This action might not be possible to undo. Are you sure you want to continue?
• What is Business Marketing? • What is Consumer Marketing? • What is the difference between Industrial Marketing, Business Marketing, B2B Marketing, Organisational Marketing? • Classification of industrial products & customers. • Characteristics & marketing strategies for business customer categories. • Purchasing orientations & practices of business customers. • Environmental analysis in business marketing.
Response to earlier Questions
• Business Marketing is marketing of products and services to business firms. • Consumer Marketing is marketing of products and services to individuals and households. • Consumers buy products / services for their own consumption / use. • Business firms buy products / services to satisfy many objectives – produce other goods, own consumption/use, resale, etc. • No difference between IM,BM,B2B & O.M.
• Basic tasks of marketing are same (Which tasks?) • Differences are in the characteristics Characteristics Business Consumer Markets • Geographicall Markets • Geographicall Market y Concentrated Few Buyers Technically Complex Customised Very Important y Dispersed • Mass markets • Non-technical • Standardised • Somewhat Important
Difference Between Business & Consumer Marketing
• • • •
Characteristics Buyer Behaviour
Business Markets • Functional Specialists Involved • Rational based buying decisions • Different types of relationships • More Direct • Multi-channels • Personal selling more important • Competitive Bidding, Negotiated prices
Consumer Markets • Family members involved • Physiological, Psychological, social need based • Non-personal relationships • Indirect • Few channels, More levels • Advertising more important • List Prices / MRP
How marketing strategies will differ between firms marketing products to consumer markets & business
Nature of Demand in Industrial Marketing
• Demand for industrial products is derived from (or depends on) the ultimate demand for consumer goods/services. (Example?) • Joint demand occurs when one industrial product is needed if other product also exists. (Example?) • Cross-elasticity of demand is the response of sales of one product to a price change in another product. (Illustration?)
Classification (or Nature) of Industrial Products: Why classify?
Classification of Industrial Customers / Types of Organisational Customers. (Why study this?)
Characteristics & Marketing Strategies for Business Customer Categories 1. Intermediaries: Distributors/Dealers, Manufacturers Representatives, mainly
• • • • • Carry out various activities of distribution Have selective / exclusive distribution strategy Products / services sold in the same form Pricing strategy is list price less discounts Joint promotion for end users / customers
2. Users, Institutions & Coop. Societies in Private Sector
• • • • • Requirements are not regular & small to medium Multi-channel distribution strategy Product to meet the technical specifications of users Competitive pricing strategy Promotion by the manufacturer / intermediaries
• • • • •
Large and repeat requirements Partnering / value-added relationships Distribution & Promotion by the company salesforce Value of market offering superior than competitors Special prices to meet the OEMs expectations
2. Government, Institutions & Cooperative Societies in Public Sector
• • • • • • Requirements vary from small to large Promotion by the manufacturer or intermediaries Lowest pricing strategy Products / Services as per customer specifications Ensuring product / service availability Generally transactional relationship
Purchasing Orientations of Business Customers
• Business customers follow one of the three purchase orientations / concepts. • Buying Orientation: (Typical Examples?)
• • • • Has short-term focus Gain power over suppliers Select lowest price vendor Avoid risk of buying from new supplier
• Procurement Orientation
• Has long-term focus • Follow collaborative / partnering Relationships with major suppliers • Achieve organisational objectives • Work closely with other functions within firm
• Supply-chain-management orientation
• Has long-term focus of improving value chain • Deliver superior value to end users • Follow collaborative / partnering
Purchasing Practices of Business Customers Purchasing in Commercial Enterprises
• Buying Centre includes technical and commercial departments’ reps, who make buying decisions • Major tasks include identifying, selecting, negotiating, building relationships with suppliers • Purchasing dept. contributes to the company’s competitive advantage (How?)
Purchasing in Government Firms
• D.G.S.&D. agency decides Rate Contract for Standard products for govt. firms. • Large govt. firms (DOT, Railways) have own buying process. • The process includes:
• Registration of supplier firms • Tender notice advertisements • Purchased tender papers indicate terms and conditions • Closed / Sealed bidding, or Open / Negotiated tenders • Orders placed on lowest price bidder(s) • Process differs slightly for standard & Non-
Purchasing in Institutions & Cooperative Societies
• Govt. purchasing process, if the organisation is govt. owned. • Commercial enterprise’s practices, if the firm is in private sector. • Better to study each major organisation for orientation, practices, and other information (Such as ? and why?) • Customer study creates database for CRM.
Environmental Analysis in Business Marketing: (why do this?) Examples
Types of Environment • Environmental factors / forces influence marketing decisions of selling firms & buying decisions of buying firms.
Influence of Environmental Factors
• Internal Environment. Internal company analysis is done, vis-à-vis competitors, for strengths & weaknesses. • External Environment. Macro & Micro factors change continuously, spinning out new opportunities & threats. Hence, firms do monitoring & forecasting relevant external environmental factors. (why?). o Economic conditions (prosperity, recession), growth of economy, demand for products / services, etc. o Demographic. Changes in population can impact demand for industrial products. (How? Example – Steel)
Influence of Environmental Factors
o Technological changes can alter demand for Industrial products (Jelly Filled to optic fibre telecom. cables). Changes in technology, innovation opportunities should be monitored by business marketers. o Govt., Political, Legal. Govt. protects consumers, companies, society from unfair business practices (like price cartels), by enacting laws (e.g. MRTP, Competition Act). o Cultural, Social. Impact of changes in cultural & social environment is less in business market. o Public. It includes various groups (like press, general public, shareholders, banks) who help or hinder the firm’s efforts to serve markets /
Strategies for Managing External Environment
• First step is to gather and monitor information on relevant external environmental factors. This would help to understand and identify changes in external environment. • Second step is to respond proactively with the following strategies: • Independent Strategies. • Cooperative Strategies. • Strategic Planning.
Customer Value in Business Markets
• Customer value (or value) is widely used term in recent years. It is defined / understood differently: (1) Economic, technical, service, and social benefits received by a customer firm in exchange for price paid for a product / service offering. (e.g. LCD Projector). (2) Ratio between what a customer gets (i.e. benefits) and what customer gives (i.e. costs). benefits include functional & emotional. Costs include monetary, time, energy, psychic. Application: Customer firm receives offerings V1 & V2 from suppliers A & B. It chooses the offering which gives higher value.
Customer Value Proposition
Business marketing firms develop ‘customer value proposition’ or ‘value proposition’, in 3 different ways: In a study: • Many benefits listed. 70% firms listed over 4 benefits, with little knowledge of customers & competitors. • Few benefits compared. 20% firms mentioned 3 or 4 benefits, compared some with competitors. No information about customer needs / expectations. • Few benefits meeting customer expectations. 10% firms made their product / service offerings superior on few benefits that matter most to customer firms. They demonstrate &
Module 3 Marketing Research (MR) & Marketing Intelligence System (MIS)
The module includes: • Introduction to marketing research & MIS. • Difference between industrial & consumer research. • What are the different research methods, and sampling techniques. • What is demand analysis? • Methods used for estimating or forecasting demand.
What is Marketing Research (MR)? It is systematic design, collection, analysis, and reporting of data & findings for a specific marketing problem situation faced by a company. Purpose of M.R.: Obtain information to solve a problem or make a decision on business opportunity. Marketing intelligence system (MIS). Provides relevant, accurate, timely information on continuous basis to business marketing manager for decision making. (e.g. pricing decision)
Marketing Intelligence System (MIS)
Marketing research studies Secondary data sources Marketing intelligenc e system (MIS) Internal informatio n system Decision support system (DSS) Marketing strategy developm ent
• MIS outputs are used for routine marketing decisions. (e.g. allocation of expenditure budget, setting quotas). • Decision Support System (DSS) is a logical extension of MIS. DSS helps in solving unstructured / complex problems (e.g. response
Difference Between Industrial & Consumer Research
• More reliance on secondary data, exploratory research, expert opinion (due to less number of buyers, few knowledgeable people). • Technical orientation of researcher needed, due to technical nature of products & respondents. (e.g. MMM) • Survey method used often, smaller sample size, personal interviews, instead of experimental & observational methods used in consumer goods research. (e.g. Biplus) • Data from industrial respondents more difficult to obtain than from consumers, due to time constraints & hesitancy.
Research Methods in B.M. For primary data collection, following methods used.
Factors •Objectives Qualitative Methods Quantitative Methods
Preliminary insights on Answering a problem / ideas, problems, opportunity / feelings. information needs. Exploratory Open-ended, unstructured Depth interviews & Focus group Short time Small samples Subjective, interpretive Very limited; Only preliminary insights Descriptive & Causal Mostly structured Survey method Longer time Large samples Statistical, descriptive, causal predictions. Very good; Inferences about facts / relationships.
•Type of Research •Type of Questions •Techniques used •Time of Execution •Representativeness •Type of Analyses •Generalizability of Results
Two basic sampling designs: probability & nonprobability. • Probability sampling: each sampling unit (target population elements) has a known probability of being selected for the sample. Techniques / methods are: • Simple random sampling. • Stratified random sampling. • Systematic random sampling. • Cluster sampling. • Nonprobability sampling: probability of selecting each sampling unit is unknown. Techniques / methods are: • Convenience sampling • Judgement sampling
What is Demand Analysis?
• Demand analysis is a research method to estimate customer demand for a product. • It identifies variables & reasons that affect customer demand. (Example: DuPont, for chemical products, using demand analysis, also obtains non-price factors like delivery, quality, service, innovation, brand name). • It uses test-marketing procedure: actual marketing in one or few cities. • After demand analysis identifies variables that affect customer demand, sales forecasting techniques are used.
BM/KKH-M3-8 Demand Forecasting / Estimating Methods
Classified into: Qualitative and Quantitative methods Qualitative methods • Executive opinion • Delphi method • Salesforce composite • Survey of buyers’ intentions • Test marketing Quantitative methods • Moving averages • Exponential smoothing • Decomposition • Naïve / Ratio method • Regression analysis
MODULE 4 MANAGEMENT & PLANNING MARKETING STRATEGIES includes: • Core competency. • Product definition, product quality, & product strategy (NIS). • Branding in B2B marketing (NIS). • Innovation & competitiveness (NIS), management of innovations. • New product development process & performance determinants. • Diffusion of innovation; High-tech marketing & strategy (NIS). • Product life-cycle (PLC) analysis; Portfolio analysis models. • Market segmentation; requirement & basis for
What is Core Competence (C.C.)? It is a complex harmonization of individual technologies and production skills. E.G. Canon’s core competencies are: precision mechanics, fine optics, micro-electronics, which have created successful products like cameras, printers, fax equipment, image scanners. How a Company can Identify Core Competencies? Three tests can be applied: • CC provides a potential access to many markets. • CC should contribute to customer benefits from firm’s product. (e.g. Fax) • CC should be difficult for competitors to imitate. There is a link between CC and successful products (e.g. Canon, 3M’s innovative products).
Definition of Industrial Product A physical thing and complex set of economic, technical, legal, and personal relationship between buyer and seller. (e.g. LCD Projector). Meaning (or Characteristics) of Industrial Product Total product consists of: • Basic properties – include fundamental benefits. As competition increases, marketers offer: • Enhanced properties – include tangible benefits.
• • •
BM/KKH-M4-4 Product Quality Increasing importance of product quality, linked to marketing strategy. PIMS study – 2124 sample size of firms. Meaning of Quality. Ability to satisfy stated/implied needs of customers. Total quality includes quality of product & service in relation to that of competitors. GE’s goal: achieve Six Sigma quality (defects < 3.4 parts per million) Total Quality Strategy includes: Product quality – specifications, performance (e.g. MMM-MU) Support quality – customer needs, technical service. (e.g. Bluestar)
Factors Influencing Changes in Product Strategy
• Product strategy is not strategic. (Which marketing strategies are strategic?). • Product strategy is flexible & dynamic, as firms change product strategy. Why? Because changes in • Customer needs (e.g. vertical stacking:2-6m) • Technology (e.g. jelly filled to fiber optic cables) • Government policies / laws (e.g. restrict tobacco consumption – ITC) • Product life-cycle – PLC (e.g. wooden to alum. /steel window frames)
Product Strategy for Existing Products
Steps involved: 2)Evaluate existing product performance • Use ‘product evaluation matrix’ with 4 factors: industry & company sales growth, market share, & profitability. • Use ‘perceptual mapping’ for poor performing products, to understand strengths / weaknesses, for corrective actions. • Decide product strategies with strategy options: • Continue product & marketing strategy. • Modify product & change marketing strategy. • Drop the product. • Add new product.
Branding in Business Marketing • Like consumer marketing, strong brands are valuable in B2B marketing (e.g. IBM, Infosys, Intel). Purpose of branding: • Brands make identification of products / services easy. (e.g. IIMs / IITs) • Brands differentiate products/services from competitors. • Brands reduce risk & complexity in buying decisions (e.g. Construction of world-class new campus of ABA). • Brands guarantee performance, quality, & origin. • A brand is a promise to firm’s customers. (e.g. IBM’s promise: Helping clients succeed through
Branding Process in Business Marketing
To achieve brand success, process followed is:
Brand Plannin g And Analysi s
Yes To Brand or Not to Brand No
Brand Strateg y
Brand Auditin g
Brandin g Decision
To Brand / Not to brand Main factors considered for this decision: High pressure on prices due to competition (e.g. motors). Solution oriented market offerings make marketing complex. (Brands reduce complexity – e.g. IBM, Infosys, Wipro) Large number of similar products available. (suppliers can differentiate strong brands – e.g. Tata steel). Brand planning and Analysis Firms must develop strategic, marketing, & brand plans. Key factors in brand planning: Involvement of all people for information /
BM/KKH-M4-10(NIS) Brand Strategy Depends on brand analysis & elements (name, logo, slogan, etc) chosen: Some of the brand strategies are: Brand Hierarchy. Options: (1) corporate brand, (2) individual (product) brand, (3) Both. Choosing Brandname. Alternatives: (1) Person’s name (e.g. Honda, Tata, Boeing), (2) Nature of business (e.g. British Airways), (3) Use of Acronyms (e.g. IBM, HP), (4) Artificial names (e.g. Kodak, Accenture), (4) Metaphorical (e.g. Oracle, Apple, Vedanta). Brand Positioning. Means establishing & sustaining an intended meaning for a brand in the minds of targeted customers (e.g. L&T brand means quality& reliability). Brand Extensions. Using existing, well-established
Brand Building First find one/two value propositions important to target customers like functional & performance aspects. (e.g. IBM PCs) Allocate resources to improve on the above. Effectively communicate value proposition using brand-building tools like: personal selling, direct marketing, advertising, trade-shows, P.R., sponsorships. Brand Auditing Periodically audit brand performance, strengths, weaknesses, using research method. Successful companies like IBM, GE do continuous brand monitoring, alternate month, thru’ field research.
Innovation & Competitiveness
• Innovation is “any product, process, method, service, or idea that is perceived as new by someone”. • ‘Continuous innovation’ strategy helps a firm to differentiate itself from competitors and stay ahead. It gives competitive advantage. (e.g. 3M, Citibank). • Technological innovations, called ‘breakthrough technology’, create new products/services – new to world. • Examples – technological inventions (1948 to 1973) of transistors, integrated circuit (IC), microprocessors created many new products like TVs, movie cameras, computers, mobile phones,
Management of Innovations. • In successful firms, management of innovations are individually motivated, customer responsive, disorderly, & interactive. Many surprises, despite planning. • In successful innovative companies (like 3M, Google), innovation process is “controlled confusion”. • Implications for marketing managers: • Entrepreneurial initiatives to be encouraged & nurtured. (e.g. Google) • Facilitate communication between business units & functional areas (e.g. sales & R&D). • Collect environmental (SWOT) information. • Assume an important role in management of
It includes: • Idea generation idea screening concept development & testing business analysis product development market testing commercialisation. Recent areas of improvements: • 3D Design technology (or Digital prototyping) • It allows firms to visualise, test, redesign, and improve new product, before actually developing. • This saves time & resources. • Quality function deployment (QFD) or House of quality: • A framework to link customer needs to product design data.
New Product Development Process
BM/KKH-M4-15 New Product Performance Determinants about Success/Failure Success factors / determinants: • Product uniqueness and superior quality (e.g.CGMCCB). • Market knowledge and marketing effectiveness (e.g. Biplus tubes). • Technical & production capabilities (e.g. CG – Stampings). • Cross-functional team (e.g. CG – DOL: major modification). Failure factors / determinants: • Lack of coordination between marketing & technical teams (e.g. Sangam). • Poor product design (e.g. Swishflow). • High-prices relative to competitors (e.g. MMMstackers).
Diffusion of Innovation
What is diffusion of innovation? • Innovation: means a new product / service. • Diffusion: a process to spread awareness & adoption of new product to members of social system. • Social system includes firms, their employees, & professional change agents (e.g. consultants, architects). • Conceptually, new product adoption process includes: awareness, interest, evaluation, trial, adoption (e.g. LCD Projector). • Adoption of innovation: a model: •Typically, 5-10 years
for 50% firms adopting a new product
• High technology (high-tech) marketing is different from other products / services because of • High technological uncertainties. • High market uncertainties. Examples: products/services in telecommunication, computer, software, biotech, electronic industries. • Many new high-tech products / services fail due to differences in psychographic (psychology & demographic) profiles of new product adopter groups like innovators, early adopters, early majority, etc. (‘adoption of innovation’ model by Rogers).
High-tech Marketing Strategy
• • • • • • •
To avoid failures of new high-tech products/services, marketers should develop & implement a unique high-tech marketing strategy: Target a niche market (e.g. e-book) Plan whole product properties Develop partnerships – with suppliers & customers Have unique positioning strategy Effective communication strategy – IMC Multi-channel distribution strategy Skimming pricing strategy
Product Life-Cycle (PLC) Analysis
Industrial products typically follow PLC model shown below:
• • • • •
Profits reach peak level, before sales reaches its peak. Industrial p.l.c. are generally longer than consumer p.l.c. Introduction stage strategy: market development/overcome competition. Growth stage strategy: Improve product/distribution; reduce price. Maturity stage strategy: cut costs; enter new markets; satisfy existing customers.
Portfolio Analysis Models
BCG Model: Growth Share Matrix. G. E. Model: Business Screen Matrix. Purposes: (1) Strategic planning, (2) resource allocation. Stars: Market leaders, profitable. More resources needed to keep leadership. Cash Cow: Generate excess cash, maturity stage, need small investments. Question Marks: Doubtput-can move to stars/dogs. Dogs: Make losses/breakeven. Don’t invest.
BCG Model Which of the 8 products / businesses a firm should invest and why (in the above figure)?
GE Model: Business Screen Matrix
Business strength factors: Market share, product quality, unit cost, R&D performance, brand reputation, share growth. Market attractiveness factors: Market size, annual market growth rate, historic profits, competitive intensity, technological
What is Market Segmentation? • It is the process of dividing a market into groups of customers (i.e. segments), who have similar requirements for a product / service. • Business marketers should identify segments, decide which segment(s) to target, and also target market strategies.
Benefits of Segmentation • Marketers get used to studying customers needs and potential, competition, growth, profitability of each segment. • It gives basic information for developing effective marketing strategies. • It gives guidelines for allocating marketing resources to various market segments. (Example: STI) Limitations of Segmentation • If market potential is small, or market includes few customers, sales volume / profits may not justify costs of segmentation. (Example: Elechem) • Difficulties in segmentation due to large differences in customer characteristics, buying practices, and benefits required by members of
Requirements of Effective Segmentation For usefulness of segmentation, following criteria should be applied to evaluate potential market segments. (An example: CGL Motors)
• Measurable. Can size, growth, buyer characteristics be measured? • Substantial. Are sales & profit potential of segments large enough? • Accessible. Can the segments be identified, reached & served effectively? • Differentiable. Do segments respond differently to different marketing-mix strategies?
Bases for Segmenting Business Markets
Segmentation is done in two stages: • Identifying meaningful macrosegments, based on characteristics of buying organisations. • Subdivide those macrosegments into meaningful microsegments, based on characteristics of decision-making units (DMU) within each macrosegment. (Illustration: MMM)
Macro Variables • Type of Customer’s Industry • Type of Customer • Company Size • Usage Rate • Customer Location
Examples Automobile, chemical, textile Government, Commercial, Institutional Small/Medium/Large based on sales or number of employees Nonuser, light/moderate/heavy user Distance from supplier factory;
Urban/suburban industrial centres • Product Application/End-use For Aluminium extrusion products, door & window frames, electrical control panels, electronic equipment, etc. Macrosegments, using macro variables, may be
adequate to explain differences in buying behaviour. Data available from secondary sources at less cost &
Micro Variables • Buying Situations • Purchasing Criteria • Organisational Capability • Personal Characteristics of buying centre members Examples New task, Modified Rebuy, Straight-Rebuy Quality, Price, Delivery, Reputation Financial, Technical, Risk taker Innovative / Risk avoider
Microsegmentation should be done only when it is necessary, as cost of data collection through market surveys or company salesforce is high. (Examples of Microsegmentation: Sangam Alu.)
Nested Approach to Segmentation BM/KKH-M4-28 Developed by Bonoma & Shapiro, it includes more bases / variables of segmentation: • Demographics: industry classification, company size, geographic location. (e.g. MMM). • Operating variables: technology, user-nonuser status, customer’s operating, technical, financial capabilities. (e.g. Biplus). • Purchasing approach: purchase organisation, existing relationships with suppliers, purchasing policies & criteria (e.g. MMM). • Situational factors: urgency of purchase, specific application, size of order (e.g. 3M distributor). • Personal characteristics: buyer motivation, risk reduction strategies, individual perceptions. (e.g. STI-CR coils). Outer nests: (1), (2), (3); Middle nest: (4); Inner
Specific Criteria for Evaluating & Selecting Target Segments
Criteria used for evaluating potential segments & selecting the target segments are: • Size (Market Potential) and Growth • Profitability Analysis: Estimated Sales Revenue minus marketing cost • Competitive Analysis • Cost of serving the segment (Example – STI)
Target Market Strategies
• • • • •
After selecting target market segments, firms adopt one of the following strategies: Concentrated marketing Differentiated marketing Undifferentiated marketing Niche marketing (Examples?)
What is Positioning? • Distinct place a product/service occupies in the minds of target customers relative to competing products/services. (e.g. L&T: leading engg. company, Infosys: Respected s/w firm). Process for developing positioning strategy? • Identify factors for differentiation: Product, service, personnel, image. (e.g. Sangam Al.) • Select one or few differentiating factors/benefits: superior product quality / service, latest technology, etc. • Communicating positioning strategy: salesforce, ads, trade shows.
This module includes: • What is Business Marketing Channel (BMC)? • Who are the participants in BMC? • Channel alternatives / Channel structure in business marketing (NIS). • How channel design is done? • Administering / managing channel members, including • Selecting, motivating & evaluating channel members. • Controlling / managing channel conflicts
Module-5: Management of Marketing Channels.
Business Marketing Channel (BMC)
• A BMC includes a set of interdependent firms that make a product / service available to business customers. • A BMC is a link between the manufacturer / service provider and its business customers. • (Examples: CGL, Sangam).
Participants in BMC
• Manufacturer’s regional / branch sales offices*. • Distributors / dealers. • Manufacturer’s representatives / agents. • Brokers. • Commission merchants and Jobbers. • Value-added resellers (VARs) Except *, others are called intermediaries / resellers. We shall discuss each participant.
Manufacturer’s Regional / Branch Sales Offices
• Manufacturer participates in BMC thru’ regional / branch sales offices (own sales force). • Two types: Stock-Carrying, Non-stock Carrying. • Major tasks performed by stock-carrying sales offices: promotion, stock carrying, physical distribution, selling, servicing (e.g. CGL). • Main tasks performed by non-stock carrying offices: promotion, selling, pre &
Distributor / Dealer
• Most common intermediary, performing many tasks / functions. Paid discounts / margins on list price. • Independent business firm, serving a geographic market. • Tasks / functions performed: buying, warehousing, promotion, selling, financing, transporting, servicing, providing information. • Main Categories: General-line, Specialised, and combination house. • (Example – Sangam).
Manufacturer’s Representative / Agent
• Independent business firm, generally needed by SMEs. • Tasks / functions performed: Promotion, selling, servicing, providing information, payment collection. • Paid commission on net sales. • Have selling skills, customer contacts, market knowledge. • Represents a few manufacturers. • (Examples: STI, MMM).
• Independent business firm, representing buyer, seller, or both. • Functions / Tasks performed: bringing buyers and sellers together, providing information, selling. • Paid on commission basis. • (Example: Edible oil).
• Independent business firm, representing manufacturer. • Mainly deal with bulk commodities like iron ore, coal. • Functions / Tasks performed: Arranging inspection, transporting, selling. • Paid commission by manufacturer. • (Example: Kudremukh iron ore company).
• Similar to commission merchant, representing manufacturer of bulk material. (e.g. Coal, iron ore)
• Takes title of the goods they sell, but do not store/deliver. • Goods are dispatched directly from manufacturer to customers, based on orders obtained by Jobbers. • Paid on discount / margin basis.
Value-added Reseller (VAR)
• Independent business firm, from computer hardware and software industry. • Functions / tasks performed: customising computer hardware and software to solve specific problem. • Paid discounts / commissions by sellers / buyers / both. • (e.g. inventory control for steel component manufacturer.
Channel Structure / Channel Alternatives in Business 11(NIS) Marketing
Direct * Sales
Commissi on Merchant s
* Direct sales includes manufacturer’s own sales force thru’ regional / branch sales offices (personal selling). (Examples of direct and indirect channels – Dell/HP, L&T/CGL)
• Deals with developing new and modifying existing channels. • Channel design process includes: 1) Develop channel objectives. 2) Analyse channel constraints. 3) Analyse channel tasks. 4) Identify channel alternatives. 5) Evaluate & select channels and channel structure. • Purpose: To select best possible channel structure to achieve firm’s marketing objectives & goals.
Developing Channel Objectives
• Derived from firm’s marketing objectives. • Focus is on service levels needed by target customers / market segments. • Channel objectives vary based on product characteristics. • (Examples: 1) Materials and parts : steel components. 2) Capital items : furnace. 3) Supplies & services : computer stationary.)
Analysing Channel Constraints
Constraining factors include:
• External environmental factor like legal issues. (3M-MRTP) • Competitive • Company’s • Product tactics constraints of on of exclusive financial technical distributors / dealers. (Al. Extru.) resources. (STI) characteristics complexity. (HTSG)
Analysing Channel Tasks
• Make a list of tasks / functions to be performed by channel participants. • Critical tasks are then identified. • Firm the decides firm, which tasks can or be both. performed effectively and efficiently by intermediaries, (Example: CGL-Electric motors).
Identifying Channel Alternatives
• Channel alternatives/channel structure includes: – Channel participants – Number of intermediaries: Three strategies: • Selective distribution. (e.g. Al. extrusions) • Intensive distribution. (e.g. Lamps / Fans) • Exclusive distribution. (e.g. Hydraulic valves) 3) Number of channels: Use of multi-channels is common (why?) 5) Terms & Conditions of agreements: • Responsibilities and tasks. • Sales policy. • Territory / market segments.
Evaluating and Selecting Channels and Channel Structure
• Criteria / factors used for evaluation are: • Economic • Control • Adaptive • Customer needs • Once the channel is designed, it has to be administered / managed effectively & efficiently.
Administering / Managing Channel Members
It includes: • Selecting intermediaries. • Motivating channel members. • Controlling / managing channel conflicts (NIS). • Evaluating performance of channel members.
• It is a continuous process (How?). • General criteria for selection. • Location • Financial standing • Relevant Experience • Infrastructure • Specific criteria depend on: • Product / market situation • Type of intermediary (Example: MICO/BOSCH)
Motivating Channel Members / Intermediaries
• Understanding perceptions, needs, and conflicts (discuss). • Implementing partnering concept. (e.g. IBM) • Implementing vendor managed inventory (VMI) system. (e.g. Hero Cycles) • Ensuring reasonable discounts / commissions. (e.g. 3M) • Establishing dealer / distribution councils. (e.g. CGL) • Other practices.
Controlling / Managing Channel
Sources of channel conflicts • Differences in objectives, interests, perceptions (examples?) • Dealing with different types of customers (e.g. CGL) • Adequate / inadequate compensation. (e.g. MMM) • Unclear territory boundaries. (e.g. 3M) Managing / controlling channel conflicts • Effective formal / informal communications. (e.g. STI) • Joint superordinate / fundamental goal-setting. (e.g. STI) • Develop vertical marketing system (VMS). (e.g. Royal Classic)
Evaluating Channel Member Performance
• Why evaluate performance of channel members? • Criteria used for evaluation (relevant to a firm) • Sales achieved against sales targets / quotas. • Customer service. • Customer complaints. • New customers generated. • Market feedback. • Use weighted factor method for evaluation
Module-6 Logistics and Customer Service
• Introduction to logistics. • Difference between logistics & supply chain management. • Logistics drivers: • Transportation. • Inventory. • Warehousing. • Order processing. • Material handling.
Logistics and Marketing Logistics
Logistics: It achieves superior customer service at lowest cost by planning, coordinating, integrating mainly transportation, inventory, warehousing activities to make materials available to manufacturing and finished products available to customers. Logistics & Marketing Logistics System:
Raw materials Components Supplies Manufacturing Finished goods storage Business Customers Distributors Marketing Logistics Industrial Manufacturer Material Storage
Marketing logistics (or physical distribution) consists of delivering finished products to customers and intermediaries.
Supply Chain Management (SCM)
Main Objective: To gain competitive advantage by (1) reducing cost, waste, duplication; (2) ensuring superior delivery service; (3) minimising order-to-delivery cycle time. Framework of SCM:
Information Flow Cash Flow
Raw materials & Componen ts Suppliers
Planning, Designin g, Forecasti ng
Productio n/Operati ons
Performance evaluatio ns
Business Customer s or End users
Definition: A network of interdependent firms, cooperatively working together to manage flow of materials, service, information from suppliers to end users. • A firm adopting SCM, integrates suppliers’ suppliers and customers’ customers to achieve objectives. (e.g. STI, TVS, Hero Honda).
What is the difference between Logistics & SCM?
• Logistics integrates various materials flow activities within a firm to achieve its objectives. (e.g. STI: Bokaro Steel) • SCM extends integration to suppliers’ suppliers and customers’ customers to achieve its objectives.
• Usually most expensive among logistics drivers / tasks. • Transportation decisions can affect customer satisfaction, due to: delay in delivery, transit damage, cost. (e.g. Indian Navy) • Decisions include: Selection of Transportation modes & carriers. • Alternative modes: Rail, Air, Truck, Waterway, Pipeline are primary. • Combination/Intermodal transportation: Rail & truck (Piggyback), Waterways & trucks (Fishyback), Water&rail (trainship), Air & trucks (airtruck). • Selection Criteria: Speed, availability, cost, dependability, capability, frequency.
Warehouse decisions include: Number, location, and type of warehouses. Objectives: Improve customer delivery service, increase sales, reduce costs. Decisions on number & location of warehouses depend on: • Market coverage. • Customer delivery service level. • Distribution costs. Types of Warehousing facilities available: • Private: by owning warehouse space. • Public: by renting warehouse space. Selection Criteria: Customer service levels, investments, operating costs.
• Inventory acts as a buffer (or safety) against logistical deficiencies. • Inventory carrying cost includes: (1) storage space charges, (2) cost of capital, (3) taxes & insurance, (4) risk costs. • Inventory decisions: (A) when to order, (b) how much to order. When to order? When stocks reach reorder point, 2PD which is=delivery lead time x average daily EOQ = CV requirement. How much to order? For stable demand conditions, • ,where, P=ordering cost, D=annual demand, C=annual inventory carrying cost, V=Av. Inventory cost.
Order Processing (OP)
• It starts with receipt of customer order and ends when customer receives the ordered product. • Many functions are involved: field sales, marketing, finance, customer service, marketing logistics, ppc, production. • If coordination & communication not effective, OP results in customer dissatisfaction (examples). • How to improve? • Training concerned dept. people. • Group rewards.
Material Handling (MH)
• MH means physical handling of in-coming, out-going, in-process materials in warehouses & shop-floors. • Objectives to be achieved: • Minimise costs. • Increase usable capacity. • Increase speed of operation. • How to achieve? Use sophisticated equipment: (e.g. forklifts, stackers, conveyors, docklevellers).
Module 7: Business Advertising, Sales Promotion, & Public Relations • What is the role of advertising in Business Marketing? • How to manage B2B advertising, publicity, & internet based marketing communications? • What is integrated marketing communications (IMC)? (NIS) • How to measure advertising effectiveness and determine advertising budget? • Why sales promotion? Methods for sales promotion: trade shows, and others. • Role of personal selling in B.M. (Sales force organisation and management). • (Sales territories, quotas,) account management.
• Advertising is less important than personal selling in B.M. • Still it has important role, since it performs key tasks / functions. • Creating awareness among potential buyers. • Reaching unknown/inaccessible buying centre members. • Increasing sales efficiency & effectiveness. • Economical reminder to buyers. • Generating sales leads.
Role of Advertising in Business Marketing (BM)
Managing B2B Advertising
• Selection of media in business ads depends on: • Target audience • Promotional objectives • Expenditure budget (e.g. Star T. M/CS.) • Advertising budget / cost is measured by: cost per thousand circulation in business publication=cost per page / circulation in thousand • General business / trade publications: • Horizontal publications (e.g. Purchase) • Vertical publications (e.g. Textile trend)
What Makes a Business Ad Standout?
• Headline should clearly indicate U.S.P. • Ad copy should describe benefits • Photograph of product / service should be prominent. • Company / dealers names, phones, web sites at the bottom. (Examples?)
• It is a form of marketing public relations (MPR) • Publicity has more credibility & lower cost compared to advertising. (e.g. Wipro – ET) • Major tools used in publicity: • Placing technical articles in trade journals. • It generates sales leads (e.g. Star Group) • It is effective as a part of Integrated Marketing Communications (IMC). (What is
Integrated Marketing Communications (IMC)
• It unites various communication elements / tools into a single campaign. • IMC elements: Ad in trade journals, trade shows, P.R., sponsorships, sales promotion, viral marketing, CD-ROMs, catalogs, etc. • Objectives of IMC: • Cost-effectiveness (limited promotional budget) • Maximum impact • Provides clarity & consistency • Strategy used (to achieve objectives): • Appoint a head of communication / promotion • Build database • Conduct training programmes
Internet-based Marketing Communications
• Internet advertising / Online advertising includes: (It has greater impact than static print ads, as it can include audio and video). • Banner ads: Appear at top of commercial web page. • Rich-media banners: Add animation & interactive games. • Interstitial ads: Whole page ads / pop up boxes. • Out-of-banner ads: Floating ad moves across web page. • Digital coupons: Tied to specific promotions / offer discounts. • Sponsorships: Sponsoring a section of a site.
Other Online Marketing Communications
• Search engine marketing. Firms pay for top placement in a search engine and buy keywords. • Paid listing in portal sites. Firms pay fees for listing in a category to portal site like Google. • Permission-based marketing (PBM). Supports oneto-one marketing / correspondence campaigns through opt-in e-mailing lists to specific recipients, who follow links to a web page for additional information. • Weblogs (Blogs). Loosely structured, free-form sites. Popular with young, Internet-savvy demographic. Nike, Microsoft, Google use blog’s upswing. • Viral marketing. Word-of-mouth ads thru’ the
How to Measure Advertising Effectiveness?
• Why measure/evaluate ad effectiveness? • To find if ad objectives achieved. • To know if ad expenditure done properly. • Marketers to decide in advance (or plan): • What to measure? • How to measure & analyse (i.e. research methodology) • What to measure includes: • Target audience, buying motives, ad message, media plan, ad objectives (awareness, attitude). • Ad measurement / evaluation process includes: • Pre-evaluation / pretesting: before implementation.
Determining Advertising Budget
• Methods used to set an Ad (or Promotional) budget: • Affordable method • Percentage-of-sales method • Competitive-parity method • Objective and task method • In practice, firms use a combination of above methods (e.g. Star Group). • Ad budgets in B.M. are smaller than C.M.
• Why firms use sales promotion methods? • For increasing short-term sales. • For providing incentive to try a new product. • For retaining customer loyalty. • Methods used for Sales Promotion in Business Marketing. • Trade shows / Exhibitions. • Sales contests. • Technical seminars. • Catalogues. • Promotional letters.
• It is an important sales promotional tool. • Firms buy space, set up booths / stalls at trade shows. • They display and demonstrate their products. • Benefits from trade shows are: • Establish contacts with potential customers. • Introduce new products to a large audience in a short time. • Make direct sales. • Evaluate competitors’ products. • Find potential suppliers and distributors. • Generate sales leads. • Challenges: Increasing costs, how much to spend, which trade show to participate.
Role of Personal Selling in Business Marketing
• Personal selling through sales people in B.M. has greater role than in consumer marketing. (How?). • Major roles are: 1) Part of problem-solving capabilities. • Understand clearly customer’s problem and solve it with his product / service. • Give effective customer service. • Convey customer’s feedback to the company. 2) Part of Communication Mix. • Convey selling messages / benefits effectively. • Build relationship with customer.
Sales Force Organisation
• Sales / Sales force organisations are classified into four basic types: • Line Organisation. • Line and staff organisation. • Functional organisation. • Horizontal organisation. • For characteristics, advantages, disadvantages of above, refer to sales & distribution management course / books.
Specialisation within Sales Organisation
• Why it is needed? • Done by expanding basic sales organisation based on following specialisation. • Geographical sales organisation. • Product sales organisation. • Market sales organisation. • Combination sales organisation. • For characteristics, advantages, disadvantages refer to Sales & Distribution Management course/books.
Sales Force Staffing
• The Sales force staffing process includes: • Planning Stage • Recruiting Stage • Selecting Stage • Hiring Stage • Socialisation Stage • (B.U. Syllabus only mentions recruitment and selection. However, above is covered in Sales & Distribution Management).
It consists of three steps: • Establish responsibility – H.R. & Sales Managers. • Decide sales force size – Methods used: • Work load • Sales potential • Incremental • Outline type of salespeople needed – steps involved: • Conduct job analysis. • Prepare job description. • Develop job specifications.
Recruiting Sales Force
• Recruiting process includes: • Finding the sources of sales recruits. • Evaluating and selecting recruiting sources. • Contacting candidates through selected source. • Purpose of recruitment: • To provide a pool of candidates so as to select right candidates. • Recruiting includes activities to get individuals who will apply for the job.
Finding Sources of Sales Recruits
Firms use internal and external sources. Internal Sources •Employee referral. •Current employees. •Promotions, transfers. External Sources
•Ads in newspapers / magazines / journals. •The Internet. •Educational institutions. •Employment agencies. •Job fairs. •Other companies.
• Sources evaluated based on database built over years. • Evaluating factors: • Performance of salespeople, after 2 years working. • % of salespeople retained, after 2 years working. • Total cost of recruiting. • Select most effective source at least cost. • For a new company, select based on cost.
Evaluating & Selecting Recruiting Sources
Selecting Sales Force
• Selection process consists of seven steps: • Screening resumes. • Application blank. • Initial interview. • Intensive interview. • testing. • Reference check. • Physical examination. • Firms differ on above steps, based on time available & expenditure budget.
Selection Process Details • • •
Screening Resumes Done when many resumes are received. If employment agency does initial screening, this step not needed. Screening done by comparing resumes with job specifications. Application Blank (why needed?) Widely used for collecting relevant information. Advantages of application blank: • Easy to compare applications. • Useful for interview sessions.
• • • • Widely used selection method. Purpose: To decide a candidate’s fitness for a job. Initial interviews used for screening candidates. Intensive interviews for getting indepth view of candidates. • Type of interviews / interview structure. • Structured / patterned interviews (How conducted?) • Unstructured / informal / non-directed interviews. (-Do-) • Semi-structured interviews. (How?) • Behavioural & performance based interviews.
• Many firms use (e.g. P&G, IBM). Some don’t (why?). • Purpose: To find if applicants have traits for success in job. • Type of tests: • Aptitude: To measure ability for selling & learning. • Intelligence: To find mental ability / intelligent quotient (IQ). • Interest: To find interest in sales & marketing career. • Knowledge: To measure knowledge of products, markets, etc. • Personality: To find attitude / traits like empathy, self-confidence.
• • •
• • •
Reference Check Importance due to possibilities of resume frauds and false personal information (e.g. Wipro). Done by e-mails / letters / phones / visits. Instead of candidates’ references, previous employees / customers / professors included. Physical Examination Objective: To find physical problem that may prevent job performance. Most companies want prospective employee to undergo physical exam.’ Few firms ask applicant to complete health dealing form, without seeing a doctor.
Hiring Stage After selection process, list of candidates to be hired is made, to perform following activities: • Firm making job offer. (who does?) • Firm persuading applicant to accept it. Socialisation Stage It is a process for new salespeople to learn values / culture of the firm. It starts from recruitment up to assimilation, which is second stage of socialisation. Why socialisation process important (?).
• Why firms consider training important? • Sales Training Process consists of: • Assessing sales training needs. • Designing & executing sales training programme. • Evaluating & reinforcing sales training programme. • For new salespeople, firms’ designs / plans of training programs vary from a few weeks to several months.
Assessing Sales Training Needs
• Done for (1) Newly hired sales trainers, and (2) Experienced / existing salespeople. • Methods used for assessment: • Observation of 1st level sales managers. • Survey of salesforce and sales managers. • Customer survey. • Performance testing of salespersons. • Job description statements. • Salesforce audit (part of marketing audit).
Designing & Executing Sales Training Programme
• Sales managers take 5 decisions: Aim, Content, Methods, Execution, Evaluation: ACMEE. • Aims / objectives of sales training programmes: • Increase sales, profits, or both. • Enhance sales productivity. • Improve customer relationships. • Prepare new salespeople for assignment to sales territories.
Content of Training Programme
• Broader content for new sales trainees. Includes: • Company knowledge (What kind?) • Product knowledge • Customer knowledge (Such as?) • Competitor knowledge (Like?) • Selling skills / techniques (How?) • Specific content for experienced salespersons, such as: • New product knowledge (e.g. CGL-MCCB) • Change in organisation structure (e.g. CGL) • Forecasting techniques (e.g. CGL – East). Content depends on aims of training programme.
Sales Training Methods
Five groups: • Class room / conference training. Methods used: (a) Lecture, (b) group discussion, (c) product demonstration. • Behavioural learning / Simulation. Methods used: (a) Role playing, (b) case studies, (c) business games. • Online training. Methods used: (a) Electronic performance support system (EPSS – information available immediately, in a personalised manner), (b) interactive media training (salespeople can repeat / skip material as desired), (c) interactive distance learning. online training takes 50% less time, 30-60% less costs, more convenient.
1) Absorption Training. • Methods used: Supplying (a) audio cassettes; (b) product manuals, books, articles; (c) CDROMs to salespeople who read/absorb these material. • For introducing basic material / strengthening previous training. 2) On-the-Job Training. • Most companies use this, since sales trainees are in realistic sales situations. • Typically, sales trainee is assigned to a senior salesperson for specific period of time. • Job rotation: For grooming salespeople for management positions.
Selecting Training Method
• Criteria used: (a) topic, (b) audience, (c) active / passive learning. • People generally remember 10% of what they read 20% of what they hear 30% of what they see 50% of what they hear & see 70% of what they say, and 90% of what they say as they do a thing
Organisational Decisions (Part of Designing) Sales Training Programme
• • • • • Who will be the trainees? Who will conduct the training? When should the training take place? Where should the training be done? What will be the budgeted expenditure for the training?
Execution of Sales Training Programme
• Execution / implementation includes: • Preparing time-table. • Arranging internal / external trainers. • Making travel arrangements. • Arranging conference hall, teaching aids, etc. • Obtaining feedback of participants. • Make a final check 1-2 days prior. • Responsibility: Sales training manager / sales trainer.
It is done to improve training design and implementation, and to find if expenditure was worthwhile Framework for sales training evaluation:
What to measure • Training objective • Was training worthwhile? • Knowledge, skills, attitudes • Trainees’ change of behaviour How to measure • Questionnaires •interviews • Tests • Interviews • Self-assessment by trainees • Observation by supervisors / customers • Company data • Management judgement • Market survey When to measure • After the training
Evaluation of Sales Training Programme
Outcomes to measure • Reactions / Perceptions of participants • Learning – knowledge, skills, attitudes learnt • Behavioural change
• After training • Before & after – training • After training, over a period of one year
• Results – • Sales, Profits Performance; Benefits • Customer more than cost? satisfaction
• After training, Quarterly, Yearly
• Behaviour of most salespeople would not change unless there is reinforcement to sales training • In many companies reinforcement or follow-up trainings are not done • Training methods used for reinforcement are: • Refresher training consists of continuous training to overcome deficiencies of experienced salespeople and retraining of salespeople whose job requirements have changed • Web-based or online methods to reinforce formal training sessions • Senior salespeople or first line sales managers coaching new salespersons
Reinforce Sales Training
Motivating Sales Force • What is motivating salespersons? • It is the effort salesperson makes to perform various activities of sales job. • Why it is important? • Because firm’s performance depends on achieving sales volume goal. • Only 10-15% salespeople are selfmotivated. Others need motivation. • Motivation is derived from Latin word ‘movere’, which means ‘to move’.
• Theories relevant to salespeople
motivation are: • Maslow’s hierarchy of needs. • Hertzberg’s dual-factor. • Vroom’s expectancy. • Churchill, Ford, and Walker model of salesforce motivation, as follows:
Motivational Tools / Methods
Financial Tools •Financial compensation plan. •Salary •Commission •Bonus •Fringe benefits •Combination •Sales contests
Non-Financial Tools •Promotion •Sense of accomplishment •Personal growth opportunities •Recognition •Job security •Sales meetings •Sales training programs •Job enrichment •Supervision
• Financial compensation is most widely used tool.
Selecting a Mix of Motivational Tools
• Before selection, sales manager should know and understand each salesperson’s specific needs. • Selection of a mix of motivational tools is a compromise of differing needs of • Customers • Salespersons, and • Company
Compensating the Salesforce
• A good compensation plan should consider objectives from the company’s and salespeople’s viewpoint • Objectives of compensation company’s viewpoint plan from the
• To attract, retain, and motivate competent salespeople • To control salespeople’s activities • To be competitive, yet economical: It is difficult to balance these two objectives • To be flexible to adapt to new products, changing markets, and differing territory sales
Objectives of Compensation Plan from Salesperson’s Viewpoint
• To have both regular and incentive income
• Regular income by fixed salary to take care of living expenses • Incentive income performance for above average
• To have a simple plan, for easy understanding • This is in conflict with the objective of flexibility • To have a fair payment plan • Fair or just payment to all salespeople is ensured by selecting measurable and controllable factors
Develop the Compensation Mix
• Widely used elements of compensation mix are: (1) salaries, (2) commissions, (3) bonuses, (4) fringe benefits (or perquisites) • Expense allowances or reimbursements like travel, lodging, etc are not included • Basic types of compensation plans are: • Straight salary • Straight commission • Combination of salary, commission, and / or bonus • 68 percent companies use combination plan and balance 32 percent firms use straight salary or straight commission • We shall briefly examine above compensation plans
Straight – Salary Plan
• 100 percent compensation is salary, which is a fixed component • No concern for sales performance or salesperson’s efforts • This plan is suitable for sales trainees, missionary salespeople, and when a company wants to introduce a new product or enter a new territory • Advantages: • Salespeople get secured income to cover living expenses • Salespeople willing to perform non-selling activities like payment collection, report writing • Simple to administer • Disadvantages: • No financial incentive to salespeople for more efforts and better performance. Hence, superior performance may not
Straight – Commission (or Commission Only) Plan
• Characteristics: • It is opposite of straight-salary plan • Most popular commission base is sales volume or profitability • Commission rate is a percentage of sales or gross profit • This plan is generally used by real estate, insurance, and direct-sales (or network marketing) industries • Advantages: • Strong financial incentive attracts high performance, removes ineffective salespeople and improves results • Controls selling costs and requires less supervision • Disadvantages:
Characteristics: • Combines straight salary & straight commission plan • Four types of combination plans used by companies: • • Salary plus commission: suitable improved sales and customer service for getting
Salary plus bonus: a bonus is a lumpsum, single payment, for achieving short-term objectives. This plan is used for rewarding team performance Salary plus commission plus bonus: suitable for increasing sales, controlling salesforce activities, and achieving short-term goals. Also suitable for selling seasonal products like fans Commission plus bonus: Not popular. Used for team selling activities for selling to major customers
Combination Plan (Continued)
• Flexible to reward and control salesforce activities • Security for living costs and incentives for superior performance for salespeople • Rewards specific sales performance • Different plans for different sales positions / jobs • Disadvantages: • Complex and difficult to administer • May not achieve objectives if not properly planned, implemented and understood • Indirect payment plan, also called fringe benefits or perquisites, help in attracting and retaining people, but have now come under government tax in India
Evaluating & Controlling Performance of Salespeople
• Purposes / objectives / importance of performance evaluation of salespeople are: • Mainly to find how salespeople have performed • This information is used for other purposes, such as: • Improving salespersons’ performance, by identifying causes of unsatisfactory performance • Deciding salary increments and incentive payments • Identifying salespeople for promotion • Determining training needs • Motivating salespeople through recognition and
Procedure for Evaluating and Controlling Salesforce Performance
The steps involved in the procedure are: • Set policies control on performance of evaluation and
• Decide bases evaluation
• Establish performance standards • Compare actual performance with the standards • Review performance evaluation with salespeople • Decide sales management actions and control We shall describe above steps briefly
Set Policies on Performance Evaluation & Control
Most companies establish basic policies. Examples are: • Frequency of evaluation. Mostly once a year. • Who conducts evaluation? Mainly immediate supervisor • Assessment techniques to be used. E.G. Management by objectives (MBO), 360-degree feedback • Sources of information. Sales analysis, new business reports, lost business reports, call plans, etc • Bases of salesforce evaluation. (next slide)
Decide Bases for Salespersons’ Performance Evaluation
A firm should decide which of the following bases / criteria it would use: (1) result / outcome based, (2) efforts / behavioural based, or (3) both results & efforts based A company selects performance bases or criteria from a list of alternatives, some of them shown below: Quantitative efforts / Qualitative efforts / behavioural bases / criteria behavioural bases / criteria • Customer calls No. of calls per day No. of calls per customer • Non-selling activities overdue payments collected No. of reports sent • Personal skills Selling skills Planning ability Team player • Personality & Attitudes Cooperation Enthusiasm
Quantitative results / outcome bases / criteria • Sales volume • In value / units •Percentage of quota • by products & segments • Accounts / customers New accounts nos. Lost accounts nos.
Establish Performance Standards
• Performance standards are also called sales goals, targets, sales quotas, sales objectives • Performance standards for quantitative results are related to the company’s sales volume or market share goals • Performance standards for efforts / behavioural criteria are difficult to set • For this, companies do “time and analysis” or use executive judgement duty
• Performance standards should not be too high or too low • After establishing standards, salespeople must be informed
Compare Actual Performance with Standards
• Salesperson’s actual performance is measured and compared with the performance standards • For this, sales managers use different methods or forms: • Graphic rating scales • Ranking • Behaviourally anchored rating scale (BARS) • Management by Objectives (MBO) • Descriptive statements • Companies combine some of the above methods for an effective evaluation system
Review Performance Evaluation with Salespeople
• Performance review / appraisal session is conducted, after evaluation of the salesperson’s performance • Sales manager should first review high / good ratings, and then review other ratings • Both should decide objectives / goals and action plan for future period • After the review, sales manager should write about performance evaluation & objectives for the future • Guidelines for reviewing performance of salespersons • First discuss performance standards / criteria / bases • Ask the salesperson to review his performance • Sales manager presents his views • Establish mutual agreement on the performance
• Many companies combine this step with the previous step – i.e. performance review • During performance review meeting with salesperson, sales manager does the following: • Identifies the problem areas. E.G. Sales quotas not achieved • Finds causes. E.G. less sales calls, poor market coverage, or superior performance of competitors • Decides sales management actions E.G. train salesperson, redesign territories, or review company’s sales / marketing strategies • If a salesperson’s performance is good, he / she should be rewarded and recognised
Decide Sales Management Actions and Control
• What is a sales territory? • It consists of existing and potential customers, who are assigned to a salesperson. • Many firms define it as geographical area. • Major Benefits / Reasons of Sales Territories: • Increase market / customer coverage. • Control selling expenses and time (e.g. MMM). • Better evaluation of salesforce performance. • Improve customer relationships. • Increase salesforce effectiveness. • Improve sales & profit performance. (e.g. MMM).
Assigning Salespeople to Sales Territories
Consider two criteria: 2)Relative Ability of Salespeople. • Based on key evaluation factors: (a) Product & market knowledge, (b) past sales performance, (c) selling skills, (d) communication. 3)Salesperson’s Effectiveness in a Territory. • Based on comparison of social, cultural, & physical characteristics of the salesperson with those of the territory. • Objective is to match salesperson to the territory.
• What are Sales Quotas (or Quotas)? • They are sales goals / targets set by a company for its sales / marketing units for a time period. • Sales / Marketing units are regions, branches, territories, salespeople, intermediaries. • Generally, a company’s sales budget is broken down to sales quotas for various marketing units. (Example – CGL). • Objectives of Sales Quotas? • To use as performance standards / goals. • To control performance. (How?). • To motivate salespeople by linking to compensation plans.
Types of Quotas?
• Sales Volume Quotas: (a) Rupees / Dollars, (b) Units, or (c) Points (When appropriate?). • Financial Quotas: (a) Gross margin / net profit, (b) expense. • Activity Quotas: (a) Selling activities, (b) non-selling activities. • Combination Quotas: Combination of few (above) quotas. (How done?).
Setting & Administration of Sales Quotas • Set realistic, but slightly stretchable quotas (e.g. GE). • Ensure salespeople understand quotas. • By their participation in the process. • By continuous feedback on performance vs quotas. • Have flexibility – change quotas if major changes in market / company strategies. • Use monthly / quarterly quotas for incentives and annual quotas for performance evaluation. • Select a few quotas.
(Key) Account Management
• What is a key / major / national account? • Objectives of key account management programme: • To become preferred or sole supplier. • To ensure long-term growth in sales and profits. • Strategies to achieve objectives: • Excellent long-term partnering relationship. • Superior quality product and service. • Special sales and marketing
Special programme / action plan for Key Accounts
• Team selling. • Relationship management. • Support from senior management. (Examples: MMM-TVS, STI-Hero Cycles).
Module – 8 Pricing Decisions in Business Marketing
The module includes: • What is the meaning of price in B.M.?
• Describe the pricing decision process followed in B.M. • Examine the factors which influence pricing decisions. • What are the pricing methods / approaches in B.M. • What are the pricing strategies for different situations: like competitive bidding, across PLC,
Meaning of Price in B.M.
• Business buyers want highest delivered value (HDV). • HDV=Value delivered (or perceived) – cost to buyer. =Benefits – cost to buyer. • Cost to buyer=Price of the product / service + freight + insurance + taxes + installation (if any) + risk of product / service failure + delivery delays. • Benefits = Tangible + Intangible
Pricing Decision Process
Before taking pricing decisions, a firm should do: • Pricing objectives, customer / demand analysis, cost & competitors’ analysis, govt. regulations. (Why?) After above analysis, a firm makes 3 types of pricing decisions. • Pricing methods: for setting prices. • Pricing strategies: for different situations like competitive situation, across product life-cycle. • Pricing policies: such as trade, volume,
Factors Influencing Pricing Decisions (also called Price Determinents) Firms should analyse following factors before making pricing decisions: • Pricing objectives. • Demand (or Customer) analysis. • Cost analysis. • Competitive analysis. • Governmental regulations.
Derived from corporate and marketing objectives. Alternatives are: • Survival (e.g. STI – recession in bicycle segment). • Maximum short-term profits (e.g. CGLTranswitch unit). • Maximum long-term sales (e.g. STI – Steel tubes). • Product – quality leadership (e.g. Blue Star – Central A.C.). • Inline with competition (e.g. CGL – Motors). • Others: avoid government intervention
Demand (or Customer) AnalysisBM/KKH-M8-6
For its product, marketer should analyse: • Price elasticity of demand (PED). (Why?) • Cost-benefit analysis (or customer value analysis). (Why?) PED finds if buyers are • More price sensitive (elastic demand, where PED > 1) • Less price sensitive (inelastic demand, where PED <1) Demand for which industrial products is elastic or inelastic? Marketers should understand how target customers evaluate: • Benefits: Hard (Physical or tangible) and soft (service/intangible).
Cost Analysis / Fundamentals
For profitable pricing decisions • Costs must be identified and classified, since costs set lowest price on price range. (e.g. fixed, variable, total, direct, indirect costs). Marketers must understand concepts of
(1)Economies of scale;
e.g. Hero Cycles, Chinese manufacturers
(2) Learning/Experience Curve
(e.g. CGL – Nagar 10-30% Reduction
C ost Per Unit
Quantity produced per year
C ost Per U nit
(3) Break-even volume=(Fixed costs)/(Selling price / unit – Variable cost / unit) (e.g. Sangam).
Marketers should get competitors’ information: prices, discounts, costs, production, product / service quality, R&D, marketing. (Why?). Sources of competitors’ information? • Salespeople, intermediaries, market surveys, internate, buy & estimate. How to predict competitors’ reactions to price changes? • Study major competitors’ sales, costs, strengths, weaknesses, objectives, strategies, tactics, culture, mind-set. • Reactions: strong, selective, slow, unpredictable. How to respond to competitors’ price changes? (Price follower) (e.g. STI)
• In “free market” economy, govt. enacts some regulations / restrictions. (Why?) • Examples: Price cartels (price-fixing). • Predatory pricing not permitted. (Why?) • Price discrimination on trade / volume discounts to dealers / distributors not permitted. (i.e. Illegal)
BM/KKH-M8-10 Pricing Methods / Approaches in B.M.
Pricing methods, as basis for price setting are: • Cost-plus (or cost-based) Pricing. • Value-based Pricing. • Competition-based Pricing (or Competitive bidding & Negotiation). Cost-plus Pricing • Variable cost+Fixed Cost/Sales Volume+profit margin=Price. • Assumes customer cares about supplier’s costs. • Ignores relationship between price and demand. • Value / benefits of the product not considered. (Examples: Defence / govt. contracts)
BM/KKH-M8-11 Value-Based Pricing • Price is set in relation to the product’s value. • Value (worth)=Benefits/Costs. Steps involved in value-based pricing: • Understand benefits needed by different customer groups / market segments. • Find customers’ costs in using the product. • Determine benefits / costs for different segments. (Examples: STI (Prime/NP); DuPont (ChemicalDifferent quality, service, prices). Competition and Negotiation based Pricing • Setting prices based on competitor’s prices. (price leader). • Negotiated prices similar to “open bidding” for complex (or non-standard) purchases. • Examples: Govt. firms (State Elec. Boards) &
Pricing Strategies • Pricing strategies vary for different product / market situations, like: • Competitive bidding in competitive markets.’ • Pricing new products. • Pricing across product life cycle (PLC). Competitive Bidding Followed mostly for government units / public sector firms. • Orders finalised on lowest price bidders. • Can be closed or open tenders (Meaning?).
Strategy for Competitive Bidding
Called ‘Probabilistic Bidding’, with two assumptions: • Pricing objective of seller is profit maximisation. • Order decided on lowest price bidder by customer. Basic equation: E(A)=P(A)XT(A), where A=Bid price, E(A)=Expected profit at bid price ‘A’, P(A)=Probability of acceptance of bid price ‘A’, T(A)=Profit if bid price ‘A’ is accepted. Most difficult task: to estimate P(A)
Bid Price (Rs) (A)
BM/KKH-M8-14 Example of Competitive Bidding Strategy A govt. closed bid tender for supply of cable joining kits. Tender est. value=Rs. 600 million, 18 # bidders; Firm: Elechem. Total Cost per unit (Rs) (C) 350 350 350 350 350 350 350 350 Probability of Profit (Rs) acceptance T(A)=(A)-(C) at the bid price: P(A) 0.00 0.15 0.40 0.50 0.60 0.85 0.92 1.00 100 80 60 50 40 20 0 (20) Expected Profit (Rs) EA=P(A)xT(A ) 0 12.00 24.00 25.00 24.00 17.00 0 (20.00)
450 430 410 400 390 370 350 330
Elechem quoted: Rs. 400 (maxm. Profit). Tender opening showed: L1=Rs. 330, Elechem was L4 (got only Rs. 0.31 million order). Where it went wrong?
Two alternative strategies available (for a new product in introduction stage of PLC) • Skimming (high initial price) strategy. • Penetration (low initial price) strategy. Skimming Strategy: • Used for distinct / high-tech / capital intensive new product. (High entry barrier). • Initial buyers not price sensitive; Costs & price decline over time period, to meet needs of other market segments (e.g. LCD Projector). Penetration Strategy: • Used for low-tech, low-entry barriers - new product - threat from potential competitors. (e.g. Al. extrusion) • Buyers price sensitive; cost leadership – long-
Pricing New Products
BM/KKH-M8-16 Pricing Across Product Life-Cycle (PLC)
Pricing Strategies in introduction stage discussed earlier. Growth Stage Pricing Strategy: • More competitors enter. More customers use the product. • Marketer faces pressure to lower prices. (What to do?). • Focus on product differentiation & line extension, new segments. (MMM). Maturity Stage Pricing Strategy: • Aggressive competition. Customers do cost-benefit analysis. • Marketer lowers prices to match competition. (CGmotors). Decline Stage Pricing Strategy: • Maintain price, if product/service quality superior to
pricing strategies set basic prices?
• Why pricing policies are needed when • Business customers are different types, buying varying quantities, geographically located at different locations. • To meet these differences, pricing policies developed to adjust basic / list prices through: • Trade, quantity, and cash discounts.
Trade Discounts • Offered to traders like dealers / distributors. • Trade discounts depend on: • Particular industry norms (e.g. motors, steel tubes). • Functions performed by intermediaries (e.g. 3M). • Given on basic (list) price: e.g. List price (Rs 100) less trade discount or margin (10%) =Net Price (Rs 90). • Trade discount to all dealers / distributors should be same. Any variation would violate MRTP / Competition act.
Quantity (or Volume) Discounts BM/KKH-M8-19 • Offered to all types of business customers, who buy large volumes. • Quantity discounts are justified. (How?). • Quantum depend on: demand, cost, competition. • Can be given on individual / cumulative orders. Example:
Size of each order or yearly purchases (in numbers) (in Rupees) Less than 10 11-20 21-30 31 or more Less than 1,00,000 1,00,001-5,00,000 % Quantity Discount on list prices Nil Up to 5
5,00,001-10,00,000 Up to 7.5 More than 10,00,000 Up to 10.0
Why ‘up to’ word used?
• • • •
Cash Discounts Objective: to get prompt payments. Offered to all types of business customers. Who are on credit Usually 2 to 3 %, depending on bank rate of interest. Applicable on gross value of bill, if customer pays within stipulated period of 0-7 days from date of bill / invoice. It should not be given in the bill. (why?). How it should be given?
Deciding how to price customers in different geographic locations. Two methods of price basis: • Ex-factory. • F.O.R. destination. Ex-factory means • Prices at the factory gate. • Freight cost to the buyer. • Distant customers’ landed costs higher. (e.g. MMM). F.O.R. destination means • Prices same for all customers at various locations. • Average freight cost added to basic / list prices.
Chapter-3 Business Buying & Buying Behaviour
Business marketers must understand: • Business • Business buying buying process situations – –
‘buyphases’. ‘buyclasses’. • Buygrid framework – combining above two. • Members of buying centre (or DMU), and
Business marketer must understand: • Organisational buying process has 8 observable and sequential stages / phases, called ‘buyphases’. • Consumer buying process has 5 mental stages. Business Buying Process Consumer Buying Process
1. Problem/need recognition. 1. Problem/need recognition. 2. Decide characteristics & quantity needed. (e.g. C.F.) 3. Develop specifications. 1. Search for suppliers. 1. Information search. 2. Obtain proposals. 1. Evaluate & select suppliers. 1. Select order routine. 1. Performance feedback. 1. Evaluation. 1. Purchase decision. 1. Post-purchase behaviour.
Business Buying Process – Buyphases
Three common types of buying situations, called buyclasses 2. New Task / New Purchase Situation. • Less knowledge & experience of buyer. • Buyer obtains lot of information. (C. R. Mill) • More risk, longer decision time, more people involved. 3. Modified Rebuy/Change in Supplier Situation. • Change in supplier due to supplier’s poor performance (RPG). • Change in specifications. (CG.C.F.) • Search for alternate supplier. (Salesperson to note) 4. Straight Rebuy/Repeat Purchase Situation. • Buyer places repeat orders on existing
Buying Situations – Buyclasses BM/KKH-Ch.33(NIS)
Buyphases (Phases in Buying Process) 1. Problem recognition.
Buyclasses (Buying Situations) New Task Yes
Modifie Straig d ht Rebuy Rebuy May be No May be No May be No Yes Yes Yes Yes Yes No May be No May be Yes
2. Characteristics & quantity of Yes needed item. 3. Description/specification of needed Yes item. 4. Search for and qualifications of Yes potential suppliers. 5. Obtaining & analysing supplier Yes proposals. 6. Evaluating proposals & selection of Yes suppliers. 7. Selection of order routine. 8. Performance feedback & evaluation. Yes Yes
Members of Buying Centre
Buying centre/decision making unit (DMU) / purchase committee have following members, who participate in buying decision process and share common objectives & risks. Top management persons: GM, V.P., Director. Technical persons: Production, R&D, quality control, maintenance, industrial engg. Buyers: purchase/materials executives. Commercial persons: Finance, accounts,
Models of Organisational Buying Behaviour
• Which are the most important factors that influence organisational/business buyers? • Under what situation personal factors become more important than organisational factors? (e.g. Rourkela Steel Plant). • Comprehensive models: • Webster & Wind model. • Sheth model. • Lilien & Choffrey model.
Chapter-4 Buyer-Seller Relationship
Focus of business marketing is on buyerseller relationship. It includes: • A conceptual framework of buyer-seller interaction. (Prof. Sheth’s) • Types of relationships: transactional, value-added, and partnering / collaborative. • Relationship marketing. • Customer relationship management (CRM). • Special dealings: reciprocity, dealing with customer’s customers.
Buyer-Seller Interaction -
Dr. J. N. Sheth’s research: For successful interaction, communication between buyer & seller should be compatible in content & style. (e.g. CGL-K, RJS-K, STI-B). Ideal Inefficient Compatible Interaction Interaction Content Inefficient Interaction Compatible Style No Interaction Incompatible Style Incompatible Content
• Content includes information on company/personal needs. • Styles are: task-oriented, personal/social, selforiented communications.
Types of Relationships
Buying and selling relationships: Transaction Relationship al s firms have a range of
ValuePartnering Relationship Relationship added s s
Transactional Relationships • One-time transaction and relationship. (e.g. Govt. & others) • Price and availability main factors. • Low profitable customers, large numbers, ‘C’ category. Value-Added Relationships • ‘B’ category, medium profitable customers. • Understand and meet customer needs better than competitors – get higher share (e.g. TI: Hero)
• ‘A’ category, high sales & profit potential customers. • Both supplier & buyer should have trust & commitment. • Build strong social, economic, service, technical ties. • Long-term, mutually beneficial relationship. • Joint teams to solve problems – superior value to final customers. • Integrate business processes. (e.g. Automotive industry).
Relationship Marketing (RM)
• Select: high sales & profit potential customers. (e.g. Key accounts, OEM customers, ‘A’ category). • Also applicable to major suppliers & intermediaries. • Focus: long-term, mutually beneficial relationship. • Build strong economic, social, service, technical ties with key parties. • Objective: Superior value to ultimate customer. • Both parties should have trust &
Customer Relationship Management (CRM)
• Improves customer loyalty by offering superior value. • Retain customers by superior customer service. • Develop long-term relationship. • Above result in higher profitability. • Firm invests in CRM system, including software. • CRM system gives up-to-date information to all customer contact employees. • Successful CRM system possible with
Special Dealings Between Business Buyers and Sellers
Two types: • Reciprocity • Dealing with customer’s customers Reciprocity Reciprocal dealings between buyer and seller • Buying from a customer • Selling to a supplier In practice, the process becomes complex (e.g. MMM). Generally disliked by marketing & materials managers. Keep it minimum, if it can not be avoided.
Dealing with Customer’s Customers
• Sometimes business marketers want to deal with their customer’s customers. • It is sensitive matter – may be viewed as interference / not effective (CG-DG Set). • Effective if proper planning & coordination done with customers. (e.g. aircraft engine manufacturers).
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.