Nature of Business Marketing

What is Business Marketing?
Business marketing also referred to as “Industrial marketing” or “B2B marketing”
or “Organizational marketing”.
Business marketing is the marketing of products & services to business
organizations.
Business organizations include:
Manufacturing companies Business organizations buy products
& services to satisfy many objectives
Govt. undertakings
like production of other goods &
Private sector organizations services, making profits, reducing
costs, & so on.
Educational institutions
Hospitals
Consumer marketing is the marketing
Distributors / Dealers of products & services to individuals,
families, & households. The
consumers buy products & services
for their own consumption.

ISB&M Business Marketing

B2B Marketing vs. Consumer Marketing
Areas Industrial Markets Consumer Markets
1. Market characteristics • Geographically concentrated • Geographically distributed
• Relatively fewer buyers • Mass markets
2. Product characteristics • Technical complexity • Standardized
• Customized
3. Service characteristics • Service, timely delivery & • Service, timely delivery &
availability is very important availability is somewhat
important
4. Buying behavior • Involvement of various • Involvement of family
functional areas in both buyer members
& supplier firms
• Purchase decisions are mainly • Purchase decisions are
made on rational/performance mostly made on physiological
basis / social / psychological needs
•Technical expertise • Less technical expertise
• Stable interpersonal • Non-personal relationship
relationship between buyers &
sellers


B2B Marketing vs. Consumer Marketing
Areas Industrial Markets Consumer Markets
5. Channel characteristics • More direct • Indirect
• Fewer intermediaries • Multiple layers of
intermediaries
6. Promotional • Emphasis on personal selling • Emphasis on advertising
characteristics
7. Price characteristics • Competitive bidding & • List prices or maximum retail
negotiated prices price (MRP)
• List prices for standard
products


Industrial Demand
Demand
Derived Demand for new
homes

The demand for industrial products & services does not exist
by itself. It is derived from the ultimate demand for Demand
for
consumer goods & services. furniture

Demand
Industrial customers buy goods & services for use in for wood
producing other goods & services.

Joint Demand Demand
Joint demand occurs when one industrial product is useful if Demand for ink
other product also exists. for pen

Cross-Elasticity Demand
Demand is „elastic‟ if the %age change in quantity demanded
is more than the %age change in price.
Cross elasticity of demand is the responsiveness of the sales Price of
of one product to a price change in another product. Tea
Back

Industrial Market & Environment
Industrial Intermediaries / middlemen, reselling to OEMs,
Commercial
enterprise
distributors / dealers users, Govt. firms
Business / Industrial customers

Original equipment
For Exide (battery manufacturer), Telco, is an OEM
manufacturers

Users For HMT, TVS-Suzuki is the ‘user’
customers
Govt.

Public sector units BHEL, ONGC, IOL

Govt. undertakings Indian Railways, Defence units, State Elec. Boards
Institutional
customers

Public institutions Govt. hospitals, prisons

Private institutions Schools, colleges
Cooperative

Manufacturing units
societies

Maharashtra Sugar Cooperative Society

Non-manufacturing
Cooperative banks, housing cooperative societies
units


Industrial Market & Environment
Basic products like iron ore, crude oil, fish, fruits,
Materials & Raw materials
vegetables
parts
Manufactured Acids, fuel oil, steel, chemicals
Industrial products & services

materials
Semi-finished parts like bearings, tyres, small
Component parts motors, batteries

Subassemblies Semi-finished goods like exhaust pipe in motorcycle

Light equipment or Hand tools, dies, computer terminals
Capital
items

accessories
Installations or heavy Furnaces, machines, turbines
equipment
Offices, plants, warehouses, parking lots, real
Plant & building
estate property
Suppliers &

Operating & maintenance suppliers like fuels,
services

Supplies packaging materials, lubricants, paints, elec. items

Services Legal, auditing, advertising, courier, marketing
research agency


Marketing Implications for Different
Customer & Product Types
Materials & Parts products, for large OEMs or users, selling is done directly from a
seller organization to a buyer organization.
For smaller volume OEMs & users, standard raw materials or components are sold
through industrial dealers or distributors as it is cost effective.
If the components are custom-made, considerable interaction takes place between
technical & commercial persons from both buyer & seller organizations. Selling is
direct.
Industrial salesman remain in close touch with various departments like purchase,
finance, R&D, marketing, production & quality of buyer organizations as they
influence the buying or payment releasing decisions.
Personal contacts, product leaflets/brochures help as industrial marketer in
communicating product & other information.
For standard products, the factors which influence buying decisions are:

Product quality & performance Payment terms
Delivery dependability Customer service
Price Customer rapport


Marketing Strategy for Capital Items,
Supplies & Services
Capital Items (heavy machinery, office buildings, construction of factories etc.)
Direct selling with extensive interactions, involving top executives from both sides.
Negotiations take considerable time on key factors such as price, ROI, credit facilities,
delivery period, installation time etc.
Personal selling is the primary promotional method used.
Suppliers
Direct selling is used for large-volume buying firms.
Distributors or dealers are used to market to diverse markets consisting of small & medium
size companies.
The purchase or materials department generally make buying decisions based on
dependable delivery, price, & location convenience.
Advt. in magazines, trade journals, local newspapers, & yellow pages are used to create
awareness of the company & its products to potential users & distributers/dealers.
Services (consulting, advising etc.)
Buying firms contact the selling firms who have their reputation by way of word-of mouth.
Continuation of service depends upon the quality, price, & timeliness of service.


Purchasing Orientations of Industrial
Customers
Business buyers choose one of the three purchasing orientations
Buying Orientation - Firms has narrow & short-term focus.
Lowest price
They follow the practice of Lowest Price where they select the lowest price
supplier.
Quality & availability are the “qualifying factors” for a supplier.
Negotiation style – “I win-you lose”.
Gain power
Buyer firm gain power over suppliers by applying tactics like Commoditization –
all suppliers provide similar technical services, product quality & product
features. Price is the only thing to be negotiated.
Multisourcing – the buyer firm asks quotations from various suppliers, & after
negotiations, places order with many suppliers, who compete to get more share of
buying firms purchase.


Customers
Risk
Buyers avoid risk from buying from new suppliers. The tactics used for avoiding
risks are
• Follow the standard purchasing procedure of the company.
• Depend on suppliers who have proved their performance earlier.
Procurement Orientation – Purchasing firm has a strategic (i.e. long term) focus & is
proactive. The buyers seek both quality improvement & cost reduction.
Practices adopted by the company to fulfill the above objectives are:
Collaborative relationship with major suppliers
This results in quality improvements & cost reduction.
The buyer & supplier have inter-firm teams who implement JIT delivery
scheduling & quality assurance to attain zero defects level.
Integrative negotiation – resources can be expanded to benefit both buyer &
supplier.
Working closely with other functional areas
Buyers are involved in describing specifications of products & services ensuring
quality & timely availability.

Customers
Supply chain management (SCM) Orientation – Focus is on how to improve the value
chain from raw-materials to end users.
Purchasing philosophy
Deliver value to end users
Using market research, the supply managers would understand the requirements
of end-users.
Outsource non-core activities
The firm would outsource those systems or sub-systems that have become non
competitive, are non-strategic, involve mature technology, & have qualified
suppliers.
Support collaborative relationships with major suppliers
Partnering relationship requires cooperation, communication, trust, &
commitment between buyers & suppliers.
The objective is to lower total cost and/or increase value in order to achieve
mutual benefit.


Customers
SCM Orientation
Procurement Orientation
Buying
Orientation

Component Intermediaries
& (dealers)
Raw Material Subassembly Final
Suppliers Suppliers Assembly Consumers /
Manufacturer End users

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Purchasing Practices of Industrial
Customers
Purchasing in Commercial Enterprise
Depends on nature of business, size of the enterprise, volume, variety, & technical
complexity of the products purchased.
In large/medium organizations, purchase decision involves persons from departments
like production, materials, quality, finance, engineering, & also senior management
executives.
Various techniques, such as material planning, supplier rating system, EOQ etc. are
used by the buyer organization.
Take use of in-house technical expertise when required.
Major tasks in purchasing process are:
Identifying potential suppliers
Negotiating & selecting suppliers
Ensuring right quality & quantity of material at right time
A long-term business relationship with the suppliers
Many commercial organizations have separated purchasing (material or purchase
function) from manufacturing to form a distinct functional area, on the same level as
marketing, finance, R&D etc.

Customers
Purchasing in Govt. Units
Get the name of the company & the products registered with the govt. units.
Registration involves the submission of duly filled standard forms, product leaflets, &
company details certified by a chartered accountant.
Some govt. units depute their inspectors to inspect the company‟s manufacturing
facilities before approving their registration.
For standard products & services, tender notices are advertised in national
newspapers, based on which suppliers procure tender fees.
In closed & limited tender, tender inquiry is to only few (limited) suppliers who are
registered with govt. unit for certain category of non-standard products.
Based on the lowest price or the lowest landed cost, the orders are released on the
lowest bidder.
If the tender value is large, maximum order is placed on the lowest bidder (L1) & the
balance order is distributed to more than two bidders (L2, L3, L4, .. etc) if they match
the lowest bid.


Customers
Institutional Purchasing & Purchasing in Cooperative Societies
Institutional buyers are either the government or the private organizations.
For govt. organizations, it normally follows the govt. purchase procedure.
An industrial marketer should study the purchasing practices of each institutional buyer
so as be effective in marketing the company‟s goods or services.
Purchasing in Reseller’s Market
Reseller market (replacement market) consists of industrial dealers/distributors whose
main goals are profits & sales volume.
Dealers / distributors select suppliers not only on product quality but also on the
policies of the supplier‟s product.
Supplier related policies which affect competiveness of traders are
Sharing local advt. cost by the supplier
Providing product leaflets or display materials
Competitive prices & trade discounts
Flexible payment terms with credit facility etc.
Both reseller & supplier has to work harmoniously to beat the competition.

Environmental Analysis in Business
Marketing
Air & water pollution, solid waste disposal,
conserving natural resources
Ecological &
Physical
Water, power, skilled manpower, low-cost
labor, transportation
Environment

Company location, R&D facilities, production
Internal facilities, HR, Financial resources, marketing
effectiveness, reputation or image of the
company
Strength & weaknesses analysis

• Customers & competitors
Micro • Suppliers
External
Affect a
particular firm • Economic
Opportunity & threat analysis • Technological
Macro • Govt. & political, & legal
• Cultural & social
Affects all firms • Public-press, institutional investors,
shareholders, banks, public interest groups


Strategies for Managing Industrial
Environment
Effective use of marketing mix such as 4Ps are not adequate for the survival & success in
such a dynamic environment.
The first step is the continuous gathering & monitoring of information on the relevant
external environment. This is done by:
Collecting information on customers & competitors through marketing & field sales
persons.
Analyzing trade & govt. publications.
Carrying out marketing research & economic forecasting.
These activities help the company to:
Understand changes in customer needs.
Monitor competitor‟s actions & strategies.
Identify technological innovations.
Consider the changes talking place in govt., political, & legal factors.
Identify changes in demand of major customers & the total market.
Consider the changes in any other relevant environmental factors.


Environment
The strategies to respond proactively & creatively for managing external environment
Independent Strategies: These are the independent efforts of an industrial firm by using
its own resources (or strengths).
Pricing strategy based on competitors pricing.
Product superiority through product development.
Carry env. protection measure & creates awareness through corporate image advt.
If the product is not performing well, a firm might decide to demarket in that
geographic region.
Cooperative Strategies: An industrial firm cooperates with other firms, industries, or
groups in the environment.
Industry associations like Confederation of Indian Industries (CII) & Federation of Indian
Chamber of Commerce & Industries (FICCI) protect the Indian industries from unfair
political or legal regulations of the govt.


Environment
Strategic Planning: An industrial firm carries out strategic planning by identifying long-
term product/markets, based on forecasts of external env., analysis of its strengths &
weaknesses, & its long-term objectives & goals.
Backward integration – A company seeks ownership or control of its supply system.
Eg., Set up new manufacturing plant for the product which earlier was procured from
other supplier.
Forward integration – A company seeks ownership or increased control on its
distribution system. Eg., open own branches with warehousing facilities, in place of
agents, in order to improve customer service.
Horizontal integration – A company seeks ownership or control of some of its
competitors. Eg., Reduce the competition by acquiring the management control of
some competing firm.

Back


Organizational Buying & Buying Behavior

Purchasing Objectives
The purchase / materials management objective is defined as buying the right items in
the right quantity, at the right price, for delivery at the right time & place.
Delivery / availability – Purchased goods are delivered when & where it is needed.
Product quality – Consistent quality as per the specifications & product use.
Lowest price – Lowest price consistent with availability & quality of the product.
Services – Services accompanying the purchase of goods like:
Prompt & accurate information from suppliers
Technical assistance
Spare-parts availability
Repairs & maintenance capability
Training (if required)
Supplier relationship – Develop a good long-term supplier/vendor relationship & to
develop new sources of supply.

Buying members are influenced by both purchasing objectives of the firm & personal
objectives like higher status, job security, salary increments, promotions, & social
considerations (friendship, mutually beneficial relationships etc.)


Purchasing Activities
The industrial purchasing/buying activities consists of various phases/stages of buying
decision making process called ‘Buyphases’.

Phases in Buying Decision Process
Recognition of a problem or need.
Determination of the application or characteristics & quantity of needed product.
Development of specifications or description of needed product.
Early Supplier Involvement (ESI) Program: Involving purchasing persons as active
members of cross-functional development teams.
Search for & qualification of potential suppliers.
Obtaining & analyzing supplier potential.
Evaluation of proposals & selection of suppliers.
Selection of an order routine. – Placements of orders, quantity, frequency, levels of
inventory needed, follow-up of actual delivery to ensure delivery is as per schedule,
payment.
Performance feedback & post-purchase evaluation.


Supplier Evaluation System
Attribute (Factors) Weight (Importance) Supplier Supplier Rating
performance
Quality 30 0.8 30 X 0.8 = 24
Delivery 25 0.4 25 X 0.4 = 10
Price 15 0.6 15 X 0.6 = 9
Service 20 0.6 20 X 0.6 = 12
Flexibility 10 0.2 10 X 0.2 = 2
Total 100 57

The supplier(s) who gets the highest total score receives the business or the order form
from the buying organization.


Supplier Evaluation - Balanced Scorecards
Technique
The Balanced Scorecard (BSC) Framework
Financial
To succeed financially,
Company should focus on
financial objectives that will
satisfy shareholders.

Internal-Business-Process
Customer
Mission To satisfy shareholders &
Which customer value
& customers, what business
company should focus on to
Strategy process company must excel
achieve its mission?
at?

Learning & Growth
How can company improve &
change to achieve its
mission?

The BSC is a new technique or framework that can be used to evaluate supplier performance in
information age companies. It translates a company‟s mission & strategy into a set of performance
measurements.


Internal-Business-Process

Operations Processes
Identify Customer Design & Develop Make/Buy
Needs & Market Product/Services Products/Services

Innovation Processes
Market
Products/Services

Company executives should identify the key internal
processes in which the company must excel in order to –
Satisfy Customer
• deliver superior customer value
Needs
• satisfy shareholders with excellent financial
performance


Buying Situations
Three types of buying situations also called ‘buyclasses’.
New purchase (or New Task) – In this situation the company is buying the item for the
first time.
Risk is more
Decision takes longer time
More people are involved in decision making
Change in supplier (or Modified Rebuy) – This situation occurs when the company is not
satisfied with the performance of the existing supplier, or there is a need for cost
reduction or quality improvement.
Repeat Purchase (or Straight Rebuy) – This situation occurs when the buying
organization requires certain products or services continuously & when such
products/services has been purchased in the past.


Buying Centre or Decision making Unit
(DMU)
The buying center is a useful tool which answers the question – Who are involved in
buying decision in an industrial organization?

Buying Center Roles
Initiators – This category includes individuals who first recognize a problem or a need,
which could be resolved by purchase of a product or service. Often users play this role.
Buyers – Their major responsibility includes
Obtaining quotations
Supplier evaluation & selection
Negotiation
Processing purchase orders
Expediting deliveries
Implementing purchasing policies of the organization
They are usually purchase officers.
Users – Individuals who use the product or service that is to be purchased. They may be
floor workers, R&D engineers etc.


(DMU) contd..
Influencers – People who can influence the buying decision like technical people (QC
engineers, design engineers etc.)
Deciders – People (Senior executives / purchase executives) who make the actual buying
decisions.
Gatekeepers – People who control/filter the flow of information regarding
products/services to the members of buying center.

Key members of Buying Centre
Top Management Persons (MD, President, VP, GM etc.)
Generally involved in -
• Purchase policy decisions like diversification into a new product/project
• Approval of purchase or materials department annual budgets & objectives
• Deciding the guidelines for purchase decisions
Technical Persons (Design Engr., Prod. Mgr., Maintenance Mgr., QC Mgr., R&D Mgr.,
Industrial Engr. etc.)
Generally involved in product specification, technical evaluation, negotiation with
suppliers, performance feedback of product supplied etc.


(DMU) contd..
Key members of Buying Centre
Buyer/Purchasers or Purchase Dept. (Sr. Exe., Managers, Purchase Officers or
assistants)
Generally involved in -
• Coordinate with Top Management, Technical persons, Finance persons within
the org. as well as with suppliers.
• Maintain good relationship with Suppliers & Decision making members.
Accounts/Finance Persons (or Dept.)
The contribution of finance/accounts are seen while finalizing commercial terms
such as mode of payment, financial approval of capital purchases, issuing payments
to suppliers etc.
Marketing Function
Ensure the product is marketable (packaging).


Models of Organizational Buying Behavior
- The Webster and Wing Model
Environmental Variables
• Physical Individual Variables
• Technological • Personal Goals
• Economic • Education
• Political & legal • Experience
• Labor unions • Expertise
• Cultural • Values
• Customer demands • Job Position
• Competitive practices & • Lifestyle
pressures • Income
• Supplier information
Organizational Buying Decisions
• Choice of suppliers
• Delay decision & search for more
information
• Do not buy

Organizational Variables
Buying Centre Variables
• Objectives/goals
• Authority
• Organization structure
• Size
• Purchasing policies & procedures
• Key influencers
• Evaluating & reward systems
• Interpersonal relationship
• Degree of decentralization in
• Communication
purchasing


Models of Organizational Buying Behavior
- The Sheth Model
Component (1) Component (2) Component (3) Situational Factors

Differences among Variables that Methods used for
individual buyers determine if the conflict resolution in
caused by factors: buying decision is joint-decision making Supplier or
• Background of autonomous or process
individuals joint:
Brand choice
• Problem solving
• Their • Persuasion/influence
information (A) Product specific • Politicking
sources factors -
• Active search • Time pressure
• Perceptual • Perceived risk
distortion • Type of purchase
• Satisfaction with
past purchases (B) Company
specific factors –
• Company size
• Company Situational Factors
orientation • Economic condition
• Degree of • Labor disputes
centralization • Mergers & acquisition


Buyer-Seller Relationship

Development of mutually satisfying, profitable, long-term relationships with
customers is a major business asset of an industrial marketer.

Buyer’s
perception of
sales rep

Is the
Dimensions
of Buyer- Role played
industrial
by industrial
buyer rational Seller buyer
or irrational
Relationship

Role played
by industrial
sales rep


Buyer-Seller Interaction – A Conceptual
Framework
Compatible Style Incompatible Style

Compatible
Content
Ideal Inefficient
Transaction Transaction

Task
Oriented
Interaction
Incompatible Inefficient No Oriented

Content Transaction Transaction
Self-
oriented

Styles of interaction


Relationship Marketing

Relationship marketing is a task of creating strong customer bond or loyalty.

Add financial
Transaction marketing is
benefits
transaction oriented buyer-seller
interaction, which focuses on
closing a sale with a customer.
Approaches
for This is achieved by single sales
developing
customer person.
Add structural
bond
ties to
Add social For large customer, companies
financial &
benefits
social are moving towards team selling
benefits
& relationship marketing.


Methods used to influence Industrial
Customers

Sales Presentation
Get information about the buying centre members, needs of potential customer
firms.
A sales presentation must be tailor made to fit the needs & expectation of the
potential customer.
A sales presentation should first present the positive points about his products,
services & company, & keep difficult or negative points at the en.
Project the products/services as differentiator.

Negotiation with Industrial Customers
Negotiation is a process that tries to maximize the benefits to both buyer & seller,
& takes long-term view of their relationship.
Purpose | Information | Customer Trust | Styles of negotiation | Time factor
Styles of negotiation
I win, you lose | Both of us win | You win, I lose | Both of us lose


Methods used to influence Industrial
Customers contd..

Reciprocity
It is a practice of buying from one’s own customers & also using purchasing power
to sell to one’s supplier.
When products are homogenous or products have little differentiation & price
competition are less, reciprocal dealings are likely to occur.
Caution must be exercised to keep it to minimum level.

Dealing with Customer’s Customer
One of the complexities in Industrial marketing is the need to deal with a
customer’s customer & become the customer’s competitor.


Customer Service

In B2B, customer service is sometimes more important
than the physical product.

Customer service supplements the sales of physical product &
creates a total value for a customer.

The nature of customer service varies with the type of
the product & the stage of PLC.


Types of Relationship

• It include one-time-only exchanges with economy & necessity as the main
Transactional motivation factors.
• Customers prefer a transactional relationship, when (a) many suppliers are
Exchanges or available, (b) the supply market is stable, (c) the purchase decision is not
Relationships complex, & (d) the purchase is considered as less important to meet firm’s
objective.

Value-added • The focus is on complete understanding of the present & future needs of the
customer, & meeting those needs better than competitors, so as to obtain a
Exchanges maximum share of the customer’s business.

Collaborative • The focus is between a customer firm & a supplier firm, & it is the process of
building strong social, economic, service, & technical ties over a period of time.
/ Partnering • The purpose of partnering is to lower the total cost or increase value, in order
Exchanges to achieve mutual benefits.


Marketing Strategies

Concentrated Marketing - is a market segmentation and market coverage strategy
whereby a product is developed and marketed for a very well-defined, specific segment of
the consumer population. The marketing plan is highly specialized one catering to the needs
of that specific consumer segment. Concentrated marketing is particularly effective for small
companies with limited resources because it enables the company to achieve a strong
market position in the specific market segment it serves without mass production, mass
distribution, or mass advertising.

Differentiated Marketing - also called multisegment marketing. It is a market
coverage strategy whereby a company attempts to appeal to two or more clearly defined
market segments with a specific product and unique marketing strategy tailored to each
separate segment.

Undifferentiated Marketing - market coverage strategy whereby a company ignores
differences within a market and attempts to appeal to the whole market with a single basic
product line and marketing strategy. Undifferentiated marketing relies on mass distribution
and mass advertising, aiming to give the product a superior image in the minds of
consumers. It is cost effective because there is only one product line to be produced,
inventoried, distributed, and advertised. Also the absence of segmented market research
lowers the costs of consumer research and product management.


Marketing Strategies

4 criteria - mostly used in Business Marketing:
Technological Contributions
Dependence
Purchasing Orientations
Sales Potential (or Business Potential)
Information for each customer is obtained by the sales person
Customer are categorized into A, B, & C based on high, medium, & low
business potential
• Type A – Collaborative relationship
• Type B – Value-added
• Type C – Transaction relationship


B2B Marketing through E-commerce

What is E-commerce?

E-commerce is defined as a modern business methodology that addresses the needs of
organizations & consumers to cut costs, improve the quality of goods & services, &
increase the speed of service.

It is also defined as the process of using digital technology for transmitting information
between organizations.

Important parts of E-commerce
Internet
World Wide Web (WWW)
Intranet
Extranet


Marketing Strategy for Electronic Market Place

Major Components of Marketing Strategy
Segmenting & Targeting
Product Differentiation & Positioning
Identifying the target customers’ wants in terms of major benefits
Selecting one or more benefits or niche for differentiation based on
company’s strengths or distinctive competencies
Communicating the company’s positioning to the target market
Marketing-mix Strategies, i.e., Product, Price, Promotion & Distribution Strategies
Web-design
Domain name
Distribution channel


Distribution Channels

Manufacturer

Mfg’s Sales Value-
Mfg’s Rep / Distributor Direct Commission
force / added Brokers Merchants
Agents / Dealer Marketing
Branches Resellers

Distributor Online
/ Dealer Telemarketing Direct Mail
Marketing

Industrial Customers


Channel Design Framework

Channel Objective

Channel tasks
Channel Constraints

The type of
External intermediaries
environment • VARs
Channel Alternatives
Competition • Industrial distributors /
Company dealers
Product • Manufacturer’s agents
Characteristics Evaluation of Alternative • Brokers
Customer • Commission merchants
No. of intermediaries /
channels
Selection of Channel • Selective distribution
Economic factors • Intensive distribution
Control factors • Exclusive distribution
Adaptive factors Terms & responsibility of
channel members


Logistics Management – Business Logistics System

Physical supply Industrial manufacturer Physical distribution
Tasks
Transportation
Raw materials Warehousing
Inventory control
Packaging
Components Material Storage Material handling
Order processing
Communication
Supplies Factory & warehouse
Manufacturing locations
Customer service

Industrial customers
Finished goods
storage Industrial distributors /
dealers

Total Distribution Cost = Freight + Warehouse Cost + Inventory Cost + Cost of Lost
Sales due to Delayed Delivery


Marketing Research & Intelligence

Marketing Research & Marketing Intelligence

Marketing research is defined as the objective & systematic process of obtaining,
analyzing, & reporting of data (or information) for decision making in marketing. It
undertakes periodic projects to collect & analyze data with specific objectives.

Marketing Intelligence is an ongoing activity to provide continuous information for
decision making.

Difference between survey method
Areas of survey methods Industrial Research Consumers Research
Sample size Small sample due to small Large sample due to large
universe (or population) & dispersed population
concentration of buyers
Respondent cooperation & More difficult due to time Less difficult to obtain data;
accessibility constraints; accessibility is accessibility is easier
limited to working hours
Defining respondent More difficult as buying Simple, as individuals or
decisions are made by several household users are the buyers
members of the buying
committee


Scope of Industrial Marketing Research

Development of Market potential
Market Share Analysis
Sales Analysis
Forecasting
Competitor Analysis
Benchmarking
New Product Acceptance &
Potential
Business Trend Studies
Sales Quota Determination


Marketing Research Process

Identify the
problem / Present the
Develop research Collect the data (or Process & analyze
opportunity & research findings
design (or plan) information) the data
define research (or report)
objective

Information
type Observational | Exploratory | Survey |
Sources of Primary data
Experimental
data
Research Secondary data
methods
Sampling plan
Method of
contacts
Data collection
method


Industrial marketing Intelligence

Marketing
research
studies

Secondary Marketing Decision Marketing
Market
data Intelligence Support Strategy
System Development response
sources System

Internal
Information
System


Components of DSS

Action
Marketing Manager

Question Answer

Decision
Statistics
models

Display Database

Environment


Strategic Planning, Implementing &
Controlling

Market-Oriented Organizations

Market-oriented organizations stay
close to the customers & ahead of
the competitors.
Shared
They understand the basic principle Values
that the purpose of a business is to
attract & satisfy customers at a
profit.
An effective strategic planning
includes market-oriented strategies Stakeholders Organization
in which marketing function has an
important role.

Strategy

Factors Affecting the Market Orientation


Marketing in Strategic Planning
Strategy hierarchy Organization
(Type of management) structure

Corporate Strategy Corporate
(Strategic Mgmt.) Office

Business/SBU Strategy
SBU ‘A’ SBU ‘B’ SBU ‘C’
(Strategic Mgmt.)

Functional Strategy
Finance Marketing Production
(Operations Mgmt.)


Role of Marketing in an Organization

Organizational Level Role of Marketing Formal Name
Corporate Provide information on competition & customer, Corporate
& advocate customer orientation for developing marketing
long-term corporate strategy

Business Unit / SBU Provide competition & customer analysis for Strategic
developing long-term business strategy, including marketing
competitive advantage
Develop segmenting, targeting, & positioning
strategies
Take product-line decisions

Functional Evolve & implement marketing-mix strategy in Marketing
short-term to achieve business unit objective management
Coordinate marketing activities
Allocate resources


Developing Corporate Strategies

Strategic planning gap is
filled by: Current products New products

Intensive growth
Integrative growth Product
Market penetration
development
Diversification growth Current strategy
strategy
markets
Concentric diversification: consists
of searching for new products that
have technological / marketing Product-
synergies with firm’s existing Market
products. Expansion
Grid
Horizontal diversification: consists
of adding new products Diversification
technologically unrelated to the New
existing products. markets strategy
Market
Concentric diversification
Conglomerate diversification: development
consists of seeking new product- strategy Horizontal diversification
markets that are unrelated to Conglomerate
existing products. diversification


Strategic Planning Process at BU Level

Define the business unit’s mission

Scanning the ext. env. (Opportunity & threats)

Analysis of the int. env. (Strength & weaknesses)

Developing objectives & goals

Formulating strategies for achieving the goals

Preparing programme or action-plan from the strategies

Implementing the strategies & action-plan

Monitoring results & taking corrective actions (i.e., control)


Business Unit’s Mission

The business mission statement should have the following components:
What business the company is in, & What business it intends to be in?
What methods would be uniquely followed (which are different from competitors) in
pursuing business activities?
What is the social standing of the organization as a business entity?

What business the company is in? [Thermometer manufacturer]
Customer groups/segments: Who are being satisfied? Which customer groups an SBU
intends to satisfy? [Household/Hotels/Health care/ Factories]
Customer needs or functions: What needs of customers are being satisfied? [Body
temperature/Cooking temperature/Atmospheric temperature/ Process temperature]
Technologies used: How customer needs are satisfied? [Mercury-base/Alcohol-
base/Digital]


SBU’s Objective & Goals

Corporate mission Corporate objectives & goals

SBU Mission SBU objectives & goals

Company history SBU’s business strategy
Current preferences
Market environment
Marketing strategy
Company’s resources
Company’s core competence


Formulating Strategies at BU Level

Porter’s Generic Strategies Framework

Strategic Advantage

Uniqueness perceived
by the customer Low-cost position
Strategic Target

Industry wide Overall cost
Differentiation
leadership

Particular
segment only
Focus

Developing Industrial Marketing Plan

Section Contents
Situational analysis Market situation Includes data on market size, growth, projections, sales,
market share , & profits for past 3/5 years. It also indicate
target customer needs, buying behavior, buying stage, &
buying situations.
Competitive situation Consists of identifying, ranking, market share, objectives
& strategies, strength & weaknesses, & reaction patterns
of major competitors.
Product situation Includes data on sales, unit price, profits for each major
product item in the product line for past 3/5 years.
Macro-env. situation Consists of identifying PEST factors & then forecasting
the future trends & the impact on the product.
SWOT & issues SWOT analysis Includes identifying major strengths, weaknesses,
analysis opportunities, & threats faced by the product.
Issues analysis Consists of determining major issues faced by the firm,
based on situational & SWOT analysis.
Objectives & goals Determine sales, market share, & profit, considering the
env. & issues analysis done earlier.


Developing Industrial Marketing Plan

Section Contents
Marketing strategy Selection of target market segments.
Positioning strategy relative to competitors.
Marketing-mix strategy.
Customer service & marketing research strategy.
Action plan Each marketing element is broken down to specific actions to answer:
Who will take the specific action, by when, & at what cost?
Marketing budget Building the revenue & expenditure budget. Revenue budget includes
forecasted sales in units, average unit price, & sales revenue. Expenditure
budget includes estimated marketing expenses on personal selling,
promotion, distribution, etc.
Implementation & control Building marketing org. to implement the marketing plan. Control
includes periodic review of actual performance against goals & taking
corrective actions.
Contingency plans Some firms prepare contingency plans in case uncertain situation arise.


Controlling Marketing Performance

Setting Goals

Performance
Measurement

Performance Analysis

Taking Corrective
Actions


Types Marketing Controls

• The firm’s marketing opportunities & strategies
Strategic Control • Use of information technology
(Marketing audit) • Impact of changing environment
• Strategy implementation

• Sales analysis
Annual Plan • Market share analysis
• Expense-to sales ratio
Control • Profit/contribution analysis
• Customer satisfaction monitoring

• The control system provides information on the
resources like money & manpower used in product,
Efficiency Control promotion, distribution, & pricing strategies &
tactics

• Purpose is to find if the company is making or loosing money
Profitability • Companies measure the profitability of each product-line & product-
Control item, each market segment, each branch, & each distribution
channel


Product Strategy & New Product
Development

What is an Industrial Product?

The industrial product is defined not only as a physical entity, but also as a complex
set of economic, technical, legal, & personal relationship between the buyer & the
seller.

From customer’s point of view, a product is a
combination of basic, enhanced, & augmented
properties.
Basic properties are included in the
generic product, with fundamental
benefits sought by the customer.
Generic products are made differentiable
by adding tangible enhanced properties
like product features, styling, & quality.
Augmented properties include intangible
benefits such as technical assistance,
availability of spare parts, maintenance &
repair services, warranties, training,
timely delivery, & attractive commercial
payment terms.


Changes in Product Strategy

Customer
Needs

Factors
determining
Technology change in PLC

product
strategy

Govt.
Policies /
Law


Industrial Product Life Cycle – General Model

Industrial products typically follow the
The behavior of PLC depends on pattern of sales & profits.
three factors on which
Different marketing strategies are needed
management has little or no
at different stages of PLC.
control.
The PLC concept highlights the importance
of long-term planning for a new product.

Changing
Technological
needs of
Changes Industry
customer
Sales & Profits

sales
(Rupees)

Changing Industry
Competition profits

+1
0
-1 Introduction Growth Maturity Decline
Time


Industrial Product Life Cycle – High-tech Products
Sales

Time

NPD I&G M Decline

NPD = New Product Development

I&G = Introduction & Growth

M = Maturity Period


Locating Industrial Products in their Life-
Cycle

Develop a trend analysis for the past 3-5 years based
on information for a product on quality, value of
sales, profit %, market share, no. of competitors &
prices.

Analyze competitors’ market share, product
performance, new product introduction,
diversification or expansion plans.

Estimate & project sales & profits of the
product over the next 3-5 years.

From the above analysis, fix the product’s
position on its life-cycle curve.


Developing Product Strategies for Existing
Products

Evaluate the performance of all existing products or product
lines by using product evaluation matrix.

By using perceptual mapping technique, examine the
relative strengths & weaknesses of the company’s products
in comparison to competitors’ products.

Based on the above analysis, decide the product strategies
for the existing products.


Product Evaluation Matrix

Company Sales Decline Stable Growth
Profitability
Below Target Above Below Target Above Below Target Above
Industry Mkt
Sales Share Target Target Target Target Target Target
Dominant
P
Growth Average Product ‘P’ (Last 3 years)
Market Share = 40%
Marginal
Company Share = 30%
Dominant Industry Sales = 25%
S1 Profitability = as / target
Average
Stable S
Marginal Product ‘S’ (Last 3 years)
Market Share = 12%
Dominant Company Share = 15%
Average
Industry Sales = 16%
Decline Profitability = below target
Marginal

Market Share less than 10% = Marginal

Market Share between 10% to 30% = Average

Market Share greater than 30% = Dominant


Perceptual Mapping Technique

High Quality This technique is used to study
the strengths & weaknesses of
a firm’s product in comparison
B* A1* to that of its competitors.
New
C* Position
Deciding Product Strategies

Strong Service
Weak Service

Maintain the product & its
marketing strategy.
Modify the product &
A*
change the marketing
Old strategy.
Position
Eliminate the product or
product line.
Low Quality Add new products or
product lines.


Product Elimination

Dropping the product or product line is the most controversial decision as many
stakeholders are threatened by this decision.
Factors to be considered:
Will the customer relationships be affected?
Will the profitability be affected due to change in overhead allocation?
What will be the reaction of the employees?
Will the sales of other products get affected?
Is there a new product to replace the eliminated product?
Will the company’s image be affected?
What will be the possible competitive reactions?


New Product Development

Classification of New Products:
Products that are innovative & new to
the world.
Products that are new to the
company, but not new to the world.
Revisions or improvements to the
existing products in the existing
markets.
Additions to the existing product lines
with additional markets.
Repositioning existing products to
new market segments.
Products with substantial cost
reductions without reduction in
performance.


New-Product Development Process

Is the new product in line with the
long-term objectives & strategies?
Do we have adequate resources?
Is it useful to the customers?
What is the future growth, market
size, & competition?

A detailed version of the
product idea that is
stated in a meaningful
customers’ terms.
The purpose is to develop an
estimated projection of the
sales, costs, & profitability of
the new product for 5-7
years.

Design Process Engr. Tooling Mfg
Final product Testing

Alfa & Beta testing
Introduction at trade shows
Testing at distributors/dealers
showroom
Test marketing


High-Tech Marketing

High-Tech includes a wide range of industries such as telecommunications, computers,
software, biotech, & consumer electronics.

Two major characteristics that
Product
distinguish hi-tech marketing are:
Technology High Technological Uncertainties
High Market Uncertainties

Other characteristics that
Technology distinguish hi-tech marketing are:
High Competitive Volatility
Management Process Short life or High-tech products
Technology Technology
High Development Cost


High Technological Uncertainties

Will the product function as promised?

Will the promised delivery be met?

Will the supplier give high quality service?

Will there be a risk of obsolescence?

Will there be any side effects of the new Product/Service?


High Market Uncertainties

Which are the customer needs that new technology can meet?

How will needs change in future?

Will the market accept technical standards?

How fast will the innovation spread?

What is the size of the potential market?


Classification of Marketing Situations

Low-tech marketing includes known
technology applications to meet
clear & well known market needs.
E.g., Pump sets
Technological Uncertainty

High
Hi-fashion marketing consists of
known & slow changing technology
applications to meet difficult to
predict consumer needs. E.g.,
Motion pictures, fashion clothes.

Hi-tech marketing consists of
Low difficult to predict both technology
applications & market. E.g.,
Biotechnology products.

Low High Better mousetrap marketing
includes a new technology to meet
Market Uncertainty well-established market. E.g., Water
purifying system.


Technology Adoption Life Cycle

Early majority Late majority
(34%) (34%)

Laggards
Early adaptors (16%)
(14%)
Innovators
(3%)

Time of Adoption of Innovation


Unique nature of High-tech Marketing
Strategy

Plan Whole
Target a Niche Develop
Product
market Partnerships
Properties

Unique
Distribution Communication
Positioning
Strategy Strategy
Strategy

Pricing Strategy


Steps to Develop Effective Communication

Determine the communication objectives

Identifying the Target Audience

Determining the Promotional Budget

Develop the Message Strategy

Select the Media

Evaluate the Promotional Results

Integrate the Promotional Programme


Role of Advertising in Industrial Marketing

Creating awareness
Reaching members of buying centre
Increasing sales efficiency & effectiveness
Efficient reminding
Sales lead generation
Supporting distribution channel members


Promotional Tools & Media

Promotion Advertising Sales PR & Publicity Direct Personal
Tools Promotion marketing Selling
Promotion Print media Trade shows Charitable Direct mail Sales calls
Media, & donations
Promotion
General business Exhibitions Adopting Telemarketing Sales
Support
publications villages presentation
Trade journals Catalogues Community On-line Team selling
relations marketing
channels
Industrial Sales contests News item in Relationship
directories press marketing
Promotional
novelties (gifts)
Seminars

Promotional
letters
Entertainment


Pricing & Factors Influencing Pricing
Decision
Pricing is the process of Pricing objectives
determining what a company will Survival
receive in exchange for its products.
Maximum short-term profits
Pricing factors are manufacturing Maximum short-term sales
cost, market place, competition, Maximum sales growth (Market
market condition, and quality of penetration)
product. Maximum marketing skimming
Product-quality leadership
Demand analysis
Cost analysis
Break-even analysis
Competitive analysis
Government regulations
Price discrimination
Predatory pricing


Cost Behavior at Different Production Levels
– Economies of Scale

300
Cost / Unit (in rupees)

200

100

0 100 200 240 300
Quantity Produced / Year (in thousand)


The Pricing Strategies

Competitive bidding in competitive markets
Probabilistic bidding
Pricing new products
Skimming strategy
Penetration strategy
Pricing across the product life-cycle
Growth stage pricing
Maturity stage pricing
Decline stage pricing


Nature of Business Marketing

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