Businesss Marketing
description
Transcript of Businesss Marketing
BUSINESS MARKETINGModule 1&2: BUSINESS MARKETING & DIMENSIONS
• What is Business Marketing?• What is Consumer Marketing?• What is the difference between Industrial Marketing, Business
Marketing, B2B Marketing, Organisational Marketing?• Classification of industrial products & customers.• Characteristics & marketing strategies for business customer
categories.• Purchasing orientations & practices of business customers.• Environmental analysis in business marketing.
BM/KKH-M1&2-1
Response to earlier Questions• Business Marketing is marketing of products and
services to business firms.• Consumer Marketing is marketing of products and
services to individuals and households.• Consumers buy products / services for their own
consumption / use.• Business firms buy products / services to satisfy
many objectives – produce other goods, own consumption/use, resale, etc.
• No difference between IM,BM,B2B & O.M.
BM/KKH-M1&2-2
Difference Between Business & Consumer Marketing
• Basic tasks of marketing are same (Which tasks?)• Differences are in the characteristics
Characteristics Business Markets Consumer Markets
Market Geographically Concentrated
Few Buyers
Geographically Dispersed
Mass markets
Products Technically Complex
Customised
Non-technical Standardised
Service Very Important Somewhat Important
BM/KKH-M1&2-3
Characteristics Business Markets Consumer MarketsBuyer Behaviour Functional Specialists
Involved Rational based buying
decisions Different types of
relationships
Family members involved
Physiological, Psychological, social need based
Non-personal relationships
Channels More Direct Multi-channels
Indirect Few channels, More
levelsPromotional Personal selling more
important
Advertising more important
Pricing Competitive Bidding, Negotiated prices
List Prices / MRP
How marketing strategies will differ between firms marketing products to consumer markets & business markets?
BM/KKH-M1&2-4
Nature of Demand in Industrial Marketing
• Demand for industrial products is derived from (or depends on) the ultimate demand for consumer goods/services. (Example?)
• Joint demand occurs when one industrial product is needed if other product also exists. (Example?)
• Cross-elasticity of demand is the response of sales of one product to a price change in another product. (Illustration?)
BM/KKH-M1&2-5
Classification (or Nature) of Industrial Products: Why classify?BM/KKH-M1&2-6
Classification of Industrial Customers / Types of Organisational Customers. (Why study this?)
BM/KKH-M1&2-7
Characteristics & Marketing Strategies for Business Customer Categories
1. Intermediaries: Distributors/Dealers, Manufacturers Representatives, mainly• Carry out various activities of distribution• Have selective / exclusive distribution strategy• Products / services sold in the same form• Pricing strategy is list price less discounts• Joint promotion for end users / customers
2. Users, Institutions & Coop. Societies in Private Sector• Requirements are not regular & small to medium• Multi-channel distribution strategy• Product to meet the technical specifications of users• Competitive pricing strategy• Promotion by the manufacturer / intermediaries• Typically transactional relationship
BM/KKH-M1&2-8
3. OEMS• Large and repeat requirements• Partnering / value-added relationships• Distribution & Promotion by the company salesforce• Value of market offering superior than competitors• Special prices to meet the OEMs expectations
4. Government, Institutions & Cooperative Societies in Public Sector
• Requirements vary from small to large• Promotion by the manufacturer or intermediaries• Lowest pricing strategy• Products / Services as per customer specifications• Ensuring product / service availability• Generally transactional relationship
BM/KKH-M1&2-9
Purchasing Orientations of Business Customers
• Business customers follow one of the three purchase orientations / concepts.
• Buying Orientation: (Typical Examples?)• Has short-term focus• Gain power over suppliers• Select lowest price vendor• Avoid risk of buying from new supplier
BM/KKH-M1&2-10
• Procurement Orientation• Has long-term focus• Follow collaborative / partnering Relationships
with major suppliers• Achieve organisational objectives• Work closely with other functions within firm
• Supply-chain-management orientation• Has long-term focus of improving value chain• Deliver superior value to end users• Follow collaborative / partnering relationship with
major suppliers• Outsource non-core activities (Typical Examples?)
BM/KKH-M1&2-11
Purchasing Practices of Business CustomersPurchasing in Commercial Enterprises
• Buying Centre includes technical and commercial departments’ reps, who make buying decisions
• Major tasks include identifying, selecting, negotiating, building relationships with suppliers
• Purchasing dept. contributes to the company’s competitive advantage (How?)
BM/KKH-M1&2-12
Purchasing in Government Firms• D.G.S.&D. agency decides Rate Contract for Standard
products for govt. firms.• Large govt. firms (DOT, Railways) have own buying
process.• The process includes:
• Registration of supplier firms• Tender notice advertisements• Purchased tender papers indicate terms and conditions• Closed / Sealed bidding, or Open / Negotiated tenders• Orders placed on lowest price bidder(s)• Process differs slightly for standard & Non-standard
products. (Examples?)
BM/KKH-M1&2-13
Purchasing in Institutions & Cooperative Societies
• Govt. purchasing process, if the organisation is govt. owned.
• Commercial enterprise’s practices, if the firm is in private sector.
• Better to study each major organisation for orientation, practices, and other information (Such as ? and why?)
• Customer study creates database for CRM.
BM/KKH-M1&2-14
Environmental Analysis in Business Marketing: (why do this?)Examples
Types of Environment• Environmental factors / forces influence marketing decisions of selling firms & buying decisions of buying firms.
BM/KKH-M1&2-15
Influence of Environmental Factors
• Internal Environment. Internal company analysis is done, vis-à-vis competitors, for strengths & weaknesses.
• External Environment. Macro & Micro factors change continuously, spinning out new opportunities & threats. Hence, firms do monitoring & forecasting relevant external environmental factors. (why?).
o Economic conditions (prosperity, recession), growth of economy, demand for products / services, etc.
o Demographic. Changes in population can impact demand for industrial products. (How? Example – Steel)
o Natural. Includes air, water pollution; shortage of water, raw materials; and ozone layer depletion. Firms should save natural environment.
BM/KKH-M1&2-16
o Technological changes can alter demand for Industrial products (Jelly Filled to optic fibre telecom. cables). Changes in technology, innovation opportunities should be monitored by business marketers.
o Govt., Political, Legal. Govt. protects consumers, companies, society from unfair business practices (like price cartels), by enacting laws (e.g. MRTP, Competition Act).
o Cultural, Social. Impact of changes in cultural & social environment is less in business market.
o Public. It includes various groups (like press, general public, shareholders, banks) who help or hinder the firm’s efforts to serve markets / customers.
Influence of Environmental FactorsBM/KKH-M1&2-17
Strategies for Managing External Environment
• First step is to gather and monitor information on relevant external environmental factors. This would help to understand and identify changes in external environment.
• Second step is to respond proactively with the following strategies:• Independent Strategies.• Cooperative Strategies.• Strategic Planning.
BM/KKH-M1&2-18
Customer Value in Business Markets
• Customer value (or value) is widely used term in recent years.It is defined / understood differently:(1) Economic, technical, service, and social benefits received by a customer firm in exchange for price paid for a product / service offering. (e.g. LCD Projector).(2) Ratio between what a customer gets (i.e. benefits) and what customer gives (i.e. costs).benefits include functional & emotional. Costs include monetary, time, energy, psychic.Application: Customer firm receives offerings V1 & V2 from suppliers A & B. It chooses the offering which gives higher value.
BM/KKH-M1&2-19(NIS)
Customer Value Proposition
Business marketing firms develop ‘customer value proposition’ or ‘value proposition’, in 3 different ways:In a study:
• Many benefits listed. 70% firms listed over 4 benefits, with little knowledge of customers & competitors.
• Few benefits compared. 20% firms mentioned 3 or 4 benefits, compared some with competitors. No information about customer needs / expectations.
• Few benefits meeting customer expectations. 10% firms made their product / service offerings superior on few benefits that matter most to customer firms. They demonstrate & communicate superior value to customer firms. (e.g. IBM’s supply chain expertise).
BM/KKH-M1&2-20(NIS)
Module 3Marketing Research (MR) & Marketing Intelligence System (MIS)
The module includes:• Introduction to marketing research & MIS.• Difference between industrial & consumer research.• What are the different research methods, and sampling
techniques.• What is demand analysis?• Methods used for estimating or forecasting demand.
BM/KKH-M3-1
What is Marketing Research (MR)?It is systematic design, collection, analysis, and reporting of data & findings for a specific marketing problem situation faced by a company.Purpose of M.R.: Obtain information to solve a problem or make a decision on business opportunity.Marketing intelligence system (MIS). Provides relevant, accurate, timely information on continuous basis to business marketing manager for decision making. (e.g. pricing decision)
• M.R. is a part of M.I.S.
BM/KKH-M3-2
Marketing Intelligence System (MIS)
• MIS outputs are used for routine marketing decisions. (e.g. allocation of expenditure budget, setting quotas).
• Decision Support System (DSS) is a logical extension of MIS. DSS helps in solving unstructured / complex problems (e.g. response to competitor’s price reduction).
BM/KKH-M3-3
Marketing research studies
Marketing intelligence
system (MIS)
Secondary data sources
Market response
Marketing strategy
development
Decision support
system (DSS)
Internal information
system
Difference Between Industrial & Consumer Research
• More reliance on secondary data, exploratory research, expert opinion (due to less number of buyers, few knowledgeable people).
• Technical orientation of researcher needed, due to technical nature of products & respondents. (e.g. MMM)
• Survey method used often, smaller sample size, personal interviews, instead of experimental & observational methods used in consumer goods research. (e.g. Biplus)
• Data from industrial respondents more difficult to obtain than from consumers, due to time constraints & hesitancy.
• Sample size smaller due to small & concentrated population.
BM/KKH-M3-4
Research Methods in B.M.For primary data collection, following methods used.
BM/KKH-M3-5
Factors Qualitative Methods Quantitative Methods
•Objectives Preliminary insights on ideas, problems, feelings.
Answering a problem / opportunity / information needs.
•Type of Research Exploratory Descriptive & Causal
•Type of Questions Open-ended, unstructured Mostly structured
•Techniques used Depth interviews & Focus group
Survey method
•Time of Execution Short time Longer time
•Representativeness Small samples Large samples
•Type of Analyses Subjective, interpretive Statistical, descriptive, causal predictions.
•Generalizability of Results Very limited; Only preliminary insights
Very good; Inferences about facts / relationships.
Sampling TechniquesTwo basic sampling designs: probability & nonprobability.• Probability sampling: each sampling unit (target population
elements) has a known probability of being selected for the sample. Techniques / methods are:• Simple random sampling.• Stratified random sampling.• Systematic random sampling.• Cluster sampling.
• Nonprobability sampling: probability of selecting each sampling unit is unknown. Techniques / methods are:• Convenience sampling• Judgement sampling• Quota sampling
BM/KKH-M3-6
What is Demand Analysis?
• Demand analysis is a research method to estimate customer demand for a product.
• It identifies variables & reasons that affect customer demand. (Example: DuPont, for chemical products, using demand analysis, also obtains non-price factors like delivery, quality, service, innovation, brand name).
• It uses test-marketing procedure: actual marketing in one or few cities.
• After demand analysis identifies variables that affect customer demand, sales forecasting techniques are used.
BM/KKH-M3-7
Demand Forecasting / Estimating MethodsClassified into: Qualitative and Quantitative methodsQualitative methods
• Executive opinion• Delphi method• Salesforce composite• Survey of buyers’ intentions• Test marketing
Quantitative methods• Moving averages• Exponential smoothing• Decomposition• Naïve / Ratio method• Regression analysis• Econometric analysis
BM/KKH-M3-8
MODULE 4MANAGEMENT & PLANNING MARKETING STRATEGIES includes:
• Core competency.• Product definition, product quality, & product strategy (NIS).• Branding in B2B marketing (NIS).• Innovation & competitiveness (NIS), management of
innovations.• New product development process & performance
determinants.• Diffusion of innovation; High-tech marketing & strategy (NIS).• Product life-cycle (PLC) analysis; Portfolio analysis models.• Market segmentation; requirement & basis for segmentation.• Nested approach to segmentation.• Targeting and positioning.
BM/KKH-M4-1
What is Core Competence (C.C.)?It is a complex harmonization of individual technologies and production skills.E.G. Canon’s core competencies are: precision mechanics, fine optics, micro-electronics, which have created successful products like cameras, printers, fax equipment, image scanners.How a Company can Identify Core Competencies?Three tests can be applied:
• CC provides a potential access to many markets.• CC should contribute to customer benefits from firm’s
product. (e.g. Fax)• CC should be difficult for competitors to imitate.
There is a link between CC and successful products (e.g. Canon, 3M’s innovative products).
BM/KKH-M4-2
Definition of Industrial ProductA physical thing and complex set of economic, technical, legal, and personal relationship between buyer and seller. (e.g. LCD Projector).Meaning (or Characteristics) of Industrial ProductTotal product consists of:
• Basic properties – include fundamental benefits.As competition increases, marketers offer:
• Enhanced properties – include tangible benefits.• Augmented properties – include intangible benefits.
(e.g. CG – CF).
BM/KKH-M4-3
Product QualityIncreasing importance of product quality, linked to marketing strategy.PIMS study – 2124 sample size of firms.Meaning of Quality.
• Ability to satisfy stated/implied needs of customers.• Total quality includes quality of product & service in relation
to that of competitors.• GE’s goal: achieve Six Sigma quality (defects < 3.4 parts per
million)Total Quality Strategy includes:
• Product quality – specifications, performance (e.g. MMM-MU)• Support quality – customer needs, technical service. (e.g.
Bluestar)• Delivery quality – delivery schedule, response to changes.
(e.g. TVS/BAL)
BM/KKH-M4-4
Factors Influencing Changes in Product Strategy
• Product strategy is not strategic. (Which marketing strategies are strategic?).
• Product strategy is flexible & dynamic, as firms change product strategy. Why? Because changes in• Customer needs (e.g. vertical stacking:2-6m)• Technology (e.g. jelly filled to fiber optic cables)• Government policies / laws (e.g. restrict tobacco
consumption – ITC)• Product life-cycle – PLC (e.g. wooden to alum. /steel
window frames)
BM/KKH-M4-5(NIS)
Product Strategy for Existing ProductsSteps involved:1) Evaluate existing product performance
• Use ‘product evaluation matrix’ with 4 factors: industry & company sales growth, market share, & profitability.
2) Use ‘perceptual mapping’ for poor performing products, to understand strengths / weaknesses, for corrective actions.
3) Decide product strategies with strategy options:• Continue product & marketing strategy.• Modify product & change marketing strategy.• Drop the product.• Add new product.
BM/KKH-M4-6(NIS)
Branding in Business Marketing• Like consumer marketing, strong brands are valuable in B2B
marketing (e.g. IBM, Infosys, Intel).Purpose of branding:• Brands make identification of products / services easy. (e.g.
IIMs / IITs)• Brands differentiate products/services from competitors.• Brands reduce risk & complexity in buying decisions (e.g.
Construction of world-class new campus of ABA).• Brands guarantee performance, quality, & origin.• A brand is a promise to firm’s customers. (e.g. IBM’s promise:
Helping clients succeed through business & technology innovation; Tata’s Nano)
• Brands & brand equity (value of a brand) are basis of competitive advantage and long-term profitability. (Infosys).
BM/KKH-M4-7(NIS)
Branding Process in Business Marketing
To achieve brand success, process followed is:
BM/KKH-M4-8(NIS)
To Brand or Not to
Brand
Yes Brand Auditing
Stop
Brand Building
Brand Strategy
Brand Planning
And Analysis
No
Branding Decision
To Brand / Not to brandMain factors considered for this decision:
• High pressure on prices due to competition (e.g. motors).• Solution oriented market offerings make marketing complex.
(Brands reduce complexity – e.g. IBM, Infosys, Wipro)• Large number of similar products available. (suppliers can
differentiate strong brands – e.g. Tata steel).Brand planning and AnalysisFirms must develop strategic, marketing, & brand plans.Key factors in brand planning:
• Involvement of all people for information / suggestions.• Long-term brand continuity.
Brand analysis includes company, customers, competitors, environmental through marketing research.
BM/KKH-M4-9(NIS)
Brand StrategyDepends on brand analysis & elements (name, logo, slogan, etc) chosen:Some of the brand strategies are:Brand Hierarchy. Options: (1) corporate brand, (2) individual (product) brand, (3) Both.Choosing Brandname. Alternatives: (1) Person’s name (e.g. Honda, Tata, Boeing), (2) Nature of business (e.g. British Airways), (3) Use of Acronyms (e.g. IBM, HP), (4) Artificial names (e.g. Kodak, Accenture), (4) Metaphorical (e.g. Oracle, Apple, Vedanta).Brand Positioning. Means establishing & sustaining an intended meaning for a brand in the minds of targeted customers (e.g. L&T brand means quality& reliability).Brand Extensions. Using existing, well-established brand names to introduce new products / services (e.g. Tata).
BM/KKH-M4-10(NIS)
Brand Building• First find one/two value propositions important to target
customers like functional & performance aspects. (e.g. IBM PCs)
• Allocate resources to improve on the above.• Effectively communicate value proposition using brand-
building tools like: personal selling, direct marketing, advertising, trade-shows, P.R., sponsorships.
Brand Auditing• Periodically audit brand performance, strengths, weaknesses,
using research method.• Successful companies like IBM, GE do continuous brand
monitoring, alternate month, thru’ field research.
BM/KKH-M4-11(NIS)
Innovation & Competitiveness
• Innovation is “any product, process, method, service, or idea that is perceived as new by someone”.
• ‘Continuous innovation’ strategy helps a firm to differentiate itself from competitors and stay ahead. It gives competitive advantage. (e.g. 3M, Citibank).
• Technological innovations, called ‘breakthrough technology’, create new products/services – new to world.
• Examples – technological inventions (1948 to 1973) of transistors, integrated circuit (IC), microprocessors created many new products like TVs, movie cameras, computers, mobile phones, printers, etc.
BM/KKH-M4-12(NIS)
Management of Innovations.• In successful firms, management of innovations are
individually motivated, customer responsive, disorderly, & interactive. Many surprises, despite planning.
• In successful innovative companies (like 3M, Google), innovation process is “controlled confusion”.
• Implications for marketing managers:• Entrepreneurial initiatives to be encouraged & nurtured.
(e.g. Google)• Facilitate communication between business units &
functional areas (e.g. sales & R&D).• Collect environmental (SWOT) information.• Assume an important role in management of innovation
within a firm.
BM/KKH-M4-13
New Product Development ProcessIt includes:• Idea generation idea screening concept development &
testing business analysis product development market testing commercialisation.
Recent areas of improvements:• 3D Design technology (or Digital prototyping)
• It allows firms to visualise, test, redesign, and improve new product, before actually developing.
• This saves time & resources.• Quality function deployment (QFD) or House of quality:
• A framework to link customer needs to product design data.
• This reduces design time & cost, and improves design quality.
BM/KKH-M4-14
New Product Performance Determinants about Success/FailureSuccess factors / determinants:• Product uniqueness and superior quality (e.g.CG-MCCB).• Market knowledge and marketing effectiveness (e.g. Biplus
tubes).• Technical & production capabilities (e.g. CG – Stampings).• Cross-functional team (e.g. CG – DOL: major modification).Failure factors / determinants:• Lack of coordination between marketing & technical teams
(e.g. Sangam).• Poor product design (e.g. Swishflow).• High-prices relative to competitors (e.g. MMM-stackers).Overall determinants for success:• Strong market orientation.• Strong design & production capability.
BM/KKH-M4-15
Diffusion of InnovationWhat is diffusion of innovation?• Innovation: means a new product / service.• Diffusion: a process to spread awareness & adoption of new product to
members of social system.• Social system includes firms, their employees, & professional change
agents (e.g. consultants, architects).• Conceptually, new product adoption process includes: awareness, interest,
evaluation, trial, adoption (e.g. LCD Projector).• Adoption of innovation: a model:
BM/KKH-M4-16
•Typically, 5-10 years for 50% firms adopting a new product
High-Tech Marketing
• High technology (high-tech) marketing is different from other products / services because of • High technological uncertainties.• High market uncertainties.
Examples: products/services in telecommunication, computer, software, biotech, electronic industries.
• Many new high-tech products / services fail due to differences in psychographic (psychology & demographic) profiles of new product adopter groups like innovators, early adopters, early majority, etc. (‘adoption of innovation’ model by Rogers).
BM/KKH-M4-17(NIS)
High-tech Marketing Strategy
To avoid failures of new high-tech products/services, marketers should develop & implement a unique high-tech marketing strategy:
• Target a niche market (e.g. e-book)• Plan whole product properties• Develop partnerships – with suppliers & customers• Have unique positioning strategy• Effective communication strategy – IMC• Multi-channel distribution strategy• Skimming pricing strategy
BM/KKH-M4-18(NIS)
Product Life-Cycle (PLC) AnalysisIndustrial products typically follow PLC model shown below:
• Profits reach peak level, before sales reaches its peak.• Industrial p.l.c. are generally longer than consumer p.l.c.• Introduction stage strategy: market development/overcome competition.• Growth stage strategy: Improve product/distribution; reduce price. • Maturity stage strategy: cut costs; enter new markets; satisfy existing
customers.• Decline stage strategy: withdraw/develop substitute; reduce costs.
BM/KKH-M4-19
Portfolio Analysis Models• BCG Model: Growth Share Matrix.• G. E. Model: Business Screen Matrix.Purposes: (1) Strategic planning, (2) resource allocation.
BM/KKH-M4-20
Stars: Market leaders, profitable. More resources needed to keep leadership.
Cash Cow: Generate excess cash, maturity stage, need small investments.
Question Marks: Doubtput-can move to stars/dogs.
Dogs: Make losses/break-even. Don’t invest.
BCG ModelWhich of the 8 products / businesses a firm should invest and why (in the above figure)?
GE Model: Business Screen Matrix
Business strength factors: Market share, product quality, unit cost, R&D performance, brand reputation, share growth.Market attractiveness factors: Market size, annual market growth rate, historic profits, competitive intensity, technological requirements.
BM/KKH-M4-21
What is Market Segmentation?
• It is the process of dividing a market into groups of customers (i.e. segments), who have similar requirements for a product / service.
• Business marketers should identify segments, decide which segment(s) to target, and also target market strategies.
BM/KKH-M4-22
Benefits of Segmentation• Marketers get used to studying customers needs and
potential, competition, growth, profitability of each segment.• It gives basic information for developing effective marketing
strategies.• It gives guidelines for allocating marketing resources to
various market segments. (Example: STI)Limitations of Segmentation• If market potential is small, or market includes few customers,
sales volume / profits may not justify costs of segmentation. (Example: Elechem)
• Difficulties in segmentation due to large differences in customer characteristics, buying practices, and benefits required by members of buying centres.
BM/KKH-M4-23
Requirements of Effective Segmentation
For usefulness of segmentation, following criteria should be applied to evaluate potential market segments. (An example: CGL Motors)• Measurable. Can size, growth, buyer characteristics be
measured?• Substantial. Are sales & profit potential of segments large
enough?• Accessible. Can the segments be identified, reached &
served effectively?• Differentiable. Do segments respond differently to
different marketing-mix strategies?
BM/KKH-M4-24
Bases for Segmenting Business Markets
Segmentation is done in two stages:1. Identifying meaningful macrosegments, based on
characteristics of buying organisations.2. Subdivide those macrosegments into meaningful
microsegments, based on characteristics of decision-making units (DMU) within each macrosegment. (Illustration: MMM)
BM/KKH-M4-25
Macrosegmentation
Macrosegments, using macro variables, may be adequate to explain differences in buying behaviour. Data available from secondary sources at less cost & time.
Macro Variables Examples
Type of Customer’s Industry Automobile, chemical, textile
Type of Customer Government, Commercial, Institutional
Company Size Small/Medium/Large based on sales or number of employees
Usage Rate Nonuser, light/moderate/heavy user
Customer Location Distance from supplier factory; Urban/suburban industrial centres
Product Application/End-use For Aluminium extrusion products, door & window frames, electrical control panels, electronic equipment, etc.
BM/KKH-M4-26
Microsegmentation
Micro Variables Examples Buying Situations New task, Modified Rebuy, Straight-
Rebuy Purchasing Criteria Quality, Price, Delivery, Reputation Organisational Capability Financial, Technical, Innovative Personal Characteristics of buying
centre membersRisk taker / Risk avoider
Microsegmentation should be done only when it is necessary, as cost of data collection through market surveys or company salesforce is high. (Examples of Microsegmentation: Sangam Alu.)
BM/KKH-M4-27
Nested Approach to SegmentationDeveloped by Bonoma & Shapiro, it includes more bases / variables of segmentation:
1) Demographics: industry classification, company size, geographic location. (e.g. MMM).
2) Operating variables: technology, user-nonuser status, customer’s operating, technical, financial capabilities. (e.g. Biplus).
3) Purchasing approach: purchase organisation, existing relationships with suppliers, purchasing policies & criteria (e.g. MMM).
4) Situational factors: urgency of purchase, specific application, size of order (e.g. 3M distributor).
5) Personal characteristics: buyer motivation, risk reduction strategies, individual perceptions. (e.g. STI-CR coils).
Outer nests: (1), (2), (3); Middle nest: (4); Inner nest: (5)
BM/KKH-M4-28
Specific Criteria for Evaluating & Selecting Target Segments
Criteria used for evaluating potential segments & selecting the target segments are:• Size (Market Potential) and Growth• Profitability Analysis: Estimated Sales Revenue minus
marketing cost• Competitive Analysis• Cost of serving the segment
(Example – STI)
BM/KKH-M4-29
Target Market Strategies
After selecting target market segments, firms adopt one of the following strategies:
• Concentrated marketing• Differentiated marketing• Undifferentiated marketing• Niche marketing• (Examples?)
BM/KKH-M4-30
PositioningWhat is Positioning?• Distinct place a product/service occupies in the minds of
target customers relative to competing products/services. (e.g. L&T: leading engg. company, Infosys: Respected s/w firm).
Process for developing positioning strategy?• Identify factors for differentiation: Product, service,
personnel, image. (e.g. Sangam Al.)• Select one or few differentiating factors/benefits: superior
product quality / service, latest technology, etc.• Communicating positioning strategy: salesforce, ads, trade
shows.
BM/KKH-M4-31
Module-5: Management of Marketing Channels.
This module includes:• What is Business Marketing Channel (BMC)?• Who are the participants in BMC?• Channel alternatives / Channel structure in business
marketing (NIS).• How channel design is done?• Administering / managing channel members,
including• Selecting, motivating & evaluating channel
members.• Controlling / managing channel conflicts (NIS).
BM/KKH-M5-1
Business Marketing Channel (BMC)
• A BMC includes a set of interdependent firms that
make a product / service available to business
customers.
• A BMC is a link between the manufacturer / service
provider and its business customers.
• (Examples: CGL, Sangam).
BM/KKH-M5-2
Participants in BMC
• Manufacturer’s regional / branch sales offices*.• Distributors / dealers.• Manufacturer’s representatives / agents.• Brokers.• Commission merchants and Jobbers.• Value-added resellers (VARs)Except *, others are called intermediaries / resellers.We shall discuss each participant.
BM/KKH-M5-3
Manufacturer’s Regional / Branch Sales Offices
• Manufacturer participates in BMC thru’ regional / branch sales offices (own sales force).
• Two types: Stock-Carrying, Non-stock Carrying.• Major tasks performed by stock-carrying sales
offices: promotion, stock carrying, physical distribution, selling, servicing (e.g. CGL).
• Main tasks performed by non-stock carrying offices: promotion, selling, pre & post – sales servicing (e.g. MMM).
BM/KKH-M5-4
Distributor / Dealer
• Most common intermediary, performing many tasks / functions. Paid discounts / margins on list price.
• Independent business firm, serving a geographic market.
• Tasks / functions performed: buying, warehousing, promotion, selling, financing, transporting, servicing, providing information.
• Main Categories: General-line, Specialised, and combination house.
• (Example – Sangam).
BM/KKH-M5-5
Manufacturer’s Representative / Agent
• Independent business firm, generally needed by SMEs.
• Tasks / functions performed: Promotion, selling, servicing, providing information, payment collection.
• Paid commission on net sales.• Have selling skills, customer contacts, market
knowledge.• Represents a few manufacturers.• (Examples: STI, MMM).
BM/KKH-M5-6
Broker
• Independent business firm, representing buyer,
seller, or both.
• Functions / Tasks performed: bringing buyers and
sellers together, providing information, selling.
• Paid on commission basis.
• (Example: Edible oil).
BM/KKH-M5-7
Commission Merchant
• Independent business firm, representing
manufacturer.
• Mainly deal with bulk commodities like iron ore, coal.
• Functions / Tasks performed: Arranging inspection,
transporting, selling.
• Paid commission by manufacturer.
• (Example: Kudremukh iron ore company).
BM/KKH-M5-8
Jobber
• Similar to commission merchant, representing
manufacturer of bulk material. (e.g. Coal, iron ore)
• Takes title of the goods they sell, but do not
store/deliver.
• Goods are dispatched directly from manufacturer to
customers, based on orders obtained by Jobbers.
• Paid on discount / margin basis.
• (Example – Coal India Ltd).
BM/KKH-M5-9
Value-added Reseller (VAR)
• Independent business firm, from computer hardware and software industry.
• Functions / tasks performed: customising computer hardware and software to solve specific problem.
• Paid discounts / commissions by sellers / buyers / both.
• (e.g. inventory control for steel component manufacturer.
BM/KKH-M5-10
Channel Structure / Channel Alternatives in Business Marketing
* Direct sales includes manufacturer’s own sales force thru’ regional / branch sales offices (personal selling).(Examples of direct and indirect channels – Dell/HP, L&T/CGL)
BM/KKH-M5-11(NIS)
Manufacturer
DirectChannels
Indirect Channels
Direct * Sales Direct
Marketing
Direct mail InternetTele
Marketing
DistributorsManuf’s
Reps. BrokersCommission Merchants Jobbers VARs
Business Customers
Channel Design
• Deals with developing new and modifying existing channels.
• Channel design process includes:1) Develop channel objectives.2) Analyse channel constraints.3) Analyse channel tasks.4) Identify channel alternatives.5) Evaluate & select channels and channel
structure.• Purpose: To select best possible channel structure to
achieve firm’s marketing objectives & goals.
BM/KKH-M5-12
Developing Channel Objectives
• Derived from firm’s marketing objectives.• Focus is on service levels needed by target customers
/ market segments.• Channel objectives vary based on product
characteristics.• (Examples:
1) Materials and parts : steel components.2) Capital items : furnace.3) Supplies & services : computer stationary.)
BM/KKH-M5-13
Analysing Channel Constraints
Constraining factors include:
• External environmental factor like legal issues. (3M-
MRTP)
• Competitive tactics of exclusive distributors / dealers.
(Al. Extru.)
• Company’s constraints on financial resources. (STI)
• Product characteristics of technical complexity. (HTSG)
• Customers’ geographic locations. (MMM)
BM/KKH-M5-14
Analysing Channel Tasks
• Make a list of tasks / functions to be performed by
channel participants.
• Critical tasks are then identified.
• Firm decides which tasks can be performed
effectively and efficiently by the firm, intermediaries,
or both. (Example: CGL-Electric motors).
BM/KKH-M5-15
Identifying Channel Alternatives
• Channel alternatives/channel structure includes:1) Channel participants2) Number of intermediaries: Three strategies:
• Selective distribution. (e.g. Al. extrusions)• Intensive distribution. (e.g. Lamps / Fans)• Exclusive distribution. (e.g. Hydraulic valves)
3) Number of channels:Use of multi-channels is common (why?)
4) Terms & Conditions of agreements:• Responsibilities and tasks.• Sales policy.• Territory / market segments.
BM/KKH-M5-16
Evaluating and Selecting Channelsand Channel Structure
• Criteria / factors used for evaluation are:• Economic • Control• Adaptive• Customer needs
• Once the channel is designed, it has to be administered / managed effectively & efficiently.
BM/KKH-M5-17
Administering / Managing Channel Members
It includes:
• Selecting intermediaries.
• Motivating channel members.
• Controlling / managing channel conflicts (NIS).
• Evaluating performance of channel members.
BM/KKH-M5-18
Selecting Intermediaries
• It is a continuous process (How?).• General criteria for selection.
• Location • Financial standing• Relevant Experience• Infrastructure
• Specific criteria depend on:• Product / market situation• Type of intermediary(Example: MICO/BOSCH)
BM/KKH-M5-19
Motivating Channel Members / Intermediaries
• Understanding perceptions, needs, and conflicts (discuss).
• Implementing partnering concept. (e.g. IBM)• Implementing vendor managed inventory (VMI)
system. (e.g. Hero Cycles)• Ensuring reasonable discounts / commissions. (e.g.
3M)• Establishing dealer / distribution councils. (e.g. CGL)• Other practices.
BM/KKH-M5-20
Controlling / Managing Channel Conflicts
Sources of channel conflicts• Differences in objectives, interests, perceptions (examples?)• Dealing with different types of customers (e.g. CGL)• Adequate / inadequate compensation. (e.g. MMM)• Unclear territory boundaries. (e.g. 3M)Managing / controlling channel conflicts• Effective formal / informal communications. (e.g. STI)• Joint superordinate / fundamental goal-setting. (e.g. STI)• Develop vertical marketing system (VMS). (e.g. Royal Classic)• Diplomacy, mediation, arbitration. (e.g. MMM)
BM/KKH-M5-21
Evaluating Channel Member Performance
• Why evaluate performance of channel members?• Criteria used for evaluation (relevant to a firm)
• Sales achieved against sales targets / quotas.• Customer service.• Customer complaints.• New customers generated.• Market feedback.
• Use weighted factor method for evaluation to get total score against minimum total score. (Example).
BM/KKH-M5-22
Module-6Logistics and Customer Service
• Introduction to logistics.• Difference between logistics & supply chain
management.• Logistics drivers:
• Transportation.• Inventory.• Warehousing.• Order processing.• Material handling.
BM/KKH-M6-1
Logistics and Marketing LogisticsLogistics: It achieves superior customer service at lowest cost by planning, coordinating, integrating mainly transportation, inventory, warehousing activities to make materials available to manufacturing and finished products available to customers.
• Logistics & Marketing Logistics System:
BM/KKH-M6-2
• Marketing logistics (or physical distribution) consists of delivering finished products to customers and intermediaries.
Material Storage
Manufacturing
Finished goods storage
Raw materials
Components
Supplies
Business Customers
Distributors
Marketing Logistics
Logistics
Industrial Manufacturer
Supply Chain Management (SCM)• Main Objective: To gain competitive advantage by (1) reducing cost,
waste, duplication; (2) ensuring superior delivery service; (3) minimising order-to-delivery cycle time.
• Framework of SCM:
BM/KKH-M6-3
• Definition: A network of interdependent firms, co-operatively working together to manage flow of materials, service, information from suppliers to end users.
• A firm adopting SCM, integrates suppliers’ suppliers and customers’ customers to achieve objectives. (e.g. STI, TVS, Hero Honda).
Planning, Designing,Forecasting
Raw materials &
Components Suppliers Purchasing
Production/Operations Distribution Customer
service
Perform-ance evaluations
Business Customers
or End users
Information Flow
Cash Flow
Material/Service Flow
What is the difference between Logistics & SCM?
• Logistics integrates various materials flow activities within
a firm to achieve its objectives. (e.g. STI: Bokaro Steel)
• SCM extends integration to suppliers’ suppliers and
customers’ customers to achieve its objectives.
BM/KKH-M6-4
Transportation• Usually most expensive among logistics drivers / tasks.• Transportation decisions can affect customer satisfaction, due
to: delay in delivery, transit damage, cost. (e.g. Indian Navy)• Decisions include: Selection of Transportation modes &
carriers.• Alternative modes: Rail, Air, Truck, Waterway, Pipeline are
primary.• Combination/Intermodal transportation: Rail & truck
(Piggyback), Waterways & trucks (Fishyback), Water&rail (trainship), Air & trucks (airtruck).
• Selection Criteria: Speed, availability, cost, dependability, capability, frequency.
• Type of Carriers to be used: Common, Contract, Private.
BM/KKH-M6-5
WarehousingWarehouse decisions include:Number, location, and type of warehouses.Objectives: Improve customer delivery service, increase sales, reduce costs.Decisions on number & location of warehouses depend on:• Market coverage.• Customer delivery service level.• Distribution costs.
Types of Warehousing facilities available:• Private: by owning warehouse space.• Public: by renting warehouse space.
Selection Criteria: Customer service levels, investments, operating costs.
BM/KKH-M6-6
Inventory• Inventory acts as a buffer (or safety) against logistical
deficiencies.• Inventory carrying cost includes: (1) storage space charges, (2)
cost of capital, (3) taxes & insurance, (4) risk costs.• Inventory decisions: (A) when to order, (b) how much to order.
When to order? When stocks reach reorder point, which is=delivery lead time x average daily requirement.How much to order? For stable demand conditions,
• ,where, P=ordering cost, D=annual demand, C=annual inventory carrying cost, V=Av. Inventory cost.
• Use inventory software (e.g. IBM’s) to meet customer service levels at lower inventory cost.
• Just-in-time (JIT) techniques minimise inventory cost and meet customer needs. (e.g. Hero Cycles).
BM/KKH-M6-7
CV
2PDEOQ
Order Processing (OP)
• It starts with receipt of customer order and ends when customer receives the ordered product.
• Many functions are involved: field sales, marketing, finance, customer service, marketing logistics, ppc, production.
• If coordination & communication not effective, OP results in customer dissatisfaction (examples).
• How to improve?• Training concerned dept. people.• Group rewards.• Make a senior manager responsible.
BM/KKH-M6-8
Material Handling (MH)
• MH means physical handling of in-coming, out-going, in-process materials in warehouses & shop-floors.
• Objectives to be achieved:• Minimise costs.• Increase usable capacity.• Increase speed of operation.
• How to achieve?Use sophisticated equipment: (e.g. forklifts, stackers, conveyors, dock-levellers).
BM/KKH-M6-9
Module 7: Business Advertising, Sales Promotion, & Public Relations
• What is the role of advertising in Business Marketing?• How to manage B2B advertising, publicity, & internet based
marketing communications?• What is integrated marketing communications (IMC)? (NIS)• How to measure advertising effectiveness and determine
advertising budget?• Why sales promotion? Methods for sales promotion: trade
shows, and others.• Role of personal selling in B.M. (Sales force organisation and
management).• (Sales territories, quotas,) account management.() covered earlier in Sales Management. (i.e. slides: 14 to 61)
BM/KKH-M7-1
Role of Advertising in Business Marketing (BM)• Advertising is less important than personal selling in
B.M.• Still it has important role, since it performs key
tasks / functions.• Creating awareness among potential buyers.• Reaching unknown/inaccessible buying centre
members.• Increasing sales efficiency & effectiveness.• Economical reminder to buyers.• Generating sales leads.• Supporting intermediaries.
BM/KKH-M7-2
Managing B2B Advertising• Selection of media in business ads depends on:
• Target audience• Promotional objectives• Expenditure budget (e.g. Star T. M/CS.)
• Advertising budget / cost is measured by:cost per thousand circulation in business publication=cost per page / circulation in thousand
• General business / trade publications:• Horizontal publications (e.g. Purchase)• Vertical publications (e.g. Textile trend)• Industrial directories (e.g. Tata yellow pages)
BM/KKH-M7-3
What Makes a Business Ad Standout?
• Headline should clearly indicate U.S.P.
• Ad copy should describe benefits
• Photograph of product / service should be
prominent.
• Company / dealers names, phones, web sites at the
bottom. (Examples?)
BM/KKH-M7-4(NIS)
Publicity
• It is a form of marketing public relations (MPR)• Publicity has more credibility & lower cost compared
to advertising. (e.g. Wipro – ET)• Major tools used in publicity:
• Placing technical articles in trade journals.• It generates sales leads (e.g. Star Group)
• It is effective as a part of Integrated Marketing Communications (IMC). (What is IMC?) (e.g. Event sponsorship, donations to causes)
BM/KKH-M7-5
Integrated Marketing Communications (IMC)• It unites various communication elements / tools into a single
campaign.• IMC elements: Ad in trade journals, trade shows, P.R.,
sponsorships, sales promotion, viral marketing, CD-ROMs, catalogs, etc.
• Objectives of IMC:• Cost-effectiveness (limited promotional budget)• Maximum impact• Provides clarity & consistency
• Strategy used (to achieve objectives):• Appoint a head of communication / promotion• Build database• Conduct training programmes
BM/KKH-M7-6(NIS)
Internet-based Marketing Communications
• Internet advertising / Online advertising includes: (It has greater impact than static print ads, as it can include audio and video).• Banner ads: Appear at top of commercial web page.• Rich-media banners: Add animation & interactive games.• Interstitial ads: Whole page ads / pop up boxes.• Out-of-banner ads: Floating ad moves across web page.• Digital coupons: Tied to specific promotions / offer
discounts.• Sponsorships: Sponsoring a section of a site.• E-mail newsletters: Paid ads in many online newsletters.
BM/KKH-M7-7
Other Online Marketing Communications
• Search engine marketing. Firms pay for top placement in a search engine and buy keywords.
• Paid listing in portal sites. Firms pay fees for listing in a category to portal site like Google.
• Permission-based marketing (PBM). Supports one-to-one marketing / correspondence campaigns through opt-in e-mailing lists to specific recipients, who follow links to a web page for additional information.
• Weblogs (Blogs). Loosely structured, free-form sites. Popular with young, Internet-savvy demographic. Nike, Microsoft, Google use blog’s upswing.
• Viral marketing. Word-of-mouth ads thru’ the Internet.
BM/KKH-M7-8
How to Measure Advertising Effectiveness?• Why measure/evaluate ad effectiveness?
• To find if ad objectives achieved.• To know if ad expenditure done properly.
• Marketers to decide in advance (or plan):• What to measure?• How to measure & analyse (i.e. research methodology)
• What to measure includes:• Target audience, buying motives, ad message, media plan,
ad objectives (awareness, attitude).• Ad measurement / evaluation process includes:
• Pre-evaluation / pretesting: before implementation.• Post-evaluation / post testing: after implementation of ad
plan / program.
BM/KKH-M7-9
Determining Advertising Budget
• Methods used to set an Ad (or Promotional) budget:• Affordable method• Percentage-of-sales method• Competitive-parity method• Objective and task method
• In practice, firms use a combination of above methods (e.g. Star Group).
• Ad budgets in B.M. are smaller than C.M.
BM/KKH-M7-10
Sales Promotion• Why firms use sales promotion methods?
• For increasing short-term sales.• For providing incentive to try a new product.• For retaining customer loyalty.
• Methods used for Sales Promotion in Business Marketing.• Trade shows / Exhibitions.• Sales contests.• Technical seminars.• Catalogues.• Promotional letters.• Promotional novelties.
BM/KKH-M7-11
Trade Shows• It is an important sales promotional tool.• Firms buy space, set up booths / stalls at trade shows.• They display and demonstrate their products.• Benefits from trade shows are:
• Establish contacts with potential customers.• Introduce new products to a large audience in a short
time.• Make direct sales.• Evaluate competitors’ products.• Find potential suppliers and distributors.• Generate sales leads.
• Challenges: Increasing costs, how much to spend, which trade show to participate.
BM/KKH-M7-12
Role of Personal Selling in Business Marketing
• Personal selling through sales people in B.M. has greater role than in consumer marketing. (How?).
• Major roles are:1) Part of problem-solving capabilities.
• Understand clearly customer’s problem and solve it with his product / service.
• Give effective customer service.• Convey customer’s feedback to the company.
2) Part of Communication Mix.• Convey selling messages / benefits effectively.• Build relationship with customer.
BM/KKH-M7-13
Sales Force Organisation
• Sales / Sales force organisations are classified into four basic types:• Line Organisation.• Line and staff organisation.• Functional organisation.• Horizontal organisation.
• For characteristics, advantages, disadvantages of above, refer to sales & distribution management course / books.
BM/KKH-M7-14
Specialisation within Sales Organisation
• Why it is needed?• Done by expanding basic sales organisation based on
following specialisation.• Geographical sales organisation.• Product sales organisation.• Market sales organisation.• Combination sales organisation.
• For characteristics, advantages, disadvantages refer to Sales & Distribution Management course/books.
BM/KKH-M7-15
Sales Force Staffing• The Sales force staffing process includes:
• Planning Stage• Recruiting Stage• Selecting Stage• Hiring Stage• Socialisation Stage
• (B.U. Syllabus only mentions recruitment and selection. However, above is covered in Sales & Distribution Management).
BM/KKH-M7-16
Planning Stage
It consists of three steps:• Establish responsibility – H.R. & Sales Managers.• Decide sales force size – Methods used:
• Work load• Sales potential • Incremental
• Outline type of salespeople needed – steps involved:• Conduct job analysis.• Prepare job description.• Develop job specifications.
BM/KKH-M7-17(NIS)
Recruiting Sales Force
• Recruiting process includes:• Finding the sources of sales recruits.• Evaluating and selecting recruiting sources.• Contacting candidates through selected source.
• Purpose of recruitment:• To provide a pool of candidates so as to select
right candidates.• Recruiting includes activities to get individuals who
will apply for the job. (Responsibility?).
BM/KKH-M7-18
Finding Sources of Sales RecruitsFirms use internal and external sources.
BM/KKH-M7-19
Internal Sources External Sources
•Employee referral. •Ads in newspapers / magazines / journals.
•Current employees. •The Internet.
•Promotions, transfers. •Educational institutions.
•Employment agencies.
•Job fairs.
•Other companies.
Evaluating & Selecting Recruiting Sources• Sources evaluated based on database built over
years.• Evaluating factors:
• Performance of salespeople, after 2 years working.• % of salespeople retained, after 2 years working.• Total cost of recruiting.• Select most effective source at least cost.• For a new company, select based on cost.
• Contacting candidates through selected source by H.R.D. (Generally, which source is most effective?).
BM/KKH-M7-20
Selecting Sales Force
• Selection process consists of seven steps:• Screening resumes.• Application blank.• Initial interview.• Intensive interview.• testing.• Reference check.• Physical examination.
• Firms differ on above steps, based on time available & expenditure budget.
BM/KKH-M7-21
Selection Process Details
Screening Resumes• Done when many resumes are received.• If employment agency does initial screening, this
step not needed.• Screening done by comparing resumes with job
specifications.Application Blank (why needed?)
• Widely used for collecting relevant information.• Advantages of application blank:
• Easy to compare applications.• Useful for interview sessions.
BM/KKH-M7-22
Interviews
• Widely used selection method.• Purpose: To decide a candidate’s fitness for a job.• Initial interviews used for screening candidates.• Intensive interviews for getting indepth view of candidates.• Type of interviews / interview structure.
• Structured / patterned interviews (How conducted?)• Unstructured / informal / non-directed interviews. (-Do-)• Semi-structured interviews. (How?)• Behavioural & performance based interviews. (How?)• Stress interviews (Why? How?)
BM/KKH-M7-23
Testing• Many firms use (e.g. P&G, IBM). Some don’t (why?).• Purpose: To find if applicants have traits for success in job.• Type of tests:
• Aptitude: To measure ability for selling & learning.• Intelligence: To find mental ability / intelligent quotient
(IQ).• Interest: To find interest in sales & marketing career.• Knowledge: To measure knowledge of products, markets,
etc.• Personality: To find attitude / traits like empathy, self-
confidence.• Tests must have reliability and validity.• Tests should be one of the tools / methods & not only tool.
BM/KKH-M7-24
Reference Check• Importance due to possibilities of resume frauds and false
personal information (e.g. Wipro).• Done by e-mails / letters / phones / visits.• Instead of candidates’ references, previous employees /
customers / professors included.Physical Examination
• Objective: To find physical problem that may prevent job performance.
• Most companies want prospective employee to undergo physical exam.’
• Few firms ask applicant to complete health dealing form, without seeing a doctor.
BM/KKH-M7-25
Hiring Stage• After selection process, list of candidates to be hired
is made, to perform following activities:• Firm making job offer. (who does?)• Firm persuading applicant to accept it.
Socialisation Stage• It is a process for new salespeople to learn values /
culture of the firm.• It starts from recruitment up to assimilation, which is
second stage of socialisation.• Why socialisation process important (?).
BM/KKH-M7-26(NIS)
Sales Training
• Why firms consider training important?• Sales Training Process consists of:
• Assessing sales training needs.• Designing & executing sales training programme.• Evaluating & reinforcing sales training programme.
• For new salespeople, firms’ designs / plans of training programs vary from a few weeks to several months.
BM/KKH-M7-27
Assessing Sales Training Needs
• Done for (1) Newly hired sales trainers, and (2) Experienced / existing salespeople.
• Methods used for assessment:• Observation of 1st level sales managers.• Survey of salesforce and sales managers.• Customer survey.• Performance testing of salespersons.• Job description statements.• Salesforce audit (part of marketing audit).
BM/KKH-M7-28
Designing & Executing Sales Training Programme
• Sales managers take 5 decisions: Aim, Content, Methods, Execution, Evaluation: ACMEE.
• Aims / objectives of sales training programmes:• Increase sales, profits, or both.• Enhance sales productivity.• Improve customer relationships.• Prepare new salespeople for assignment to sales
territories.
BM/KKH-M7-29
Content of Training Programme
• Broader content for new sales trainees. Includes:• Company knowledge (What kind?)• Product knowledge• Customer knowledge (Such as?)• Competitor knowledge (Like?)• Selling skills / techniques (How?)
• Specific content for experienced salespersons, such as:• New product knowledge (e.g. CGL-MCCB)• Change in organisation structure (e.g. CGL)• Forecasting techniques (e.g. CGL – East).
Content depends on aims of training programme.
BM/KKH-M7-30
Sales Training Methods
Five groups:1) Class room / conference training. Methods used: (a) Lecture,
(b) group discussion, (c) product demonstration.2) Behavioural learning / Simulation. Methods used: (a) Role
playing, (b) case studies, (c) business games.3) Online training. Methods used: (a) Electronic performance
support system (EPSS – information available immediately, in a personalised manner), (b) interactive media training (salespeople can repeat / skip material as desired), (c) interactive distance learning. online training takes 50% less time, 30-60% less costs, more convenient.
BM/KKH-M7-31
4) Absorption Training.• Methods used: Supplying (a) audio cassettes; (b) product
manuals, books, articles; (c) CD-ROMs to salespeople who read/absorb these material.
• For introducing basic material / strengthening previous training.
5) On-the-Job Training.• Most companies use this, since sales trainees are in
realistic sales situations.• Typically, sales trainee is assigned to a senior salesperson
for specific period of time.• Job rotation: For grooming salespeople for management
positions.
BM/KKH-M7-32
Selecting Training Method
• Criteria used: (a) topic, (b) audience, (c) active / passive learning.
• People generally remember10% of what they read20% of what they hear 30% of what they see50% of what they hear & see70% of what they say, and 90% of what they say as they do a thing
BM/KKH-M7-33
Organisational Decisions (Part of Designing) Sales Training Programme
• Who will be the trainees?• Who will conduct the training?• When should the training take place?• Where should the training be done?• What will be the budgeted expenditure for the
training?
BM/KKH-M7-34
Execution of Sales Training Programme
• Execution / implementation includes:• Preparing time-table.• Arranging internal / external trainers.• Making travel arrangements.• Arranging conference hall, teaching aids, etc.• Obtaining feedback of participants.• Make a final check 1-2 days prior.
• Responsibility: Sales training manager / sales trainer.
BM/KKH-M7-35
Evaluation of Sales Training Programme
• It is done to improve training design and implementation, and to find if expenditure was worthwhile
Framework for sales training evaluation:
Outcomes to measure What to measure How to measure When to measure
• Reactions / Perceptions of participants
• Training objective• Was training worthwhile?
• Questionnaires•interviews
• After the training
• Learning – knowledge, skills, attitudes learnt
• Knowledge, skills, attitudes
• Tests• Interviews
• After training• Before & after – training
• Behavioural change • Trainees’ change of behaviour
• Self-assessment by trainees• Observation by supervisors / customers
• After training, over a period of one year
• Results – Performance; Benefits more than cost?
• Sales, Profits• Customer satisfaction
• Company data• Management judgement• Market survey
• After training, Quarterly, Yearly
BM/KKH-M7-36
Reinforce Sales Training
• Behaviour of most salespeople would not change unless there is reinforcement to sales training
• In many companies reinforcement or follow-up trainings are not done
• Training methods used for reinforcement are:• Refresher training consists of continuous training to
overcome deficiencies of experienced salespeople and retraining of salespeople whose job requirements have changed
• Web-based or online methods to reinforce formal training sessions
• Senior salespeople or first line sales managers coaching new salespersons
BM/KKH-M7-37
Motivating Sales Force
• What is motivating salespersons?• It is the effort salesperson makes to perform
various activities of sales job.• Why it is important?
• Because firm’s performance depends on achieving sales volume goal.
• Only 10-15% salespeople are self-motivated. Others need motivation.
• Motivation is derived from Latin word ‘movere’, which means ‘to move’.
BM/KKH-M7-38
Motivational Theories
• Theories relevant to salespeople motivation are:
• Maslow’s hierarchy of needs.
• Hertzberg’s dual-factor.
• Vroom’s expectancy.
• Churchill, Ford, and Walker model of salesforce
motivation, as follows:
BM/KKH-M7-39
Motivational Tools / Methods
• Financial compensation is most widely used tool.
BM/KKH-M7-40
Financial Tools Non-Financial Tools•Financial compensation plan.
•Salary•Commission•Bonus•Fringe benefits•Combination
•Sales contests
•Promotion•Sense of accomplishment•Personal growth opportunities•Recognition•Job security•Sales meetings•Sales training programs•Job enrichment •Supervision
Selecting a Mix of Motivational Tools
• Before selection, sales manager should know and
understand each salesperson’s specific needs.
• Selection of a mix of motivational tools is a
compromise of differing needs of
• Customers
• Salespersons, and
• Company
BM/KKH-M7-41
Compensating the Salesforce
• A good compensation plan should consider objectives from the company’s and salespeople’s viewpoint
• Objectives of compensation plan from the company’s viewpoint
• To attract, retain, and motivate competent salespeople
• To control salespeople’s activities
• To be competitive, yet economical: It is difficult to balance these two objectives
• To be flexible to adapt to new products, changing markets, and differing territory sales potentials
BM/KKH-M7-42
Objectives of Compensation Plan from Salesperson’s Viewpoint
• To have both regular and incentive income
• Regular income by fixed salary to take care of living expenses
• Incentive income for above average performance
• To have a simple plan, for easy understanding
• This is in conflict with the objective of flexibility
• To have a fair payment plan
• Fair or just payment to all salespeople is ensured by selecting measurable and controllable factors
BM/KKH-M7-43
Develop the Compensation Mix
• Widely used elements of compensation mix are: (1) salaries, (2) commissions, (3) bonuses, (4) fringe benefits (or perquisites)
• Expense allowances or reimbursements like travel, lodging, etc are not included
• Basic types of compensation plans are:• Straight salary• Straight commission• Combination of salary, commission, and / or bonus
• 68 percent companies use combination plan and balance 32 percent firms use straight salary or straight commission
• We shall briefly examine above compensation plans
BM/KKH-M7-44
Straight – Salary Plan
• Characteristics:• 100 percent compensation is salary, which is a fixed component• No concern for sales performance or salesperson’s efforts• This plan is suitable for sales trainees, missionary salespeople, and when
a company wants to introduce a new product or enter a new territory• Advantages:
• Salespeople get secured income to cover living expenses• Salespeople willing to perform non-selling activities like payment
collection, report writing• Simple to administer
• Disadvantages:• No financial incentive to salespeople for more efforts and better
performance. Hence, superior performance may not be achieved• May be a burden for new and loss-making firms
BM/KKH-M7-45
Straight – Commission (or Commission Only) Plan
• Characteristics:• It is opposite of straight-salary plan• Most popular commission base is sales volume or profitability• Commission rate is a percentage of sales or gross profit• This plan is generally used by real estate, insurance, and direct-
sales (or network marketing) industries• Advantages:
• Strong financial incentive attracts high performance, removes ineffective salespeople and improves results
• Controls selling costs and requires less supervision• Disadvantages:
• Focus is on sales and not on customer relationship• Salespeople may pay less attention to non-selling activities
BM/KKH-M7-46
Combination Plan
• Characteristics:• Combines straight salary & straight commission plan• Four types of combination plans used by companies:
1) Salary plus commission: suitable for getting improved sales and customer service
2) Salary plus bonus: a bonus is a lumpsum, single payment, for achieving short-term objectives. This plan is used for rewarding team performance
3) Salary plus commission plus bonus: suitable for increasing sales, controlling salesforce activities, and achieving short-term goals. Also suitable for selling seasonal products like fans
4) Commission plus bonus: Not popular. Used for team selling activities for selling to major customers
BM/KKH-M7-47
Combination Plan (Continued)
• Advantages:• Flexible to reward and control salesforce activities• Security for living costs and incentives for superior performance
for salespeople• Rewards specific sales performance• Different plans for different sales positions / jobs
• Disadvantages:• Complex and difficult to administer• May not achieve objectives if not properly planned,
implemented and understood• Indirect payment plan, also called fringe benefits or perquisites,
help in attracting and retaining people, but have now come under government tax in India
BM/KKH-M7-48
Evaluating & Controlling Performance of Salespeople
• Purposes / objectives / importance of performance evaluation of salespeople are:
• Mainly to find how salespeople have performed• This information is used for other purposes, such as:
• Improving salespersons’ performance, by identifying causes of unsatisfactory performance
• Deciding salary increments and incentive payments• Identifying salespeople for promotion• Determining training needs• Motivating salespeople through recognition and reward• Understanding strengths and weaknesses of salespeople
BM/KKH-M7-49
Procedure for Evaluating and Controlling Salesforce Performance
The steps involved in the procedure are:
• Set policies on performance evaluation and control
• Decide bases of salespersons’ performance evaluation
• Establish performance standards
• Compare actual performance with the standards
• Review performance evaluation with salespeople
• Decide sales management actions and control
We shall describe above steps briefly
BM/KKH-M7-50
Set Policies on Performance Evaluation & Control
Most companies establish basic policies. Examples are:• Frequency of evaluation. Mostly once a year.• Who conducts evaluation? Mainly immediate supervisor• Assessment techniques to be used. E.G. Management by
objectives (MBO), 360-degree feedback• Sources of information. Sales analysis, new business
reports, lost business reports, call plans, etc• Bases of salesforce evaluation. (next slide)• Conducting performance review sessions with salespeople
BM/KKH-M7-51
Decide Bases for Salespersons’ Performance Evaluation
• A firm should decide which of the following bases / criteria it would use: (1) result / outcome based, (2) efforts / behavioural based, or (3) both results & efforts based
• A company selects performance bases or criteria from a list of alternatives, some of them shown below:
Quantitative results / outcome bases / criteria
Quantitative efforts / behavioural bases / criteria
Qualitative efforts / behavioural bases / criteria
• Sales volume
• In value / units
•Percentage of quota
• by products & segments
• Accounts / customers New accounts nos. Lost accounts nos.
• Customer calls No. of calls per day No. of calls per customer
• Non-selling activities overdue payments collected No. of reports sent
• Personal skills Selling skills Planning ability Team player
• Personality & Attitudes Cooperation Enthusiasm
BM/KKH-M7-52
Establish Performance Standards
• Performance standards are also called sales goals, targets, sales quotas, sales objectives
• Performance standards for quantitative results are related to the company’s sales volume or market share goals
• Performance standards for efforts / behavioural criteria are difficult to set• For this, companies do “time and duty analysis” or use
executive judgement• Performance standards should not be too high or too low• After establishing standards, salespeople must be informed
BM/KKH-M7-53
Compare Actual Performance with Standards
• Salesperson’s actual performance is measured and compared with the performance standards
• For this, sales managers use different methods or forms:• Graphic rating scales• Ranking• Behaviourally anchored rating scale (BARS)• Management by Objectives (MBO)• Descriptive statements
• Companies combine some of the above methods for an effective evaluation system
BM/KKH-M7-54
Review Performance Evaluation with Salespeople
• Performance review / appraisal session is conducted, after evaluation of the salesperson’s performance
• Sales manager should first review high / good ratings, and then review other ratings
• Both should decide objectives / goals and action plan for future period
• After the review, sales manager should write about performance evaluation & objectives for the future
• Guidelines for reviewing performance of salespersons• First discuss performance standards / criteria / bases• Ask the salesperson to review his performance• Sales manager presents his views• Establish mutual agreement on the performance
BM/KKH-M7-55
Decide Sales Management Actions and Control
• Many companies combine this step with the previous step – i.e. performance review
• During performance review meeting with salesperson, sales manager does the following:• Identifies the problem areas. E.G. Sales quotas not achieved• Finds causes. E.G. less sales calls, poor market coverage, or
superior performance of competitors• Decides sales management actions E.G. train salesperson,
redesign territories, or review company’s sales / marketing strategies
• If a salesperson’s performance is good, he / she should be rewarded and recognised
BM/KKH-M7-56
Sales Territories
• What is a sales territory?• It consists of existing and potential customers, who are
assigned to a salesperson.• Many firms define it as geographical area.
• Major Benefits / Reasons of Sales Territories:• Increase market / customer coverage.• Control selling expenses and time (e.g. MMM).• Better evaluation of salesforce performance.• Improve customer relationships.• Increase salesforce effectiveness.• Improve sales & profit performance. (e.g. MMM).
BM/KKH-M7-57
Assigning Salespeople to Sales Territories
Consider two criteria:1) Relative Ability of Salespeople.
• Based on key evaluation factors: (a) Product & market knowledge, (b) past sales performance, (c) selling skills, (d) communication.
2) Salesperson’s Effectiveness in a Territory.• Based on comparison of social, cultural, &
physical characteristics of the salesperson with those of the territory.
• Objective is to match salesperson to the territory.
BM/KKH-M7-58
Sales Quotas
• What are Sales Quotas (or Quotas)?• They are sales goals / targets set by a company for its
sales / marketing units for a time period.• Sales / Marketing units are regions, branches, territories,
salespeople, intermediaries.• Generally, a company’s sales budget is broken down to
sales quotas for various marketing units. (Example – CGL).• Objectives of Sales Quotas?
• To use as performance standards / goals.• To control performance. (How?).• To motivate salespeople by linking to compensation plans.• To identify strengths & weaknesses of the firm.
BM/KKH-M7-59
Types of Quotas?
• Sales Volume Quotas: (a) Rupees / Dollars, (b) Units,
or (c) Points (When appropriate?).
• Financial Quotas: (a) Gross margin / net profit, (b)
expense.
• Activity Quotas: (a) Selling activities, (b) non-selling
activities.
• Combination Quotas: Combination of few (above)
quotas. (How done?).
BM/KKH-M7-60
Setting & Administration of Sales Quotas
• Set realistic, but slightly stretchable quotas (e.g. GE).• Ensure salespeople understand quotas.
• By their participation in the process.• By continuous feedback on performance vs
quotas.• Have flexibility – change quotas if major changes in
market / company strategies.• Use monthly / quarterly quotas for incentives and
annual quotas for performance evaluation.• Select a few quotas.
BM/KKH-M7-61
(Key) Account Management
• What is a key / major / national account?• Objectives of key account management programme:
• To become preferred or sole supplier.• To ensure long-term growth in sales and profits.
• Strategies to achieve objectives:• Excellent long-term partnering relationship.• Superior quality product and service.• Special sales and marketing programme.
BM/KKH-M7-62
Special programme / action plan for Key Accounts
• Team selling.
• Relationship management.
• Support from senior management.
(Examples: MMM-TVS, STI-Hero Cycles).
BM/KKH-M7-63
Module – 8Pricing Decisions in Business Marketing
The module includes:
• What is the meaning of price in B.M.?
• Describe the pricing decision process followed in B.M.
• Examine the factors which influence pricing decisions.
• What are the pricing methods / approaches in B.M.
• What are the pricing strategies for different situations: like
competitive bidding, across PLC, new products.
• What are the various pricing policies? (NIS).
BM/KKH-M8-1
Meaning of Price in B.M.
• Business buyers want highest delivered value (HDV).
• HDV=Value delivered (or perceived) – cost to buyer.
=Benefits – cost to buyer.
• Cost to buyer=Price of the product / service + freight +
insurance + taxes + installation (if any) + risk of product /
service failure + delivery delays.
• Benefits = Tangible + Intangible
(Examples: Capital Item, component / part, supplies / services
MMM-A.Layland, STI-BAL, RJS-Courier Service).
BM/KKH-M8-2
Pricing Decision Process
Before taking pricing decisions, a firm should do:• Pricing objectives, customer / demand analysis, cost
& competitors’ analysis, govt. regulations. (Why?)After above analysis, a firm makes 3 types of pricing
decisions.• Pricing methods: for setting prices.• Pricing strategies: for different situations like
competitive situation, across product life-cycle.• Pricing policies: such as trade, volume, cash
discounts; geographical pricing.
BM/KKH-M8-3
Factors Influencing Pricing Decisions(also called Price Determinents)
Firms should analyse following factors before making
pricing decisions:
• Pricing objectives.
• Demand (or Customer) analysis.
• Cost analysis.
• Competitive analysis.
• Governmental regulations.
BM/KKH-M8-4
Pricing ObjectivesDerived from corporate and marketing objectives. Alternatives are:• Survival (e.g. STI – recession in bicycle segment).• Maximum short-term profits (e.g. CGL-Transwitch
unit).• Maximum long-term sales (e.g. STI – Steel tubes).• Product – quality leadership (e.g. Blue Star –
Central A.C.).• Inline with competition (e.g. CGL – Motors).• Others: avoid government intervention (elechem),
Fair with customers, and so on.
BM/KKH-M8-5
Demand (or Customer) AnalysisFor its product, marketer should analyse:
• Price elasticity of demand (PED). (Why?)• Cost-benefit analysis (or customer value analysis). (Why?)
PED finds if buyers are• More price sensitive (elastic demand, where PED > 1)• Less price sensitive (inelastic demand, where PED <1)
Demand for which industrial products is elastic or inelastic?Marketers should understand how target customers evaluate:
• Benefits: Hard (Physical or tangible) and soft (service/intangible).
• Costs: Price + other costs (customers’ evaluation criteria). For capital items, life-cycle costing concept used.
Above understanding helps set appropriate price (e.g. STI).
BM/KKH-M8-6
Cost Analysis / FundamentalsFor profitable pricing decisions• Costs must be identified and classified, since costs set lowest price on
price range. (e.g. fixed, variable, total, direct, indirect costs).Marketers must understand concepts of
(1) Economies of scale; (2) Learning/Experience Curve
Cost Per Unit
CostPerUnit
Quantity produced per year
Accumulated production
e.g. Hero Cycles,Chinese manufacturers
(e.g. CGL – Nagar10-30% Reduction
BM/KKH-M8-7
(3) Break-even volume=(Fixed costs)/(Selling price / unit – Variable cost / unit) (e.g. Sangam).
Competitive AnalysisMarketers should get competitors’ information: prices, discounts, costs, production, product / service quality, R&D, marketing. (Why?).Sources of competitors’ information?• Salespeople, intermediaries, market surveys, internate,
buy & estimate.How to predict competitors’ reactions to price changes?• Study major competitors’ sales, costs, strengths,
weaknesses, objectives, strategies, tactics, culture, mind-set.
• Reactions: strong, selective, slow, unpredictable.How to respond to competitors’ price changes? (Price follower) (e.g. STI)
BM/KKH-M8-8
Government Regulations
• In “free market” economy, govt. enacts some
regulations / restrictions. (Why?)
• Examples: Price cartels (price-fixing).
• Predatory pricing not permitted. (Why?)
• Price discrimination on trade / volume discounts to
dealers / distributors not permitted. (i.e. Illegal)
BM/KKH-M8-9
Pricing Methods / Approaches in B.M.Pricing methods, as basis for price setting are:• Cost-plus (or cost-based) Pricing.• Value-based Pricing.• Competition-based Pricing (or Competitive bidding &
Negotiation).Cost-plus Pricing• Variable cost+Fixed Cost/Sales Volume+profit margin=Price.• Assumes customer cares about supplier’s costs.• Ignores relationship between price and demand.• Value / benefits of the product not considered. (Examples:
Defence / govt. contracts)
BM/KKH-M8-10
Value-Based Pricing• Price is set in relation to the product’s value. • Value (worth)=Benefits/Costs.Steps involved in value-based pricing:• Understand benefits needed by different customer groups /
market segments.• Find customers’ costs in using the product.• Determine benefits / costs for different segments. (Examples:
STI (Prime/NP); DuPont (Chemical-Different quality, service, prices).
Competition and Negotiation based Pricing• Setting prices based on competitor’s prices. (price leader).• Negotiated prices similar to “open bidding” for complex (or
non-standard) purchases.• Examples: Govt. firms (State Elec. Boards) & Private Sector
Companies. (Hero Cycles).
BM/KKH-M8-11
Pricing Strategies• Pricing strategies vary for different product / market
situations, like:• Competitive bidding in competitive markets.’• Pricing new products.• Pricing across product life cycle (PLC).
Competitive BiddingFollowed mostly for government units / public sector
firms.• Orders finalised on lowest price bidders.• Can be closed or open tenders (Meaning?).
BM/KKH-M8-12
Strategy for Competitive Bidding
Called ‘Probabilistic Bidding’, with two assumptions:• Pricing objective of seller is profit maximisation.• Order decided on lowest price bidder by customer.
Basic equation: E(A)=P(A)XT(A), where A=Bid price, E(A)=Expected profit at bid price ‘A’, P(A)=Probability of acceptance of bid price ‘A’, T(A)=Profit if bid price ‘A’ is accepted.Most difficult task: to estimate P(A) (depends on knowledge of competitors’ costs and price bids. (Consider an example – next slide).
BM/KKH-M8-13
Example of Competitive Bidding StrategyA govt. closed bid tender for supply of cable joining kits. Tender est. value=Rs. 600 million, 18 # bidders; Firm: Elechem.
Bid Price (Rs) (A)
Total Cost per unit (Rs) (C)
Probability of acceptance at the bid price: P(A)
Profit (Rs) T(A)=(A)-(C)
Expected Profit (Rs) EA=P(A)xT(A)
450 350 0.00 100 0
430 350 0.15 80 12.00
410 350 0.40 60 24.00
400 350 0.50 50 25.00
390 350 0.60 40 24.00
370 350 0.85 20 17.00
350 350 0.92 0 0
330 350 1.00 (20) (20.00)
Elechem quoted: Rs. 400 (maxm. Profit). Tender opening showed: L1=Rs. 330, Elechem was L4 (got only Rs. 0.31 million order). Where it went wrong?
BM/KKH-M8-14
Pricing New ProductsTwo alternative strategies available (for a new product in introduction stage of PLC)• Skimming (high initial price) strategy.• Penetration (low initial price) strategy.
Skimming Strategy:• Used for distinct / high-tech / capital intensive new
product. (High entry barrier).• Initial buyers not price sensitive; Costs & price decline over
time period, to meet needs of other market segments (e.g. LCD Projector).
Penetration Strategy:• Used for low-tech, low-entry barriers - new product -
threat from potential competitors. (e.g. Al. extrusion)• Buyers price sensitive; cost leadership – long-term profits,
large market share.
BM/KKH-M8-15
Pricing Across Product Life-Cycle (PLC)Pricing Strategies in introduction stage discussed earlier.Growth Stage Pricing Strategy:• More competitors enter. More customers use the product.• Marketer faces pressure to lower prices. (What to do?).• Focus on product differentiation & line extension, new segments.
(MMM).Maturity Stage Pricing Strategy:• Aggressive competition. Customers do cost-benefit analysis.• Marketer lowers prices to match competition. (CG-motors).Decline Stage Pricing Strategy:• Maintain price, if product/service quality superior to competitors.
(CG-CF)• Reduce price, if product/service quality equal/lower. (Elechem)• Selectively increase price, if some competitors withdraw. (VIP
luggage)
BM/KKH-M8-16
Pricing Policies
• Why pricing policies are needed when pricing
strategies set basic prices?
• Business customers are different types, buying
varying quantities, geographically located at different
locations.
• To meet these differences, pricing policies developed
to adjust basic / list prices through:
• Trade, quantity, and cash discounts.
• Geographical pricing.
BM/KKH-M8-17
Trade Discounts• Offered to traders like dealers / distributors. • Trade discounts depend on:
• Particular industry norms (e.g. motors, steel tubes).
• Functions performed by intermediaries (e.g. 3M).• Given on basic (list) price: e.g. List price (Rs 100) less
trade discount or margin (10%) =Net Price (Rs 90).• Trade discount to all dealers / distributors should be
same. Any variation would violate MRTP / Competition act.
BM/KKH-M8-18
Quantity (or Volume) Discounts• Offered to all types of business customers, who buy large
volumes.• Quantity discounts are justified. (How?).• Quantum depend on: demand, cost, competition.• Can be given on individual / cumulative orders.Example:
Size of each order or yearly purchases (in numbers) (in Rupees)
% Quantity Discount on list prices
Less than 10 Less than 1,00,000 Nil
11-20 1,00,001-5,00,000 Up to 5
21-30 5,00,001-10,00,000 Up to 7.5
31 or more More than 10,00,000 Up to 10.0
Why ‘up to’ word used?
BM/KKH-M8-19
Cash Discounts• Objective: to get prompt payments.• Offered to all types of business customers.
Who are on credit• Usually 2 to 3 %, depending on bank rate of interest.• Applicable on gross value of bill, if customer pays
within stipulated period of 0-7 days from date of bill / invoice.
• It should not be given in the bill. (why?).How it should be given?
BM/KKH-M8-20
Geographical Pricing
Deciding how to price customers in different geographic locations. Two methods of price basis:• Ex-factory.• F.O.R. destination.
Ex-factory means• Prices at the factory gate.• Freight cost to the buyer.• Distant customers’ landed costs higher. (e.g. MMM).
F.O.R. destination means• Prices same for all customers at various locations.• Average freight cost added to basic / list prices. (e.g. STI).
BM/KKH-M8-21
Chapter-3Business Buying & Buying Behaviour
Business marketers must understand:
• Business buying process – called ‘buyphases’.
• Business buying situations – called ‘buyclasses’.
• Buygrid framework – combining above two.
• Members of buying centre (or DMU), and Key
influencers.
• Models of organisational buying behaviour.
BM/KKH-Ch.3-1(NIS)
Business Buying Process – BuyphasesBusiness marketer must understand:• Organisational buying process has 8 observable and
sequential stages / phases, called ‘buyphases’.• Consumer buying process has 5 mental stages.
BM/KKH-Ch.3-2(NIS)
Business Buying Process Consumer Buying Process
1. Problem/need recognition.2. Decide characteristics &
quantity needed. (e.g. C.F.)3. Develop specifications.
1. Problem/need recognition.
4. Search for suppliers.5. Obtain proposals.
2. Information search.
6. Evaluate & select suppliers. 3. Evaluation.
7. Select order routine. 4. Purchase decision.
8. Performance feedback. 5. Post-purchase behaviour.
Buying Situations – BuyclassesThree common types of buying situations, called buyclasses1. New Task / New Purchase Situation.
• Less knowledge & experience of buyer.• Buyer obtains lot of information. (C. R. Mill)• More risk, longer decision time, more people involved.
2. Modified Rebuy/Change in Supplier Situation.• Change in supplier due to supplier’s poor performance
(RPG).• Change in specifications. (CG.C.F.)• Search for alternate supplier. (Salesperson to note)
3. Straight Rebuy/Repeat Purchase Situation.• Buyer places repeat orders on existing suppliers, if
performance is satisfactory (TVS – STI).• Routine, low risk decision; Less information needed.
BM/KKH-Ch.3-3(NIS)
Buygrid Framework BM/KKH-Ch.3-4(NIS)
Buyphases(Phases in Buying Process)
Buyclasses (Buying Situations)
New Task
Modified Rebuy
Straight Rebuy
1. Problem recognition. Yes May be No
2. Characteristics & quantity of needed item. Yes May be No
3. Description/specification of needed item. Yes May be No
4. Search for and qualifications of potential suppliers.
Yes Yes No
5. Obtaining & analysing supplier proposals. Yes Yes May be
6. Evaluating proposals & selection of suppliers.
Yes Yes No
7. Selection of order routine. Yes Yes May be
8. Performance feedback & evaluation. Yes Yes Yes
Members of Buying Centre
Buying centre/decision making unit (DMU) / purchase committee have following members, who participate in buying decision process and share common objectives & risks.
• Top management persons: GM, V.P., Director.• Technical persons: Production, R&D, quality control,
maintenance, industrial engg.• Buyers: purchase/materials executives.• Commercial persons: Finance, accounts, marketing.
Who are key influencers? (e.g. CG-East)
BM/KKH-Ch.3-5(NIS)
Models of Organisational Buying Behaviour
• Which are the most important factors that influence organisational/business buyers?
• Under what situation personal factors become more important than organisational factors? (e.g. Rourkela Steel Plant).
• Comprehensive models:• Webster & Wind model.• Sheth model.• Lilien & Choffrey model.
BM/KKH-Ch.3-6(NIS)
Chapter-4Buyer-Seller RelationshipFocus of business marketing is on buyer-seller relationship. It includes:• A conceptual framework of buyer-seller
interaction. (Prof. Sheth’s)• Types of relationships: transactional, value-added,
and partnering / collaborative.• Relationship marketing.• Customer relationship management (CRM).• Special dealings: reciprocity, dealing with
customer’s customers.
BM/KKH-Ch.4-1(NIS)
Buyer-Seller Interaction - FrameworkDr. J. N. Sheth’s research: For successful interaction, communication between buyer & seller should be compatible in content & style. (e.g. CGL-K, RJS-K, STI-B).
BM/KKH-Ch.4-2(NIS)
• Content includes information on company/personal needs.• Styles are: task-oriented, personal/social, self-oriented
communications.
IdealInteraction
InefficientInteraction
CompatibleContent
InefficientInteraction
NoInteraction
IncompatibleContent
CompatibleStyle
IncompatibleStyle
Types of RelationshipsBuying and selling firms have a range of relationships:
Transactional Relationships• One-time transaction and relationship. (e.g. Govt. & others)• Price and availability main factors.• Low profitable customers, large numbers, ‘C’ category.Value-Added Relationships• ‘B’ category, medium profitable customers.• Understand and meet customer needs better than
competitors – get higher share (e.g. TI: Hero)• Long-term relationship
BM/KKH-Ch.4-3(NIS)
Transactional Value-added PartneringRelationships Relationships Relationships
Collaborative/Partnering Relationships
• ‘A’ category, high sales & profit potential customers.• Both supplier & buyer should have trust &
commitment.• Build strong social, economic, service, technical ties.• Long-term, mutually beneficial relationship.• Joint teams to solve problems – superior value to
final customers.• Integrate business processes.
(e.g. Automotive industry).
BM/KKH-Ch.4-4(NIS)
Relationship Marketing (RM)
• Select: high sales & profit potential customers. (e.g. Key accounts, OEM customers, ‘A’ category).
• Also applicable to major suppliers & intermediaries.• Focus: long-term, mutually beneficial relationship.• Build strong economic, social, service, technical ties
with key parties.• Objective: Superior value to ultimate customer.• Both parties should have trust & commitment –
Review after 2-3 years.• Not economical for transactional exchanges.
BM/KKH-Ch.4-5(NIS)
Customer Relationship Management (CRM)
• Improves customer loyalty by offering superior value.• Retain customers by superior customer service.• Develop long-term relationship.• Above result in higher profitability.• Firm invests in CRM system, including software.• CRM system gives up-to-date information to all
customer contact employees.• Successful CRM system possible with development of
company culture, processes, and technology. (e.g. Banking Sector).
BM/KKH-Ch.4-6(NIS)
Special Dealings Between Business Buyers and Sellers
Two types:• Reciprocity• Dealing with customer’s customersReciprocityReciprocal dealings between buyer and seller• Buying from a customer• Selling to a supplier
In practice, the process becomes complex (e.g. MMM). Generally disliked by marketing & materials managers. Keep it minimum, if it can not be avoided.
BM/KKH-Ch.4-7(NIS)
Dealing with Customer’s Customers
• Sometimes business marketers want to deal with their customer’s customers.
• It is sensitive matter – may be viewed as interference / not effective (CG-DG Set).
• Effective if proper planning & coordination done with customers. (e.g. aircraft engine manufacturers).
BM/KKH-Ch.4-8(NIS)