Professional Documents
Culture Documents
CHAPTER 1
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Learning Objectives
Understand What is industrial (or Business to Business) Marketing? Know What are the differences in the characteristics of industrial and consumer marketing? Find out Why the demand for industrial goods and services are called Derived demand ?
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It is marketing of products / Services to business firms. In contrast consumer marketing is marketing products / services to individuals & households. What is the difference between industrial marketing, B2B marketing, Business marketing & Organizational Marketing?
(B)
& Consumer Marketing? Basic tasks of marketing are same difference Exists in the characteristics shown next.
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AREAS / CHARCTERISTICS Market IND MARKETS GEO Concentrated Few Buyers CONSUMER MATKETS GEO Disbursed Large no. Of Buyers (Mass Markets Non Technical Standardized Somewhat important Family members involved Physiological / Psychological Social need based buying decisions Non Personal Relationship. Indirect Few Channels with many layers Importance to Advertising. MRP
Channel
Technically Complex Customized Very Important Various Functional specialists involved Mainly Rational buying decisions. Interpersonal relationship between buyers and sellers. More direct Multi Channel Importance to personal selling Competitive bidding / Negotiated prices
Promotional Pricing
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E.G. Steel is demanded for production of consumer durable products like Cars & Refrigerators, which are demanded by household consumers. Hence, Demand for Steel is derived from forecast of consumer demand for Cars, Refrigerators, Washing Machines, Etc.,
SUMMARY OF CHAPTER-1
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Industrial / Business Marketing is marketing of products / services to business firms. Differences between Industrial & Consumer marketing are seen in areas / Characteristics like Market, Product, Buyer Behavior, Channel, Promotion & Price.
CHAPTER 2
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PUBLIC SECTOR UNITS (BHEL) GOVT. UNDERTAKINGS (RAILWAYS, DEFENCE UNITS) PUBLIC INSTITUTIONS (GOVT. HOSPITALS) PRIVATE INSTITUTIONS (SCHOOLS, COLLEGES)
MANUFACTURING UNITS (SUGAR, MILK) CO-OPERATIVE SOCIETIES NON-MANUFACTURING UNITS (BANKS, HOUSING)
F I G . T Y P E S O F I N D U S T R I A L / B U S I N E S S C U S T O M E R S
IM/2-3/10 (B) How are Industrial Products / Services Classified? Classification into 3 Groups shown below.
RAW MATERIALS (IRON ORE, CRUDE OIL) MATERIALS & PARTS (ENTER PRODUCT DIRECTLY) MANUFACTURED MATERIALS (STEEL, FUEL OIL) COMPONENT PARTS (BEARINGS, TYRES) SUB ASSEMBLIES (EXHAUST PIPE IN M.C.) INDUSTRIAL PRODUCTS / SERVICES CAPITAL ITEMS (USED IN PRODUCTION / OPERATIONS) SUPPLIES / SERVICES (TO SUPPORT OPERATIONS) LIGHT EQPT (COMPUTERS, HAND TOOLS) HEAVY EQPT (MACHINES, TURBINES) PLANT/BUILDING (FACTORIES, OFFICES) SUPPLIES (LUBRICANTS, ELECTRICAL ITEMS) SERVICES (LEGAL, COURIER)
IM/2-4/10 (C) Marketing Implications for different types of products & customers?
i.
For Materials & Parts, Direct selling is done to large OEMs (Original Equipment Manufacturers) and users, but indirect selling through industrial distributors / dealers becomes cost effective for smaller volume OEMs and users. ii. For Capital items, Direct selling through company sales force is common, with extensive interactions on technical & commercial factors. iii. For Supplies Industrial distributors / dealers are mostly used but for marketing of services, word-of-mouth plays an important marketing role, with quality & price of service as key factors.
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Business buyers/ Industrial customers follow one of the three purchasing orientations: (i) Buying, (ii) Procurement, or (iii) Supply chain Management. (i) Buying Orientation : The firm with buying orientation follows the practice of (a) selecting lowest price supplier, (b) gaining power over suppliers and (c) avoiding risk of buying from new suppliers. It has a Short-term focus. (ii) Procurement Orientation : The purchasing firm with procurement orientation has a long-term focus. It achieves the objectives of quality improvement and cost reductions by following the practices of (a) collaborative relationship with major suppliers and (b) working closely with other functional areas in the company. (iii) Supply chain Management Orientation : Here, the firm focuses on improving the value chain from raw materials to end users. This is achieved by (a) delivering superior value to end users, (b) outsourcing non-core activities, (c) and supporting collaborative relationships with major suppliers.
IM/2-7/10 (iii) Purchasing in Institutions If the Institute is a Govt. Hospital Purchasing practices of Govt. units Followed Similarly a private School / College follows practices of commercial enterprises However, better to study each major institution. (iv) Purchasing in cooperative societies Similar to Institutional purchase.
Independent Strategies. Cooperative Strategies. Strategic Planning. It Aims at keeping the firm consistently successful in changing marketing environment by market oriented strategic management.
SUMMARY OF CHAPTER - 2
Types /Classifications of Industrial/ Business Customers are (i) Commercial Enterprises, (ii) Government (iii) Institutional, (iv) Cooperative societies.
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Industrial Products/Services are classified into (i) Materials & Parts, (ii) Capital Items, (iii) Suppliers & Services. Marketing strategies differ for different product & Customer types.
Industrial / business Buyers follow one of the three purchasing orientations : buying, procurement, or supply chain management.
Purchasing practices vary for different types of customers. It is important to understand it for each major customer.
Types of environment are Ecological, Physical, Internal, & External, Strategies used for managing changing external marketing environment are : (i) Independent, (ii) Cooperative, (iii) Strategic Planning.
CHAPTER 3
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In Consumer Marketing, Household / Individual consumer / Buyer makes buying decisions based on certain mental stages like (i) Problem (Need) Recognition, (ii) Information Search (iii) Evaluation (iv) Purchase decision (v) Post Purchase Behavior In Industrial Marketing, Buying Decision making process is observable, involving many people in buying firm & includes sequential activities / stages / phases, as follows:
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TOTAL
100
61.5
i. New Task / New Purchase : Here, buyers have limited knowledge and experience of the new product/service. Hence, more information is obtained, more people are involved, risks are more, and decisions take longer time. ii. Modified Rebuy / Change in supplier : This situation occurs when the firm is not satisfied with the performance of existing suppliers, or there is a change in product specs. Hence, the need for searching alternate suppliers. iii. Straight Rebuy / Repeat purchase : Here, the buying firm places repeat orders on suppliers who are currently supplying certain products/services. Such decisions are routine, with less risks and less information needs, and can be taken by junior executives.
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Yes
Yes
Yes
Yes
May Be
No
Yes
Yes
Yes
Yes
May Be
Yes
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Many models have been developed to explain organizational buying behavior. One of the comprehensive models is the Sheth model, described below.
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The Sheth model of industrial buyer behavior, shown below , focuses on (i) Psychological aspects of individual buyers (Component 1), (ii) Conditions causing joint decision making (Component 2), (iii) Conflict among those involved in decision process & resolution of conflict (Component 3).
Situational factors include economic conditions, labour disputes, mergers & acquisitions. The model does not explain their influence on buying process.
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Component (1)
Differences among individual buyers caused by factors : Background of individuals (Education, role & life style). Their information sources. Active Search Perceptual Distortion Satisfaction with past purchases
Component (2)
Variables that Determine if buying decision is autonomous or joint : A) Product Specific Factors : Time Pressure Perceived Risk Type of Purchase B) Company Specific Factors : Company Size Company Orientation Degree of Centralisation
Component (3)
Methods used for conflict resolution in joint-decision making process :
Situational Factors
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Physical, Technological Economic, Cultural Political and Legal Labour unions Customer demands Competitive practices Supplier information
Organisation Variables
Objectives and goals Organisation Structure Purchasing Policies / Procedures Evaluation & reward systems Degree of decentralisation
Choice of Suppliers Delay decision & get more information Make, Lease or buy Do not buy
Individual Variables
Personal Goals, Values Education, Experience Expertise, Job Position Lifestyle, Income
CUSTOMER SERVICE
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Important Customer Service Elements. Carry out market survey to understand which of the following elements of customer service are important to customers, what service levels are expected by customers, the service levels offered by the firm and its competitors. (i) Pre Sales Service : Advising, Informing, Problem solving (ii) During Sales Service : Product availability, ontime delivery, order cycle time, and information. (iii) Post Sales Service : Warranty, AMC, Repair, Installation & Training. Develop superior service package. Test, Set Goals, and Establish Control system
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SUMMARY OF CHAPTER - 3
Industrial marketers should understand that business buyers try to achieve both organizational & personal objectives. Industrial buying decision process consists of eight steps / stages (buyphases) & three types of buying situations (buyclasses). Buygrid model combines buyphases & buyclasses. Marketers must understand roles & key members of buying centre, including key buying influencers. Many factors influence organizational buying behavior, but major factors are organizational ( or task oriented ) objectives and personal (non task oriented ) objectives. The Sheth model of industrial buyer behavior is comprehensive, focusing of psychological & joint decision making aspects. Webster and wind model is also widely used & comprehensive model on buyer behavior.
CHAPTER - 4
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Understand buyer sales rep. interactions. Types/range of relationships between buyer & seller firms. Customer relationship management (CRM) / relationship marketing. Methods used to influence industrial customers.
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Buyer Behavior towards sales rep depends on organizational needs / objectives, buying centre interactions and personal needs. Buyers are not always rational / logical in buying decisions.
Role / behavior of sales rep. depends on his personal needs, and expectations of his boss, peers, customers.
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A buyer and a seller interaction is called Dyadic two persons interactions, with above types of transactions. Content includes organizational and personal needs of a buyer and a seller. Style includes manner and format of communication task oriented, self oriented, or social / personal oriented.
Each business relationship is an exchange process of obtaining a desired product / service by offering something of value is return.
IM/4-05/11 TRANSACTIONAL RELATIONSHIP is typically one time exchange of a product / service, with lowest price / economy and necessity as main factors. Some customers prefer it when many suppliers are available in a stable market. They switch purchases from one supplier to another. Marketers also choose least profitable customers for transactional relationships.
VALUE ADDED RELATIONSHIPS / EXCHANGES. Here the focus is to understand customer needs and meet those needs better than competitors, to get maximum business share. These customers have medium sales and profit potentials and have Procurement Orientations.
IM/4-07/11 CUSTOMER RELATIONSHIP MANAGEMENT (CRM) / RELATIONSHIP MARKETING (RM) Conceptually same, methods / techniques to achieve objectives are different. Both CRM & RM aim at partnering / collaborative longterm relationships for mutual benefits of both parties. CRMS objectives are to improve customer loyalty and there by, companys profitability. For this, marketing strategy is first developed, then investment is made in software system to gather data / information on each valued customer, and the same is made available to all employees to give superior customer service. RM aims at building relationships with key customers, distributors, and suppliers. This is done through financial and social benefits, and in addition, structural ties. After 2-3 years, both firms evaluate their relationship using sales, profits, prices, costs, & technology factors.
IM/4-08/11 METHODS USED TO INFLUENCE INDUSTRIAL CUSTOMERS Major methods : Sales presentation and Negotiation Sales Presentations: For effective sales presentation, a sales person should follow some guidelines : i. Plan and collect information before sales presentation. ii. Identify customer needs and satisfy them better than competitors. iii.Use AIDAS theory or any other theory of selling (Attention, Interest, Desire, Action, Satisfaction) Give importance to prompt customer service.
IM/4-9/11 NEGOTIATION : For negotiation with customers use I win, you win or win win style, with following guidelines : a. Build an environment of trust & understanding. b. Identify the problem areas. c. Both sides work together, pooling ideas, information, and resources. d. Regular frequency of concessions are important and not the size of concessions. e. Be responsive to corrections, if needed. f. Avoid legalistic approach. g. Be polite and humble. h. Importance should be on end results and not on means.
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RECIPROCITY. It means buying a product / service from a customer and selling a product / service to a supplier. It occurs when products are similar and price competition is less. Generally, both purchase managers and sales managers dislike. In practice, the procedure becomes complex. It should be kept at minimum level. DEALING WITH CUSTOMERS CUSTOMERS With coordination and planning, a business marketer can promote its products to customers customer, if a need arises. E.G. Aircraft engine manufactures promote their engines to Air lines (aircraft buyers), in addition to aircraft manufacturers.
SUMMARY OF CHAPTER - 4
BUYER SELLER RELATIONSHIP
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Industrial buyer and sales rep.s interactions depend on their perceptions, behavior, & roles. Interaction between two persons (buyer & seller) is called Dyadic, with various types of transactions, as per Dr. Sheths framework. Buyer and seller firms have various types and range of relationships: transactional, value added and partnering / collaborative. Customer relationship management (CRM) and relationship management (RM) are conceptually same. Both aim at collaborative / partnering long term relationship for mutual benefits of both parties. Sales promotion and negotiation are the major methods used to influence industrial buyers. Reciprocity and dealing with customers customers are the special dealings between a buyer & a seller.
CHAPTER 5
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1. Know Nature and Scope of Industrial Marketing research. 2. Examine the Marketing Research Process. 3. Understand Industrial Marketing Intelligence System.
Scope is vast. Some of the areas are : i. Market share analysis . ii. National and Geographical area-wise market potential. iii. Competitors analysis. iv. New product acceptance and potential
Market Responce
Industrial marketing intelligence system is developed to meet the needs of industrial marketers for timely and continuous information for effective decision making .
SUMMARY OF CHAPTER-5
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Industrial marketing research rely more on exploratory and descriptive (i.e. survey) methods . The scope of industrial / business marketing research is vast . There is no major difference in the process or steps involved in marketing research for consumer and industrial marketing. Industrial marketing intelligence system is developed to meet the needs of business marketing for timely and continuous information for effective decision making.
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CHAPTER 6
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INDUSTRIAL MARKET SEGMENTATION, TARGET MARKETING AND POSITIONING LEARNING OBJECTIVES : 1. Know the Procedure followed for segmenting industrial markets. 2. Identify the Variables (bases) used for segmenting business markets. 3. Evaluate and select the target market segments and strategies. 4. Develop effective positioning strategies.
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Micro Variables. Macro segments are further subdivided into micro segments, if needed. Micro Variables are based on purchasing decisions like (a) Customer interaction needs, (b) Organizational capabilities, (c) Purchasing policies, (d) Purchasing criteria, (e) Personal characteristics. Sequential Segmentation Process. Often, business marketers use more than one variable to subdivide the market.
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Criteria / factors used for evaluating each market segment are : (i) Size and Growth . (ii) Profitability Analysis . (iii) Competitive Analysis . (iv) Company Objectives and Resources
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(ii) Select one or more major benefits (or attributes) to differentiate the company from its competitors .
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(iii) Use Perceptual Mapping Technique. To decide on positioning strategy, this technique is used, after getting customers perceptions through marketing research.
(iv) Communicate Positioning Strategy. The firm should decide and communicate its positioning strategy to target customers, through sales force, advertising in journals, internet, and trade shows
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.A1 .C
Strong Customer Service
1.0 0.8 0.6 0.4 0.2
.D
- 0.2
.B
- 0.4
- 0.6
. A
Perceptual Mapping Technique
- 0.8 - 1.0
SUMMARY OF CHAPTER 6
1.
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2.
3. 4.
5.
Procedure used in market segmentation includes (i) Marketing research, (ii) Data analysis (iii) Profiling each segment. Variables used for segmenting industrial markets include macro variables and if needed, micro variables. Sequential segmentation process is often used. Criteria used for evaluating market segments are (i) size and growth , (ii) Profitability (iii) Competitive analysis (iv) Company Objectives and Resources. Target market strategies are (a) Concentrated or Niche marketing, (b) Differentiated marketing, (c) Undifferentiated marketing strategy Steps used for developing positioning strategy include : (i) Identifying attributes / benefits, (ii) Selecting one / more major benefits, (iii) Using perceptual mapping technique, (iv) Communicating positioning strategy.
CHAPTER 7
PRODUCT STRATEGY & NEW PRODUCT DEVELOPMENT
IM/7-1/20
Learning Objectives 1. Define an Industrial Product. 2. Understand Changes in the product strategy. 3. Know Product Life cycle (PLC) Theory and its application. 4. Develop Product strategies for existing products. 5. Understand new product development. 6. Know impact of technology and high-tech marketing. 7. Learn Marketing of industrial services.
Definition : Its is a physical thing as well as a Complex set of economic, technical, legal and personal relationship between a buyer and a seller.
Meaning of a Total Product Package : It includes basic properties (with fundamental benefits), enhanced properties (with tangible benefits), and augmented properties (with intangible benefits).
In a competitive market, business marketers must understand target customers perceptions of a total product package and offer the same better than competitors.
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Business marketers must understand that a product strategy is dynamic and flexible. It changes due to changes in (i) Customer needs. (ii) Technology. (iii) Government Policies / Laws. (iv) Product Life Cycle.
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Maturity
Decline
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Maturity Stage As competition increases and profits decline, marketing strategy should concentrate on (i) cutting costs, (ii) keeping existing customers satisfied (iii) entering new markets. Decline Stage Since both sales and profits decline, marketing strategy should focus on (i) substantial reduction in costs, (ii) develop a substitute product, (iii) withdraw the product slowly from the market.
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Example : A material handling Co. (i) Product = P (Pallet Truck) Last 3 years average performance figures are Industry sales growth = 25%, Company sales growth = 30% Market Share = 30% (Dominant) , Profitability = As per Target. (ii) Product = S (Stackers) Industry Sales growth = 16% (Stable) ; Company Sales Growth = 15% (Stakers) Market Share = 12% (Average) ; Profitability = Below Target.
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Growth
Decline
Target Above Target Below Target
Stable
Target Above Target Below Target
Target
Above Target
Dominant
Growth
Average Marginal
Dominant
Stable
Average Marginal
Dominant
Decline
Average Marginal
IM/7-10/20
*
1
* A
C
Low Price
IM/7-11/20 Firm As product quality is perceived to be average by customers, compared to its competitors B & C. Firm A should try to move to a new position of superior quality at a reasonable (average) price to improve its profitability.
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(i) Products that are new to the world & innovative. (ii) Products that are new to the company, but not new to the world. (iii) Improvements / Revision to the existing products. (iv) Addition to the existing products. (v) Repositioning existing products to new market segments (vi) Products with substantial cost reductions without reduction in performance.
IMPACT OF TECHNOLOGY
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Technological innovations create new products / services that are new to the world. Examples of these innovations, called break through technology are : (i) Technological inventions of 1940s of vacuum tube and amplifier circuit created new products / services like radio, wireless telegraphy, and telephone service. (ii) Technological inventions of 1950s & 70s of transistor, integrated circuit (IC), microprocessors have applications in new products like TV sets, movie Cameras, Computers, Calculators, Mobile phones, Printers etc., (iii) Digital revolution of information technology and the internet have improved company and consumer capabilities.
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High-tech Marketing
Market Uncertainty
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34%
13% Early Adopters
34%
16% Laggards
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1. 2. 3. 4. 5. 6. 7.
Target a niche market. Plan whole product properties. Develop partnerships. Unique positioning strategy. Effective Communication Strategy Multi Channel distribution strategy. Skimming pricing strategy.
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Marketing Implications Buyers see evidence of service quality Sellers tangibilise the intangible Effective interaction depend on service providers. Requires effective recruiting and training of service providers. Uniform quality is difficult Focus on quality & automation
Examples Management Consultancy & EDPs. Repairs to machines & Courier service.
Demand fluctuates. Use methods to match demand & capacity. Advantages of non-ownership : reduction in costs & flexibility
SUMMARY OF CHAPTER 7
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PRODUCT STRATEGYS & NEW PRODUCTS DEVELOPMENT. Industrial Product is a physical thing and also a complex set of economic, technical, legal and personal relationship between a buyer and a Seller. Product Strategies are changed due to changes in customers needs, technology, government policies or laws, and product life cycle Product life cycle (PLC) concept is used to develop marketing strategies at different stages of PLC. Product strategies for existing products are developed by (i) evaluating the performance of existing products, using product evaluation matrix , (ii) Studying the strengths and weaknesses of existing products, using perceptual mapping technique.
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It means, deciding if a product should be continued, modified, dropped, or replaced. New products are classified into six groups and consist of seven stages of development process :- idea generation, idea screening, concept development & testing, business analysis, product development, market testing, and commercialization. In High tech marketing situation, technology application and market needs are difficult to predict . The technology adoption life cycle is modified to suit high-tech marketing. Unique high tech marketing strategies include targeting a niche market, planning whole product, developing partnership, unique positioning, effective communication , multi channel distribution and Skimming pricing. Industrial services are classified into various groups, and include unique characteristics like intangibility, inseparability, variability, perishability & non ownership.
CHAPTER 8
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Industrial channel structures include both direct and indirect channels. Direct Channels. Examples are direct selling through company sales force and direct marketing through on-line marketing, telemarketing and direct mail. Direct channels are used typically when (i) Transaction value is large, (ii) Technical & commercial negotiations are held at various levels (iii) Buying process takes a long time (iv) Buyers want to buy directly from manufacturers. Indirect Channels. Consists of intermediaries like distributors / dealers, manufacturers reps / agents, value-added resellers (VARs), brokers and commission merchants. Indirect channels are generally used when (i) Value of transaction / sales is low, (ii) The manufacturers resources are limited, (iii) Customers are geographically dispersed, (iv) Buyers purchase many items in one transaction.
Types of Intermediaries
1.
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2.
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3.
4.
Brokers
They bring together buyers and sellers, when information is not available completely. They represent either a buyer or a seller, and their relationship is short term. They do not buy products & services and are paid on commission basis.
5.
Commission Merchants.
They represent sellers / manufactures, mostly with bulk commodities like raw materials, to perform functions like arranging inspection, transporting, negotiating and selling. They are paid commission on the value of sales.
CHANNEL DESIGN
The procedure / steps are as follows;
(i) (ii) (iii) (iv)
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Developing channel objectives; Analyzing channel constraints; Analyzing channel tasks; Identifying channel alternatives. These include the following issues : (a) Types of intermediaries. (b) Number of intermediaries. (c) Number of channels.
(v) Evaluating the channel alternatives. The criteria used are: (a) Economic factor (b) Control factor (c) Adaptive factor (vi) Selection of the channel (s).
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3.
4.
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Main aims of SCM are (i) Reduce cost per unit, (ii) Reduce waste & duplication, (iii) Minimize order to delivery cycle, and (iv) Ensure superior delivery service. Firms adopting SCM gain competitive advantage. The aims are achieved by a network of interdependent firms working together with partnering relationships to manage and control various activities, in order to improve flow of materials and information from suppliers to end users.
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Marketing Logistics (or Physical distribution) consists of delivering finished products to intermediaries and customers.
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TASKS OF PHYSICAL DISTRIBUTION (PD) PD tasks are : (i) Transportation, (ii) Warehousing, (iii) Inventory Control, (iv) Customer Service, (v) Packaging, (vi) Material Handling, (vii) Order Processing, (viii) Communication, (ix) Locations of factory & Warehouses.
Total Distribution cost and customer service are balanced by (i) Minimizing total distribution cost, or (ii) Total systems approach through maximizing profits. Total Distribution Cost = Transportation cost (Freight) + Warehouse cost + Inventory cost + Cost of lost sales due to delayed delivery.
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A firm must minimize total distribution cost, instead of minimizing individual cost elements, to balance customer service and total distribution cost. Another approach, called total systems approach or channel integration focuses on return on investment (ROI). Here, a firms channel members work together to improve customer service, in order to get higher sales revenue.
SUMMARY OF CHAPTER 8
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INDUSTRIAL DISTRIBUTION CHANNELS & MARKETING LOGISTICS. 1. 2. Industrial channel structures include direct and indirect channels. Types of industrial intermediaries are: industrial distributors / dealers, manufacturers representatives (or agents), value added resellers (VARs), brokers, and commission merchants. Procedure of channel design includes: developing channel objectives, analyzing channel constraints and tasks, identifying channel alternatives, evaluating alternatives and selection of the channel (s).
3.
CUSTOMER SERVICE
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Service Quality Gap : Gap between perceived service and expected service. A firm may have a strategy of giving superior quality service than competitors and exceeding customers expectations. Factors that determine service quality by customers are : (i) Reliability (ii) Responsiveness (iii) Assurance (iv) Empathy (v) Tangibles
Strategies followed by successful customer service firms (a) Top management commitment. (b) Setting high-standards of service quality. (c) Monitoring system. (d) Systematic approach to resolving customer complaints. (e) Satisfy both employees and customers .
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IM/8-13C/ Developing customer service levels/ standards Neither all customers nor all products need the same level of service. Steps involved : (i) Conduct marketing research study to find which elements of customer service are important to customers. (ii) Find needs / expectations of customers in quantitative standards for the service elements. (iii) Get information on actual performance of the company and its competitors from customers. (iv) Analyse variance of actual performance with standards. (v) Take corrective actions to minimise the variance. Outstanding delivery service levels are achieved by integrating logistics and through supply chain management.
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4. Managing channel members consist of selecting and motivating intermediaries, controlling channel conflicts, and evaluating channel members. Supply chain management (SCM) includes activities of moving goods from raw material through operations to final consumers. Logistics management optimizes material flow within the firm, but SCM extends integration of material flow to suppliers suppliers and customers customers. Business logistics system includes physical supply and physical distribution (or marketing logistics). To balance total distribution cost and customer service, a firm can use any of the approaches: (i) Minimize total distribution cost, or (ii) Maximize profits (ROI) through channel integration.
5.
6. 7.
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CHAPTER 9
MANAGING THE PERSONAL SELLING FUNCTION
Learning Objectives : 1. Understand the role of personal selling in business marketing. 2. Know the business selling process. 3. Know characteristics of B2B selling , Team selling approach, solution-oriented effort, Entrepreneurial Philosophy. 4. Understand management of major and national accounts.
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No magic formula for making a sale. But chances of making a sale improves, if the following sales process is followed. The major steps in selling process are : (i) Prospecting. It is searching or identifying prospective or likely customers from various sources. (ii) Qualifying . Prospective customers are screened by qualifying criteria like expected volume, location & financial strength. (iii) Preparation / Pre-approach. Sales person should prepare plan before making sales presentation by obtaining all relevant information about the customer and competitors through personal visits and websites.
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(iv) Sales Presentation / Approach . Different methods are used like (AIDAS Approach Attention, Interest, Desire, Action, Satisfaction), or need satisfaction method. (v) Overcoming Objections . Often prospects raise objections, which are real or practical and psychological or hidden. These should be answered satisfactorily by the sales person. (vi) Closing. Asking for an order or closing the sale is important. Sales person can use some of the closing techniques. (vi) Post - Sales service and Follow-up This includes delivery, installation, training, payment collection, warranty service, and rejections /returns.
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1. Promotional strategy focuses more on personal selling through companys sales force. Hence, salespersons are active in getting orders. 2. Adverting is used as a support to personal selling. 3. The sales person sells technical and non-technical products, and uses problem solving approach 4. Typically, it takes a long time to know outcome of sales efforts. 5. System selling approach is used by some business marketers, as it is preferred in some large industrial projects or contracts. 6. Team selling approach is used for major customers and large value orders.
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Two major roles of personal selling : (1) A part of problem-solving capabilities, (2) A part of communication ( or promotional) mix. A sales person is a part of selling firms problemsolving abilities. He should identify and analyse the buying firms problem. He should then show how his companys products and services can solve the buyers problems, better than competitors. This is called solution-oriented effort or approach.
Intrapreneurial Philosophy
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Intrapreneurship means entrepreneur within a company. When sales and marketing persons, who are employees, behave and act like owners of the company, they have adopted entrepreneurial philosophy. Such persons take initiative, are proactive and creative, and give superior value to customers. Firms that follow Intrapreneurial philosophy show consistently good performance.
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Small
Complexity of customer
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A major account has a large sales (and profit) potential and is simple to serve or manage, as the customer has only one unit . A national account has also a large sales (and profit Potential), and is complex or difficult to serve, because operating units re geographically dispersed. In addition, for small value items operating units are autonomous, but for large value items, buying is centralized.
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Objective. To become the preferred or sole supplier with adequate profits. Strategy / plan. Team selling. For a major customer, the team should include branch / regional managers, sales representative and technical support person. For a national account, the team consists of a national accounts manager, branch sales representatives, logistics executive, and technical person. Relationship marketing. The teams build long-term collaborative or partnering relationships by using approaches like financial and social benefits, and structural ties. Support from top management and functional executives should be assured.
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SUMMARY OF CHAPTER-9
Personal selling has a greater role in business marketing than consumer marketing. Business selling process consists of prospecting, qualifying, preparation (or pre-approach), sales presentation (or approach), overcoming objections, closing, post-sales service and follow-up. B 2 B selling characteristics include problem solving, systems selling and team selling approaches. Intrepreneurial philosophy results in consistently good performance. Management of major and national accounts is done by team selling, relationship marketing and support from top management and functional managers.
IM/10-1/10
Learning Objectives : 1. Develop an effective communication (or promotional) program. 2. Understand the role of advertising 3. Understand the importance of sales promotion, publicity, public relation (PR), and direct marketing.
IM/10-2/10
The steps involved are : (i) Decide communication objectives. (ii) Identify the target audience. (iii) Decide the promotional budget. (iv) Develop the message strategy. (v) Select the media. (vi) Evaluate the promotions results. (vii) Integrate the promotions programme.
Sales Promotion
Trade shows Exhibitions Catalogues Sales Consents Promotional novelties (gifts) Seminars Demonstration Promotional letters Entertainment
P. R. and Publicity
Charitable donations Adopting villages Community relations News item in press Technical articles in journals
Direct Marketing
Direct mail Telemarketing On-line marketing
Personal Selling
Sales calls Sales presentations Team selling Relationship marketing
While advertising is relatively less important than personal selling in business marketing, it is used as support to personal selling. The functions performed by advertising are
Creating awareness. Reaching members of buying center. Increasing sales efficiency and effectiveness. Efficient reminder media. Sales lead generation. Support channel members.
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IM/10-7/10
IMPORTANCE / ROLE OF DIRECT MARKETING (DM)
Definition Direct marketing is an interactive marketing system that seeks a measurable response and /or transaction. Direct marketing is also referred to as direct response marketing. Benefits For business marketers, benefits of DM are many : Can personalise / customise communication messages, builds a continues relationship with each customer, can measure responses from alternative media, and direct relationship marketing company strategy less visible to competitors. Main Channels or tools of DM. Direct mail, telemarketing and online marketing. In addition, kiosk marketing and catalog marketing are also DM channels, but are less popular in India. Direct mail is not only paper based postal service or courier service, but can be fax mail, e-mail, or voice mail. Direct marketers send not only letters, but also audio and videotapes, CDs, and diskettes. Response rate is about 2%.
IM/10-8/11 Telemarketing uses telephone to contact existing customers, to attract new customers, or to take orders. Telemarketing gives immediate feedback, identifies and qualifies prospects, and reduces sales force travel costs. Both inbound (incoming calls from prospects / customers) and outbound (out going calls) are important. Practice, training, pleasant voices and right timing (late morning to afternoon) are needed for effective telemarketing.
On-Line Marketing can be done by establishing an electronic presence (by opening own website or buying space on a commercial on-line service), placing ads online, and using e-mail. A web site should be attractive on first view and interesting enough to encourage repeat visits. Marketers use on-line marketing to find, reach, communicate and sell to business customers.
IM/10-9/11
Major Benefits to marketers are: Lower costs, relationship building and quick adjustments to changing market conditions. Major Benefits for buyers are: convenience, information availability, and less hassle. Although small & medium size marketers can reach global markets at affordable costs, there is chaos and clutter as the internet offers millions of web sites, and also as concerns on security and privacy
IM/10-10/11
Summary of Chapter 10
IM/10-11/11
Steps involved in developing an effective communication programme for business markets are (i) decide communication objectives, (ii) identify the target audience, (iii) decide the promotional budget, (iv) develop the message strategy, (v) select the media, (vi)evaluate the promotions results, (vii) integrate the promotional Programme. Advertising is used in business marketing mainly as a support to personal selling. Media used for industrial advertising are: business publications, trade journals / Publications, and industrial directories. Sales promotion consists of short term incentive tools to stimulate greater or faster purchase of a product / service by business customers. Direct marketing and publicity ( also called as marketing public relations MPR) have important roles. However, public relations (PR) tends to neglect marketing objectives, since it has to deal with several category of people.
IM/11-1/29
CHAPTER 11
INDUSTRIAL (BUSINESS) PRICING STRATEGIES & POLICIES
Learning Objectives 1. Understand the special meaning of price. 2. Know the factors that influence pricing decisions, i.e. price determinants. 3. Understand pricing strategies for different product/market situations. 4. Examine the pricing policies for various types of customers. 5. Understand the role of leasing.
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SPECIAL MEANING OF PRICE Some business customers follow Valuebased pricing by evaluating, suppliers offerings based on the concept of the suppliers offering equal to the difference between the perception of value (or benefits) and the cost to the buying firm. These are value buyers, and marketers should attempt to have value added relationship, if suppliers have purchasing orientations. Perception of value in value-based pricing is made up of several elements like
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Cost to the buying firm includes basic Price, freight, transit insurance, installation, risks of product failure, delayed delivery, etc, Some customers are price buyers. Marketers, should follow transactional relationships & offer basic properties. Some other buyers are loyal buyers, for whom marketers should follow relationship marketing with partnering / collaborative approach and mutually acceptable prices.
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Pricing strategies
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(i) Pricing objectives, (ii) customer analysis, (iii) cost analysis, (iv) competitive analysis, (v) Govt. policies. 1. Pricing Objectives Are derived from corporate and marketing objectives. Some of the pricing objectives are survival, maximum short term profits, maximum short term sales, maximum sales growth, product quality leadership, etc.
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2. Customer (Demand) analysis It includes demand analysis & cost - Benefit analysis (i) Demand analysis. Using experimental research, it measures relationship between price and demand (or sales volume). It sums up how sensitive customers are to the price changes. The formula is:
= % change in quantity demanded % Change in price
If PED is > 1, demand is elastic, & customers are price sensitive If PED is < 1, demand is inelastic, customers are less sensitive to prices.
IM/11-8/ 29 (ii) Cost Benefit Analysis Necessary to know target customers perceptions of benefits (or value) and costs. Benefits are categorized into hard (or tangible) benefits like quality, production rate, performance, etc. and soft (or intangible) benefits like customer service, company reputation, warranty period, etc. Cost includes price, duties and taxes, freight, installation, maintenance.
3. Cost Analysis.
A firms total cost of a product is the lowest point on the price range. Hence, for pricing decisions, the marketer must know the various types of costs like fixed, variable, total, direct, etc. for a product / service. Costs vary based on production capacity (i.e. economies of scale), and accumulated experience (i. e. learning curve) as shown.
Economies of Scale
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Accumulated Production
IM/11-10/ 29 Break - Even Analysis is useful to consider different prices (P1, P2, P3), and its effect on sales revenue and profits.
Sales Revenue at P3 Sales Revenue at P2 Sales Revenue at P1 Total Cost Fixed Cost Sales Volume
4. Analyzing Competition Many marketers have competitive level Pricing as a pricing objective. Marketers should get Competitors prices, discounts, costs, product quality, service, etc for cost/benefit analysis, pricing and positioning strategy. Competitors information can be obtained from various sources.
IM/11-11/ 29
5. Government Regulation/Policies Govt. regulations are necessary to ensure fair play and to protect consumers and small scale suppliers. Price-fixing / price cartels, price discrimination (e.g. different discounts to distributors/dealers), and predatory pricing (e.g. dominant firm aiming to finish competitors) are not permitted (illegal as per MRTP act, for example)
IM/11-12/ 29
PRICING STRATEGIES
Pricing strategies vary as per product-market situations such as (i) Competitive bidding in competitive markets, (ii) New product pricing, (iii) Pricing across product life-cycle.
IM/11-13/ 29
In closed bidding, often used by the Govt. buyer, sealed bids are invited through newspaper tender notices. Sealed bids are opened in presences of suppliers and orders are placed on the lowest price bidder(s). In open bidding, after receiving bids (quotations), the buyer negotiates technical and commercial parts with suppliers, and then places orders. This method is often followed by commercial enterprises in private sector .
One of the often used strategies is Probabilistic Bidding, which makes two assumptions : (i) Pricing objective is profit maximizations, (ii) Lowest price bidder will get the order. Equation used : E (A) = P (A) x T(A), where A=Bid price, E(A) = Expected profit at bid price A, P(A) = Probability of winning (or getting order ) at the bid price A, T(A) = profit, if bid price A is accepted.
Rs.60 corers tender from Dept. of Telecomm. (DOT) for underground cable jointing kits. The company ghosted Rs.400/- per kit (expected maximum profit). Tender opening revealed, it was L4.L1 was Rs. 330/-, L2=350, L3=Rs 380/- The company estimates of B and P(A) were incorrect.
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In the introduction stage of a new product, two alternative pricing strategies are available (i) Skimming (high initial price) strategy, and (ii) Penetration (low initial price) strategy. Skimming Strategy is appropriate for a new product that is distinct, hightech, or capital intensive, and purchased by a market segment that is not sensitive to the initial high price. The advantage is faster recovery of investment by generating larger
IM/11-17/ 29 Penetration strategy is appropriate when (i) buyers are highly price sensitive, (ii) strong threat exists from potential competitors (due to low entry barrier). The selling firms objective is to achieve long term profits through high market share. The firm can also achieve cost leadership thru economies of scale and experience curve, which gives competitive advantage.
IM/11-18/ 29 (c) Maturity stage. The firm may cut the prices to match aggressive competitors prices by giving volume discounts, absorbing freight costs, or more credit. If industrial customers do cost - benefit analysis, a selling firm may increase prices or not make any change in prices due to its superior product quality. (d) Decline stage. Pricing strategy varies depending on conditions. (i) If buyers perceptions about the firms quality of product / service is good, then the price need not be lowered, but costs should be reduced to earn profits, (ii) if the quality of product / service is equal of lower than competitors, a firm may cut prices, to increase sales volume above break even volume, (iii) if some competitors have withdrawn, a firm may selectively increase prices to less price sensitive segments.
IM/11-20/ 29
A marketer should respond after answering the following questions. (i) Why the competitor has changed the price? (ii) Is the price change temporary or permanent? (iii) What will happen to the companys sales and profits, if it does not respond. (iv) What would be the reactions of other competitors. The responses can be in several ways: (a) maintain price and value (benefits), (b) match competitors price, (c) develop and launch low-price product item, (d) maintain price. The right response depends on the business situations faced by the firm.
PRICING POLICIES
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Purpose. A firm evolves pricing policies to adjust basic prices (or price list) for different types of customers (like OEMs, users, and dealers) who buy various quantities and are located at different locations. The price list is adjusted with different types of discounts and allowances. Price list is a statement of basic prices of a product, having various sizes/specifications. Net price = price list (or list-price) less discount (or allowances). Business buyers are more interested in net price Types of discounts : Trade, quantity (or volume), and cash. Trade discounts. It is offered to traders or intermediaries (dealers / distributors / stockiest ) and it should be equal and sufficient (as per industry norms or functions performed). e.g. price list (100) trade discount (15) = net price (85)
IM/11-22/ 29 Volume / Quantity discounts. Here, the objective is to encourage customers to buy larger quantities, which would reduce the costs of selling, inventory carrying and transportation. The quantity (or volume) discounts are given either on single orders over a period, usually one year (cumulative basis). For example,
or or or or or
% Quantity Discount
Nil upto 3 upto 6 upto 10
Above discounts are applicable for all types of customers OEMs, users, and dealers / distributors.
IM/11-23/ 29 Cash Discounts. The objective is to get prompt payments. If a credit customer pays the bill before dispatch or within 7-days of dispatch, the customer is given cash discount on the gross amount of bill. The extent of cash discount depends on the bank rate of interest. Give cash discounts thru credit notes and the cheques, instead of including it in the bills.
Geographical Pricing
It includes decisions on how to price the companys products to customers located in different geographic areas. There are two alternatives :
IM/11-24/ 29 (i) Ex Factory Pricing. It means prices quoted are based on the prices at the factory gate, i.e. freight ( transportation costs) and transit insurance costs are to the customers accounts. Hence, the landed price (or costs) to customers vary depending on their geographic locations. (ii) F.O.R. Destination Pricing. Here, the quoted prices include freight costs. Transit insurance is a small amount to be covered by the customers open insurance policy. Hence, all customers get the product almost at the same price, despite different geographic locations. Marketer adds the average freight cost to the basic prices and then prepares the price list, or absorbs the freight cost, if competition demands. Taxes and Duties. Knowledge of excise duty, sales tax, octroi, entry tax, road permits etc is essential for sales and marketing persons, since they have an impact on the
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ROLE OF LEASING.
Business buyers have options of either leasing or buying capital items like machinery. The advantages for the lessee (asset user) are : (i) conserving capital, (ii) gaining tax advantages, (iii) getting the latest products. The lessor (asset owner) often earns good income from buying firms who can not afford outright purchase. A lease is a contract (or an agreement) by which the asset owner (lessor) gives the right to use the asset to another party (lessee) in return for payment, over a specified period.
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Types of Leases : (i) Financial (or full payment) leases, and (ii) operating (service or rental) leases Financial leases. These are full payment, non - cancellable, long - term contracts and fully amortised (sum of lease payments > purchase price of capital item)
IM/11-27/ 29 Operating Leases are service/rental leases, that are cancellable, short-term contracts or agreements, and are not fully amortised. The rates are higher than those of financial leases, because risk of obsolescence are of the lessor Pricing Strategy It is based on the firms marketing and pricing objectives. Three possible alternatives are : (i) Decide lease rate to favor leasing (ii) Decide lease rate to favor outright purchase (iii) Achieve balance between lease rate & sale rate. Some business marketing firms have representatives for giving financial consultancy services to buying firms on leasing or buying.
IM/11-28/ 29
SUMMARY OF CHAPTER 11
In business marketing, price has a special meaning. For value buyers, value based pricing is appropriate. Factors that influence pricing decisions (or price determinants) are: (i) pricing objectives, (ii) customer analysis, (iii) competition analysis, (iv) cost analysis (v) government regulations/policies Pricing strategies for different product-market situations are: (a) competitive bidding in competitive markets, (b) new product pricing (c) pricing across product life cycle.
IM/11-29/ 29
Initiating price changes and responding to competitors price changes are also parts of pricing strategies Pricing policies include adjustment of basic prices (or price list) with different types of discounts like volume, trade, and cash, as well as geographical pricing. Leasing or buying options are available to business buyers for capital items like machinery. Financial and operating are two types of leases. Pricing strategies are made either to favour leasing or outright purchase, or balance between leasing and buying .
IM/12-1/19
CHAPTER 12
STRATEGIC PLANNING, IMPLEMENTING, AND CONTROLLING IN INDUSRIAL MARKETING Learning Objectives Understand the characteristics of market oriented organization. Know the role of marketing in strategic planning Examine the strategic planning process at business unit level. Understand preparation implementation and control of industrial (or business )marketing plan.
IM/12-2/19
Hierarchy of Strategies
IM/12-3/19
Before understanding the role of marketing in strategic planning, we shall first examine hierarchy of strategies.
Organisational Levels Corporate Divisional / Business Unit / SBU Functional Production Marketing Finance Organisational Structure Corporate Office Strategy hierarchy (Type of Management)
Divisional/ Business Strategy (Strategic Management) SBU III Functional Strategy (Operations Management)
SBU I
SBU II
IM/12-4/19 The earlier figure shows hierarchy of strategies and organization structure of a large company. Strategic management gives a direction to the firm and focuses on developing strategies to achieve long term objectives & goals A Strategic business unit (SBU) consists of an independent business or related business that has its own competitors and specific markets. In some large companies there are (product ) divisions and each division has a divisional plan. Each SBU is headed by a manager who is responsible for strategic planning and performance of the SBU. Operational Management maintains the direction given by strategic management, and concentrates on day-today issues of costs, revenue and profits.
IM/12-5/19
To carry out customer & competition analysis, for developing business strategy, including competitive advantage, segmenting, targeting, and positioning strategies.
To develope short - term marketing Marketing Funcitonal Management plan and strategy, coordination, and resource allocation.
Strategic Marketing
To carry out customer & competition analysis, for developing business strategy, including competitive advantage, segmenting, targeting, and positioning strategies. To develop short - term marketing plan and strategy, coordination, and resource allocation.
Functional
Marketing Management
STRATEGIC PLANNING PROCESS AT CORPORATE LEVEL The major steps involved are 1. Deciding corporate mission and objectives. 2. Establishing strategic business units ( SBUs.) 3. Allocation of resources to SBUs. 4. Developing corporate strategies. ALLOCATION OF RESOURCES TO SBUs. Two widely used models /tools are : (i) Boston Consulting group (BCG) model, called Growth share matrix, (ii) General electric (GE) model, called Business Screen matrix.
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IM/12-7/19
Question marks
5 3
Cash Cow
6 8
Dogs
Slow
1
Large
2
Small
High
Selectivity / Earnings
Medium
Low
IM/12-9/19
Major Business Strength factors : Market share, product quality, unit costs, R&D performance, brand reputation, share growth. Major Market Attractiveness factors : Overall market size, annual market growth rate, historic profit margin, competitive intensity, technological requirements.
IM/12-10/19
Sales
A B C
Projected Sales
Time (Years)
IM/12-11/19 The strategic planning gap can be filled by three alternative strategies : (A) Diversification growth, (B) Integrative growth, (C) Intensive growth
(C) Intensive Growth Strategy. Corporate management should first review existing business, using Ansoffs product-market expansion grid, shown hereafter :
Current Products Current Markets New Markets Market Penetration Strategy Market development Strategy
IM/12-12/19
( B) Integrative Growth Strategy includes increase in a firms sales and profits by integrating backward, forward, or horizontally within that industry.
(A) Diversification growth strategy is considered when (B) & (C) strategies are inadequate to achieve desired growth and also good opportunities are found outside the present businesses.
IM/12-13/19
The following steps are followed by the business unit head. 1. Defining the business units mission. 2. Scanning the external environment (O.T. Analysis) 3. Analyzing the internal environment (S.W. Analysis) 4. Developing objectives and goals. 5. Formulating strategies (See hereafter)
IM/12-14/19
Low - cost position Industry wide Particular segment only Overall cost leadership Focus
Differentiation
IM/12-15/19
IM/12-16/19
Situational analysis. Market, competitive, product, and macro environmental analysis. SWOT and Issues analysis Marketing Objectives and goals Marketing Strategy. Selection of target market segments, positioning, marketing mix, customer service and marketing research. Action plans / Tactics Marketing Budget Implementation and control. Building marketing organization and control process. Contingency plan.
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IM/12-18/19
SUMMARY OF CHAPTER 12
Marketing orientation is achieved by firms by managing shared values, organization structure, policies and cultures, strategic planning, needs and expectations of stakeholders. Before understanding the role of marketing in strategic planning, it is necessary to examine hierarchy of strategies. Major role of marketing is at business unit and functional levels, and less at corporate level. Strategic planning process at corporate level includes corporate mission & objectives, establishing and allocation of resources to SBUs and developing corporate strategies.
IM/12-19/19
Strategic planning process at SBUs level includes mission, SWOT analysis, objectives and goals, strategies, action plan, implementation and control. The marketing head should go through marketing planning process, before preparing the marketing plan. Implementation and control of marketing plan are important for achievement of marketing objectives and goals.