Answers of B2B Question Bank

8/17/2019 Answers of B2B Question Bank

1/81

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 evel

!. The "ublic#s evel

3. The $acro Environment evel.

Industrial bu%ers and sellers operate in a d%namic environment& one constantl% posing

new opportunities and threats

'ow well bu%ers and sellers understand the environment within which the% operate& andhow well the% communicate with one another& foretells their capabilities of profiting

from or being damaged b% the environment#s man% surprises and shocks

The effectiveness of the bu%er ( seller interface hinges on monitoring and adapting to or

developing strategies to affect environmental changes that directl% impact either or both

organi)ation

1. The Interface Level

This involves those ke% participants who immediatel% interface with an industrial firm

*bu%er or seller+ in facilitating production& distribution and purchase of firm#s goods

and services. ,uppl% inputs are transformed b% a compan% and its components into outputs with

added value that move on to the end markets This move is made possible b% the firms interface with industrial distributors and

dealers& manufacturers# representatives and the compan%#s own sales people. That move is also made possible b% 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 b% organi)ations

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 industr% affecting

not onl% production and marketing plans but also the production and marketing plans of the suppliers.


2/81

B) istri!utors

• $ost organi)ational bu%ers bu% from five or more industrial distributors.

• Industrial distributors& contact potential bu%ers& negotiate orders& provide buffer

inventories& credit and technical advice to potential bu%ers.

• The% are particularl% important when -oint demand is present because the% bring

together the heterogeneous inputs needed for the production of end products.

") #acilitators

• dvertising agencies and public relations firms provide the necessar% communication

flow between the sellers and bu%ers through the formulation of meaningful information

and media strategies.

• The use of advertising in reaching potential bu%ers and the multitude of bu%ing

influencers is vital in the overall communication strateg%.

• 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

the% are re/uired.

• 0hen goods are not delivered on time and in usable conditions& bu%ers can be forced to

shut down production lines.

• esources as the% move from the suppl% inputs to end users must be financed and

insured.

) "o$petitors

• 2ompetitor#s actions whether domestic or foreign& ultimatel% influence the compan%#s

choice of target markets& distributors& product mix& and in fact its entire marketing

strateg%.

2) The Pu!lics Level

• "ublics are distinct groups that have actual or potential interest or impact in each firm#s

abilit% to achieve its respective goals.

• "ublics have the abilit% to help or hinder a firms effort to serve is markets.

#inancial Pu!lics

• inancial institutions such as investments firms and stock brokerage firms and

individual stakeholders invest in an organi)ation on its abilit% to return profits

• 0hen the% become unhapp% with the management or dissatisfied with a compan%#s

social policies the% sell their shares.


3/81

In%epen%ent Press

• Industrial organi)ations must be accuratel% sensitive to the role that the mass media

pla% and how the% can affect the achievement of the marketing ob-ectives.

• The independent press is capable of publishing news that can boost or destro% the

reputation of a firm as well as the sales potential of a product.

Pu!lic Interest &roups

• Industrial marketing decisions are increasingl% affected b% public interest groups.

• These various public interest groups limit the freedom of the suppliers and bu%ers in the

industrial market.

• 0hile some organi)ations respond b% fighting& others accept these groups as another

variable to be considered in developing strategic planning.

• 0orking through public affairs departments to determine their interests and to express

favorabl% the compan%#s goals and activities in the press.

• The impact of these groups however is felt b% all participants in the interface level.

&eneral Pu!lic

• lthough the general public does not react in an organi)ed wa% towards a firm or an

industr%& as interest groups do& when si)eable portion of a population shifts attitudetowards a firm or industr%& there is definite impact.

Internal Pu!lic

• The board of directors and managers as well as blue and white collar workers are

important emissaries between an organi)ation and other participants in the interface and

public levels.

• 2orporate polic% must give consideration to emplo%ees and others who are held

responsible for the overall operation of the firm.

• Emplo%ee morale is an important factor in all business decisions. nd when morale is

low& organi)ational efforts suffer.

• firms emplo%ees spend more than two thirds of their time off the -ob& interacting with

their families and the communit%& so emplo%ee#s attitudes do influence the public.

') Macro (nviron$ent


4/81

This level of the organi)ation is made up of components that have less specific and less

immediate implications for managing the organi)ation effectivel%.

1. (cono$ic co$ponent

Economic conditions greatl% influence an organi)ations abilit% and willingness to bu% and sell.

Thus emerging changes in the economic environment both at home and abroad& must beclosel% monitored. It includes the following factors4

Inflation rates

5alance of pa%ment position

Debts and spending

Taxation rates

Interest rates

2onsumer#s income

2orporate profits

2. Social co$ponent

This describes the characteristics of the societ% where an organi)ation exists. It includes factors

such as4

iterac% levels

6alues of people

Educational levels

7eographical distribution

2ustoms and believes

'. Legal co$ponent

This consists of legislation#s that have been passed. It describes the rules or the laws that all the

compan% members must follow. The% include all laws affecting the organi)ation e.g.

2onsumer health polic%

Energ% policies and conservation cts

Emplo%ment cts& etc.

. Political co$ponent

2omprise those elements related to the government affairs. This includes4

T%pe of government

7overnment attributes towards certain issues

obb%ing efforts from interest groups

"rogress towards passing of laws affecting certain industries& etc.

*. Technological co$ponent


5/81

7iven the rate of technological change in industries such as telecommunications& computers&

and semiconductors& large bu%ing firms are developing forecasting techni/ues to enable them

to estimate time periods in which ma-or technolog% developments might occur. $arketers must

also monitor technological change if the% hope to adapt marketing strateg% with sufficient

speed and accurac% to make the more scientific breakthroughs. This includes4

8ew procedures pproaches to new plan of goods and services

ddresses the issues of new e/uipments and new wa%s of improving production

through the use of computers 9robots.

+. e$ographic co$ponent

Industrial firms cannot ignore the demographic environments because of the derived nature of

industrial demand. 0orld population explosion and changing population structure of the worldhas a ma-or impact on industrial demand


6/81

2 ,hat is In%ustrial Marketing an% ho- is it %ifferent fro$ "onsu$er Marketing

efinition /f In%ustrial Marketing

• The word Industrial $arketing is also treated as 5usiness:to:5usiness $arketing& or

5usiness $arketing& or ;rgani)ational $arketing.

• Industrial marketing9business marketing is to market the products and services to

business organi)ations& manufacturing companies& government undertakings& private

sector organi)ations& educational institutions& hospitals& distributors& and dealers.

• The business organi)ations& bu% products and services to satisf% man% ob-ectives like

production of goods and services& making profits& reducing costs and so on.

• The industrial markets are geographicall% concentrated4 the customers are relativel%

fewer4 the distribution channels are short4 the bu%ers *or customers+ are well informed4

the bu%ing organi)ations are highl% organi)ed

• Industrial marketing is more a responsibilit% of general management in comparison to

consumer marketing.

ifferent fro$ "onsu$er Marketing

S .

0.Areas In%ustrial Market "onsu$er Market

1 $arket

2haracteristics

7eographicall% concentrated

elativel% fewer bu%er bu%ers

7eographicall% disbursed

$ass market

2 "roduct

2haracteristics

Technical complexit%

2ustomi)ed

,tandardi)ed

' ,ervice

2haracteristics

,ervice& timel% delivered <

availabilit% ver% important

,ervice& timel% delivered

< availabilit% somewhat

important

5u%er

5ehaviour

Involvement of various functional

areas in both bu%er < supplier firms

"urchase decisions are mainl% made

on rational9performance basis

Technical expertise ,table interpersonal relationship

between bu%ers < sellers

Involvement of famil%

members

"urchase decisions are

mostl% made on

ph%siological9social9 ph%siological needs

ess technical expertise

8on:personal relationship

* 2hannel

2haracteristics

$ore direct

ewer intermediaries9middlemen

Indirect

$ultiple la%ers of

intermediaries

+ "romotional

2haracteristics

Emphasis on personal selling Emphasis on dvertising

"rice2haracteristics

2ompetitive bidding < negotiated

prices

ist prices for standard products

ist prices or maximumretail price *$"+


7/81

Difference between Industrial and 2onsumer $arketing

1) Market "haracteristics

,ignificant differences exist between industrial and consumer market is the characteristics of

both market that affect the nature of marketing.

These differences are=

Sie of the Market

• 2ompared 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 !> companies to represent the total market for an industrial product or service.

In fact& onl% three or four customers ma% comprise the ma-or portion of a total market.

• urther& in industrial arena& oligopolistic bu%ing organisations *ver% large firms+ tend to

dominate man% markets such as& large power transformers or high:tension switchgears&there are limited numbers of customers:mainl% ,tate Electricit% 5oards& large private

and public sector organisations. 0hile there are relativel% few industrial customers&

the% are larger in si)e& purchase larger /uantities& and engage in this volume purchasing

on a repeat basis.

&eographical "oncentration

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

• ,uch concentration occurs mainl% because of natural resources and manufacturing

processes.

• or example& the geographic location of natural resources explains the concentration

patterns of most energ%:producing firms.

• $anufacturers 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 ,ilicon 6alle% in 5anglore. ,uch locations are chosen to attract intelligent&

educated emplo%ees.

2) Pro%uct 3 Service "haracteristics

• In industrial marketing& the products or services are generall% technicall% complex and

not purchased for personal use.

• The% are purchased as components parts of the products and services to be produced or

serve the operations of the organisations.

• 5ecause of the importance given to the technical aspects of products& the purchases are

made based on the specifications.

• s compared to consumer marketing& industrial customers place greater importance onservice& that is& timeliness& certaint% in deliver% or availabilit% of product.


8/81

') Bu4er Behavior

• In industrial marketing& the bu%ing process is more difficult as compared to consumer

marketing.

• The purchase decisions in industrial marketing are based on man% factors& such as

compliance with product specifications product /ualit%& availabilit%& timel% suppl%&acceptable pa%ment and other commercial terms cost effectiveness& after:sales service&

and so on

• The bu%ing decisions generall% take a longer time and involve man% individuals from

technical& commercial9materials& and finance departments.

• fter the initial offer made b% a seller& there are negotiations and exchange of

information between the specialists and representatives from both the bu%er and the

seller organisations.

• Therefore& inter:organisational contacts take place and interpersonal relationships are

developed.

• The relationships between the sellers and bu%ers are highl% valued and the% become

stable in the long run because of a high degree of interdependence.

) "hannel "haracteristics

"hannel %istri!ution in In%ustrial an% "onsu$er $arket

• Inventor% or stock control is ver% much important factor in the business organisations

therefore the distribution channels are needed more direct from the manufacturer to the

customer in industrial marketing.

• ;ften& the manufacturers use their own sales9marketing personnels to sell the products

directl% to ma-or customers. 5ut& in case of selling to small:scale customers or


9/81

geographicall% scattered markets& man% manufacturers use either distributors9dealers& or

agents9representatives& which also helps in minimi)ing the cost of marketing.

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

levels of intermediaries9middlemen& since the household consumers are geographicall%

dispersed all over the countr%.

*) Pro$otional "haracteristics

• 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

compan%@s sales force. s a result& a much larger expenditure budget is provided for

advertising in consumer marketing in comparison to industrial marketing.

• dvertising is used to la% a foundation for the sales call rather than serve as the primar%

communication tool

• ,ales people act more as consultants and technical problem solvers& utili)ing in:depth

product knowledge and technical understanding of the bu%ers@ needs& whereas

industrial advertising normall% stresses more factual and technical data.

• ,ales promotion activities tend to center on trade shows& trade fairs& catalogs and

conducting technical seminars

+) Price "haracteristics

• In consumer marketing the products are sold through the intermediaries9middlemen to

the consumers& based on the A"rice ist of the manufacturer or the maximum retail

price *$"+ for the packaged products. ,ometimes& the retailer reduces the price b%

passing on to the consumer a part of his discount due to different degrees of intensit% of

the competition.

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

2ompetitive bidding and price negotiations are ver% common in industrial marketing

and financing arrangements are often considered part of pricing package


10/81

' ,hat are the ' t4pes of Bu4ing situations in In%ustrial Marketing

1. 0e- Purchase

The industrial bu%ers bu% the item for the first time in this situation. The need for a new

purchase ma% be due to internal or external factors. or example& when a firm decides to

diversif% into new purchase situations the bu%ers have limited knowledge and lack of previousexperience. Therefore& the% have to obtain a variet% of information about the product& the

suppliers& the prices and so on. The risks are more& decisions ma% take longer time& and more

people are involved in decision making in the new purchase decisions.

2. "hange 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 /ualit% improvement. The change in supplier

ma% also be necessar% if technical people in the bu%ing organi)ation ask for changes in the

product specification& or marketing department asks for redesigning the product to gain somecompetitive advantage. s a result& search for information about alternative sources of suppl%

becomes necessar%. Even though& certain attributes or factors can be used to evaluate the

suppliers. There ma% be uncertaint% regarding the supplier who can best meet the needs of the

bu%ing firm. Therefore& the modified re:bu% situation occurs mostl% when the bu%ing firms are

not satisfied with the performance of the existing suppliers.

'. 5epeat Purchase

If the bu%ing organi)ation re/uires certain products or services continuousl%

and products9services had been purchased in the past then the situation of repeat purchase

occurs. In such a situation& the bu%ing organisation reorders9places repeat orders with the

suppliers who are currentl% suppl%ing such items. This means that the product& the price& the

deliver% period& and the pa%ment 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 b% a

-unior executive in the purchase department. 7enerall%& the bu%ing firms do not change the

existing suppliers if their performance is satisfactor%.


11/81

,hat are the roles of Bu4ing "entre $e$!ers in In%ustrial Marketing

Different $embers of the 5u%ing 2entre of an ;rganisation are as follows= 1. Initiators !.

Bsers 3. 5u%ers C. Influencers . Deciders . pprovers F. 7ate Geepers.

bu%ing centre is comprised of all those individuals and groups who participate in the bu%ing

decision:making process& who share some common goals and the risks arising from thesedecisions. 5efore identif%ing the individuals and groups involved in the bu%ing decision

process& a marketer must understand the roles of bu%ing centre members. Bnderstanding the

bu%ing centre roles helps industrial marketers to develop an effective promotion strateg%.

0ithin an% organisation& the bu%ing centre will var% in the number and t%pe of participants for

different classes of products. 5ut on an average a bu%ing center of an organisation has the

following seven members or a group of members who pla% these roles=

1. Initiators6

Bsuall% the need for a product9item and in turn a supplier arises from the users. 5ut there can

be occasions when the top management& maintenance or the engineering department or an%

such recognise or feel the need. These people who Hinitiate or start the bu%ing process are

called initiators.

2. 7sers6

Bnder this categor% come users of various products. If the% are technicall% sound like the


12/81

*. eci%ers6

mong the members& the marketing person must be aware of the deciders in the organisation

and tr% 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.

7enerall%& for routine purchases& the purchase executive ma% be the decider. 5ut for high valueand technicall% complex products& senior executives are the deciders. "eople who decide on

product re/uirements9specifications and the suppliers are deciders.

+. Approvers6

"eople who authorise the proposed actions of deciders or bu%ers are approvers. The% could

also be personnel from top management or finance department or the users.

. &ate 8eepers6

gatekeeper is like a filter of information. 'e is the one the marketer has to pass through before he reaches the decision makers.

Bnderstanding the role of the gatekeeper is critical in the development of industrial marketing

strategies and the salesperson#s approach. The% allow onl% that information favourable to their

opinion to flow to the decision makers.

5% being closest to the action& purchasing managers or those persons involved in a bu%ing

centre ma% act as gatekeepers. The% are the people whom our industrial marketer would first

get in touch with. 'ence& it so happens that information is usuall% routed through them.


13/81

* ,hat are the various t4pes of In%ustrial "usto$ers

• The industrial market is composed of commercial enterprises& governmental

organisations& and institutions whose purchasing decisions var% with the t%pe of

industrial good or service under consideration.

• Effective marketing programs depend upon a thorough understanding of howmarketing strateg% differs with the t%pe of organisation.

• The industrial market is characteri)ed b% both in customers served and products sold.

• 2omponent parts& spare parts& accessor% e/uipment& and services are example of the

t%pes of products purchased b% the variet% of customers in the industrial market.

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

commercial businesses& government& and institutions bu% a variet% of products that& in

one wa% or another& are important to the functioning of their businesses.

T9P(S /# I07ST5IAL "7ST/M(5S

Industrial customers are normally classifed into our groups:

1 "o$$ercial (nterprises

In%ustrial %istri!utors

• Industrial distributors and dealers take title of goods& thus the% are the industrial

marketer@s intermediaries

The intermediaries not onl% serve the consumer market but also serve other business

enterprises .

The% purchase industrial goods and resell them in the same form to other industrial

customers.


14/81

/riginal (:uip$ent Manufacturers ;/(Ms)

These industrial customers purchase industrial goods to incorporate ;E$s into the

products the% produce.

t%re manufacturer *sa%& $+& who sells t%res to a truck manufacturer *Tata $otors+&

would consider the truck manufacturer as an ;E$.

Thus& the product of the industrial marketer *$+ becomes a part of the customer@s

*Tata $otors+ product.

7sers

n industrial customer& who purchases industrial products or services& to support its

manufacturing process or to facilitate the business operations is referred as a user.

or 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.

,ometimes there ma% be overlapping of categories means a manufacturer can be a user

or an ;E$. or example& a car manufacturer bu%s a drilling machine to support the

manufacturing operation and is referred to as a user. The same car manufacturer also

bu%s batteries which is incorporated into cars and hence& it can be also referred to as an

;E$

2 &overn$ental Agencies

In India& the largest purchasers of industrial products are 2entral and ,tate 7overnment

departments& undertakings& and agencies& such as railwa%s& department of

telecommunication& defense& Director 7eneral of ,upplies and Disposal *D7,


15/81

'. Institutions

"ublic and private institutions such as hospitals& schools& colleges& and universities are

termed as institutional customers.

,ome of these institutions have rigid purchasing rules and others have more flexible

rules.

n industrial marketing person needs to understand the purchasing practice of each

institute so as to be effective in marketing the products or services

. "o


16/81

+ Briefl4 e=plain the !roa% groups in -hich the In%ustrial pro%ucts are

classifie%

The industrial products and services are classified into three broad groups=

$aterials and parts

2apital items

,upplies and services

1) Materials an% Parts

7oods that enter the product directl% consist of Raw materials, Manufactured materials, and

Component parts.

5a- Materials6

These are the basic products that enter in the production process with little or no

alternations. The% ma% be marketed as either ;E$s or user customer. or instance&

when a large baker% purchases natural gas to fire the ovens that are used to produce

cakes& it is a user customer. 0hen the same firm purchases sugar for cake making& it is

an ;E$.

Manufacture% Materials6

$anufactured materials include those raw materials that are sub-ected to some amount

of processing before entering the manufacturing process e.g.& cids& fuel oil& and steel

that are the basic ingredients of man% manufacturing activities

"o$ponent Parts 6

2omponent parts such as electric motors& batteries and instruments can be installed

directl% into products with little or no additional changes.0hen these products are sold to customers who use them in their production processes&

the% are marketed as ;E$ goods.The component parts are also sold to the dealers or distributors& who resell them to the

replacement market.or example& $I2; spark plugs are sold to a truck or car manufacturer& as well as to

automotive dealers9distributors throughout India.


17/81

2) "apital ite$s

2apital items are used in the production processes and the% wear out over certain time frame.

7enerall% the% are treated as a depreciation expense b% the bu%ing firm or user customers.

Installations>?eav4 (:uip$ent 6

Installations are ma-or and long:term investment items such as factories& office

buildings and fixed e/uipments like machines& turbines& generators& furnaces& and earth

moving e/uipment.

Accessories>Light (:uip$ent6

ight e/uipment 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 an% Buil%ings6

These are the real estate propert% of a business9 organisation. It includes the firm@s

offices& plants *factories+& warehouses& housing& parking lots& and so on.

') Supplies an% Services

,upplies and services sustain the operation of the purchasing organisation. The% do not become

a part of the finished product. The% are treated as operating expenses for the periods in which

the% are consumed

Supplies6 Items such as paints& soaps& oils and greases& pencils& t%pewriter ribbons&

stationer% and paper clips come under this categor%. 7enerall%& these items are

standardi)ed and marketed to a broad section of industrial users.

Services6 2ompanies need a broad range of services like building maintenance

services& auditing services& legal services& courier services& marketing research services

and others.


18/81

(=plain the purchase practices a%opte% !4 In%ustrial "usto$ers

Purchasing Practices /f In%ustrial "usto$ers

The industrial marketers market industrial goods or services to different t%pes of

customers such as commercial enterprises& governmental customers& and institutionalcustomers.

or effective marketing of industrial products& it is significant to know the purchasing

practices generall% followed b% the various t%pes of industrial customers.

Purchasing in "o$$ercial (nterprises

The purchasing practices depend upon the nature of business and the si)e of the

commercial enterprise as well as the volume& variet%& and technical complexit% of the

products purchased. In large and medium si)e organi)ations& the purchase decision makers are involved

from different departments vi). production& materials& /ualit%& finance9cost accounting&

engineering& and also senior management executives. Industrial bu%ers use the techni/ues vi). material planning& supplier rating s%stem&

economic order /uantit%& value anal%sis and so on. $aterials9purchase managers are professionals and are well informed about price

trends& commercial matters& and negotiating skills.

Purchasing in &overn$ent 7nits

7overnment units are the largest purchasers of industrial goods and services.

To compete successfull% and to get more business& an industrial marketer must

understand the complexities involved in selling to 7overnment units.

There are man% centers where ,tate and 2entral 7overnment units bu% a variet% of

products re/uired b% railwa%s& department of telecommunications& state electricit%

boards& state transport undertakings& defense units& and so on.

D7,


19/81

Institutional bu%ers are either the 7overnment or the private organisations.

If it is a 7overnment hospital or college then it normall% follows the 7overnment

purchase procedures. 'owever& in cases of privatel% owned educational or other t%pe of institutions& the

purchase procedures are similar to those followed b% commercial enterprises.

Industrial marketer should stud% the purchasing practices of each institutional bu%er

so as to be effective in marketing the compan%@s goods or services

Purchasing in "ooperative Societies

Industrial marketers should stud% the purchasing practices of each cooperative societ%

in order to become effective in marketing their goods and services.

or example& the cooperative sugar factories in $aharashtra and B.". ma% adopt

different bu%ing practices while purchasing sugar machiner%& pump sets& compressors&

etc.

0hile making purchase decisions& their emphasis on the factors vi). /ualit%& deliver%&

price& pa%ment terms& service and long:term relationship with suppliers& also affect the

purchase decision under consideration


20/81

@ ,hat is erive% %e$an% in In%ustrial Marketing e=plain -ith suita!le

e=a$ples.

• The demand for Industrial goods is ultimatel%

derived from the demand of consumer goods.

• Thus animal hides are purchased because

consumers want to bu% 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.

• or this reason the industries must closel% monitor the bu%ing pattern of ultimate consumers.

• The demand for steel and cement does not exists in itself. It is demand for constructed houses which

are purchased b% customers.

• The boom in apartments and flats in the mid J>#s led to the surge in demand for those products.

• Thus a forecast of the real estate scenario in general and construction industr% in particular has to be

monitored& to understand the demand for steel and cement.

• In case of capital goods such as e/uipment and machiner% that are used to produce other goods the

purchases are made not onl% for the cement re/uirements but also in anticipation of profits from the

future usage.

• Thus if the businessman foresee or feel that there ma% be a recession in near future& their purchaseswill be drasticall% curtailed.

• During the process of recession or reduced consumer demand& industrial firms reduce their inventories

or reduce production or both.

• ;n the other hand during the period of prosperit% there is an increased production and sales of

consumer goods& which results in an increased demand for industrial goods.

• n industrial marketing firm must be in close touch with customers& purchase& finance& /ualit%

standards etc. so as to get information on changes in customers demand.

• 0e- ?ousing e$an%= Is a great leading indicator not onl% for construction -obs but also for all

kinds of building materials and derived demand for appliances like cooking ranges& refrigerators etc.

• n% business suppl%ing parts to appliance makers can expect an increase in demand.

• igitiation an% services %e$an%= s more and more activities have an increased digital component&

%ou hear of the need for programming skills to write and modif% domain specific software programs.

• These are derived demand scenarios that can be useful to software providing firms& education and

training providers as the% tr% to map out the opportunities of the future


21/81

,hat are the various t4pes of %e$an%s in In%ustrial 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 -oint in nature.

• Koint demand occurs when the demand for a product depends upon its use in

con-unction with another product or products

• 2ross elasticit% of demand exists in both markets& it is more important in Industrial

marketing since it can have a ma-or effect on a firm#s overall corporate strateg%.

The e$an%s for In%ustrial Marketing are as follo-s6

erive% %e$an%

Sti$ulating in%ustrial %e$an%

Coint e$an%

#luctuating e$an%

Inelastic %e$an%

"ross elasticit4 of %e$an%

1) erive% %e$an%

• The demand for industrial products and services does not survive b% itself. It is derived

from the ultimate demand for consumer goods and services.

• Industrial demand is called derived demand.

• Industrial customers bu% goods and services for making use in producing other goods

and services and finall% produced product9service sold to the consumers.

• In industrial marketing& the demand for industrial goods and services is derived from

consumer goods and services. or example& the demand for precision steel tubes does

not exist in market. It is demanded for the production of bic%cles& motorc%cles&scooters& which are consumed b% the consumers.

2) Sti$ulating In%ustrial e$an%

• 5ecause of the nature of industrial demand the influence of final consumer is well

recognised.

• ;ne wa% which industrial marketers attempt to increase sales is b% stimulating

increases in demand of ultimate consumers.


22/81

• 5% 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.

') Coint %e$an%

• Koint 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.

• Koint demand occurs when one product re/uires the existence of others.

• $ost products re/uire several components& parts or ingredients.

• Example4 baker% re/uires flour& salt& preservatives& %east in the production of bread.

If one of the ingredients cannot be obtained other purchases will be curtailed or

discontinued.

• Koint demand situations can also be affected b% changes in product specifications.

• Industrial customers often prefer to bu% from one supplier rather than purchase

individual products from different suppliers.

• The individual products re/uired do not have individual demand& but are demanded

onl% if the Hother products are available in the supplier line.

) #luctuating e$an%

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

for consumer goods and services.

• This is especiall% true of the demand for new plant and e/uipment.

• given percentage increase in consumer demand can lead to much larger percentage

increase in the demand for plant and e/uipment necessar% to produce the additional

output.

• Economists refer to this effect as the acceleration effect.

• ,ometimes a rise of onl% 1>L in consumer demand can cause as much as !>>L

Industrial demand for products in the next period.

• This sales volatilit% has led man% business marketers to diversif% their products and

markets to achieve more balanced sales over the business c%cle.


23/81

*) Inelastic e$an%

• The total demand for man% Industrial goods and services is inelastic that is not much

affected b% price changes.

• ,hoe manufacturers are not going to bu% much less leather if the price of leather rises

unless the% can find satisfactor% leather substitutes.

• Demand is especiall% inelastic in the short run because producers cannot make /uick

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.

+ "ross (lasticit4 /f e$an%

• 2ross elasticit% 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 strateg% of an Industrial firm.

• 2ross elasticit% for substitutes is alwa%s positive i.e. the price of one good and the

/uantit% demanded of the other alwa%s move in the same direction.

• The more positive is this ratio the larger the cross elasticit% and more definite it is that

the products compete in the same market.

• 2ross elasticit% for complements in negative:price and /uantit% move in opposite

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

• or example the /uantit% of granite re/uired 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 likel% to be affected

b% 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 the% are close substitutes. part from other advantages of aluminumdoors and windows& the cost comparison with steel and wooden door and window

frames pla% an important role in the purchase decisions in the construction of houses&

commercial offices& factories& hotels& hospitals& and so on


24/81

1D ,hat are the ke4 co$ponents of the In%ustrial Pricing Process

Ge% 2omponents of the Industrial "ricing "rocess

/!Eectives of Pricing6

The pricing polic% of the firm ma% var% from firm to firm depending on its ob-ective. or

pricing decision& one has to define the price of the product ver% carefull%. "ricing 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. "ricing decisions are usuall% considered a part of the general strateg% for achieving a

broadl% defined goal.

ii) e$an%6

In pricing of a product& demand occupies a ver% important place. In fact& demand is more

important for effective sales. The elasticit% 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. ;n

the other hand& it the demand is elastic& it has to fix a lower price.

In the ver% short term& the chief influence on price is normall% demand. $anufacturers of

durable goods alwa%s set a high price& even though sales are affected. If the price is too high& it

ma% also affect the demand for the product. The% wait for arrival of a rival product with

competitive price. Therefore& demand for product is ver%# sensitive to price changes.

;iv) "o$petition #actor in Pricing6


25/81

$arket situation pla%s an effective role in pricing. "ricing polic% 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. The% have to accept the

price fixed b% demand and suppl%.

In monopol%& the producer fixes a high price for his product. In other market situations like

oligopol% and monopolistic competition& the individual producers take the prices of the rival products in determining their price. If the primar% determinant of price changes in the

competitive condition is the market place& the pricing polic% can least be categorised as

competition based pricing.


26/81

11 ,hat is the %ifference !et-een 5elevant an% Sunk "ost (=plain -ith

e=a$ple.

,unk costs and relevant costs are two distinctive t%pes of costs that firms fre/uentl%

incur in the running of businesses. ,unk costs and relevant costs both result in an

outflow of cash and can reduce the firm#s income and profitabilit% levels. Despite the

fact that the% both incur a cost to the firm& there are a number of ma-or differences

between sunk cost and relevant cost& in terms of the timeline in which each is incurred&

and the impact that the% have on making future decisions.

,hat is Sunk "ost

,unk costs refer to expenses that have alread% been incurred and arose as a result of decisions

taken in the past. ,unk costs are a t%pe of irrelevant cost. Irrelevant costs are costs that do not

influence managerial decision making as the% are a thing of the past. ,ince these costs and

investments have alread% been made the% 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 pro-ect

or investment.

simple example of a sunk cost is= a compan% purchases a software program for M1>>.

'owever& the program does not work as the compan% intended to use it& and the seller does not

offer an% refunds and does not accept an% returns. In this case& the M1>> is a cost that has

alread% 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

wa% in which these costs can be reversed or recovered.

,hat is 5elevant "ost

elevant costs are the costs that are able to impact and influence management decisions.

elevant costs will differ depending on the alternatives and options that a compan% has to

choose among. ;ther features of relevant cost are that these costs are avoidable in the event

that the decision is not taken& can result in opportunit% costs to a firm and are incremental costs

between the various options under consideration.

5usinesses 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 compan%#s future. elevant costs greatl% influence a compan%#s future

business activities and& therefore& must be considered when making business decisions. 0hile

taking relevant costs into consideration when making short term decisions can be useful&

caution must be exercised when onl% considering relevant costs for long:term financial

decisions. This is because relevant costs onl% consider the most immediate costs that affect

future cash flows and decisions and do not cover costs that have been incurred over time.

Example


27/81

ubber Tire 2ompan% *T2+ received a re/uest to provide a price /uote for an order for the suppl% of

1>>> custom made tires re/uired for industrial vehicles. T2 is facing stiff competition from its

business rivals and is therefore hoping to secure the order b% /uoting the lowest price. T2 plans to

/uote a price at 1>L less due to this above its relevant cost

,hat is the %ifference !et-een Sunk "ost an% 5elevant "ost

,unk costs and relevant costs are both expenses that result in an outflow of cash and reduce a

firm#s income and profitabilit%. ,ince sunk costs are incurred in the past& the% are a t%pe of

irrelevant cost that do not affect future cash flows and& therefore& are not considered when

making decisions about a firm#s future. ;n the other hand& relevant costs are costs that will be

incurred in the future& as a result of a decision made presentl% 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 /uoted should offer a sufficient margin tocover 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.


28/81

12 ,hat is /perating Leverage an% e=plain the sa$e -ith e=a$ples

/perating leverage is the ratio of a compan%s fixed costs to its variable costs.

;perating leverage measures a compan%#s fixed costs as a percentage of its total costs. It is

used to evaluate the breakeven point of a business& as well as the likel% profit levels on

individual sales. The following two scenarios describe an organi)ation having high operatingleverage and low operating leverage.

1. High operating leverage. large proportion of the compan%#s 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 entit%

will earn a ma-or profit on all sales after it has paid for its fixed costs.

#or e=a$ple a software compan% has substantial fixed costs in the form of developer

salaries& but has almost no variable costs associated with each incremental software

sale4 this firm has high operating leverage.

!. Low operating leverage. large proportion of the compan%#s sales are variable costs&

so it onl% 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 t%pe of compan% to earn a profit at low

sales levels& but it does not earn outsi)ed profits if it can generate additional sales.

2onversel%& a consulting firm bills its clients b% the hour& and incurs variable costs in

the form of consultant wages. This fir$ has lo- operating leverage.

To calculate operating leverage& divide an entit%#s contribution margin b% its net operating

income. The contribution margin is sales minus variable expenses.

or example& the 52 compan% has the following financial results=

evenues M1>>&>>>

6ariable expenses 3>&>>>

ixed expenses >&>>>

8et operating income M1>&>>>

52 has a contribution margin of F>L and net operating income of M1>&>>>& which gives it adegree of operating leverage of F. 52#s sales then increase b% !>L& resulting in the followingfinancial results=


29/81

52#s sales then increase b% !>L& resulting in the following financial results=

evenues M1!>&>>>

6ariable expenses 3&>>>

ixed expenses >&>>>

8et operating income M!C&>>>

The contribution margin of F>L has sta%ed the same& and fixed costs have not changed.

5ecause of 52#s high degree of operating leverage& the !>L increase in sales translates into a

greater than doubling of its net operating income.

0hen 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. firm must be especiall% careful

to forecast its revenues carefull% in such situations& since a small forecasting error translates

into much larger errors in both net income and cash flows.

Gnowledge of the level of operating leverage can have a profound impact on pricing polic%&

since a compan% 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 full% offset its fixed costs.


30/81

1'. ,hat are the factors responsi!le for the failure of 0P in In%ustrial

Marketing

actors responsible for ailure of 8"D in I$.

• 8ew products do not satisf% the needs of potential customers or

• $a% be due to poor coordination of


31/81

on 1:1> scale& 1 being outstanding and 1> being ver% poor in the rating. ll production and

marketing attributes of the potential product is scrutinised before taking a suitable decision.

iii. "oncept Testing6

2oncept testing presents the consumers with a proposed product and measures attitudes and

intuitions at an earl% stage of the new:product planning process. 2oncept testing is a /uick&inexpensive wa% to assess consumer enthusiasm. It asks potential consumers to react to a

picture& written statement or oral product description. This lets a compan% learn initial attitudes

poor to costs& time:consuming product development.

iv. Business Anal4sis6

5usiness anal%sis involves the detailed review& pro-ection and evaluating of such factors as

consumer demand& production costs& marketing costs& break:even points& competition& capital:

investments& and profitabilit% for each potential near product. 5ecause the next& step is

experience and time:consuming product development& critical use of business anal%sis isessential to eliminate undesirable items.

v. Pro%uct evelop$ent6

In product development& an idea for a new product is converted into a tangible form and a basic

marketing strateg% is identified.

vi. Test Marketing6

This step involves placing a full% developed product in one or more selected areas or )ones and

observing its actual performance under a proposed marketing plan. The purpose is to evaluatethe product and plan marketing efforts in a real setting prior to a full product launch. Test

marketing re/uires several @decisions such asNwhen and where to test& how long to test and

what test results are re/uired etc.

vii. "o$$ercialiation6

Bnder this stage the product is introduced to its target market b% adopting full scale production.

2ommerciali)ation ma% re/uire large planned capital investment and long term commitment.


32/81

1* ,hat is Pro%uct Lifec4cle Manage$ent in 0P

Kust about all manufactured products have a limited life& and during this life the% will pass

through four product life c%cle stages4 Introduction& 7rowth& $aturit% and Decline. In each of

these stages manufacturers face a different set of challenges. "roduct life c%cle management is

the application of different strategies to help meet these challenges and ensure that& whatever

stage of the c%cle a product ma% be going through& the manufacturer can maximi)e sales and

profits for their product.

Pro%uct Life "4cle Manage$ent

To effectivel% manage the product life c%cle& organisations need to have a ver% strong focus on

a number of ke% business areas=

evelop$ent= 5efore a product can begin its life c%cle& it needs to be developed. esearch and

new product development is one of the first and possibl% most important phases of the

manufacturing process that companies will need to spend time and mone% on& in order to make

sure that the product is a success.

#inancing= $anufacturers will usuall% need significant funds in order to launch a new product

and sustain it through the Introduction stage& but further investment through the 7rowth and

$aturit% stages ma% be financed b% the profits from sales. In the Decline ,tage& additional

investment ma% be needed to adapt the manufacturing process or move into new markets.

Throughout the life c%cle of a product& companies need to consider the most appropriate wa% to

finance their costs in order to maximi)e profit potential.

Marketing= During a product#s life& companies will need to adapt their marketing and

promotional activit% depending on which stage of the c%cle the product is passing through. s

the market develops and matures& the consumers attitude to the product will change. ,o the

marketing and promotional activit% that launches a new product in the Introduction ,tage& will

need to be ver% different from the campaigns that will be designed to protect market share

during the $aturit% ,tage.

Manufacturing= The cost of manufacturing a product can change during its life c%cle. To

begin with& new processes and e/uipment mean costs are high& especiall% with a low sales

volume. s the market develops and production increases& costs will start to fall4 and when

more efficient and cheaper methods of production are found& these costs can fall even further.


33/81

s well as focusing on marketing to make more sales and profit& companies also need to look

at wa%s of reducing cost throughout the manufacturing process.

Infor$ation= 0hether it#s 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 an% product. $anufacturers that efficientl%

manage their products along the product life c%cle curve are usuall% those that have developed

the most effective information s%stems.

$ost manufacturers accept their products will have a limited life. 0hile there ma% not be much

the% can do to change that& b% focusing on the ke% business areas mentioned& product life c%cle

management allows them to make sure that a product will be as successful as possible during

its life c%cle stages& however long that might be.


34/81

1+. ,hat are the %ecision stages in %eveloping the B2B A%vertising

progra$

1) S(TTI0& T?( /BC("TIF(S

setting advertising ob-ectives is the first step indeveloping an advertising program. These

ob-ectives should be based on target market&

positioning& and marketing mix& which define the

-ob that advertising must do in the total

marketing program. n advertising ob-ective is a

specific communication task to be accomplished

with a specific target audience during a specific

period of time. dvertising ob-ectives can be

classified b% primar% purpose as=

1+ Informative advertising=

The prime ob-ective of the advertising is to inform the existing and potential customers about

the product.

!+ "ersuasive advertising=

It aims to create liking preference& conviction and purchase of a product or service. "ersuasion

will create demand of the product.

3+ eminder advertising=

It aims to simulate repeat purchase of products and services.

This will remind the customers that the product ma% be needed in the near future.

C+ einforcement advertising=

It aims to convince current purchases that the% made the right choice.

2) AF(5TISI0& B7&(T.

fter determining advertising ob-ectives the compan% next sets its advertising budget for each

product.

,pecific factors that should be considered when setting the advertising budget.

1+ ,tage in the product life c%cle= 8ew products t%picall% need large advertising 5udgets to build awareness and to gain

consumer trial. $ature brands usuall% re/uire lower budgets as the ratio to sales.


35/81

!+ $arket share and consumer base=

'igh market share brands usuall% needs more advertising spending as a person of sales than do

low market share brands. 5uilding the market or taking share from competitor re/uires larger

advertising spending than does simpl% maintaining current share.

3+ 2ompetition and clutter=

In a market with man% competitors and high advertising spending& a brand must advertise more

heavil% to be notices above the noise in the market.

C+ dvertising fre/uenc%=

when man% repetitions are needed to present the brand#s message to consumers& the advertising

budget must be larger.

+ "roduct substitutabilit%= brand that closel% resembles other brands in its product class re/uires heav% advertising to

set it apart. 0hen the product differs greatl% from competitors& advertising can be used to point

out the differences to consumers.

') (F(L/PI0& T?( AF(5TISI0& M(SSA&( >"AMPAI&0

In designing and evaluating an ad campaign& it is important to distinguish the message

strateg% or positioning of an ad from its creative strateg%.

$essage generation and evaluation

• large advertising budget does not guarantee a successful advertising campaign. 8o

matter how big the budget& advertising can succeed onl% if commercials gain attention

and communicate well.

• Toda%#s advertising messages must be better planned& more imaginative& more

entertaining and more rewarding to consumers to gain and hold attention. 2reative

strateg% will pla% an increasingl% important role in advertising success.

Effective message strateg% begins with identif%ing customer benefits that can be used

as advertising appeals. dvertising appeals should have three characteristics=

O$eaningful& 5elievable and Distinctive.

• The impact of the message depends not onl% on what is said but also on how it is said.

n% message can be presented in different execution st%les. $essage execution can be

decisive. The% can be following advertising medium for execution=

• Television ds= It is generall% acknowledge as the most powerful advertising medium.

"roperl% designed and executed T6 ads can improve brand e/uit% and affect sales and

profits.

• "rint ds= It offer a stark contrast to broadcast media. In general there are two main

print media= $aga)ines and

8ewspaper.


36/81

• adio ds= It is cheaper than television. adio listening is expected to increase

significantl% over the coming %ears. adio ds can be extremel% creative. 2reative

devices can tap into the listeners imagination to create powerfull% relevant and popular

images.

• ilm ds= India is the largest producer of films in the world. $an% local firms use this

medium to advertise their products and services as this minimi)es the spillage and thewastage of advertisement mone%.

• ,;2I E,";8,I5IITP E6IE0=

dvertiser and their agencies must be sure advertising does not over step social and

legal norms. "ublic polic% makers have developed a substantial bod% of lows and

regulations to govern advertising.

) ("II0& /0 M(IA

fter choosing the message& the advertiser#s next task is to chose media to carr% it. $a-or

steps in media selection are as under=

1+ Deciding on reach& fre/uenc%& and impact=

each 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.

re/uenc% is a measure of how man% times the average percent in the target market is

exposed to the message.

The advertiser must also decide on the desired media impact:the /ualitative value of a

message exposure through a given medium.

!+ 2hoosing among ma-or media t%pes=

The ma-or media t%pes are newspapers& televisions& direct mail& radio& maga)ines& outdoor

and online. The media habits of the target consumers will affect media choice. dvertisers

look for media that reach target consumers effectivel%. Different t%pes of messages ma%

re/uire different media. 2ost is another ma-or factor in media choice. The media planner

looks at the total cost of using a medium. $edia impact an cost must be reexamined

regularl%. s a result& advertisers are increasingl% turning to alternative media& ranging

from cable television and outdoor advertising to parking meters and shopping cards.

3+ ,electing specific vehicles=

The media planner now must chose the best media vehicles and specific media within each

general media t%pe& media planners must complete the cost per thousand percents reached

b% a vehicle. The media planners must also consider the cost of producing ads for different

media. 0hereas& newspaper ads ma% cost ver% little to produce flash% television ads ma%

cost millions.


37/81

C+ Deciding on media timing and allocation=

The advertiser must also decide how to schedule the advertising over the course of a %ear.

The firm can var% its advertising to follow the seasonal pattern& or to be the same all %ear.

$ost firms do some seasonal advertising. The advertiser has to chose the pattern of the ads.

The idea is to advertise heavil% for a short period to build awareness that carries over to the

next advertising period.

*) (FAL7ATI0& AF(5TISI0& (##("TIF(0(SS6

7ood planning and control of advertising depend on measures of advertising effectiveness.

$ost advertisers tr% to measure the communication effect of an ad:that is& its potential

effect on awareness& knowledge& or preferences.

• 2ommunication:Effect esearch=

It seeks to determine whether an ad is communicating effectivel%. There are three

ma-or methods of pre testing.

• 2;8,B$E EED52G $ET';D=

sk the consumers for their reactions to a proposed ad.

• ";T;I; TE,T=

It ask consumers to view or listen to a portfolio of advertisements. 2onsumers are

than asked to recall all the ads on their contains& aided or unaided b% the

interviewer.

• 5;T;P TE,T=

It use e/uipment to measure ph%siological reactions like heartbeat& blood pressure& perspiration to an ad4 or consumers ma% be ask to turn a knob to indicate their

moment to moment liking or interest while viewing se/uence material.


38/81

1) escri!e the $etho%s of organiing the sales force in an In%ustrial /rganiation

1. ine ;rgani)ations *< ine9,taff+

!. unctional ;rgani)ations

3. ,peciali)ation ;rgani)ation

( ,ales ctivities

( 7eographic reas

( "roducts

( 2ustomers

1) Line /rganiations ;3 Line>Staff)

Line organiation is the oldest and simplest method of administrative organi)ation. ccordingto this t%pe of organi)ation& the authorit% flows from top to bottom in a concern. The line of

command is carried out from top to bottom.

ll executives have line authorit% over their subordinates who in turn are accountable onl% to

their immediate superior. ,ince lines of authorit% run verticall% in this structure& executives at

each level are generall% independent of all others al the same level. Through assignment of

/uotas or sales targets& responsibilities are usuall%& clearl% delineated.

This is the reason for calling this organi)ation as scalar organi)ation which means scalar chain

of command is a part and parcel of this t%pe of administrative organi)ation. In this t%pe oforgani)ation& the line of command flows on an even basis without an% gaps in communication

and co:ordination taking place.


39/81

#eatures of Line /rganiation

1. It is the simplest form of organi)ation.

!. ine of authorit% flows from top to bottom.

3. ,peciali)ed and supportive services do not take place in these organi)ation.

C. Bnified control b% the line officers can be maintained since the% can independentl% take

decisions in their areas and spheres.

. This kind of organi)ation alwa%s helps in bringing efficienc% in communication and

bringing stabilit% to a concern.

Merits of Line /rganiation

1. Si$plest


40/81

the other end. The complaints and suggestions of lower authorit% are not communicated

back to the top authorit%. ,o there is one wa% communication.

C. Lack of "o


41/81

ine and staff organi)ation is a modification of line organi)ation and it is more complex than

line organi)ation. ccording to this administrative organi)ation& speciali)ed and supportive

activities are attached to the line of command b% appointing staff supervisors and staff

specialists who are attached to the line authorit%. The power of command alwa%s remains with

the line executives and staff supervisors guide& advice and council the line executives. "ersonal

,ecretar% to the $anaging Director is a staff official.

#eatures of Line an% Staff /rganiation

1. There are two t%pes of staff =

a. ,taff ssistants: ".. to $anaging Director& ,ecretar% to $arketing $anager.

b. ,taff ,upervisor: ;peration 2ontrol $anager& Qualit% 2ontroller& ";

!. ine and ,taff ;rgani)ation is a compromise of line organi)ation. It is more complexthan line concern.

3. Division of work and speciali)ation takes place in line and staff organi)ation.

C. The whole organi)ation is divided into different functional areas to which staffspecialists are attached.

. Efficienc% can be achieved through the features of speciali)ation.

. There are two lines of authorit% which flow at one time in a concern =


42/81

a. ine uthorit%

b. ,taff uthorit%

F. "ower of command remains with the line executive and staff serves onl% as counselors.


43/81

Merits of Line an% Staff /rganiation

1. 5elief to line of e=ecutives


44/81

3. Line an% staff conflicts


45/81

1. The entire organi)ational activities are divided into specific functions such asoperations& finance& marketing and personal relations.

!. 2omplex form of administrative organi)ation compared to the other two.

3. Three authorities exist: ine& staff and function.

C. Each functional area is put under the charge of functional specialists and he has got theauthorit% to give all decisions regarding the function whenever the function is

performed throughout the enterprise.

. "rinciple of unit% of command does not appl% to such organi)ation as it is present inline organi)ation.


46/81

Merits of #unctional /rganiation

1. Specialiation


47/81

S "haracteristics

( Bsuall% emplo% simple line organi)ations

( ,eparate selling functions *present account maintenance and new account

development+

S A%vantages

( llows salespeople to become proficient in their respective sales functions.

( "laces special emphasis on searching out and selling new accounts.

S isa%vantages

( 2ustomers ma% resent being turned over to a different salesperson.

( ,alespeople ma% want to cultivate the accounts the% have developed.

S I$plications

( Bse when there is a large turnover of customers

( Bse when there is a significant difference in the skills needed in each separate

area

( Bse when fast growth through new account ac/uisition is deemed necessar%

B)

/rganiation Structure% !4 &eographic Area


48/81

G "haracteristics

( ,ales force is reorgani)ed on a geographic basis

( ,alespeople sell all the compan%#s present products to all customers within their

assigned territories


49/81

G A%vantages

( ,alespeople and managers become more familiar with their territories

( ocal problems ma% be solved more /uickl%

( ,ales force can rapidl% react to changes in the local competitive environment

( 2an provide better service at lower cost

( ower chance for customer confusion

G isa%vantages

( Diversit%9magnitude of product line ma% limit salesperson#s knowledge of an%

one product

( Duplication of overhead expense

( 7reater level of salesperson control *which products to push& which customers

to service+

G I$plications

( 5est used if product line is relativel% homogeneous

( 5est used if customers are widel% dispersed

") Sales #orce /rganie% !4 Pro%ucts

G "haracteristics

( ,ales force is reorgani)ed on a product basis

( ,alespeople speciali)e in particular products carried b% the sales organi)ation

G A%vantages

( Each product line receives a higher degree of speciali)ed attention

( llows for decentrali)ation of both authorit% < responsibilit% for each product

line


50/81

( llows decisions to be made closer to the problems with an% particular product

line

G isa%vantages

( If speciali)ation occurs above salesperson level& additional overhead expense

ma% be suffered.

( $ore than 1 salesperson ma% be calling on customers

( Difficult to maintain a consistent image

S I$plications

( 5est used if product line is relativel% heterogeneous

( 5est used if have a wide variet% of customers with /uite different needs

( 5est used if products are technicall% complex

( 5road& in:depth knowledge of product essential for the sales task

Sales #orce /rganie% !4 "usto$ers

G "haracteristics

( ,ales force is reorgani)ed on a customer basis

( ,alespeople speciali)e in selling to9 servicing particular customer t%pes

S A%vantages

( $ost consumer oriented approach

( ;rgani)ation of sales force is based on customer needs

( 2ontrol remains at the management level *which customers to call on& etc+

( llows salespeople to speciali)e in customer needs


51/81

S isa%vantages

( "otential for overlapping territories is high

( 'ence& overhead costs ma% rise

( ,alespeople must become knowledgeable about compan%#s entire line of

products

S I$plications

( 2ustomers in a given market bu% several different products9lines from single

supplier

( ,ame bu%ing factors appl% across product lines

( ,ignificant proportion of income is derived from a small number of accounts

who re/uire high service levels


52/81

1@) ,hat are the -a4s to !i% an% -in an In%ustrial contract

Seven ,a4s To Score "ontracts

1. B7IL 5(LATI/0S?IPS B(#/5(?A0

• $ost business development is reactive& but responding to invitations to tender is

pla%ing b% someone else#s rules.

• 8ot knowing the bu%ers& understanding what#s driving the opportunit% or how man%

other bidders %ou#re up against is a random wa% of growing %our business.

• Therefore "re:empt the bidding process b% pursuing %our own business development

strateg%.

• Identif% the organisations %ou want to do business with& then build relationships with

the bu%ers& ideall% before the% even think of issuing a tender.

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

• Pou#re not stalking them& but giving them the opportunit% to get to know %ou& %our

organisation and the value %ou can add.

2 L//8 B(#/5( 9/7 L(AP

ssessing %our chances of winning and deciding whether or not to bid ? technicall% known as

@pre:/ualification# N will raise %our win:rate.

To assess an opportunit%& look at four things=

• Is It ,inna!le : do %ou know all the bu%ers well enough to tailor %our response to

them?

• Is It elivera!le : can %ou deliver the contract if %ou win?

• Is It esira!le : does the contract fit with %our core business?

•

Is It Profita!le : will %ou make mone% out of it?

At the heart of these questions lies a paradox: “win more bids by doing fewer of them”

' P(5S/0ALIS( T?( BI

$ost bu%ing groups feature five roles& and %our bid should address the agenda of each.

• The Boss : s the most senior decision:maker& the% are interested in results.

• The Mone4 Person : T%picall% the finance director& the% will assess %our bid in termsof value for mone% and return on investment.


53/81

• The (=pert : ,ometimes cast as the @geek#& the% will scrutinise the detail of %our

proposal with their deep technical knowledge.

• The (n%


54/81

F+ &(T T?( ?A5 T57T?

• ;nce the client has made their decision& get candid feedback.

• This will help %ou learn and improve?

• Bnderstanding how being on the receiving end of %our bid made them think& feel and

behave& and how that shaped their decision

• This will help %ou refine %our approach and improve %our submissions.


55/81

1. (=plain the factors to !e !orne in $in% %uring a 0egotiating process in

In%ustrial Marketing

1) Preparation Is The 8e4

• Gnow about the part% %oure negotiating with so %ou can capitali)e on %our strengths

and the part%s weaknesses.

• If the other part% is ver% experienced& that means he also has a histor% that could

contain useful information.

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

• $an% negotiators develop patterns and certain st%les that %ou ma% be able to use to

%our advantage.

• If %ou are a bu%er& make sure %ou are thoroughl% familiar with the product or service

that will be the sub-ect of the negotiation.

• If the other part% senses %ou are weak on such details& %ou ma% be a prime target for a

bluff or another techni/ue designed to create anxiet% and uncertaint%.

• "s%cholog% pla%s a crucial role in %our abilit% to make the most of the other part%s lack

of preparation and anticipate their next move.

• $ost negotiators have a price target or goal in mind before the% start.

• It should be based on realistic expectations considering all the constraints that will

undoubtedl% surface.

• The budget limits& direction from management& pressure to make sales goals& and a

m%riad of other external forces need to be addressed.

• During the course of the negotiation& the goal ma% change based on changes in scope

and other unforeseen actions b% either part%.

• 0hile %ou#re ultimate goal should be realistic& this should not constrain %our first offer

or counteroffer.

• 5efore the start of negotiation& ensure that the other part% is full% empowered to make

binding commitments.

• Pou should not land in a position where %ou believe %ouve struck a deal& and then

discover that the agreement needs approval from some higher authorit%.


56/81

2) ?ave A Strateg4

• Ever% negotiation has certain basic principles.

• The first offer is usuall% the most important and the benchmark b% which all

subse/uent offers will be -udged and compared.

• Poull never get what %ou dont ask for& so make %our first offer bold and aggressive.

• The asking price is -ust that& and will t%picall% include a pad or margin to give awa%

during negotiations.

• Dont worr% about insulting the other part%. s long as %our offer is not ridiculous& the

other side will continue the negotiations in hopes of settling at a better number.

• s a bu%er& do not disclose %our budget or other limitations in %our negotiating

position.

• favorite plo% of salesmen is to reshuffle the product specifications& schedule and

other parameters in order to sell %ou an inferior product to fit %our budget.

• Pou want the best product %ou can get for the mone% %ou have to spend& so emplo% an

approach that maintains the possibilit% of spending less than %ou had originall%

planned.

• lwa%s have something to give awa% without hurting %our negotiating position

• 0atch for clues such as bod% movement& speech patterns and reactions to what %ou

sa%.

• 5e prepared to suspend or cancel negotiations if %ou feel things are getting nowhere or

the other part% seems stuck in their position.

• Indicate %our reluctance to continue under those conditions and make the other side

wonder if %ou are ever coming back.

• If the% are on the hook to cut a deal& the% will feel the pressure to move. 5e patient

even if the other part% isnt.

• ;nce an offer is made& %ou should expect an acceptance or re-ection of %our offer& or a

counteroffer that keeps the negotiation open.

• If %our offer is re-ected and %ou are asked to submit a new and better offer& do not fall

into that trap.


57/81

') #in% the Leverage

• In addition to exploiting the other part%s weaknesses& concentrate on taking maximum

advantage of %our strengths.

• If %oure the onl% source available for a particular product& %ou have tremendous

leverage across the board.

• If economic conditions have created a market in which the product %oure selling is in

great demand and low suppl%& that gives %ou more bargaining power to name %our

price.

• Establish a strong foundation earl% in the process b% demonstrating %our knowledge

and expertise of the negotiation sub-ect matter.

C+ The /ffer

•n offer is more than -ust an amount.

• It must encompass all of the elements of the bargain and will normall% comprise the

basis for a contract that formali)es the agreement.

• If %ou make an offer without nailing down all of the specifics& %ou ma% find out later

that there was no meeting of the minds with the other part%.

• The basis of the bargain should include= offer price *in proper denomination+& statement

of work *scope+& identification and /uantities of goods or services& deliver% schedule&

performance incentives *if an%+& express warranties *if an%+& terms and conditions& and

an% documents incorporated b% reference.

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

elements of the bargain.

• Its a good idea to keep notes containing the rationale for each offer. 0hile these notes

wont be disclosed to the other part%& the% will prove to be invaluable should things go

ha% wa% and %ou need to restart negotiations.

• If %ou work for a compan% or the government& those notes are usuall% re/uired to

document the negotiated outcome and complete the contract file.

+ &o #or a ,in


58/81

• 5e prepared to give up the little things in exchange for the big things %ou dont want to

concede.

• Gnow %our limits and how far %oure willing to go on all aspects of the deal.

• 0hile %ou have the power to influence the negotiation process in %our favor& %our goal

should be to secure a good deal without extracting the last pound of flesh from the other part%.

• The most effective negotiators are professionals who know their business and dont let

personalities and irrational behavior interfere with their mission

• ;nce the negotiation is completed& %ou won#t to be able to work effectivel% with those

in the other part% during contract performance.

• If the% are threatened and pounded into submission& the% probabl% wont negotiate with

%ou again& possibl% cutting off an% future business.

• 0hile heated confrontation is a common occurrence during negotiations& at some point

collaboration and compromise are needed to get a deal.

+ "losing the eal

• ,uccessful negotiation is like horse:trading in that it re/uires a sense of timing&

creativit%& keen awareness and the abilit% to anticipate the other part%s next move.

• 8egotiation is also like chess in that each move should be designed to set up not onl%

%our

Answers of B2B Question Bank

Documents

Transcript of Answers of B2B Question Bank