, short-ended product life cycle
and increased domestic and foreign competition.
• Therefore, a company should try to improve its products and work on new ones even before the core product
is released into the stores.
• A product that is new to the company and to the market is called a ‘new’ product.
• The success and failure of new industrial products may depend on the following factors:
new products are not different from the existing products
new products do not deliver the expected performance
new products do not satisfy the needs of many potential customers
prices of new products are much higher than the value perceived by the customers
competitors have superior product quality and marketing effectiveness
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6.4.1 Success Factors for Products

Product has superior quality and new features which gives competitive advantage over competitors.
Company’s technical and production capabilities.
Company understanding the needs and wants of the target markets and producing products to satisfy the
needs of their potential customers. It helps the company in formulating successful marketing strategies and
action plans.
6.4.2 Steps in New Product Development

• The process by which potential product ideas are generated, evaluated, directed and turned into products is
called the new product development process.
• There are seven stages of the new product development process.
Idea Generation
Idea Screening
Concept Development and Testing
Business Analysis
Product Development
Market Testing
Commercialisation
6.4.2.1 Idea Generation

• The new product development process starts with the search for ideas.
• New product ideas can come from many sources like customers, competitors, employees, scientists, engineers,
channel members and the top management.
• In industrial marketing, the buyer-seller relationship and interdependence are very vital, therefore the industrial
customers can be a very important source of those ideas.
• An industrial organisation can attract good ideas from inventors, patent attorneys, industrial consultants, marketing
research firms and industrial publications.
• Many ideas can flow in from many sources as mentioned above but it is most important that ideas should receive
serious consideration and only then such exercise is fruitful.
6.4.2.2 Idea Screening

• The purpose of idea generation is to create a large number of ideas while the purpose of screening new product
ideas is to select those ideas which are likely to succeed.
• Companies should clearly specify criteria and procedures for screening new products ideas.
• The significant factors for rating new product ideas can be:
company objectives and strategies
marketing experience and effectiveness
production capabilities and facilities
research and development know-how
availability of raw materials and supplies
financial resources and profitability
• The company must rate the new product ideas on the above factors and try to drop poor ideas as early as
possible.
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6.4.2.3 Concept Development and Testing
• After the idea screening stage, the attractive ideas should be developed into a product concept.
• A product concept is an elaborated version of the idea expressed in meaningful consumer terms.
• Often, firms develop the new product into different versions or alternative product concepts, and then each
product concept is tested by getting reactions from the customers.
• The consumers always buy product concepts rather than product ideas.
• Concept testing calls for testing competitive concepts with an appropriate group of target customers.
• The concept can be presented symbolically or physically.
• For large size products, concept testing can be done by using a technique called virtual reality. In this technique,
a software package is used to design the product on a computer.
• Prospective customers can operate the product in a simulated situation.
• After completing the experience of using the physical products, or plastic models or simulated products, the
users and the key decision makers in prospective organisations are interviewed and asked questions as below:
Are the benefits clear to you and believable?
Do you see this product as solving a problem or filling a need for you?
Do other products currently meet this need and satisfy you?
Is the price reasonable in relation to the value?
Would you buy the product?
• The marketer now summarises the respondent’s answers to judge that the concept has a broad and strong
consumer appeal.
6.4.2.4 Business Analysis

• After management develops the product concepts in marketing strategy, it can evaluate the business proposal’s
attractiveness.
• Management needs to prepare the sales, cost and profit projection to determine whether they satisfy the company’s
objectives.
• The management can move to the product development stage once they have done detailed analysis in terms of
investments, market potential and cost of product development, price and profitability.
6.4.2.5 Product Development

• After the product concept passes the business analysis test, it moves to R&D, engineers and technicians to be
developed into a physical product.
• The R&D department develops one or more prototypes of the product concept.
• The development of the prototype will confirm or negate its ability to produce the product within the cost
estimates and the performance parameters previously established.
• The R&D department’s challenge is to achieve both, the performance and the cost objectives on the basis of
information received from marketing departments regarding the needs of the customer and the customer’s
reaction on price and performance.
• In the present competitive world it is required that a new product is developed and launched in the market very
fast, otherwise competitors will be in a position to develop their own products and push into the market and
take advantage.
6.4.2.6 Market Testing

• It is common to conduct a market testing of the product before it is commercialised.
• The objective is to measure the consumer reaction to the product. Product quality, features, packaging, price,
etc. may be subjected to tests.
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• The feedback from the test marketing would enable the firm to improve the product and increase customer
acceptance.
• The purpose of market testing is to learn how consumers and dealers react to handling, using and re-purchasing
the actual product and how large the market is.
• Test marketing is normally conducted with a representative sample of potential consumers or in some select
markets like some cities/towns which are regarded representatives.
• If market testing of the new product gives adequate information to decide about launching a new product, the
company management decides to go ahead with commercialisation.
6.4.2.7 Commercialisation
• When a product is introduced to a target market, it is termed commercialisation.
• It involves implementation of various activities like training of the sales force, product catalogues, price lists,
introductory advertisements, adequate stocks at the warehouses, with dealers and distributors, etc.
• All the marketing activities have to be synchronised with production to ensure market-entry timing.
• Some important marketing decisions pertaining to Commercialisation are:
When to launch the product
In which markets to launch the product
Whom to target the product first
How to market the product
6.5 Marketing of Industrial Services

There is a remarkable growth of services in both the consumer and the industrial markets. Marketing of industrial
services has many unique characteristics that are different from marketing of products.
6.6 Classification of Industrial Services

The services in the industrial market can be classified into two groups:
Product supported by services
Pure services
• Product supported by services

No tangible goods and services are offered to a customer without some associated services. These services
may not even be considered services as they are perceived as part of the offering.
However, the service component can be a major or a minor part of the total offer from the company.
In industrial marketing, the component of services is generally an important consideration by the client
while deciding to buy an industrial product.
Maintenance and repairs of material handling equipment, supply, installation and maintenance of high value
industrial products are such services which are very valuable to customers and industrial marketers always
insist on these services while selling the industrial product.
• Pure services
Pure services like banking, legal services, consultancy services, recruitment services are marketed without any
association with physical products.
6.6.1 Unique Characteristics of Services

• There are four distinctive characteristics of services which create special marketing challenges and
opportunities.
• Some of the methods used by service firms to achieve a closer match between demand and supply are:
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Shifting of some demand from peak to off-peak periods by adopting differential pricing.
Reservation systems are used to manage the demand by some service firms like airlines, hotels, etc.
Part-time employees are hired to serve the peak demand. Even outsourcing of services of small firms can
be done to serve the peak demand.
• These four elements are referred by some researchers as the four ‘I’s of services namely:
Intangibility
Inconsistency
Inseparability
Inventory
• Intangibility
Intangibility is a characteristic of service indicating that it has no physical attributes and as a result impossible
for a customer to taste, feel, hear or smell before they buy it. Therefore, the customer for many services has
to buy them on trust since they cannot be inspected before use.
The intangible nature of services makes consumer concerns about their providers.
In fact, people are becoming greatly concerned about the service providers, their background and their
qualifications.
To reduce uncertainty, industrial buyers look for evidence or experience in determining service quality.
It is the task of the service marketers to market the service with tangible evidence.
A firm’s promotional efforts must show the benefits to be derived from a service, rather than emphasising
the service itself.
It is used to communicate that the service has been performed, delivered at a particular level of quality.
• Inconsistency
Inconsistency is also referred to as variability or heterogeneity. Inconsistency occurs largely because:
Different service providers perform a given service on different occasions. The service performance by an
individual provider may differ over time.
Interaction between customer and provider may vary by customer.
Every time a service is performed, the process and the customer experience are different. The service
organisation designs the service delivery system to control variability and to influence the heterogeneity of
the service experienced by the customer. To ensure effective quality control, industrial marketers in service
firms can take steps like mechanising, automating, standardising and rationalising available options.
• Inseparability
Inseparability is a characteristic of a service indicating that the production and consumption of service take
place simultaneously. Hence the relationship between the buyer and the seller is an important element.
Many services are created, delivered and consumed simultaneously through interaction between customer
and service producer.
It is therefore important for the industrial service firms to give special attention to recruitment, training and
developing the people who provide services to the client organisation.
• Inventory
The inventory relates to the perishability characteristic in services marketing. The services cannot be easily saved,
stored or inventoried. Inventory problems exist with services because of their perishable nature.
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6.7 Marketing Strategies for Industrial Service Firms

Service marketing requires not only external marketing but also internal and interactive marketing. External
marketing deals with pricing, distribution and promotion of the service to target customers. Internal marketing
deals with training, developing and motivating of the employees by the company for ensuring the best services to
the customers. Interactive marketing describes employee skills in serving the customers.
6.7.1 Service Differentiation

• Marketers of services have a more difficult task in differentiating their services in comparison to the marketers
of products.
• One of the most common methods used by the industrial marketers of services is to undertake a marketing
research study to determine from the industrial buyers as to what important attributes or benefits they expect
from them.
• The service firm should then develop its service package to incorporate these important attributes.
• The important attributes may be like quality of services, innovative features, delivery schedule and specialisation
and experience.
• The industrial marketer can create differentiation by adopting these important attributes.
6.7.2 Service Pricing

• Pricing strategies and policies have common approaches in product and service pricing. However, there are
some different situations in service pricing.
• The Differential pricing strategy is used to manage fluctuating demand.
• Many service firms offer a special price for a package of services.
• Some service firms ask for high prices during peak demand periods or urgent demand periods and charges low
during off-season demand.
6.7.3 Service Promotion

• The promotional strategies for services are like those for products. However, the industrial buyers of services
are more influenced by word of mouth communications from their colleagues and friends who have used the
services.
• The service marketer can promote word of mouth communication from their existing satisfied customers by
encouraging potential customers to talk to them and featuring satisfied customers in advertisement and in
promotional brochures.
• Marketers can use advertising to build a favourable image for the service and especially for the corporation
behind the service. In service promotion, the intangible elements are translated to tangible attributes of a service
by showing pictures of buildings, equipment and personnel.
6.7.4 Service Distribution

• The most common method is direct selling in which either service providing firms go to the service buying
firms, or the service buying firms go to service providing firms.
• Agency and franchisees are channels of distribution.
• The franchising arrangement gives a service firm an advantage of rapid expansion of its market without much
capital investment.
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Summary
• Industrial Marketers must understand that a product strategy is flexible and dynamic. The industrial firm should
make changes in its product as per changes in the needs of their customers since the needs of the customer keep
on changing because of changes in their environment.
• Industrial firms must take the help of technology to keep their product updated and more serviceable to their
customers.
• The industrial firm may require a change in product strategy because of changes in government policies and
the laws.
• Publicity and personal selling and trade journals are often very important media of promotion.
• Maturity stage is generally followed by decline of the market for the product. New product development is
a challenging task for the industrial marketers. The process by which potential product ideas are generated,
evaluated, directed and turned into products is called the new product development process.
• The new product development process starts with the search for ideas.
• The purpose of market testing is to learn how consumers and dealers react to handling, using and re-purchasing
the actual product and how large the market is.
• Test marketing is normally conducted with a representative sample of potential consumers or in some select
markets like some cities/towns which are regarded representatives.
• Intangibility is a characteristic of service indicating that it has no physical attributes and as a result impossible
for a customer to taste, feel, hear or smell before they buy it.
• Inseparability is a characteristic of a service indicating that the production and consumption of ser vice take
place simultaneously.
• The inventory relates to the perishability characteristic in services marketing.
• Pricing strategies and policies have common approaches in product and service pricing.
• The franchising arrangement gives a service firm an advantage of rapid expansion of its market without much
capital investment.
References
• Coe, J., 2003. The Fundamentals of Business-to-Business Sales & Marketing; 1st Edition, McGraw-Hill.
• Lucas, G., 2006.Guerrilla Advertising: Unconventional Brand Communication; Laurence King Publishers.
• Stark, J., 2004. Product Lifecycle Management: 21st Century paradigm for Product Realisation, 1st Edition,
Springer.
Recommended Reading
• Mullin, B., 2007. Sport Marketing; 3rd Edition, Human Kinetics.
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Self Assessment

a. Once a company has segmented the market, chosen its target customer groups and determined the desired
market positioning, it is ready to develop, launch appropriate and successful products.
b. The marketing department along with various other departments such as R&D, engineering, material,
c. The financial department along with various other departments such as R&D, engineering, material,
d. Many companies pursue growth through both, acquisitions and new product development.
2. Industrial Marketers must understand that a ___________ is flexible and dynamic.

a. product strategy
b. market strategy
c. financial strategy
d. business strategy

a. Industrial firms must take the help of technology to keep their product updated and more serviceable to
their customers.
b. Technology may guide firms regarding which products to manufacture in market.
c. Government policy may guide firms regarding which products to manufacture in market.
d. Industrial firms may determine marketing strategies using the product lifecycle theory or concept.

a. Products which take a fairly long period for customers to learn their applications or to be accepted are
normally slow learning products.
b. Products which take a fairly long period for customers to learn their applications or to be accepted are
normally high learning products.
c. For slowly accepted products, the marketers must develop aggressive promotional strategies which should aim
d. For slowly accepted products, the marketers must develop aggressive promotional strategies which should aim
5. Publicity, personal selling and ___________ are often very important media of promotion.
a. trade journals
b. trade policies
c. product selling
d. product research

a. The marketing strategy should concentrate more on market development efforts.
b. The government policy should concentrate more on market development efforts.
c. Distribution tends to be exclusive or selective with high distributive margins to justify heavy promotional
spending.
d. The price skimming or penetration strategy may be adopted depending on the product and market
characteristics at the introduction stage by the industrial marketers.
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7. As the product enters the ___________, the number of competitor’s increases.
a. maturity stage
b. decline stage
c. marketing stage
d. profit level
8. By what is the maturity stage of the market generally followed?

a. Maturity stage
b. Profit level
c. Marketing stage
d. Decline stage
9. What is a challenging task for the industrial marketers?

a. Marketing research
b. Product research
c. New product development
d. Marketing
10. The new product development process starts with the search for ___________.
a. ideas
b. places
c. employees
d. planning
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Chapter VII
Industrial Pricing
Aim
• describe industrial pricing
• classify the characteristics of industrial pricing
• state the factors that affect pricing
Objectives
• discuss pricing objectives
• illustrate industrial pricing policies
• explain the key terms associated with pricing
Learning outcome
• understand industrial pricing in detail
• explain geographical pricing
• discuss taxes and levies
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7.1 Introduction
• Pricing of goods and services is an important decision which industrial units and business units are required to
take. It is the most sensitive and critical decision for the industrial marketer.
• Right price is one of the important determinants of business successes. Therefore, the industrial marketers have
to look into charging the appropriate price which enables to recover the capital invested for manufacturing goods
and services and the creation of services.
• The uniqueness of price in the marketing mix is that it is the only element that generates revenue while all other
elements of the marketing mix incur costs. However, the other three P’s are also designed to help the firm to
realise revenue through an appropriate, comprehensive marketing strategy of which the pricing strategy is an
ingredient. Hence, the pricing strategy is related to the market segment strategy, product strategy, distribution
strategy and promotion strategy.
• The industrial marketer needs to integrate the elements of the marketing mix so as to ensure that the total offering
not only satisfies the market needs but also meets the company’s objectives.
• Every entrepreneur commences and promotes business units with the hope of earning a good percentage of
profits or getting an attractive rate of returns on investment.
• The industrial marketer while pricing of their goods and services must look into the nature of the market including
demand and competitive situations along with the elements of the marketing mix. However, the marketer must
see that the prices are very responsive.
• In industrial marketing, the buying firm includes transportation cost, transit insurance cost, and installation cost
while calculating the total cost of the products or services.
• The buying firm also considers the risk of product failure, the delays in delivery and the lack of technical support
or services. Hence, the supplier offering the lowest price may not be the lowest in the total cost.
• Some suppliers may also give volume discounts or cash discounts on their quoted price.
• So, the industrial marketer should understand the various aspects of perceived value and the total cost from the
buyer’s point of view while they are quoting prices for their product to the buyer.
• Sometimes, companies price the products very low, even below the full cost with certain specific objectives like
market penetration, using price as a strategic marketing variable to achieve the firm’s objectives.
• Many firms aim at building their market share rather than early profits and therefore they keep their prices low
and competitive.
7.2 Characteristics of Industrial Prices

Industrial prices have the following characteristics:
• Price is not an independent variable. It is intervened with the product, promotion and distribution strategy.
• The total price an industrial buyer pays is often different from the list price because of transportation cost,
installation cost, transit insurance cost, trade-in allowances, financing cost, etc.
• Prices can be changed in many ways such as changing the quantity of goods and services provided by the seller,
changing the premium and discounts that are offered, changing the time and place of payment, etc.
• Industrial prices are established, in many cases by competitive bidding on a project by project basis. Normally
the prices are resolved through negotiations.
• Industrial pricing is often characterised by an emphasis on fairness.
• Industrial buyers with their experience are able to estimate the vendors’ approximate production cost, expect
the price increases to be justifiable on the basis of either cost increases or product improvements.
• Price for industrial goods and services cannot be set out without considering other products that are complements
or substitutes sold by the company.
• Industrial prices are affected by economic factors such as inflation, interest rate changes, exchange rate fluctuations
etc. These issues create problems particularly for those marketers who have long term contracts with the buyers
with no escalation clause.
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7.3 Factors Affecting Pricing

• There are a number of factors which influence business pricing decisions.
• Some are external or environmental factors (such as competition, demand conditions, government regulation,
etc.) and others are internal factors (pricing objectives, cost conditions, pricing policies, etc.).
• An industrial marketing firm has to consider the following important factors in its pricing decisions.
Pricing objectives
Demand analysis
Cost analysis
Competitive analysis
Government regulations
7.3.1 Pricing objectives

• Pricing objectives should be derived from corporate and marketing objectives. If the company has selected its
target market and market positioning carefully, then its marketing mix strategy including price will be fairly
straightforward.
• Pricing objectives are largely determined by the prior decision on market positioning.
• For example, if the company wants to maximise profits, it may charge higher prices and in case of maximising
the market share it should set an even lower price. A company can pursue many objectives; however some of
the major objectives are described below:
7.3.1.1 Survival
• Companies pursue as their major objective if the factory production capacity is underutilised; intense competition
or large inventory of unsold finished products; to keep the plant operating and the inventory turnover, companies
will often cut prices. In such a situation, profits are less important than survival.
• As long as prices cover variable costs and some fixed costs, companies stay in business. However, survival is
only a short-run objective. In the long run the firm must raise its prices to cover total cost.
7.3.1.2 Maximum Current Profit

• Many companies try to set the price with the objective of maximising current profits. They estimate the demand
and costs associated with alternative prices and choose the price that produces maximum current profit, cash
flow or rate of return on investment.
• The company emphasise on current financial performance rather than long run performance.
• The companies following these objectives generally ignore competitor reaction and legal implications on
price.
7.3.1.3 Maximum Current Revenue

• Some companies will set a price to maximise short-term sales revenue.
• Revenue maximisation requires sales forecast over a period of time. Industrial marketers believe that revenue
maximisation will lead to long run profit maximisation and market share growth.
7.3.1.4 Maximum Sales Growth

Some companies want to maximise unit sales and for that they set the lowest price assuming the market is price
sensitive. This is called market penetration pricing. This is done with a belief that higher sales volume will lead to
lower unit cost and higher long run profit.
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7.3.1.5 Maximum Market Skimming
• Many companies favour setting high prices to ‘skim’ the market. Companies set high prices in the initial stages
of the product life-cycle when they introduce new and innovative products.
• Market skimming makes sense under the following conditions:
a sufficient number of buyers have a high current demand
the high initial price does not attract more competitors
the high price communicates the image of the superior product
7.3.1.6 Product Quality Leadership

• A company may have an objective to be product quality leader in a market.
• The company therefore, produces superior quality product and charges slightly higher prices than the competitor’s
prices. Such pricing objective results in higher than average rate of return to the company.
7.3.1.7 Other Pricing Objectives

Non-profit and public organisations may adopt a number of other pricing objectives such as ‘partial cost recovery’,
‘full cost recovery’, social price, etc.
7.3.2 Demand Analysis

• Each price that the company might charge will lead to a different level of demand and will therefore have a
different impact on its marketing objectives.
• The relation between the current price charged and the resulting current demand is important for industrial
marketers to understand. Although in the normal case demand and price are inversely related, it may not be the
same in case of prestige goods.
• The concept of demand curve and price elasticity is useful while understanding the relationship between demand
and price.
• The relationship between price and demand can be measured by experimental research.
• In measuring the price and demand relationship, the market researcher should control factors like promotion
and customer service which may also affect the demand.
• Most companies make some attempts to measure their demand schedules. In researching the demand schedule,
the investigator needs to make assumptions about competitive behaviour.
• There are two ways to estimate demand. One is to assume that competitor’s prices remain constant regardless
of the price charged by the company; the other is to assume that competitors charge a different price for each
price the company might set. However the basic purpose of estimating the demand schedule is to find out to
what extent the demand for a product changes with the changes in the prices.
• If demand hardly changes with a small change in price, then the demand is inelastic and in case demand changes
substantially with a small change in price, then demand is elastic.
• Price elasticity of demand is determined by the following formula:
Price elasticity of demand =
Suppose, when a seller raises the price by 2 %, the demand falls by 10 %, the price elasticity of demand is -5 [The
(-) sign confirms the inverse relationship between price and demand]. If demand falls by 2% with a 2% increase in
price, then elasticity is -1, it means the seller’s total revenue remains the same. The seller sells fewer items but at
a higher price that maintains the same total revenue. If demand falls by 1% when price has increased by 2%, then
elasticity is -0.5. The less elastic the demand, the more it pays for the seller to raise the price.
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7.3.3 Determining Price Elasticity of Demand

• Demand is likely to be less elastic under the following conditions:
There are few competitors.
There are no substitute products from other industries.
Buyers readily do not notice the higher price.
Buyers are slow to change their buying habits and search for lower prices.
Buyer thinks that the higher prices are justified by quality improvements, normal inflation, etc.
• If the demand is elastic rather than inelastic, sellers will consider lowering the price. A lower price will
produce more total revenue. It is good as long as the cost of producing and selling more units do not increase
disproportionately.
7.3.4 Cost Analysis

• The company while making its pricing strategy or decisions must consider the cost involved. Any company
cannot charge the price of their commodity beyond certain limit because demand is going to be affected and
therefore demand largely sets a ceiling to the price. The company wants to charge a price that covers its cost of
producing distributing and selling the product with fair return for its efforts and risks.
• A company’s cost take two forms i.e. Fixed and Variable cost.
• Fixed costs are those costs that do not vary with production or sales revenue. Fixed costs go on regardless
of the production level. A company has to pay each month for rent, interest charges, and managerial salaries
irrespective of the company’s output.
• Variable costs vary directly with the level of production. For example, raw materials and direct labour cost.
They are called variable because their total varies with the number of units produced.
• Total costs consist of the sum of the fixed and the variable costs for any given level of production. Management
wants to charge a price that will at least cover the total production cost at a given level of production.
• An industrial marketer must understand how cost varies with different levels of production if he wants to price
his product intelligently. The company may use economies of scale by building larger plant size to compete
effectively.
• The accumulated experience of the management helps in reduction of cost. They can also change as a result of
concentrated effort by company’s designers, engineers and purchasing agents to reduce them. The Japanese in
particular, use a method called ‘target costing’. They use market research to establish a new product’s desired
functions, and then they determine the price at which the product must sell, given its appeal and competitor’s
price. They deduct the desired profit margin from this price and this leaves the target cost they must achieve.
Then they examine each cost element like design, engineering, manufacturing, sales and so on. They consider
ways to reengineer the components, eliminate functions and bring down supplier cost. The whole objective is
to bring the final cost projections into the target cost range. If they cannot succeed, they may decide against
developing the product because it could not sell for the target price and make the target profit.
• Target costing focuses on taking costs out of the product during the planning and designing stage rather than
trying to reengineer cost after the product has been introduced.
• An industrial marketer must also understand the effect of break-even analysis on cost and sales volume. Break-
even analysis is a financial technique which is used by the marketers to consider different prices and their
possible effects on sales volume and profits.
• The break-even volume is calculated by the formula:
Break - even Volume =
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• The price to be chosen by the marketer should consider the competitor’s prices and price elasticity of demand.
The company should also consider lowering its fixed and/or variable cost by using economies of scale. Bringing
down the cost will further lower the break-even volume and improve profits.
7.3.5 Competitive Analysis

• Industrial marketers, while making the pricing strategy keep competitors’ pricing as their benchmark. An industrial
firm needs to learn the price and the quality of the competitor’s offer. The firm can acquire the competitor’s
price list and buy the competitor’s equipment and can ask buyers how they perceive the price and quality of
each competitor’s offer.
• Once the company is aware of the competitor’s prices and offers, it can use these as basis for its own pricing. If
the firm’s offer is similar to a major competitor’s offer, then the firm will have to price close to the competitor
otherwise they will lose sales. If the firm’s offer is inferior, the firm will not be able to change more than the
competitor. If the firm’s offer is superior, the firm can charge more than the competitor. The firm must be aware
that the competitor might change their prices in response to the firm’s price. Basically the firm will use price to
position its offer vis-à-vis competitors.
7.3.6 Government Regulations

• Government regulations always make an effect on pricing decisions of industrial marketers. There are always
some necessary restrictions that must be placed in business to ensure fair play and to protect consumers and
smaller companies.
• ‘Price fixing’, ‘price cartels’ are illegal as per the MRTP Act.
• The government has also enacted the competition act to ensure that suppliers cannot create a situation to exploit
the consumers by charging higher prices.
• Price discrimination: A company must offer the same discount structure to its channel partners otherwise it is
interpreted as price discrimination. It is prohibited to offer different trade, volume or cash discounts to dealers
since it amounts to price discrimination. However, it is difficult to generalise because of different interpretations
made by different courts in different situations.
• Predatory pricing: When a company with dominant position lowers it pricing structure to restrict new or smaller
firms operating in a profitable manner, it is called predatory pricing. The basic objective of such pricing strategy
of the dominant firm is to kill the competitors.
7.4 Industrial Pricing Policies

• Industrial marketers deal with different types of customers like users, distributors, dealers and OEMs. These
customers buy products in various quantities and they are located in different geographical locations.
• Industrial marketers try to bring base price of the product and then they have different price structure that covers
different product items and to different types of customers located at different places.
• Pricing Policies of many industrial marketers are made to fulfil the need to quote prices in a feasible and simple
manner to all customers.
• Pricing policies are also influenced by the characteristics of the channel system through which the manufactured
products are distributed and the tradition of the industry.
• Alternative pricing policies usually involve net pricing, list pricing, choice of discounts of the price and the use
of geographical reference points or zones.
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7.5 Key Terms Associated with Pricing

Described below are the few important terms related to pricing:
7.5.1 List pricing

• List price is also called price list and it is a base price or the basic price of a product consisting of various sizes
or specifications. List price is the published figure distributed to all customers irrespective of their type or
classification. The list price statement indicates the effective date of its applicability and mentions the extra charges
for optional product features, the freight, the excise duty, sales tax, octroi, transit insurance as applicable.
• This method of pricing is used by industrial manufacturers for two primary reasons:
To prevent printing of a new catalogue. Each time the price of one or more items in the catalogue is
revised.
To provide a common base from where a wide variety of discounts can be adjusted.
7.5.2 Net Price

• The net price is worked out based on the list price, less discount such as trade discount, volume discount or cash
discount or any other concessions such as freight charges.
• The net price is most important to industrial buyers because that is the price which is applicable to industrial
buyers after subtracting discounts and concessions.
• Industrial sellers usually prefer this method of quotation since it eliminates the need for bargaining by the
purchasing officers of the customer’s organisation.
• The purchasing officer also feels more comfortable negotiating a contract with this method of pricing rather
than through a discount structure method of pricing.
• For example, if the list price of a product is Rs.5,000/- and the industrial marketer gives a discount of 10% and
the concession of not charging the freight (2% of list price), the net price is Rs.4,400/-.
7.5.3 Discount Pricing

The term ‘discount’ means a deduction from the price mentioned in the published price list of the manufacturer.
In some industry, deductions from announced prices are traditional, i.e., industrial manufacturers quote the same
discount as their competitors. Three alternative discount policies are generic throughout industrial markets:
Trade discounts
Quantity discounts
Cash discounts
• Trade discounts
As the name suggests, trade discounts are offered to the trade. Since manufacturers sell products to
distributors, they usually quote a standard discount to the middlemen. These discounts depend on the
particular industrial norms or the functions performed by the intermediaries. These discounts are designed
to represent the operating expenses and profit margins of these distributors. If the channel consists of two
or more middlemen like distributors, agents, brokers or dealers, then a chain of discounts would be offered
by the manufacturers to the initial buyers to take care of the operating expenses and profit margins of all
the participants in the channel.
A pricing policy that uses a discount structure provides a means of suggesting or controlling the resale
price and results in a uniform price to the final users. If the manufacturers quote a flat net price instead of a
discounted list price, the resultant selling price to the final users might be different due to different margins
being added on by each individual middleman from time to time. These margins are not within the direct
control of the manufacturers.
If the product is such that the user cannot buy it in quantities that are economical for the manufacturers to
handle or if the manufacturers regard distributors as necessary to assure the buyers a satisfactory volume,
it is not advisable for manufacturers to sell direct to the users. A trade discount policy will be helpful for
the company and the distributors will be in a position to sell to the user in small quantities, giving them on
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discounts.
However, the marketer of component parts such as ball bearings may want to sell direct to Original Equipment
Manufacturers (OEMs) customer who installs the end-product but at the same time he may want to sell
indirectly to all other buyers. OEM customers who buy in large quantities and use a product as a component
part also create a replacement market for it. The component part manufacturer can accomplish the desired
purpose- dealing in larger volumes thereby reducing the small lot sale to a minimum by selling to the OEM
seller at the same discount as to the distributor and at the list price to all other buyers.
It is imperative that the trade discounts represent as accurately as possible the cost of a distributor service
plus a normal margin of profit. If the discount is too high, it may encourage price-cutting by the distributors
to increase their turnover and profitability and if it too low, distributors may well be reluctant to handle the
product unless they can sell it above the recommended list price which is not feasible.
• Quantity discounts
A quantity discount is granted to industrial customers who buy large volumes. They are price reductions
that vary according to the amount or volume purchased. These discounts are very useful to marketers of
materials and supplies in dealing with the small order problems.
The quantity discounts are justified as they reduce the cost of selling, inventory carrying and
transportation.
Quantity discounts are given either on individual orders or on series of orders over a larger period of time
like one year or one month.
The purpose of quantity discount is to encourage customers to buy larger quantities and to maintain their
loyalty. These discounts may also be used as a means of classifying customers into large quantity buyers
and small quantity buyers.
The seller may wish to serve directly to the large quantity buyers and can serve the small quantity buyers
through distributors.
The decision on the quantum of quantity discount depends on demand, cost and competition analysis.
• Cash discounts
• Cash discounts are deductions allowed by the seller with the objective of getting prompt payments. It is a
discount applicable on the gross amount of the bill, provided the customer pays the bill within the stipulated
period from the date of invoice. Certain positive benefits are accrued to the seller when invoices or bills are
paid immediately.
-- Faster turnover of working capital.
-- Elimination of friction between the company and slow paying customer.
-- Increased sales, since customers in good standing are more likely to buy than those that are in
arrears.
• Generally, normal credit is granted to a customer by industrial sellers and there is a clause of cash discounts in
case the customer pays the bill in advance or within certain days from the date of invoice before the expiry of
the credit period.
• Sometimes, large customers take advantage of cash discounts but do not make payments as per the condition of
cash discount. Therefore, some of the industrial marketers do not include cash discounting of the bills but they
give cash discounts separately by way of credit notes if customers pay bills as per the cash discount terms.
7.5.4 Legal Consideration to Discount Pricing

• There are some legal considerations involved while giving discounts and therefore it is necessary to understand
these legal considerations.
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• Establishing and administering a discount system under any pricing policy that has the net effect of causing
one customer or group of customers pay different price than another customer attracts various provisions of the
central and state tax rules and regulations. These rules and regulations range from the Sale of Goods Act to the
Monopolies and Restrictive Trade Practices Act.
• The provisions of competition laws, anti-trust laws, price discrimination regulations, etc. are particularly
important and relevant for an industrial marketer.
• Discrimination means any treatment or set of terms granted to one buyer that is not available to another which
causes a difference in the final cost of the product to the two buyers.
• Such discrimination is not illegal if:
Savings result from the differences in the manner or volume of the purchase made by the buyers involved
The products involved are not of the same grade or quality
Such discrimination does not substantially reduce competition
The products involved are perishable
The discrimination is made in good faith to meet an equally low price of a competitor
• The term ‘savings’ should be understood in the context of sound accounting practices involving through cost-
analysis. If the cost-analysis due to larger transaction with one customer production cost has been reduced, leading
to saving, then the benefits have to be passed on quantity to all customers. This is because the savings have
been have been accrued through reduced production cost involving all the transactions and not the transaction
made by one customer alone.
7.6 Geographical Pricing

• Geographical pricing consists of decision how to price the company’s product to customers in different geographic
locations.
• The industrial marketer must decide how certain costs such as freight and transit insurance will figure into the
overall price structure of the firm.
• Sales tax and other levies like entry tax or octroi also have an impact on the final price to customers.
• In geographical pricing there are generally two methods of price basis which are stated in the offers or quotations
submitted by a seller to a buyer.
Ex-factory
FOR Destination
7.6.1 Ex-factory
• When a seller quotes a buyer the ex-factory price, it means that the freight and transit insurance cost will be
borne by the buyer. In other words, the seller will charge the cost of freight and insurance to the buyer. The
more distant customer’s landed costs are higher because of freight cost.
• Here, ex-factory means the price prevailing at the factory gate. This method of quotation has the following
advantages for an industrial marketer:
This method assures a uniform net price on all shipments, regardless where they are destined to go.
This method eliminated the necessity of negotiating adjustment of freight over charges with the carrier or
the transporter.
In the absence of an agreement to the contrary, the title to the products passes to the buyer when the seller
delivers them to the carrier or transporter.
The seller avoids all risk of damage.
The seller assumes no responsibility for the length of time the carrier takes in delivering a shipment to the
buyer’s site.
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7.6.2 FOR Destination
• When a seller quotes to a buyer ‘FOR destination’ or FOB destination’, it means the transportation costs are
absorbed by the seller or included in the quoted prices. In this method of price basis, all the customers get the
product at the same price irrespective of their locations from the seller’s factory premises.
• If the quotation or the price list is on FOR or FOB destination (Free On Road/ Free on Board destination) basis,
generally the industrial marketer estimates the average freight and insurance cost and adds the same to the basic
product prices. Such costs are absorbed by the seller only when there is an intense competitive situation.
7.7 Taxes and Levies

Sometimes businesses are won or lost due to different levels of central and state sales taxes. It is therefore necessary
for an industrial marketer to have complete knowledge regarding Central Sales Tax (CST), State Sales Tax (SST),
octroi, entry tax and road tax prevailing in various states.
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Summary
• Pricing of goods and services is an important decision which industrial units and business units are required
to take.
• The uniqueness of price in the marketing mix is that it is the only element that generates revenue while all other
elements of the marketing mix incur costs.
• In industrial marketing, the buying firm includes transportation cost, transit insurance cost, and installation cost
while calculating the total cost of the products or services.
• Prices can be changed in many ways such as changing the quantity of goods and services provided by the seller,
changing the premium and discounts that are offered, changing the time and place of payment, etc.
• Industrial pricing is often characterised by an emphasis on fairness.
• The company emphasise on current financial performance rather than long run performance.
• Revenue maximisation requires sales forecast over a period of time.
• Non-profit and public organisations may adopt a number of other pricing objectives such as ‘partial cost recovery’,
‘full cost recovery’, social price, etc.
• Price elasticity of demand =
• Break - even Volume =
• Industrial marketers, while making the pricing strategy keep competitors’ pricing as their benchmark.
• ‘Price fixing’, ‘price cartels’ are illegal as per the MRTP Act.
• Industrial marketers deal with different types of customers like users, distributors, dealers and OEMs. These
customers buy products in various quantities and they are located in different geographical locations.
• The net price is most important to industrial buyers because that is the price which is applicable to industrial
buyers after subtracting discounts and concessions.
• The quantity discounts are justified as they reduce the cost of selling, inventory carrying and transportation.
• Geographical Pricing consists of decision how to price the company’s product to customers in different geographic
locations.
References
• Skiadas, C., 2009. Asset Pricing Theory (Princeton Series in Finance), Princetop University Press.
• Coe, J., 2003. The Fundamentals of Business-to-Business Sales & Marketing; 1st Edition, McGraw-Hill.
Recommended Reading
Leads and Sales; 2nd Edition, McGraw-Hill.
• Mullin, B., 2007. Sport Marketing; 3rd Edition, Human Kinetics.p-552.
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Self Assessment
1. _________ of goods and services is an important decision which industrial units and business units are required
to take.
a. Pricing
b. Profiling
c. Quantity
d. Development

a. Right price is one of the important determinants of business successes.
b. The uniqueness of price in the marketing mix is that it is the only element that generates revenue while all
other elements of the marketing mix incur costs.
c. The industrial marketer needs to integrate the elements of the marketing mix so as to ensure that the total
offering not only satisfies the market needs but also meets the company’s objectives.
d. Right quantity is one of the important determinants of business successes.

a. Every entrepreneur commences and promotes business units with the hope of earning a good percentage of
profits or getting an attractive rate of returns on investment.
b. The industrial marketer while profiling of their goods and services must look into the nature of the market
including demand and competitive situations along with the elements of the marketing mix.
c. The industrial marketer while pricing of their goods and services must look into the nature of the market
including demand and competitive situations along with the elements of the marketing mix.
d. In industrial marketing, the buying firm includes transportation cost, transit insurance cost, and installation
cost while calculating the total cost of the products or services.
4. What should be derived from corporate and marketing objectives?

a. Demand analysis
b. Cost analysis
c. Pricing objectives
d. Government regulations
5. Each price that the company might charge will lead to a different level of demand and will therefore have a
different impact on its ____________.
a. marketing objectives
b. pricing objectives
c. cost analysis
d. demand analysis
6. The concept of demand curve and price elasticity is useful while understanding the relationship between
_________ and ___________.
a. demand, analysis
b. price, analysis
c. analysis, quality
d. demand, price
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7. How can the relationship between price and demand be measured?

a. Market strategy
b. Experimental research
c. Market research
d. Product research
8. What do not vary with production or sales revenue?

a. Variable costs
b. Product price
c. Fixed costs
d. Targeting costing

a. Variable costs focus on taking costs out of the product during the planning and designing stage rather than
b. An industrial marketer must understand how cost varies with different levels of production if he wants to
price his product intelligently.
c. The company should consider lowering its fixed and/or variable cost by using economies of scale.
d. Target costing focuses on taking costs out of the product during the planning and designing stage rather than
10. __________ always make an effect on pricing decisions of industrial marketers.

a. Government regulations
b. Competitive analysis
c. Cost analysis
d. Government policies
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Chapter VIII
Industrial Distribution Channels
Aim
• describe industrial distribution channels
• highlight the factors that affect industrial channels and their functions
• classify industrial intermediaries
Objectives
• describe manufacturer’s representatives
• discuss industrial distributors and dealers
• expose them to the factors that influence channel design
Learning outcome
• describe how to control channel conflict
• explain logistics management
• discuss legal issues involved in channel management
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8.1 Introduction
• Marketing channels are a set of independent, external organisations involved in the process of marketing a
product or service available to customers for use.
• Marketing channels satisfy the demands of customers by supplying products and services at the right place in
the exact quantity requirements at correct prices and in time.
• Marketing channel is the link in the chain of distribution from the manufacturer to the customers.
• The channel partners are interdependent organisations although having independent existence.
• The decisions on marketing channels are of strategic importance to the industrial firm because these decisions
are long term decisions.
• In industrial marketing, intermediaries are used only if direct representations to the customer are considered
uneconomical. Industrial goods are mostly the durable goods in nature. They can be stored at the place of
production, as well in the wholesaler’s store.
• The demand for industrial products may be in comparatively wide markets and therefore every time direct
linking between producers and distributors, producers and consumers may not be possible.
• The producers are therefore, required to take the assistance of channels of distribution.
8.2 Factors Affecting the Nature of Industrial Channels

Since industrial distribution channels are quite different from the channels used for consumer goods and services,
we need to understand the following factors affecting the nature of industrial channels.
• geographical distribution
• channel size
• characteristics of intermediaries
• mixed system
8.2.1 Geographical Distribution

• Distributors or dealers are found where industrial market exists, i.e. mainly in large cities or towns with industrial
states.
• These intermediaries are located in cities like Mumbai, Kolkata, Chennai, Delhi, Bangalore, etc. where large
numbers of industrial organisations are located.
8.2.2 Channel Size

• In industrial marketing, many a times manufacturers deal with customers directly without any intermediaries.
It is mainly because organisational buyers like to buy the product from the manufacturer directly and they also
expect technical experts’ advice and help in installing the machines and maintenance of such machines. They
also expect the lowest price from manufacturers.
• Normally industrial channels are short and involve such types of intermediaries which can handle the selling
and service of products.
8.2.3 Characteristics of Intermediaries

• Industrial organisations normally have close relationships with their intermediaries who are often technically
qualified.
• The industrial marketers use those distributors who deal with industrial products and are in a position to represent
the manufacturer to the industrial organisation. Industrial marketers also appoint commission agents or brokers
to reach customers.
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8.2.4 Mixed System
• Industrial marketers use a mixture of direct and indirect channels to meet the requirements of different market
segments or when the company has resource constraints.
• The industrial firm may use their own sales force for large volume customers, especially big industries and can
appoint independent dealers or distributors to cover small organisations.
8.3 Classification of Industrial Intermediaries

Industrial intermediaries are classified on the basis of the number of functions that they perform. Intermediaries
can be classified into:
• Merchant or stocking middlemen: The merchant intermediaries take the title to the products only with
stocking.
• Functional or non-stocking middlemen:
Functional intermediaries do not take the title to the products. They are also known as resellers and they earn
through price mark-ups on products. The intermediaries who perform most of the distribution functions like delivery,
information, extension of liberal credit are known as full function intermediaries. They are also called industrial
distributors. Some of the common types of industrial middlemen or intermediaries are manufacturer’s representatives,
industrial dealers or distributors, brokers, commission agents and value-added resellers.
8.4 Manufacturer’s Representatives

• These representatives are also called agents or sales agents or manufacturers’ agents.
• They represent the manufacturer in promoting sales and securing orders from customers.
• They fulfil the market information function.
• They do not buy goods or finance the transactions.
• They are paid commission on sales which may vary industry to industry and also according to the task involved
in the selling job.
• Such representatives are generally appointed by small and medium size industrial firms.
• It is economical for such firms to have independent representatives who are paid commission only when they bring
orders for the firm. These firms may use their own sales force in case of high potential industrial markets.
• This is done to help the customers get technical support and advice from the sales force.
• These sales forces are trained and technically sound sales forces who can build up the relationship with large
industrial organisations.
• Wherever agents are taken by firms, they always elect those agents who have good product knowledge, sound
understanding of the market and excellent contacts with industrial buyers.
• These agents may represent a number of manufacturers whose products complement one another but are not
competitive.
8.5 Industrial Distributors or Dealers

• There are small and independent business firms serving narrow geographic markets. They are the most important
intermediary in the distribution channel.
• They perform a variety of functions or tasks like buying, storage or warehousing, promotion, selling, offering
credit, transportation or arranging delivery of goods and providing information. However the main functions
are selling and insuring customer’s services.
• There are three types of industrial distributors:
The general line distributors who carry a wide variety of generalised industrial products that are needed by
most of the general industry.
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The specialised distributors who focus on a narrow range of related products such as valves and fittings,
cutting tools, hydraulic equipments and components.
The third category is called the combination house as they sell some products directly to industrial customers
and some others to retailers or dealers, who in turn sell to the final consumers. In other words, they sell to
both consumer and industrial markets.
8.5.1 Brokers
• They provide useful service for goods and services that are standardised raw materials supplies and a few types
of equipment fall under this category.
• They are useful in the situation of excess stocks, because they have the latest knowledge of the trade and can
locate those firms who are willing to buy the extra quantities.
• The main function of the broker is to find potential buyers, negotiate and complete the sale. They do not buy
or handle products.
• They are paid on commission basis.
• Brokers are useful for marketing by-products, which the manufacturer does not market regularly. They dispose
off these products at a profit, which would otherwise be considered as waste.
8.5.2 Commission Merchants

• These middlemen deal with bulk commodities such as raw materials. They have a short-term arrangement with
manufacturers of products which are sold in large quantities.
• They do not buy the material, but they perform the function of arranging inspection, physical handling, negotiating
process, and completing sales.
• Manufacturers pay them commission since they represent them.
8.5.3 Value Added Resellers (VAR)

• In the information technology industry, a new type of marketing channel has emerged which is called value
added resellers.
• These middlemen customise the computer hardware and software to solve specific situations for specific
industries.
• These intermediaries are specialists and provide valuable services to buyers and sellers.
• We have discussed the above types of industrial marketing middlemen. How many channels will be required
and what type of channel members are needed depend on the following factors:
8.5.3.1 Market Coverage

The geographic area to be covered.
8.5.3.2 Marketing Control

The type of marketing control the marketer expects to exercise. Marketing cost the commission payable to channel
members is the marketing cost. The market dynamics may dictate the retail price and the technical manufacturing
may dictate manufacturing and selling cost. As such the marketer may not be in a position to offer more commission
to many marketing middlemen. Hence the choice becomes limited.
• The most common types of industrial middlemen are the manufacturer’s representatives and the industrial
distributors/dealers.
• Generally in practice, industrial dealers and VARs are compensated or paid through trade discounts on the price
list.
• The agents’/ manufacturers’ representatives, brokers and commission merchants are compensated through
commission on net sales value exclusive of sales tax, freight and excise duties.
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8.6 Functions of Distributing Channels
Channels of distribution are actually shock absorbing machinery or a buffer system between consumers and producers.
It links the place of production and the place of consumption. Channels of Distribution perform important functions,
which otherwise a producer would be required to perform.
Producers are given relief as a result of the existence of middlemen. They can use the available funds
for better quality production which is readily-easily accepted by the consumer. The role of channels of
distribution in this context is indirect.
They help to equalise demand and supply, minimise the time gap between production and consumption. So
the circular flow i.e. every demand followed by supply continues without much interruptions.
Channels of distribution also perform some functions which are on contract basis. These include sales
promotion services, after sales services, paying the value and collection of goods and services, actual
physical distribution.
Indirectly, finance is provided to producers by stockists and distributors who pay advance money as security.
The producer also collects deposits if orders are in bulk quantities, so the producers are not required to face
finance problems more seriously.
Routine sale of goods is another important service which is provided by the channels of distribution. It also
indirectly reduces the cost of distribution.
Forecasting the demand is sometimes done by distribution channels. They conduct market surveys and
advice the company regarding the time of demand and the extent of demand.
Advertising, personal selling, distribution of samples, door-to-door inquiries are some activities done by
channel members as promotions of sales.
All the above functions and services are equally important and provide immense help to the producer. These
intermediaries mainly act as protection shield for the consumers as well as producers. They safeguard producer’s
interest like recovery of amounts invested, making propaganda of products; other way round they sanction credit
facilities to customers. Conclusively, the functions of channels of distribution are manifold in nature and the producer
gets maximum relief and concentrates his efforts on the production side.
8.7 Factors Influencing Channel Design

There are a number of factors that influence their choice of channels of distribution. The important factors are as
follows:
8.7.1 Market Coverage Objectives

The market coverage objective of the company is a very important determinant of the channel design. The main
function of the channel system is to enable a company to achieve the desired market coverage. To establish market
coverage objectives, the management must consider:
customer buying behaviour
the types of distribution required
channel structure
the degree of control necessary for success
• Customer buying behaviour

The patronising motive of the customer is an important consideration in channel design.
Consumers may have channel preferences.
Business marketers must identify buyer behaviour and channel preferences/effectiveness of different
intermediaries in respect of different categories of customers.
• The types of distribution required
There are three types of distribution namely, intensive distribution, exclusive distribution and selective
distribution.
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Intensive distribution seeks extensive distribution of the product by intensifying the channel system i.e. by
selling the product through as many appropriate retailers or wholesalers.
Exclusive distribution refers to the system under which a single distributor is given exclusive distribution
rights over a specified geographical area.
Selective distribution falls in- between intensive distribution and exclusive distribution. Usually selective
distribution is adopted when the product requires specialised servicing or sales support.
The type of distribution a company wants depends on several factors such as the nature of the product, type
of service and sales support, the product needs and the extent of control the company wants, has a very
important effect on the channel design.
• Channel structure
The determination of customer requirement and the type of distribution would help the company to select the channel
institutions or intermediaries. There are however a number of factors which restrict the availability of intermediaries.
These include the following:
The financial strength of the intermediaries
The need for specialised services
The market coverage provided
The product lines carried
The degree of support given to the products
Logistic capabilities
Intermediaries to grow with the business
• Control
Channel selection may also be influenced by the control objective of the firm.
Some control over the channel is required in certain cases to ensure effective customer service, product
quality, avoidance of unhealthy competition and unfair practices between channel members, distribution
efficiency, etc.
8.7.2 Product Characteristics

Product characteristics have a very significant influence on the channel design. The following product characteristics
should be considered and analysed by the channel design.
the product’s value
technicality of the product
the degree of market acceptance
the degree of substitutability
the product’s bulk
perishability
the degree of market concentration
seasonality
the width and depth of the product line
• Product’s value
In case the unit value of a product is very high, the chances of distribution being direct are very great.
If the unit value of the product is very low and the purchase quantities are usually small, the channel tends
to be very lengthy and intensive.
In case the low-value items are bought in bulk quantity, the channel may be short and even may be direct.
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• Technicality of the product
Products which are highly technical and require demonstration or personal selling, promotion and services, require
direct distribution or exclusive or selective distribution, depending on the technicality and service requirements.
• Market acceptance
Products which have good market acceptance would not require aggressive sales support by
intermediaries.
The product which does not have good consumer acceptance may require promotion and push by
intermediaries.
In such cases, the selection of the intermediaries must be on the criteria of their capability and willingness
to push the product. It may require personal selling skills of intermediaries.
• Substitutability
Intensive distribution and trade promotion are required in case product is substitutable.
• Bulk
The bulk or value of the product may also affect channel design. More intermediaries and transhipments can increase
the distribution cost of low value high volume/ weight products.
• Perishability
Perishable products need fast movement from the producer to the consumer. Hence, long channels with inventory
holdings and delays at different points generally do not favour such products. It is therefore important to decide a
channel structure which achieves the objective of fast movement of perishable goods and services.
• Market concentration
A short channel will be feasible in case the market for a product is characterised by geographic
concentration.
Lengthy channels and more intermediaries are required in case of a widely spread market.
• Seasonality
Seasonality of the supply or demand in respect of the product may require holding of large inventory during
peak supply season and during off demand season.
The capability and willingness of the intermediary to share the burden of inventory holding could be a
consideration in the channel decisions.
• The width and depth of the product line

A manufacturer of products with low per unit value may use intensive distribution with direct sales if the
product line is broad enough to result in relatively large average sales volume.
A manufacturer of a limited line of products will use direct channels to achieve adequate market coverage
at a reasonable cost.
8.7.3 Customer Service Objective

It is another important factor that influences the channel design. Customer service is usually measured in terms
of:
• the level of product availability
• the speed and consistency of the customer’s order cycle
• the communication between seller and customer
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8.7.4 Market and Customer Characteristics

The size and the location of the market, the number and geographical dispersal of the customers, the frequency of
purchase and the size of the purchase, customer’s buying habit are important factors to be considered in the choice
of the channel.
8.7.5 Company Characteristics/ Objective

The choice of the channel is also influenced by such factors as the company’s size, financial strength, product mix,
overall marketing policies and channel objectives.
8.7.6 Competitor’s Characteristics

The channel decision is influenced by the nature of the competitors. It may be appropriate to adopt a channel policy
similar to that of the competitors or may be more appropriate and profitable to design a different channel policy.
8.7.7 Environmental Characteristics

Channel design is also influenced by such environmental factors as the economic situation, social and cultural
factors, the physical environment and government policies and regulations.
8.8 Control Channel Conflicts

• Even though a manufacturer’s channel design is properly done, there will be some conflict between the channel
members. It is because of the differences in the objectives and perceptions of these members.
• The conflicts between the channel members can damage channel performances.
• Industrial marketers should have formal/informal discussions with them to assess the areas or sources of conflicts
between them. Following are some of the sources of conflicts:
Differences in objectives
Dealing with customers
Differences in interests
Differences in perceptions
Compensation
Unclear territory boundaries
• The channel conflicts can be controlled or managed by an effective communication network, joint goal setting,
diplomacy, mediation, arbitration and developing a vertical marketing system.
8.9 Logistics Management

• The task of logistics management is to plan and coordinate all those activities necessary to achieve superior
levels of service at the lowest cost.
• The reach of logistics in the organisation extends from the management of raw materials through to the delivery
of the final product to the customer.
• Logistics management optimises material flow within the organisation while supply chain management extends
material flow integration upstream to suppliers and downstream to the customers.
8.9.1 Logistics and Physical Distribution

• Logistics involves all the activities involved in making available raw materials to the manufacturers and finished
goods and services to the customers when, where and how they desire.
• It calls for two primary activities like physical supply and physical distribution.
• Physical supply is also known as materials management which includes activities like making production inputs
like raw materials, components, supplies available to manufacturers.
• Physical distribution involves the activities of making finished goods and services available to middlemen and
end users.
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8.9.2 Contribution of Marketing Logistics
• A logistic system, which is well managed, contributes to the industrial marketer in the following ways:
Maintaining customer perceptions about service capability of the industrial marketer.
It helps in establishing a certain level (70% to 80%) of customer service.
It ensures availability of products through an efficient inventory system, order processing and transport
management.
• For mass consumed industrial products like lubricants, nuts, belts, raw material, etc. the cost of the logistics
management system is 70% to 75% of the marketing cost. Hence, even 5% savings in logistics cost is significant
from the point of view of savings in the marketing cost and thus enhancing profitability.
8.9.3 Logistics Management to Supply Chain Management (SCM)

• Supply Chain Management (SCM) can be defined as the ‘design and operations of the physical managerial
informational and financial system needed to transfer goods and services from vendor to customer (point of
production to point of consumption) in an effective and efficient manner’.
• Logistics management only deals with the system of managing physical, managerial and information aspects
in moving the new material and finished goods and services from vendors to customers.
• The addition of the financial system in SCM facilitates the tying up of different activities/entities. This includes
the mechanism of the credit and advance payments, in addition to the basic task of completing cash transactions
associated with dispatches or purchases.
• Offering services along industrial products like maintenance, check-ups, etc. is a part of the managerial system
in logistics management. But pure service elements like installations, providing information about product
features and availability, after sales service, etc. are demanded by industrial customers.
• Here logistics may not play an important role but SCM could be taking care of all such needs. Hence service
dominated industrial customers may go for SCM rather than logistics.
• The logistic function would typically look at the movement and storage of goods whereas, the SCM perspective
emphasises the steam of activities from raw materials to consumption (including conversion with financial
implications).
• Logistics lead towards efficiency to achieve certain goods or services at a minimum cost, whereas SCM concerns
with effectiveness of delivery to the customer, recognising the changing nature of demands and technologies.
• In view of the above facts, in many industrial firms, SCM has replaced logistics.
8.10 Legal Issues in Channel Management

Industrial marketers are free to develop any channel arrangements suiting their businesses but they may not be able
to use exclusionary tactics which might not allow the legal frame-work to include:
Exclusive dealing agreement
Exclusive territories
Tying agreements
Dealers’ rights
• Exclusive dealing agreements

Exclusive dealing is a strategy in which the marketer allows certain outlets i.e. certain members to carry
its products.
When the marketer insists on these channel partners not selling competitors’ products, he is seeking an
exclusive dealing agreement. Such agreements, no doubt, benefit both parties.
The marketer is able to obtain more loyal and dependable outlets, at the same time channel members are
able to obtain a steady source of supply of special products and stronger support from the marketer.
Exclusive arrangements are legal as long as they do not substantially reduce competition or tend to create
a monopoly and as long as both parties voluntarily enter into the agreement.
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These types of agreements are normally seen with those marketers who want to protect the image of their
brands.
• Exclusive territories
Exclusive territories could be an inherent part of exclusive dealing. In exclusive territories agreements:
The producer may agree not to sell to other dealers in a given area or,
The buyer (channel member) may be asked to sell in his own territory.
• Tying agreement
It is the agreement by which the marketer supplies a product to its channel members on the condition that
the channel partner also has to purchase other products manufactured by the marketer. These agreements
are forged when the marketer wants to sell his weak products along with popular products.
Sometimes the marketers resort to full product line pricing by requiring channel members to purchase the
entire product line to obtain any one of its products.
Tying agreements are accepted as legal only when the marketer alone can provide the products of a certain
quality or when the marketing middlemen are free to carry competitors’ products as well or when the
company has just entered the market.
Other than the situations mentioned above, tying agreements are illegal.
• Dealers’ rights
Even though the marketers are free to consult, select and appoint their dealers, their right to sack or terminate
the contracts with any one or all dealers is somewhat challengeable.
The marketer may drop a dealer for certain reasons, but he cannot eliminate a channel for refusing to co-
operate with him in doubtful legal agreements.
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Summary
• Marketing channels are a set of independent, external organisations involved in the process of marketing a
product or service available to customers for use.
• Distributors or dealers are found where industrial market exists, i.e., mainly in large cities or towns with
industrial states.
• Industrial marketers use a mixture of direct and indirect channels to meet the requirements of different market
segments or when the company has resource constraints.
• The functional intermediaries do no take the title to the products. They are also known as resellers and they earn
through price mark-ups on products.
• The main function of the broker is to find potential buyers, negotiate and complete the sale. They do not buy
or handle products.
• Channels of distribution are actually shock absorbing machinery or a buffer system between consumers and
producers.
• The main function of the channel system is to enable a company to achieve the desired market coverage.
• Business marketers must identify buyer behaviour and channel preferences/effectiveness of different
intermediaries in respect of different categories of customers.
• Exclusive distribution refers to the system under which a single distributor is given exclusive distribution rights
over a specified geographical area.
• The conflicts between the channel members can damage channel performances.
• The task of logistics management is to plan and coordinate all those activities necessary to achieve superior
levels of service at the lowest cost.
• Exclusive dealing is a strategy in which the marketer allows certain outlets i.e. certain members to carry its
products.
References
• Bingham, F.G., 2005. Business Marketing; 3rd Edition; Irwin/McGraw-Hill.
Quantitative Marketing); 2nd Edition; Kluwer Academic Publishers.
Recommended Reading
Leads and Sales; 2nd Edition, McGraw-Hill.
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Self Assessment
1. ___________ are a set of independent, external organisations involved in the process of marketing a product
or service available to customers for use.
a. Marketing channels
b. Channel partners
c. Brokers
d. Wholesalers

a. Marketing channel is the link in the chain of distribution from the manufacturer to the customers.
b. Marketing channels satisfy the demands of customers by supplying products and services at the right place
in the exact quantity requirements at correct prices and in time.
c. The marketing channels are interdependent organisations although having independent existence.
d. The channel partners are interdependent organisations although having independent existence.

a. The decisions on marketing channels are of strategic importance to the industrial firm because these decisions
are long term decisions.
b. The decisions on marketing channels are of strategic importance to the industrial firm because these decisions
are short term decisions.
c. Distributors or dealers are found where industrial market exists, i.e. mainly in large cities or towns with
industrial states.
d. Industrial organisations normally have close relationships with their intermediaries who are often technically
qualified.
4. The industrial marketers use those __________ who deal with industrial products and are in a position to
represent the manufacturer to the industrial organisation.
a. distributors
b. dealers
c. consumers
d. suppliers
5. Who uses a mixture of direct and indirect channels to meet the requirements of different market segments or
when the company has resource constraints?
a. Wholesalers
b. Distributors
c. Consumers
d. Industrial Marketers
6. Who takes the title to the products with stocking?

a. Functional intermediaries
b. Manufacturer’s representatives
c. Merchant intermediaries
d. Industrial marketers
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7. ___________ do not buy goods or finance the transactions.
b. Manufacturer’s representatives
8. __________ are generally appointed by small and medium size industrial firms.
b. Merchant intermediaries
c. Industrial marketers
d. Manufacturer’s representatives
9. _____________ perform a variety of functions or tasks like buying, storage or warehousing, promotion, selling,
offering credit, transportation or arranging delivery of goods and providing information.
a. Industrial Distributors or Dealers
b. Functional intermediaries

a. Brokers are useful for marketing by-products, which the manufacturer does not market regularly.
b. In the information technology industry, a new type of marketing channel has emerged which is called value
added resellers.
c. The market dynamics may dictate the retail price and the technical manufacturing may dictate manufacturing
and selling cost.
d. The market research may dictate the retail price and the technical manufacturing may dictate manufacturing
and selling cost.
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Chapter IX
Industrial Marketing Communication
Aim
• define communication mix
• discuss industrial communication programme
• explain the role of industrial advertising
Objectives
• explain the role of sales promotion
• discuss publicity and public relations
• state the role of direct marketing
Learning outcome
• understand communication mix
• explain industrial advertising in detail
• define sales promotion
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9.1 Introduction
• Marketing communication is a very important element of the industrial marketing mix.
• The communication mix for industrial products or services is different from the promotion mix for most consumer
goods. It is because of the technical nature of industrial products and the complex nature of the organisational
buying process.
• The communication mix consists of advertising, publicity and public relations, sales promotions, personal
selling and direct marketing.
• Promotion is the art and science of communicating appropriate information to the consumers and trade so as
to arouse their interest in the firm.
• Communication in marketing means the transmission of the message to the buyer or the consumer or the channel
of distribution in which the company aims to tell the customers the reason for buying their product and other
information.
• In other words, communication aims to make potential buyers favour the firm’s offerings.
• It seeks to achieve its objectives by informing the recipients of the message of the existence of the product
and its unique details or by modifying his attitude towards the product or by enhancing his preference for one
product against another.
• The goal of communication is to move customers from being unaware to levels of awareness, interest, decision
making and the act of purchase.
• Communication performs one or all of the following functions:
making potential consumers aware of the product
persuading consumers to buy the product
motivating consumers to buy the product with special incentives
reassuring consumers and helping them to overcome post purchase dissonance
informing the channels about the product
motivating the channels to handle the product
promoting the image of the product
promoting the image of the company
promoting the image of the country
9.2 Communication Mix

• The promotion mix has four major components, i.e. advertising, sales promotion, personal selling and public
relations. Which communication tool or tools should be used is decided by the nature of the product, the customer
characteristics, marketing environment and the company’s objectives and resources.
• Advertising, sales promotion, direct marketing and publicity are mainly used to create awareness, enhance
company reputation, disseminate information on products or generate leads for the sales people.
• Personal selling is the dominant component of the industrial marketing communication mix. Therefore, personal
selling is often the most important element of the industrial marketer’s communication strategy. It is because of
the technical complexity of many industrial products and the extensive negotiating process involved in selling
of industrial goods and services or services.
• An industrial marketer must coordinate all the elements of the communication or promotion mix in order to
develop an effective communication programme.
9.3 Developing the Industrial Communication Programme

• The important steps in developing an effective communication or promotional programme are:
determine the communication objectives
identify the target audience
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determine the commercial budget

develop the message strategy
select the media
evaluate the promotional results
integrate the promotional programme.
9.3.1 Determine the Communication Objectives

• Communication objectives are formulated based on the firm’s overall corporate and marketing objectives.
Before determining the communication objectives, the industrial marketer should find out the communication
problems. This can be done by conducting thorough marketing research. Such data would help in identifying
specific communication groups. Once the objectives are established, an industrial organisation chooses the
strategies and actions required to achieve the objectives.
• A mix of communication media is required to achieve certain communication objectives like, if the communication
objective is to create awareness among the prospective customers or to enter new market segments, advertise in
business magazines. Journals or direct mail of company catalogues may be the appropriate media. However if
the communication objective is to create a preference for the company’s product over the competing products,
the communication mix would rely more on personal selling through the company’s sales force, advertisements
in trade journals and participation in trade shows for exhibitions.
9.3.2 Identifying the Target Audience

• An industrial marketer must be clear about the target audience. Even for the same product the target audience
may be different in different markets.
• It is important to identify the buying organisation based on the target market segments and identifying the
attitudes and buying factors used by the buying centre.
• The industrial marketer can obtain information regarding the target audience’s current image of the company,
its products and competitors by conducting a marketing research. It will benefit the company management to
propose a desired image in contrast to the current image. The data will also be useful in developing the message
strategy and media plan.
9.3.3 Determine the Commercial Budget

• It is a difficult decision for a company to take as to how much to spend on promotion or what should be the
promotional or communications budget.
• Normally the promotional budgets of companies’ marketing industrial products or services are not large enough
in comparison with those of the consumer products.
• The common methods used to set promotion budgets are the following:
Affordable method: Set the budget at what the company thinks it can afford.
Percentages of sales method: A certain percentage of the sales are set apart for promotion.
Objective and task method: Involves determining the communication objectives and the tasks involved in
achieving the objectives and estimating the expenditure requirements for performing these tasks.
Competitive party method: The budget is set at that level which matches the promotional expenditure of
the competitors.
9.3.4 Develop the Message Strategy

• The message strategy indicates how to achieve the communication objectives.
• The message is developed to determine what to say to the target audience to achieve their desired results.
• In industrial marketing the most common way of developing a message or appeal is through rational appeal.
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• Rational appeals are developed either from the positioning strategy or by conducting marketing research
strategy.
• The marketing research studies find out problem solving benefits or the satisfaction sought by the target audience.
These benefits may be product superior quality, complete range of products, economy or faster delivery time.
While developing communication messages it must be kept in mind by the industrial marketers that industrial
buyers are knowledgeable and are well informed. They should focus on the customer’s benefits in their message
rather than discussing product features.
9.3.5 Select the Media

• The media selection depends on the target audience, the communication objectives and the promotional
budget.
• It also depends on whether the advertiser wishes to penetrate a particular industry or cut across various
industries.
• Selection of media depends on the circulation and the cost of advertising space.
• There are different communication or promotional tools, promotion media and supports that are used in industrial
marketing.
• These can be classified as follows:
Promotional tools
-- Promotion
-- Media
-- Promotion Supports
Advertising tools
-- Print media
-- General business publication
-- Trade journals
-- Industrial directions
Sales promotion
-- Trade shows
-- Exhibitions
-- Catalogues
-- Sales Contests
-- Seminars
-- Demonstrations
-- Promotional Letters
-- Entertainment
Public relations and publicity

-- Charitable donations
-- Community relations
-- News item in press
-- Direct marketing
-- Direct mail
-- Telemarketing
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-- On-line marketing channels
Personal selling
-- Sales calls
-- Sales presentation
-- Team selling
-- Relationship marketing
In industrial marketing, personal selling is the most effective promotional media. However, other promotional
media are based on the money to be spent by the industrial marketer. Companies within the same industry can select
different media or can allocate different promotional budgets for different promotional media. Direct marketing,
trade shows, sales promotion, public relations are other important promotional media which are used by industrial
marketers to communicate with their target audience and have a competitive advantage.
9.3.6 Evaluate the Promotional Results

• The industrial marketer must evaluate the impact of the promotional plan on the target audience. This is normally
done by conducting a market research and collecting the data on awareness, attitude and purchase before the
promotional plan is implemented.
• The marketing research study can conduct a study after the implementation of the promotional plan and can get
data on awareness on the company’s product, recalling the promotion message and the change in attitude.
• The marketing research studies can be carried out internally by the company or through an external agency.
9.3.7 Integrate the Promotional Programme

• Integration of the promotional plan is of great importance and therefore companies are adopting the concept of
integrated marketing communication (IMC).
• The basic objective in integrating the various communication tools is to provide clarity, consistency, maximum
impact and cost effectiveness to the company’s communication plan.
9.4 Role of Industrial Advertising

Industrial Advertising plays essential roles. It enables the sales force to function more effectively and economically.
It reduces selling cost and boosts turnover. The role of industrial advertising can be summarised as follows:
• Creating awareness
Industrial advertising creates awareness among potential buyers about the existence of the industrial supplier
and its product. It helps the sales representatives to have appointments with the buyers since the buyers are
already aware of the suppliers, their product and its reputation in the market. The sales person can devote
more time in convincing the buyer to buy the company’s product.
Industrial Advertising helps the salesperson in reaching to buying centre members such as quality control
manager, R&D manager or production engineer.
These buying members read trade journals and business publications and they can be reached through
advertising.
• Increasing sales efficiency and effectiveness

When buyers are more aware of an industrial marketing firm, its products and its reputation through
advertising, sales people are more effective.
Effective advertising can make personal selling productive. Advertising can reduce the total promotional
cost as a percentage of sales at least by 20%, resulting in higher levels of efficiency.
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• Efficient reminding
Industrial Advertising acts as a reminder to those potential buyers who know about the product but are not
ready to buy.
Reminder through advertising is always economical than sales calls.
Industrial Advertising also reminds buyers about the differentiation between similar industrial products,
pricing and service capabilities of the firm.
• Sales lead generation

Industrial Advertising can generate leads for sales representatives after receiving enquiries from potential
buyers.
Advertisements can carry reply cards or telephone numbers for potential buyers and can generate a list of
potential buyers on the basis of responses to the advertisements.
• Supporting distribution channel members

Industrial products are sometimes distributed through distributors or manufacturer’s agents. Since these
middlemen usually also handle products of other manufacturers, the producer should convince them to devote
sufficient time and energy to sell his products. This task can be made easier by supplying the middlemen
with advertising literature that points out the advantages of pushing the company’s products.
Industrial Advertising frequently provides an economical and efficient support to selling efforts of dealers
or distributors.
9.5 Role of Sales Promotion

• Companies use sales promotion tools to create a stronger and quicker response. Sales promotion can be used
to dramatise product offers and to boost sagging sales.
• In industrial marketing, the objectives of sales promotion are – gathering business needs, impressing and
rewarding customers and stimulating the sales force to greater efforts.
• Sales promotion has three distinctive characteristics:
Communication- Gains attention and usually provides information that may lead the consumer to the
product.
Incentive- Incorporate some concessions, inducements, or contribution that gives value to the consumer.
Invitation- Includes a distinct invitation to engage in the transaction now.
• In industrial marketing, the tools used for sales promotion are:
trade shows
catalogues
sales contests
seminars
demonstrations
promotion letters
entertainment
promotional novelties
• Trade shows
Trade shows or trade fairs are important marketing promotional expenditure done by industrial marketing
firms.
Companies selling products and services buy space and set up stalls to demonstrate the product at different
trade shows organised by industry or trade associations.
There are many benefits from trade shows.
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-- new products are introduced to large audiences in a short duration

-- establishing personal contacts with new customers and members of decision-making units
-- booking orders at the trade fair
-- display and demonstration of products
-- opportunity to see and evaluate competitor’s product
-- finding new suppliers and distributors
-- getting new product ideas
-- training for new sales personnel
-- generating new sales needs
The industrial marketer must decide beforehand about participating in trade shows, the budget for each trade
show and building attractive exhibits to get the maximum results from trade shows.
• Catalogues
Printed catalogues are used as promotional support by companies. It contains brief information about the
products and other information which may be needed such as, product specifications, applications, illustrations
or drawings and service requirements.
Catalogues are a form of direct marketing.
The industrial marketer should prepare a mailing list of prospective customers and keep on updating the
mailing list.
• Sales contests
The industrial marketing firm organises sales contests or incentives for their sales force and for dealers.
The objective is to motivate the sales force and dealers to improve their sales performance.
Those who perform well get cash prizes, gifts or foreign trips.
• Seminars
Educational or technical seminars are organised by industrial marketers for buying organisations. It is done with an
objective to create a favourable image and developing contacts with technical people and the members of buying
centres.
• Demonstrations
Industrial salespersons improve their sales presentations by using demonstration aids such as flip charts,
product photographs, slides, audio and video cassettes, movies and even the actual product.
The demonstration helps the buyer to remember the product features and benefits.
Such demonstrations can also be done at the factory level when the equipment is bulky or large.
• Promotional letters
Promotional letters, when sent to specific customers along with catalogues and technical data sheets, receive
good attention and are quite useful for the company for effective relationships.
Such letters also facilitate the work of industrial salespersons.
• Entertainment
Industrial marketers may plan for entertaining industrial customers.
It can have positive or negative effects depending on the buying situation, nature of product, policies of the
buyer organisation and the buyer’s culture.
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• Promotional novelties
Promotional novelties are gift items given by salespersons to existing and new customers during the Diwali
festival or New Year.
An effective promotional novelty should be inexpensive, unusual, eye-catching and useful.
The purpose of promotional novelty is to keep buyers constantly aware of the supplier’s identity.
The salesperson must take care while distributing gifts so that the buyer should not misunderstand or find
it offensive or embarrassing.
9.6 Publicity and Public Relations

• Publicity is a form of marketing public relations. Publicity has more credibility and lower cost compared to
advertising.
• In industrial marketing, the company’s technical personnel write articles for trade journals which act as a major
tool used in publicity. It creates a good image of the company’s technical competency. It also generates sales
leads from the interested potential buyers.
• Publicity is effective when it is used as a part of the total promotional programme.
• The public relations department deals with various categories of people including customers, suppliers,
shareholders, employees, press, government officials and public interest groups.
• The public relations department manages to develop successful relations with these people in order to build a
good image.
9.7 Role of Direct Marketing

• Direct Marketing as a tool is being used by industrial marketers.
• Direct marketing attempts to achieve direct sales without using an intermediary between the company and its
customer.
• Industrial marketers first use direct marketing tools like direct mail and telemarketing to identify potential and
new customers before sending their salesperson to visit them. It reduces the marketing cost of the industrial
marketer.
• In direct mail, an industrial marketer mails promotional letters, product catalogues, audio tapes, video tapes,
computer diskettes to the prospective customer.
• Direct mail must be sent after having the updated mailing list to avoid wastage.
• The mailing list can be obtained from industrial directories, trade publications or through the company’s
marketing information system.
• Telemarketing is used by many industrial marketing firms to generate sales prospects.
• Telemarketing helps an industrial marketing firm to reduce the sales force travel cost and to increase the sales
volume.
• Companies must use highly trained personnel to make telemarketing effective.
• Industrial marketers may also consider using on-line marketing channels to find, reach, communicate and sell
to business customers.
• Direct marketing can increase sales and profit, and strengthen customer relationship. It should be an integral
part of the communication mix of industrial marketing firms.
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Summary
• The communication mix consists of advertising, publicity and public relations, sales promotions, personal
selling and direct marketing.
• Promotion is the art and science of communicating appropriate information to the consumers and trade so as
to arouse their interest in the firm.
• The promotion mix has four major components, i.e. advertising, sales promotion, personal selling and public
relations.
• Communication objectives are formulated based on the firm’s overall corporate and marketing objectives.
• The message strategy indicates how to achieve the communication objectives.
• Rational appeals are developed either from the positioning strategy or by conducting marketing research
strategy.
• The media selection depends on the target audience, the communication objectives and the promotional
budget.
• Integration of the promotional plan is of great importance and therefore companies are adopting the concept of
integrated marketing communication (IMC).
• Industrial advertising creates awareness among potential buyers about the existence of the industrial supplier
and its product.
• Industrial advertising acts as a reminder to those potential buyers who know about the product but are not ready
to buy.
• Trade shows or trade fairs are important marketing promotional expenditure done by industrial marketing
firms.
• Printed catalogues are used as promotional support by companies. It contains brief information about the
products and other information which may be needed such as, product specifications, applications, illustrations
or drawings and service requirements.
• Publicity is a form of marketing public relations. Publicity has more credibility and lower cost compared to
advertising.
• Direct Marketing as a tool is being used by industrial marketers.
• Telemarketing is used by many industrial marketing firms to generate sales prospects.
• Telemarketing helps an industrial marketing firm to reduce the sales force travel cost and to increase the sales
volume.
References
• Nicholas De Bonis, 1997. AMA Handbook for Managing Business-to-Business marketing Communications; 1st
Edition, McGraw-Hill.
Recommended Reading
• Levinson, J.C., 1990. Guerrilla marketing Weapons: 100 Affordable Marketing Methods; Plume.
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Self Assessment
1. ___________ is a very important element of the industrial marketing mix.

a. Marketing channels
b. Marketing communication
c. Marketing segmentation
d. Marketing research

a. The communication mix for industrial products or services is different from the promotion mix for most
consumer goods.
b. The communication mix for industrial products or services is different from the industrial marketing mix
for most consumer goods.
c. The industrial marketing mix for industrial products or services is different from the promotion mix for
most consumer goods.
d. The promotion mix for industrial products or services is different from the communication mix for most
consumer goods.
3. What consists of advertising, publicity and public relations, sales promotions, personal selling and direct
marketing?
a. Communication mix
b. Industrial marketing mix
c. Promotion mix
d. Marketing channels
4. What is the dominant component of the industrial marketing communication mix?

a. Target marketing
c. Product research
d. Personal selling

a. Communication objectives are formulated based on the firm’s overall corporate and marketing objectives.
b. A mix of communication media is required to achieve certain communication objectives.
c. A mix of communication media is not required to achieve certain communication objectives.
d. An industrial marketer must be clear about the target audience.

a. It is important to identify the buying organisation based on the target market segments and identifying the
attitudes and buying factors used by the buying centre.
b. The industrial marketer can obtain information regarding the target audience’s current image of the company,
its products and competitors by conducting a marketing research.
c. It is a difficult decision for a company to take as to how much to spend on promotion or what should be the
d. It is an easy decision for a company to take as to how much to spend on promotion or what should be the
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7. The ___________ is set at that level which matches the promotional expenditure of the competitors.
a. budget
b. productivity
c. promotion mix
d. marketing channel
8. The __________ indicates how to achieve the communication objectives.

a. marketing strategy
b. message strategy
c. business strategy
d. financial strategy
9. In industrial marketing the most common way of developing a message or appeal is through ___________.
a. product quality
b. low pricing
c. rational appeal
d. promotion
10. What depends on the target audience, the communication objectives and the promotional budget?
a. Media selection
b. Promotion mix
c. Communication mix
d. Rational appeal
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Chapter X
International Industrial Marketing
Aim
• introduce international industrial marketing
• discuss as to how to choose the markets to enter
• explain the strategy used to enter international market
Objectives
• elaborate the points as to how the international industrial market has to be managed
• discuss tie-up with larger companies
• analyse the methods of licensing and franchising
Learning outcome
• explain packaging and shipping
• understand about the tie-up with local companies
• discuss fairs and trade shows
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10.1 Introduction
• The emergence of WTO has opened up many new areas to free trade such as agriculture, textiles and
services.
• There have been a number of changes in the global situation due to the opening up of the economies of Russia,
India and Eastern European countries and the emergence of China as a major market.
• It has given opportunities to most companies to go for global business. However, there is also an increase of
competition and risk.
• The international market may vary in terms of their level of development.
• We have developed markets like the U.S and the western countries and poor and underdeveloped markets such
as certain countries in Africa.
• Highly developed markets have a high level of consumption and high cost of manufacture while the poor and
underdeveloped countries lack industries and infrastructure.
• The types of products which will sell in each of these markets will differ depending on the level of
development.
• Today, global manufacturers and traders think of outsourcing products to areas where there is a definite cost
advantage without loss of quality.
• The majority of international trade is in industrial products like machinery, chemicals, transport, equipment and
other manufactured goods and services.
• It is therefore important that any study of industrial marketing should include the study of international industrial
marketing as well.
10.2 Choosing the International Market

• While choosing the international market, the following factors should be considered:
the size of the market
the language and culture of the market
the competition in the market
proximity of the market
political and financial stability of the market
• The size of the market is always an attraction for manufacturers since they look for larger amount of business.
India is a good example for large markets; however, large markets have more competitors therefore there is
always stiff competition.
• A smaller manufacturer may be more comfortable choosing small markets than large markets.
• Language and cultural affinity is very important in the international market. It helps the companies to have ease
of communication and similarity in cultures.
• India prefers to do business in Sri Lanka, Bangladesh, Nepal and Middle East preferably due to ease of
communication, low cost of freight and travel and communication.
• Political and financial stability of target countries is a very important factor since it is high risk for a business in
case there is political turmoil in the target country. It disrupts the contracts or payments due to sudden political
developments. In case of war, a contract may be cancelled, payments withheld, businesses disposed off or taken
away.
• In today’s context, doing business in Iraq or Afghanistan is very risky because of political and financial
instability.
• Financial risk involves the failure of the buyer’s company to pay as per contract due to bankruptcy.
• Commercial risk involves the sudden change in the situation in the buyer’s country like sudden shortage of
foreign currency to pay invoices, although the equivalent local currency may be available.
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10.3 Entry Strategies for the International Market
• One of the most important strategic decisions in international business is the mode of entering the foreign
market. On the one extreme, a company may do the complete manufacturing of the product domestically and
export it to the foreign market. On the other extreme, a company may do by itself the complete manufacturing
of the product to be marketed in the foreign market itself.
• There are several alternatives in between these two extremes. The choice of the most suitable alternative is
based on the relevant factors related to the company and the foreign market.
• Once a company determines the business prospects, chooses the target markets to enter, it is always safer to
start business by trading to determine the acceptability of the product in the market.
10.4 Fairs and Trade Shows

• To assess the sales potential at low cost and risk, companies exhibit their products in international fairs or India
trade shows. These shows are industry or product specific. Such shows attract a large number of people who
have an interest in the industry and contacts can be developed at one place.
• Contacts developed at these shows can be followed up and commercial relationships built-up.
• Initially business could be started by an indenting agent to solicit customers and business.
• Once a given volume of business is achieved, a distributor could be appointed or the company could set up its
own warehouse and stock products for sale locally in case the market potential seems to be very high.
10.5 Tie-up with Larger Company

• In case a larger company is interested in outsourcing the supplies/components, the strategy can be to become
a supplier to the larger company.
• In order to achieve this, one needs to be persistent and should follow the best practices in manufacturing and
quality.
• Overseas buyers always consider those suppliers who have ability to deliver quantity and quality required at
short notice at competitive prices and in time.
10.6 Tie-up with a Local Company

• Sometimes, a tie-up with a local company is preferable to enter a market because of the local company’s
knowledge of the market, ready availability of a distribution network and a reputation in the market.
• For example, TATA Motors has tied up with Rower of U.K. for marketing the TATA Indica, branded as the ‘City
Rower’ across the U.K and in mainland Europe.
10.7 Licensing and Franchising

• Licensing and franchising, which involve minimal commitment of resources and effort on the part of the
international marketer, are easy ways of entering the foreign markets.
• Under International licensing, a firm in one country (the licenser) permits a firm in another country (the licensee)
to use its intellectual property such as (patents, copyrights, trademarks, technology, technical knowhow, marketing
skill, etc.).
• The monetary benefit of the licenser is the royalty or fees which the licensee pays.
• In many countries such fees or royalties are regulated by the government which does not exceed 5% of the sales
in many developing countries. This model works best when a product with an internationally accepted brand
image is franchised.
• Examples are McDonald Restaurants, Radisson Hotels, etc.
• Each product market is unique; hence whatever strategy is adopted it must be calibrated so that the company
becomes comfortable with all aspects of doing business and not undertake any high risk transactions.
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10.8 Packing and Shipping

• Packing goods and services for export is a very important element of marketing.
• The packing should be light, strong and must be appealing for the end customers.
• In case the buyers have specified the type of packing, then it must be done as per specifications; such as the size
mix per carton, colour mix and weight of the carton.
• It is mandatory that the packing should show the contents; specify the origin, weight and quantity of the item
inside.
• Countries insist that labelling should be done in both English and their language.
• In some cases, the packing must be water-proof and should have suitable rust and fungus prevention
measures.
• Most shipments these days are done in containers which are easier and safer to handle.
• A supplier should have to integrate production schedules to those of the buyer supply chain and ensure adequate
stocks are maintained in the destination country to enable prompt delivery. This is because most industrial buyers
would like goods and services to be delivered just in time so that their inventory is minimised.
• While deciding stock levels, the long shipping time will have to be considered.
• Packing and shipping are important elements of cost in the final price and these must be optimally negotiated.
• The payment method must be agreed upon so that there are no undue risks to either buyer or seller.
• Credits where necessary will have to be suitably ensured to reduce the risk of default.
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Summary
• Highly developed markets have a high level of consumption and high cost of manufacture while the poor and
underdeveloped countries lack industries and infrastructure.
• The majority of international trade is in industrial products like machinery, chemicals, transport, equipment and
other manufactured goods and services.
• The size of the market is always an attraction for manufacturers since they look for larger amount of business.
India is a good example for large markets; however, large markets have more competitors therefore there is
always stiff competition.
• Language and cultural affinity is very important in the international market. It helps the companies to have ease
of communication and similarity in cultures.
• Financial risk involves the failure of the buyer’s company to pay as per contract due to bankruptcy.
• To assess the sales potential at low cost and risk, companies exhibit their products in international fairs or India
trade shows.
• Overseas buyers always consider those suppliers who have ability to deliver quantity and quality required at
short notice at competitive prices and in time.
• Licensing and franchising, which involve minimal commitment of resources and effort on the part of the
international marketer, are easy ways of entering the foreign markets.
• Packing goods and services for export is a very important element of marketing. Countries insist that labelling
should be done in both English and their language.
• Packing and shipping are important elements of cost in the final price and these must be optimally negotiated.
References
• Kotler, P., 1993. Marketing Places, Free Press.
Recommended Reading
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Self Assessment
1. The emergence of ___________ has opened up many new areas to free trade such as agriculture, textiles and
services.
a. OEM
b. SST
c. CST
d. WTO

a. The local market may vary in terms of their level of development.
b. Highly developed markets have a low level of consumption and high cost of manufacture while the poor
and underdeveloped countries lack industries and infrastructure.
c. Highly developed markets have a high level of consumption and low cost of manufacture while the poor
and underdeveloped countries lack industries and infrastructure.
d. The international market may not vary in terms of their level of development.

a. Language and cultural affinity is very important in the international market.
b. Political and Financial stability of target countries is a very important factor since it is high risk for a business
in case there is political turmoil in the target country.
c. Financial risk involves the failure of the buyer’s company to pay as per contract due to bankruptcy.
d. Financial risk involves the sudden change in the situation in the buyer’s country like sudden shortage of
foreign currency to pay invoices, although the equivalent local currency may be available.
4. Contacts developed at ________ can be followed up and commercial relationships built-up.

a. trade shows
b. fairs
c. offices
d. shops
5. What involves minimal commitment of resources and effort on the part of the international marketer and are
easy ways of entering the foreign markets?
a. Business
b. Marketing strategy
c. Licensing and franchising
d. Brokerage
6. What is very important element of marketing for export?

a. Packing and shipping
b. Packing goods and services
d. Packing and licensing
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a. The packing should be light, strong and must be appealing for the end customers.
b. It is mandatory that the packing should show the contents; specify the origin, weight and quantity of the
item inside.
c. Countries insist that labelling should be done in both English and their language.
d. Countries insist that labelling should be done in both French and their language.
8. __________ are important elements of cost in the final price and these must be optimally negotiated.
a. Packing and shipping
b. Packing goods and services
d. Packing and licensing
9. Who has to integrate production schedules of the buyer supply chain and ensure adequate stocks are maintained
in the destination country to enable prompt delivery?
a. Dealer
b. Broker
c. Consumer
d. Supplier
10. The monetary benefit of the ___________ is the royalty or fees which the licensee pays.
a. dealer
b. licenser
c. broker
d. supplier
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Chapter XI
Managing the Personal Selling Function
Aim
• explain the personal selling functions
• discuss how to manage personal selling functions
• highlight advantages of personal selling
Objectives
• determine the role of personal selling in the industrial marketing strategy
• explain the relationship of industrial buying behaviour to the personal selling process
• analyse the merits of personal selling
Learning outcome
• understand the importance of selling process
• explain management of sales force in detail
• determine the limitations of personal selling
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11.1 Introduction
In industrial marketing, personal selling is one of the most important tools of communication. It is mainly because
of the nature of the customer’s buying decision process and the buyer-seller relationship. In industrial marketing,
personal selling is also important because the product is technical in nature, has high unit value and the number of
customers is limited.
As the marketers observe, “personal selling is the personal communication of information to persuade the prospective
customer to buy something- a product, service, idea or something else. This is in contrast to the mass, impersonal
communication, sales promotion and other promotional tools.”
11.2 Importance of Personal Selling

• Personal selling is the most effective method in marketing communication.
• The goal of all marketing efforts is to increase profitable sales by offering want satisfaction to the market over
the long run.
• Personal selling is by far the major promotional method or tool used to reach the goal.
• More than ever, salespeople today are a dynamic power in the business world.
• The efforts of salespeople have a direct impact on the following activities:
the success of new products
keeping existing products in strong marketing positions
constructing manufacturing facilities
opening new business
generating sales orders and shipping products to consumers all over the world.
11.3 Merits of Personal Selling

Other than the above points, personal selling has the following merits:
• It is the most effective promotional method since personal selling involves direct talk with the customers.
• Personal selling helps in getting feedback about the product and the company’s policies.
• Personal selling makes customer grievance handling easy.
• Personal selling is an effective alternative to advertising for those firms which cannot spend huge money on
advertising.
• Personal selling helps in marketing intelligence.
• Personal selling is flexible and can be made suitable to each customer or situation.
• It has a specific focus and personal touch.
• It is the most effective method in explaining product features and clarifying customer doubts.
• In most of the cases, personal selling results in actual sale.
11.4 Limitations
Personal selling has the following limitations:
• The success of personal selling depends to a great extent on the ability and sincerity of the salesperson.
• It may cause dislocations and related problems in case a salesperson quits suddenly.
• In case the number of customers is large, it is difficult to reach all potential customers.
11.5 The Selling Process

An industrial sales process has distinct characteristics. Following are the major steps involved in the selling process:
• Prospecting
It means identifying or searching new or potential customers.
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There are many sources used in industrial selling for identifying prospects. It includes telemarketing, direct
mail, trade shows, references from existing customers, electronic media.
For achieving the objectives of growth in sales and market share, it is important for industrial marketers to
look for new customers on a continuous basis.
• Qualifying
Once the potential customers are identified, it is important to choose the better ones through certain qualifying
criteria.
The criteria may include volume of expected business, location, regularity of business and financial
strength.
• Preparation
Industrial sales people make preliminary personal visits on prospective customers to obtain certain
information such as their needs, problems, buying process, key members of buying centres and their personal
characteristics. This information definitely helps the salesperson to plan the sales strategy for the potential
customer.
In industrial selling, regular calls can help the salesperson to develop contacts with key buying centre
members and finally securing orders through them.
• Presentation
Industrial sales persons need to make sales presentations either through memorised sales stock covering
the main points or by finding out the real needs or problems of the buying firm.
The focus in successful sales presentations should be customer benefits such as cost or time saving, more
profits for the buyer, etc.
It may be that the salesperson has to make several sales presentations to the different members of the buying
centres before a sale can be made.
Negotiating skills are required by a salesperson in areas like pricing, payment terms, delivery dates and
product specifications before orders are finalised.
• Closing
This is the most important part in personal selling.
Unless the sales are closed, all the above efforts would be a waste.
Sales people should recognise closing signs from customers such as questions, comments or physical
actions.
Salespeople can offer special discounts; price or credit terms as specific inducements to close the sale.
Some of the salespersons believe that if all the above steps in the selling process are done effectively, the
customer should be allowed to make the final decision to buy or not to buy.
In most of the cases, the customer will buy the product or the service.
• Post sales service

Post sales service in industrial sales is vital since it gives an opportunity to the salesperson to develop more
personal relationships with key buying centre members.
Post sales services are, delivery of products, installation, training, after sales service, rejections or returns,
payments and concessional sales tax forms.
The industrial salesperson has to work with the customer for these services after the release of the purchase
order.
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11.6 Management of the Sales Force
• The management of the sales force involves recruiting and selecting, training, supervising, motivating, developing,
compensating, evaluating and controlling the sales force.
• The industrial marketer should create an organisational culture that will have positive effects on sales performance
and job satisfaction of the salespersons.
11.6.1 Recruitment and Selection

• An organisation can use one or more selection methods like:
personal interviews
evaluation of application forms
checking with references
personality tests of interest
intelligence
aptitude and knowledge
• Normally companies develop their own application forms and it contains all relevant information including
education, previous experience, reasons for leaving previous jobs, salaries drawn, personal health, family
background and career objectives. This information is helpful for personal interview.
• The primary method used by over 90% of all industrial firms to select salespersons is by personal interviews.
• Personal interviews can be conducted by a representative of a company, or by multiple interviews or by panel
interviews.
• The basic objective of a personal interview is to permit to a communication between the applicant and the
company representative so that both can assess the other.
• During the interview, the company can always understand
human relations skills
communication skills
technical background
job knowledge
negotiating skills
• The candidate is also given an opportunity to ask questions so as to learn about the company, its products, its
markets and the nature of the job.
• The salesperson with communication skills, human relation skills and negotiations skills with their technical
knowledge, are the better choice for the industrial organisation.
11.6.2 Training
• The newly selected salesperson should be familiarised with the company and its environment and given the
right training needed for the job.
• Many industrial firms spend a considerable amount of time and money to train the salesperson to make them
effective in today’s competitive environment.
• The broad aim of training is to improve the performance of the company and that of the salespeople or to
increase the customer’s satisfaction level. For this, the company carefully plans the training programme for
salespersons from time to time.
• The contents of the initial training programmes are company information, product information, market
information, sales policies or procedures, selling techniques.
• Further training programmes can be arranged on the basis of various requirements from time to time.
11.6.3 Supervision and Motivation

• Supervision of the sales force is important because it is a device to ensure that the selling job is being performed
in accordance with the marketing objectives and sales policies of the company.
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• The sales supervisor has the responsibility of communicating and implementing company policies and strategies.
He does counselling on problems and deficiencies of the sales force.
• The sales supervisors create a favourable work environment and working relationship with the salesperson and
are always involved in training and developing the salespersons.
• The field salespersons are mostly alone in the field and because of their physical isolation from supervisors and
colleagues; they experience fluctuations in their morale and motivation from low levels to high levels.
• It is important for a sales manager to motivate the salespersons by involving them in decision making, clarifying
their responsibilities more clearly, helping them in solving their problems, having trust in the subordinates,
encouraging them to express their views or opinions and developing personal friendship in the workplace. Their
work should be recognised and properly rewarded.
11.6.4 Developing
• The challenge for a sales manager is to balance between the company’s goals of sales, profits and receivable
collection with the salespersons’ need for job security and financially rewarding work.
• The sales manager has to be task oriented as well as people oriented. While he should show his concern for the
achievement of sales, profits, payment collection, he should also show concern in developing the salespeople.
11.6.5 Compensation
• The method of compensation and reward system is another important ingredient of sales force management.
• The purpose of the sales compensation is to attract and motivate salespeople.
• The requirements of an effective compensation plan are:
it should give a certain degree of financial security or stability to the salespersons
it should be always related to the going market price of the salespeople
it should be as per the offer given by the competitors in the market
it should be easy and clear enough for salespersons to understand
• The types of compensation plans available to a company are:
straight salary
straight commission
combination of salary and perks
combination of salary and commission
combination of salary, perks and commission
• Many companies adopt compensation plans that are a combination of salary, commission and perks.
11.6.6 Evaluation and Control

• Management of the sales personnel will not be complete without evaluation of their performance.
• Meeting sales targets is only one of the several criteria for evaluation.
• Other factors to be considered for evaluation include relationship with customers, holding of old accounts,
opening of new accounts, etc.
• The evaluation and control of the industrial sales force is done at various levels like individual, branch, regional
and national levels.
• An evaluation includes:
obtaining information about salesperson performances at regular intervals
examining the actual performance with goals or targets
determining if the goals are being achieved
• Controlling includes identifying the problems and taking corrective actions to achieve the goals. Thus, evaluation
is backward looking and control is forward looking.
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Summary
• In industrial marketing, personal selling is one of the most important tools of communication. It is mainly because
of the nature of the customer’s buying decision process and the buyer-seller relationship.
• Personal selling is the most effective method in marketing communication.
• Personal selling is flexible and can be made suitable to each customer or situation. The success of personal
selling depends to a great extent on the ability and sincerity of the salesperson.
• Industrial salespersons need to make sales presentations either through memorised sales stock covering the main
points or by finding out the real needs or problems of the buying firm.
• Sales- people should recognise closing signs from customers such as questions, comments or physical
actions.
• Post sales service in industrial sales is vital since it gives an opportunity to the salesperson to develop more
• The management of the sales force involves recruiting and selecting, training, supervising, motivating, developing,
compensating, evaluating and controlling the sales force.
• The newly selected salesperson should be familiarised with the company and its environment and given the
right training needed for the job.
• The sales supervisors create a favourable work environment and working relationship with the salesperson and
are always involved in training and developing the salespersons.
• The challenge for a sales manager is to balance between the company’s goals of sales, profits and receivable
collection with the salespersons’ need for job security and financially rewarding work.
• The method of compensation and reward system is another important ingredient of sales force management.
• Meeting sales targets is only one of the several criteria for evaluation.
References
• Kotler, P., 1993. Marketing Places Free Press.
Recommended Reading
• Camm, J., 2010. KaChing: How to Run an online Business that Pays and Pays, Wiley.
• Gerber, M.E., 2010. The Most Successful Business in The World: the ten Principles, Wiley.
• Appleman, J.E., 2008. 10 Steps to Successful Business Writing, 1st Edition, ASTD Press.
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Self Assessment
1. In ____________, personal selling is one of the most important tools of communication.

a. industrial marketing
b. business
c. marketing
d. marking research

a. In industrial marketing, personal selling is important because the product is technical in nature, has high
unit value and the number of customers is limited.
b. Personal selling is the most effective method in marketing communication.
c. The goal of all marketing efforts is to increase profitable sales by offering want satisfaction to the market
over the short term.
d. The goal of all marketing efforts is to increase profitable sales by offering want satisfaction to the market
over the long run.

a. Personal selling helps in getting feedback about the product and the company’s policies.
b. Personal selling makes customer grievance handling difficult.
c. Personal selling makes customer grievance handling easy.
d. Personal selling helps in marketing intelligence.

a. Industrial sales persons need to make sales presentations either through memorised sales stock covering the
main points or by finding out the real needs or problems of the buying firm.
b. The focus in successful sales presentations should be customer benefits such as cost or time saving, more
profits for the buyer, etc.
c. Negotiating skills are required by a salesperson in areas like pricing, payment terms, delivery dates and
d. Negotiating skills are not required by a salesperson in areas like pricing, payment terms, delivery dates and
5. Who should recognise closing signs from customers such as questions, comments or physical actions?
a. Sales people
b. Managers
c. Dealers
d. Distributors

a. Post sales service in industrial sales is vital since it gives an opportunity to the salesperson to develop more
b. Post sales service in industrial sales does not give an opportunity to the salesperson to develop more personal
relationships with key buying centre members.
c. Post sales services are, delivery of products, installation, training, after sales service, rejections or returns,
payments and concessional sales tax forms.
d. The industrial salesperson has to work with the customer for the services after the release of the purchase
order.
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7. What involves recruiting and selecting, training, supervising, motivating, developing, compensating, evaluating
and controlling the sales force?
a. Management of the sales force
b. Trade shows
c. Fairs
d. Companies

a. Personal interviews can be conducted by a representative of a company, or by multiple interviews or by
panel interviews.
b. The candidate is given an opportunity to ask questions so as to learn about the company, its products, its
markets and the nature of the job.
c. The basic objective of a group discussion is to permit to a communication between the applicant and the
d. The basic objective of a personal interview is to permit to a communication between the applicant and the
9. __________ is important because it is a device to ensure that the selling job is being performed in accordance
with the marketing objectives and sales policies of the company.
a. Management of the sales force
b. Supervision of the sales force
c. Management of the company
d. Supervision of the manager
10. Who has the responsibility of communicating and implementing company policies and strategies?
a. Director
b. HR
c. Manager
d. Sales supervisor
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Chapter XII
E-Business
Aim
• introduce the concept of e–business
• discuss the important parts of e-commerce
• elaborate business to business forms of e-commerce
Objectives
• discuss marketing strategies used for the electronic marketplace
• analyse how electronic markets and the internet will evolve in future
• explain the promotion strategy
Learning outcome
• describe e-commerce in detail
• explain product differentiation and positioning
• explain marketing mix strategy
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12.1 Introduction
• Revolutionary changes in information technology are sweeping across the global business.
• Developments in telecommunication and information technology have reduced the barriers to time and place
in doing business. It is now possible for customers and suppliers to transact business at any time in any part of
the globe, without having to come together physically.
• Developments in optical fibre technology, videophone and teleconferencing facilities have made it possible.
• The internet has changed the face and pace of business in business marketing and retailing.
• Effective use of information technology helps a company to identify and profile customers, reach out to customers
quickly and more effectively, and make inventory management and the distribution system more efficient.
• The traditional business environment is changing rapidly as business firms want to increase the efficiency of
business communication, expand market share and maintain long-term viability.
• Today the cutting edge of business is electronic commerce.
12.2 E-Commerce
• It is broadly defined as modern business methodology that addresses the needs of organisations and consumers
to cut costs, improve the quality of goods and services, and increase the speed of service.
• The term ‘E-Commerce’ is more commonly associated with information on buying and selling of products and
services via computer networks.
• E-commerce is a new communication tool which can be used to achieve a company’s objectives like increase
in customer service, customer satisfaction and sales.
• It is an instrument that improves the effectiveness and efficiency of the marketing or sales function. It cannot
remove or replace a marketing or sales function.
• The important marketing applications of E-commerce are:
communicating with consumers, intermediaries and suppliers
on-line marketing and advertising
getting and processing customer orders
informing customers about dispatch or delivery positions of their orders
effective managing of finished goods stocks
receiving payments from customers by using electronic payment systems
gathering useful information about existing and prospective customers
12.3 Important Parts of E-commerce

Important parts of E-commerce are:
Internet
Intranet
www
extranets
• Internet: The most important element that supports e-commerce is the internet. The system of ‘Inter connected
Networks of Computers’ is called the internet. The internet connects customers, competitors and the general
public.
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Fig. 12.1 Internet
• Intranet: This is the internal internet of companies. A firm creates intranet for company employees to
communicate with one another, share databases, view restricted information and conduct training programmes
for company employees.
• www: It stands for the World Wide Web. It is a navigation tool for getting information in a multimedia format
including video, audio and colour graphics. Organisations that make their own websites should keep in mind
that the site should be attractive and create enough interest for repeat visits. It must have updated information
regarding the company’s product, services and policies.
• Extranets: These are links that allow business partners like suppliers, distributors, bankers, consultants,
customers to connect to the company’s internal networks. The purpose is to allow information exchange so as
to improve business processes.
12.4 Business to Business Forms of E-Commerce

There are two forms of business to business marketing through e-commerce:
• The Inter-organisational system
• Electronic markets
12.4.1 The Inter-organisational System

This system is to help buyers and sellers for the routine exchange of business transactions and interconnecting
business partners to streamline business processes. This system eliminates paper work, reduces cost of routine
business transactions, and reduces time of carrying out business transactions. It creates a smooth business process
between the buyer and the seller. There are five major types of inter-organisational systems:
Electronic data interchange
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Electronic funds transfer
Electronic forms
Integrated messaging
Shared databases
• Electronic data interchange

The need to exchange information is critical within the business community.
The information may be generic in nature, such as a purchase order or invoice, or specific to an organisation
such as a customs declaration.
Traditionally, companies have exchanged this information by mailing pre-printed business forms.
By integrating computers and data communications into the business process, companies can get the benefits
of exchanging information electronically - reduced paper work, minimised cost and improved response
time. This process, the computer to computer exchange of standardised business information, is called
Electronic data interchange.
Businesses can implement an EDI system by developing their own EDI software. This option is expensive
and time-consuming and risk involved.
Businesses can also use an EDI service bureau. With this option, a company sends its business transactions
to the service bureau which performs the EDI service at its location. This option is only recommended as
a short term solution.
Purchasing an EDI product is another option for businesses.
It is the most cost effective, long term solution for implementing an EDI system.
With the aid of EDI, business documents such as purchase orders, invoices, and payment remittance advices
are transmitted in electronic form.
EDI messages have a certain legal status i.e. if a buying firm sends a supplier firm an EDI purchase order
that indicates the product specifications and delivery period, and the supplier firm fails to fulfil the contract,
the buyer can take the supplier to a court of law with an EDI trading agreements serving as evidence.
• Electronic funds transfer

It is the emerging electronic payment technology.
An EFT is defined as any transfer of funds initiated through an electronic terminal authorising a financial
institution to debit or credit an account.
An electronic funds transfer uses a computer and telecommunication components for the supply and transfer
of money or financial assets.
In on-line electronic commerce payments, the following two methods are adopted:
Token-based payment system which are of three types
-- Electronic Cash (e-cash)
-- Electronic cheques
-- Smart cards
Credit Card Based Systems - In the electronic payment system, there are three major risks:
-- Frauds and Mistakes
-- Privacy Issue
-- Credit Risk
An improved legal framework has to be developed in preventing mistakes and frauds.
Privacy issues can be dealt with an improved security framework and credit risk can be managed by
developing policies and procedures to restrict credit. Many of these technical problems can be resolved
through improved technology and better experience.
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• Electronic forms
These are on-line completion and transmission of business forms such as purchase orders, contracts and claim forms.
These are authenticated by electronic signatures called digital signatures.
• Integrated messaging
Integrated messaging includes a group of computer services that send, receive, and combine faxes, electronic
mails and electronic data interchange. This is done by using the electronic transmission system.
Messaging is gaining momentum in electronic commerce.
The major advantages of messaging are:
-- It supports both immediate and delayed processing and delivery of messages.
-- It does not have any specific communication protocol.
-- It is more effective in communicating and working for people even though they are at diverse
locations.
The main disadvantages of messaging are the issues of privacy, security, confidentiality and legality.
• Shared databases
Trading partners develop data warehouses that are accessible and shared by both the partners. These data warehouses
are often used for faster communication and for arranging cooperative activities.
12.4.2 Electronic Markets

• Electronic markets are emerging for business to business marketing through e-commerce.
• A market is a place where information, products, services and payments are exchanged.
• The electronic market is a place where there is no physical building but is a network based location where
business transactions take place.
• Buyers and sellers are located at different places and they hardly know each other.
• The business transaction is handled by the transaction handler and these transactions are managed by a range
of IT applications.
• In case of the electronic market, the buyer and seller relationship may be for one purchase transaction or multiple
transaction spreads over a seller agreeing to deliver products/services to a buyer for a specific time period.
• The sellers decide, in consultation with the transaction handler, which business transaction they will provide.
• Buyers and sellers independently decide which communication network they will use when they participate in
the electronic market.
12.5 Marketing Strategy for the Electronic Marketplace

Marketing strategy for business to business marketing is different when the firms plan to change from traditional
to an electronic platform. In such cases, industrial marketers make short-term marketing strategy. However, it
may include some long term strategic marketing issues such as segmenting, targeting and positioning. The major
components of the marketing strategy are:
segmenting and targeting
product differentiation and positioning
marketing mix strategy
12.5.1 Segmenting and targeting

• We have already discussed the procedure of segmenting and targeting earlier.
• It includes carrying out market research to collect information from the existing and potential customers.
• In the new interactive marketing, industrial buyer behaviour is used as one of the key variables for segmenting
the market.
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• E-commerce will enable marketers to capture behavioural data and update the database.
• In industrial marketing research, the greater emphasis is made on secondary research.
• The secondary data is available not only from traditional sources of government and non-government publications
but also from computerised on-line databases through search engines.
• The internet is a major source of secondary data; however primary data can also be collected by creating
a questionnaire and sending it out over the internet to the customers or through on-line interactive data
collection.
• The effectiveness of conducting marketing research through e-commerce is measured in terms of the lower cost
and time compared to the traditional methods used for collecting the data.
• Marketing researchers are developing their availability to organise customer information for developing a
meaningful marketing strategy.
• After segmenting the market into various potential segments, a company should evaluate the potential
segments.
• The target market strategy is then decided by the marketer.
12.5.2 Product Differentiation and Positioning

• Identifying the target customers wants in term of major benefits, selecting one or more benefits for differentiation
and communicating the company’s positioning to the target market can create product differentiation and
positioning.
• Marketers should use the new method of interactive marketing to position their superior customer ser vice in
the minds of their target customers.
• The marketers can use their websites and can guide potential customers on how the company’s product can solve
the customer’s problems, comparative analysis with competitive products and price justifications.
• Business marketers should ensure that while communicating their positioning strategy, they should use the
power of integrated marketing communication by conveying the same message or theme through the electronic
media.
• They should take care that the communication message which conveys the firm’s positioning strategy through
direct mail, trade journals should remain the same. It avoids confusion in the minds of customers.
12.5.3 Marketing Mix Strategy

The marketer must work on product, price, promotion, and distribution strategy while choosing the electronic
market.
12.5.3.1 Product Strategy

• The marketer should review the existing products and choose those products that are suitable for on-line business.
These products should be chosen on the basis of segmenting and targeting their potential customers through
marketing research by the use of the internet.
• The marketers should work on communicating product positioning, product information and ordering positioning
through an attractive web page.
• The marketers must use customer feedback through interactive discussions with customers on the internet and
continuously improve in product services and marketing strategies.
12.5.3.2 Pricing Decision

• In the new interactive marketing, the customer is likely to set the price based on the comparative price information
available on the internet.
• Each industrial customer will ask for the specific product and price to meet the individual needs.
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• Companies will have to keep their pricing strategy flexible enough to meet the specific pricing needs of individual
customers.
• The industrial marketer will have to find out ways and means to bring down the cost and acceptable prices set
by the customers to ensure profits in business.
12.5.3.3 Distribution Channel

• Traditional marketing uses intermediaries such as distributors, dealers, manufacturers, representatives and
brokers as a part of the distribution strategy.
• The new distribution strategy with electronic technology is direct distribution.
• Direct channels used in industrial marketing are personal selling, direct marketing through direct mail,
telemarketing and the internet.
• The critical functions or ser vices like promotion, selling, warehousing, transportation and technical services
are performed efficiently and cost effectively by the manufacturer, there is no need to have intermediaries.
• The industrial marketer should decide which functions are important and can be performed by the company
effectively so that the products and services are available to the customer when required.
12.5.3.4 Promotion Strategy

• Industrial marketers communicate information about their products and services to the target customer groups
through several promotional media such as advertising in trade journals, direct mail, trade shows and personal
selling.
• The advertising can be used effectively for promoting the firm’s website.
• Promotion of products and services through websites on the internet allows marketers to react to the individual
buying firm’s needs. Each industrial or business customer can be served in their preferred way.
• One to one marketing has become a standard method of dealing with customers over the internet. Since marketing
has become much more customer-centric, communication is tailored to individual customer needs.
• Electronic market, the internet and other emerging technologies are representing a basic shift in the ways
business firms are interacting with their customers and suppliers. It is therefore certain that in future much more
business to business marketing will be conducted on-line with the help of the internet, www sites and other
digital technologies.
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Summary
• The internet has changed the face and pace of business in business marketing and retailing. The traditional business
environment is changing rapidly as business firms want to increase the efficiency of business communication,
expand market share and maintain long-term viability.
• E–Commerce is broadly defined as modern business methodology that addresses the needs of organisations and
consumers to cut costs, improve the quality of goods and services, and increase the speed of service.
• The most important element that supports e-commerce is the internet.
• Intranet is the internal internet of companies.
• www. stands for the World Wide Web.
• Extranets are links that allow business partners like suppliers, distributors, bankers, consultants, customers to
connect to the company’s internal networks.
• The inter-organisational system is to help buyers and sellers for the routine exchange of business transactions
and interconnecting business partners to streamline business processes.
• An EFT is defined as any transfer of funds initiated through an electronic terminal authorising a financial
institution to debit or credit an account.
• An improved legal framework has to be developed in preventing mistakes and frauds.
• Integrated messaging includes a group of computer services that send, receive, and combine faxes, electronic
mails and electronic data interchange.
• Trading partners develop data warehouses that are accessible and shared by both the partners.
• A market is a place where information, products, services and payments are exchanged.
• Marketing strategy for business to business marketing is different when the firms plan to change from traditional
to an electronic platform.
• E-commerce will enable marketers to capture behavioural data and update the database.
• Identifying the target customers wants in term of major benefits, selecting one or more benefits for differentiation
and communicating the company’s positioning to the target market can create product differentiation and
positioning.
• Business marketers should ensure that while communicating their positioning strategy, they should use the
power of integrated marketing communication by conveying the same message or theme through the electronic
media.
• The marketers should work on communicating product positioning, product information and ordering positioning
through an attractive web page.
• Traditional marketing uses intermediaries such as distributors, dealers, manufacturers, representatives and
brokers as a part of the distribution strategy.
• Industrial marketers communicate information about their products and services to the target customer groups
through several promotional media such as advertising in trade journals, direct mail, trade shows and personal
selling.
References
• Stark, J., 2004. Product Lifecycle Management: 21st Century paradigm for Product Realisation, 1st Edition;
Springer.
• Canzer, B., 2005. E-Business: Strategic Thinking and Practice, 2nd Edition, South-Western College Pub.
• Laudon, K., 2009. E-Commerce 2010, 6th Edition, Prentice Hall.
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Recommended Reading
• Entrepreneur Press and Arden, L., 2009. Start Your Own E-Business, 2nd Edition, Entrepreneur Press.
• Napier, A.H., 2005. Creating a Winning E-Business, 2nd Edition, Course Technology.
• Alred, G.J., 2008. The Business Writer’s Handbook, 9th Edition, St. Martin’s press.
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Self Assessment
1. The ___________ has changed the face and pace of business in business marketing and retailing.
a. internet
b. extranet
c. intranet
d. telephone

a. Effective use of information technology helps a company to identify and profile customers, reach out to
customers quickly and more effectively, and make inventory management and the distribution system more
efficient.
b. The traditional business environment is changing rapidly as business firms want to increase the efficiency
of business communication, expand market share and maintain long-term viability.
c. The traditional business environment is changing rapidly as business firms want to increase the efficiency
of business communication, expand market share and maintain short-term viability.
d. The term ‘E-Commerce’ is more commonly associated with information on buying and selling of products
and services via computer networks.
3. __________is a new communication tool which can be used to achieve a company’s objectives like increase in
customer service, customer satisfaction and sales.
a. E-business
b. E-commerce
c. E-learning
d. Social networking
4. What improves the effectiveness and efficiency of the marketing or sales function?
a. E-business
b. E-learning
c. Social networking
d. E-commerce

a. The most important element that supports e-commerce is the internet.
b. The internet connects customers, competitors and the general public.
c. The system of ‘Inter connected Networks of Computers’ is called the internet.
d. The system of ‘Inter connected Networks of Computers’ is called the intranet.
6. __________ is the internal internet of companies.

a. Internet
b. Extranet
c. Intranet
d. Telephone
125/JNU OLE

a. www stands for the World Wide Web
b. Internet must have updated information regarding the company’s product, services and policies.
c. www is a navigation tool for getting information in a multimedia format including video, audio and colour
graphics.
d. Organisations that make their own websites should keep in mind that the site should be attractive and create
enough interest for repeat visits.

a. Extranets are links that allow business partners like suppliers, distributors, bankers, consultants, customers
to connect to the company’s internal networks.
b. Internet are links that allow business partners like suppliers, distributors, bankers, consultants, customers
c. Intranet are links that allow business partners like suppliers, distributors, bankers, consultants, customers
d. www are links that allow business partners like suppliers, distributors, bankers, consultants, customers to
connect to the company’s internal networks.
9. What help buyers and sellers for the routine exchange of business transactions and interconnecting business
partners to streamline business processes?
a. Electronic markets
b. Inter-organisational System
c. Electronic forms
d. Shared databases
10. An ___________ uses a computer and telecommunication components for the supply and transfer of money
or financial assets.
a. electronic data interchange
b. electronic forms
c. electronic funds transfer
d. shared databases
126/JNU OLE
Case Study I
Kirloskar Electric Company Limited
Kirloskar Electric Company Limited expected to close sales at Rs. 200 crores as against sale of Rs.320 crores in
the previous year. Last year there was a big slump due to various reasons, however the major reason was due to the
strike which affected the Bangalore branch for three months.
It was a great setback for the company to have a huge fall in revenue for the year 2000-01. Mr. Vijay. R. Kirloskar,
Chairman and Managing Director of Kirloskar Electric Company muted different plans to come out of this poor
position. The company wanted to wipe out its accumulated loss of Rs.100 crores and its debt of Rs.170 crores.
The other causes of losses were on account of recession in the industry, and it’s pricing and order booking compounded
the problems for the company. To combat these problems, the company decided to downsize. It closed its Pune
operations and also shut down its loss making units. The company thought of downsizing in order to decrease the
liabilities.
Recently, Kirloskar Electric Company has started negotiations with General Motors for supplying traction components
and is also considering accusation of uneconomic overseas capacities for producing electric equipment. The Chairman
and Managing Director, Mr. Kirloskar felt that this move might help the company to come out of the red in the
next 2-3 years. Further, Mr.Kirloskar believed that the company’s growth is dependent on the growth of the main
industries such as steel, cement, textile and cutting down the unit cost of the product. With this, he believed will
reduce the break-even level from Rs.40 crores a month to Rs.30 crores.
KEC Ltd. has already supplied prototypes of traction components to General Motors.
According to Mr.Kirloskar, if negotiations are successful, then it will generate business worth Rs.3-4crores for the
company every month. The profit margin would be around 10%. However, Kirloskar Company Ltd. will have to
upgrade its facilities to cater to General Motors needs.
KEC Ltd. has also started outsourcing 40-50% of its work and is planning to increase this to 60-70%. The company
has also implemented a voluntary retirement scheme and has downsized the workforce from 4000-3000. It plans to
further reduce its strength by another 500 people.
With the change in the situation, the company has already launched DENKI generators in the eastern region. It wants
to promote the product more rigorously to tap the opportunity. It also wanted to engage in auto electrical works.
Questions:
1. What are the critical areas to be considered in this case?
2. What was the cause of loss?
3. How can the expansion plan be successful?
Answers:
1. The critical areas to be considered in this case are as follows:
• The causes of losses.
• How the expansion plan could be successful.
• Planning for a successful future.
• Outsourcing of work and its plans of increasing.
• Launching of new products/services.
127/JNU OLE
2. The causes of loss were as follows:

• On account of recession in the industry, and it’s pricing and order booking compounded the problems for the
company.
• To combat these problems, the company decided to downsize. It closed its Pune operations and also shut down
its loss making units.
• The company thought of downsizing in order to decrease the liabilities.
3. Expansion plan can be successful in the following manner:

• Kirloskar Electric Company has started negotiations with General Motors for supplying traction components
and is also considering accusation of uneconomic overseas capacities for producing electric equipment.
• The Chairman and Managing Director, Mr. Kirloskar felt that this move might help the company to come out
of the red in the next 2-3 years. Further, Mr.Kirloskar believed that the company’s growth is dependent on the
growth of the main industries such as steel, cement, textile and cutting down the unit cost of the product.
• With this, he believed will reduce the break-even level from Rs.40 crores a month to Rs.30 crores.
• According to Mr.Kirloskar, if negotiations are successful, then it will generate business worth Rs.3-4crores for
the company every month.
128/JNU OLE
Case Study II
Intel
Since the development of PCs in the late 1970s, the marketing of IT related software and hardware was mainly driven
by computer vendors and software publishers. However, Intel relied completely on its computer-vendor customers
otherwise known as Original Equipment Manufacturers (OEMs) to convey to end users the benefits of using an
Intel processor. As a result, consumers had very little awareness about Intel and its products. Most PC users were
not aware of the availability of advanced processors and their cost saving performance.
Intel realised that it needed to create more awareness about itself and its products among consumers. The first,
focused marketing initiative was developed by Intel in 1990 to market the 386SX micro processor. A small group
of marketing personnel interacted with its manager’s who came to buy PCs for business purposes and briefed them
about the features and advantages of the existing microprocessors as well as the new releases. As a result of the
above, customer awareness about the 386SX processor increased and translated into increasing sales.
Even as the company initiated marketing activities, it had it deal with certain legal problems. Arch-rival AMD,
which had been given the license to manufacture chips by Intel begun making use of the latter’s processor numbers
to market its own products. By offering chips at comparatively cheaper prices, AMD captured 54.2% of the market
by 1990. According to Intel sources, the company had ‘assumed’ that the 3/856 and 486 processors were protected
trademarks and that no other company could make use of the processors. As a result, AMD sued Intel for breach of
contract. Intel lost the case and opened doors for other companies to use them. Intel realised the need for a better
marketing programme that would protect its rights. Intel thus sought to create a strong brand to communicate
better with customers, justify the billions of dollars invested in product development, and highlight the superior
performance and reliability of its products. The decision to go in for component branding was taken because of the
company’s observation that although a microprocessor was a key component of the PC, it was largely seen as ‘just
another component.’
The company developed a component branding strategy that aimed at gaining consumer confidence in Intel as
a brand. It decided to run campaigns that would demonstrate the value and benefits of buying a processor from
a leading company in the industry. The most innovative aspect of this strategy was the decision to communicate
directly with the end-users. This was a very novel idea for a ‘pure technology’ company.
Intel, however, decided to go ahead with its plans, and with the help of an advertising agency, Dahlin Smith and
White, designed a campaign for its products. The company adopted a new tagline-‘Intel. The computer inside’ in
July 1991. Later, the company shortened the tagline to ‘Intel Inside.’ The tagline was accompanied by a new logo,
in which the words ‘Intel Inside’ appeared inside a circle. This design suggested that the brand had an implicit seal
of approval.
The new marketing programme consisted mainly of an incentive based cooperative advertising (coop) programme.
Intel created a cooperative fund wherein 5% of the purchase price of the microprocessors was kept aside for
advertising funds and made available to all PC makers. Intel shared the advertising costs with the OEMs for print
advertisements that included the Intel logo. This arrangement became very popular and many OEMs joined the
programme. As a result of the arrangement, OEMs could not only increase their ad spend, they could also be assured
that their computers were powered by the latest microprocessor technology. By the end of 1991, around 300 PC
OEMs had joined Intel in support of the Intel Inside coop programme. After the success of this programme, Intel
started to advertise in the print media around the world to explain the Intel logo to global customers.
Intel released its first TV advertisement in early 1992. This ad was made by Industrial Light Magic for the new
Intel i486™ processor. It stressed on the power, speed and affordability of the chip. Intel had a series of high profile
launches for its new chips over the next couple of years. Pentium® and Pentium® Pro were launched in 1993 and 1994
respectively. The company had now decided to use names instead numbers for its microprocessors (the word
129/JNU OLE
Pentium was derived from a Greek word meaning five). In the meantime, Intel’s investment in marketing seemed
to have paid off. A company research revealed that while only 24% European PC buyers had been familiar with the
Intel inside logo in late 1991, the figure increased to nearly 80% in 1992 and 94% in 1995.
Intel’s marketing efforts not only increased the demand for chips, they also increased the demand for PCs around
the world. This was interesting considering that the demand for PCs was growing sharply in spite of increase in PC
prices. The number of people who owned home-PCs was increasing even as the PC emerged as the most viable tool
for business, education and entertainment. Intel was the catalyst in this PC revolution that swept the entire world.
Intel’s advertisement campaigns and coop marketing strategy had become well known marketing success stories
of the 1990s.
Each new campaign in the print, electronic or outdoor media attracted significant attention. However, even those
who had accepted Intel as an unconventional marketer were not prepared for the Stayin’ Alive campaign in 1997.
Commenting on its success, advertising age said, “They became nothing less than whimsical icons of a go-go PC
industry.”
In the same year, Intel started advertising on the web and also encouraged PC makers to use this media. Intel also
allowed them to use the company logo and messages in their advertisements. This helped the company convey to
customers, the important role its chips played in giving them a good internet browsing experience.
As the internet gained in popularity during the late 1990s, consumers began turning to it for gaining information on
products and purchasing products online. Consequently, Intel took steps to become a leader in the internet economy.
The company spruced up its Intel inside programme to promote and support e-commerce marketing activities
undertaken by taken by computer manufacturers. To leverage the popularity of the Intel logo, the company even
started selling products like books (for engineers and IT professionals), caps, T-shirts, key chains, pens, coffee
mugs and dolls. These products made available through the company’s website, came on the merchandise generally
featured the latest product(s) launched by the company.
In 2001, in another innovative move, Intel set up the Intel Inside® On-line Network. This was essentially a web-
based tool that helped manage business transactions related to the company’s coop advertising programme. The
Intel inside on-line network, which was available 24 hours a day, provided services in languages other than English
(Chinese and Japanese).
Intel’s consistent efforts towards providing customer satisfaction through quality services and its innovative efforts at
component branding fetched it commensurate results. The company’s net income of $7.31 billion in 1999 increased
to $ 10.53 billion in 2000. Intel earned 35% of its total revenues from North America, 31% from the Asia Pacific
region, 25% from Europe and 9% from Japan. Besides PC manufacturers, the company marketed it products to
various other industries such as industrial equipment, military equipment and communications industries.
Questions:
1. Examine the business environment in which Intel began selling its microprocessors in the early 1980s. Why
did Intel decide to intensify its marketing activities in the 1990s? Discuss.
2. Examine Intel’s decision to target the Pc end-users through its marketing campaigns. Also, comment on the
cooperative marketing strategy and the execution of the Intel Inside campaign.
130/JNU OLE
Case Study III
The Equations
In December 1997, the Minister for Transport, Government of Kerala, issued an order to the effect that the Kerala
State Road Transport Corporation (KSRTC) will purchase Leyland and Telco chassis in the ratio of 1:1 superseding
the hitherto followed policy of buying the chassis of these two companies in the ratio of 2:1.
It was decided to buy 1000 bus chassis in total. The Minister’s order also gave this ratio (1:1) with retrospective
effect from 1994.
The Minister for transport belonged to a small party in the left front coalition government dominated by the CPI
(M). The political party to which the Transport Minister belonged was characterised by internal fighting and there
was opposition to the Minister from within that party. The CPM (M) led dominant trade union of KSRTC was very
critical of the management of the Corporation.
The order of the Minister to change the ratio of purchase created a lot of controversy and it was alleged that the
Minister had no power to make such a unilateral decisions. The State government formed a four member subcommittee
to inquire into the case.
The Transport Minister tried to justify his decision by arguing that the Telco product cost Rs.37, 623 less and there
was problem regarding availability of spare parts of Leyland. The Telco vehicle is generally regarded better for hilly
terrains and Leyland for the plains.
The inquiry committee in its report pointed out that in 1967 and 1994 the decisions regarding the ratio of purchase
between the products of the two companies were taken after discussions with technical experts and trade unions. No
such discussions were held this time. The report also pointed out that the purchase decision making power vested
with the Directors’ Board of the Corporation and that the Minister had no power to issue such an order superseding
the Board.
The order issued by the Minister to the Managing Director of KSRTC directing to change the ratio from 2:1 to 1:1 was
irregular according to the report of the committee. The Committee, therefore, recommended nullifying the Minister’s
order and reverting to the old position, i.e. the ratio of 2:1, and the government accepted this recommendation.
Questions:
1. With reference to the above case, discuss the decision making environment in a public sector organisation.
2. Identify the factors influencing the decision making.
3. Evaluate the Minister’s decision. Where did he go wrong?
4. Evaluate the recommendation of the committee.
131/JNU OLE
Bibliography
References
• Bingham, F.G., 2005. Business Marketing, 3rd Edition, Irwin/McGraw-Hill.
• Canzer, B., 2005. E-Business: Strategic Thinking and Practice, 2nd Edition, South-Western College Pub,
p347.
• Coe, J., 2003. The Fundamentals of Business-to-Business Sales & Marketing, 1st Edition, McGraw-Hill.
p208.
• Hunter, V., 1997. Business to Business Marketing, 2nd Edition, McGraw-Hill.
• Jane Mallor, (February 23, 2009), Business law: The Ethical, Global and E-Commerce Environment, 14th Edition,
McGraw-Hill/Irwin.
• Johnston, W.J., 1981. Patterns in Industrial Buying Behaviour, Praeger Publishers.
• Kotler, P., 1993., Marketing Places, Free Press.
• Laudon, K., 2009. E-Commerce 2010, 6th Edition, Prentice Hall.
• Lucas, G., 2006.Guerrilla Advertising: Unconventional Brand Communication, Laurence King Publishers.
• Skiadas, C., 2009. Asset Pricing Theory (Princeton Series in Finance), Princetop University Press.
• Stark, J., 2004. Product Lifecycle Management: 21st Century paradigm for Product Realisation, 1st Edition,
Springer, p400.
• Zyman, S., 2000. The End of Marketing as We Know It, Harper Paperbacks.
Recommended Reading
• Alred, G.J., 2008. The Business Writer’s Handbook, 9th Edition, St. Martin’s press.
• Appleman, J.E., 2008. 10 Steps to Successful Business Writing, 1st Edition, ASTD Press.
• Camm, J., 2010. KaChing: How to Run an online Business that Pays and Pays, Wiley.
• Craiq S. Fleisher, (March 9, 2007), Business and Competitive Analysis, Effective Application of New and Classic
Methods, 1st Edition, FT Press.
• Entrepreneur Press and Arden, L., 2009. Start Your Own E-Business, 2nd Edition, Entrepreneur Press.
• Gerber, M.E., 2010. The Most Successful Business in The World: the ten Principles, Wiley.
• J. Nicholas De Bonis, 1997. AMA Handbook for Managing Business-to-Business marketing Communications,
1st Edition, McGraw-Hill.
Butterworth-Heinemann..
• Levinson, J.C., 1990. Guerrilla marketing Weapons: 100 Affordable Marketing Methods, Plume.
• Mullin, B., 2007. Sport Marketing, 3rd Edition, Human Kinetics.
• Napier, A.H., 2005. Creating a Winning E-Business, 2nd Edition, Course Technology.
132/JNU OLE
Self Assessment Answers
Chapter I
1. c
2. a
3. b
4. d
5. a
6. c
7. b
8. a
9. b
10. d
Chapter II
1. a
2. c
3. b
4. d
5. a
6. c
7. b
8. b
9. a
10. a
Chapter III
1. b
2. c
3. a
4. c
5. c
6. a
7. a
8. c
9. b
10. d
Chapter IV
1. c
2. b
3. a
4. d
5. c
6. c
7. a
8. d
9. a
10. d
133/JNU OLE
Chapter V
1. c
2. a
3. d
4. b
5. a
6. d
7. c
8. c
9. b
10. a
Chapter VI
1. c
2. a
3. b
4. d
5. a
6. b
7. a
8. d
9. c
10. a
Chapter VII
1. a
2. d
3. b
4. c
5. a
6. d
7. b
8. c
9. a
10. a
Chapter VIII
1. a
2. c
3. b
4. a
5. d
6. c
7. b
8. d
9. a
10. c
134/JNU OLE
Chapter IX
1. b
2. a
3. a
4. d
5. c
6. d
7. a
8. b
9. c
10. a
Chapter X
1. d
2. b
3. d
4. a
5. c
6. b
7. c
8. a
9. d
10. a
Chapter XI
1. a
2. c
3. b
4. d
5. a
6. b
7. a
8. c
9. b
10. d
Chapter XII
1. a
2. c
3. b
4. d
5. d
6. c
7. b
8. a
9. b
10. c
135/JNU OLE

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Industrial Marketing

This book is a part of the course by Jaipur National University, Jaipur.

The content in the book is copyright of JNU. All rights reserved.

II. List of Figures...........................................................IX

III. List of Tables............................................................ X

V. Case Study.............................................................. 127

VI. Bibliography.......................................................... 132

VII. Self Assessment Answers................................... 133

Chapter X.................................................................................................................................................. 101

Chapter XI................................................................................................................................................. 108

• introduce industrial marketing

• state the basic functions of economy

• highlight industrial classification

• discuss industrial demands

• explain cross-elasticity of demand

• differentiate between industrial marketing and consumer marketing

• explain extractive industry, manufacturing industry and constructive industry

• state the factors of industrial marketing

Fig. 1.1 Industrial marketing

1.2 Industrial Classification

1.3 Industrial Demand

1.3.1 Derived Demand

1.3.2 Joint Demand

1.4 Cross-elasticity of Demand

1.6 Major Differences Between Consumer Marketing and Industrial Marketing

Areas Industrial markets Consumer markets

Table 1.1 Differences between consumer marketing and industrial marketing

1.7.2 Product Characteristics

1.7.3 Buyer Behaviour

1.7.4 Channel Characteristics

1.7.5 Promotional Characteristics

1. Which of the following is false?

6. Which of the following is false?

7. Which of the following is true?

8. What takes place less frequently?

10. Which of the following is false?

• discuss the important features of industrial market

• classify the types of industrial customers

• explain the classification of industrial products and services

• explain the industrial purchasing system

• state the government purchase system

• discuss capital items

• explain the industrial market

• discuss the need to understand industrial market

• classify the various purchasing systems

2.1 Industrial Market

2.2 Important Features of the Industrial Market

2.3 Need for Understanding Industrial Markets

2.4 Industrial Customers

2.4.1 Commercial Enterprises

2.4.2 Government Customers

2.4.3 Institutional Customers

2.4.4 Co-operative Societies

2.5 Classification of Industrial Products and Services

2.5.1 Materials and Parts

2.5.2 Capital Items

2.5.3 Supplies and Services

2.6 Industrial Purchasing System

2.6.1 Commercial Enterprises Purchasing System

2.6.2 Government Purchase System

2.6.3 Institutional Purchasing

2.6.4 Purchasing in the Resellers’ Market

2.6.5 Purchasing in Co-operative Societies

2. Which of the following is false?