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Learning Objectives
LEARNING OBJECTIVES
Understand the types of industrial customers as well as
industrial goods and services.
Know the marketing implications for different types of
customers and products.
Understand the purchasing orientations and practices of
industrial customers.
Know types of environment and strategies to manage
external environment.
IM/2-2/10
(A) What are the types/classifications of
Industrial/Business customers? IN T E R M E D IA R IE S /
M ID D L E M E N ( D IS T R IB U T O R S )
C O M M E R C IA L
E N T E R P R IS E S O E M S
U S E R S
P U B L IC S E C T O R
U N IT S (B H E L )
G O V E R N M E N T
C U S T O M E R S
G O V T . U N D E R T A K IN G S
( R A IL W A Y S , D E F E N C E U N IT S )
IN D U S T R IA L /
B U S IN E S S
C U S T O M E R S P U B L IC IN S T IT U T IO N S
(G O V T . H O S P IT A L S )
IN S T IT U T IO N A L
C U S T O M E R S
P R IV A T E IN S T IT U T IO N S
(S C H O O L S , C O L L E G E S )
M A N U F A C T U R IN G
U N IT S ( S U G A R , M IL K )
C O -O P E R A T IV E
S O C IE T IE S
N O N -M A N U F A C T U R IN G
U N IT S (B A N K S , H O U S IN G )
F IG . T Y P E S O F IN D U S T R IA L / B U S IN E S S C U S T O M E R S
IM/2-3/10
(B) How are Industrial Products / Services Classified?
Classification into 3 Groups shown below.
R A W M A T E R IA L S (IR O N O R E , C R U D E O IL )
M A T E R IA L S M A N U F A C T U R E D M A T E R IA L S
& PARTS ( S T E E L , F U E L O IL )
(E N T E R P R O D U C T
C O M P O N E N T P A R T S (B E A R IN G S , T Y R E S )
D IR E C T L Y )
S U B A S S E M B L IE S ( E X H A U S T P IP E IN M .C .)
IN D U S T R IA L C A P IT A L IT E M S L IG H T E Q P T (C O M P U T E R S , H A N D T O O L S )
PRODUCTS / (U S E D IN
H E A V Y E Q P T (M A C H IN E S , T U R B IN E S )
S E R V IC E S P R O D U C T IO N /
O P E R A T IO N S ) P L A N T /B U IL D IN G (F A C T O R IE S , O F F IC E S )
S U P P L IE S / S U P P L IE S (L U B R IC A N T S , E L E C T R IC A L IT E M S )
S E R V IC E S
(T O S U P P O R T
O P E R A T IO N S ) S E R V IC E S (L E G A L , C O U R IE R )
F IG . C L A S S IF IC A T IO N / T Y P E S O F IN D U S T R IA L P R O D U C T S / S E R V IC E S
IM/2-4/10
E C O L O G IC A L S O L ID W A S T E D IS P O S A L
C O N S E R V IN G N A T U R A L R E S O U R C E S
W A T E R , P O W E R , T R A N S P O R T A T IO N
P H Y S IC A L
L O W -C O S T , S K IL L E D M A N P O W E R
C O M P A N Y L O C A T IO N , IM A G E / R E P U T A T IO N
E N V IR O N M E N T IN T E R N A L R & D & P R O D U C T IO N F A C IL IT IE S
(S & W A N A L Y S IS ) H R & F IN A N C IA L R E S O U R C E S
M A R K E T IN G E F F E C T IV E N E S S
M IC R O C U S T O M E R S & C O M P E T IT O R S
(A F F E C T S A
P A R T IC U L A R
F IR M ) S U P P L IE R S
EXTERNAL
( O & T A N A L Y S IS ) E C O N O M IC
M ACRO T E C H N O L O G IC A L
(A F F E C T S
G O V T ., P O L IT IC A L , L E G A L
A L L F IR M S )
C U L T U R A L & S O C IA L
P U B L IC - P R E S S , S H A R E
H O L D E R S , IN V E S T O R S &
P U B L IC IN T E R E S T G R O U P S
IM/2-9/10
Learning Objectives
Understand Organizational buying objectives.
Gain knowledge of buying activities, including different
phases in buying decision process, types of buying
situations; buygrid framework & its analysis.
Identify members of buying centers.
Understand organizational buying behavior.
Know how industrial buyers choose and evaluate suppliers.
IM/3-2/16
Industrial Buying
Marketers must Decision Process
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:
IM/3-4/16
(A) PHASES IN INDUSTRIAL BUYING DECISION
MAKING PROCESS / BUYPHASES
PHASE –1 :- Recognising A problem / need.
PHASE – 2 :- Determining Characteristics &
Quantity of needed product / Service*.
PHASE – 3 :- Developing specifications of the product*.
PHASE – 4 :- Searching & Qualifying Suppliers.
PHASE – 5 :- Obtaining & Analyzing suppliers’ offers*
PHASE – 6 :- Evaluating & Selecting Suppliers.
(shown on next slide)
PHASE – 7 :- Selecting an order routine
PHASE – 8 :- Post – Purchase evaluation
* These are in addition to five stages of consumer buying decision
process.
IM/3-5/16
(E) Identifying
Sales key members of buying centre
/ Marketing persons must identify important members
of buying centre.
Buying centre consists of individuals and groups who take part
in buying decision making process, have common objectives &
share common risks. It is also called purchase committee,
buying committee or decision making unit.
Members of buying centre are
(i) Technical persons. Represent
design,production/operations,
maintenance, Q.C., Industrial Engg. Depts.
(ii) Purchasers / Buyers. Purchase / Materials dept. persons.
(iii) Accounts / Finance persons.
(iv) Marketing persons
(v) Top management persons. G. M. & above.
IM/3-11/16
(F) Organizational buying behavior
Industrial / business buyers are influenced by many
factors. Two most important factors are (i)
Organizational factors / task – oriented objectives,
like best product quality, lowest price, dependable
delivery.
(i) Personal factors / Non-task oriented objectives,
such as good increments, promotion, Job security,
personal favors.
When suppliers’ offers are similar, buyers can satisfy
organizational objectives from any supplier. Hence,
personal factors become important.
However, when suppliers’ offers differ substantially, buyers
give importance to organizational factors to satisfy
organizational objectives.
IM/3-12/16
Many models have been developed to explain organizational
buying behavior. One of the comprehensive models is the
Sheth model, described below.
The Sheth model of industrial buyer behavior, shown
below , focuses on (i) Psychological aspects of individual
buyers (Component 1), (ii) Conditions causing joint
decision making (Component 2), (iii) Conflict among those
involved in decision process & resolution of conflict
(Component 3).
Situational factors include economic conditions, labour
disputes, mergers & acquisitions. The model does not
explain their influence on buying process.
IM/3-13/16
C o m p o n e n t (1 ) C o m p o n e n t (2 ) C o m p o n e n t (3 ) S it u a t io n a l F a c t o r s
D iff e r e n c e s a m o n g V a r ia b le s th a t D e te r m in e M e t h o d s u s e d fo r
in d iv id u a l b u y e r s if b u y in g d e c is io n is c o n flic t r e s o lu tio n
c a u s e d b y fa c t o r s : a u to n o m o u s o r jo in t : in jo in t- d e c is io n
B a c k g ro u n d o f A ) P r o d u c t S p e c if ic m a k in g p r o c e s s :
in d iv id u a ls ( E d u c a tio n , F a c to r s :
r o le & life s ty le ) . T im e P r e s s u r e P r o b le m S o lv in g
T h e ir in fo r m a tio n P e r c e iv e d R is k P e r s u a s io n S u p p lie r o r
s o u rc e s . T y p e o f P u rc h a s e B a r g a in in g B r a n d C h o ic e
A c tiv e S e a r c h B ) C o m p a n y S p e c ific P o litic k in g
P e r c e p tu a l D is to r tio n F a c to rs :
S a tis fa c tio n w it h C o m p a n y S iz e
p a s t p u rc h a s e s C o m p a n y O r ie n ta t io n
D e g re e o f
C e n tr a lis a tio n
F ig . : T H E S H E T H M O D E L O F IN D U S T R IA L B U Y E R B E H A V IO U R
W E B S T E R A N D W IN D M O D E L
IM/3-14/16
E n v ir o n m e n ta l V a r ia b le s
P h y s ic a l, T e c h n o lo g ic a l
E c o n o m ic , C u lt u r a l
P o lit ic a l a n d L e g a l
L a b o u r u n io n s
C u s to m e r d e m a n d s
C o m p e t it iv e p r a c tic e s
S u p p lie r in f o r m a t io n
O r g a n is a tio n V a r ia b le s
O b je c t iv e s a n d g o a ls
O r g a n is a tio n S t r u c tu r e
P u r c h a s in g P o lic ie s / P r o c e d u r e s
E v a lu a tio n & r e w a r d s y s te m s
D e g r e e o f d e c e n t r a lis a t io n
B u y in g C e n tr e V a r ia b le s O r g a n is a t io n B u y in g D e c is io n s
A u th o r ity , S iz e C h o ic e o f S u p p lie r s
K e y in f lu e n c e r s D e la y d e c is io n & g e t m o r e in f o r m a t io n
In te r p e r s o n a l r e la t io n s h ip M a k e , L e a s e o r b u y
C o m m u n ic a tio n D o n o t b u y
In d iv id u a l V a r ia b le s
P e r s o n a l G o a ls , V a lu e s
E d u c a t io n , E x p e r ie n c e
E x p e r tis e , J o b P o s itio n
L if e s ty le , I n c o m e
IM/3-15/16
CUSTOMER SERVICE
Important Customer Service Elements. Carry out
market survey to understand which of the following
elements of customer service are important to customers,
what service levels are expected by customers, the service
levels offered by the firm and its competitors.
(i) Pre – Sales Service : Advising, Informing,
Problem solving
(ii) During – Sales Service : Product availability,
on–time delivery, order cycle time, and information.
(iii) Post – Sales Service : Warranty, AMC, Repair,
Installation & Training.
Develop superior service package.
Test, Set Goals, and Establish Control system
IM/3-16/16
SUMMARY OF CHAPTER - 3
Industrial marketers should understand that business buyers try
to achieve both organizational & personal objectives.
Industrial buying decision process consists of eight steps / stages
(buyphases) & three types of buying situations (buyclasses).
Buygrid model combines buyphases & buyclasses.
Marketers must understand roles & key members of buying
centre, including key buying influencers.
Many factors influence organizational buying behavior, but
major factors are organizational ( or task – oriented ) objectives
and personal (non – task oriented ) objectives.
The Sheth model of industrial buyer behavior is comprehensive,
focusing of psychological & joint – decision making aspects.
Webster and wind model is also widely used & comprehensive
model on buyer behavior.
CHAPTER - 4 IM/4-01/11
BUYER SELLER RELATIONSHIP
LEARNING OBJECTIVES :
Understand buyer sales rep. interactions.
Types/range of relationships between buyer &
seller firms.
Customer relationship management (CRM) /
relationship marketing.
Methods used to influence industrial customers.
Special dealings between buyer & seller.
IM/4-02/11
In c o m p a tib le In e f fic ie n t No
C o n te n t T r a n s a c tio n T r a n s a c t io n
P a r tn e r in g /
T r a n s a c tio n a l V a lu e -A d d e d C o lla b o r a tiv e
R e la tio n s h ip R e la tio n s h ip R e la tio n s h ip
and resources.
d. Regular frequency of concessions are important and not
SUMMARY OF CHAPTER
BUYER – SELLER -4
RELATIONSHIP
Industrial buyer and sales rep.’s interactions depend on their
perceptions, behavior, & roles.
Interaction between two persons (buyer & seller) is called Dyadic,
with various types of transactions, as per Dr. Sheth’s framework.
Buyer and seller firms have various types and range of
relationships: transactional, value added and partnering /
collaborative.
Customer relationship management (CRM) and relationship
management (RM) are conceptually same. Both aim at
collaborative / partnering long – term relationship for mutual
benefits of both parties.
Sales promotion and negotiation are the major methods used to
influence industrial buyers.
Reciprocity and dealing with customers’ customers are the special
dealings between a buyer & a seller.
CHAPTER 5
IM/5-1/6
INDUSTRIAL MARKETING INTELLIGENCE AND
MARKETING RESEARCH
LEARNING OBJECTIVES :
1. Know Nature and Scope of Industrial
Marketing research.
2. Examine the Marketing Research
Process.
3. Understand Industrial Marketing
Intelligence System.
IM/5-3/6
M a r k e t in g
R esea rch
s t u d ie s
I n d u s t r ia l
Secondary D e c is io n
M a r k e t in g M arket
D a ta Support
I n t e llig e n c e R esp on ce
S ou rce S y ste m
ResaMrk rcheting
studi es
Indus trial
Se Dat condary IntelMark igenct DecisonSuprt MarketRsponc e
Source Syste m System
S y ste m
LEARNING OBJECTIVES :
1. Know the Procedure followed for segmenting
industrial markets.
2. Identify the Variables (bases) used for
segmenting business markets.
3. Evaluate and select the target market
segments and strategies.
4. Develop effective positioning strategies.
PROCEDURE USED IN MARKET IM/6-2/9
SEGMENTATION
1.0
.A1 0.8
0.6
.D
.C 0.4
- 0.6
. - 0.8
A
- 1.0
Learning Objectives
1. Define an Industrial Product.
2. Understand Changes in the product strategy.
3. Know Product Life cycle (PLC) Theory and its
application.
4. Develop Product strategies for existing products.
5. Understand new product development.
6. Know impact of technology and high-tech marketing.
7. Learn Marketing of industrial services.
IM/7-2/20
R upees
In d u s tr y
P r o fits
M a tu r ity D e c lin e
IM/7-5/20
APPLICATION OF PRODUCT LIFE – CYCLE THEORY TO
MARKETING STRATEGY
C o m p a n y S a le s D e c lin e S ta b le G ro w th
P r o f ita b ility
In d u s tr y B e lo w Ta rg e t Above B e lo w Ta rg e t Above B e lo w Ta rg e t Above
M a rk e t
S a le s Ta rg e t Ta rg e t Ta rg e t Ta rg e t Ta rg e t Ta rg e t
S h a re
D o m in a n t P
G ro w th A v e ra g e
M a r g in a l
D o m in a n t
S ta b le A v e ra g e
M a r g in a l S
D o m in a n t
D e c lin e A v e ra g e
M a r g in a l
IM/7-10/20
PERCEPTUAL MAPPING TECHNIQUE
H ig h P r ic e
H ig h Low
Q u a lity Q u a lity
*
A
1 *A
C
L o w P r ic e
IM/7-11/20
Firm A’s product quality is perceived to be “average” by
customers, compared to its competitors B & C. Firm A
should try to move to a new position of superior quality at
a reasonable (average) price to improve its profitability.
performance.
NEW PRODUCT DEVELOPMENT PROCESS
It consists of 7 Stages :
(i) Idea generation, (ii) Idea Screening, (iii) Concept development and
testing, (iv) Business analysis, (v) Product development,
(vi) Market testing, & (vii) Commercialization.
IM/7-13/20
IMPACT OF TECHNOLOGY
Technological innovations create new products / services that
are new to the world. Examples of these innovations, called
break through technology are :
(i) Technological inventions of 1940s of vacuum tube
and amplifier circuit created new products / services like
radio, wireless telegraphy, and telephone service.
(ii) Technological inventions of 1950s & 70s of
transistor, integrated circuit (IC), microprocessors have
applications in new products like TV sets, movie
Cameras, Computers, Calculators, Mobile phones, Printers
etc.,
(iii) Digital revolution of information technology and the
internet have improved company and consumer
capabilities.
IM/7-14/20
B e tte r H ig h - t e c h
H ig h M o u s e tra p M a r k e tin g
T e c h n o lo g ic a l M a r k e tin g
U n c e r ta in t y
L o w -te c h H ig h - f a s h io n
Low M a r k e tin g M a r k e tin g
Low H ig h
M a r k e t U n c e r ta in t y
IM/7-15/20
MODIFIED TECHNOLOGY ADOPTION
LIFE CYCLE
D eep G ap
34%
In n o v a to rs 13½ %
34%
E a r ly 16%
2½ % A d o p te rs L a g g a rd s
T im e o f A d o p t i o n o f I n n o v a t i o n s
IM/7-16/20
M a t e r i a ls P e rs o n a l H o t e ls
C o m p o n e n ts fo r G ood
C o m p u te rs T r a n s p o r ta t i o n
( S t e e l, B a l l B e a r in g s ) C o n fe re n c e s
P u re P u re
T a n g i b le i n t a n g ib le
P ro d u ct s e r v ic e
M a jo r Equal M a jo r
P ro d u c t, P ro d u ct S e r v ic e ,
M in o r & M in o r
S e r v ic e S e r v ic e P ro d u ct
Unique Characteristics of services and IM/7-18/20
marketing Implications.
C h a r a c te r is tic s M a r k e t in g Im p lic a tio n s E x a m p le s
2 . In s e p a r a b ility E ffe c t iv e in t e r a c t io n d e p e n d o n s e r v ic e R e p a ir s to m a c h in e s
( P r o d u c t io n &
c o n s u m p tio n a t th e p r o v id e r s . & C o u r ie r s e r v ic e .
s a m e t im e ) R e q u ir e s e ff e c t iv e r e c r u it in g a n d t r a in in g
o f s e r v ic e p r o v id e r s .
5 . N o n -o w n e r s h ip A d v a n ta g e s o f n o n - o w n e r s h ip : H o te l a n d c a r r e n ta l
(B u y e r u s e s a
s e r v ic e , b u t c a n n o t r e d u c t io n in c o s ts & f le x ib ilit y s e r v ic e s .
o w n it)
SUMMARY OF CHAPTER 7 IM/7-19/20
PRODUCT STRATEGYS & NEW PRODUCTS
DEVELOPMENT.
Industrial Product is a physical thing and also a complex set
of economic, technical, legal and personal relationship
between a buyer and a Seller.
Product Strategies are changed due to changes in customers
needs, technology, government policies or laws, and
product life – cycle
Product life cycle (PLC) concept is used to develop
marketing strategies at different stages of PLC.
Product strategies for existing products are developed by (i)
evaluating the performance of existing products, using
“product evaluation matrix ,” (ii) Studying the strengths
and weaknesses of existing products, using “perceptual
mapping” technique.
IM/7-20/20
It means, deciding if a product should be continued, modified,
dropped, or replaced.
New products are classified into six groups and consist of seven
stages of development process :- idea generation, idea
screening, concept development & testing, business analysis,
product development, market testing, and commercialization.
In High –tech marketing situation, technology application and
market needs are difficult to predict . The “technology
adoption life cycle” is modified to suit high-tech marketing.
Unique high – tech marketing strategies include targeting a
niche market, planning whole product, developing
partnership, unique positioning, effective communication ,
multi – channel distribution and Skimming pricing.
Industrial services are classified into various groups, and
include unique characteristics like intangibility, inseparability,
variability, perishability & non – ownership.
CHAPTER – 8 IM/8-1/14
Learning objectives
1. Understand alternative channel structures.
2. Know types of industrial intermediaries.
3. Understand steps involved in designing a channel.
4. Learn how to manage channel members.
5. Understand concepts of supply chain management,
Logistics, and business logistics system.
6. Learn the tasks of physical distribution and total
distribution cost.
Alternative Channel Structures IM/8-2/14
Industrial channel structures include both direct and indirect channels.
Direct Channels.
Examples are direct selling through company sales force and direct
marketing through on-line marketing, telemarketing and direct mail.
Direct channels are used typically when (i) Transaction value is large,
(ii) Technical & commercial negotiations are held at various levels
(iii) Buying process takes a long time (iv) Buyers want to buy directly
from manufacturers.
Indirect Channels.
Consists of intermediaries like distributors / dealers, manufacturer’s
reps / agents, value-added resellers (VARs), brokers and commission
merchants.
Indirect channels are generally used when (i) Value of transaction /
sales is low, (ii) The manufacturer’s resources are limited,
(iii) Customers are geographically dispersed, (iv) Buyers purchase many
items in one transaction.
Types of Intermediaries IM/8-3/14
P h y s ic a l S u p p ly In d u s t r ia l M a n u fa c tu e r P h y s ic a l D is tr ib u tio n
(o r M a r k e tin g L o g is tic s )
S a le s R e v e n u e - T o ta l P h y s ic a l D is t r ib u t o r C o s t
=
C a p ita l In v e s tm e n t
SUMMARY OF CHAPTER – 8 IM/8-13/14
S a le s L a rg e M a jo r N a tio n a l
P o t e n tia l A ccount A ccount
of D y a d ic M in o r
C u s to m e r S m a ll
In te r a c tio n A ccount
S im p le C o m p le x
Complexity of customer
IM/9-10/12
Learning Objectives
1. Understand the special meaning of price.
2. Know the factors that influence pricing
decisions, i.e. price determinants.
3. Understand pricing strategies for different
product/market situations.
4. Examine the pricing policies for various types
of customers.
5. Understand the role of leasing.
IM/11-2/ 29
SPECIAL MEANING
Some business OF PRICE
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.
IM/11-3/ 29
F R A M E W O R K O F P R IC IN G D E C IS IO N S
B e fo re ta k in g p ric in g (i) P ric in g o b je c tiv e s
d e c is io n s , a b u y in g firm m u s t ( ii) C u s to m e r a n a ly s is
fin d " p ric e d e te rm in a n ts " . (iii) C o s t a n a ly s is
( i.e . f a c to r s th a t in f lu e n c e (iv ) C o m p e tito rs ' a n a ly s is
p ric in g d e c is io n s ) ( v ) G o v t. r e g u la tio n / p o lic ie s
T w o ty p e s o f p ric in g d e c is io n s . IM/11-5/ 29
P r ic in g s tra te g ie s P r ic in g p o lic ie s
D is c o u n ts
G e o g ra p h ic a l
p r ic in g
S e ttin g a p ric e
(p ro d u c t / m a rk e t
s itu a tio n s )
In itia tin g a
p ric e c h a n g e
R e s p o n d i n g t o a c o m p e t i t o r 's
p ric e c h a n g e
L e a s in g
IM/11-6/ 29
PRICE DETERMINANTS OR FACTORS INFLUENCING
PRICING DECISIONS
1. Pricing Objectives
Are derived from corporate and marketing
objectives.
Some of the pricing objectives are survival,
maximum short – term profits, maximum short –
term sales, maximum sales growth, product quality
leadership, etc.
IM/11-7/ 29
2. Customer (Demand) analysis
It includes demand analysis & cost - Benefit analysis
(i) Demand analysis. Using experimental research, it measures
relationship between price and demand (or sales volume). It sums
up how sensitive customers are to the price changes. The formula
is:
% c h a n g e in q u a n tity d e m a n d e d
=
% C h a n g e in p r ic e
Q u a n tity P r o d u c e d p e r y e a r
C o st E x p e r ie n c e /
p er L e a r n in g
U n it
C u rv e.
A v . C o s t R e d u c tio n
= 1 0 -3 0 %
A c c u m u la te d P r o d u c tio n
IM/11-10/ 29
B r e a k - E v e n A n a ly s is is u s e fu l to c o n s id e r d iff e r e n t
p ric e s (P 1 , P 2 , P 3 ), a n d its e ffe c t o n s a le s re v e n u e a n d p ro fits .
S a le s R e v e n u e a t P 3
S a le s
&
C o s ts S a le s R e v e n u e a t P 2
S a le s R e v e n u e a t P 1
T o ta l C o s t
F ix e d C o s t
S a le s V o lu m e
IM/11-11/ 29
4. Analyzing Competition
Many marketers have “competitive level” Pricing as a
pricing objective.
Marketers should get “Competitors’ prices, discounts,
costs, product quality, service, etc for cost/benefit analysis,
pricing and positioning strategy.
Competitors’ information can be obtained from various
sources.
5. Government Regulation/Policies
Govt. regulations are necessary to ensure fair play and to
protect consumers and small scale suppliers.
Price-fixing / price cartels, price discrimination (e.g.
different discounts to distributors/dealers), and predatory
pricing (e.g. dominant firm aiming to finish competitors)
are not permitted (illegal as per MRTP act, for example)
IM/11-12/ 29
PRICING STRATEGIES
Pricing strategies vary as per product-market
situations such as (i) Competitive bidding in
competitive markets, (ii) New product pricing,
(iii) Pricing across product life-cycle.
(i) Competitive Bidding
In business markets, large volume of
purchasing is done through competitive
bidding, using either closed (or sealed) bidding
or open (or negotiated) bidding method.
IM/11-13/ 29
In closed bidding, often used by the Govt.
buyer, sealed bids are invited through
newspaper tender notices. Sealed bids are
opened in presences of suppliers and orders are
placed on the lowest price bidder(s).
In open bidding, after receiving bids
(quotations), the buyer negotiates technical
and commercial parts with suppliers, and then
places orders. This method is often followed by
commercial enterprises in private sector .
IM/11-14/ 29
Rs.60 corers tender from Dept. of Telecomm. (DOT) for underground cable jointing kits. The
company ghosted Rs.400/- per kit (expected maximum profit). Tender opening revealed, it was
L4.L1 was Rs. 330/-, L2=350, L3=Rs 380/- The company estimates of B and P(A) were incorrect.
IM/11-16/ 29
(ii) New Product Pricing Strategy
In the introduction stage of a new product, two
alternative pricing strategies are available
(i) Skimming (high initial price) strategy, and
(ii) Penetration (low initial price) strategy.
Skimming Strategy is appropriate for a new product
that is distinct, high–tech, or capital intensive, and
purchased by a market segment that is not sensitive to
the initial high price. The advantage is faster recovery of
investment by generating larger profits. The
disadvantage is that it attracts competitors due to high
profits. The firm reduces prices after some time to reach
other segments.
IM/11-17/ 29
Penetration strategy is appropriate when (i) buyers are
highly price sensitive, (ii) strong threat exists from potential
competitors (due to low entry barrier). The selling firm’s
objective is to achieve long – term profits through high
market share. The firm can also achieve “cost leadership”
thru’ economies of scale and experience curve, which gives “
competitive advantage”.
(iii) Pricing Across Product Life – Cycle (PLC)
Marketing and pricing strategies vary as the product moves
across 4 – stages of PLC.
(a) Introduction stage. We have discussed pricing strategy in
this stage earlier in pricing a new product.
(b) Growth stage. The firm lowers the prices to attract the
next layer of price – sensitive buyers. Also more suppliers
enter the market and buying firms put pressure on the
existing suppliers to lower prices.
IM/11-18/ 29
(c) Maturity stage. The firm may cut the prices to match
aggressive competitors’ prices by giving volume
discounts, absorbing freight costs, or more credit. If
industrial customers do cost - benefit analysis, a selling
firm may increase prices or not make any change in
prices due to its superior product quality.
(d) Decline stage. Pricing strategy varies depending on
conditions. (i) If buyers’ perceptions about the firm’s
quality of product / service is good, then the price need
not be lowered, but costs should be reduced to earn
profits, (ii) if the quality of product / service is equal of
lower than competitors, a firm may cut prices, to increase
sales volume above break – even volume, (iii) if some
competitors have withdrawn, a firm may selectively
increase prices to less price – sensitive segments.
IM/11-19/ 29
Initiating price changes
If a firm is a market leader and wants to change the
price, it must anticipate reactions from customers and
competitors.
The firm must ‘study major competitors’ objectives,
financial situations, production capacity utilizations,
sales, costs, and profits. It must also understand
competitors’ mind-set, by studying their business
philosophy (or concepts), culture, beliefs and past
behaviors. Based on above analysis the firm should
predict competitor’s response.
The firm must also understand that customers
generally prefer small price increases several times,
rather than one sharp increase. Of course, customers
would generally welcome price cuts.
IM/11-20/ 29
Responding to competitors’ price changes
A marketer should respond after answering the
following questions.
(i) Why the competitor has changed the price?
(ii) Is the price change temporary or permanent?
(iii) What will happen to the company’s sales and
profits, if it does not respond.
(iv) What would be the reactions of other competitors.
The responses can be in several ways:
(a) maintain price and value (benefits), (b) match
competitors price, (c) develop and launch low-price
product item, (d) maintain price. The right response
depends on the business situations faced by the firm.
PRICING POLICIES IM/11-21/ 29
Purpose. A firm evolves pricing policies to adjust basic prices
(or price list) for different types of customers (like OEMs,
users, and dealers) who buy various quantities and are located
at different locations. The price list is adjusted with different
types of discounts and allowances.
Price list is a statement of basic prices of a product, having
various sizes/specifications.
Net price = price list (or list-price) less discount (or
allowances). Business buyers are more interested in net price
Types of discounts : Trade, quantity (or volume), and cash.
Trade discounts. It is offered to traders or intermediaries
(dealers / distributors / stockiest ) and it should be equal and
sufficient (as per industry norms or functions performed). e.g.
price list (100) – trade discount (15) = net price (85)
IM/11-22/ 29
Volume / Quantity discounts. Here, the objective is to encourage customers to
buy larger quantities, which would reduce the costs of selling, inventory carrying
and transportation. The quantity (or volume) discounts are given either on single
orders over a period, usually one year (cumulative basis). For example,
S iz e o f e a c h Y e a r ly T o ta l % Q u a n tity
P u rch ase ord er or P u rch ase D isc o u n t
L e s s t h a n 5 n o s ., or L e s s t h a n R s . 5 ,0 0 0 , N il
5 - 1 0 n o s ., or R s . 5 ,0 0 0 - 1 0 ,0 0 0 , u p to 3
1 1 - 1 5 n o s ., or R s . 1 0 ,0 0 0 - 1 5 ,0 0 0 , u p to 6
> 1 5 n o s ., or > R s . 1 5 ,0 0 0 , u p to 1 0
SUMMARY OF CHAPTER – 11
In business marketing, price has a special
meaning. For value buyers, value based pricing is
appropriate.
Factors that influence pricing decisions (or price
determinants) are: (i) pricing objectives, (ii)
customer analysis, (iii) competition analysis, (iv)
cost analysis (v) government regulations/policies
Pricing strategies for different product-market
situations are: (a) competitive bidding in
competitive markets, (b) new product pricing (c)
pricing across product life – cycle.
IM/11-29/ 29
Initiating price changes and responding to
competitors’ price changes are also parts of
pricing strategies
Pricing policies include adjustment of basic
prices (or price list) with different types of
discounts like volume, trade, and cash, as well as
geographical pricing.
Leasing or buying options are available to
business buyers for capital items like machinery.
Financial and operating are two types of leases.
Pricing strategies are made either to favour
leasing or outright purchase, or balance between
leasing and buying .
IM/12-1/19
CHAPTER – 12
STRATEGIC PLANNING, IMPLEMENTING, AND
CONTROLLING IN INDUSRIAL MARKETING
Learning Objectives
Understand the characteristics of market –
oriented organization.
Know the role of marketing in strategic planning
Examine the strategic planning process at
business unit level.
Understand preparation implementation and
control of industrial (or business )marketing plan.
IM/12-2/19
B e fo re u n d e rs ta n d in g th e ro le o f m a rk e tin g in s tra te g ic p la n n in g , w e
s h a ll firs t e x a m in e h ie ra rc h y o f s tra te g ie s .
O r g a n is a tio n a l O r g a n is a t io n a l S tr a te g y h ie r a r c h y
L e v e ls S tr u c tu re (T y p e o f M a n a g e m e n t)
C o rp o ra te C o rp o ra te D iv is io n a l/
O ffic e B u s in e s s S tra te g y
D iv is io n a l / (S tra te g ic
B u s in e s s U n it M a n a g e m e n t)
/SBU SBU SBU SBU
I II III
F u n c tio n a l
F u n c tio n a l S tra te g y
(O p e ra tio n s
P ro d u c tio n M a rk e tin g F in a n c e M a n a g e m e n t)
IM/12-4/19
The earlier figure shows hierarchy of strategies and
organization structure of a large company.
Strategic management gives a direction to the firm
and focuses on developing strategies to achieve long –
term objectives & goals
A Strategic business unit (SBU) consists of an
independent business or related business that has its
own competitors and specific markets. In some large
companies there are (product ) divisions and each
division has a divisional plan. Each SBU is headed by
a manager who is responsible for strategic planning
and performance of the SBU.
Operational Management maintains the direction
given by strategic management, and concentrates on
day-to-day issues of costs, revenue and profits.
IM/12-5/19
ROLE OF MARKETING IN STRATEGIC PLANNING IN A
FIRM
C om pany F o rm a l R o le o f M a rk e tin g
L evel N am e
C o rp o rte T o g iv e in fo rm a tio n o n m a rk e ts a n d
C o rp o rte to e n s u re c u s to m e r o rie n ta tio n , fo r
M a rk e tin g
c o r p o ra te s tra te g y d e v e lo p m e n t.
CompanyLevl NamFor R eal olefMa rketing
Corpte Corp toT orte ensurcogiv ustomerifan ntaio,mrkes forand
Mark Tco eting ocaryptes utcsomeragydv &compelnt. tion
Divsonal /Stra stan egic rategy,inlsfo cludingomrevp petivgbusn s
BusineUtlv Mark poad eting sitongvae, straegi.mn ,targein g,and
T odevlp eshort- marke ting
Funcitoal Mangerk repl mentig sourcealndt locatin.regy, dinato, and
T o c a rr y o u t c u s to m e r & c o m p e titio n
D iv is io n a l / a n a ly s is , f o r d e v e lo p in g b u s in e s s
S tra te g ic
B u s in e s s s tra te g y , in c lu d in g c o m p e titiv e
M a rk e tin g
U n it le v e l a d v a n ta g e , s e g m e n tin g , ta rg e tin g , a n d
p o s itio n in g s tra te g ie s .
T o d e v e lo p s h o rt - te rm m a rk e tin g
M a rk e tin g
F u n c tio n a l p la n a n d s tra te g y , c o o rd in a tio n , a n d
M anagem ent
re s o u rc e a llo c a tio n .
IM/12-6/19
S ta r s Q u e s tio n m a r k s
5 4
R a p id
6
M a rk e t G ro w th R a te
3 8
C ash C ow Dogs
S lo w
1 2 7
L a rg e S m a ll
R e la tiv e M a r k e t S h a r e
IM/12-8/19
GE Model : Business Screen Matrix
B u s in e s s S tr e n g th
5 H ig h M e d iu m Low 1
S e le c tiv ity /
H ig h
E a r n in g s
M e d iu m
Low
1
IM/12-9/19
Major Business Strength factors : Market share,
product quality, unit costs, R&D performance,
brand reputation, share growth.
Major Market Attractiveness factors : Overall
market size, annual market growth rate, historic
profit margin, competitive intensity, technological
requirements.
IM/12-10/19
DEVELOPING CORPORATE STRATEGIES
Strategic planning gap. It is the gap between future (5
years) desired sales and the projected sales (of all
SBUs ) of a company.
D e s ir e d S a le s
A S tr a te g ic
S a le s
P la n n in g g a p
B
P r o je c t e d S a le s
0 T im e (Y e a rs ) 5
IM/12-11/19
The strategic planning gap can be filled by three
alternative strategies : (A) Diversification growth, (B)
Integrative growth, (C) Intensive growth
(C) Intensive Growth Strategy. Corporate management
should first review existing business, using Ansoff’s
product-market expansion grid, shown hereafter :
C u rre n t P ro d u c ts N e w P ro d u c ts
C u rre n t M a rk e t P e n e tra tio n P ro d u c t d e v e lo p m e n t
M a rk e ts S tra te g y S tra te g y
N ew M a rk e t d e v e lo p m e n t ( D iv e rs ific a tio n
M a rk e ts S tra te g y S tra te g y )
IM/12-12/19
( B) Integrative Growth Strategy includes
increase in a firm’s sales and profits by integrating
backward, forward, or horizontally within that
industry.
L o w - c o s t p o s itio n
In d u s try O v e ra ll c o s t
D iffe re n tia tio n le a d e rs h ip
w id e
P a rtic u la r
s e g m e n t o n ly F ocus
IM/12-15/19
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.