Business marketing

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BUSINESS
MARKETING
KARISHMA SIROHI
MBA 8TH SEM
IMS KUK

KARISHMA SIROHI
KARISHMA SIROHIkishusirohi@gmail.com
2

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UNIT 1
BUSINESS MARKETING
Industrial marketing is also referred to as B2B marketing, or business marketing or
organizational marketing. Industrial marketing or business marketing is the marketing of
products and services to business organizations. Business organizations include manufacturing
companies, govt. undertaking etc.
Business markets consist of all organizations that purchases goods and services to use in the
creation of their own goods and services. Their own goods and services are then offered to their
customer. Generally, business markets consists of fewer but larger customers than consumers
market and are involved in purchase of significantly large value having complex economic, and
financial consideration.
Business marketing is the process of matching and combining the capabilities of the supplier
with the desired outcomes of the business customer. Business marketing is the creation of value
for business customer.
Business marketing is marketing products and services to other companies, govt. bodies, and
other organizations.
Industrial Marketing is the human activity directed toward satisfying wants and needs of
organizations through the exchange process.
Industrial Marketing consists of all the activities involved in the marketing of products &
services to organizations, institutions etc, that use products and services in the production of
consumer or industrial goods & services and to facilitate the operation of their enterprises.
Features of Business Marketing:
§ Size of the Market
– Relatively few Industrial Customers
§ Geographic concentration
– Not widely spread
§ Competitive nature of the market
– Oligopolistic buying

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• control of the purchase of a commodity or service in a given market by a
small number of buyers
– Large firms tend to dominate many markets
§ Product Characteristics
– Technical
– Service & support more needed
1. There are very few customers in business marketing.
2. Business marketing more direct means there are fewer channel levels involved.
3. Business marketing emphasis on personal selling.
4. There is involvement of various functional areas in both buyer and supplier firms.
5. Purchase decisions are mainly made on rational/performance basis.
6. Technical expertise is needed.
7. There is stable interpersonal relationship between buyer and sellers.
8. Product is very customized and various technical complexities are involved.
9. In business marketing it is difficult to persuade the customer.
10. Very large investment in involved.
§ Varying involvement levels in buyer seller relationship.
§ Shorter distribution channels
§ Emphasizes personal selling and negotiation.
§ Greater web integration in communication.
§ Unique promotional strategies
§ Consumption
§ Knowledge of customer’s customer
§ Marketing research
Business markets:
There are numerous differences between purchasing by organizations and purchasing by
consumers. Many of the differences are due to the fact that consumers purchase for personal
consumption, and in most cases individuals within organizations do not. They purchase to satisfy
needs of the organization. Other factors, too, influence the nature of business buying, making it
different. These factors are the types of customers, the types of products they buy, the size and
location of customers, the complex processes and rigorous standards of purchasing, the nature of
business relationships, and the nature of demand.

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Types of business customer:
These are as follows:
1. Commercial enterprises: includes---
a) Industrial distributors/dealers: these are those firms which purchases the
product for the further sale and distribution. E.g. middlemen, intermediaries.
b) Original equipment manufacturer: When a company purchases a product or
service to be included in its own final product, the company is called an original
equipment manufacturer (OEM). For example, General Motors may buy
gauges for installation in the dashboards of its automobiles. In this instance,
General Motors is an OEM.
c) Users: When GM purchases copier paper from Xerox, General Motors is
considered a user, or the business equivalent of the final consumer. General
Motors is also a user of market research purchased from service bureaus such as
Donnelly and JD Power as well as other services such as accounting and
computer services.

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2. Government customers: are the govt. agencies, public sector firms and govt.
undertaking. it includes----
a) Public sector units: these are the govt. firms who purchases industrial product
for their own use such as BHEL, ONGC etc.
b) Govt. undertakings: includes the department and sector which are regulated or
owned by the govt. when they purchases the product for their own use then they
are known as govt. customers.
3. Institutional customers: Institutions include organizations such as schools, hospitals and
nursing homes, churches, and charitable organizations. It can be classified as:
a) Public institutions: are govt. hospitals, govt. colleges etc.
b) Private institutions: are church, schools etc.
4. Co-operative societies: are the institutions established for the welfare. It includes:
a) Manufacturing units: who involves in manufacturing sector. These units
purchases the products as raw material.
b) Non-manufacturing units: these types of units purchases the product for their
own use.
Types of industrial products:
Products are generally classified on the basis of the type of organization purchasing the products
and for what purpose.

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1. Material and parts: goods that enter the final product directly consist raw material. The
cost of included items are treated by the purchasing company as part of manufacturing
cost.
a) Raw material: these are the basic products that enter the production process with
little or no alteration. They marketed to OEM’s or user customers.
b) Manufactured material: it includes raw materials that are subjected to some
amount of processing before entering the manufacturing process.
c) Components parts: such as electric motors, batteries and instruments can be
installed directly into products with little or no additional changes. When these
products are sold to customers who use them in their production processes, they
are marketed as OEM goods. The components parts are sold to the dealers or
distributors who resell them to the replacement market.
d) Subassemblies: are typically made and supplied by vendors. Typically in the
automobile industry, exhaust pipe is a subassembly for motorcycles and passenger
cars.
2. Capital items: are those which are used in the production processes, and they wear out
over certain time frame. They are normally treated as user customers.
a) Heavy equipment: these are major and long term investment items such as
general purpose and special purpose machines, turbines, generators. These items
are shown in the balance sheet as plant and equipment, and are fixed assets to be
depreciated over a period of years if they are purchased outright.
b) Light equipment: which have lower purchase prices and are not considered as
part of heavy equipment, are power operated hand tools, small electric tools.
Purchases of accessories are either considered as current expenses with purchase
prices taken as operating expenses.
c) Plant and building: these are the real estate property of a company. It includes
the firm’s offices, plants, warehouses, and so on.
3. Supplier and services: suppliers and services support the operation of the purchasing
organization. They do not become a part of the finished product. They are treated as
operating expenses for the periods they are consumed.
a) Supplier: items such as paints, oils and pencils, stationery and paper clips belong
to this category. These items are generally standardized and are marketed to a
wide cross section of industrial users.
b) Services: companies need a wide range of services like building maintenance
services etc.
Nature of Demands in B2B market:
The demand for the industrial products and services have the following features:

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a) Derived Demand: demand for industrial products and services are derived from ultimate
demand for consumer products and services. Industrial demand is, therefore, called
derived demand. For example demand for steel is derived from demand for cars, washing
machines and so on, where steel is used.
b) Fluctuating demand: it has been found that the demand for the industrial products
fluctuate more than the demand for consumer products. For instance, if the demand for
consumer durable products like washing machine and mixers etc. increase by 10%, it can
cause rise in demand for industrial products like paints, steel, and electrical motors by
100%. This is also referred as the acceleration effect, which indicates that the demand for
business goods and services are generally more volatile than the demand for consumer
goods and services.
c) Stimulating demand: as the demand for industrial products is derived from the ultimate
demand for consumer products, it is logical that business marketers should carry out
promotional program that directly reaches the ultimate consumers, so as to stimulate the
demand for industrial products.
d) Joint demands: occurs when one industrial product is useful if other products also exist.
e) Cross elasticity of demands: 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 of one product to a price change in another product.
f) Reverse elasticity of demand: in this, a price increase can cause an increase in demand,
and a price decrease would be followed by a decrease in demand---just opposite from
what we would normally expect from business buyer.
g) Bull- Whip effect: it is the tendency of buyer of a product in short supply to buy more
than they need in the immediate future.
Nature
of
Demand
Derived
Demand
Fluctuating
Demand
Joint
Demand
Stimulating
Demand
Cross
Elasticity of
Demand
Reverse
Elasticity of
Demand
Bull-Whip
Effect

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Business marketing vs. consumer marketing
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
Organizational buyer behavior:
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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The industrial purchasing/buying activities consists of various phases/stages of buying
decision making process called ‘Buyphases’.
Phases in Buying DecisionProcess
§ 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.
Types of purchases or buying decision:
3 Common types of purchases / buying situations
i. New Task / New Purchase :
Here, buyers have limited knowledge and experience of the new product/service. Hence,
more information is obtained, more people are involved, risks are more, and decisions
take longer time.
ii. Modified Rebuy / Change in supplier :
This situation occurs when the firm is not satisfied with the performance of existing
suppliers, or there is a change in product specs. Hence, the need for searching alternate
suppliers.
iii. Straight Rebuy / Repeat purchase :
Here, the buying firm places repeat orders on suppliers who are currently supplying
certain products/services. Such decisions are routine, with less risks and less information
needs, and can be taken by junior executives.
Models of organisational buyer behaviour:
1. Webster and Wind Model
This model considers four sets of variables: environmental, organisational, buying centre
and individual.

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2. The Sheth model industrial buyer behaviour:

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ELEMENTS
PRODUCT
MARKETS
RELATIONSHIP RESOURCES
OBJECTIVES
AND PLANS
UNIT 2
MARKETING PLANNING AND STRATEGY:
What is strategy???
A strategy is a plan of action designed to achieve certain defined objectives Strategy is a plan
that aims to give the enterprise a competitive advantage over rivals. Strategy is about
understanding what you do, knowing what you want to become, and most importantly focusing
on how you plan to get there. A business strategy should develop or reiterate a formal mission
statement—which we will discuss later in the chapter—and address four fundamental issues—
which we take up now
Elements of business strategy:
A business strategy includes:
1. Product market: What
markets do we serve with what
products? We have to
consider how well equipped
we are to serve different
groups, relative to the strength
of our competition in those
segments. There are various
means to grow such as--A
firm can seek greater market penetration—that
is, endeavor to gain a larger share of the market in which it currently competes with its
existing products. Alternatively, a firm may pursue product
development, trying to serve customers in markets where it already has a presence with a
new array of products. Market development is the counterpart: Current products are
taken to new markets. Lastly, an enterprise may pursue diversification, an aim to serve
new markets with new products

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2. Relationship: strategic alliance and partnership must be included as key facets of the
product market selection components of strategy. Alliances for new product development
enable the firm to access technology and other types of resources that would be quite
difficult to acquire or grow entirely within a single firm/.
3. Resources: Financial and other resource considerations lead up to the next key
question: What level of investment in the product market? We may be trying to convert
the business to
cash by
selling off assets
or selling the
whole operation.
Indeed, a family
business with no
offspring willing
to run it when
Mom and Pop
retire may follow
this divestment
strategy.
On the other
hand, significant
investment will
be needed if the
firm is seeking to
enter and secure a
footing in new
markets or grow its share in a mature market.
4. Objectives and plans: A business strategy also has to develop the detailed aims and
action plans for the functional areas. A host of questions must be addressed in this
portion of a strategy. Will special emphasis be given logistics for customer service or will
the firm decentralize manufacturing to provide short supply linkages to key customers?
Will the firm need a strong advertising campaign or will it need to support distributor
activities that play key roles in product differentiation? The remainder of the marketing
mix must also be tightly formulated.
Advertising and distribution strategies must be worked out to support the intended
positioning and product line strategies. The roles of the sales force with respect to each
product and customer group (e.g., end user category or type of reseller) need to fit with
the advertising and telephone marketing strategies. Also, pricing strategies need to be in
harmony with the advertising, selling, distribution, and manufacturing strategies.

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Setting the
objectives
Environmental
Analysis
Strategy Design
Implementation
Plan Design
Strategy
Implementation
Monitoring of
Environment
Analysis of
Performance
Adjustments
Marketing strategy development process:
Marketing Planning and Strategy is done to assess the opportunity and take benefit from
opportunity prevailing in the market.

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The earlier figure shows hierarchy of strategies and organization structure of a large company.
§ Strategic management gives a direction to the firm and focuses on developing strategies
to achieve long – term objectives & goals
§ A Strategic business unit (SBU) consists of an independent business or related business
that has its own competitors and specific markets. In some large companies there are
(product) divisions and each division has a divisional plan. Each SBU is headed by a
manager who is responsible for strategic planning and performance of the SBU.
§ Operational Management maintains the direction given by strategic management, and
concentrates on day-to-day issues of costs, revenue and profits.
Strategic planning process at corporate level:
The major steps involved are
Deciding corporate mission and objectives.
Establishing strategic business units (SBUs.)
Allocation of resources to SBUs.
Developing corporate strategies.
Hierarchy of Strategies
Before understanding the role of marketing in strategic planning, we
shall first examine hierarchy of strategies.
Organisational
Levels
Organisational
Structure
Strategy hierarchy
(Type of Management)
Corporate
Divisional/
Business Strategy
(Strategic
Management)
Divisional /
Business Unit
/ SBU
Corporate
Office
SBU
II
SBU
III
SBU
I
Marketing FinanceProduction
Functional
Strategy
(Operations
Management)
Functional
IM

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Strategic planning process at business unit level:
The following steps are followed by the business – unit head.
Marketing planning process:
The 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.
Business marketing plan:
1. Situational analysis. Market, competitive, product, and macro – environmental analysis.

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2. SWOT and Issues analysis
3. Marketing Objectives and goals
4. Marketing Strategy. Selection of target market segments, positioning, marketing mix,
customer service and marketing research.
5. Action plans / Tactics
6. Marketing Budget
7. Implementation and control. Building marketing organization and control process.
8. Contingency plan.
Implementation of marketing plan:
It 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.
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.
What is an OPPORTUNITY????
The word opportunity comes from the Latin opportunitas, meaning fitness or advantage. It
represents a favorable circumstance, a propitious moment, or a promising course of events that
bodes well for the attainment of a goal. Marketing opportunities derive from the “fitness” of a
company to serve a specific market. They result from a seller’s proximity, competencies, skills,
and resources that can be brought to serve an identified customer or segment profitably. The
seller’s ability to provide value is its competitive advantage in that particular arena.

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Markets among
current customer
Best customer
Customer
maximization
New products
Finding
opportunity with
customer
Data
warehousing
Customer
research
The search for
look-alikes
Customer look
alike the existing
customer
Acquisition of
new customers
LTV
1. Developmarket among existing customers: this give a four step process to develop
market among the existing customers---
A firm can find opportunity in existing customer through:
a) Best customers: How much of its marketing budget should a firm allocate to
efforts that serve its best customers? In the abstract, any firm should spend and
spend until the payoffs from additional marketing efforts are no longer in excess
of incremental expenditures. Spending until marginal revenue equals marginal
costs, and marginal costs are rising is the basic profit maximization approach
many of you learned in economics class. In practice, this approach can be
followed for narrow promotions and some specific marketing expenditures.
b) Customer maximization: Many companies find that it is much easier to get
current customers to do more business than it is to get business from prospective
rank your best customer
maximise effort through collaboration effort
develop specific product for each customer
learn of special needs of your customer's customer

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customers. Many of those who have never transacted with the company know the
company and its products, but are just not interested.
c) New products: The same logic for increasing the volume of light and medium
accounts applies to their potential for purchasing new products. Current customers
know the company, its service standards, its dedication to quality, its technical
capabilities, and more. With them the seller enjoys a level of credibility and trust
that has yet to be measured and tested among noncustomers, even bright
prospects. Thus, a marketing research company with a new forecasting technique
or model is apt to develop and find keenest interest among its current clients.
2. Finding opportunities with customers: Opportunities to do additional business with
current customers can be identified by informal and formal means. Feedback through the
sales force and service and delivery personnel should be encouraged and rewarded. Their
frequent contact with customers and empathic dialogue makes them attuned to
developing customer needs. Empathic dialogue is active listening and identification with
customer concerns, resulting in customer centered communication and problem solving.
a) Data warehousing: Some business marketers serve so many customers and
execute so many transactions that account management—and other types of
opportunities—are critically supported by sophisticated data management
systems. Data warehousing uses centrally managed data from all functional areas
of the organization (sales, purchasing, human resources, finance, accounts
payable, etc.)—formatted to company standards—so that it may be accessed by
authorized users through their personal computers for queries, custom reports, and
analysis. To go beyond standard decile reports or promotion program summaries,
business marketing managers need a repertoire of data analysis tools. Evoking
images of the quest for riches, the term data mining describes the process of
using numerous query tools and exploratory techniques to extract information
from a database or data warehouse. Some of this process can be automated, as in
systems programmed to recognize purchase patterns at the account level or
market level, defined, say, by industry or geography.
b) Customer research: Astute readers should be asking a key question here: Before
running the promotion, why not talk to several current customers to learn their
priorities and circumstances? Indeed!
The database supports two different research approaches: focus groups and
sample surveys.
i. Focus group: Focus groups bring a small group of customers together to
discuss a specific topic or issue. The moderator is an experienced
professional, often with advanced behavioral science training. After
providing a brief icebreaker and general introduction to the topic, the
moderator generally tries to let the group carry on the conversation. His or

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her concentration should be on the discussion, along a general outline of
topics needed to be covered in the discussion. Because the interview is
taped, the moderator can let the group
talk, with ample opportunity later to analyze comments and extract
stimulating
quotations.
ii. Surveys: Surveys can be administered to customers in four primary ways:
(1) personal interview, (2) mail, (3) telephones and (4) the Internet.
Personal interviews allow good depth of questioning and probing.
Answers can be clarified and feedback from product demonstrations or
physical stimuli (e.g., a fabric or warning siren) can be ascertained. But
the expense of sending interviewers to the field to secure elusive
appointments and visit geographically dispersed customers is often
prohibitive. Thus, a compromise approach may be some focus groups or
an attempt to see customers one-on-one at a trade
show. Questionnaires can be administered very efficiently by mail. But it
is critical that the researcher design the survey with the nature of the
current business relationship in mind. The recipient of the survey is a
current customer, not a stranger. Thus, a number of imperatives govern the
contact.
iii. Customer Visits: If spending time at a customer’s venue to test concepts
and problem solve has value, it should come as no surprise that business
marketers have been stepping up the frequency and complexity of
customer visits.
3. The search for look-alike: a firm’s customers represent the intersection of its past
marketing efforts and the competitive strengths of its offering to the target market. A
business has
an opportunity to acquire new customers that “look like” existing customers when the
firm’s offering represents a good match to their needs and the firm hasn’t fully penetrated
the segment. If the firm’s market share in the segment is already high, the segment may
be practically saturated. The search for opportunity might be better directed elsewhere.
4. Acquisition of new customers: customers, their acquisition should be regarded as an
investment.
Most organizations make investment decisions on the basis of return on investment
rates, net present value, or months (years) to reach break-even. When University Hospital
buys a new magnetic resonance imaging (MRI) system, it estimates a multiyear
stream of revenue from patients against the installation outlay and projected operating
costs.
An increasing number of companies have begun to formalize a similar approach to
customer valuation. Customer lifetime value (LTV) is an estimate of the net present

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value of the stream of benefits from a customer, less the burdens of servicing the account
or managing the relationship.
To evaluate opportunities to acquire new customers, it is critical to segment the market in a
judicious manner that enables the matching of company strengths to unmet or underserved
customer need.
Market segmentation:
It is a process of dividing the total market for a product into several segments or distinct group of
customers. A market segment consists of a group of customers who have similar need or
characteristics.
Market segmentation involves partitioning the general need for a solution to a class of problems
into smaller clusters involving distinct markets. Business market task is to identify the segments
and decide which segment to target.
Process of segmenting and targeting business markets:
• conduct marketing research to collect data on buying firms and competition
• identify macro segments based on analysis of data
• select those macro segments which satisfy company objectives and resources
• evaluate each selected macro segment on whether it explains the differences in
buying behavior
(if yes, select the target macro segment based on specific criteria stop, and use the macro
segment as target segments)
• if no, identify within each macro segment, meaningful micro segments
• select the target micro segments based on earlier specified criteria
• profile target segments based on buying organization
Segment criteria:
One’s objective in this process is to define good market segments. Good markets are
identifiable, accessible, and substantial.
1. Identifiable members of market segments can be enumerated and evaluated. Imagine a
cardiologist who developed a healthy heart program for overworked and overweight
executives. Is there a practical way to identify such individuals? The cardiologist might
advertise her service and/or invite prospects to a power breakfast seminar or a free risk
screening. Prospects might not be so willing to identify themselves, however, if the

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service were for coping with
chemical addictions.
2. Accessibility means that members of a market can be reached or impacted by some
directed marketing activity.
3. The ability to approach or address known prospective customers is necessary but not
sufficient to make an opportunity. That market must be substantial, promising sufficient
business to justify the efforts to serve it. Customer lifetime value is a useful criterion in
an assessment of a target market. Unfortunately, a firm’s history with its current
customers may provide very little basis for estimating the LTV of customers from
entirely new markets.
For taking the benefit of the segmentation there is the need for the continuous
learning in the organization so that the organization can understand the current
need and requirement of the customers.
Learning:
Learning is when we connect new information to what we already know. We can now define the
learning organization as one that consistently creates and refines its capabilities by connecting
new information and skills to known and remembered requisites for future success. Recognize
implicit humility in this definition; it does not presume all success factors are known. It surely
includes the endeavors by the organization to learn more about what are the requisites of future
success.
Requisites of learning organization/Managing organizational learning:
Management scholars have only just begun to investigate how one creates and maintains
a learning enterprise.
1. Visionary leadership: visionary leadership for the learning organization must extend
throughout the organization: the executive committee, the senior partners, the regional
heads, and department and branch managers. Especially in the nebulous assignment “to
improve capabilities to attain success” every supervisor is a role model in character—
prudent, just, constant, and sober—as
well as a potential champion of innovation, skill development, risk taking, and success
sharing.

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2. Target and trajectory: It takes resources and plans to create a learning enterprise. When
a firm’s leadership has determined to build a learning culture, a program and
administrative structure must be designed. A timetable should be developed to specify
when each enabling phase or critical event ought to take place.
3. Information system: The learning organization develops systems to gauge internal
matters: efficiency, employee morale, and cross-functional knowledge. Value systems en
couraging honesty and information sharing and quashing the need to cover up errors
with the need to fix problems are part of the equation. Other systems must focus on the
external environment. Competitive intelligence can be gained by talking to distributors,
monitoring advertising and trade shows, reading corporate annual reports, tracking
dialogue on the Internet, and more. Recognize good ideas from customers, competitors,
foreign markets, and elsewhere.
4. Creating and striving: Vision, plans, and information are certain to be bland and feeble
if not energized by creative effort. To create means to bring something into existence, to
make something original. What does it take to be creative? Well, researchers in a variety
of fields have told us that creative people tend to be or have:
Curious, Persistent, Imaginative, Visual, thinker Sense of humor, Motivated and
energetic Energetic Unique, etc.
5. Execution: Learning organizations know the competitive advantage to be gained from
execution.
After learning the organization have to apply this learning into the organization.
Organization starts production to fulfill the demand of its industrial customers. This leads
to purchasing which means……..
Purchasing:
Purchasing is a strategic weapon. Companies like PPG that can source effectively can create a
competitive advantage by building better value into their own products. Purchasing refers to a
business or organisation attempting to acquiring goods or services to accomplish the goals of its
enterprise. Business marketers can also make contributions to the value delivered by their
customers. Astute business marketers find ways to offer more benefits at the same cost or else
lower costs to benefit their strategic purchasing partners.
Purchasing’s contribution to the firm:
The three most important elements of the purchasing department’s function are
 To Provide appropriate levels of supply of the right product or service
 At the correct level of quality

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 For the lowest t
Trends in purchasing:
1. Trimming purchasing cost
2. Using the web
3. Outsourcing
4. Stronger relationship with sellers
5. Cross functional teams
6. Professinalism in purchasing
Purchasing in government:
Government is the largest single buyer, the largest single employer, and the largest landlord.
1. Political and Social Goals: In developing countries, such as many of the countries in
Asia, governments are very interested in developing their country’s infrastructure, or
the transportation, communication, and other utilities. As a result, companies are
snatching up infrastructure opportunities in many developing countries. The government
also attempts to achieve social goals through compliance programs. Compliance
programs are programs where purchasers must be in compliance with federal guidelines
in order to be eligible to supply
the government. The government has used compliance programs to advance affirmative
action programs for women, minorities, and the handicapped.
Minority subcontracting programs are another way that the government encourages

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the development of minority-owned businesses. Minority subcontracting programs
require general contractors and other major suppliers to allocate a certain percentage of
the
total contract to minority-owned subcontractors.
2. The department of defense: The Department of Defense is the largest single buying
agency in the federal government, accounting for an estimated 80 percent of all
government purchases. the Department of Defense developed many single-sourcing
arrangements, in part because of the huge investment needed to develop weapon systems.
Frequently, few vendors are even capable of bidding.
3. Non defense buying: The rest of the government uses the General Services
Administration in a fashion similar to the DLA; in fact, the DLA makes most of its
purchases through the GSA. The
GSA supplies government agencies with office space, facilitating services and products,
and MRO items.
4. Marketing to the government
Ethics in purchasing:
Ethics???
Ethics are moral codes of conduct, rules for how someone should operate that can be
utilized as situations demand. For ethical behavior to occur, the person must first recognize the
ethical implications of the situation and then be motivated to act ethically. Knowledge of right
and wrong is
not enough; the individual must want to do what is right. Situational factors, such as
the probability of getting caught, may influence some people’s behavior, whereas others
will always do what they think is right (or what is wrong, depending on their moral state)
no matter what the situation.
Ethical issues are:
1. Receiving gift
2. Access to information
3. Encouraging ethical conduct

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UNIT 3
PRODUCT LIFE CYCLE:
Product: A product is anything that can be offered to a market for attention, acquisition, use or
consumption that might satisfy a want or a need.
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.
Layers of products:

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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.
Industrial product life cycle and strategies:
The product life cycle theory or concept, used to determine marketing strategies. According to
this theory products tend to go through different cycles or stages that begin when they are
launched in the market.
1. Introduction stage: When the product is first introduced to the market and potential
customers are learning what the product is and does, it is in the introduction stage. Sales
are relatively low and profits are unlikely, as sales revenue is invested in creating
awareness. If distributors or other intermediaries are needed, getting their agreement to
carry the product can be difficult because there is not yet a well-defined market for the
product. For truly innovative products, this stage requires marketers to educate buyers
(and channel members) as to the function of the product. Primary demand, or demand
for that type of product, must be created.
Factors
determining
change in
product
strategy
Customer
Needs
PLC
Govt.
Policies /
Law
Technology

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Developatrendanalysisforthe past3-5 yearsbasedon
informationforaproduct on quality,value of sales,profit%,
marketshare,no.of competitors&prices.
Analyze competitors’marketshare,productperformance,new
productintroduction,diversificationorexpansionplans.
Estimate & projectsales&profitsof the product overthe next
3-5 years.
From the above analysis,fix the product’spositiononitslife-
cycle curve.
Marketing strategy: Some industrial products get accepted rapidly after introduction
and others are accepted slowly. This depends upon changes in the user’s habits. For
slowly accepted products, marketing strategy should concentrate on market development
efforts. However, for products that are accepted fast or have a potential of rapid
acceptance, the marketing strategy should be evolved to meet intense competition.
2. Growth stage: The second stage of the PLC is the growth stage, when sales and profits
grow at a fast rate. Competition against an innovative product is most likely to enter the
market in this stage, and vendors begin to differentiate their product in order to create
secondary demand, or demand for a particular vendor’s offering. Significant marketing
investment may still be required in order to create a position for the product separate
from others in the market.
Marketing strategy: as the product enters the growth stage, an industrial marketer
should focus the marketing strategy on three key areas: (i) improve product design to
offer more benefits or product features to cover wider segments of the markets; (ii)
improve distribution so that product availability to customer is strong; (iii) reduce the
price as increased volume of production lower the cost.
3. Maturity stage: the market. The third stage is the maturity stage, when sales level off.
Note that sales can level off for a product category, in which case that market is said to be
mature. Profits are relatively high and marketing expenses should begin to decline. A
new product or vendor, however, can enter the market and take away sales at the expense
of competitors.
Marketing strategy: the marketing strategy when a product is in maturity or saturation
stage should be: (i) enter new markets; (ii) keep the existing customers satisfied; and (iii)
cut marketing, production and other costs to maintain profit margin.
4. Decline stage: The final stage is the decline stage, or that stage when sales decline and
products are removed from the market. In this stage, competitions is more servere, and
concurrently the sales and profits decline.
Marketing strategy: strategy adopted by an industrial marketer is to either withdraw the
product form the market or develop a substitute product for replacement, or reduce
marketing and other expenses substantially to make some profits.
Locating industrial products in their life cycle:

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Developing product strategies for existing product:
Product portfolio:
Product portfolio management suggests managing all products simultaneously as you would a
financial portfolio, balancing risk and return among all product investments. Most models
involve a grid and suggest that product decisions should be based on where each individual
product, product line, technology platform, or product category is along the combination of two
dimensions. The BCG grid is the simplest of the grid models, with dimensions of market share
and market growth. This model has been criticized for being too simple and too similar to the
product life cycle (which is also based on market growth). A more advanced model developed by
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.

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General Electric is called the GE grid.
It has market attractiveness, or a composite measure of the potential for sales and profits in a
particular market segment, and business strength, or the strength of our offering relative to other
companies’ products, as its dimensions.
Attractiveness determinants include market size, growth rate, competitive structure, industry
profitability, and environmental (legal, social, etc.) factors. Determinants of strength can include
our market share, our growth rate, the company’s image, people resources, and other similar
factors. In the upper left corner of the BCG matrix, products are considered stars because market
growth is high in a market where we control a large amount of the total market. Stars create cash
through high sales but require high levels of investment in order to maintain or increase market
share in that growing market. The investment made is in the form of marketing and distribution,
as stars require more advertising, more personal selling, and the development of appropriate
distribution in order to gain market share.
The hope is to turn stars into cash cows, which have high market share and strength in a steady
market and are those products that should contribute the most to the company’s profit. This
contribution is possible because it should not take as much investment to maintain market share
in a stable market as it does in a growth market; economies of scale and return on the investment
of marketing dollars made when the market was growing should pay off.
Question marks are those products in high-growth markets that currently have low market share
and may not be too strong. If the product’s position can be strengthened, then the potential is for
the product to become a star and perhaps a cash cow when the market stabilizes. Question marks
require a great deal of investment, using cash generated from cash cows, in order to be
successful. Investment alone, though, is no guarantee of success. Success still requires wise
investment into sound marketing strategy. Products with low share in a poor market are called
dogs.
These products are usually thought to be in the decline stage of their life. Some products become
dogs after beginning as question marks while others become dogs after a long life as cash cows.
In most cases, dogs are not worth much investment and most companies want to withdraw dogs
quickly from the market. Note that the PLC also involves two dimensions: time and sales. One
property of time, however, is that you cannot go back. With product portfolios, products can
move along both dimensions in either direction—if overmilked, a cash cow can become a dog,
whereas with the right opportunity and investment, a dog can become a cash cow, for example.
One problem with the use of portfolio matrices is that decision makers assume that products
follow a PLC beginning as question marks, moving to stars, then cash cows, then dogs. The
reality is that movement can occur between any two quadrants. Although it is unlikely that a dog
can become a cash cow, it can happen.

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New product development:
New products are launched and old products withdrawn from the market at an increasingly rapid rate.
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:

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1) Idea generation: the sales persons, customers, distributors, suppliers, design engineers
etc. conceive of new product ideas. Industrial customers are a very important source of
these ideas. One of the characteristics of industrial marketing is the buyer seller
relationship and interdependence. The buyer has a specific problem which need to be
solved by the supplier. An industrial organization can attract good ideas by using
techniques such as brainstorming and attribute listing. In attribute listing technique, major
attribute of an existing product are listed. Ideas are invited from a group of employees to
search for an improved product by modifying each attribute. Further, an industrial firm
should motivate employees to submit innovative and novel ideas in writing by offering
recognition or payments to the employees submitting the best ideas.
2) Idea screening: the primary purpose of screening new product ideas is to select those
ideas which are likely to succeed. There should be a carefully specified criteria and
procedures for screening new product ideas. In some of the companies, the screening of
ideas is done in two stages. In the first stage, the new product committee asks certain
question or apply certain checks to the product ideas, as suggested below.
 is the new product in line with the company’s long term objectives and strategies?
 Do we have adequate resources to make it successful?
 Is it really useful to customers by providing certain benefits, or solving a specific
problem?
3) Concept development and testing: after a new product idea passes the idea screening
stage, the idea should be developed into a product concept. A product concept is a
detailed of the product idea that is stated in a meaningful customer’s terms. Often, the
firms develop the new product into different versions or alternative product concepts.
Then each product concept is tested by getting reactions from the customers.
Concept testing: in concept testing, the new product concepts are tested in prospective
customers organizations. The concepts can be presented by developing three dimensional
model or physical products. The physical presentation of the product can increase the
reliability of the concept testing. Stereolithography technique creates computer generated
three dimensional plastic prototypes which take very short time to get ready.
4) Business analysis: the purpose of business analysis is to develop an estimated projection
of the sales, costs, and profitability of the proposed new product over 5-7 years. It is a
detailed analysis in terms of (a) required investment in plant, equipment, working capital,
and market development(b) market potential, sales forecasts, customer and competitive
analysis,(c) costs of product development, manufacturing and marketing the product; (d)
likely price levels, profitability and return on investment, and so on.
5) Product development: is a process in which engineers and technician create the desired
product. The R&D department develops one or more prototype of the product concept.
The development of a prototype will confirm or negate its ability to produce the product
within the cost estimates and the performance parameters previously established.

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6) Market testing: in industrial marketing, market testing is done by using different
methods. These are: (a) alpha and beta testing, (b) introduction of the new product at
trade shows;(c) testing in distributors/dealer showrooms, and (d) test marketing. The
choice of the methods is depends on (i) the size and cost of the product, (ii) need for
maintaining confidentially during market testing, and (iii) the readiness to launch the
product in short span of time.
7) Commercialization: a product is commercialized or launched when it is introduced to a
target market. It involves implementation of the various activities developed in an action
plan as a part of the marketing plan. The activities include recruiting or hiring, training of
sales force, price lists and so on.
The new product marketing plan should clearly define (a) the timing of market launc (b)
marketing objectives and goals, (c) geographical strategy (d) the target market segment, (e) the
marketing mix strategies.
Innovation:
Innovation implies not only creating new products, but also introducing new methods to improve
any operations. An innovation is an idea, practice, or product perceived to be new by the
relevant individual or group. The manner by which a new product spreads through a market is
basically a group phenomenon. New products can be placed on a continuum from no change to
radical change, depending on the market’s perception.
Allen & Hamilton identified six categories of new product in terms of their newness to the
company and to the market place. They are:
 New to the World
 New product lines
 Additions to the existing product lines
 Improvements or revision to existing products
 Repositioning
 Cost Reductions
Features of innovation:
• Observability
– The degree to which the results of an innovation are visible to potential adopters

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• Relative Advantage
– The degree to which the innovation is perceived to be superior to current practice
• Compatibility
– The degree to which the innovation is perceived to be consistent with socio-
cultural values, previous ideas, and/or perceived needs
• Trialability
– The degree to which the innovation can be experienced on a limited basis
• Complexity
– The degree to which an innovation is difficult to use or understand.
Consumer adoption process of innovation:
– Awareness - the individual is exposed to the
innovation but lacks complete information about it
– Interest - the individual becomes interested in the
new idea and seeks additional information about it
– Evaluation - individual mentally applies the
innovation to his present and anticipated future
situation, and then decides whether or not to try it
– Trial - the individual makes full use of the
innovation
– Adoption - the individual decides to continue the
full use of the innovation
Adopter categories:
• Innovators:
§ Interest in new ideas leads them out of local circle of peer networks
§ Clique of innovators regardless of geographical distance
§ Control of substantial financial resources
§ Ability to understand and apply technical knowledge
§ Must cope with high degrees of uncertainty

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• Early Adopters:
§ More integrated part of local social system
§ Greatest degree of opinion leadership
§ The person to check with
§ Sought by change agents
§ Respected by their peers
§ Makes judicious innovation-decisions
• Early Majority:
§ Interact frequently with peers
§ Seldom hold leadership opinion positions
§ Will deliberate for some time
§ Innovation-decision period is longer
§ Most numerous - one-third of the members of the system
• Late Majority:
§ Adopt just after the average member of a system
§ Adoption because of economic necessity
§ Also increasing pressures from peers
§ Skeptical and cautious in their approach
§ Peer pressure necessary
§ Most of the uncertainty must be removed
• Laggards:
§ Last in a system to adopt
§ Point of reference is the past
§ Many are near isolates in the social network of their system
§ Interact primarily with others who have traditional values
§ Suspicious of innovations and change agents

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Harvesting a product:
When the product no longer contributes to the firm’s success, then it is time to stop production
and turn resources to more profitable ventures.
When to harvest a product:
1) If a product may be profitable and selling at a reasonable rate, but if investment (or cash)
can be diverted to an even more profitable product, the company may decide to harvest
the first product.
2) Or a product may not be profitable after overhead is allocated, but have a positive
contribution margin otherwise. If the company were to stop selling that product, overhead
would have to be reallocated elsewhere, perhaps making another product look
unprofitable.
Challenges to harvesting
Products are managed by people, and sometimes people overinvest their egos in a particular
product. This may make it difficult to halt producing a product, particularly if the product was
designed by the owner, for example. Similarly, a product may not be eliminated because of the
jobs that might be lost.
Marketing communication in Business Marketing:
The communication mix for industrial products and services is different from the promotion mix
for most consumer goods. This is because of the technical nature of industrial products, the
relatively smaller number of industrial buyers, and the complex nature of organizational buying
process. The communication mix consists of personal selling, advertising, sales promotion, direct
marketing, publicity and public relations.
Developing the Business Communication Programme:
The major steps in developing an effective
communication or promotional programme are:
1) Determining the communication objectives:
Communication objectives cannot be formulated
in isolation. They are formulated based on the
firm’s overall corporate and marketing
objectives. For the purpose of determining
communication objectives, firm must look at the
three stages of buyer behavior:
§ Buyer’s awareness levels,
§ Changes in buyer’s attitudes; and

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§ Buying action.
These stages of buying are described by different models, called response hierarchy models. The
marketer know that making customers aware of the company and its product is not enough for
buying action. What is needed further is to develop favourable attitudes which may lead to the
buying action.
2) Identifying the target audience:
An industrial marketer must be clear about the target audience. In industrial marketing
the target audience is identified at two levels. First, identify the buying organisations
based on the target market segments, second level is the identification of the attitudes and
buying factors used by the buying centre members in the organisations identified in the
first level. It is important to assess the target audience’s current image of the company, its
products, and its competitors. The company management should then purpose a desired
image in contrast to the current image. This information’s can be obtained by conducting
a marketing research study to understand the awareness levels and attitudes of the buying
centre members towards the company and its products in relation to its competitors. The
data will also be useful in developing message strategy and media plan.
3) Determining the promotional budget:
The promotional budget consisting of advertising, sales promotion, direct marketing of
companies industrial products or services are not large enough in comparison with those
of the consumer products. There are four common methods used to set a promotional
budget. These are: (1) affordable method, (2) percentage of sales method, (3) competitive
parity method, (4) objective task methods.
§ Affordable method: many companies set the promotion budget based on what
they think the company can afford. This method ignores the role of promotion as
an investment and its impact on sales volume.
§ Percentage of sales method: the most common method used in industrial
marketing to set the expenditure budget for promotion is a specified percentage of
sales, either sales in the previous year or in the current year budgeted or
forecasted sales.
§ Competitive parity method: some companies set their promotion budget by
spending the same percentage of the sales on promotion as that of competitors.
There are two arguments advanced for this method. One is that the average
expenditure of the competitors would represent a collective wisdom of the
industry. The other is that by maintaining parity with competitors, it would help to
prevent promotion wars. However, both of these arguments are not valid because
companies in the same industry differ substantially in terms of their objectives,
resources, and opportunities.
§ Objective and task method: in this method, industrial marketers develop their
promotion budgets by defining promotional objectives, determining the tasks that

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should be performed to achieve the promotional objectives, and estimating the
costs of performing the tasks. The sum of these costs is the proposed promotional
budget. This method is relatively logical.
4) Developing the message strategy:
The message strategy indicates how to achieve the communication objectives. The
message is developed to determine what to say to the target audience so as to achieve the
desired results. In industrial marketing, the most common way of developing the message
or appeal is through rational appeal. Industrial marketer should remember two important
points while developing communication messages. First, typical industrial buyers are
fairly well-informed or knowledgeable. Secondly, instead of the message discussing
product features, the message should focus on customer benefits.
5) Selecting the media:
Selection of the appropriate media depends on the target audience to be reached, the
statement of the communication objective, and the promotional budget. The media
selection also depends upon whether the advertiser wishes to penetrate a particular
industry or cut across various industries.
6) Evaluating the promotion’s results:
After implementing the promotional plan it is necessary for the industrial marketer to
evaluate its impact on the target audience. An evaluation is done by measuring the
awareness, attitude and actual purchase before and after the promotional plan is
implemented. The evaluation task becomes easier if the data on awareness, attitude, and
purchase have been collected by conducting a marketing research study before the
promotional plan is implemented. The marketing research study conducted, after the
promotional plan is implemented, involves asking the target audience whether they are
aware of the company’s products, whether they recall the promotional message, their
Promotional
Tools
Advertising Sales
Promotion
P. R. and
Publicity
Direct
Marketing
Personal
Selling




Print Media
Business
Publications
Trade
Journals
Industrials
directories
Promotional
Media
&
Supports









Trade shows
Exhibitions
Catalogues
Sales Consents
Promotional
novelties (gifts)
Seminars
Demonstration
Promotional
letters
Entertainment





Charitable
donations
Adopting
villages
Community
relations
News item in
press
Technical
articles in
journals



Direct mail
Telemar-
keting
On-line
marketing




Sales calls
Sales
presentations
Team selling
Relationship
marketing

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previous and current attitudes, whether and in how much quantity they have purchased
the company’s products during the period.
7) Integrating the promotional programme:
Many companies have recognized the importance of integrating the promotional plan and
are adopting the concept of integrating marketing communications. The basic objective in
integrating the various communication tools is to provide clarity, consisting, maximum
impact, and cost effectiveness to the company’s communication plan. To achieve this
objective, the following points are suggested:
§ The company should appoint a head of communication.
§ The company should build a database by measuring the result of the promotional
plan in relation to the communication goals, the cost effectiveness of promotional
media, and the message consistency.
§ Conduct training programmes for all the persons handling various communication
tools so that they think of integrating the promotional programme.
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.
Advertising media 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.

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(b) Promotional objectives and goals.
(c) Expenditure budget, by using the following formula:
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).
Importance/role of direct marketing:
• 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%.
• 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.
=
Cost per page
Circulation in thousand

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• 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.
• 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
Role of publicity and public relation:
§ 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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UNIT 4
SALES MANAGEMENT:
The sales function may be organised in many ways, depending somewhat on the choice of sales
strategy.
The sales executive:
Depending on the size of the organization, the chief executive officer may fulfill the
responsibilities and duties of the sales executive, or the marketing executive and sales executive
duties may be combined into one position, or the sales executive position may be a stand-alone
function. Irrespective of whether the person handles only sales duties or has other responsibilities
as well, the sales executive is responsible for decisions such as the choice of sales strategy, the
number and location of salespeople, the setting of sales quotas and designing of compensation
plans, and sales forecasting.
Organizing of sales force:
The sales executive determines how many salespeople are needed to achieve the company’s sales
and customer satisfaction targets. In addition, the executive must determine the type of
salespeople needed. There are many types of salespeople, including telemarketing
representatives, field salespeople, product specialists, and account specialists. Sometimes there is
overlap in responsibilities, such as when a telemarketer supports a field salesperson—both have
responsibility for the same account. Usually, however, there are different responsibilities
assigned to different types of salespeople, and companies often have more than one type.
1. Geographic salesperson: The most basic sales force structure is to give each salesperson
all accounts within a specified geographic area— here we have the geographic
salesperson. Companies often combine geographic territories into branch or zone offices,
which are further combined to create regions. Geographic salespeople are used when all
products serve the same general types of buyers. Geographic reps are usually field
salespeople (also called outside salespeople); that is, they call on accounts at the
accounts’ locations. Inside salespeople can also be found in business markets; these
salespeople sell at the company’s location. A telemarketer account manager is such a
person. Inside salespeople also handle any walk-up business. When only a geographic
structure is used, the organizational structure is likely to be
line-and-staff. A line-and-staff organization is one where those who conduct the
primary tasks of the department (in this case, sales) are part of the line—their managers
are called line managers—and all support personnel are staff. Authority and
responsibility move up and down the organizational line, not across. A salesperson’s
responsibility for an account comes from the branch sales manager, who received that
responsibility from the regional manager, who got it from the sales executive. In each

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43
method, the account salesperson has responsibility for specified accounts, rather than a
geographic area. One method is to specify new account responsibility to one group of
salespeople and current account responsibility to another group. Companies also divide
their accounts on the basis of size. Large customers, sometimes called key accounts, may
have a salesperson assigned only to their account. The salesperson is called a Strategic
Account Manager (SAM). These salespeople work with geographic salespeople to
handle local needs, but all account planning, pricing, and even product development is
managed by the SAM. Sometimes, a company may determine that a key account is a
house account. A house account is handled by a sales executive and the company does
not pay anyone commission on sales from the account.
2. Product specialist: When companies have diverse products using different technology
platforms, their salespeople will specialize by product category. The need for technology
expertise is too great for any one salesperson to understand, so the sales force is
organized by product. Hewlett-Packard, for example, has separate sales forces selling
computers, electronic test equipment, components, medical test equipment, and analytical
test equipment. Each sales force is geographically organized, and some may have account
managers as well. Product specialists must sometimes coordinate their activities with
salespeople from other divisions.
3. Sales teams: In some industries, companies used product specialists to call on the same
accounts, even the same buyers within each account. In response, companies began
developing sales teams, headed by an account manager. In team selling, a group of
salespeople handle a single account. Each salesperson brings a different area of expertise
or handles different responsibilities. One type of team is the field salesperson and
telemarketing support rep whom we’ve already discussed. Another type of team is used
in multilevel selling, where members of a selling organization at various levels call on
their counterparts in the buying organization.
4. Sales force size: The sales executive may select one or more of the preceding types of
salespeople and structures, based on the relationship quality, the complexity or variety of

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44
products, market size, and other factors. The sales executive is also responsible for
determining how many of each type should be employed. The objective is to achieve the
sales potential by providing each company that wants to buy the opportunity to buy.
One approach to determining the optimum number of salespeople involves an analysis of
the salesperson’s workload, or all of the activities that a salesperson must do to
cover a territory. One method to determine workload focuses on sales potential and
market position through use of the sales resource allocation grid. Market position
means the strength of the company relative to competitors. It can be measured by market
share, but should also reflect forecasts of future share. If a competitor has just introduced
a new product that will capture a significant share of the market, it is foolish to consider
only your current share. Sales potential is the total forecasted sales for the product
category. The sales resource allocation grid provides insight not only into the amount of
activity needed in a particular segment, but also into the strategy that should be used.
Directing the sales force:
Once the sales force is in place, there remains the question of directing their activities. Part of the
sales executive’s responsibility is to ensure that the salespeople are working to achieve the
company’s sales and customer service objectives. These control strategies often include quotas
and compensation plans.
§ Quotas: Quotas are a useful control mechanism, as they represent a quantitative
minimum level of acceptable performance for a specific time period. Two types of quotas
are used: activity quotas and performance quotas. Activity quotas specify the number and
type of activities that salespeople should do. Activity quotas are especially useful in
situations where the sales cycle is long and sales are few, because activities can be
monitored more frequently than sales. Activity quotas can be specified for many types of
sales activities, such as number of current customer calls, demonstrations, proposal
presentations, and other activities. Performance, or outcome, quotas specify levels of
performance, such as revenue, gross margin, or unit sales in a period of time. Often, sales
quotas are simply a breakdown of the company’s sales forecast. Other types of quotas,
such as gross margin quotas, can be used to encourage salespeople to sell profitable
products, not just the products that may be the easiest to sell. Companies may convert
gross margin to points and then allow salespeople to achieve their quota by whatever mix
of products they choose. A quota plan should also be complete, yet easy to understand. A
complete quota system is one that covers all important criteria on which salespeople are
judged. Yet, the quota system has to be understandable, or salespeople will ignore it. The
flexibility to handle unforeseen events (such as labor and transportation strikes, fire, and
floods) is another characteristic of a sound quota plan. Sound quota plans motivate
salespeople by providing goals and feedback on their performance relative to
management expectations.

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45
§ Compensation: The salesperson’s compensation is usually tied to how well he or she
achieves quota. The salesperson needs an equitable, stable compensation system, but the
company needs a system that encourages profitable sales and customer satisfaction.
Sound compensation programs
• Base rewards on results and efforts
• Provide equal rewards for equal performance
• Provide competitive rewards
• Are easy to understand and implement.
§ Types of sales compensation:
 Straight Salary: Under the straight salary plan, a salesperson is paid a
fixed amount of money for work during a specified time. A quota system
may be used to determine annual salary raises, but otherwise pay does not
vary. Straight salary is best used when sales cycles are long, when a team
of people is involved and individual results are difficult to measure, or
when other aspects of the marketing mix (such as advertising) are
important to closing the sale (such as may be the case for inside
salespeople). Salary is also useful when the position requires more
customer service activities than selling activities.
 Straight Commission: A straight commission plan pays a certain
amount for each sale, but there is no salary. The commission base, or the
item from which the commission is determined, is usually unit sales,
dollar sales, or gross margin. The commission rate is the amount paid per
base item sold, and is usually a percentage (such as 10 percent of sales
revenue or gross margin) or a fixed amount (such as $50 per sale).
 Bonus: Bonuses resemble commissions, but a bonus is a lump sum
payment for meeting a minimum standard of performance within a given
period of time. The amount depends on total performance, not an
individual sale. Bonuses motivate salespeople to overachieve quotas and
can be used in conjunction with either commission or salary or a
combination plan. A salesperson who has made quota with three months
left in the year can be motivated to sell even more if a bonus is
worthwhile.
 Combination Plans: As stated earlier, most companies pay some
combination of commission and/or bonus and a salary under a
combination plan. Such plans are also called salary plus plans, because
they pay salary plus a commission or plus a bonus. The salary portion can
engender loyalty to the company and represent pay for activities that
benefit the company more than the salesperson, whereas the commission
or bonus portion can motivate the salesperson.

KARISHMA SIROHI
46
Evaluating the sales force:
Sales executives aren’t the only executives constantly evaluating the performance of their sales
force. Every executive in the firm is interested in sales performance. Sales executives, however,
are interested in more than total sales revenue; sales executives have to be concerned with sales
productivity as well.
Five steps to evaluating sales force performance: the first step in any evaluation is to review
the objectives for the activity being evaluated. Although setting objectives is part of every pla
nning process, results should be compared with what was desired so that overall objectives can
be realized. The second step is to gather the appropriate performance data. In a sales setting, this
means observing both performance and activity (both outcomes and effort). The third
step is to evaluate the influence of any uncontrollable factors. Based on these three steps, the
company can then identify any problems or opportunities, which is the fourth step. These
problems and opportunities are then fed into the strategic planning process and/or tactical actions
are taken to minimize problems and take advantage of activities for the final step of the process.
Measures of performance: following are the ways to measures the performance:
§ Measuring productivity: When the measures of effort and output are combined, the
sales executive can examine the efficiency of the salesperson or sales force.
Combinations of activity and performance measures are productivity measures.
§ Balanced Performance: In addition to examining the productivity or output of
individual reps, the sales executive must also examine the productivity of the overall
sales force in order to make such decisions as quantity discounts and deleting products
from the product line. Therefore, examining average order size, order mix (which
products are purchased with other products), and sales by product are important factors to
consider. Low sales of a particular product may signal low demand for the product, a
need to train the sales force in how to sell that product, or a need to change
compensation.
§ Customer Satisfaction: With Total Quality Management movement came the drive for
customer satisfaction. Now many companies measure customer satisfaction regularly and
set satisfaction objectives for their sales force. IBM measures customer satisfaction at
both the executive and salesperson level. These satisfaction ratings are part of the

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47
salesperson’s performance evaluation—40 percent of salesperson compensation is tied
directly to the ratings.
Channel management:
A marketing channel also called distribution channel or trade channel is defined as a set of
interdependent organisation that makes a product or service available to customers for use.
Business marketing channels are systems designed to close numerous gaps between the
manufacture and use of products. Some of the gaps are between places. In other words, the link
between the manufacturers and the customers is the channel of distribution. The market logistics
also called physical distribution consist of delivering the completed products to customers and
channel intermediaries.
Business channel may be:
Industrial channel can be structured in various ways.
1. Direct channel: in direct channel structures, the manufacturer perform all the functions
or the task necessary to create sales and to deliver the products to industrial customers.
These tasks include contacting potential customers, negotiating, communicating, selling,
financing, product storage, and servicing.
The direct distribution approach is viable when (a) the value of each transaction is large,
(b) the selling includes extensive technical and commercial negotiations at various levels,
including top management, (c) the buying process is lengthy, and (d) the industrial buyers
insist on buying directly from the manufacturers.
2. Indirect channel: in indirect channel structures, the manufacturer and the intermediaries
share the tasks between them. An indirect distribution approach is appropriate when, (a)
the value of transaction or sales are low,(b) the manufacturer has limited resources, (c)
the industrial buyers are widely dispersed, and (d) industrial buyers purchase many
product items in one transaction.
Why business marketers use intermediaries??
Because,
Services performed by middlemen:
§ Buying: the distributor or dealer purchases products from the manufacturer for resale to
industrial end-users.
§ Promotion and selling: the middlemen contact potential or existing customers, promote
the product, negotiate, and secure orders.
§ Assorting: some middlemen bring together several related items from various sources to
serve potential customers.

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48
§ Financing: the dealer/distributors purchase products and invest in the inventory. They
also extend credit to customers while reselling the products. Thus, they help manufacturer
to finance the marketing process.
§ Warehousing: the distributors or dealers must store the products properly at their
warehouse to assure product availability in good condition to the industrial users.
§ Transportation: some middlemen also manage the physical movement of the product
from their warehouse to customer’s locations. Many industrial customers consider
prompt delivery as an important benefit.
§ Information: the middlemen have responsibilities to provide information both to their
customers and suppliers. Customers need information about product features, prices,
deliveries, and so on, while suppliers need information about competitors, customer
requirements.
§ Risk taking: when middlemen buy a product, store it and then resale it there is a risk that
the product may deteriorate, become obsolete, or may not be required by customers.
Why business customers buy from distributors???
Industrial marketer can market their products through distributors only if the industrial customers
or users find it desirable to buy through distributors. A number of studies conducted on this
subject indicate the following reasons:
§ Dependable delivery: the most important reason is fast and economical delivery.
Dependable delivery enables the industrial buyer to reduce the inventory level and
therefore, the inventory carrying cost. Often, the distributors deliver the goods without
charging the freight. These are some of the savings in costs that are important,
particularly for small scale manufacturers.
§ Information: useful information about the products of many manufacturers, like price,
availability, and quality can be obtained from the local distributor. Sometimes, detailed
technical information may not be available from the distributor’s salesman but the same
can be obtained from the manufacturer.
§ Variety: there is an availability of products at the distributor’s shop, which meets most of
the requirements of small scale manufacturers.
§ Liberal credit: often this is offered by the local distributors who are familiar with the
financial needs of the local manufacturer/customer.
Types of channel intermediaries:
Intermediaries are classified on the basis of the number of functions they perform. A full
function intermediary is the one who performs all or most of the distribution function. These
middlemen are called industrial distributors. Some of the common types of industrial middlemen
are manufacturers’ representatives also called agents, industrial dealers or distributors, brokers,

KARISHMA SIROHI
49
commission merchants, and value added resellers as well as jobbers and manufacturer’s branch
offices
1. Manufacturer’s representatives: they are also called agents or manufacturer’s agents.
Their main function is to promote sales and secure orders. They also fulfill the market
information function. However, they do not buy, store, or finance the transaction. They
are paid a commission on sales which varies from industry to industry and also according
to the tasks involved in the selling job. The manufacturer’s representatives are generally
needed by small and medium sized industrial firms. These firms find it economical to
have independent reps, who are paid commission only when the orders are generated.
There is no other selling cost.
2. Industrial distributors (or dealers): industrial distributors or dealers are the most
important intermediary in distribution channel. Typically industrial distributors are small
and independent business firms serving narrow geographic market. They perform a
variety of functions or tasks and that is why sometimes the distributors are called full
function middlemen. The responsibilities or functions of industrial distributors are
buying, storage, promotion, selling, offer credit etc.
3. Main categories:
1. Brokers: these middlemen bring together buyers and sellers by providing
information on what is available and required. They may represent either the
buyer or the seller and this relationship is a short term one. Their function is to
find potential buyers, negotiate, and complete the sale. Brokers do not buy or
handle products and are paid on commission basis. They deal with standard
products or raw materials and their role is vital when information on markets and
products is not available completely.
2. Commission merchants: these middlemen deal with bulk commodities such as
raw materials. They have a short term arrangement with manufacturer of products
which are sold in large quantities. They do not buy the material, but they perform
the function of arranging inspection, physical handling, negotiating process, and
completing sales. As they represent the manufacturers, their commission is paid
by the manufacturers.
3. Value added resellers: in data processing (computer industry) new types of
middlemen, called value added resellers, have emerged. The VARs customize the
computer hardware and software to solve specific problems for specific
industries. These intermediaries are specialists and provide valuable services to
buyers and sellers.
4. Jobbers: they represent manufacturers of products that are sold in bulk like coal,
iron ore, and chemicals. Jobbers take title to the goods that they sell. However,
they do not store or take physical possession of the goods.
5. Manufacturer’s branch/ regional sales offices: the manufacturer also
participates in the business marketing channel through its regional or branch sales

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offices. Generally, there are two types of branch or regional offices; stock
carrying and non stock carrying offices. Typically goods are dispatched from the
manufacturer’s factories to the branch/ regional warehouse of stock carrying
offices in full truck loads. The spending less freight costs. Thereafter, the goods
are distributed to business customer and distributors. The stock carrying branch or
regional offices allow the manufacturer the benefits of lower freight costs and
reliable delivery service to customers.
6. B2B Hubs: B2B market hubs are Internet sites that allow business suppliers and
buyers to communicate and execute business transactions.
§ Aggregator hubs: allow sellers and buyers to connect and transact in highly
fragmented markets. They provide wide exposure to participants on the hub and
simplify transactions that otherwise are complicated by distance or incomplete
information. Haggling is eliminated because prices are preset. These hubs serve
specific industries or vertical markets, such as MetalSite. Other sites such as
Grainger.com serve business across industries, horizontal markets.
§ Exchange hubs: serve as spot markets for commodity products such as fossil
fuels and bulk chemicals. Altra-Energy and BuildPoint are exchange hubs.
§ Auction hubs: provide a market for unusual, tightly specified, or surplus products
and services. In what is termed a forward auction, they allow buyers to bid on a
product for sale; in a reverse auction, they allow multiple sellers to bid down a
price on a product sought by a single buyer
Channel design:
Channel design is a dynamic process. It deals with developing new marketing channels and
modifying the existing ones.

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51
1. Developing channel objectives: channel objectives are derived from the firm’s
marketing objectives. The channel objectives should focus on customers’ need in terms
of service levels required by the target market segments. The channel objectives vary
depending on product characteristics. The channel objectives are developed based on
three factors: marketing objectives, product characteristics and customer needs.
2. Analyzing channel constraints: the industrial marketer has to consider many
constraining factors while selecting the channel structure. Some of these constraining
factors are:
a) external environment (PEST, Legal environment)
b) competition (competitive tactics of appointing exclusive distributors may result
in non availability of good distributors,
c) Company (company’s constraints on financial resources may restrict the direct
distribution through company sales force to few high potential territories.
d) product characteristics (for technical complex products like furnaces and power
transformers make it necessary to go for direct distribution
e) Customer (customer’s geographical locations determines whether a company of
an industrial marketers to have an indirect distributors with low cost
intermediaries.
3. Analyzing channel tasks: the industrial marketer has to make a list of various tasks or
functions to be performed to move the product from the manufacturer to the industrial
customers. The next step in the analysis is to take objective and realistic decisions on
which tasks can be performed effectively and efficiently by the company and which
cannot be performed due to certain constraints.
4. Indentifying the channel alternatives: identifying the channel alternatives involves
four major issues:
a) The types of intermediaries: it can be:
 Value added resellers
 Brokers
 Jobbers
 Commission merchants
 Agents
 Dealers,
b) Number of intermediaries: the industrial marketing firm has to decide how
many intermediaries it should use for each type. There are three strategies:
 Selective distribution: in this strategy, the industrial marketer selects a
few intermediaries to cover a particular geographical area. The criteria for
selection depend on the product characteristics and customer needs.
 Intensive distribution: when customer demand availability of such
products (lamps, tubes etc.) near to their factories, it is important to offer

KARISHMA SIROHI
52
intensive distribution by placing the goods and services to as many
distributors, as possible in a given market.
 Exclusive distribution: when a manufacturer wants to have a few
intermediaries to handle the company’s goods and services, and these
intermediaries must not carry competing products, such arrangements is
called exclusive distribution. By granting exclusive distribution, the
industrial marketer expects superior selling efforts and skills.
c) Number of channels: in industrial marketing use of more than one marketing
channel is common. The benefit of multichannel marketing are: (i) increased
market coverage; (ii) lower channel costs, and (iii) more customized selling.
d) Terms and responsibilities of channel members: the industrial marketer must
spell out clearly the terms and condition, and the responsibilities of the channel
members in the agreements that are prepared after discussion. The major points
covered are:
 Responsibilities or tasks or tasks: of both the parties should be spelt out
to avoid future conflicts as to who will perform which tasks/service.
 Sales policy: like the percentage of trade discounts to the distributors on
the price list and the commission to agents or brokers on the sales value
of invoices should be agreed along with any incentives.
 Territory or market segments: to be covered by the intermediaries
could be a source of legal issue due to restrictive nature of territory
allocations.
5. Evaluating the channel alternatives: the factors or criteria that are used for evaluating
each of the channel alternatives are:
 Economic factor: economic performance of each channel alternative should be
compared. For this, the industrial marketer is required to estimate the levels of
sales revenue and selling costs of each channel alternative. The different levels of
sales revenue can be optimistic, realistic. Similarly, the total costs of selling at the
three levels of sales revenue can be estimated.
 Control factor: the degree of control that the industrial marketer can exercise
over the channels is an important factor. The company sales force channel gives
the marketer the maximum control followed by manufacturer’s representative and
broker channels.
 Adaptive factors: in a rapidly changing market conditions, the industrial
marketer must be able to control and modify the channel structure. At the same
time there should be an agreement or commitment to each other among the
channel members. The evaluation of channels must consider the degree of
adaptability of the channels to the changes taking place in the market place.
6. Selection of channel structure: the selection of one or more channels out of the various
available alternatives can be done on the basis of the channel design framework.

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Managing or administering channel members:
It 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
Business marketing pricing decision:
What is price???
Price is the amount of money paid by a buyer to a seller for a particular product or service.
Pricing is the process of determining what a company will receive in exchange for its product or
service. Pricing factors are manufacturing cost, market place, competition, market condition,
brand, and quality of product. 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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