This ppt has all the chapters from Krishna K Havaldar.

But we have only Chapters 1,2,3,4,7Hope this helps ;)

CHAPTER 1

THE NATURE OF INDUSTRIAL MARKETING

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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(A) What is Industrial (Business) marketing? It is marketing of products / Services to business firms. In contrast consumer marketing is marketing products /

services to individuals & households.

(B) What is the difference between industrial marketing, B2B marketing, Business marketing & Organizational Marketing?

No Difference!(C) What are the differences between Industrial

& Consumer Marketing? Basic tasks of marketing are same difference Exists in

the characteristics shown next.

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AREAS / CHARCTERISTICS IND MARKETS CONSUMER MATKETS Market GEO Concentrated

Few Buyers GEO Disbursed Large no. Of Buyers (Mass Markets

Products Technically Complex Customized

Non – Technical Standardized

Service Very Important Somewhat important Buyer Behavior Various Functional

specialists involved Mainly Rational buying decisions. Interpersonal relationship between buyers and sellers.

Family members involved Physiological / Psychological Social need based buying decisions Non – Personal Relationship.

Channel More direct Multi Channel

Indirect Few Channels with many layers

Promotional Importance to personal selling

Importance to Advertising.

Pricing Competitive bidding / Negotiated prices

MRP

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(D) Why Industrial Demand is called “Derived Demand” ?

Because Industrial demand is derived from (or depends on) demand for consumer goods / services.

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.,

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SUMMARY OF CHAPTER-1

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.

Industrial Demand is derived from demand for consumer goods / services.

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CHAPTER 2

 UNDERSTANDING INDUSTRIAL MARKETS AND ENVIRONMENT

LEARNING OBJECTIVES• Understand the types of industrial customers as well as

industrial goods and services.• Know the marketing implications for different types of

customers and products.• Understand the purchasing orientations and practices of

industrial customers. • Know types of environment and strategies to manage

external environment.

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(A) What are the types/classifications of Industrial/Business customers? INTERM EDIARIES /

M IDD LEMEN (DISTRIBUTORS)

OEM S

USERS

PUBLIC SECTO RUNITS (BHEL)

GO VT. UN DER TAKING S(RAILW AYS, DEFENCE U NITS)

PUBLIC INSTITUTIO NS(GO VT. HO SPITALS)

PRIVATE INSTITUTIO NS(SCHOO LS, CO LLEGES)

M ANUFACTURIN GUNITS (SUG AR, M ILK)

NO N-MANUFACTURINGUNITS (BANKS, HO USING )

CO MM ERCIALENTERPRISES

GO VER NMENTCUSTOM ER S

INSTITUTIO NALCUSTOM ER S

CO -O PER ATIVESOCIETIES

INDUSTRIAL / BUSINESSCUSTOM ER S

FIG . TYPES O F INDUSTRIAL / BUSINESS CUSTOM ERS

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FIG. CLASSIFICATION / TYPES OF INDUSTRIAL PRO DUCTS / SERVIC ES

(B) How are Industrial Products / Services Classified?Classification into 3 Groups shown below.

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RAW MATERIALS (IRON ORE, CRUDE OIL)

MANUFACTURED M ATERIALS (STEEL, FUEL OIL)

COMPONENT PARTS (BEARINGS, TYRES)

LIGHT EQPT (COMPUTERS, HAND TOOLS)

PLANT/BUILDING (FACTORIES, OFFICES)

SUPPLIES (LUBRICANTS, ELECTRICAL ITEMS)

SERVICES (LEGAL, COURIER)

MATERIALS& PARTS(ENTER PRODUCTDIRECTLY)

CAPITAL ITEMS(USED INPRODUCTION /OPERATIONS)

SUPPLIES /SERVICES(TO SUPPORTOPERATIONS)

INDUSTRIAL PRODUCTS /SERVICES

SUB ASSEM BLIES (EXHAUST PIPE IN M .C.)

HEAVY EQPT (MACHINES, TURBINES)

(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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(D) Purchasing Orientations of Business Buyers• 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.

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(E) Purchasing Practices of Different Types of Industrial / Business Customers

(i) Purchasing in commercial enterprises • Involve Technical & Commercial depts.• Major Tasks / Procedure: identifying, negotiating, selecting suppliers,

building relationship.• Purchasing to improve operational efficiency & contribute to firm’s

competitive advantage. (ii) Purchasing in Govt. units• DGS&D agency finalizes rate contracts for standard products for

Govt. units.• Main Tasks / Procedure : Registration of the firm & its Products,

Tender Advertisements, no negotiation in “ Open” tenders, negotiations done in closed / limited tenders.

• Orders Finalised on lowest bidders (suppliers offering Lowest prices / Landed Costs)

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(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.

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(E) Types & Analysis of Environment IM/2-8/10AIR & W ATER POLLUTION

SOLID WASTE DISPOSAL

CONSERVING NATURAL RESOURCES

WATER, POWER, TRANSPORTATION

COMPANY LOCATION, IMAGE / REPUTATION

R & D & PRODUCTION FACILITIES

ECOLOGICAL

PHYSICAL

INTERNAL(S&W ANALYSIS)

MICRO(AFFECTS APARTICULAR FIRM)

ENVIRONMENT

LOW-COST, SKILLED MANPOWER

H R & FINANCIAL RESOURCES

MARKETING EFFECTIVENESS

CUSTOMERS & COMPETITORS

SUPPLIERS

ECONOMIC

TECHNOLOGICAL

GOVT., POLITICAL, LEGAL

CULTURAL & SOCIAL

PUBLIC - PRESS, SHAREHOLDERS, INVESTORS &PUBLIC INTEREST GROUPS

EXTERNAL(O&T ANALYSIS)

MACRO(AFFECTSALL FIRMS)

(F) Strategies for Managing Changing External Environment.

(i) Independent Strategies.(ii) Cooperative Strategies.(iii) Strategic Planning. It Aims at keeping the firm

consistently successful in changing marketing environment by market oriented strategic

management.

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SUMMARY OF CHAPTER - 2 Types /Classifications of Industrial/ Business Customers are

(i) Commercial Enterprises, (ii) Government(iii) Institutional, (iv) Cooperative societies.

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.

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CHAPTER – 3

THE NATURE OF INDUSTRIAL BUYING AND BUYING BEHAVIOUR

Learning Objectives

• Understand Organizational buying objectives.• Gain knowledge of buying activities, including different

phases in buying decision process, types of buying situations; buygrid framework & its analysis.

• Identify members of buying centers.• Understand organizational buying behavior.• Know how industrial buyers choose and evaluate

suppliers.

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PURCHASING OBJECTIVES OF FIRMS

• Reliability in delivery.

• Consistent product Quality.

• Lowest price (If delivery & Quality objectives are met)

• Excellent pre & post – sales services.

• Long – Term collaborative relationship.

Industrial buyers try to achieve organizational purchasing objectives & personal objectives like higher status, job security, salary increments, promotions & social relationships.

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Industrial Buying Decision Process

• Marketers must study this for developing effective marketing strategy.

• 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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(A) PHASES IN INDUSTRIAL BUYING DECISION MAKING PROCESS / BUYPHASES

• PHASE –1 :- Recognising A problem / need.• PHASE – 2 :- Determining Characteristics &

Quantity of needed product / Service*.• PHASE – 3 :- Developing specifications of the product*.• PHASE – 4 :- Searching & Qualifying Suppliers.• PHASE – 5 :- Obtaining & Analyzing suppliers’ offers*• PHASE – 6 :- Evaluating & Selecting Suppliers.

(shown on next slide)• PHASE – 7 :- Selecting an order routine• PHASE – 8 :- Post – Purchase evaluation * These are in addition to five stages of consumer buying decision

process.

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A SUPPLIER EVALUATION SYSTEM.

ATTRIBUTE/ FACTOR

WEIGHT/IMPORTANCE

SUPPLIER’S PERFORMANCE

SUPPLIER’S RATING SCORE

PRICE 15 0.5 07.5

QUALITY 30 0.7 21.0

DELIVERY 25 0.6 15.0

SERVICE 20 0.7 14.0

FLEXIBILIY 10 0.4 04.0

TOTAL 100   61.5

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(B) Buying Situations / Buyclasses

3 Common types of purchases / buying situationsi. 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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(C) Buygrid Framework IM/3-7/16

BUYPHASES BUYCLASSES

  New Task Modified Rebuy

Straight Rebuy

1. Problem Recognition Yes May Be No

2. Characteristics of Product Yes May Be No

3. Product Specification Yes May Be No

4. Supplier Search Yes Yes No

5. Analyzing Supplier Offers Yes Yes May Be

6. Supplier Selection Yes Yes No

7. Order – Routine Selection Yes Yes May Be

8. Post Purchase Review Yes Yes Yes

BUYGRID FRAMEWORK ANALYSIS

• All Phases are Applicable for a New Task.

• Some Phases are Applicable for modified / Straight Rebury.

• New task situation is most difficult since buyers have less knowledge, no experience & more people involved.

• Modified Rebury is not difficult situation since it has few activities.

• Straight rebury situation is handled routinely, as repeat purchases are made.

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(D) Buying Center roles & key members.

Roles of Buying center members are• Initiators. First recognize problem / need. Any individual in

buying firm – often, users.• Buyers. Carry out purchase activities. They are purchase officers /

executives.• User. Any person who uses the product / service.• Influencers. Influence buying decision. Technical people are often

key influencers.• Deciders. Make buying decisions. Senior executives are deciders

for high value & complex products. For straight rebuy / routine purchase, junior purchase officer can decide.

• Gatekeepers. They control / filter information & meetings with buying center members. Often, P.A. / Junior person attached to purchase head is the gatekeeper.

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(E) Identifying key members of buying centre • Sales / Marketing persons must identify important members of

buying centre.• Buying centre consists of individuals and groups who take part

in buying decision making process, have common objectives & share common risks. It is also called purchase committee, buying committee or decision making unit.

• Members of buying centre are(i) Technical persons. Represent design,production/operations, maintenance, Q.C., Industrial Engg. Depts.(ii) Purchasers / Buyers. Purchase / Materials dept. persons.(iii) Accounts / Finance persons.(iv) Marketing persons(v) Top management persons. G. M. & above.

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(F) Organizational buying behavior• Industrial / business buyers are influenced by many

factors. Two most important factors are (i) Organizational factors / task – oriented objectives, like best product quality, lowest price, dependable delivery.(i) Personal factors / Non-task oriented objectives, such as good increments, promotion, Job security, personal favors.

• When suppliers’ offers are similar, buyers can satisfy organizational objectives from any supplier. Hence, personal factors become important.

• However, when suppliers’ offers differ substantially, buyers give importance to organizational factors to satisfy organizational objectives.

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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.

• 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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Fig. : THE SHETH MODEL OF INDUSTRIAL BUYER BEHAVIOUR

Component (1) Component (2) Component (3) Situational Factors

D ifferences am ongind iv idua l buyerscaused by factors :

Background ofind iv idua ls (E ducation,ro le & life s ty le ).Their inform ationsources.Active SearchPerceptual D is tortionSatis faction w ithpast purchases

Variab les that D eterm ineif buying decision isau tonom ous or jo in t :A ) P roduct SpecificFactors :

Tim e PressurePerceived R iskType o f Purchase

B) C om pany SpecificFactors :C om pany S izeC om pany O rientation D egree o f C entra lisation

M ethods used forconflic t resolutionin jo int-decis ionm aking process :

P rob lem SolvingPersuasionBargainingPo liticking

Supplier orBrand C ho ice

Environmental Variables

Physical, Techno logica l

Econom ic, C ultura l

Po litica l and Legal

Labour unions

C ustom er dem ands

C om petitive practices

Supp lier in form ation

W EBSTER AND W IND MODEL

Organisation Variables

O bjectives and goa ls

O rganisa tion Structu re

Purchasing Po lic ies / P rocedures

Evalua tion & rew ard system s

D egree o f decentra lisation

Buying Centre Variables

Authority, S ize

Key influencers

Interpersona l re lationsh ip

C om m unication

Organisation Buying Decisions

C hoice o f Supp liers

D e lay decision & get m ore inform ation

M ake, Lease o r buy

D o not buy

Individual Variables

Personal G oals , Values

Education, Experience

Expertise, Job Position

Lifesty le, Incom e

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CUSTOMER SERVICE

• 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, on–time 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.

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CHAPTER - 4

BUYER SELLER RELATIONSHIP

LEARNING OBJECTIVES :

• 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.• Special dealings between buyer & seller.

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INDUSTRIAL BUYER-SALES REP. INTERACTIONS

• Depend on their perceptions, behavior & roles.• Buyers have two major perceptions of sales reps.

(i) Stereotype – talkative, manipulative, excitable

(ii) Reputation of sales rep’s company.• 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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BUYER-SELLER DYADIC INTERACTION FRAMEWORK

A Conceptual Framework by Dr. Sheth

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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.

CompatibleContent

IncompatibleContent

Ideal/Successful Transaction

InefficientTransaction

InefficientTransaction

NoTransaction

Compatible Style Incompatible Style

TYPES / RANGE OF RELATIONSHIP BETWEEN BUYER & SELLER FIRMS

• When buyer (or customer) and seller (or supplier) firms do business, they have the following types and range of business / working relationships / exchanges.

• Each business relationship is an exchange process of obtaining a desired product / service by offering something of value is return.

TransactionalRelationship

Value-AddedRelationship

Partnering / CollaborativeRelationship

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• 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”.

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COLLABORATIVE/ PARTNERING RELATIONSHIPS.

• The focus is to build strong social, economic, service and

technical ties between customer and supplier firms in

order to achieve mutual benefits.

• The criteria used for selecting business customers for

partnering relationships are technological contributions,

mutual dependence, “supply chain management”

orientations, and high sales & profit potentials.

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CUSTOMER RELATIONSHIP MANAGEMENT (CRM) / RELATIONSHIP MARKETING (RM)

• Conceptually same, methods / techniques to achieve objectives are different.

• Both CRM & RM aim at partnering / collaborative long-term relationships for mutual benefits of both parties.

• CRM’S objectives are to improve customer loyalty and there by, company’s 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.

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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.

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• 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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SPECIAL DEALINGS BETWEEN BUYER & SELLER

• 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.

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SUMMARY OF CHAPTER - 4BUYER – SELLER RELATIONSHIP• 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. Sheth’s 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.

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CHAPTER 5

INDUSTRIAL MARKETING INTELLIGENCE AND MARKETING RESEARCH

LEARNING OBJECTIVES :

1. Know Nature and Scope of Industrial Marketing research.

2. Examine the Marketing Research Process.

3. Understand Industrial Marketing Intelligence System.

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SCOPE OF INDUSTRIAL MARKETING RESEARCH

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

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MARKETING RESEARCH PROCESS

STEPS INVOLVED ARE :1. Identify the problem / opportunity and state

research objectives .2. Develop research design / methodology.3. Collect data / information.4. Process and analyze the data.5. Prepare research report.

There is no major difference in the process orsteps involved in marketing research for consumer

and industrial marketing .

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INDUSTRIAL MARKEING INTELLIGENCE SYSTEM

M a rk etin gR e sea rch

stu d ie s

S ec on d a ryD a ta

S ou rce

In d u str ia lM a rk etin g

In te llige n c eS yste m

D e cis ion S u p p o r tS yste m

M a rk etR e sp o n ceM a r k e t i n gR e s e a r c h s t u d i e s

S e c o n d a r yD a t aS o u r c eI n d u s t r i a lM a r k e t i n gI n t e l l i g e n c eS y s t e m

D e c i s i o n S u p p o r tS y s t e m M a r k e tR e s p o n c e

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Industrial marketing intelligence system is developed to meet the needs of industrial marketers for timely and continuous informationfor effective decision making .

SUMMARY OF CHAPTER-5

• 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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NATURE OF INDUSTRIAL MARKETING RESEARCH

1. Business Marketers rely more on Secondary data, and exploratory research (Through expert opinion).

2. Descriptive (or Survey) method is used more often than experimental and Observation methods, for collecting primary data.

3. Sample size is small due to small population.4. Difficult to define sampling unit (or respondents), since

buying decisions are made by many members of buying centre.

5. Respondents’ Cooperation and accessibility are difficult for data collection.

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CHAPTER – 6

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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PROCEDURE USED IN MARKET SEGMENTATION

The procedure has 3 steps .1. Conduct marketing research to collect data /

information on existing and potential buyers, and competitors.

2. Carry out data analysis by using statistical techniques of factor and cluster analysis in order to identify different segments.

3. Profile each segment by its characteristics like application (or/use), location, volume of requirements, etc.

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VARIABLES (BASES) USED IN SEGMENTING INDUSTRIAL (BUSINESS) MARKETS

• Industrial market segmentation is done first based on “Macro Variables” , and then subdivided into “Micro Variables”, if necessary.

• Macro Variables. These segmentation variables are

identified based on industry/organizational characteristics like.

(i) Type of industry / Type of customer. (ii) Company size / Usage rate. (iii) Customer location / Geographical area. (iv) End-use / Application / Benefits of a product.

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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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EVALUATING MARKET SEGMENTS Criteria / factors used for evaluating each market segment are : (i) Size and Growth . (ii) Profitability Analysis . (iii) Competitive Analysis . (iv) Company Objectives and Resources

TARGET – MARKET STRATEGIES

Based on above criteria, business marketer selects one or more market segments as target segments. Next , the marketers should decide which of the following broad target market strategies the company should adopt

(a) Concentrated or Niche marketing strategy, (b) Differentiated marketing strategy (c) Undifferentiated marketing strategy

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PROCEDURE FOR DEVELOPING A POSITIONING STRATEGY

Following steps are involved :(i) Identify which attributes / benefits target customers consider

important while buying a product / service. This information is obtained through a market research study . The variables considered for differentiating a company’s product from competing products are.

(a) Product variables,(b) Service variables,

(c) Personal variables, (d) Image variables,

(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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Excellent Product Quality

StrongCustomerService

Low Product Quality

1.0

0.8

0.6

0.4

0.2

.D

.C

.B- 0.2

- 0.4

- 0.6

- 0.8

- 1.0

1.0 0.8 0.6 0.4 0.2 - 0.2 - 0.4 - 0.6 - 0.8 - 1.0

.A1

A

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WeakCustomerService

Perceptual MappingTechnique

.

SUMMARY OF CHAPTER 6 1. Procedure used in market segmentation includes (i) Marketing

research, (ii) Data analysis (iii) Profiling each segment.2. Variables used for segmenting industrial markets include macro

variables and if needed, micro variables. Sequential segmentation process is often used.

3. Criteria used for evaluating market segments are (i) size and growth , (ii) Profitability (iii) Competitive analysis(iv) Company Objectives and Resources.

4. Target market strategies are (a) Concentrated or Niche marketing, (b) Differentiated marketing, (c) Undifferentiated marketing strategy

5. 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.

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CHAPTER – 7

PRODUCT STRATEGY & NEW PRODUCT DEVELOPMENT

Learning Objectives1. 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.

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DEFINITION AND MEANING OF AN INDUSTRIAL PRODUCT

• 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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CHANGES IN PRODUCT STRATEGY

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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A General Model of Product Life – Cycle (PLC) IM/7-4/20

Rupees

IndustrySales

IndustryProfits

Maturity Decline

APPLICATION OF PRODUCT LIFE – CYCLE THEORY TO MARKETING STRATEGY

Introduction Stage : Marketing Strategy should focus on market development for slowly accepted products. For rapidly accepted products, a competitive strategy (Competitive pricing or Superior quality product ) should be evolved.

Growth Stage :To take advantage of high growth of sales

and profits, the marketing strategy should concentrate on (i) Improving product design or adding product features (ii) Improving distribution and (iii) Reducing price, as increased sales and production reduce the costs.

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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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PRODUCT STRATEGIES FOR EXISTING PRODUCTS

Business marketers should take the following steps :1. Evaluate the performance of existing products by

using “product evaluation matrix”.2. Examine the relative strengths and weaknesses of

the company’s products by using “ perceptual mapping” technique.

3. Decide the product strategies, based on above analysis.

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PERFORMANCE EVALUATION OF EXISTING PRODUCTS

Example : A material handling Co. (i) Product = P (Pallet Truck)Last 3 year’s 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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Product Evaluation Matrix IM/7-9/20

Company Sales Decline Stable Growth

ProfitabilityIndustrySales

M arketShare

BelowTarget

Target AboveTarget

BelowTarget

BelowTarget

Target TargetAboveTarget

AboveTarget

Growth

Dom inant

Average

Marginal

Stable

Decline

Dom inant

Dom inant

Average

Average

Marginal

Marginal

P

S

PERCEPTUAL MAPPING TECHNIQUE IM/7-10/20

HighQuality

High Price

Low Price

LowQuality

* *AA 1

B

C

Firm A’s 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.

DECIDE PRODUCT STRATEGIES

(i) Maintain / Continue the product and its marketing strategy.

(ii) Modify the product & change marketing strategy. (iii) Drop / eliminate the product. (iv) Add new product.

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CLASSIFICATION OF NEW PRODUCTS(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.

NEW PRODUCT DEVELOPMENT PROCESS

It consists of 7 Stages :(i) Idea generation, (ii) Idea Screening, (iii) Concept development

and testing, (iv) Business analysis, (v) Product development, (vi) Market testing, & (vii) Commercialization.

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IMPACT OF TECHNOLOGY

Technological innovations create new products / services thatare 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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TYPES OF MARKETING SITUATIONS.

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BetterM ousetrapM arketing

High-techM arketing

High-fashionM arketing

Low-techM arketing

High

Low

Low

M arket

High

Uncerta inty

TechnologicalUncerta inty

MODIFIED TECHNOLOGY ADOPTION LIFE CYCLE

This is suited to high–tech marketing

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D eep G ap

Innovators

2½ %

13½ %

EarlyAdopters

34%34%

16%Laggards

Tim e o f A doption of Innovations

HIGH – TECH MARKETING STRATEGY

1. Target a niche market.2. Plan whole product properties.3. Develop partnerships.4. Unique positioning strategy.5. Effective Communication Strategy6. Multi – Channel distribution strategy.7. Skimming pricing strategy.

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Marketing of Industrial Services Classifications of Industrial Services

IM/7-17/20

M aterialsCom ponents

(Steel, Ball Bearings)

PersonalCom puters

Hotelsfor

Conferences

G oodTransportation

PureTangibleProduct

M ajorProduct,

M inorService

EqualProduct

&Service

M ajorService,

M inorProduct

Pureintangible

service

Unique Characteristics of services and marketing Implications.

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Characteristics Marketing Im plications Exam ples

1. Intangibility (cannot be seen / fe lt, before buying)

Buyers see evidence of serv ice quality

Se lle rs tangib ilise the in tang ib le

M anagem ent

C onsultancy & ED Ps.

2. Inseparability (P roduction & consum ption a t the sam e tim e)

Effective inte raction depend on serv ice

prov iders.

R equires e ffective recruiting and tra in ing

of serv ice providers.

R epairs to m ach ines

& C ourier service.

3. Variability (S ervice qua lity varies)

U niform quality is d ifficu lt

Focus on qua lity & au tom ation

M anagem ent

education & m arketing

research .

4. Perishability (C annot be sto red)

D em and fluctua tes.

U se m ethods to m atch dem and &

capacity.

A irlines seats &

W arehouse space.

5. Non-ownership (B uyer uses a service, but cannot ow n it)

Advantages o f non-ow nersh ip :

reduction in costs & flex ib ility

H otel and car renta l

services.

SUMMARY OF CHAPTER 7 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.

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CHAPTER – 8

INDUSTRIAL DISTRIBUTION CHANNELS & MARKETING LOGISTICS

Learning objectives1. Understand alternative channel structures.2. Know types of industrial intermediaries.3. Understand steps involved in designing a channel.4. Learn how to manage channel members.5. Understand concepts of supply chain management,

Logistics, and business logistics system.6. Learn the tasks of physical distribution and total

distribution cost.

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Alternative Channel Structures• 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, manufacturer’s

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 manufacturer’s resources are limited,(iii) Customers are geographically dispersed, (iv) Buyers purchase many items in one transaction.

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Types of Intermediaries1. Industrial Distributors / Dealers. • They perform many functions like buying, storing, promoting,

financing, selling, transporting and servicing certain geographic market, & are given discounts.

• Major categories are (i) General – line distributors, (ii) Specialized

distributors, and (iii) Combination house. 2. Manufactures’ Representatives / Agents.• They perform functions like promoting manufacturers’ products /

services, getting orders, and colleting market information. They are independent business firms, representing various manufacturers whose products complement one another but are not competitive.

• They are paid commission on the value of sales or orders booked.

They do not buy, store or finance transactions.

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3. Value-added Resellers (VARs) They are new type of intermediaries from computer industry. They deal

with computer hardware and software companies, customize the same to solve specific problems of buying firms. They are paid discounts.

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.

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CHANNEL DESIGN• It includes developing new channels and modifying the existing channels. • The procedure / steps are as follows; (i) Developing channel objectives; (ii) Analyzing channel constraints;

(iii) Analyzing channel tasks; (iv) 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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MANAGING CHANNEL MEMBERSIt includes :1. Selecting Intermediaries.2. Motivating Intermediaries.

(a) Partnering relationships.(b) Reasonable discounts and commission. (c) Distributor councils.(d) Other motivational tools.

3. Controlling Channel Conflicts

(a) Sources of channel conflicts.(b) Controlling conflicts by

(i) Effective communication network; (ii) Joint goal – setting; (iii) Diplomacy; Mediation; Arbitration. (iv) Vertical marketing system (VMS).

4. Evaluating Channel Members

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Concept of Supply Chain Management (SCM) SCM includes activities of moving goods from raw material through

operations to final consumers, as shown in “SCM Framework” below.

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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.

• Firms involved in SCM are suppliers of raw materials & components, transporters, distributors, material handling & information processing firms.

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Logistics Management (LM)LM plans and coordinates activities to achieve superior customer service levels at lowest costs. LM optimizes material flow within the firm, but SCM extends integration of material flow to suppliers’ suppliers and customers’ customers. For better understanding, see figure on “ business logistics system”, which has two product movement; physical supply and physical distribution.

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Business Logistics System

Marketing Logistics (or Physical distribution) consists of delivering finished products to intermediaries and customers.

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Physical Supply Industrial Manufactuer Physical Distribution(or Marketing Logistics)

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 firm’s channel members work together to improve “customer service”, in order to get higher sales revenue.

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=Sa les R evenue - To ta l P hys ical D istributor C ost

C apita l Investm ent

SUMMARY OF CHAPTER – 8

INDUSTRIAL DISTRIBUTION CHANNELS & MARKETING LOGISTICS.

1. Industrial channel structures include direct and indirect channels.

2. Types of industrial intermediaries are: industrial distributors / dealers, manufacturers’ representatives (or agents), value – added resellers (VARs), brokers, and commission merchants.

3. Procedure of channel design includes: developing channel objectives, analyzing channel constraints and tasks, identifying channel alternatives, evaluating alternatives and selection of the channel (s).

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CUSTOMER SERVICE • 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 customer’s expectations.

• Factors that determine service quality by customers are :(i) Reliability (ii) Responsiveness (iii) Assurance (iv) Empathy (v) Tangibles

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• 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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• 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 it’s 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.

5. 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.

6. Business logistics system includes physical supply and physical distribution (or marketing logistics).

7. 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.

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CHAPTER 9MANAGING 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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Role of Personal Selling in Business Marketing

• Personal selling or direct selling through company sales force plays greater role in business marketing than consumer marketing

• Major roles of personal selling

(i)  A part of problems – solving capabilities of the company.

(ii) A part of the company’s communication or promotion mix .

(iii) Gives an effective customer service .

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Business Selling Process   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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Characteristics of B2B Selling

1. Promotional strategy focuses more on “ personal selling’’ through company’s 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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Team Selling Approach• More companies are using team selling approach

for selling to major and national accounts (customers) and technically complex products and services.

• Sales team consists of sales representative, technical support person, inside sales person, and a senior sales/marketing manager.

• Coordination is done by a sales rep, for a major customer and a national accounts manager for a national customer.

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Solution – Oriented Effort IM/9-7/12

• 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 firm’s problem-

solving abilities. He should identify and analyse the buying firm’s problem. He should then show how his company’s products and services can solve the buyer’s problems, better than competitors. This is called solution-oriented effort or approach.

Intrapreneurial Philosophy

• 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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MANAGEMENT OF MAJOR AND NATIONAL ACCOUNTS • Both major and National accounts (or

customers) have large (sales and profit potentials). But there is a difference.

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Complexity of customer

Large

Small

MajorAccount

National Account

DyadicInteraction

MinorAccount

SalesPotentialofCustomer

Sim ple Com plex

• 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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How to Manager Major & National AccountsObjective. 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.

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CHAPTER –10BUSINESS (INDUSTRIAL)

COMMUNICATION

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.

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DEVELOPING AN EFFECTIVE COMMUNICATION / PROMOTIOAL PROGRAMME FOR BUSINESS MARKETS

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 promotion’s results.

(vii) Integrate the promotion’s programme.

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Promotional Tools and Media in Business Markets

IM/10-3/10

P ro m o tio n a l To o ls

A d v e r t is in g S a le sP ro m o tio n

P. R . a n dP u b lic ity

D ire c tM a r k e tin g

P e r so n a lS e l lin g

P r in t M ed ia B u sin e ss

P u b lica tio n s Tr a d e

Jo u r n a ls In d u str ia ls

d ire cto r ie s

P ro m otio n a l M ed ia

&S u p p o r ts

Tr a d e sh o w s E xh ib ition s C a ta lo g u e s S a le s C o n sen ts P ro m otio n a l

n o ve lties (g ifts ) S e m in ar s D em o n str a tion P ro m otio n a l

le tte rs E n ter ta in m e n t

C h a rita b le d o n a tion s A d o p tin g

v illage s C o m m u n ity

re la tio n s N ew s ite m in

p ressTec h n ic a l

ar tic le s in jou r n a ls

D irec t m a il Te le m a r-

k e tin g O n -lin e

m ar k e tin g

S a le s ca lls S a le s

p resen ta tio n s Te am se llin g R ela tio n sh ip

m ar k e tin g

ROLE OF ADVERTISING IN BUSINESS 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

 

(i)     Creating awareness.(ii)    Reaching members of buying center.(iii)  Increasing sales efficiency and effectiveness.(iv)  Efficient reminder media.(v)    Sales – lead generation.(vi)  Support channel members.

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ADVERTIING MEDIA USED AND SELECTION CRITERIA• The media generally used for industrial advertising are:

(i)     Business Publications.

(ii)    Trade journals/ publications – Horizontal and Vertical publications.

(iii)  Industrial directories – published by government and private publishers (e.g. Tata Yellow pages).

• Criteria used for selection of advertising media are:

(a) Target audience and their media habits.

(b)    Promotional objectives and goals.

(c)  Expenditure budget, by using the following formula:

IM/10-5/10

=C ost per page

C irculation in thousand

IMPORTANCE OF SALES PROMOTION

• Sales promotion consists of short-term incentive tools to stimulate greater or faster purchase of a product / service by business customers.

• Some of the business promotion tools are :Trade shows (or exhibitions), sales contests, promotional novelties (or specialty advertising, or gifts), seminars, catalogues, promotional letters, demonstration, and entertainment. Some of the frequently used tools are trade shows, sales contests, catalogues, demonstrations, and promotional novelties (gifts).

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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 on-line 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%.

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• 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 on-line, 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.

 

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• 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

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ROLE OF PUBLICITY & PUBLIC RELATIONS (PR)

Public Relations (PR) performs certain tasks to promote or protect a company’s image or its products. The tasks / functions performed by PR are: press relations, corporate communication, lobbying, and counseling. PR department deals with various categories of people like press, legislators, Govt. officials, public, employees, suppliers, customers, and hence it tends to neglect marketing objectives.

 Publicity or Marketing Public Relations (MPR) has more credibility and lower cost compared to advertising, MPR includes placing technical articles from the company’s technical persons in trade journals, business magazines, and / or news papers. MPR should be planned with advertising and should be given larger budget allocation

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Summary of Chapter – 10• 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.

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CHAPTER 11INDUSTRIAL (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 “Value-based 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 customers perceptions of product quality / performance, reliable delivery, warranty / after-sales service, reputation of the supplier, etc which are enhanced and augmented properties.

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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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F R A M E W O R K O F P R IC IN G D E C IS IO N S

( i) P ric in g o b jec tiv e s

(ii) C u s to m er ana ly s is

( iii) C o st an alys is

( iv ) C o m p etito rs ' an a lys is

(v ) G o v t. reg u la tio n / p o lic ie s

B e fo re ta k in g p ric in g d e c is io n s , a b u y in g f irm m u s t

f in d " p r ic e d e te rm in a n ts" . ( i .e . fa c to rs th a t in f lu e n c e

p ric in g d e c is io n s )

Tw o ty p e s o f p ric in g d e c is io n s .

P r ic in g s tra te g ie s P r ic in g p o lic ie s

S e ttin g a p ric e(p ro d u c t / m a rk e ts itu a tio n s)

In it ia tin g a p r ic e c h a n g e

R e sp o n d in g to a c o m p e tito r 'sp r ic e c h a n g e

D isc o u n ts

G e o g ra p h ic a l

p r ic in g

L e a s in g

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PRICE DETERMINANTS OR FACTORS INFLUENCING PRICING DECISIONS

(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) analysisIt 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:

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If PED is > 1, demand is elastic, & customers are price sensitive

If PED is < 1, demand is inelastic, customers are less sensitive to prices. 

=% change in quantity dem anded

% C hange in price

(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 firm’s 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.

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C o stp er

U n it

Q u a n tity P ro d u ced p er y ea r

C ostp er

U n it

A ccu m u la ted P ro d u ctio n

E xp erien ce /

L earn in g

C u rv e .

Av. C o st R ed u ctio n

= 1 0 -30 %

E con om ies o f S ca leIM/11-9/ 29

IM/11-10/ 29

S a le s&

C o sts

S a le s Vo lu m e

S a le s R ev e n u e a t P 3

S a le s R ev e n u e a t P 2

S a le s R ev e n u e a t P 1

To ta l C o s t

F ix e d C o s t

B rea k - E v en A n a ly s is is u se fu l to c o n s id e r d iffe ren t

p ric e s (P 1 , P 2 , P 3 ) , an d its e ffec t o n sa le s rev en u e an d p ro fits .

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.

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)

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PRICING STRATEGIESPricing 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.

(i) Competitive Bidding

• In business markets, large volume of purchasing is done through competitive bidding, using either closed (or sealed) bidding or open (or negotiated) bidding method.

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• 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 .

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Strategy / Model Used for Competitive Bidding

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.

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An Application (example) of probabilistic Bidding Strategy

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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B idP r ic e

( R s) (A )

To ta l C o stP e r U n it(R s) (C )

C o m p e tito r 'sL a s t Te n d e r

P r ic e (R s) (B )

P ro f it (R s) =

(A ) - (C ) T (A )

4 5 0

4 3 0

4 1 0

3 8 0

3 6 0

3 4 0

3 3 0

4 0 0

3 5 0

3 5 0

3 5 0

3 5 0

3 5 0

3 5 0

3 5 0

3 5 0

3 6 0

3 6 0

3 6 0

3 6 0

3 6 0

3 6 0

3 6 0

3 6 0

0 .0 0

0 .1 5

0 .4 0

0 .5 0

0 .7 2

0 .9 0

0 .9 5

1 .0 0

1 0 0

8 0

6 0

5 0

3 0

1 0

(1 0 )

(2 0 )

0

1 2 .0 0

2 4 .0 0

2 1 .6 0

0 9 .0 0

(9 .5 0 )

(2 0 .0 0 )

2 5 .0 0

(ii) New Product Pricing StrategyIn 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, high–tech, 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 profits. The disadvantage is that it attracts competitors due to high profits. The firm reduces prices after some time to reach other segments.

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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 firm’s 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”.(iii) Pricing Across Product Life – Cycle (PLC)Marketing and pricing strategies vary as the product moves across 4 – stages of PLC. (a) Introduction stage. We have discussed pricing strategy in this stage earlier in pricing a new product.(b) Growth stage. The firm lowers the prices to attract the next layer of price – sensitive buyers. Also more suppliers enter the market and buying firms put pressure on the existing suppliers to lower prices.

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(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 firm’s 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.

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Initiating price changes

• If a firm is a market leader and wants to change the price, it must anticipate reactions from customers and competitors.

• The firm must ‘study major competitors’ objectives, financial situations, production capacity utilizations, sales, costs, and profits. It must also understand competitors’ mind-set, by studying their business philosophy (or concepts), culture, beliefs and past behaviors. Based on above analysis the firm should predict competitor’s response.

• The firm must also understand that customers generally prefer small price increases several times, rather than one sharp increase. Of course, customers would generally welcome price cuts.

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Responding to competitors’ price changes 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 company’s 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.

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PRICING POLICIESPurpose. 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 priceTypes 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)

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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,

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 Above discounts are applicable for all types of customers – OEMs, users, and dealers / distributors.

S i z e o f e a c hP u r c h a s e o r d e r

Y e a r l y T o t a lP u r c h a s e

% Q u a n t i t yD i s c o u n t

L e ss th a n 5 n o s .,

5 - 1 0 n o s .,

11 -1 5 n o s .,

> 1 5 n o s .,

L e ss th a n R s . 5 ,0 0 0

R s . 5 ,0 0 0 - 1 0 ,0 0 0

R s . 1 0 ,0 0 0 - 1 5 ,0 0 0

> R s . 1 5 ,0 0 0

N il

u p to 3

u p to 6

u p to 1 0

o r

o r

o r

o r

,

,

,

,

o r

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 company’s products to customers located in different geographic areas. There are two alternatives :

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(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 customer’s 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 customer’s “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 landed price (or costs) to business buyers.

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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)

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>

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 firm’s 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.

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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.

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• 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 .

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CHAPTER – 12STRATEGIC 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.

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CHARACTERISTICS OF MARKET – ORIENTED ORGANISATIONS

Firms achieve market – orientation bymanaging the following factors.

(i) Shared values.(ii) Organization structure, policies and

culture. (iii) Strategic Planning.(iv) Needs or expectations of stakeholders.

IM/12-2/19

IM/12-3/19H ie ra rc h y o f S tra teg ie sB e fo re u n d e rs ta n d in g th e ro le o f m a rk e tin g in s tra te g ic p la n n in g , w e sh a ll f irs t e x a m in e h ie ra rch y o f s tra te g ie s .

O rganisationa lL evels

O rganisationa lStructu re

Strategy h ierarch y(Typ e o f M anagem en t)

C o rp o ra teD iv is io n a l/

B u s in e ss S tra te g y(S tra te g ic

M a n a g e m e n t)D iv is io n a l /

B u s in e ss U n it / S B U

C o rp o ra te O ffic e

S B UII

S B UIII

S B UI

M a rk e tin g F in a n c eP ro d u c tio n

F u n c tio n a lS tra te g y

(O p e ra tio n s M a n a g e m e n t)

F u n c tio n a l

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 & goalsA 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-to-day issues of costs, revenue and profits.

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ROLE OF MARKETING IN STRATEGIC PLANNING IN A FIRM

IM/12-5/19

C o m p a n yL e v e l F o r m a lN a m e R o l e o f M a r k e t i n gC o r p o r t e C o r p o r t eM a r k e t i n g T o g i v e i n f o r m a t i o n o n m a r k e t s a n d t o e n s u r e c u s t o m e r o r i e n t a t i o n , f o rc o r p o r a t e s t r a t e g y d e v e l o p m e n t .

D i v i s i o n a l /B u s i n e s sU n i t l e v e l S t r a t e g i cM a r k e t i n g T o c a r r y o u t c u s t o m e r & c o m p e t i t i o n a n a l y s i s , f o r d e v e l o p i n g b u s i n e s s s t r a t e g y , i n c l u d i n g c o m p e t i t i v e a d v a n t a g e , s e g m e n t i n g , t a r g e t i n g , a n d p o s i t i o n i n g s t r a t e g i e s .

F u n c i t o n a l M a r k e t i n g M a n a g e m e n t T o d e v e l o p e s h o r t - t e r m m a r k e t i n g p l a n a n d s t r a t e g y , c o o r d i n a t i o n , a n d r e s o u r c e a l l o c a t i o n .

C o m p an yL e v e l

F o rm alN a m e

R o le o f M a rk e tin g

C o rp o rteC o rp o rte

M ark e tin g

To g iv e in fo rm a tio n o n m ark e ts an d to en su re cu s to m er o rien ta tio n , fo rco rp o ra te s tra teg y d ev e lo p m e n t.

D iv is io n a l /B u s in ess

U n it lev e l

S tra te g icM ark e tin g

To c a rry o u t cu s to m er & c o m p e titio n an a ly s is , fo r d e v e lo p in g b u s in ess s tra te g y, in c lu d in g c o m p e titiv e ad v a n tag e , seg m en tin g , ta rg e tin g , an d p o s itio n in g s tra teg ie s .

F u n c tio n a lM ark e tin g

M an a g em e n t

To d e v e lo p sh o rt - te rm m ark e tin g p lan a n d s tra teg y, co o rd in a tio n , an d re so u rce a llo ca tio n .

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.

IM/12-6/19

BCG Model : Growth – Share MatrixIM/12-7/19

Stars

Ma

rket

Gro

wth

Ra

te

Large Small

Rap

idS

low

1

5Question marks

6

8

4

Cash Cow

3

2 7

Dogs

R ela tiv e M a rk et S h a re

GE Model : Business Screen MatrixIM/12-8/19

High Medium Low

B u sin ess Stren g th

High

Medium

Low

S elec tiv ity / E a rn in g s

1

1

5

• 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.

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DEVELOPING CORPORATE STRATEGIES • Strategic planning gap. It is the gap between future (5

years) desired sales and the projected sales (of all SBUs ) of a company.

IM/12-10/19

Sal

es

T im e (Ye ars)

A

0 5

B

C

P ro jec ted S a les

StrategicP lann ing gap

D esired S a les

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 Ansoff’s product-market expansion grid, shown hereafter :

IM/12-11/19

C u rre n t P ro d u c ts

M ark e t P en e tra tio nS tra te g y

P ro d u c t d e v e lo p m en tS tra te g y

M ark e t d ev e lo p m en tS tra te g y

( D iv e rs ifica tio n S tra te g y )

C u rre n t M ark e ts

N e wM ark e ts

N e w P ro d u c ts

( B) Integrative Growth Strategy includes increase in a firm’s 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.

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STRATEGIC PLANNING PROCESS AT BUSINESS UNIT LEVEL

The following steps are followed by the business – unithead.1. Defining the business unit’s 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) 6. Preparing programme or action – plan.7. Implementing strategies and action plan.8. Feedback and control.

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* PORTER’S Generic Strategies Framework for Business unit

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D iffe ren tia tio nO v e ra ll co s tlea d e rsh ip

F o cu s

In d u s tryw id e

P articu la rseg m e n t o n ly

L o w - co s t p o s itio n

Marketing Planning ProcessThe head of marketing prepares the marketing plan (short-term up to one year) after going through “Marketing Planning Process”, which includes the following steps :(i) Analyzing marketing opportunities.(ii) Segmenting and selecting target market segments.(iii) Developing marketing strategies.(iv) Implementing and controlling the marketing plan.

The head of marketing now prepares the writhen document, called marketing plan, with the following steps.

IM/12-15/19

Business ( Industrial ) Marketing Plan

1. Situational analysis. Market, competitive, product, and macro – environmental analysis.

2. SWOT and Issues analysis3. Marketing Objectives and goals4. Marketing Strategy. Selection of target market

segments, positioning, marketing mix, customer service and marketing research.

5. Action plans / Tactics6. Marketing Budget7. Implementation and control. Building marketing

organization and control process.8. Contingency plan.

IM/12-16/19

IMPLEMENTATION OF MARKETING PLANIt is a process that turns marketing plans into action plans and ensures that the tasks or activities of action plan are executed in as manner that achieves the marketing objectives and goals. For this the necessary organization structure and people are selected. Marketing resource management (MRM) software will help marketers to improve their decisions, and also in implementation and controls.Control Process includes (a) setting goals, (b) measuring actual performance, (c) comparing goals and actual performance, (d) analyzing causes of deviations, if any (e) taking corrective actions, if needed.

Types of controls : (i) Strategic control , (ii) annual plan control (iii) efficiency control , (iv) profitability control.

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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.

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• 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.

IM/12-19/19