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Question Bank for B2B Marketing

1 Discuss the 3 levels of Industrial Environment with suitable examples?


The industrial marketing environment can be divided into 3 levels
1. The Interface Level
2. The Publics Level
3. The Macro Environment Level.
Industrial buyers and sellers operate in a dynamic environment, one constantly posing
new opportunities and threats
How well buyers and sellers understand the environment within which they operate, and
how well they communicate with one another, foretells their capabilities of profiting
from or being damaged by the environments many surprises and shocks
The effectiveness of the buyer seller interface hinges on monitoring and adapting to or
developing strategies to affect environmental changes that directly impact either or both
organization

1.

The Interface Level


This involves those key participants who immediately interface with an industrial firm
(buyer or seller) in facilitating production, distribution and purchase of firms goods
and services.
Supply inputs are transformed by a company and its components into outputs with
added value that move on to the end markets
This move is made possible by the firms interface with industrial distributors and
dealers, manufacturers representatives and the companys own sales people.
That move is also made possible by a firms interface with facilitating institutions such
as banking, transportation, research and advertising firms.

Participants in the Interface Level


A) Input Supplier

Input goods such as the raw materials, labor and capital are supplied by organizations
to industrial firms for use in producing output goods and services.

The survival and success of a firm depends on the knowledge and relationship with its
input suppliers.

Interruptions in the flow of inputs cause repercussions in the entire industry affecting
not only production and marketing plans but also the production and marketing plans of
the suppliers.

B) Distributors

Most organizational buyers buy from five or more industrial distributors.

Industrial distributors, contact potential buyers, negotiate orders, provide buffer


inventories, credit and technical advice to potential buyers.

They are particularly important when joint demand is present because they bring
together the heterogeneous inputs needed for the production of end products.

C) Facilitators

Advertising agencies and public relations firms provide the necessary communication
flow between the sellers and buyers through the formulation of meaningful information
and media strategies.

The use of advertising in reaching potential buyers and the multitude of buying
influencers is vital in the overall communication strategy.

Transportation and warehouse companies facilitate the free flow of goods that must be
delivered in usable condition to industrial customers and distributors when and where
they are required.

When goods are not delivered on time and in usable conditions, buyers can be forced to
shut down production lines.

Resources as they move from the supply inputs to end users must be financed and
insured.

D) Competitors

Competitors actions whether domestic or foreign, ultimately influence the companys


choice of target markets, distributors, product mix, and in fact its entire marketing
strategy.

2) The Publics Level

Publics are distinct groups that have actual or potential interest or impact in each firms
ability to achieve its respective goals.

Publics have the ability to help or hinder a firms effort to serve is markets.

Financial Publics

Financial institutions such as investments firms and stock brokerage firms and
individual stakeholders invest in an organization on its ability to return profits

When they become unhappy with the management or dissatisfied with a companys
social policies they sell their shares.

Independent Press

Industrial organizations must be accurately sensitive to the role that the mass media
play and how they can affect the achievement of the marketing objectives.

The independent press is capable of publishing news that can boost or destroy the
reputation of a firm as well as the sales potential of a product.

Public Interest Groups

Industrial marketing decisions are increasingly affected by public interest groups.

These various public interest groups limit the freedom of the suppliers and buyers in the
industrial market.

While some organizations respond by fighting, others accept these groups as another
variable to be considered in developing strategic planning.

Working through public affairs departments to determine their interests and to express
favorably the companys goals and activities in the press.

The impact of these groups however is felt by all participants in the interface level.

General Public

Although the general public does not react in an organized way towards a firm or an
industry, as interest groups do, when sizeable portion of a population shifts attitude
towards a firm or industry, there is definite impact.

Internal Public

The board of directors and managers as well as blue and white collar workers are
important emissaries between an organization and other participants in the interface and
public levels.

Corporate policy must give consideration to employees and others who are held
responsible for the overall operation of the firm.

Employee morale is an important factor in all business decisions. And when morale is
low, organizational efforts suffer.

A firms employees spend more than two thirds of their time off the job, interacting with
their families and the community, so employees attitudes do influence the public.

3) Macro Environment

This level of the organization is made up of components that have less specific and less
immediate implications for managing the organization effectively.
1. Economic component
Economic conditions greatly influence an organizations ability and willingness to buy and sell.
Thus emerging changes in the economic environment both at home and abroad, must be
closely monitored. It includes the following factors;

Inflation rates
Balance of payment position
Debts and spending
Taxation rates
Interest rates
Consumers income
Corporate profits

2. Social component
This describes the characteristics of the society where an organization exists. It includes factors
such as;

Literacy levels
Values of people
Educational levels
Geographical distribution
Customs and believes

3. Legal component
This consists of legislations that have been passed. It describes the rules or the laws that all the
company members must follow. They include all laws affecting the organization e.g.
Consumer health policy
Energy policies and conservation Acts
Employment Acts, etc.
4. Political component
Comprise those elements related to the government affairs. This includes;

Type of government
Government attributes towards certain issues
Lobbying efforts from interest groups
Progress towards passing of laws affecting certain industries, etc.

5. Technological component

Given the rate of technological change in industries such as telecommunications, computers,


and semiconductors, large buying firms are developing forecasting techniques to enable them
to estimate time periods in which major technology developments might occur. Marketers must
also monitor technological change if they hope to adapt marketing strategy with sufficient
speed and accuracy to make the more scientific breakthroughs. This includes;
New procedures
Approaches to new plan of goods and services
Addresses the issues of new equipments and new ways of improving production
through the use of computers /robots.

6. Demographic component
Industrial firms cannot ignore the demographic environments because of the derived nature of
industrial demand. World population explosion and changing population structure of the world
has a major impact on industrial demand

2 What is Industrial Marketing and how is it different from Consumer Marketing?


Definition Of Industrial Marketing

The word Industrial Marketing is also treated as Business-to-Business Marketing, or


Business Marketing, or Organizational Marketing.

Industrial marketing/business marketing is to market the products and services to


business organizations, manufacturing companies, government undertakings, private
sector organizations, educational institutions, hospitals, distributors, and dealers.

The business organizations, buy products and services to satisfy many objectives like
production of goods and services, making profits, reducing costs and so on.

The industrial markets are geographically concentrated; the customers are relatively
fewer; the distribution channels are short; the buyers (or customers) are well informed;
the buying organizations are highly organized

Industrial marketing is more a responsibility of general management in comparison to


consumer marketing.

Different from Consumer Marketing


S .
Areas
N.
1
Market
Characteristics
2
3

Product
Characteristics
Service
Characteristics

Industrial Market

Geographically concentrated
Relatively fewer buyer buyers
Technical complexity
Customized
Service, timely delivered
availability very important

Consumer Market
Geographically disbursed
Mass market
Standardized
&

Buyer
Behaviour

Involvement of various functional


areas in both buyer & supplier firms
Purchase decisions are mainly made
on rational/performance basis
Technical expertise
Stable interpersonal relationship
between buyers & sellers

Channel
Characteristics

More direct
Fewer intermediaries/middlemen

Promotional
Characteristics
Price
Characteristics

Emphasis on personal selling

Competitive bidding & negotiated


prices
List prices for standard products

Service, timely delivered


& availability somewhat
important
Involvement of family
members
Purchase decisions are
mostly
made
on
physiological/social/
physiological needs
Less technical expertise
Non-personal relationship
Indirect
Multiple
layers
of
intermediaries
Emphasis on Advertising
List prices or maximum
retail price (MRP)

Difference between Industrial and Consumer Marketing


1) Market Characteristics
Significant differences exist between industrial and consumer market is the characteristics of
both market that affect the nature of marketing.
These differences are:
Size of the Market

Compared to the great number of households that constitute the mass market for
consumer goods and services, In the case of industrial markets, it is common to find
less than 20 companies to represent the total market for an industrial product or service.
In fact, only three or four customers may comprise the major portion of a total market.

Further, in industrial arena, oligopolistic buying organisations (very large firms) tend to
dominate many markets such as, large power transformers or high-tension switchgears,
there are limited numbers of customers-mainly State Electricity Boards, large private
and public sector organisations. While there are relatively few industrial customers,
they are larger in size, purchase larger quantities, and engage in this volume purchasing
on a repeat basis.

Geographical Concentration

Industrial customers also tend to be concentrated in specific areas of the India

Such concentration occurs mainly because of natural resources and manufacturing


processes.

For example, the geographic location of natural resources explains the concentration
patterns of most energy-producing firms.

Manufacturers of computers and other advanced electronic products tend to concentrate


in areas that have advanced teaching and research facilities and desirable living locales
such as the Silicon Valley in Banglore. Such locations are chosen to attract intelligent,
educated employees.

2) Product & Service Characteristics

In industrial marketing, the products or services are generally technically complex and
not purchased for personal use.

They are purchased as components parts of the products and services to be produced or
serve the operations of the organisations.

Because of the importance given to the technical aspects of products, the purchases are
made based on the specifications.

As compared to consumer marketing, industrial customers place greater importance on


service, that is, timeliness, certainty in delivery or availability of product.

3) Buyer Behavior

In industrial marketing, the buying process is more difficult as compared to consumer


marketing.

The purchase decisions in industrial marketing are based on many factors, such as
compliance with product specifications product quality, availability, timely supply,
acceptable payment and other commercial terms cost effectiveness, after-sales service,
and so on

The buying decisions generally take a longer time and involve many individuals from
technical, commercial/materials, and finance departments.

After the initial offer made by a seller, there are negotiations and exchange of
information between the specialists and representatives from both the buyer and the
seller organisations.

Therefore, inter-organisational contacts take place and interpersonal relationships are


developed.

The relationships between the sellers and buyers are highly valued and they become
stable in the long run because of a high degree of interdependence.

4) Channel Characteristics
Channel distribution in Industrial and Consumer market

Inventory or stock control is very much important factor in the business organisations

therefore the distribution channels are needed more direct from the manufacturer to the
customer in industrial marketing.

Often, the manufacturers use their own sales/marketing personnel's to sell the products
directly to major customers. But, in case of selling to small-scale customers or

geographically scattered markets, many manufacturers use either distributors/dealers, or


agents/representatives, which also helps in minimizing the cost of marketing.

In case of consumer marketing, the channel of distribution is longer with multiple


levels of intermediaries/middlemen, since the household consumers are geographically
dispersed all over the country.

5) Promotional Characteristics

In consumer marketing, the emphasis is given on advertising whereas, in industrial (or


business) marketing, the importance is given to the personal selling through the
companys sales force. As a result, a much larger expenditure budget is provided for
advertising in consumer marketing in comparison to industrial marketing.

Advertising is used to lay a foundation for the sales call rather than serve as the primary
communication tool

Sales people act more as consultants and technical problem solvers, utilizing in-depth
product knowledge and technical understanding of the buyers needs, whereas
industrial advertising normally stresses more factual and technical data.

Sales promotion activities tend to center on trade shows, trade fairs, catalogs and
conducting technical seminars

6) Price Characteristics

In consumer marketing the products are sold through the intermediaries/middlemen to


the consumers, based on the Price List of the manufacturer or the maximum retail
price (MRP) for the packaged products. Sometimes, the retailer reduces the price by
passing on to the consumer a part of his discount due to different degrees of intensity of
the competition.

In industrial marketing, price is a less critical factor for purchase decisions.


Competitive bidding and price negotiations are very common in industrial marketing
and financing arrangements are often considered part of pricing package

3 What are the 3 types of Buying situations in Industrial Marketing?


1. New Purchase
The industrial buyers buy the item for the first time in this situation. The need for a new
purchase may be due to internal or external factors. For example, when a firm decides to
diversify into new purchase situations the buyers have limited knowledge and lack of previous
experience. Therefore, they have to obtain a variety of information about the product, the
suppliers, the prices and so on. The risks are more, decisions may take longer time, and more
people are involved in decision making in the new purchase decisions.
2. Change in Supplier
This situation occurs when the organisation is not satisfied with the performance of the existing
suppliers, or the need arises for cost reduction or quality improvement. The change in supplier
may also be necessary if technical people in the buying organization ask for changes in the
product specification, or marketing department asks for redesigning the product to gain some
competitive advantage. As a result, search for information about alternative sources of supply
becomes necessary. Even though, certain attributes or factors can be used to evaluate the
suppliers. There may be uncertainty regarding the supplier who can best meet the needs of the
buying firm. Therefore, the modified re-buy situation occurs mostly when the buying firms are
not satisfied with the performance of the existing suppliers.
3. Repeat Purchase
If the buying organization requires certain products or services continuously
and products/services had been purchased in the past then the situation of repeat purchase
occurs. In such a situation, the buying organisation reorders/places repeat orders with the
suppliers who are currently supplying such items. This means that the product, the price, the
delivery period, and the payment terms remain the same in the reorder, as per the original
purchase order. This is a routine decision with low risk and less information needs, taken by a
junior executive in the purchase department. Generally, the buying firms do not change the
existing suppliers if their performance is satisfactory.

4 What are the roles of Buying Centre members in Industrial Marketing?


Different Members of the Buying Centre of an Organisation are as follows: 1. Initiators 2.
Users 3. Buyers 4. Influencers 5. Deciders 6. Approvers 7. Gate Keepers.
A buying centre is comprised of all those individuals and groups who participate in the buying
decision-making process, who share some common goals and the risks arising from these
decisions. Before identifying the individuals and groups involved in the buying decision
process, a marketer must understand the roles of buying centre members. Understanding the
buying centre roles helps industrial marketers to develop an effective promotion strategy.
Within any organisation, the buying centre will vary in the number and type of participants for
different classes of products. But on an average a buying center of an organisation has the
following seven members or a group of members who play these roles:
1. Initiators:
Usually the need for a product/item and in turn a supplier arises from the users. But there can
be occasions when the top management, maintenance or the engineering department or any
such recognise or feel the need. These people who initiate or start the buying process are
called initiators.
2. Users:
Under this category come users of various products. If they are technically sound like the
R&D, engineering who can also communicate well. They play a vital role in the buying
process. They also act as initiators.
3. Buyers:
They are people who have formal authority to select the supplier and arrange the purchase
terms. They play a very important role in selecting vendors and negotiating and sometimes
help to shape the product specifications.
The major roles or responsibilities of buyers are obtaining proposals or quotes, evaluating them
and selecting the supplier, negotiating the terms and conditions, issuing of purchase orders,
follow up and keeping track of deliveries. Many of these processes are automated now with the
use of computers to save time and money.
4. Influencers:
Technical personnel, experts and consultants and qualified engineers play the role of
influencers by drawing specifications of products. They are, simply put, people in the
organisation who influence the buying decision. It can also be the top management when the
cost involved is high and benefits long term. Influencers provide information for strategically
evaluating alternatives.

5. Deciders:
Among the members, the marketing person must be aware of the deciders in the organisation
and try to reach them and maintain contacts with them. The organisational formal structure
might be deceptive and the decision might not even be taken in the purchasing department.
Generally, for routine purchases, the purchase executive may be the decider. But for high value
and technically complex products, senior executives are the deciders. People who decide on
product requirements/specifications and the suppliers are deciders.
6. Approvers:
People who authorise the proposed actions of deciders or buyers are approvers. They could
also be personnel from top management or finance department or the users.
7. Gate Keepers:
A gatekeeper is like a filter of information. He is the one the marketer has to pass through
before he reaches the decision makers.
Understanding the role of the gatekeeper is critical in the development of industrial marketing
strategies and the salespersons approach. They allow only that information favourable to their
opinion to flow to the decision makers.
By being closest to the action, purchasing managers or those persons involved in a buying
centre may act as gatekeepers. They are the people whom our industrial marketer would first
get in touch with. Hence, it so happens that information is usually routed through them.

5 What are the various types of Industrial Customers?

The industrial market is composed of commercial enterprises, governmental


organisations, and institutions whose purchasing decisions vary with the type of
industrial good or service under consideration.

Effective marketing programs depend upon a thorough understanding of how


marketing strategy differs with the type of organisation.

The industrial market is characterized by both in customers served and products sold.

Component parts, spare parts, accessory equipment, and services are example of the
types of products purchased by the variety of customers in the industrial market.

Industrial distributors or dealers who in turn sell to other industrial customers,


commercial businesses, government, and institutions buy a variety of products that, in
one way or another, are important to the functioning of their businesses.

TYPES OF INDUSTRIAL CUSTOMERS


Industrial customers are normally classified into four groups:

Commercial

Enterprises

Industrial distributors

Industrial distributors and dealers take title of goods, thus they are the industrial
marketers intermediaries

The intermediaries not only serve the consumer market but also serve other business
enterprises .
They purchase industrial goods and resell them in the same form to other industrial
customers.

Original Equipment Manufacturers (OEMs)


These industrial customers purchase industrial goods to incorporate OEMs into the
products they produce.
A tyre manufacturer (say, MRF), who sells tyres to a truck manufacturer (Tata Motors),
would consider the truck manufacturer as an OEM.
Thus, the product of the industrial marketer (MRF) becomes a part of the customers
(Tata Motors) product.
Users
An industrial customer, who purchases industrial products or services, to support its
manufacturing process or to facilitate the business operations is referred as a user.
For example, drilling machines, press, winding machines, and so on are the products
which support manufacturing process, whereas the products which facilitate the
operations of business like computers, fax machines, telephones, and others.
Sometimes there may be overlapping of categories means a manufacturer can be a user
or an OEM. For example, a car manufacturer buys a drilling machine to support the
manufacturing operation and is referred to as a user. The same car manufacturer also
buys batteries which is incorporated into cars and hence, it can be also referred to as an
OEM

2 Governmental Agencies

In India, the largest purchasers of industrial products are Central and State Government
departments, undertakings, and agencies, such as railways, department of
telecommunication, defense, Director General of Supplies and Disposal (DGS&D),
State Transport Undertakings, State Electricity Boards, and so on.
These Government units purchase almost all kind of industrial products and services
and they represent a huge market.

3. Institutions

Public and private institutions such as hospitals, schools, colleges, and universities are
termed as institutional customers.
Some of these institutions have rigid purchasing rules and others have more flexible
rules.
An industrial marketing person needs to understand the purchasing practice of each
institute so as to be effective in marketing the products or services

4. Co-operative Societies.

An association of persons forms a cooperative society.


It can be a manufacturing unit (e.g. Cooperative Sugar Mills/IFFCO) or nonmanufacturing organisations (e.g. Cooperative Banks, Cooperative Housing Societies).
They are also the industrial customers

6 Briefly explain the broad groups in which the Industrial products are
classified?
The industrial products and services are classified into three broad groups:
Materials and parts
Capital items
Supplies and services
1) Materials and Parts
Goods that enter the product directly consist of Raw materials, Manufactured materials, and
Component parts.
Raw Materials:
These are the basic products that enter in the production process with little or no
alternations. They may be marketed as either OEMs or user customer. For instance,
when a large bakery purchases natural gas to fire the ovens that are used to produce
cakes, it is a user customer. When the same firm purchases sugar for cake making, it is
an OEM.
Manufactured Materials:
Manufactured materials include those raw materials that are subjected to some amount
of processing before entering the manufacturing process e.g., Acids, fuel oil, and steel
that are the basic ingredients of many manufacturing activities
Component Parts :
Component 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 component parts are also sold to the dealers or distributors, who resell them to the
replacement market.
For example, MICO spark plugs are sold to a truck or car manufacturer, as well as to
automotive dealers/distributors throughout India.

2) Capital items
Capital items are used in the production processes and they wear out over certain time frame.
Generally they are treated as a depreciation expense by the buying firm or user customers.
Installations/Heavy Equipment :
Installations are major and long-term investment items such as factories, office
buildings and fixed equipments like machines, turbines, generators, furnaces, and earth
moving equipment.

Accessories/Light Equipment:
Light equipment and tools which have lower purchase prices and are not considered as
part of fixed plant, like power operated hand tools, small electric motors, dies etc.
Plant and Buildings:
These are the real estate property of a business/ organisation. It includes the firms
offices, plants (factories), warehouses, housing, parking lots, and so on.
3) Supplies and Services
Supplies and services sustain the operation of the purchasing organisation. They do not become
a part of the finished product. They are treated as operating expenses for the periods in which
they are consumed
Supplies: Items such as paints, soaps, oils and greases, pencils, typewriter ribbons,
stationery and paper clips come under this category. Generally, these items are
standardized and marketed to a broad section of industrial users.
Services: Companies need a broad range of services like building maintenance
services, auditing services, legal services, courier services, marketing research services
and others.

7 Explain the purchase practices adopted by Industrial Customers?


Purchasing Practices Of Industrial Customers
The industrial marketers market industrial goods or services to different types of
customers such as commercial enterprises, governmental customers, and institutional
customers.
For effective marketing of industrial products, it is significant to know the purchasing
practices generally followed by the various types of industrial customers.

Purchasing in Commercial Enterprises


The purchasing practices depend upon the nature of business and the size of the
commercial enterprise as well as the volume, variety, and technical complexity of the
products purchased.
In large and medium size organizations, the purchase decision makers are involved
from different departments viz. production, materials, quality, finance/cost accounting,
engineering, and also senior management executives.
Industrial buyers use the techniques viz. material planning, supplier rating system,
economic order quantity, value analysis and so on.
Materials/purchase managers are professionals and are well informed about price
trends, commercial matters, and negotiating skills.

Purchasing in Government Units


Government units are the largest purchasers of industrial goods and services.
To compete successfully and to get more business, an industrial marketer must
understand the complexities involved in selling to Government units.
There are many centers where State and Central Government units buy a variety of
products required by railways, department of telecommunications, state electricity
boards, state transport undertakings, defense units, and so on.
DGS&D is an agency, which finalises running contracts for various standard products
on behalf of the Central Government

Institutional Purchasing

Institutional buyers are either the Government or the private organisations.


If it is a Government hospital or college then it normally follows the Government
purchase procedures.
However, in cases of privately owned educational or other type of institutions, the
purchase procedures are similar to those followed by commercial enterprises.
Industrial marketer should study the purchasing practices of each institutional buyer
so as to be effective in marketing the companys goods or services

Purchasing in Cooperative Societies


Industrial marketers should study the purchasing practices of each cooperative society
in order to become effective in marketing their goods and services.
For example, the cooperative sugar factories in Maharashtra and U.P. may adopt
different buying practices while purchasing sugar machinery, pump sets, compressors,
etc.
While making purchase decisions, their emphasis on the factors viz. quality, delivery,
price, payment terms, service and long-term relationship with suppliers, also affect the
purchase decision under consideration

8 What is Derived demand in Industrial Marketing, explain with suitable


examples.

The demand for Industrial goods is ultimately


derived from the demand of consumer goods.

Thus animal hides are purchased because


consumers want to buy shoes, purses and other
leather goods.

If the demand for the consumer goods slackens so will the demand for all Industrial goods entering to
their production.

For this reason the industries must closely monitor the buying pattern of ultimate consumers.

The demand for steel and cement does not exists in itself. It is demand for constructed houses which
are purchased by customers.

The boom in apartments and flats in the mid 90s led to the surge in demand for those products.

Thus a forecast of the real estate scenario in general and construction industry in particular has to be
monitored, to understand the demand for steel and cement.

In case of capital goods such as equipment and machinery that are used to produce other goods the
purchases are made not only for the cement requirements but also in anticipation of profits from the
future usage.

Thus if the businessman foresee or feel that there may be a recession in near future, their purchases
will be drastically curtailed.

During the process of recession or reduced consumer demand, industrial firms reduce their inventories
or reduce production or both.

On the other hand during the period of prosperity there is an increased production and sales of
consumer goods, which results in an increased demand for industrial goods.

An industrial marketing firm must be in close touch with customers, purchase, finance, quality
standards etc. so as to get information on changes in customers demand.

New Housing Demand: Is a great leading indicator not only for construction jobs but also for all
kinds of building materials and derived demand for appliances like cooking ranges, refrigerators etc.

Any business supplying parts to appliance makers can expect an increase in demand.

Digitization and services demand: As more and more activities have an increased digital component,
you hear of the need for programming skills to write and modify domain specific software programs.

These are derived demand scenarios that can be useful to software providing firms, education and
training providers as they try to map out the opportunities of the future

9 What are the various types of demands in Industrial Marketing?

Demand for Industrial goods and services are derived from expectations of the actions
of the ultimate consumers.

Demand for Industrial products is also often joint in nature.

Joint demand occurs when the demand for a product depends upon its use in
conjunction with another product or products

Cross elasticity of demand exists in both markets, it is more important in Industrial


marketing since it can have a major effect on a firms overall corporate strategy.

The Demands for Industrial Marketing are as follows:


Derived demand
Stimulating industrial demand
Joint Demand
Fluctuating Demand
Inelastic demand
Cross elasticity of demand
1) Derived demand

The demand for industrial products and services does not survive by itself. It is derived
from the ultimate demand for consumer goods and services.

Industrial demand is called derived demand.

Industrial customers buy goods and services for making use in producing other goods
and services and finally produced product/service sold to the consumers.

In industrial marketing, the demand for industrial goods and services is derived from
consumer goods and services. For example, the demand for precision steel tubes does
not exist in market. It is demanded for the production of bicycles, motorcycles,
scooters, which are consumed by the consumers.

2) Stimulating Industrial Demand

Because of the nature of industrial demand the influence of final consumer is well
recognised.

One way which industrial marketers attempt to increase sales is by stimulating


increases in demand of ultimate consumers.

By directing advertising to ultimate consumers, industrialists can often increase


consumer demand for final products, which in turn, increases their industrial sales.

Industrial advertising to ultimate consumers is also a method of increasing goodwill


and achieving a favorable position with immediate customers.

3) Joint demand

Joint demand is common in the industrial market because it occurs when one industrial
product is useful if other product also exists.

Example, a pump set cannot be used for pumping water, if the electric motor or diesel
engine is not availab1e.

Joint demand occurs when one product requires the existence of others.

Most products require several components, parts or ingredients.

Example; A bakery requires flour, salt, preservatives, yeast in the production of bread.
If one of the ingredients cannot be obtained other purchases will be curtailed or
discontinued.

Joint demand situations can also be affected by changes in product specifications.

Industrial customers often prefer to buy from one supplier rather than purchase
individual products from different suppliers.

The individual products required do not have individual demand, but are demanded
only if the other products are available in the supplier line.

4) Fluctuating Demand

The demand for business goods and services tends to be more volatile than the demand
for consumer goods and services.

This is especially true of the demand for new plant and equipment.

A given percentage increase in consumer demand can lead to much larger percentage
increase in the demand for plant and equipment necessary to produce the additional
output.

Economists refer to this effect as the acceleration effect.

Sometimes a rise of only 10% in consumer demand can cause as much as 200%
Industrial demand for products in the next period.

This sales volatility has led many business marketers to diversify their products and
markets to achieve more balanced sales over the business cycle.

5) Inelastic Demand

The total demand for many Industrial goods and services is inelastic that is not much
affected by price changes.

Shoe manufacturers are not going to buy much less leather if the price of leather rises
unless they can find satisfactory leather substitutes.

Demand is especially inelastic in the short run because producers cannot make quick
changes in their production methods.

Demand is also inelastic for Industrial products that represent a small per cent of the
total cost of the item.

6) Cross Elasticity Of Demand

Cross elasticity of demand is the responsiveness of the sales of one product to a price
change in another.

It can have a dramatic impact on the marketing strategy of an Industrial firm.

Cross elasticity for substitutes is always positive i.e. the price of one good and the
quantity demanded of the other always move in the same direction.

The more positive is this ratio the larger the cross elasticity and more definite it is that
the products compete in the same market.

Cross elasticity for complements in negative-price and quantity move in opposite


directions. The more negative this relationship the more closely the demand for the
products is related.

For example the quantity of granite required for construction is related to the price of its
close substitute bricks or marble and vice-versa.

It is important that a firm know how the demand for its products is likely to be affected
by changes in the prices of other goods and also the interrelationship among industries.

Eg the demand for aluminum is related to the prices of wood and steel for the doors and
window frames, as they are close substitutes. Apart from other advantages of aluminum
doors and windows, the cost comparison with steel and wooden door and window
frames play an important role in the purchase decisions in the construction of houses,
commercial offices, factories, hotels, hospitals, and so on

10 What are the key components of the Industrial Pricing Process?


Key Components of the Industrial Pricing Process

Objectives of Pricing:
The pricing policy of the firm may vary from firm to firm depending on its objective. For
pricing decision, one has to define the price of the product very carefully. Pricing decision of a
firm in general will have considerable repercussions on its marketing strategies. This implies
that when the firm makes a decision about the price, it has to consider its entire marketing
efforts. Pricing decisions are usually considered a part of the general strategy for achieving a
broadly defined goal.
ii) Demand:
In pricing of a product, demand occupies a very important place. In fact, demand is more
important for effective sales. The elasticity of demand is to be recognised in determining the
price of the product. If the demand for the product is inelastic, the firm can fix a high price. On
the other hand, it the demand is elastic, it has to fix a lower price.
In the very short term, the chief influence on price is normally demand. Manufacturers of
durable goods always set a high price, even though sales are affected. If the price is too high, it
may also affect the demand for the product. They wait for arrival of a rival product with
competitive price. Therefore, demand for product is very sensitive to price changes.
(iv) Competition Factor in Pricing:

Market situation plays an effective role in pricing. Pricing policy has some managerial
discretion where there is a considerable degree of imperfection in competition. In perfect
competition, the individual producers have no discretion in pricing. They have to accept the
price fixed by demand and supply.
In monopoly, the producer fixes a high price for his product. In other market situations like
oligopoly and monopolistic competition, the individual producers take the prices of the rival
products in determining their price. If the primary determinant of price changes in the
competitive condition is the market place, the pricing policy can least be categorised as
competition based pricing.

11 What is the difference between Relevant and Sunk Cost? Explain with
example.
Sunk costs and relevant costs are two distinctive types of costs that firms frequently

incur in the running of businesses. Sunk costs and relevant costs both result in an
outflow of cash and can reduce the firms income and profitability levels. Despite the
fact that they both incur a cost to the firm, there are a number of major differences
between sunk cost and relevant cost, in terms of the timeline in which each is incurred,
and the impact that they have on making future decisions.
What is Sunk Cost?

Sunk costs refer to expenses that have already been incurred and arose as a result of decisions
taken in the past. Sunk costs are a type of irrelevant cost. Irrelevant costs are costs that do not
influence managerial decision making as they are a thing of the past. Since these costs and
investments have already been made they cannot be reversed or recovered, and irrelevant costs
such as sunk costs should not be used as a basis for making future decisions regarding a project
or investment.
A simple example of a sunk cost is: a company purchases a software program for $100.
However, the program does not work as the company intended to use it, and the seller does not
offer any refunds and does not accept any returns. In this case, the $100 is a cost that has
already been incurred and cannot be recovered, and it is referred to as a sunk cost.
In terms of a firm, research and development costs are referred to as sunk costs as there is no
way in which these costs can be reversed or recovered.
What is Relevant Cost?
Relevant costs are the costs that are able to impact and influence management decisions.
Relevant costs will differ depending on the alternatives and options that a company has to
choose among. Other features of relevant cost are that these costs are avoidable in the event
that the decision is not taken, can result in opportunity costs to a firm and are incremental costs
between the various options under consideration.
Businesses need to make the correct distinction between costs that are relevant and irrelevant,
as not taking into consideration the relevant costs in making business decisions can be
problematic to the companys future. Relevant costs greatly influence a companys future
business activities and, therefore, must be considered when making business decisions. While
taking relevant costs into consideration when making short term decisions can be useful,
caution must be exercised when only considering relevant costs for long-term financial
decisions. This is because relevant costs only consider the most immediate costs that affect
future cash flows and decisions and do not cover costs that have been incurred over time.
Example

Rubber Tire Company (RTC) received a request to provide a price quote for an order for the supply of
1000 custom made tires required for industrial vehicles. RTC is facing stiff competition from its
business rivals and is therefore hoping to secure the order by quoting the lowest price. RTC plans to
quote a price at 10% less due to this above its relevant cost
What is the difference between Sunk Cost and Relevant Cost?

Sunk costs and relevant costs are both expenses that result in an outflow of cash and reduce a
firms income and profitability. Since sunk costs are incurred in the past, they are a type of
irrelevant cost that do not affect future cash flows and, therefore, are not considered when
making decisions about a firms future. On the other hand, relevant costs are costs that will be
incurred in the future, as a result of a decision made presently and, therefore, must be
considered in managerial decision making.
It must however be noted that when making pricing decisions for a long term, all costs
including relevant and irrelevant must be taken into consideration. This is because in order for
a business to be afloat in the long term the prices quoted should offer a sufficient margin to
cover all costs incurred (relevant and irrelevant both). Therefore, total costs must be factored in
when making long-term financial decisions such as investment appraisal, expansion, new
ventures, selling off business units, etc.

12 What is Operating Leverage and explain the same with examples?


Operating leverage is the ratio of a company's fixed costs to its variable costs.
Operating leverage measures a companys fixed costs as a percentage of its total costs. It is
used to evaluate the breakeven point of a business, as well as the likely profit levels on
individual sales. The following two scenarios describe an organization having high operating
leverage and low operating leverage.
1. High operating leverage. A large proportion of the companys costs are fixed costs. In
this case, the firm earns a large profit on each incremental sale, but must attain
sufficient sales volume to cover its substantial fixed costs. If it can do so, then the entity
will earn a major profit on all sales after it has paid for its fixed costs.
For example, a software company has substantial fixed costs in the form of developer
salaries, but has almost no variable costs associated with each incremental software
sale; this firm has high operating leverage.
2. Low operating leverage. A large proportion of the companys sales are variable costs,
so it only incurs these costs if there is a sale. In this case, the firm earns a smaller profit
on each incremental sale, but does not have to generate much sales volume in order to
cover its lower fixed costs. It is easier for this type of company to earn a profit at low
sales levels, but it does not earn outsized profits if it can generate additional sales.
Conversely, a consulting firm bills its clients by the hour, and incurs variable costs in
the form of consultant wages. This firm has low operating leverage.
To calculate operating leverage, divide an entitys contribution margin by its net operating
income. The contribution margin is sales minus variable expenses.
For example, the ABC company has the following financial results:
Revenues

$100,000

Variable expenses

30,000

Fixed expenses

60,000

Net operating income

$10,000

ABC has a contribution margin of 70% and net operating income of $10,000, which gives it a
degree of operating leverage of 7. ABCs sales then increase by 20%, resulting in the following
financial results:

ABCs sales then increase by 20%, resulting in the following financial results:
Revenues

$120,000

Variable expenses

36,000

Fixed expenses

60,000

Net operating income

$24,000

The contribution margin of 70% has stayed the same, and fixed costs have not changed.
Because of ABCs high degree of operating leverage, the 20% increase in sales translates into a
greater than doubling of its net operating income.
When using the operating leverage measurement, constant monitoring of operating leverage is
more important for a firm having high operating leverage, since a small percentage change in
sales can result in a dramatic increase (or decrease) in profits. A firm must be especially careful
to forecast its revenues carefully in such situations, since a small forecasting error translates
into much larger errors in both net income and cash flows.
Knowledge of the level of operating leverage can have a profound impact on pricing policy,
since a company with a large amount of operating leverage must be careful not to set its prices
so low that it can never generate enough contribution margin to fully offset its fixed costs.

13. What are the factors responsible for the failure of NPD in Industrial
Marketing?
Factors responsible for Failure of NPD in IM.
New products do not satisfy the needs of potential customers or
May be due to poor coordination of R&D and Marketing.
New products are not significantly different from existing products or

Takes Too Long to Enter Market Whatever it is youre doing to enter the market,
it took you too long. Competitors have out-gunned you, your customers needs
have changed, etc. This is to capture causes where even if everything else was good,
you simply didnt move quickly enough. At first blush, organizational problems (lack
of alignment, bureaucracy, and insufficient resources) will all land here.

New products do not deliver the expected performance.


There was no value proposition
The customer does not exist

14 Explain the NPD process in Industrial Marketing?


The NPD process Steps
Some of the main components of product planning in marketing are as follows:
A new product planning process has series of steps from idea generation to commercialization.
A firm generates ideas, evaluates them, devises the product, tests it and brings it to market.
The components of product planning are described as under:

i. Idea Generation:
Idea generation is a continuous, systematic search for new product opportunities. It involves
new-idea sources and ways to generate new ideas. Employees, channel members, competitors,
customers and others may constitute of sources of ideas. Methods for generating ideas include
brain-storming, market surveys and other avenues.
ii. Product Screening:
Potential ideas of products are scrutinised and in this product screening technique poor and
unsuitable ideas are not considered for further action. Every idea is weighed against a checklist

on 1-10 scale, 1 being outstanding and 10 being very poor in the rating. All production and
marketing attributes of the potential product is scrutinised before taking a suitable decision.
iii. Concept Testing:
Concept testing presents the consumers with a proposed product and measures attitudes and
intuitions at an early stage of the new-product planning process. Concept testing is a quick,
inexpensive way to assess consumer enthusiasm. It asks potential consumers to react to a
picture, written statement or oral product description. This lets a company learn initial attitudes
poor to costs, time-consuming product development.
iv. Business Analysis:
Business analysis involves the detailed review, projection and evaluating of such factors as
consumer demand, production costs, marketing costs, break-even points, competition, capitalinvestments, and profitability for each potential near product. Because the next, step is
experience and time-consuming product development, critical use of business analysis is
essential to eliminate undesirable items.
v. Product Development:
In product development, an idea for a new product is converted into a tangible form and a basic
marketing strategy is identified.
vi. Test Marketing:
This step involves placing a fully developed product in one or more selected areas or zones and
observing its actual performance under a proposed marketing plan. The purpose is to evaluate
the product and plan marketing efforts in a real setting prior to a full product launch. Test
marketing requires several decisions such aswhen and where to test, how long to test and
what test results are required etc.
vii. Commercialization:
Under this stage the product is introduced to its target market by adopting full scale production.
Commercialization may require large planned capital investment and long term commitment.

15 What is Product Lifecycle Management in NPD?


Just about all manufactured products have a limited life, and during this life they will pass
through four product life cycle stages; Introduction, Growth, Maturity and Decline. In each of
these stages manufacturers face a different set of challenges. Product life cycle management is
the application of different strategies to help meet these challenges and ensure that, whatever
stage of the cycle a product may be going through, the manufacturer can maximize sales and
profits for their product.
Product Life Cycle Management
To effectively manage the product life cycle, organisations need to have a very strong focus on
a number of key business areas:
Development: Before a product can begin its life cycle, it needs to be developed. Research and
new product development is one of the first and possibly most important phases of the
manufacturing process that companies will need to spend time and money on, in order to make
sure that the product is a success.
Financing: Manufacturers will usually need significant funds in order to launch a new product
and sustain it through the Introduction stage, but further investment through the Growth and
Maturity stages may be financed by the profits from sales. In the Decline Stage, additional
investment may be needed to adapt the manufacturing process or move into new markets.
Throughout the life cycle of a product, companies need to consider the most appropriate way to
finance their costs in order to maximize profit potential.
Marketing: During a products life, companies will need to adapt their marketing and
promotional activity depending on which stage of the cycle the product is passing through. As
the market develops and matures, the consumers attitude to the product will change. So the
marketing and promotional activity that launches a new product in the Introduction Stage, will
need to be very different from the campaigns that will be designed to protect market share
during the Maturity Stage.
Manufacturing: The cost of manufacturing a product can change during its life cycle. To
begin with, new processes and equipment mean costs are high, especially with a low sales
volume. As the market develops and production increases, costs will start to fall; and when
more efficient and cheaper methods of production are found, these costs can fall even further.

As well as focusing on marketing to make more sales and profit, companies also need to look
at ways of reducing cost throughout the manufacturing process.
Information: Whether its data about the potential market that will make a new product viable,
feedback about different marketing campaigns to see which are most effective, or monitoring
the growth and eventual decline of the market in order to decide on the most appropriate
response, information is crucial to the success of any product. Manufacturers that efficiently
manage their products along the product life cycle curve are usually those that have developed
the most effective information systems.
Most manufacturers accept their products will have a limited life. While there may not be much
they can do to change that, by focusing on the key business areas mentioned, product life cycle
management allows them to make sure that a product will be as successful as possible during
its life cycle stages, however long that might be.

16. What are the decision stages in developing the B2B Advertising
program?

1) SETTING THE OBJECTIVES


setting advertising objectives is the first step in
developing an advertising program. These
objectives should be based on target market,
positioning, and marketing mix, which define the
job that advertising must do in the total
marketing program. An advertising objective is a
specific communication task to be accomplished
with a specific target audience during a specific
period of time. Advertising objectives can be
classified by primary purpose as:

1) Informative advertising:
The prime objective of the advertising is to inform the existing and potential customers about
the product.
2) Persuasive advertising:
It aims to create liking preference, conviction and purchase of a product or service. Persuasion
will create demand of the product.
3) Reminder advertising:
It aims to simulate repeat purchase of products and services.
This will remind the customers that the product may be needed in the near future.
4) Reinforcement advertising:
It aims to convince current purchases that they made the right choice.
2) ADVERTISING BUDGET.
After determining advertising objectives the company next sets its advertising budget for each
product.
Specific factors that should be considered when setting the advertising budget.
1) Stage in the product life cycle:
New products typically need large advertising Budgets to build awareness and to gain
consumer trial. Mature brands usually require lower budgets as the ratio to sales.

2) Market share and consumer base:


High market share brands usually needs more advertising spending as a person of sales than do
low market share brands. Building the market or taking share from competitor requires larger
advertising spending than does simply maintaining current share.

3) Competition and clutter:


In a market with many competitors and high advertising spending, a brand must advertise more
heavily to be notices above the noise in the market.
4) Advertising frequency:
when many repetitions are needed to present the brands message to consumers, the advertising
budget must be larger.
5) Product substitutability:
A brand that closely resembles other brands in its product class requires heavy advertising to
set it apart. When the product differs greatly from competitors, advertising can be used to point
out the differences to consumers.
3) DEVELOPING THE ADVERTISING MESSAGE /CAMPAIGN
In designing and evaluating an ad campaign, it is important to distinguish the message
strategy or positioning of an ad from its creative strategy.
Message generation and evaluation

A large advertising budget does not guarantee a successful advertising campaign. No


matter how big the budget, advertising can succeed only if commercials gain attention
and communicate well.
Todays advertising messages must be better planned, more imaginative, more
entertaining and more rewarding to consumers to gain and hold attention. Creative
strategy will play an increasingly important role in advertising success.
Effective message strategy begins with identifying customer benefits that can be used
as advertising appeals. Advertising appeals should have three characteristics:
+Meaningful, Believable and Distinctive.
The impact of the message depends not only on what is said but also on how it is said.
Any message can be presented in different execution styles. Message execution can be
decisive. They can be following advertising medium for execution:
Television Ads: It is generally acknowledge as the most powerful advertising medium.
Properly designed and executed TV ads can improve brand equity and affect sales and
profits.
Print Ads: It offer a stark contrast to broadcast media. In general there are two main
print media: Magazines and
Newspaper.

Radio Ads: It is cheaper than television. Radio listening is expected to increase


significantly over the coming years. Radio Ads can be extremely creative. Creative
devices can tap into the listeners imagination to create powerfully relevant and popular
images.
Film Ads: India is the largest producer of films in the world. Many local firms use this
medium to advertise their products and services as this minimizes the spillage and the
wastage of advertisement money.
SOCIAL RESPONSIBILITY REVIEW:
Advertiser and their agencies must be sure advertising does not over step social and
legal norms. Public policy makers have developed a substantial body of lows and
regulations to govern advertising.

4) DECIDING ON MEDIA
After choosing the message, the advertisers next task is to chose media to carry it. Major
steps in media selection are as under:
1) Deciding on reach, frequency, and impact:
Reach is a measure of the percentage of people in the target market who are exposed to the
ad campaign during a given period of time.
Frequency is a measure of how many times the average percent in the target market is
exposed to the message.
The advertiser must also decide on the desired media impact-the qualitative value of a
message exposure through a given medium.
2) Choosing among major media types:
The major media types are newspapers, televisions, direct mail, radio, magazines, outdoor
and online. The media habits of the target consumers will affect media choice. Advertisers
look for media that reach target consumers effectively. Different types of messages may
require different media. Cost is another major factor in media choice. The media planner
looks at the total cost of using a medium. Media impact an cost must be reexamined
regularly. As a result, advertisers are increasingly turning to alternative media, ranging
from cable television and outdoor advertising to parking meters and shopping cards.
3) Selecting specific vehicles:
The media planner now must chose the best media vehicles and specific media within each
general media type, media planners must complete the cost per thousand percents reached
by a vehicle. The media planners must also consider the cost of producing ads for different
media. Whereas, newspaper ads may cost very little to produce flashy television ads may
cost millions.

4) Deciding on media timing and allocation:


The advertiser must also decide how to schedule the advertising over the course of a year.
The firm can vary its advertising to follow the seasonal pattern, or to be the same all year.
Most firms do some seasonal advertising. The advertiser has to chose the pattern of the ads.
The idea is to advertise heavily for a short period to build awareness that carries over to the
next advertising period.
5) EVALUATING ADVERTISING EFFECTIVENESS:
Good planning and control of advertising depend on measures of advertising effectiveness.
Most advertisers try to measure the communication effect of an ad-that is, its potential
effect on awareness, knowledge, or preferences.

Communication-Effect Research:
It seeks to determine whether an ad is communicating effectively. There are three
major methods of pre testing.

CONSUMER FEEDBACK METHOD:


Ask the consumers for their reactions to a proposed ad.

PORTFOLIO TEST:
It ask consumers to view or listen to a portfolio of advertisements. Consumers are
than asked to recall all the ads on their contains, aided or unaided by the
interviewer.

LABORATORY TEST:
It use equipment to measure physiological reactions like heartbeat, blood pressure,
perspiration to an ad; or consumers may be ask to turn a knob to indicate their
moment to moment liking or interest while viewing sequence material.

17) Describe the methods of organizing the sales force in an Industrial Organization?
1. Line Organizations (& Line/Staff)
2. Functional Organizations
3. Specialization Organization

Sales Activities

Geographic Areas

Products

Customers

1) Line Organizations (& Line/Staff)


Line organization is the oldest and simplest method of administrative organization. According
to this type of organization, the authority flows from top to bottom in a concern. The line of
command is carried out from top to bottom.
All executives have line authority over their subordinates who in turn are accountable only to
their immediate superior. Since lines of authority run vertically in this structure, executives at
each level are generally independent of all others al the same level. Through assignment of
quotas or sales targets, responsibilities are usually, clearly delineated.
This is the reason for calling this organization as scalar organization which means scalar chain
of command is a part and parcel of this type of administrative organization. In this type of
organization, the line of command flows on an even basis without any gaps in communication
and co-ordination taking place.

Features of Line Organization


1. It is the simplest form of organization.
2. Line of authority flows from top to bottom.
3. Specialized and supportive services do not take place in these organization.
4. Unified control by the line officers can be maintained since they can independently take
decisions in their areas and spheres.
5. This kind of organization always helps in bringing efficiency in communication and
bringing stability to a concern.

Merits of Line Organization


1. Simplest- It is the most simple and oldest method of administration.
2. Unity of Command- In these organizations, superior-subordinate relationship is
maintained and scalar chain of command flows from top to bottom.
3. Better discipline- The control is unified and concentrates on one person and therefore,
he can independently make decisions of his own. Unified control ensures better
discipline.
4. Fixed responsibility- In this type of organization, every line executive has got fixed
authority, power and fixed responsibility attached to every authority.
5. Flexibility- There is a co-ordination between the top most authority and bottom line
authority. Since the authority relationships are clear, line officials are independent and
can flexibly take the decision. This flexibility gives satisfaction of line executives.
6. Prompt decision- Due to the factors of fixed responsibility and unity of command, the
officials can take prompt decision.

Demerits of Line Organization


1. Over reliance- The line executives decisions are implemented to the bottom. This
results in over-relying on the line officials.
2. Lack of specialization- A line organization flows in a scalar chain from top to bottom
and there is no scope for specialized functions. For example, expert advices whatever
decisions are taken by line managers are implemented in the same way.
3. Inadequate communication- The policies and strategies which are framed by the top
authority are carried out in the same way. This leaves no scope for communication from

the other end. The complaints and suggestions of lower authority are not communicated
back to the top authority. So there is one way communication.
4. Lack of Co-ordination- Whatever decisions are taken by the line officials, in certain
situations wrong decisions, are carried down and implemented in the same way.
Therefore, the degree of effective co-ordination is less.
5. Authority leadership- The line officials have tendency to misuse their authority
positions. This leads to autocratic leadership and monopoly in the concern.

Line and staff organization is a modification of line organization and it is more complex than
line organization. According to this administrative organization, specialized and supportive
activities are attached to the line of command by appointing staff supervisors and staff
specialists who are attached to the line authority. The power of command always remains with
the line executives and staff supervisors guide, advice and council the line executives. Personal
Secretary to the Managing Director is a staff official.

Features of Line and Staff Organization


1. There are two types of staff :
a. Staff Assistants- P.A. to Managing Director, Secretary to Marketing Manager.
b. Staff Supervisor- Operation Control Manager, Quality Controller, PRO
2. Line and Staff Organization is a compromise of line organization. It is more complex
than line concern.
3. Division of work and specialization takes place in line and staff organization.
4. The whole organization is divided into different functional areas to which staff
specialists are attached.
5. Efficiency can be achieved through the features of specialization.
6. There are two lines of authority which flow at one time in a concern :

a. Line Authority
b. Staff Authority
7. Power of command remains with the line executive and staff serves only as counselors.

Merits of Line and Staff Organization


1. Relief to line of executives- In a line and staff organization, the advice and counseling
which is provided to the line executives divides the work between the two. The line
executive can concentrate on the execution of plans and they get relieved of dividing
their attention to many areas.
2. Expert advice- The line and staff organization facilitates expert advice to the line
executive at the time of need. The planning and investigation which is related to
different matters can be done by the staff specialist and line officers can concentrate on
execution of plans.
3. Benefit of Specialization- Line and staff through division of whole concern into two
types of authority divides the enterprise into parts and functional areas. This way every
officer or official can concentrate in its own area.
4. Better co-ordination- Line and staff organization through specialization is able to
provide better decision making and concentration remains in few hands. This feature
helps in bringing co-ordination in work as every official is concentrating in their own
area.
5. Benefits of Research and Development- Through the advice of specialized staff, the
line executives, the line executives get time to execute plans by taking productive
decisions which are helpful for a concern. This gives a wide scope to the line executive
to bring innovations and go for research work in those areas. This is possible due to the
presence of staff specialists.
6. Training- Due to the presence of staff specialists and their expert advice serves as
ground for training to line officials. Line executives can give due concentration to their
decision making. This in itself is a training ground for them.
7. Balanced decisions- The factor of specialization which is achieved by line staff helps
in bringing co-ordination. This relationship automatically ends up the line official to
take better and balanced decision.
8. Unity of action- Unity of action is a result of unified control. Control and its effectivity
take place when co-ordination is present in the concern. In the line and staff authority
all the officials have got independence to make decisions. This serves as effective
control in the whole enterprise.

Demerits of Line and Staff Organization


1. Lack of understanding- In a line and staff organization, there are two authority
flowing at one time. This results in the confusion between the two. As a result, the
workers are not able to understand as to who is their commanding authority. Hence the
problem of understanding can be a hurdle in effective running.
2. Lack of sound advice- The line official get used to the expertise advice of the staff. At
times the staff specialist also provide wrong decisions which the line executive have to
consider. This can affect the efficient running of the enterprise.

3. Line and staff conflicts- Line and staff are two authorities which are flowing at the
same time. The factors of designations, status influence sentiments which are related to
their relation, can pose a distress on the minds of the employees. This leads to
minimizing of co-ordination which hampers a concerns working.
4. Costly- In line and staff concern, the concerns have to maintain the high remuneration
of staff specialist. This proves to be costly for a concern with limited finance.
5. Assumption of authority- The power of concern is with the line official but the staff
dislikes it as they are the one more in mental work.
6. Staff steals the show- In a line and staff concern, the higher returns are considered to
be a product of staff advice and counseling. The line officials feel dissatisfied and a
feeling of distress enters a concern. The satisfaction of line officials is very important
for effective results.

2) Functional Organization

Functional organization has been divided to put the specialists in the top position throughout
the enterprise. This is an organization in which we can define as a system in which functional
department are created to deal with the problems of business at various levels. Functional
authority remains confined to functional guidance to different departments. This helps in
maintaining quality and uniformity of performance of different functions throughout the
enterprise.
The concept of Functional organization was suggested by F.W. Taylor who recommended the
appointment of specialists at important positions. For example, the functional head and
Marketing Director directs the subordinates throughout the organization in his particular area.
This means that subordinates receives orders from several specialists, managers working above
them.

Features of Functional Organization

1. The entire organizational activities are divided into specific functions such as
operations, finance, marketing and personal relations.
2. Complex form of administrative organization compared to the other two.
3. Three authorities exist- Line, staff and function.
4. Each functional area is put under the charge of functional specialists and he has got the
authority to give all decisions regarding the function whenever the function is
performed throughout the enterprise.
5. Principle of unity of command does not apply to such organization as it is present in
line organization.

Merits of Functional Organization


1. Specialization- Better division of labour takes place which results in specialization of
function and its consequent benefit.
2. Effective Control- Management control is simplified as the mental functions are
separated from manual functions. Checks and balances keep the authority within certain
limits. Specialists may be asked to judge the performance of various sections.
3. Efficiency- Greater efficiency is achieved because of every function performing a
limited number of functions.
4. Economy- Specialization compiled with standardization facilitates maximum
production and economical costs.
5. Expansion- Expert knowledge of functional manager facilitates better control and
supervision.

Demerits of Functional Organization


1. Confusion- The functional system is quite complicated to put into operation, especially
when it is carried out at low levels. Therefore, co-ordination becomes difficult.
2. Lack of Co-ordination- Disciplinary control becomes weak as a worker is commanded
not by one person but a large number of people. Thus, there is no unity of command.
3. Difficulty in fixing responsibility- Because of multiple authority, it is difficult to fix
responsibility.
4. Conflicts- There may be conflicts among the supervisory staff of equal ranks. They
may not agree on certain issues.
5. Costly- Maintainance of specialists staff of the highest order is expensive for a
concern.
3. Specialization Organization
A) Organizing by Sales Activities

Characteristics

Usually employ simple line organizations

Separate selling functions (present account maintenance and new account


development)

Advantages

Allows salespeople to become proficient in their respective sales functions.

Places special emphasis on searching out and selling new accounts.

Disadvantages

Customers may resent being turned over to a different salesperson.

Salespeople may want to cultivate the accounts they have developed.

Implications

Use when there is a large turnover of customers

Use when there is a significant difference in the skills needed in each separate
area

Use when fast growth through new account acquisition is deemed necessary

B)

Organization Structured by Geographic Area

Characteristics

Sales force is reorganized on a geographic basis

Salespeople sell all the companys present products to all customers within their
assigned territories

Advantages

Salespeople and managers become more familiar with their territories

Local problems may be solved more quickly

Sales force can rapidly react to changes in the local competitive environment

Can provide better service at lower cost

Lower chance for customer confusion

Disadvantages

Diversity/magnitude of product line may limit salespersons knowledge of any


one product

Duplication of overhead expense

Greater level of salesperson control (which products to push, which customers


to service)

Implications

Best used if product line is relatively homogeneous

Best used if customers are widely dispersed

C) Sales Force Organized by Products

Characteristics

Sales force is reorganized on a product basis

Salespeople specialize in particular products carried by the sales organization

Advantages

Each product line receives a higher degree of specialized attention

Allows for decentralization of both authority & responsibility for each product
line

Allows decisions to be made closer to the problems with any particular product
line

Disadvantages

If specialization occurs above salesperson level, additional overhead expense


may be suffered.

More than 1 salesperson may be calling on customers

Difficult to maintain a consistent image

Implications

Best used if product line is relatively heterogeneous

Best used if have a wide variety of customers with quite different needs

Best used if products are technically complex

Broad, in-depth knowledge of product essential for the sales task

Sales Force Organized by Customers

Characteristics

Sales force is reorganized on a customer basis

Salespeople specialize in selling to/ servicing particular customer types

Advantages

Most consumer oriented approach

Organization of sales force is based on customer needs

Control remains at the management level (which customers to call on, etc)

Allows salespeople to specialize in customer needs

Disadvantages

Potential for overlapping territories is high

Hence, overhead costs may rise

Salespeople must become knowledgeable about companys entire line of


products

Implications

Customers in a given market buy several different products/lines from single


supplier

Same buying factors apply across product lines

Significant proportion of income is derived from a small number of accounts


who require high service levels

18) What are the 7 ways to bid and win an Industrial contract?
Seven Ways To Score Contracts
1. BUILD RELATIONSHIPS BEFOREHAND

Most business development is reactive, but responding to invitations to tender is


playing by someone elses rules.

Not knowing the buyers, understanding whats driving the opportunity or how many
other bidders youre up against is a random way of growing your business.

Therefore Pre-empt the bidding process by pursuing your own business development
strategy.

Identify the organisations you want to do business with, then build relationships with
the buyers, ideally before they even think of issuing a tender.

Invite them to lunch, send them articles or even ask them to speak at an event.

Youre not stalking them, but giving them the opportunity to get to know you, your
organisation and the value you can add.

2 LOOK BEFORE YOU LEAP


Assessing your chances of winning and deciding whether or not to bid ? technically known as
pre-qualification will raise your win-rate.
To assess an opportunity, look at four things:

Is It Winnable - do you know all the buyers well enough to tailor your response to
them?

Is It Deliverable - can you deliver the contract if you win?

Is It Desirable - does the contract fit with your core business?

Is It Profitable - will you make money out of it?

At the heart of these questions lies a paradox:

win more bids by doing fewer of them

3 PERSONALISE THE BID


Most buying groups feature five roles, and your bid should address the agenda of each.

The Boss - As the most senior decision-maker, they are interested in results.

The Money Person - Typically the finance director, they will assess your bid in terms
of value for money and return on investment.

The Expert - Sometimes cast as the geek, they will scrutinise the detail of your
proposal with their deep technical knowledge.

The End-User - This person wants to know how your product or service will affect
them and their team.

The Guide - Often a procurement person, they focus on cost and rationalising
suppliers.

Tailor your bid to each one and theyll be more open to your proposition.
4 RUN IT LIKE A PROJECT

A bid is a project: it has an output (the bid document or presentation), an outcome


(contract award), immovable timescales (submission date), internal milestones (kick-off
and review meetings, document drafts, rehearsals, presentation) and a scope (defined by
the spec and tender documents).

But, like any project, a bid is only as good as the person managing it
5. MAKE IT ABOUT THEM

To make your bid compelling, talk more about them than you.

Every aspect of your bid structure, language, focus and content should have the
client at its heart.

Appeal to their self-interest and theyll be more receptive to your message.

As for language, convert all the features of your product or service into benefits for
each buyer.

The client is more interested in what they will get when they appoint you, than in what
you will do.

As such summarise all those benefits in a compelling executive summary at the front.

6) PRACTISE PITCHING
The pitch is your last chance to persuade the client to give you the green light, So ensure they
answer Yes to these questions about you:
1. Do they offer us more value for money than any other bidder?
2. Do they understand us and our business?
3. Are they a team?
4. Are they keen to work with us?
5. And, finally, Can we work with them?
(This should last be the deal-breaker.)

7) GET THE HARD TRUTH

Once the client has made their decision, get candid feedback.

This will help you learn and improve?

Understanding how being on the receiving end of your bid made them think, feel and
behave, and how that shaped their decision

This will help you refine your approach and improve your submissions.

19. Explain the factors to be borne in mind during a Negotiating process in


Industrial Marketing?
1) Preparation Is The Key

Know about the party you're negotiating with so you can capitalize on your strengths
and the party's weaknesses.

If the other party is very experienced, that means he also has a history that could
contain useful information.

Talk to business associates who have dealt with the person before.

Many negotiators develop patterns and certain styles that you may be able to use to
your advantage.

If you are a buyer, make sure you are thoroughly familiar with the product or service
that will be the subject of the negotiation.

If the other party senses you are weak on such details, you may be a prime target for a
bluff or another technique designed to create anxiety and uncertainty.

Psychology plays a crucial role in your ability to make the most of the other party's lack
of preparation and anticipate their next move.

Most negotiators have a price target or goal in mind before they start.

It should be based on realistic expectations considering all the constraints that will
undoubtedly surface.

The budget limits, direction from management, pressure to make sales goals, and a
myriad of other external forces need to be addressed.

During the course of the negotiation, the goal may change based on changes in scope
and other unforeseen actions by either party.

While youre ultimate goal should be realistic, this should not constrain your first offer
or counteroffer.

Before the start of negotiation, ensure that the other party is fully empowered to make
binding commitments.

You should not land in a position where you believe you've struck a deal, and then
discover that the agreement needs approval from some higher authority.

2) Have A Strategy

Every negotiation has certain basic principles.

The first offer is usually the most important and the benchmark by which all
subsequent offers will be judged and compared.

You'll never get what you don't ask for, so make your first offer bold and aggressive.

The asking price is just that, and will typically include a pad or margin to give away
during negotiations.

Don't worry about insulting the other party. As long as your offer is not ridiculous, the
other side will continue the negotiations in hopes of settling at a better number.

As a buyer, do not disclose your budget or other limitations in your negotiating


position.

A favorite ploy of salesmen is to reshuffle the product specifications, schedule and


other parameters in order to sell you an inferior product to fit your budget.

You want the best product you can get for the money you have to spend, so employ an
approach that maintains the possibility of spending less than you had originally
planned.

Always have something to give away without hurting your negotiating position

Watch for clues such as body movement, speech patterns and reactions to what you
say.

Be prepared to suspend or cancel negotiations if you feel things are getting nowhere or
the other party seems stuck in their position.

Indicate your reluctance to continue under those conditions and make the other side
wonder if you are ever coming back.

If they are on the hook to cut a deal, they will feel the pressure to move. Be patient
even if the other party isn't.

Once an offer is made, you should expect an acceptance or rejection of your offer, or a
counteroffer that keeps the negotiation open.

If your offer is rejected and you are asked to submit a new and better offer, do not fall
into that trap.

3) Find the Leverage

In addition to exploiting the other party's weaknesses, concentrate on taking maximum


advantage of your strengths.

If you're the only source available for a particular product, you have tremendous
leverage across the board.

If economic conditions have created a market in which the product you're selling is in
great demand and low supply, that gives you more bargaining power to name your
price.

Establish a strong foundation early in the process by demonstrating your knowledge


and expertise of the negotiation subject matter.

4) The Offer

An offer is more than just an amount.

It must encompass all of the elements of the bargain and will normally comprise the
basis for a contract that formalizes the agreement.

If you make an offer without nailing down all of the specifics, you may find out later
that there was no meeting of the minds with the other party.

The basis of the bargain should include: offer price (in proper denomination), statement
of work (scope), identification and quantities of goods or services, delivery schedule,
performance incentives (if any), express warranties (if any), terms and conditions, and
any documents incorporated by reference.

To avoid misunderstandings, offers should be presented in writing and include all


elements of the bargain.

It's a good idea to keep notes containing the rationale for each offer. While these notes
won't be disclosed to the other party, they will prove to be invaluable should things go
hay way and you need to restart negotiations.

If you work for a company or the government, those notes are usually required to
document the negotiated outcome and complete the contract file.

5) Go For a Win-Win Solution

Throughout the negotiation, try to determine what you believe to be an acceptable


outcome for the other party.

It may be a combination of different things that aren't necessarily tied solely to price.

For example, the delivery date may be the most important thing to the other party, while
product quality may be your primary driver.

When constructing your offers, attempt to satisfy some of his priorities if doing so
doesn't weaken your overall position.

Be prepared to give up the little things in exchange for the big things you don't want to
concede.

Know your limits and how far you're willing to go on all aspects of the deal.

While you have the power to influence the negotiation process in your favor, your goal
should be to secure a good deal without extracting the last pound of flesh from the other
party.

The most effective negotiators are professionals who know their business and don't let
personalities and irrational behavior interfere with their mission

Once the negotiation is completed, you wont to be able to work effectively with those
in the other party during contract performance.

If they are threatened and pounded into submission, they probably won't negotiate with
you again, possibly cutting off any future business.

While heated confrontation is a common occurrence during negotiations, at some point


collaboration and compromise are needed to get a deal.

6) Closing the Deal

Successful negotiation is like horse-trading in that it requires a sense of timing,


creativity, keen awareness and the ability to anticipate the other party's next move.

Negotiation is also like chess in that each move should be designed to set up not only
your next move, but several moves down the line.

Generally, your moves should get progressively smaller, and you can expect the same
from the other party.

Always have the endgame in mind as you plot your strategy, and be prepared at some
point to split the remaining difference.

It's almost inevitable when the parties are close but can't seem to make that last leap to
a single number.

It's completely arbitrary, but it gets the job done. That's why all the offers leading up to
that point are so important: they will set the stage for the final handshake.

20. How is customer service provided in Industrial Marketing? Explain with


suitable examples.
What is Service

A service is any act or performance that one party can offer to another that is intangible
and does not result in the ownership of anything.

Its may or may not be tied to a physical product.

When a service is completed, the customer is not left with a tangible product but rather
with feelings satisfaction, frustration, disappointment, anger and so on.

In industrial marketing, there are two ways in which services are provided to the customers

Guarantee, Warrantee and After Sales Service

Technical Assistance and Involvement.

Guarantee, Warrantee & After Sales Services

All industrial marketers are legally responsible for fulfilling a buyers normal or
reasonable expectations.

Warranties are formal statements of expected product performance by the manufacturer.

Products under warranty can


be returned to the
manufacturer or a designated
repair center for repair,
replacement or refund
whether expressed or
implied are legally
enforceable.

Many industrial marketers


offer guarantees, general
assurance that the product
can be returned if its
performance is
unsatisfactory. For example
Acer offers a guarantee of
97% uptime for its servers.

Guarantees work best when the terms are clearly stated without loopholes. The
customer should find them easy to act upon and the companys redress should be swift.
Otherwise it will lead to customers being dissatisfied.

Guarantees are most effective in two situations.

The first is where the company and/or the product is not well known.

The second situation is where the products quality is superior to competition. Here the
company can gain by guaranteeing superior performance because it knows that
competitors cannot offer the same guarantee.

Apart from guarantees and warranties, industrial marketers are turning more towards
after sales service support.
Large organizations have either outsourced this operation or have a separate
department called the customer service department.
Technical Assistance and Involvement

In the industrial market, service now serves as a tool for differentiating the product
offering.

When a customer goes in for a new product development, it requires the assistance of
key supplies.

Before Hero Honda launched Ambition, a 130 CC bike, it had the complete support of
its suppliers. The piston, rings, blocks etc. have been sourced from Indian suppliers.
They provided support to Hero Honda and worked with them to make sure that the
materials that went into the manufacture of these components would reduce friction to a
minimum. The industrial suppliers work with the customers much before the product is
launched and this forms a part of the service they provide.

Pidilite Industries the makers of the Fevicol brand of adhesive whose customers are the
carpenters.

The sales force approach them directly, not only to market the product but also to
provide technical tips.

Fevicraft is a bi-monthly magazine which displays various furniture designs to help


the carpenters.

This is just a service to keep in touch with the customers. Such services are also termed
as non-standardised.

Some organisations provide such services on a continuous basis without any change to
the customer but to maintain a relationship or to differentiate their product offerings.

Companies also try to make more money on the services they provide.

Auto dealers today make most of their profit financing, insurance and repair services,
as compared to selling automobiles.

21. What are the various channels of distribution available in Industrial


Marketing? Explain with examples.
Industrial channels:
Industrial channels are usually shorter than consumer channels. Direct selling is prevalent due
to closer relationship between the manufacturer and the customer, as well as due to the nature
of the product sold.

1. Manufacturer to industrial customers:


This is a common channel for expensive industrial products like heavy equipments and
machines. There needs to be close relationship between the manufacturer and the customer,
because the product affects the operations of the buyer.
The seller has to participate in many activities like installation, commissioning, quality control
and maintenance jointly with the buyer. The seller is responsible for many aspects of the
operations of the product long after the product is sold.
The nature of the product requires a continuing relationship between the seller and the buyer.
The large size of the order makes direct selling and distribution economical.
2. Manufacturer to agent to industrial customer:
A company that sells industrial products can employ the services of an agent who may sell a
range of products from several producers on a commission basis. Such an arrangement spreads
selling costs and is beneficial to companies who do not have the resources to set up their own
sales and distribution operation.
The

arrangement allows the seller to reach a large number of customers without having to invest in
a sales team. But the company does not have much control over the agent, who does not devote
the same amount of time and attention as a companys dedicated sales team.

3. Manufacturer to distributor to industrial customer:


For less expensive, more frequently purchased products, distributors are used. The company
has both internal and field sales staff. Internal staff deals with customer and distributor
generated enquiries and order placing, order follow-up and checking inventory levels. Outside
sales staff is proactive.
They find new customers, get product specifications, distribute catalogues and gather market
information. They also visit distributors to address their problems and keep them motivated to
sell the companys products. Distributors enable customers to buy small quantities locally.
4. Manufacturer to agent to distributor to industrial customers:
The manufacturer employs an agent rather than a dedicated sales force to serve distributors
mainly because it is less expensive to do so.
The agent may sell the goods of several suppliers to an industrial distributor, who further sells
it to the business user. This type of channel may be required when business customers require
goods rapidly, and when an industrial distributor can provide storage facilities.

22) What are the functions of the channels in distribution of Industrial


Products?

23 Channel strategy is not formulated in vacumn, explain.


Channel Management Decisions
Channel strategy and product strategy
Channel strategy and price strategy
Channel strategy and promotion strategy
Decisions about a products physical movement and transfer of ownership from producer
to consumer.

FIRST - Setting channel objectives

Determine what the company is trying to achieve

Meet the needs and wants of their target market

Give their product a competitive edge

SECOND - Channel members:

Selection

Management

Motivation

Evaluation

1) Selecting Channel Members


Determine the types of members which are in the channel, as well as the channel length (total
number of channel members)
Usually based on the nature of the product
Factors to consider:
Create product value that others cannot or are not willing to provide
Channelize the product to its desired market
Have a pricing and promotion strategy compatible with the products needs
Offer customer service compatible with the products needs
Be willing and able to work cooperatively with other members within the products channel

Involves determining the characteristics that distinguish the better ones by evaluating
channel members

Do they: Provide value? Perform a function? Expect an economic


return ?

Years in business

Lines carried

Profit record

Policies, strategies, & image

Experience & track record

Selecting intermediaries that are sales agents involves evaluating

Number and character of other lines carried

Size and quality of sales force

Market segment - must know the specific segment and target customer

Selecting intermediates that are retail stores that want exclusive or selective distribution
involves evaluating

Stores customers

Store locations

Growth potential

2) Managing Channel Members

Determining channel responsibilities

Members must work together appropriately and perform the tasks they are best
suited for

The company must sell not only through the intermediaries but also to/with them

Partner Relationship Management (PRM) and Supply Chain Management (SCM)


software are used to

Forge long-term partnerships with channel members

Recruit, train, organize, manage, motivate, and evaluate channel members

3) Motivating Channel Members

Develop a cooperative/collaborative and balanced relationship with the partner

Understand the partners customers their needs, wants, and demands

Understand the partners business operationally and financially and whats really
important to them

Look at the partners needs in terms of customer support, technical support, and
training

Establish clear and agreed upon expectations and goals

Develop recognition programs focusing on the partners contributions

Build internal support systems and dedicate resources to the partner

Motivation can be positive or negative

Sanctions may be imposed on middlemen not performing well

Chargeback's financial penalties assessed for a variety of problems

Incentives may be offered for reaching performance goals

4) Evaluating Channel Members


Produces must evaluate intermediaries performance against such standards as:

Sales quota attainment

Average inventory levels

Customer delivery time

Treatment of damaged and lost goods

Cooperation in promotional and training programs.

Should constantly evaluate the channel:

What is working?

What is not working?

What can be improved?

Risks & Dangers of Distribution Decisions

Transaction costs both apparent & hidden

Risks include loss in transit, destruction, negligence, non-payment and so on.

So, careful choice & evaluation of each & every channel partner is a necessity.

24 What is Distribution Intensity?


Product distribution intensity refers to the scale of the distribution network as well as the
appropriate selection of location. Common questions to be asked include: How many retailers
in a particular market should be included in the distribution network? How many wholesalers?
Achieve ideal market exposure (make their product available without over exposing and
losing money)
To achieve market exposure, marketers must determine distribution intensity
Distribution Intensity

Exclusive Distribution

Selective Distribution

Intensive Distribution

Integrated Distribution

Intensity Of Channel Structure

Channel intensity: the number of intermediaries at each level of the marketing channel.

Intensive: Used when convenience products are sold through virtually every available
retail outlet in a particular market, e.g. soft drinks, candy, gum, cigarettes
Selective: Selectively distributed bands are available in multiple retail outlets in a
particular market. Shopping products, or those that consumers seek out, are sold
through selective distribution.
Exclusive: Practiced when a manufacturer restricts product distribution to a single
retailer in a particular market or just a relatively few retailers. Products that are
expensive, infrequently purchased, are sought after by consumers (i.e. specialty goods),
or which require considerable after-sale servicing are the most likely candidates for
exclusive distribution

Intensive Distribution
Intensive distribution aims to provide saturation coverage of the market by using all available
outlets. For many products, total sales are directly linked to the number of outlets used (e.g.,
cigarettes, beer). Intensive distribution is usually required where customers have a range of
acceptable brands to choose from. In other words, if one brand is not available, a customer will
simply choose another

The objective is complete market coverage and the ultimate goal is to sell to as many
customers as possible, wherever they choose to shop.

Ex. Motor oil is sold in quick-lube shops, Fuel pumps, farm stores, auto parts retailers,
supermarkets, drugstores, hardware stores, warehouse clubs, and other mass
merchandisers.

Selective Distribution

Limited number of outlets in a given geographical area are used to sell the product.

Very important to select channel members that maintain the image of the product & are
good credit risks, aggressive marketers & good inventory planners.

Ex. Armani & Lucky Brand sell their clothing only through top department stores that
appeal to the affluent customers who buy its merchandise. It does not sell in a chain
megastore or a variety store.

Exclusive Distribution

Protected territories for distribution of a product in a given geographic area;


business maintains tight control over a product

Ex. Franchisor legally requires a franchisee to sell only the franchisors


products

Integrated Distribution
Manufacturer acts as wholesaler and retailer for its own products.

Sherwin-Williams Paint, Merle Norman

The GAP or Ann Taylor sells its clothing in company-owned retail stores.

25 Explain the use of technology with examples in distribution?


Some businesses have the capacity to distribute most or all of their products through the
internet
e-commerce: Products are sold to customers and industrial buyers through the
Internet.
e-marketplace
Satellite tracking = a dispatcher has current knowledge of a delivery trucks location
and destination
Tracking of package
Bar coding on package
Package scanned at transition points in distribution chain
Customer uses internet to follow package along distribution chain; e-mail may
be used
Global distribution: in some countries the postal service is not reliable; package
tracking facilitates global trade
Problems
Cost of technology
Changing technology = updating equipment
Need for compatible systems within and between businesses & countries

26 What is a strategic plan? Explain the role of marketing in strategic


planning?
What is a Strategic Plan?
A strategic plan is a document used to communicate with the organization the organizations
goals, the actions needed to achieve those goals and all of the other critical elements developed
during the planning exercise.
The objective of a strategic plan is to set the direction of a business and create its shape so
that the products and services it provides meet the overall business objectives.
Explain the role of marketing in strategic planning?
Marketing plays an important role in the strategic planning process for many organizations.
Although some marketing positions are represented at the corporate level, most are at the
functional level within the business units of an organization. Marketing is involved in strategic
planning at all organizational levels.
Strategic marketing describes marketing activities that affect corporate, business, and
marketing strategic plans. Strategic marketing activities can be classified into three basic
functions.
First, marketers help orient everyone in the organization toward markets and customers. Thus,
they are responsible for helping organizations execute a marketing philosophy throughout the
strategic planning process.
Second, marketers help gather and analyze information required to examine the current
situation, identify trends in the marketing environment, and assess the potential impact on these
trends. This information and analysis provides input for corporate, business, and marketing
strategic plans.
Strategic Industrial Marketing
Marketing planning - the link with strategic planning

Businesses that succeed do so by creating and keeping customers.

They do this by providing better value for the customer than the competition.

Marketing management constantly have to assess which customers they are trying to
reach and how they can design products and services that provide better value

Marketing Planning

The main problem with this process is that the environment in which businesses
operate is constantly changing.

So a business must adapt to reflect changes in the environment and make decisions
about how to change the marketing mix in order to succeed.

This process of adapting and decision-making is known as marketing planning.

Marketing has a key role to play in strategic planning.

It is the job of marketing management to understand and manage the links between the
business and the environment.

At times this is a straightforward task. For example, in many small businesses there is
only one geographical market and a limited number of products (may be only one
product).

However, it is challenging for marketing management in a multinational business, with


hundreds of business units located around the globe, producing a wide range of
products.

This calls for a well organised marketing planning.

27. What are the key issues in Marketing Planning? Why is marketing
planning essential?
Key issues in Marketing Planning
The following questions lie at the heart of any marketing (or indeed strategic) planning
process:
Where are we now?
How did we get there?
Where are we heading?
Where would we like to be?
Are we on course?
Why is marketing planning essential?
A marketing plan is useful in a business. It helps to:
Identify sources of competitive advantage
Gain commitment to a strategy
Get resources needed to invest in and build the business
Inform stakeholders in the business
Set objectives and strategies
Measure performance

28. How would you develop a Target Marketing Strategy?

A Product does not sell by itself; It needs the best of strategies. After drawing a strong
strategy plan, we need to develop a target market .Developing a target market strategy
has three phases:

1. Analyzing consumer demand

2. Targeting the market(s)

(Undifferentiated)
(Concentrated )
(Multi-segmented)

1. Selecting Target Markets by Analyzing Demand

Demand is the quantity of a commodity that consumers are not only willing to purchase
but also have the capacity to buy at the given price. For example, a consumer may be
willing to purchase 2 Kgs of Onions if the price is Rs.30 per kg. However, the same
consumer may be willing to purchase only 1 Kg if the price is Rs.60 per Kg.

The main determinants of the quantity is willing to purchase will typically be the price
of the good, one's level of income, personal tastes, the price of substitute goods, and the
price of complementary goods.

The capacity to buy is sometimes used to characterize demand as being merely an


alternate form of supply.

As marketers we need to aggregate consumers with similar needs. We need to identify


demand patterns. Identification of demand could be done by asking the following
questions and analyzing the same.

Do all potential customers have similar needs/desires or are there clusters? What are the
demand patterns?

A marketer can normally identify 3 demand patterns, they are:

Homogeneous Demand- uniform, everyone demands the product for the same
reason(s).

Clustered Demand-consumer demand classified in 2 or more identifiable clusters. Eg.


Automobiles: Luxury, Cheap ,Sporty, Spacious

Diffused Demand-Product differentiation more costly and more difficult to


communicate eg. Cosmetic market; need to offer hundreds of shades of lipstick. Firms
try to modify consumer demand to develop clusters of at least a moderate size.

Targeting The Market

After analyzing the demand lets us identify how the consumers can be targeted. This
would include 3 approaches.

Undifferentiated Approach (Total Market Approach) This approach does not


differentiate the market according to any variable. In this case a Single Marketing Mix for
the entire market identified is laid out. All consumers have similar needs for a specific
kind of product. Eg. Nirma Detergent soap for any kind of stain, for any kind of person
or cloth one soap
Single Marketing Mix consists of:

1 Pricing strategy
1 Promotional program aimed at everybody
1 Type of product with little/no variation
1 Distribution system aimed at entire market

Examples include Staple foods-sugar and salt and farm produce. This approach is
popular when large-scale production began. In todays competitive market this
approach is out-dated and could cause a product to fail, as the competition is very high
and the availability of alternatives are very extensive.
Market Segmentation Approach

Indians are very price conscious people. They would like the best of products at a very
economical price. Well there is another set of people who believe the higher the price
better he quality of product. It can be understood that Individuals with diverse product
needs have heterogeneous needs.

Market segmentation is the process of dividing a total heterogeneous market into


market groups consisting of people who have relatively similar product needs.

A market segment consists of individuals, groups or organizations with one or more


characteristics that cause them to have relatively similar product needs.

29 What the different marketing strategies adopted for Industrial products at various stages of
the PLC?
Marketing strategies for Industrial Products at different stages of PLC
Introduction Stage:

Depending upon the changes in the users habits some of the industrial products are
accepted rapidly after introduction and others are accepted slowly.

For slowly accepted industrial products marketing strategies should concentrate on


market development efforts. For products that are accepted fast, the marketing
strategies which meet intense competition should be evolved.

Growth Stage
During the growth state the marketing strategies of an industrial marketer should focus on three
important areas;
1. Improve Product design to offer more benefits
2. Improve distribution network to enable the customers easy availability of the product.
3. As a result of increased volume of production the cost will be lowered. Hence price should
be reduced.
If these strategies are not implemented by industrial marketers in the growth stage, it becomes
easy for competition to enter the market because of non-availability of the product and high
profits due to high prices.

Maturity Stage

In maturity stage the number of competitors entering the market will increase. As a result of
increased competition the profits will be reduced. The marketing strategies to be adopted for an
industrial product in the maturity stage are;
1. To enter the new market
2. To find out the ways and means of satisfying the existing customers
3. To cut production, marketing and other costs to maintain profit margins.
Decline Stage
This stage is characterized by sever price competition and concurrent decline in sales and
profit. Under this stage an industrial marketer should adopt the strategy of withdrawing the
existing product from the market or introduce a new product as a replacement or reduce
marketing or other costs to make some profits.

30. What is leasing? What are the various types of leasing options available
for Industrial products?
Leasing

Leasing which is an alternative to selling capital goods is a common thing in industrial


marketing.

Leasing is an arrangement between the leasing firm or the lessor and the user or the
lessee, the former arranging to purchase the capital equipment for the use of the latter.

The lessee has to pay the lessor in the form of rentals and the lessor remains owner of
the equipment during the specified period

There are four types of leases, which are explained below.

1. Operating lease: Operating Lease refers to a short-term lease of an asset for an hour, a day
etc.
2. Financial Lease: The financial lease is for a basic term during which the lease is noncancellable. The length of this basic period is determined primarily by the economic life of the
asset, and is usually shorter than the expected life.
3. The sale and lease back transaction: The sale and lease back transaction provides for an
arrangement by which an entity that owns a given asset may sell it to the leasing company, and
lease it back. This enables the lessee to immediately defreeze the money that it had locked into
the original asset, which becomes available to it for working capital or further expansion
4 Leveraged lease: Leveraged lease is an arrangement where two or more lessors may jointly
acquire the asset and lease it to the lessee. This is so in case of very large assets, where a single
lessor may not be capable of acquiring it or may not be willing to shoulder the whole risk
associated with it.

31 Explain with examples the various types of pricing options available to


Industrial marketers?
1.

List price: List price is a base price or the basic price of a product consisting of various
sizes or specifications. It is the published statement of basic prices which is sometimes
distributed to the customers.
2. Trade Discounts: The trade discounts are offered to the intermediaries such as dealers and
distributors. The amount of trade discount depends on the particular industry norms or the
functions performed by the intermediaries.
3. Quantity Discounts: A quantity discount is granted to industrial customers who buy large
volumes. It is a price reduction given by subtracting the volume discount from the list price.
The quantity discounts are justified as they reduce the cost of selling, inventory carrying, and
transportation.
4. Cash discount: To ensure prompt payments cash discounts are offered to customers in
industrial marketing. It is the discount applicable on the gross amount of the bill, provided
customer pays the bill within the stipulated period from the date of invoice
5. Geographical Pricing: Geographical pricing refers to the location at which the price is
applicable. Geographical pricing strategy is influenced by a number of factors such as the
location of the companys plant, the location of the competitors plants and their pricing
strategies, dispersion of customers, extent of transport costs, demand and supply conditions and
competitive environment. These are (i) Ex-factory and (ii) FOR destination.
(i) Ex-Factory: Ex-factory means the prices prevailing at the factory gate. When a seller
quotes to a buyer ex-factory price, it means that the freight and transit insurance costs are to
the buyers account
(ii) FOR Destination or FOB Destination: When a seller quotes to a buyer FOR
destination or FOB destination (free on road/free on board destination), it means the freight
costs are absorbed by the seller or included in the quoted prices.
However, transit insurance costs, which are small amounts, are generally absorbed by the
seller, but sometimes the goods are dispatched under the open insurance policy of the buyer.
If the quotation or the price list is on FOR destination basis, generally the industrial marketer
estimates the average freight and insurance costs and adds the same to the basic product prices.
Absorbing these costs is rarely done by a seller.

32 Explain the difference between Advertising and Sales Promotion?


Advertising and sales promotions are two marketing terms that are often used interchangeably
by marketers. But they are different and they both have distinct definitions and uses. It is
important to understand the role each plays in reaching today's ever more elusive consumer.
Advertising Defined
Advertising positions a product or service against that of competitors to convey a brand
message to consumers and to enhance its value in the consumer's eyes. A television
commercial for a brand new automobile emphasizing the car's new features and styling is an
example of advertising.
Sales Promotion Defined
Sales promotions include a variety of strategies designed to offer purchasers an extra incentive
to buy, usually in the short-term. Examples of sales promotions include cents-off coupons, twofor-the-price-of-one sales and double coupons at the grocery store, all for a limited period of
time,
Key Differences
The key difference between advertising and sales promotion is the nature of the appeal to the
consumer. Advertising is emotional in nature and the objective is to create an enduring brand
image. Perfumes, makeup and jewelery need imaginative advertising to create the allure
needed to sell these products. Sales promotions, on the other hand, are unemotional in their
approach. A cents-off coupon for cereal appeals to the consumer's rational mind and is a sales
promotion. The consumer weighs the price of one cereal brand versus others.
Speed of Results
Brand equity and identity typically develop over the longer term. Many advertising exposures
are required for the consumer to feel the emotional pull a product might offer. Advertising
develops this relationship over time. Sales promotions are after shorter-term gains in market
share and the main message to the consumer is not necessarily brand-oriented. Rather it is an
appeal to act immediately to purchase the product.
Directness
Advertising uses indirect and subtle methods to create a brand image while sales promotions
are much more direct. Advertising for a cell phone service might emphasize the coverage area
and the many styles of phones available. A cell phone sales promotion might emphasize a free
phone for signing a two-year contract if sign-up is within the next month.

Advertising
Time
Definitio
n

Long term
One-way communication of a
persuasive message by an identified
sponsor, whose purpose is nonpersonal promotion of
products/services to potential
customers.

Price
Suitable
for
Sales
Example

Expensive in most cases


Medium to large companies

Purpose
Result

Assumption that it will lead to sales


Giving an advertisement in the
newspaper about the major products
of a company
Increase sales, brand building.
Slowly

Promotion
Short term
A Promotion usually involves an
immediate incentive for a buyer
(intermediate distributor or end
consumer). It can also involve
disseminating information about a
product, product line, brand, or
company.
Not very expensive in most cases.
Small to large companies
Directly related to sales.
Giving free products, coupons etc.

Increase sales.
very Soon

33 Explain with examples the difference between Advertising and Direct


Marketing and their suitability in different circumstances.