Chapter 1 marketing by. prof nikhil s lohe

MARKETING PROF. NIKHIL LOHE
1
Chapter 1. Marketing
Prof. Nikhil Sanjay Lohe
Asst. Prof.
Department of Pharmaceutics
Hi-Tech College of Pharmacy Chandrapur
1.1 INTRODUCTION
Market is a place where business is conducted. Marketing consists of those efforts which
effect transfer in ownership of goods and care of their physical distribution. It is the process
by which products are made available to the ultimate consumers from their point of origin. In
short marketing means the performance of business activities that direct the flow of good s and
services from producer to the consumer. Pharmaceutical marketing is defined as “the
performance of pharmaceutical business activities that direct the flow of the pharmaceutical
goods and services from producer to consumers”
Marketing is pervasive in nature as it applies to all organizations. It is applicable not only to
business organizations, but also to organizations such as educational, medical, government,
non-government, social, religious and cultural organizations. All organizations market their
products and services to accomplish their goals and ensure their survival and growth.
For instance, educational institutions are marketing knowledge packed courses, character
building and all round development, hospitals are selling total health care, family welfare, child
welfare, etc. and social organizations are selling their programs like child education, up lift
ment of rural masses, spread of literacy, and health care of people living in slums and so on.
1.2 GENERAL CONCEPT
This is a business philosophy that challenges the above three business orientations. Its central
tenets crystallized in the 1950s. It holds that the key to achieving its organizational goals (goals
of the selling company) consists of the company being more effective than competitors in
creating, delivering, and communicating customer value to its selected target customers. The
marketing concept rests on four pillars: target market, customer needs, integrated marketing
and profitability.
Importance of Marketing
 Marketing Promotes Product Awareness to the Public
 Marketing Helps Boost Product Sales
 Marketing Builds Company Reputation
Functions of marketing
 Buying and assembling
 Selling
 Transportation
 Storage
 Grading
 Packing and packaging
 Financing
 Risk bearing
 Feedback information

2
 BUYING AND ASSEMBLING
Buying is one of the fundamental function of marketing. It can be considered as the
first step in the process of marketing. The manufacturer buy raw materials and
equipment’s to manufacture its pharmaceutical products. Merchants or middleman have
to buy the goods or products from various sources of supply to sell it at profit to
consumers. On receiving the supply order by the supplier the goods are supplied
 There are four methods of buying
1. By inspection: In this method the buyer or his agent visit the premises of the seller for
the inspection of the goods which is proposed to be purchased.
2. By sample: It is very common method of purchase of goods. The sample of goods is
supplied by the supplier for its approval from the buyer.
3. By description: It refers to the purchases of goods made on the basis of description of
goods in the catalogue or price list of the supplier.
4. By grade: The goods which are standardized and graded are purchased in the required
quantity simply by mentioning their grades ISI, agmark, I.P., B.P., U.S.P., Etc.
 SELLING
Selling is another important function of marketing. Selling and buying are interlinked
with each other. In pharmaceutical marketing the sale of a particular brand of the
medicine depends on the physicians. So pharmaceutical manufacturers approach the
physicians through its medical representatives. They try to convince the physicians to
prescribe then medicines manufactured by its firm.
 TRANSPORTATION
It means the movement of goods and people from one place to another by systematic
conveyance. Transportation perform the essential function of marketing. Mass selling
and mass production are impossible without efficient economical transport. Effective
transport facility has made possible trade within and between countries. It helps in
stabilization of prices of commodities by movement of supplies from surplus to
deficient areas.
 STORAGE
Storage is another essential function of the marketing process. It involves the making
of proper arrangement for retaining of goods in a perfect state till they are needed by
the consumers and are to be taken to the market place. Modern production is carried
out in anticipation of demand rather than in response to specific order of consumers. So
manufacturers need proper storage of their products to ensure continuous availability
to the market. It helps to maintain stability of prices. It helps to ensure the availability
of the goods throughout the year in spite of the fact that the same grows or is produced
only during the particular season.
• Storage facilities are provided by three types of warehouses:
1. Private warehouses: These are owned by big business concerns or whole sellers
who use them for storage of their own stocks.
2. Public warehouse: These warehouses are operated by public firms which
provide storage facilities to the general public for a certain charge. It may be
owned and operated by an individual, a cooperative society, a dock authority,
they required a license from the government.

3
3. Bonded Warehouse: These warehouse are licensed to accept imported goods for
storage until the payment of custom duties are made. These are situated at ports.
 GRADING
Grading is an important process in the function of standardization. Standard is measure
or designation of a particular quality which is decided on the basis of size, color, shape,
strength, chemical content etc. In case of pharmaceutical products, grading is done as
I.P., B.P., U.S.P, depending upon the standards maintained as per the pharmacopoeia.
Sorting out the different types of commodities in accordance with the particular
established standards and then classifying them into different group.
Advantages of Grading
• It assures goods of standard quality to the consumers.
• It enables the manufacturer to produce standardized goods.
• It enables the seller to sell by sample and description.
• It facilitate hedging and future trading because price quotations and market reports
accurately conveys the demand and the supply.
• It facilitates distribution of goods at every stage.
• The standard goods eliminates uncertainty in purchasing and enables the seller to get
better price for the product.
 PACKING AND PACKAGING:
The products after their manufacture, are required to be packed properly. It protects the
products from deterioration, exposure, pilferage. It facilitates handling and use of
products. It ensure the supply of product of right quality, quantity and weight. It reduces
the cost of transportation and storage. It can be easily stocked in retail drug store which
have not any space.
 FINANCING
The provisions of funds are essential for the meeting of various requirement of
marketing. The marketing concerns require both fixed and working capital. The whole
seller, retailer, commission agent, broker, cooperative undertakings of sales department
of a manufacturer need relatively large amount of capital for the purchase of goods,
resale, paying of wages, salaries. The capital required for this purpose called working
capital. Similarly fixed capital required for the purchase of land, building, machinery,
furniture and other office appliances.
 Sources of Finance
Owned Capital: Its contribution by owner, sole proprietor, partners and
shareholders.
Loan Capital: raised from individual banks and financial institutions.
Loan capital covers 3 types of loan
1. Long term finance: fixed asset such as land, building, machinery.
2. Medium term finance: raised through shares and debentures.
3. Short term finance: Raised by trade credit, bank credit, installment

4
 Risk
• Risk means possibility of loss likely to occur due to some unforeseen events such as
theft, fire, flood, cyclones, earthquakes, and the loss arises due to risks can be protected
through insurance contracts.
• Marketing risks are of four types:
1) Economic Risks: arise due to changes in market economic conditions.
A. Time risk: arise due to time gap between purchases and sell commodity.
B. Place risk: difference in price of same commodity at different place
C. Risk of changes in demand: These days’ goods are produced in anticipation of
demand. If the demand does not come up to expectation of the producer at the
time of the marketing of the product the profit of the producer may be reduced.
D. Risk of competition: A producer and a merchant have both to face risk of losing
a demand of its product due to activities of its competitors.
2) Natural Risk: Arise due to natural forces fire, flood, storm, earthquake, lightening.
3) Human risk: risk arise due to social hazard, pilferage, manmade factors, change in
protocol of company.
4) Political Risk: These risk arise by changes in government and its policies, the change
made by government in taxation, licensing, labor laws, and industrial policies. The
above risk can be reduced by. The business can be insured against natural calamities
risks and human risks. The industrial machinery can be thoroughly examined before
operation in order to prevent the accident. The labor problems can be solved
immediately on priority to avoid any loss in future. Market research should be done
carefully.
 FEED BACK INFORMATION
Feedback information needed for proper running of business. The management collects
information regarding demand supply, latest trend of market, package size
There are two sources from which the information can be collected.
1) Internal Sources: Statistics of sales turnover, advertising expenditure, transport cost
2) External Sources: these may be primary sources such as market information by
salesmen, dealers, and consumer.
The secondary sources trade press, trade association, published surveys.
1.3 Scope of Marketing:
Everything you need to know about the nature and scope of marketing. What is all
covered in marketing is considered as the scope or area of marketing. Marketing has a
very wide scope it covers all the activities from conception of ideas to realization of
profits. Marketing is pervasive in scope; any type of entity which is of value to a market
segment can be marketed.
The scope of marketing is determined by the marketing offering of an organization.
Market offering is a combination of goods, services, ideas, persons, places, information,
etc. offered to a market to satisfy specific needs and wants of people. Market offerings
are not limited to physical goods. They also include services like banking, air travel,
hotel stay, tourism, etc. which are not tangible in nature and can’t be owned by the
buyers. In this article we will discuss about the scope of marketing. Learn about the
areas, aspects and entities covered in marketing.

5
 Nature and Scope of Marketing: Areas, Aspects and Entities Covered
in Marketing
Marketing being a part of social science is highly dynamic and complex in nature. The
rapid changes in various sectors have brought great changes in the concept of
marketing. Traditionally, marketing was concerned with buying and selling of goods
and ser-vices only but now its scope has widened and it encompasses a range of
activities from consumer satisfaction to consumer delight and management of customer
relationship.
1. Products and Services: Products and Service are the basic element of marketing. If
there is no product there is no marketing. It is concerned with the nature and type of
products, product quality and design, product planning and development, product
decisions relating to branding, labelling, packaging, trademarks etc.
2. Marketing Research: Though products and services were the starting point under
traditional marketing, modern marketing starts with an analysis of the various aspects
of market and related areas. It includes an analysis of nature and types of customers,
size of market, customer attitude, buyer behavior etc. An in-depth analysis of
customers and markets is a prerequisite for every marketer to have a successful
marketing.
3. Channel of Distribution: The pathway through which the goods move from
producer to consumer is the channel of distribution. It includes a number of
intermediaries like wholesaler, retailers, jobbers etc. Channels by moving the goods
help in transferring the ownership of goods from seller to buyer.
4. Physical Distribution: The physical movement of the goods from producer to
consumer is physical distribution. It includes transportation, warehousing, inventory
control and management, order processing etc.
5. Promotional Decisions: Howsoever good a product is, it has no value if it is not
properly promoted. Promotion has the basic objective of informing the market about
product availability and creating a demand for it. Different promotional tools are there
like advertising, sales promotion, personal selling, publicity, public relations etc.
6. Pricing Decisions: This is the only element of marketing which generates revenue
for the firm. Pricing is concerned with pricing policies and strategies, price
determination, discounts, commissions etc.
7. Environmental Analysis: An analysis of the environment in which the business is to
be carried out is the first step for any organization. The various macro and micro
factors should be studied beforehand only to develop an understanding of the strength,
weaknesses, opportunities and threats, for an organization.
This will help not only in the formulation of the corporate strategy but marketing
strategy as well. It includes the study of economic environment, geographical
environment, political and legal environment, social and cultural environment,
natural and technological environment etc. in the country and outside.

6
8. Feedback from Customers: For successful marketing of goods it is essential that the
marketer obtains the required feedback from customers. A proper feedback
mechanism should be developed so that reasons for failure or less satisfaction may be
identified and improvements in the products be made.
9. Responsibility towards the Society: Business and society are interrelated and
interdependent. A business cannot exist in vacuum. It derives its much needed inputs
from society and therefore owes a responsibility towards the society. These social
activities are a part of marketing as the units have to protect and pro0.mote the interest
of the society. A marketer to be socially responsive owes responsibility towards
employees, consumer, shareholder etc.
 Nature and Scope of Marketing – Areas Covered in the Subject
Scope refers to the areas that a subject covers. Scope of marketing can be described by
having an understanding of the functions of marketing. The scope of marketing can also
be understood easily by studying the roles and responsibilities of the marketing
department. The scope of marketing revolves around customer satisfaction, anything
and everything that has an impact of customer satisfaction comes under the scope of
marketing.
1. Consumer Needs and Wants: Consumer will purchase goods or services only if it fulfills
his/ her needs and wants. Before offering a product, the marketer undertakes research
activities in order to try and understand customer needs, and then try to offer a product
which satisfies those customer needs.
2. Consumer Behavior: In this, the marketer studies and analyzes how consumers respond
to a particular product or service? Every consumer is different and unique in nature,
therefore consumers have to be studied in a group as well as individually in order to
understand their behavior and satisfy them accordingly.
3. Product Planning & Development: There is no marketing without a product. Therefore
product planning and development is an integral part of marketing functions. Product
planning and development includes idea generation, concept development, product
development, branding, packaging & commercialization of the product. Marketing
department plays a key role in this activity along with the research and development
team.
4. Pricing Policies: As marketing is an exchange process, money is exchanged for
products. This aspect of marketing falls under the function of pricing strategies. Every
product needs to be priced strategically in order to survive in the market and satisfy
consumers. There are different pricing policies. Each policy depends on various factors
like production cost, competition, product life cycle etc.
5. Distribution: Study of distribution channels is important in marketing. It is necessary
for a marketer to reach maximum customers with minimum cost.

7
6. Promotion: Promotion includes personal selling, sales promotion, world of mouth
advertising etc. To achieve marketing objectives it is necessary to design the right
promotion mix. The process of designing and implementing the marketing mix falls in
the scope of marketing.
7. Consumer Satisfaction: Consumer satisfaction is the major objective of marketing. A
consumer is satisfied when his/ her needs are fulfilled. Consumer satisfaction ensures
that the business is moving in the right direction
1.4 DIFFERENCE BETWEEN MARKETING AND SELLING
Sr. No. Marketing Selling
1. Marketing starts with the buyer and focuses
constantly on buyer’s needs.
Selling starts with the seller and is preoccupied
all the time with the seller’s needs.
2. Seeks to convert “customer needs” into ‘products’. Seeks to convert ‘products’ into “Cash”.
3. Views business as a customer satisfying process Views business as a goods producing process.
4. Marketing effort leads to the products that the
customers actually want to buy in their own
interest.
The company makes the product first and then
figures out how to sell it and make a profit.
5. Marketing communication is looked upon as a tool
for communicating the benefits/ satisfactions
provided by the product
Seller’s motives dominate marketing
Communication (promotions).
6. Consumers determine the price; price determines
costs
Cost determines the price.
7. Marketing begins much before the production of
goods and services, i.e. with identification of
customers’ needs. It continues even after the sale to
ensure customer satisfaction through after sales
services.
Selling comes after production and ends with
the delivery of the product and collection of
payment.
8. Marketing views the customer as the very purpose
of the business. It sees the business from the point
of view of the customer.
Customer consciousness permeates the entire
organization – all departments, all the people and
all the time.
Selling views the customer as the last link in the
business.
a.
`Customer satisfaction’ is the primary motive. `Sales’ is the primary motive
9. External market orientation. Internal company orientation.
10. Marketing concept takes an outside in perspective Selling concept takes an inside-out perspective
11. It is a broad composite and worldwide concept,
more so in this era of globalization.
It is a narrow concept related to product, seller
and sales activity.
12. Marketing is more ‘pull’ than ‘push’. Selling involves ‘push’ strategy
13. Marketing has a wider connotation and includes
many activities like marketing research, product
planning & development, pricing, promotion,
distribution, selling etc.
Selling is a part of marketing
14. Marketing views the customer as the very purpose
of the business. It sees the business from the point
of view of the customer.
Customer consciousness permeates the entire
organization – all departments, all the people and
all the time.
Selling views the customer as the last link in the
business.
15. It concerns itself primarily and truly with the ‘value
satisfactions’ that should flow to the customer from
the exchange.
It over emphasizes “the exchange’ aspect,
without caring for the ‘value satisfactions’
inherent in the exchange.
16. It assumes: “Let the seller beware”. It assumes: “Let the buyer beware”.
17. Marketing generally has a matrix type of
organizational structure.
It has a functional structure.

8
18. The main job is to find the right products for your
customers.
The main job is to find the customers for your
products.
19. The mindset is “What is that we can make here or
Source from outside to satisfy the needs of the
target customers”.
The mindset is “Hook the customer”.
20. Conceptual and analytical skills are required. Selling and conversational skills are required.
1.5 Marketing Environment: Explanation, Components, &
Importance
Several internal and external factors affect a business’s marketing activities. While some of the
factors are in the control of the business, most of these are not and the business has to adapt
itself to avoid being affected by changes in these factors. These external and internal factors
group together to form a marketing environment in which the business operates.
What Is Marketing Environment?
A company’s marketing environment consists of the actors and
forces outside of marketing that affect marketing management
ability to build and maintain successful relationships with target
customers”. – Philip Kotler
Marketing Environment is the combination of external and internal factors and forces
which affect the company’s ability to establish a relationship and serve its customers.
The marketing environment of a business consists of an internal and an external
environment.
 The internal environment is company-specific and includes owners, workers,
machines, materials etc.
 The external environment is further divided into two components: micro & macro.
The micro or the task environment is also specific to the business but is external.
It consists of factors engaged in producing, distributing, and promoting the
offering.
The macro or the broad environment includes larger societal forces which affect
society as a whole. It is made up of six components: demographic, economic,
physical, technological, political-legal, and social-cultural environment.
 Components Of Marketing Environment
The marketing environment is made up of the internal and external environment of the
business. While the internal environment can be controlled, the business has less or no control
over the external environment.

9
1. Internal Environment
The internal environment of the business includes all the forces and factors inside the
organization which affect its marketing operations. These components can be grouped
under the Five MS of the business, which are:
Men: The people of the organisation including both skilled and unskilled workers.
Minutes: Time taken for the processes of the business to complete.
Machinery: Equipment required by the business to facilitate or complete the processes.
Materials: The factors of production or supplies required by the business to complete
the processes or production.
Money: Money is the financial resource used to purchase machinery, materials, , and
pay the employees.
The internal environment is under the control of the marketer and can be changed with
the changing external environment. Nevertheless, the internal marketing environment
is as important for the business as the external marketing environment. This
environment includes the sales department, the marketing department, the
manufacturing unit, the human resource department, etc.
2. External Environment
The external environment constitutes factors and forces which are external to the business and
on which the marketer has little or no control. The external environment is of two types:
Micro marketing environment
Macro marketing environment
A. Micro Environment
The micro-component of the external environment is also known as the task environment. It
comprises of external forces and factors that are directly related to the business. These include
suppliers, market intermediaries, customers, partners, competitors and the public. Suppliers
include all the parties which provide resources needed by the organization. Market
intermediaries include parties involved in distributing the product or service of the
organization.
Partners are all the separate entities like advertising agencies, market research organizations,
banking and insurance companies, transportation companies, brokers, etc. which conduct
business with the organization. Customers comprise of the target group of the organization.
Competitors are the players in the same market who targets similar customers as that of the
organization. Public is made up of any other group that has an actual or potential interest or
affects the company’s ability to serve its customers.
B. Macro Environment
The macro component of the marketing environment is also known as the broad environment.
It constitutes the external factors and forces which affect the industry as a whole but don’t have
a direct effect on the business. The macro-environment can be divided into 6 parts.

10
1. Demographic Environment: The demographic environment is made up of the people who
constitute the market. It is characterized as the factual investigation and segregation of
the population according to their size, density, location, age, gender, race, and occupation.
2. Economic Environment: The economic environment constitutes factors which influence
customers’ purchasing power and spending patterns. These factors include the GDP
(Gross domestic product), GNP (Gross National Product), interest rates, inflation, income
distribution, government funding and subsidies, and other major economic variables.
3. Physical Environment: The physical environment includes the natural environment in
which the business operates. This includes the climatic conditions, environmental change,
accessibility to water and raw materials, natural disasters, pollution etc.
4. Technological Environment: The technological environment constitutes innovation,
research and development in technology, technological alternatives, innovation
inducements also technological barriers to smooth operation. Technology is one of the
biggest sources of threats and opportunities for the organization and it is very dynamic.
5. Political-Legal Environment: The political & legal environment includes laws and
government’s policies prevailing in the country. It also includes other pressure groups
and agencies which influence or limit the working of the industry and/or the business in
the society.
6. Social-Cultural Environment The social-cultural aspect of the macro-environment is
made up of the lifestyle, values, culture, prejudice and beliefs of the people. This differs
in different regions.
 Importance of Marketing Environment
Every business, no matter how big or small, operates within the marketing environment. Its
present and future existence, profits, image, and positioning depend on its internal and external
environment. The business environment is one of the most dynamic aspects of the business. In
order to operate and stay in the market for long, one has to understand and analyze the
marketing environment and its components properly.
Essential For Planning: An understanding of the external and internal environment is
essential for planning for the future. A marketer needs to be fully aware of the current
scenario, dynamism, and future predictions of the marketing environment if he wants
his plans to succeed.
Understanding Customers: Thorough knowledge of the marketing environment helps
marketers acknowledge and predict what the customer actually wants. In-depth analysis
of the marketing environment reduces (and even removes) the noise between the
marketer and customers and helps the marketer to understand consumer behavior better.
Tapping Trends: Breaking into new markets and capitalizing on new trends requires a
lot of insight about the marketing environment. The marketer needs to research about
every aspect of the environment to create a foolproof plan.
Threats and Opportunities: Sound knowledge of the market environment often gives a
first-mover advantage to the marketer as he makes sure that his business is safe from
future threats and taps the future opportunities.

11
Understanding the Competitors: Every niche has different players fighting for the same
spot. A better understanding of the marketing environment allows the marketer to
understand more about the competitions and about what advantages do the competitors
have over his business and vice versa
1.6 ANALYZING CONSUMER’S BUYING BEHAVIOR
The core function of the marketing department is to understand and satisfy consumer need,
wants and desire. Consumer behavior captures all the aspect of purchase, utility and
disposal of products and services. In groups and organization are considered within the
framework of consumer. Failing to understand consumer behavior is the recipe for disaster as
some companies have found it the hard way. For example, Wal-Mart launched operations in
Latin-America with store design replicating that of US markets. However, Latin America
consumer differs to US consumer in every aspect. Wal-Mart suffered consequences and failed
to create impact.
Social, cultural, individual and emotional forces play a big part in defining consumer buying
behavior. Cultural, sub-culture and social class play an important is finalizing consumer
behavior. For example, consumer growing up in US is exposed to individualism, freedom,
achievement, choice, etc. On sub-culture level influence of religion, race, geographic location
and ethnicity define consumer behavior. Social class consists of consumer with the same level
of income, education, taste, feeling of superiority and inferiority. Over time consumer can
move from one social level to another.
Culture alone cannot define consumer behavior; social forces also play an important role.
Social forces consist of family, friends, peer groups, status and role in society. Groups which
have direct or indirect influence on consumer are referred to as reference groups. Primary
groups consist of friends, family and peers with whom consumer has direct contact for
considerable time. Secondary groups are association where interaction is at formal level and
time devoted is less.
Consumer buying behavior is influenced by individual’s own personality traits. These
personality traits do not remain the same but change with the life cycle. The choice of
occupation and corresponding income level also play part in determining consumer behavior.
A doctor and software engineer both would have different buying pattern in apparel, food
automobile etc. Consumers from similar background, occupation and income levels may show
a different lifestyle pattern.
An individual buying behavior is influenced by motivation, perception, learning, beliefs and
attitude. These factors affect consumer at a psychological level and determine her overall
buying behavior. Maslow’s hierarchy, Herzberg Theory and Freud Theory try and explain
people different motivational level in undertaking a buying decision. Perception is what
consumer understands about a product through their senses. Marketers have to pay attention to
consumer’s perception about a brand rather than true offering of the product. Learning comes
from experience; consumer may respond to stimuli and purchase a product. A favorable
purchase will generate positive experience resulting in pleasant learning. Belief is the pre-
conceived notion a consumer has towards a brand. It is kind of influence a brand exerts on
consumer. For example, there is a strong belief product coming through German engineering
are quality products. Companies may take advantage of this belief and route their production
through Germany.

12
Companies need to think beyond buying behavior and analyze the actual buying process.
Complex buying behavior requires high involvement of buyers, as it is infrequent in nature,
expensive, and they are significant differences among the available choice e.g. automobile.
Grocery buying is referred to as habitual buying, which requires less involvement as few
differences among brands, frequent and inexpensive. Buying process involves purchase need,
decision makers, information search, alternatives evaluation, purchase decision and post
purchase behavior. Companies try hard to understand consumer experience and expectation at
every stage of buying process. Marketers need to figure the right combinations which will
initiate purchase need e.g. marketing programs. Companies should ensure consumer have
readily available information to take the decision e.g. internet, friends. Consumers evaluate
alternatives based on their brand perception and belief. Companies need to work hard to
develop products, which match this perception and belief every time. Final purchase decision
is taken looking other’s perception of the brand. Post purchase if expectations meet actual
performance consumer is satisfied and more likely to repurchase or recommend the brand to
others.
Consumer markets are defined by various geographical, social and cultural factors.
Furthermore, consumer behavior is influenced by psychological, personality, reference groups
and demographic reasons. Finally actual buying process involves complex process and cycle.
Companies have to keep a tab on all three factors in formulating strategy.
Analysis of consumer buying behavior

13
1.7 Analysis of industrial buying behavior
Industrial buying is the decision-making process by which formal organizations establish the
need for purchasing products and services and identify, evaluate, and choose among alternative
brands and suppliers.
 Characteristics of Industrial Market
A. Inelastic, fluctuating demand: due to the derived demand, price-elasticity in industrial
markets is frequently lower than in consumer markets
B. Geographical concentration: many industrial markets are geographical concentrated
C. Large order quantities and large amounts of money involved
D. Limited number of customers: industrial suppliers often supply only a few companies
compared to companies that deliver directly to consumers.
 Major Types of Buying Situations
A. Straight re-buy: A business buying situation in which the buyer routinely reorders
something without any modifications.
B. Modified re-buy: A business buying situation in which the buyer wants to modify product
specifications, prices, terms, or supplier.
C. New task: A business buying situation in which the buyer purchases a product or services
for the first time.
D. System buying: Buying a packaged solution to a problem from a single sellers or distributors.
E. Systems Selling: Selling all the raw materials required by an organization.
Participants in Business Buying Process
Initiators: one who request that something is to be purchased
Users: one who uses the product or service
Influencers: people who influence buying decision
Gatekeepers: people who have power to prevent sellers or information from reaching
members of buying centers.
 Decision making process
Unlike the consumer purchasing decision process, which is ‘mainly a series of mental stages,
industrial purchasing decision making involves more physical and observable stages.

14
There are many decision makers involved in each of the eight stages as elaborated by the
buy grid framework
1. Phase 1: Recognition of a Problem:
The purchasing/buying process begins when someone in the company recognizes a problem or
need that can be met by acquiring goods or services.
The common events that lead to this phase could be:
1. The company decides to develop a new product and needs new equipment and materials to
produce this product.
2. It decides to diversify or expand and hence requires a multitude of new suppliers.
3. Purchasing Manager assesses an opportunity to obtain lower prices or better quality.
4. A machine breaks down and requires replacement or new parts.
5. Purchased materials turn out to be unsatisfactory and the company searches for another
supplier.
Early emolument in the new task/problem recognition phase offers the marketer an advantage
over competitive suppliers.
2. Phase 2: Description of the need:
This phase involves determination of the characteristics and quantity of the needed item. The
general characteristics could be reliability, durability, price etc. and the marketer along with
the purchasing manager, engineers and users can describe the needs.
The questions that could be posed are:
1. What performance specifications need to be met?
2. What types of goods and services should be considered?
3. What are the application requirements? And
4. What quantities would be needed?
The answers to such questions will give the marketer a general description of the need
which will be the input for the next phase.
Performance Review
Order-Routine Specification
Suppliers Selection
Proposal Solicitation
Suppliers Search
Product Specification
Need Description
Problem Recognition

15
3. Phase 3: Product Specification:
Obtaining the input from the second phase, the buying organization has to develop the technical
specifications of the needed items. In this phase, the product is broken down into items. The items in
turn are sorted into standard ones and new ones which need to be designed.
The specifications for both are listed. As a marketer, he must involve himself and his technical and
financial counterpart to determine the feasibility and also to elaborate the services they can offer to
develop and supply the product. Unless it is a known supplier many companies do not encourage the
supplier participation at this stage. Customer relationship plays a vital role here.
Here is an example of how the supplier firm can help the buyer firm in this phase.
Toyota Motor Corporation wanted to make a ‘thinking car’ which could learn, memories and react to
inputs from the human environment. They found Sony Corporation had developed a mechanical dog
displaying these features.
They involved Sony in the design of the car and evolved a ‘pod’ which was displayed at the
35th Tokyo Motor Show. It is yet to be manufactured for the general public. Pod can exchange
information with other vehicles, gauge the drivers’ skill level; understand the drivers’ mood
etc. Instead of a steering wheel, it has a joystick.
Sony Corporation was involved with Toyota Motor right from the design stage and its inputs
were individual components styling the portable terminal, interior displays, joystick and
development of ECU (Emotional Communication Unit) for expressing emotions.
4. Phase 4: Supplier Search:
This phase pertains to the search for the qualified suppliers among the potential sources. The
marketer has to ensure that he is in the list of potential suppliers. For this to happen, he has to
make periodic visits to all potential companies and create awareness. Brochures have to be
circulated and advertisements placed in specific media like trade journals. This phase only
involves making a list of qualified suppliers.
5. Phase 5: Proposal Solicitation:
The lists of qualified suppliers are now further shortened based on some critical factors. For
example, if the buyer is not willing to try any new firm which has not been in the market for
more than three years, it can delist those suppliers. Then the purchasing departments ask for
proposals to be sent by each supplier.
After evaluations, based on the specified criteria, some firms are asked to come over for formal
presentations. The proposal must include product specification, price, delivery period, payment
terms, taxes of experts and duties applicable, transportation cost, cost of transit insurance and
any other relevant cost or free service provided. For purchase of routine products or services,
phases 4 and 5 may occur simultaneously as the buyer may contact the qualified suppliers to
get the latest information on prices and delivery periods.
For technically complex products and services, a lot of time is spent in analyzing proposals in
terms of comparison on products services, deliveries and the landed cost.

16
A leading MNC which manufactures soaps requires they would be suppliers to pass through
three stages: that of a qualified supplier, an approved supplier and a select supplier. To become
qualified, the supplier has to demonstrate technical capabilities, financial health, cost
effectiveness, high quality standards and innovativeness.
A supplier that satisfies these criteria then applies sample lot for approval. Once approved, the
supplier becomes a ‘select supplier’ when it demonstrates high product uniformity, continuous
quality improvement and JIT delivery capabilities.
6. Phase 6: Supplier Selection:
Each of the supplier’s presentations are rated according to certain evaluation models. The
buying organization may also attempt to negotiate with its preferred suppliers for better prices
and terms before making a final decision.
7. Phase 7: Order Routine Specification:
After the suppliers have been selected, the buyer negotiates the final order, listing the technical
specifications, the quantity needed, the expected time of delivery, return policies, warranties
etc. In case of maintenance, repair and operating items, buyers are increasingly moving towards
blanket contracts rather than periodic purchase orders.
Blanket contracting leads to more single sources buying and ordering of more items from that
single source. This system brings the supplier in closer with the buyer and makes it difficult
for out-suppliers to break in unless the buyer becomes dissatisfied with the in-suppliers’ prices,
quality or service.
SKF India, the Swedish multinational manufacturing bearings in Pune and Bangalore, was the
single source supplier of ball bearings to TVS Motor Company, located at Padi in Chennai.
8. Phase 8: Performance Review:
The final phase in the purchasing process consists of a formal or informal review and feedback
regarding product performance as well as vendor performance. The buyer may contact the end
user and ask for their evaluations which are in turn given to the supplier or he may rate the
supplier on several criteria using a weighted score method or the buyer might also aggregate
the cost of poor supplier performance to come up with adjusted costs of purchase including
price.
The performance review might lead to the buyer to continue, improve or drop a supplier. It is
essential for a marketer to have a good relationship and always follow up any customer
complaints as soon as possible. More than the defects and problems faced by the buyers in the
product, it is the attitude of the supplier which is seen more in focus.

Chapter 1 marketing by. prof nikhil s lohe

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Chapter 1 marketing by. prof nikhil s lohe

Similar to Chapter 1 marketing by. prof nikhil s lohe (20)

Recently uploaded

Recently uploaded (20)

Chapter 1 marketing by. prof nikhil s lohe