INDUSTRIAL MARKETING - HAWALDAR (For Test Only Chap1,2,3,4,6,7)
INDUSTRIAL MARKETING - HAWALDAR (For Test Only Chap1,2,3,4,6,7)
Krishna K Havaldar.
But we have only Chapters 1,2,3,4,7
Hope this helps ;)
CHAPTER 1 IM/1-1/5
INDUSTRIAL
THE NATURE OF
MARKETING
Learning Objectives
LEARNING OBJECTIVES
• Understand the types of industrial customers as
well as industrial goods and services.
• Know the marketing implications for different
types of customers and products.
• Understand the purchasing orientations and
practices of industrial customers.
• Know types of environment and strategies to
manage external environment.
IM/2-2/10
(A) What are the types/classifications of
Industrial/Business customers?I N T E R M E D I A R IE S /
M ID D L E M E N ( D IS T R IB U T O R
C O M M E R C IA L
E N T E R P R IS E S O E M S
U S E R S
P U B L IC S E C T O R
U N IT S (B H E L )
G O V E R N M E N T
C U S T O M E R S
G O V T . U N D E R T A K IN G S
( R A IL W A Y S , D E F E N C E U N IT
IN D U S T R IA L /
B U S IN E S S
C U S T O M E R S P U B L IC IN S T IT U T IO N S
(G O V T . H O S P IT A L S )
IN S T IT U T IO N A L
C U S T O M E R S
P R IV A T E IN S T IT U T IO N S
(S C H O O L S , C O L L E G E S )
M A N U F A C T U R IN G
U N IT S (S U G A R , M IL K )
C O -O P E R A T IV E
S O C IE T IE S
N O N -M A N U F A C T U R IN G
U N IT S ( B A N K S , H O U S IN G )
F I G . T Y P E S O F I N D U S T R I A L / B U S I N E S S C
IM/2-3/10
(B) How are Industrial Products / Services Classified?
Classification into 3 Groups shown below.
R A W M A T E R I A L S ( I R
M A T E R I A LM S A N U F A C T U R E D M A
& P A R T S ( S T E E L , F U E L O I L )
( E N T E R P R O D U C T
C O M P O N E N T P A R T S
D I R E C T L Y )
S U B A S S E M B L I E S ( E
I N D U S T R I AC LA PI T A L I LT IE G M H S T E Q P T ( C O M P U
P R O D U C T ( SU S/ E D I N
H E A V Y E Q P T ( M A C H
S E R V I C E S P R O D U C T I O N /
O P E R A T I O P N L SA ) N T / B U I L D I N G ( F A
S U P P L I E S S / U P P L I E S ( L U B R I C A
S E R V I C E S
( T O S U P P O R T
O P E R A T I O S N E SR ) V I C E S ( L E G A L , C
F I G . C L A S S I F I C A T I O N / T Y P E S O F I N D U S T
(C) Marketing Implications for differentIM/2-4/10
types
of products & customers?
E C O L O G I C A SL O L I D W A S T E D I S P O S A L
C O N S E R V I N G N A T U R A L R
W A T E R , P O W E R , T R A N S P O
P H Y S I C A L
L O W - C O S T , S K I L L E D M A N P
C O M P A N Y L O C A T I O N , I M A
E N V I R O N M E I NN TT E R N A L R & D & P R O D U C T I O N F A C
( S & W A N A L Y H S RI S )& F I N A N C I A L R E S O U R
M A R K E T I N G E F F E C T I V E N E
M I C R O C U S T O M E R S &
( A F F E C T S A
P A R T I C U L A R
F I R M ) S U P P L I E R S
E X T E R N A L
( O & T A N A L Y S I S ) E C O N O M I C
M A C R O T E C H N O L O G I C A
( A F F E C T S
G O V T . , P O L I T I C A
A L L F I R M S )
C U L T U R A L & S O
P U B L I C - P R E S S
H O L D E R S , I N V E
P U B L I C I N T E R E S
(F) Strategies for Managing Changing
IM/2-9/10
External
Environment.
• Reliability in delivery.
• Consistent product Quality.
• Lowest price (If delivery & Quality objectives
are met)
• Excellent pre & post – sales services.
• Long – Term collaborative relationship.
Industrial buyers try to achieve organizational
purchasing objectives & personal objectives
like higher status, job security, salary
increments, promotions & social relationships.
Industrial Buying Decision
IM/3-3/16
Process
• Marketers must study this for developing effective marketing
strategy.
• In Consumer Marketing, Household / Individual consumer /
Buyer makes buying decisions based on certain mental stages
like (i) Problem (Need) Recognition,
(ii) Information Search (iii) Evaluation
(iv) Purchase decision (v) Post Purchase Behavior
• In Industrial Marketing, Buying Decision making process is
observable, involving many people in buying firm & includes
sequential activities / stages / phases, as follows:
IM/3-4/16
(A) PHASES IN INDUSTRIAL BUYING
DECISION MAKING PROCESS /
BUYPHASES
• PHASE –1 :- Recognising A problem / need.
• PHASE – 2 :- Determining Characteristics &
Quantity of needed product / Service*.
• PHASE – 3 :- Developing specifications of the product*.
• PHASE – 4 :- Searching & Qualifying Suppliers.
• PHASE – 5 :- Obtaining & Analyzing suppliers’ offers*
• PHASE – 6 :- Evaluating & Selecting Suppliers.
(shown on next slide)
• PHASE – 7 :- Selecting an order routine
• PHASE – 8 :- Post – Purchase evaluation
* These are in addition to five stages of consumer
buying decision process.
IM/3-5/16
A SUPPLIER EVALUATION SYSTEM.
ATTRIBUTE/ WEIGHT/ SUPPLIER’S SUPPLIER’S
FACTOR IMPORTANCE PERFORMANCE RATING
SCORE
PRICE 15 0.5 07.5
D i f f e r e n Vc ea sr i a a b m l e o Ms n etg h t ha ot dD s e tu e s r e m d i n f oe
i n d i v i d u ai f l b b u u y y i ne gr sc od en fc l i cs it o r n e s i s o l u t i o
c a u s e d ab uy t of a n c o t om i r n os u j : o s i n o t r - d j o e i c n i ts :i o n
B a c k g r oA u ) n P d r o o d f u m c a t k S i pn ge c p i f r i oc c e s s
i n d i v i d u F a a l s c t ( o E r ds u : c a t i o n ,
r o l e & l i f T e i m s t e y l Pe ) r . Pe s r os bu lr e e m S o l v i n g
T h e i r i n f P o er m r c a e t i i v o e Pn d e rR s i u s a k Ss i uo pn p l i e r
s o u r c e s T. y p e o f B P a u r r g c ah i a n B s i n er ag n d C
A c t i v e S B e ) a C r co h m p P a o n l y i t i Sc kp i e n c g i f i c
P e r c e p t Fu a l c Dt o i r s s t o : r t i o n
S a t i s f a c C t i o o n m w p a i t nh y S i z e
p a s t p u r C c ho am s p e a s n y O r i e n t a t i o n
D e g r e e o f
C e n t r a l i s a t i o n
F i g . : T H E S H E T H M O D E L
W E B S T E R A N D W IN D M O D E L
IM/3-14/16
E n v ir o n m e n ta l V a r ia b le s
P h y s ic a l, T e c h n o lo g ic a l
E c o n o m ic , C u lt u r a l
P o lit ic a l a n d L e g a l
L a b o u r u n io n s
C u s t o m e r d e m a n d s
C o m p e t it iv e p r a c t ic e s
S u p p lie r in f o r m a t io n
O r g a n is a t io n V a r ia b le s
O b je c t iv e s a n d g o a ls
O r g a n is a t io n S t r u c t u r e
P u r c h a s in g P o lic ie s / P r o c e d u r e s
E v a lu a t io n & r e w a r d s y s t e m s
D e g r e e o f d e c e n t r a lis a t io n
B u y in g C e n t r e V a r ia b le s O r g a n is a t io n B u y in g D e c is io n s
A u t h o r it y , S iz e C h o ic e o f S u p p lie r s
K e y in f lu e n c e r s D e la y d e c is io n & g e t m o r e in f o r m a t io n
I n t e r p e r s o n a l r e la t io n s h ip M a k e , L e a s e o r b u y
C o m m u n i c a t io n D o n o t b u y
In d iv id u a l V a r ia b le s
P e r s o n a l G o a ls , V a lu e s
E d u c a t io n , E x p e r ie n c e
E x p e r t i s e , J o b P o s it io n
L if e s t y l e , I n c o m e
IM/3-15/16
CUSTOMER SERVICE
• Important Customer Service Elements. Carry out market
survey to understand which of the following elements of
customer service are important to customers, what service
levels are expected by customers, the service levels offered
by the firm and its competitors.
(i) Pre – Sales Service : Advising, Informing,
Problem solving
(ii) During – Sales Service : Product availability,
on–time delivery, order cycle time, and information.
(iii) Post – Sales Service : Warranty, AMC, Repair,
Installation & Training.
• Develop superior service package.
• Test, Set Goals, and Establish Control system
IM/3-16/16
SUMMARY OF CHAPTER - 3
• Industrial marketers should understand that business buyers try to
achieve both organizational & personal objectives.
• Industrial buying decision process consists of eight steps / stages
(buyphases) & three types of buying situations (buyclasses).
• Buygrid model combines buyphases & buyclasses.
• Marketers must understand roles & key members of buying centre,
including key buying influencers.
• Many factors influence organizational buying behavior, but major
factors are organizational ( or task – oriented ) objectives and
personal (non – task oriented ) objectives.
• The Sheth model of industrial buyer behavior is comprehensive,
focusing of psychological & joint – decision making aspects.
• Webster and wind model is also widely used & comprehensive
model on buyer behavior.
IM/4-01/11
CHAPTER - 4
BUYER SELLER RELATIONSHIP
LEARNING OBJECTIVES :
• Understand buyer sales rep. interactions.
• Types/range of relationships between buyer & seller
firms.
• Customer relationship management (CRM) /
relationship marketing.
• Methods used to influence industrial customers.
• Special dealings between buyer & seller.
IM/4-02/11
INDUSTRIAL BUYER-SALES REP.
INTERACTIONS
• Depend on their perceptions, behavior & roles.
• Buyers have two major perceptions of sales reps.
(i) Stereotype – talkative, manipulative, excitable
(ii) Reputation of sales rep’s company.
• Buyer Behavior towards sales rep depends on organizational
needs / objectives, buying centre interactions and personal
needs.
• Buyers are not always rational / logical in buying decisions.
• Role / behavior of sales rep. depends on his personal needs,
and expectations of his boss, peers, customers.
BUYER-SELLER DYADIC INTERACTION
IM/4-03/11
FRAMEWORK
A Conceptual Framework by Dr. Sheth
C o m p a t i b l eI n Sc to y m l e p a t i b l e S
C o m p a t Ii db el e a l / S u c c e s I s n f eu f l f i c i e n t
C o n t e n t T r a n s a c t i o nT r a n s a c t i o n
I n c o m p a t Ii nb el e f f i c i e n t N o
C o n t e n t T r a n s a c t i o nT r a n s a c t i o n
P a r t n e r i n g /
T r a n s a c t i Vo an l a u l e - A d d C e od l l a b o r a t i v e
R e l a t i o n s Rh ei p l a t i o n s h R i ep l a t i o n s h i p
and resources.
d. Regular frequency of concessions are important and
not
the size of concessions.
e. Be responsive to corrections, if needed.
f. Avoid legalistic approach.
g. Be polite and humble.
h. Importance should be on “end results” and not on
“means”.
SPECIAL DEALINGS BETWEEN
IM/4-10/11
BUYER & SELLER
INDUSTRIAL MARKETING
INTELLIGENCE AND MARKETING
RESEARCH
LEARNING OBJECTIVES :
1. Know Nature and Scope of
Industrial Marketing research.
2. Examine the Marketing Research
Process.
3. Understand Industrial Marketing
Intelligence System.
SCOPE OF INDUSTRIAL IM/5-3/6
MARKETING RESEARCH
Scope is vast. Some of the areas are :
i. Market share analysis .
ii. National and Geographical area-wise
market potential.
iii. Competitors’ analysis.
iv. New product acceptance and potential
IM/5-4/6
MARKETING RESEARCH PROCESS
I n d u s t r i a l
S e c o n d a r Dy e c i s i o n
M a r k e t i n g M a r k e t
D a t a S u p p o r t
I n t e l l i g e n c e R e s p o n c e
S o u r c e S y s t e m
ResarMkt ingch
studie s
Industr ial
DSeco InteligMark DecisonSuprt RespoMark atndry ngice ncet
So System System urce
S y s t e m
INDUSTRIAL MARKET
SEGMENTATION, TARGET MARKETING
AND POSITIONING
LEARNING OBJECTIVES :
1. Know the Procedure followed for
segmenting industrial markets.
2. Identify the Variables (bases) used for
segmenting business markets.
3. Evaluate and select the target market
segments and strategies.
4. Develop effective positioning strategies.
IM/6-2/9
PROCEDURE USED IN MARKET
SEGMENTATION
1.0
.A1 0.8
0.6
.D
.C 0.4
- 0.6
. - 0.8
A
- 1.0
R u p e e s
I n d u s t r y
P r o f i t s
M a t u r i Dt y e c l i n e
IM/7-5/20
APPLICATION OF PRODUCT LIFE –
CYCLE THEORY TO MARKETING
STRATEGY
Introduction Stage : Marketing Strategy should
focus on market development for slowly accepted
products. For rapidly accepted products, a
competitive strategy (Competitive pricing or Superior
quality product ) should be evolved.
Growth Stage :To take advantage of high growth
of sales and profits, the marketing strategy should
concentrate on (i) Improving product design or
adding product features (ii) Improving distribution
and (iii) Reducing price, as increased sales and
production reduce the costs.
IM/7-6/20
D o m i n a n t P
G r o w A t hv e r a g e
M a r g i n a l
D o m i n a n t
S t a b l Ae v e r a g e
M a r g i n a l S
D o m i n a n t
D e c l i An ve e r a g e
M a r g i n a l
IM/7-10/20
PERCEPTUAL MAPPING
TECHNIQUE
H i g h P r i c e
H i g h L o w
Q u a l i t y Q u a l i t y
*
A
1 *A
C
L o w P r i c e
IM/7-11/20
Firm A’s product quality is perceived to be “average”
by customers, compared to its competitors B & C. Firm
A should try to move to a new position of superior
quality at a reasonable (average) price to improve its
profitability.
B e t t e r H i g h - t e c h
H i g hM o u s e t r M a pa r k e t i n g
T e c h n o l o g i c M a al r k e t i n g
U n c e r t a in t y
L o w - t e c Hh i g h - f a s h i o
L o w M a r k e t i nM g a r k e t i n g
L o w H ig h
M a r U k en tc e r t a in t y
IM/7-15/20
MODIFIED TECHNOLOGY ADOPTION
LIFE CYCLE
D e e p G a p
3 4 %
I n n o v a 1
t 3o ½
r s% 3 4 %
E a r l y 1 6 %
2 ½ % A d o p t e r s L a g g a r
T i m e o f A d o p t i o n o f
IM/7-16/20
HIGH – TECH MARKETING STRATEGY
P u
r e P u
r e
T a n g i b l e i n t a n g
P r o d u c t s e r v i c
M a j o r E q u a l M a j o r
P r o d u cP t r , o d u cS t e r v i c e ,
M i n o r & M i n o r
S e r v i c S e e r v i c Pe r o d u c t
IM/7-18/20
Unique Characteristics of services
and
marketing Implications.
C h a r a c t e r i s t ic s M a r k e t in g Im p li c a t i o n s E x a m p l e s
1 . I n t a n g i b i l i t y B u y e r s s e e
e v i d e n c e o f s eM r va i nc ae g q e u m a el i tn y t
( c a n n o t b e s e e n /
f e lt , b e f o r e b u S y ei n l lg e ) r s t a n g i b ilis e t h e i n t a nC g o i bn ls e u l t a n c y & E D
2 . I n s e p a r a b i l i t y E f f e c t iv e in t e r a c t io n d e p e nR d e po an i r s s e tr ov i cm e a c h i n
( P r o d u c t i o n &
c o n s u m p t io n a p t r to h v e i d e r s . & C o u r ie r s e r v ic e
s a m e t im e ) R e q u ir e s e f f e c t iv e r e c r u it i n g a n d t r a in in g
o f s e r v i c e p r o v id e r s .
3 . V a r i a b il i t y U n if o r m q u a l i t y i s d i f f i c u l t M a n a g e m e n t
( S e r v ic e q u a l i t Fy o c u s o n q u a lit y & a u t o m e ad t ui o c n a t i o n & m a r k e
v a r ie s )
r e s e a r c h .
4 . P e r i s h a b i l it y D e m a n d f lu c t u a t e s . A ir lin e s s e a t s &
( C a n n o t b e s t o r e d )
U s e m e t h o d s t o m a t c h d eW m a ar en hd o &u s e s p a c e .
c a p a c it y .
5 . N o n - o w n e r s h i pA d v a n t a g e s o f n o n - o w n e r Hs ho i t p e l : a n d c a r r e n
( B u y e r u s e s a
s e r v i c e , b u t c ar e n d n u o c t t i o n in c o s t s & f l e x i b i sl i et y r v i c e s .
o w n it )
IM/7-19/20
SUMMARY OF CHAPTER 7
PRODUCT STRATEGYS & NEW PRODUCTS DEVELOPMENT.
• Industrial Product is a physical thing and also a complex set of
economic, technical, legal and personal relationship between a
buyer and a Seller.
• Product Strategies are changed due to changes in customers needs,
technology, government policies or laws, and product life – cycle
• Product life cycle (PLC) concept is used to develop marketing
strategies at different stages of PLC.
• Product strategies for existing products are developed by (i)
evaluating the performance of existing products, using “product
evaluation matrix ,” (ii) Studying the strengths and weaknesses of
existing products, using “perceptual mapping” technique.
IM/7-20/20
It means, deciding if a product should be continued, modified,
dropped, or replaced.
• New products are classified into six groups and consist of seven
stages of development process :- idea generation, idea screening,
concept development & testing, business analysis, product
development, market testing, and commercialization.
• In High –tech marketing situation, technology application and
market needs are difficult to predict . The “technology adoption life
cycle” is modified to suit high-tech marketing.
• Unique high – tech marketing strategies include targeting a niche
market, planning whole product, developing partnership, unique
positioning, effective communication , multi – channel distribution
and Skimming pricing.
• Industrial services are classified into various groups, and include
unique characteristics like intangibility, inseparability, variability,
perishability & non – ownership.
IM/8-1/14
CHAPTER – 8
INDUSTRIAL DISTRIBUTION
CHANNELS & MARKETING LOGISTICS
Learning objectives
1. Understand alternative channel structures.
2. Know types of industrial intermediaries.
3. Understand steps involved in designing a channel.
4. Learn how to manage channel members.
5. Understand concepts of supply chain management,
Logistics, and business logistics system.
6. Learn the tasks of physical distribution and total
distribution cost.
IM/8-2/14
Alternative Channel Structures
• Industrial channel structures include both direct and indirect channels.
Direct Channels.
• Examples are direct selling through company sales force and direct
marketing through on-line marketing, telemarketing and direct mail.
Direct channels are used typically when (i) Transaction value is large, (ii)
Technical & commercial negotiations are held at various levels
(iii) Buying process takes a long time (iv) Buyers want to buy directly from
manufacturers.
Indirect Channels.
• Consists of intermediaries like distributors / dealers, manufacturer’s reps /
agents, value-added resellers (VARs), brokers and commission merchants.
• Indirect channels are generally used when (i) Value of transaction / sales
is low, (ii) The manufacturer’s resources are limited,
(iii) Customers are geographically dispersed, (iv) Buyers purchase many
items in one transaction.
IM/8-3/14
Types of Intermediaries
1. Industrial Distributors / Dealers.
• They perform many functions like buying, storing, promoting, financing,
selling, transporting and servicing certain geographic market, & are
given discounts.
• Major categories are (i) General – line distributors, (ii) Specialized
distributors, and (iii) Combination house.
2. Manufactures’ Representatives / Agents.
• They perform functions like promoting manufacturers’ products /
services, getting orders, and colleting market information. They are
independent business firms, representing various manufacturers whose
products complement one another but are not competitive.
• They are paid commission on the value of sales or orders booked. They
do not buy, store or finance transactions.
IM/8-4/14
3. Value-added Resellers (VARs)
They are new type of intermediaries from computer industry.
They deal with computer hardware and software companies,
customize the same to solve specific problems of buying firms.
They are paid discounts.
4. Brokers
They bring together buyers and sellers, when information is not
available completely. They represent either a buyer or a seller,
and their relationship is short term. They do not buy products &
services and are paid on commission basis.
5. Commission Merchants.
They represent sellers / manufactures, mostly with bulk
commodities like raw materials, to perform functions like
arranging inspection, transporting, negotiating and selling. They
are paid commission on the value of sales.
IM/8-5/14
CHANNEL DESIGN
• It includes developing new channels and modifying the existing
channels.
• The procedure / steps are as follows;
(i) Developing channel objectives;
(ii) Analyzing channel constraints;
(iii) Analyzing channel tasks;
(iv) Identifying channel alternatives. These include the following
issues :
(a) Types of intermediaries.
(b) Number of intermediaries.
(c) Number of channels.
(v) Evaluating the channel alternatives. The criteria used are:
(a) Economic factor
(b) Control factor
(c) Adaptive factor
(vi) Selection of the channel (s).
IM/8-6/14
MANAGING CHANNEL MEMBERS
It includes :
1. Selecting Intermediaries.
2. Motivating Intermediaries.
(a) Partnering relationships.
(b) Reasonable discounts and commission.
(c) Distributor councils.
(d) Other motivational tools.
3. Controlling Channel Conflicts
(a) Sources of channel conflicts.
(b) Controlling conflicts by
(i) Effective communication network;
(ii) Joint goal – setting;
(iii) Diplomacy; Mediation; Arbitration.
(iv) Vertical marketing system (VMS).
4. Evaluating Channel Members
IM/8-7/14
Concept of Supply Chain Management
(SCM)
SCM includes activities of moving goods from raw material through operations
to final consumers, as shown in “SCM Framework” below.
IM/8-8/14
• Main aims of SCM are (i) Reduce cost per unit, (ii)
Reduce waste & duplication, (iii) Minimize order to
delivery cycle, and (iv) Ensure superior delivery
service. Firms adopting SCM gain competitive
advantage.
• The aims are achieved by a network of interdependent
firms working together with partnering relationships to
manage and control various activities, in order to
improve flow of materials and information from
suppliers to end users.
• Firms involved in SCM are suppliers of raw materials &
components, transporters, distributors, material
handling & information processing firms.
IM/8-9/14
Logistics Management (LM)
LM plans and coordinates activities to achieve
superior customer service levels at lowest
costs. LM optimizes material flow within the
firm, but SCM extends integration of material
flow to suppliers’ suppliers and customers’
customers. For better understanding, see
figure on “ business logistics system”, which
has two product movement; physical supply
and physical distribution.
IM/8-10/14
Business Logistics System
P h y s i c I an ld Su us pt r p i P a l y hl My s a i nc ua
( o r M a r k
S a le s R e v e n u e - T o t a l P h y
=
C a p i t a l I n v e s t m e n t
IM/8-13/14
SUMMARY OF CHAPTER – 8
S a l e s L a r g e M a j o r N a t i o n a l
P o t e n t i a l A c c o u n tA c c o u n t
o f D y a d i c M i n o r
S
C u s t o m e r m a l l
I n t e r a c t i oA n c c o u n t
S i m p l e C o m p l e x
Complexity of customer
IM/9-10/12
P r o m Po tr i i o n n t T a M r l a e d d e C i a s h h a o r w iD t s a i r b e l c e S t a m l e as i c
M e d Bi a u s i n E e x s hs i d b o i t n i oa nt i Ts o e n l s e m S a a r l e- s
& P u b l i c C a a t i t o a n l A o s gd u o ep k s t e i tn i gn p g r e s e n
S u p p T o r r at s d Se a l e s v i C l l oa ng es O es n n t - s l i T n e e a m
J o u r n P a rl s o m C o t o i mo n m m a a l u r n k i e tR yt i e n l ag t i
I n d u n s o t vr ie a l r tl sie e l sa t ( i g o i n f t s s ) m a r k e t
d i r e c t So er mi e s i n N a e r w s s i t e m i n
D e m p o rn e s s t sr a t i o n
P r o m T o e t c i ho n ai c l a l
l e t t e r as r t i c l e s i n
E n t e j r o t u a ri n n m a l e s n t
IM/10-4/10
ROLE OF ADVERTISING IN BUSINESS MARKETING
Learning Objectives
1. Understand the special meaning of price.
2. Know the factors that influence pricing
decisions, i.e. price determinants.
3. Understand pricing strategies for different
product/market situations.
4. Examine the pricing policies for various
types of customers.
5. Understand the role of leasing.
IM/11-2/ 29
SPECIAL MEANING OF PRICE
• Some business customers follow “Value-based
pricing” by evaluating, suppliers’ offerings based
on the concept of the suppliers offering equal to the
difference between the perception of value (or
benefits) and the cost to the buying firm. These are
“value buyers”, and marketers should attempt to
have value added relationship, if suppliers have
“purchasing orientations”.
• Perception of value in value-based pricing is made
up of several elements like customers perceptions of
product quality / performance, reliable delivery,
warranty / after-sales service, reputation of the
supplier, etc which are enhanced and augmented
properties.
IM/11-3/ 29
F R A M E W O R K O
B e f o r e t a k ( i i n) g P r p i c r ii nc gi n o
d e c i s i o n s , a ( i b i ) u C y ui n s tg o mf i e
f i n d " p r i c e ( d i i ei ) t e C r o m s t i na na
( i . e . f a c t o r s ( i tv h ) a C t o i mn f p l eu t
p r i c i n g d e ( cv i) s Gi o o n v s t .) r e
T w o t y p e s o f p r i c i n g IM/11-5/
d e c i s 29
i o n s .
P r i c i n g s t r a t e g Pi e r si c i n g p o l i c i e s
D i s c o u n t s
G e o g r a p h i c a
p r i c i n g
S e t t i n g a p r i c e
( p r o d u c t / m a r k e t
s i t u a t i o n s )
I n i t i a t i n g a
p r i c e c h a n g e
R e s p o n d i n g t o a c o m p e t i t o r 's
p r i c e c h a n g e
L e a s i n g
IM/11-6/ 29
PRICE DETERMINANTS OR FACTORS
INFLUENCING PRICING DECISIONS
(i) Pricing objectives, (ii) customer analysis, (iii) cost
analysis, (iv) competitive analysis, (v) Govt. policies.
1. Pricing Objectives
• Are derived from corporate and marketing objectives.
• Some of the pricing objectives are survival, maximum
short – term profits, maximum short – term sales,
maximum sales growth, product quality leadership, etc.
IM/11-7/ 29
2. Customer (Demand) analysis
It includes demand analysis & cost - Benefit analysis
(i) Demand analysis. Using experimental research, it measures
relationship between price and demand (or sales volume). It sums up
how sensitive customers are to the price changes. The formula is:
% c h a n g e i n q u a n
=
% C h a n g e in p
Q u a n t i t y P r o d u c e d p e r y e a r
C o s t Ex p e r i e n c e /
p e r L e a r n i n g
U n i t
C u r v e .
A v . C o s t R e d u c
= 1 0 - 3 0 %
A c c u m u l a t e d P r o d u c t i o n
IM/11-10/ 29
B r e a k - E vi s e nu s Ae f n u al lt yo s c i so n
p r i c e s ( P 1 , P 2 , P 3 ) , a n d i t s
S a l e s R e v
S a l e s
&
C o s t s S a l e s R e v
S a l e s R e v
T o t a l C o s t
F i x e d C o s
S a l e s V o l u m e
4. Analyzing Competition
IM/11-11/ 29
• Many marketers have “competitive level” Pricing as a
pricing objective.
• Marketers should get “Competitors’ prices, discounts,
costs, product quality, service, etc for cost/benefit
analysis, pricing and positioning strategy.
• Competitors’ information can be obtained from various
sources.
5.Government Regulation/Policies
• Govt. regulations are necessary to ensure fair play and
to protect consumers and small scale suppliers.
• Price-fixing / price cartels, price discrimination (e.g.
different discounts to distributors/dealers), and
predatory pricing (e.g. dominant firm aiming to finish
competitors) are not permitted (illegal as per MRTP act,
for example)
IM/11-12/ 29
PRICING STRATEGIES
Pricing strategies vary as per product-market
situations such as (i) Competitive bidding in
competitive markets, (ii) New product pricing,
(iii) Pricing across product life-cycle.
(i) Competitive Bidding
• In business markets, large volume of
purchasing is done through competitive
bidding, using either closed (or sealed) bidding
or open (or negotiated) bidding method.
IM/11-13/ 29
C o m p e t i t o r ' s
B i d T o t a l C o s t P r o f i t ( R s )
L a s t T e n d e r
P r i c e P e r U n i t T ( A= )
P r i c e
( R s ) ( A ( )R s ) ( C ) ( A ) - ( C )
( R s ) ( B )
4 5 0 3 5 0 3 6 0 0 . 0 0 1 0 0 0
4 3 0 3 5 0 3 6 0 0 . 1 5 8 0 1 2 . 0 0
4 1 0 3 5 0 3 6 0 0 . 4 0 6 0 2 4 . 0 0
4 0 0 3 5 0 3 6 0 0 . 5 0 5 0 2 5 . 0 0
3 8 0 3 5 0 3 6 0 0 . 7 2 3 0 2 1 . 6 0
3 6 0 3 5 0 3 6 0 0 . 9 0 1 0 0 9 . 0 0
3 4 0 3 5 0 3 6 0 0 . 9 5 ( 1 0 ) ( 9 . 5 0 )
3 3 0 3 5 0 3 6 0 1 . 0 0 ( 2 0 ) ( 2 0 . 0 0 )
Rs.60 corers tender from Dept. of Telecomm. (DOT) for underground cable jointing kits. The company
ghosted Rs.400/- per kit (expected maximum profit). Tender opening revealed, it was L4.L1 was Rs. 330/-,
L2=350, L3=Rs 380/- The company estimates of B and P(A) were incorrect.
IM/11-16/ 29
(ii) New Product Pricing Strategy
In the introduction stage of a new product, two
alternative pricing strategies are available
(i) Skimming (high initial price) strategy, and
(ii) Penetration (low initial price) strategy.
Skimming Strategy is appropriate for a new
product that is distinct, high–tech, or capital
intensive, and purchased by a market segment that
is not sensitive to the initial high price. The
advantage is faster recovery of investment by
generating larger profits. The disadvantage is that
it attracts competitors due to high profits. The firm
reduces prices after some time to reach other
segments.
IM/11-17/ 29
Penetration strategy is appropriate when (i) buyers are highly
price sensitive, (ii) strong threat exists from potential competitors
(due to low entry barrier). The selling firm’s objective is to achieve
long – term profits through high market share. The firm can also
achieve “cost leadership” thru’ economies of scale and experience
curve, which gives “ competitive advantage”.
(iii) Pricing Across Product Life – Cycle (PLC)
Marketing and pricing strategies vary as the product moves across 4
– stages of PLC.
(a) Introduction stage. We have discussed pricing strategy in this
stage earlier in pricing a new product.
(b) Growth stage. The firm lowers the prices to attract the next
layer of price – sensitive buyers. Also more suppliers enter the
market and buying firms put pressure on the existing suppliers to
lower prices.
IM/11-18/ 29
(c) Maturity stage. The firm may cut the prices to match
aggressive competitors’ prices by giving volume discounts,
absorbing freight costs, or more credit. If industrial customers
do cost - benefit analysis, a selling firm may increase prices or
not make any change in prices due to its superior product
quality.
(d) Decline stage. Pricing strategy varies depending on
conditions. (i) If buyers’ perceptions about the firm’s quality of
product / service is good, then the price need not be lowered,
but costs should be reduced to earn profits, (ii) if the quality of
product / service is equal of lower than competitors, a firm
may cut prices, to increase sales volume above break – even
volume, (iii) if some competitors have withdrawn, a firm may
selectively increase prices to less price – sensitive segments.
Initiating price changes
IM/11-19/ 29
S i z e o f e a Y c eh a r l y T
o% t a Ql u a
P u r c h a s o er o P r u d r e c r h a s eD i s c o u
L e s s t h a n o 5 r n L o e s s . s, t h a n ,R s . 5 , N0 0 i l0
5 - 1 0 n oo s r . , R s . 5 , 0 0 0 -, 1 0 , 0 u 0 p0 t o 3
1 1 - 1 5 n oo s r . , R s . 1 0 , 0 0 0 , - 1 5 , u0 p0 0t o 6
> 1 5 n o s .o , r > R s . 1 5 , ,0 0 0 u p t o 1 0
CHARACTERISTICS OF MARKET –
ORIENTED ORGANISATIONS
Firms achieve market – orientation by
managing the following factors.
(i) Shared values.
(ii) Organization structure, policies and
culture.
(iii) Strategic Planning.
(iv) Needs or expectations of stakeholders.
H i e r a r c h y o f S t r a t
IM/12-3/19 e g
B e f o r e u n d e r s t a n d i n g t h e r
s h a l l f i r s t e x a m i n e h i e r a r c h
O r g a n i s a t i o On a r l g a n i s a t i o S n t ar la t e g y h
L e v e l s S t r u c t u r e ( T y p e o f M
C o r p o r a t e C o r p o r a t e D i v i s i o n
O f f i c e B u s i n e s s
D i v i s i o n a l / ( S t r a t e g i
B u s i n e s s U n i t M a n a g e m
/ S B U S B U S B U S B U
I I I I I I
F u n
c t i o n
F u n c t i o n a l S t r a t e g y
( O p e r a t i o
P r o d u M c ta i r o k n F e it ni n a g n cM e a n a g e m
IM/12-4/19
The earlier figure shows hierarchy of strategies and
organization structure of a large company.
Strategic management gives a direction to the firm and
focuses on developing strategies to achieve long – term
objectives & goals
A Strategic business unit (SBU) consists of an independent
business or related business that has its own competitors and
specific markets. In some large companies there are (product )
divisions and each division has a divisional plan. Each SBU is
headed by a manager who is responsible for strategic planning
and performance of the SBU.
Operational Management maintains the direction given by
strategic management, and concentrates on day-to-day issues
of costs, revenue and profits.
IM/12-5/19
ROLE OF MARKETING IN STRATEGIC
PLANNING IN A FIRM
C o m p a F n oy r m a lR o l e o f M a r k e t i n g
L e v e l N a m e
C o r p o r T t eo g i v e i n f o r m a t i o n
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c
a l y s i s , f o r d e v e l o p
B u s i n eM s s a r k e t s i t r
n g
a t e g y , i n c l u d i n g c o
U n i t l e v e l a d v a n t a g e , s e g m e n t i n
p o s i t i o n i n g s t r a t e g i e s
T o d e v e l o p s h o r t - t e
M a r k e t i n g
F u n c t iM o n a a n l a g e p m l a n
e n t
a n d s t r a t e g y , c o
r e s o u r c e a l l o c a t i o n .
STRATEGIC PLANNING PROCESS AT
IM/12-6/19
CORPORATE LEVEL
6 4
M a rk e t G ro w th R a te
3 8
C a s h C o w D o g s
S lo w
1 2 7
L a r g e S m a l l
R e l a t i v e M a r k e t S
IM/12-8/19
GE Model : Business Screen Matrix
B u s i n e s s S t r e n g t h
5 H i g h M e d i u m L o w 1
S e l e c t i v
H i g h
E a r n i n g
M e d i u m
L o w
1
IM/12-9/19
• Major Business Strength factors : Market
share, product quality, unit costs, R&D
performance, brand reputation, share growth.
• Major Market Attractiveness factors :
Overall market size, annual market growth
rate, historic profit margin, competitive
intensity, technological requirements.
IM/12-10/19
DEVELOPING CORPORATE
STRATEGIES
• Strategic planning gap. It is the gap
between future (5 years) desired sales and the
projected sales (of all SBUs ) of a company.
D e s i r e d S a l e s
A S t r a t e g i
S a le s
P l a n n i n g
B
P r o je c t e d S a le s
0 T i m e ( Y e a r5 s )
IM/12-11/19
The strategic planning gap can be filled by three alternative
strategies : (A) Diversification growth, (B) Integrative growth,
(C) Intensive growth
(C) Intensive Growth Strategy. Corporate management
should first review existing business, using Ansoff’s product-
market expansion grid, shown hereafter :
C u r r e n t P rNo de wu c tP s r o d u
C u r r eM n ta r k e t P Pe nr o e dt r u a c t it o d n e v
M a r k S e t tr s a t e g y S t r a t e g y
N e w M a r k e t d e ( v D e l i ov pe mr s i e f n i c t a
M a r kS e t r t as t e g y S t r a t e g y )
IM/12-12/19
( B) Integrative Growth Strategy includes
increase in a firm’s sales and profits by
integrating backward, forward, or
horizontally within that industry.
L o w - c o s
I n d u s t r y O v e r a l l c
D i f f e r e n t il ae ta i do en r s h i
w i d e
P a r t i c u l a r
s e g m e n t o n l y F o c u s
IM/12-15/19
Marketing Planning Process
The head of marketing prepares the
marketing plan (short-term up to one
year) after going through “Marketing
Planning Process”, which includes the
following steps :
(i) Analyzing marketing opportunities.
(ii) Segmenting and selecting target
market segments.
(iii) Developing marketing strategies.
(iv) Implementing and controlling the
marketing plan.