Sie sind auf Seite 1von 188




• 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
• Environmental analysis in business marketing.

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
• 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.
Difference Between Business & Consumer
• Basic tasks of marketing are same (Which
• Differences are in the characteristics
Characteristics Business Consumer
Market Markets
• Geographicall Markets
• Geographicall
y y Dispersed
Concentrated • Mass markets
• Few Buyers
Products • Technically • Non-technical
Complex • Standardised
• Customised
Service • Very • Somewhat
Important Important

Characteristics Business Markets Consumer Markets

Buyer Behaviour • Functional • Family members
Specialists involved
Involved • Physiological,
• Rational based Psychological,
buying decisions social need based
• Different types of • Non-personal
relationships relationships
Channels • More Direct • Indirect
• Multi-channels • Few channels,
More levels
Promotional • Personal selling • Advertising more
more important important
Pricing • Competitive • List Prices / MRP
Negotiated prices
How marketing strategies will differ between firms
marketing products to consumer markets & business

Nature of Demand in Industrial

• 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?)
Classification (or Nature) of Industrial Products: Why
Classification of Industrial Customers / Types
of Organisational Customers. (Why study
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
• 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
• 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
2. 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

Purchasing Orientations of Business

• 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
• Procurement Orientation
• Has long-term focus
• Follow collaborative / partnering
Relationships with major suppliers
• Achieve organisational objectives
• Work closely with other functions within
• Supply-chain-management
• Has long-term focus of improving value
• Deliver superior value to end users
• Follow collaborative / partnering

Purchasing Practices of Business

Purchasing in Commercial Enterprises
• Buying Centre includes technical and
commercial departments’ reps, who make
buying decisions
• Major tasks include identifying, selecting,
negotiating, building relationships with
• Purchasing dept. contributes to the
company’s competitive advantage (How?)
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
• Closed / Sealed bidding, or Open / Negotiated
• Orders placed on lowest price bidder(s)
• Process differs slightly for standard & Non-
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.
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.

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)

Influence of Environmental Factors

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 /

Strategies for Managing External

• 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.

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.
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 &
• Few benefits compared. 20% firms mentioned 3
or 4 benefits, compared some with competitors.
No information about customer needs /
• Few benefits meeting customer expectations.
10% firms made their product / service offerings
superior on few benefits that matter most to
customer firms. They demonstrate &

Module 3
Marketing Research (MR) & Marketing
Intelligence System (MIS)

The module includes:

• Introduction to marketing research & MIS.
• Difference between industrial & consumer
• What are the different research methods, and
sampling techniques.
• What is demand analysis?
• Methods used for estimating or forecasting

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)
Marketing Intelligence System (MIS)


Secondary Marketing Decision Marketing Market

data intelligenc support strategy response
sources e system system developm
(MIS) (DSS) ent

n system

• 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

Difference Between Industrial & Consumer

• 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.
• 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.
Research Methods in B.M.
For primary data collection, following methods used.

Factors Qualitative Methods Quantitative Methods

•Objectives Preliminary insights on Answering a problem /

ideas, problems, opportunity /
feelings. information needs.
•Type of Research Exploratory Descriptive & Causal
•Type of Questions Open-ended, Mostly structured
•Techniques used unstructured
Depth interviews & Survey method
Focus group
•Time of Execution Short time Longer time
•Representativeness Small samples Large samples
•Type of Analyses Subjective, Statistical, descriptive,
interpretive causal predictions.
•Generalizability of Very limited; Only Very good; Inferences
Results preliminary insights about facts /
Sampling Techniques
Two basic sampling designs: probability &
• 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

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.
Demand Forecasting / Estimating Methods

Classified into: Qualitative and Quantitative

Qualitative 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
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
• Diffusion of innovation; High-tech marketing &
strategy (NIS).
• Product life-cycle (PLC) analysis; Portfolio analysis
• Market segmentation; requirement & basis for
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).

Definition of Industrial Product

A 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
Total product consists of:
• Basic properties – include fundamental
As competition increases, marketers offer:
• Enhanced properties – include tangible
Product Quality BM/KKH-M4-4

Increasing 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
• 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.
• Support quality – customer needs, technical
service. (e.g. Bluestar)
Factors Influencing Changes in Product
• Product strategy is not strategic. (Which
marketing strategies are strategic?).
• Product strategy is flexible & dynamic, as firms
change product strategy. Why? Because changes
• Customer needs (e.g. vertical stacking:2-6m)
• Technology (e.g. jelly filled to fiber optic
• Government policies / laws (e.g. restrict
tobacco consumption – ITC)
• Product life-cycle – PLC (e.g. wooden to alum.
/steel window frames)
Product Strategy for Existing Products
Steps involved:
2)Evaluate existing product performance
• Use ‘product evaluation matrix’ with 4 factors:
industry & company sales growth, market
share, & profitability.
• Use ‘perceptual mapping’ for poor performing
products, to understand strengths / weaknesses,
for corrective actions.
• Decide product strategies with strategy options:
• Continue product & marketing strategy.
• Modify product & change marketing strategy.
• Drop the product.
• Add new product.
Branding in Business Marketing
• Like consumer marketing, strong brands are
valuable in B2B marketing (e.g. IBM, Infosys,
Purpose of branding:
• Brands make identification of products /
services easy. (e.g. IIMs / IITs)
• Brands differentiate products/services from
• Brands reduce risk & complexity in buying
decisions (e.g. Construction of world-class new
campus of ABA).
• Brands guarantee performance, quality, &
• A brand is a promise to firm’s customers. (e.g.
IBM’s promise: Helping clients succeed through
Branding Process in Business Marketing

To achieve brand success, process followed is:

Yes Plannin Brand Brand Brand
g And Strateg Building Auditin
To Analysi y g
Brand s
or Not
No Stop


To Brand / Not to brand

Main factors considered for this decision:
• High pressure on prices due to competition (e.g.
• 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 Analysis
Firms must develop strategic, marketing, & brand
Key factors in brand planning:
• Involvement of all people for information /
Brand Strategy BM/KKH-M4-10(NIS)

Depends 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 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.,
Brand Auditing
• Periodically audit brand performance, strengths,
weaknesses, using research method.
• Successful companies like IBM, GE do continuous
brand monitoring, alternate month, thru’ field

Innovation & Competitiveness

• Innovation is “any product, process, method,
service, or idea that is perceived as new by
• ‘Continuous innovation’ strategy helps a firm to
differentiate itself from competitors and stay
ahead. It gives competitive advantage. (e.g. 3M,
• 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,

Management of Innovations.
• In successful firms, management of innovations
are individually motivated, customer responsive,
disorderly, & interactive. Many surprises, despite
• In successful innovative companies (like 3M,
Google), innovation process is “controlled
• 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
New Product Development Process
It includes:
• Idea generation  idea screening  concept
development & testing  business analysis 
product development  market testing 
Recent areas of improvements:
• 3D Design technology (or Digital prototyping)
• It allows firms to visualise, test, redesign, and
improve new product, before actually
• This saves time & resources.
• Quality function deployment (QFD) or House of
• A framework to link customer needs to product
design data.
New Product Performance Determinants about
Success factors / determinants:
• Product uniqueness and superior quality (e.g.CG-
• Market knowledge and marketing effectiveness
(e.g. Biplus tubes).
• Technical & production capabilities (e.g. CG –
• Cross-functional team (e.g. CG – DOL: major
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-
Diffusion of Innovation BM/KKH-M4-16
What 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
• Adoption of innovation: a model: •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
High-tech Marketing Strategy
To avoid failures of new high-tech
products/services, marketers should develop &
implement a unique high-tech marketing
• Target a niche market (e.g. e-book)
• Plan whole product properties
• Develop partnerships – with suppliers &
• Have unique positioning strategy
• Effective communication strategy – IMC
• Multi-channel distribution strategy
• Skimming pricing strategy
Product Life-Cycle (PLC) Analysis BM/KKH-M4-19
Industrial 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
• Growth stage strategy: Improve product/distribution; reduce
• Maturity stage strategy: cut costs; enter new markets;
satisfy existing customers.
Portfolio Analysis Models BM/KKH-M4-20

• BCG Model: Growth Share Matrix.

• G. E. Model: Business Screen Matrix.
Purposes: (1) Strategic planning, (2) resource allocation.
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 Model
Which of the 8 products / businesses a firm should invest
and why (in the above figure)?
GE Model: Business Screen Matrix BM/KKH-M4-21

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

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

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:
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

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?

Bases for Segmenting Business

Segmentation is done in two stages:
• Identifying meaningful macrosegments,
based on characteristics of buying
• Subdivide those macrosegments into
meaningful microsegments, based on
characteristics of decision-making units
(DMU) within each macrosegment.
(Illustration: MMM)
Macrosegmentation BM/KKH-M4-26

Macro Variables Examples

• Type of Customer’s Industry Automobile, chemical, textile
• Type of Customer Government, Commercial,
• Company Size Institutional
Small/Medium/Large based on
sales or number of employees

• Usage Rate Nonuser, light/moderate/heavy

• Customer Location user
Distance from supplier factory;
Urban/suburban industrial
• Product Application/End-use For Aluminium extrusion
products, door & window
frames, electrical control
panels, electronic equipment,
Macrosegments, using macro etc. variables, may be
adequate to explain differences in buying behaviour.
Data available from secondary sources at less cost &


Micro Variables Examples

• Buying Situations New task, Modified Rebuy,
• Purchasing Criteria Quality, Price, Delivery,
• Organisational Capability ReputationTechnical,
• Personal Characteristics of Risk taker / Risk avoider
buying centre members

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.)
Nested Approach to Segmentation BM/KKH-M4-28
Developed by Bonoma & Shapiro, it includes more
bases / variables of segmentation:
• Demographics: industry classification, company
size, geographic location. (e.g. MMM).
• Operating variables: technology, user-nonuser
status, customer’s operating, technical, financial
capabilities. (e.g. Biplus).
• Purchasing approach: purchase organisation,
existing relationships with suppliers, purchasing
policies & criteria (e.g. MMM).
• Situational factors: urgency of purchase, specific
application, size of order (e.g. 3M distributor).
• Personal characteristics: buyer motivation, risk
reduction strategies, individual perceptions. (e.g.
STI-CR coils).
Outer nests: (1), (2), (3); Middle nest: (4); Inner

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)
Target Market Strategies

After selecting target market segments,

firms adopt one of the following strategies:
• Concentrated marketing
• Differentiated marketing
• Undifferentiated marketing
• Niche marketing
• (Examples?)
What 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.
Module-5: Management of Marketing M5-1

This module includes:
• What is Business Marketing Channel
• 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
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
• (Examples: CGL, Sangam).
Participants in BMC

• Manufacturer’s regional / branch sales

• Distributors / dealers.
• Manufacturer’s representatives / agents.
• Brokers.
• Commission merchants and Jobbers.
• Value-added resellers (VARs)
Except *, others are called intermediaries /
We shall discuss each participant.
Manufacturer’s Regional / Branch Sales
• Manufacturer participates in BMC thru’
regional / branch sales offices (own sales
• Two types: Stock-Carrying, Non-stock
• 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 &
Distributor / Dealer M5-5

• 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
• Main Categories: General-line, Specialised,
and combination house.
• (Example – Sangam).
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).

• 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).
Commission Merchant

• Independent business firm, representing

• 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).
Jobber M5-9

• 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.
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
Channel Structure / Channel Alternatives in Business

Direct Indirect
Channels Channels

Direct *
Direct Manuf’s on
Sales Distributo
Marketing Reps. Brokers Merchant Jobbers VARs

Internet Marketing

Business Customers

* Direct sales includes manufacturer’s own sales force thru’

regional / branch sales offices (personal selling).
(Examples of direct and indirect channels – Dell/HP,
Channel Design M5-12

• 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
• Purpose: To select best possible channel
structure to achieve firm’s marketing
objectives & goals.
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
• (Examples:
1) Materials and parts : steel
2) Capital items : furnace.
3) Supplies & services : computer
Analysing Channel Constraints M5-14

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)
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).
Identifying Channel Alternatives M5-16

• Channel alternatives/channel structure includes:

– Channel participants
– Number of intermediaries: Three strategies:
• Selective distribution. (e.g. Al. extrusions)
• Intensive distribution. (e.g. Lamps / Fans)
• Exclusive distribution. (e.g. Hydraulic
3) Number of channels:
Use of multi-channels is common (why?)
5) Terms & Conditions of agreements:
• Responsibilities and tasks.
• Sales policy.
• Territory / market segments.
Evaluating and Selecting Channels M5-17

and 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 &
Administering / Managing Channel
It includes:
• Selecting intermediaries.
• Motivating channel members.
• Controlling / managing channel conflicts
• Evaluating performance of channel
Selecting Intermediaries M5-19

• 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)
Motivating Channel Members / M5-20

• Understanding perceptions, needs, and
conflicts (discuss).
• Implementing partnering concept. (e.g.
• 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.
Controlling / Managing Channel Conflicts

Sources of channel conflicts

• Differences in objectives, interests, perceptions
• Dealing with different types of customers (e.g.
• Adequate / inadequate compensation. (e.g. MMM)
• Unclear territory boundaries. (e.g. 3M)
Managing / controlling channel conflicts
• Effective formal / informal communications. (e.g.
• Joint superordinate / fundamental goal-setting.
(e.g. STI)
• Develop vertical marketing system (VMS). (e.g.
Royal Classic)
Evaluating Channel Member M5-22

• Why evaluate performance of channel
• Criteria used for evaluation (relevant to a
• Sales achieved against sales targets /
• Customer service.
• Customer complaints.
• New customers generated.
• Market feedback.
• Use weighted factor method for evaluation
Module-6 M6-1

Logistics and Customer Service

• Introduction to logistics.
• Difference between logistics & supply
chain management.
• Logistics drivers:
• Transportation.
• Inventory.
• Warehousing.
• Order processing.
• Material handling.
Logistics and Marketing Logistics BM/KKH-
Logistics: 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:
Material Storage

Supplies Manufacturing

Finished goods Business

storage Customers

• Marketing logistics (or physical distribution) consists of

delivering finished products to customers and
Supply Chain Management (SCM) BM/KKH-
• 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:
Information Flow

Cash Flow
materials Business
& Planning, Productio Perform- Customer
Componen Designin Purchasi n/Operati Distributi Customer ance s or End
ts g, ng ons on service evaluatio users
Suppliers Forecasti ns

Material/Service Flow

• 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).
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.
Transportation M6-5

• Usually most expensive among logistics drivers /

• 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
• Selection Criteria: Speed, availability, cost,
dependability, capability, frequency.
Warehousing M6-6

Warehouse 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.
Inventory M6-7

• 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,
2PD is=delivery lead time x average daily
How much to order? For stable demand
• ,where, P=ordering cost, D=annual
demand, C=annual inventory carrying cost, V=Av.
Inventory cost.
Order Processing (OP) M6-8

• It starts with receipt of customer order and

ends when customer receives the ordered
• 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.
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-

Module 7: Business Advertising, Sales Promotion, &

Public Relations
• What is the role of advertising in Business
• 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.
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
• Reaching unknown/inaccessible buying
centre members.
• Increasing sales efficiency &
• Economical reminder to buyers.
• Generating sales leads.
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
• General business / trade publications:
• Horizontal publications (e.g. Purchase)
• Vertical publications (e.g. Textile trend)

What Makes a Business Ad Standout?

• Headline should clearly indicate U.S.P.

• Ad copy should describe benefits
• Photograph of product / service should be
• Company / dealers names, phones, web
sites at the bottom. (Examples?)


• It is a form of marketing public relations

• Publicity has more credibility & lower cost
compared to advertising. (e.g. Wipro – ET)
• Major tools used in publicity:
• Placing technical articles in trade
• It generates sales leads (e.g. Star
• It is effective as a part of Integrated
Marketing Communications (IMC). (What is

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
• Maximum impact
• Provides clarity & consistency
• Strategy used (to achieve objectives):
• Appoint a head of communication / promotion
• Build database
• Conduct training programmes

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
• 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.

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
• Viral marketing. Word-of-mouth ads thru’ the
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
• What to measure includes:
• Target audience, buying motives, ad message,
media plan, ad objectives (awareness,
• Ad measurement / evaluation process includes:
• Pre-evaluation / pretesting: before

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.
Sales Promotion BM/KKH-M7-11

• Why firms use sales promotion methods?

• For increasing short-term sales.
• For providing incentive to try a new
• For retaining customer loyalty.
• Methods used for Sales Promotion in
Business Marketing.
• Trade shows / Exhibitions.
• Sales contests.
• Technical seminars.
• Catalogues.
• Promotional letters.
Trade Shows
• It is an important sales promotional tool.
• Firms buy space, set up booths / stalls at trade
• 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.
Role of Personal Selling in Business
• 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
2) Part of Communication Mix.
• Convey selling messages / benefits
• Build relationship with customer.

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.

Specialisation within Sales

• Why it is needed?
• Done by expanding basic sales
organisation based on following
• Geographical sales organisation.
• Product sales organisation.
• Market sales organisation.
• Combination sales organisation.
• For characteristics, advantages,
disadvantages refer to Sales & Distribution
Management course/books.
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).
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
• Conduct job analysis.
• Prepare job description.
• Develop job specifications.

Recruiting Sales Force

• Recruiting process includes:
• Finding the sources of sales recruits.
• Evaluating and selecting recruiting
• Contacting candidates through selected
• 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.
Finding Sources of Sales Recruits
Firms use internal and external sources.
Internal Sources External Sources
•Employee referral. •Ads in newspapers /
magazines / journals.
•Current employees. •The Internet.
•Promotions, transfers. •Educational
•Employment agencies.

•Job fairs.
•Other companies.
Evaluating & Selecting Recruiting
• Sources evaluated based on database built
over years.
• Evaluating factors:
• Performance of salespeople, after 2
years working.
• % of salespeople retained, after 2 years
• Total cost of recruiting.
• Select most effective source at least
• For a new company, select based on
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.
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
• Advantages of application blank:
• Easy to compare applications.
• Useful for interview sessions.


• 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
• Type of interviews / interview structure.
• Structured / patterned interviews (How
• Unstructured / informal / non-directed
interviews. (-Do-)
• Semi-structured interviews. (How?)
• Behavioural & performance based interviews.
• Many firms use (e.g. P&G, IBM). Some don’t
• Purpose: To find if applicants have traits for
success in job.
• Type of tests:
• Aptitude: To measure ability for selling &
• Intelligence: To find mental ability / intelligent
quotient (IQ).
• Interest: To find interest in sales & marketing
• Knowledge: To measure knowledge of products,
markets, etc.
• Personality: To find attitude / traits like
empathy, self-confidence.

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.

Hiring Stage
• After selection process, list of candidates
to be hired is made, to perform following
• 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
• Why socialisation process important (?).

Sales Training

• Why firms consider training important?

• Sales Training Process consists of:
• Assessing sales training needs.
• Designing & executing sales training
• Evaluating & reinforcing sales training
• For new salespeople, firms’ designs / plans
of training programs vary from a few
weeks to several months.

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
• Customer survey.
• Performance testing of salespersons.
• Job description statements.
• Salesforce audit (part of marketing

Designing & Executing Sales Training

• Sales managers take 5 decisions: Aim,
Content, Methods, Execution, Evaluation:
• Aims / objectives of sales training
• Increase sales, profits, or both.
• Enhance sales productivity.
• Improve customer relationships.
• Prepare new salespeople for assignment
to sales territories.
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.
Sales Training Methods
Five groups:
• Class room / conference training. Methods used:
(a) Lecture, (b) group discussion, (c) product
• Behavioural learning / Simulation. Methods used:
(a) Role playing, (b) case studies, (c) business
• 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.

1) Absorption Training.
• Methods used: Supplying (a) audio cassettes;
(b) product manuals, books, articles; (c) CD-
ROMs to salespeople who read/absorb these
• For introducing basic material / strengthening
previous training.
2) 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.
Selecting Training Method

• Criteria used: (a) topic, (b) audience, (c) active /

passive learning.
• People generally remember
10% of what they read
20% of what they hear
30% of what they see
50% of what they hear & see
70% of what they say, and
90% of what they say as they do a thing

Organisational Decisions (Part of

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?

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.
Evaluation of Sales Training BM/KKH-M7-36
• 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 / • Training objective • Questionnaires • After the training
Perceptions of • Was training •interviews
participants worthwhile?
• Learning – • Knowledge, skills, • Tests • After training
knowledge, skills, attitudes • Interviews • Before & after –
attitudes learnt training
• Behavioural change • Trainees’ change of • Self-assessment by • After training, over a
behaviour trainees period of one year
• Observation by
supervisors /
• Results – • Sales, Profits • Company data • After training,
Performance; Benefits • Customer • Management Quarterly, Yearly
more than cost? satisfaction judgement
• Market survey
Reinforce Sales BM/KKH-M7-37
• 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
• Web-based or online methods to reinforce
formal training sessions
• Senior salespeople or first line sales managers
coaching new salespersons
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’.

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:
Motivational Tools / Methods
Financial Tools Non-Financial Tools
•Financial compensation •Promotion
plan. •Sense of
•Salary accomplishment
•Commission •Personal growth
•Bonus opportunities
•Fringe benefits •Recognition
•Combination •Job security
•Sales contests •Sales meetings
•Sales training
•Job enrichment
• Financial compensation is most widely used tool.

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
Compensating the
• A good compensation plan should consider
objectives from the company’s and salespeople’s
• Objectives of compensation plan from the
company’s viewpoint
• To attract, retain, and motivate competent
• 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
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
• 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
Develop the BM/KKH-M7-44
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
• 68 percent companies use combination plan and
balance 32 percent firms use straight salary or
straight commission
• We shall briefly examine above compensation
Straight – BM/KKH-M7-45
Salary Plan
• Characteristics:
• 100 percent compensation is salary, which is a fixed
• 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
Straight – Commission (or
Commission Only) Plan
• Characteristics:
• It is opposite of straight-salary plan
• Most popular commission base is sales volume or
• Commission rate is a percentage of sales or gross
• This plan is generally used by real estate,
insurance, and direct-sales (or network marketing)
• Advantages:
• Strong financial incentive attracts high
performance, removes ineffective salespeople and
improves results
• Controls selling costs and requires less supervision
• Disadvantages:
• Characteristics:
• Combines straight salary & straight commission plan
• Four types of combination plans used by companies:
• Salary plus commission: suitable for getting
improved sales and customer service
• Salary plus bonus: a bonus is a lumpsum, single
payment, for achieving short-term objectives. This
plan is used for rewarding team performance
• 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
• Commission plus bonus: Not popular. Used for
team selling activities for selling to major
Combination Plan
• 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
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
• Improving salespersons’ performance, by
identifying causes of unsatisfactory
• Deciding salary increments and incentive
• Identifying salespeople for promotion
• Determining training needs
• Motivating salespeople through recognition and
Procedure for Evaluating and
Salesforce Performance
The steps involved in the procedure are:
• Set policies on performance evaluation and
• Decide bases of salespersons’ performance
• 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

Set Policies on Performance

Evaluation & Control
Most companies establish basic policies. Examples
• Frequency of evaluation. Mostly once a year.
• Who conducts evaluation? Mainly immediate
• Assessment techniques to be used. E.G.
Management by objectives (MBO), 360-degree
• Sources of information. Sales analysis, new
business reports, lost business reports, call
plans, etc
• Bases of salesforce evaluation. (next slide)
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 / Quantitative efforts / Qualitative efforts /
outcome bases / criteria behavioural bases / criteria behavioural bases / criteria
• Sales volume • Customer calls • Personal skills
• In value / units  No. of calls per day  Selling skills
•Percentage of quota  No. of calls per  Planning ability
• by products & customer  Team player
segments • Non-selling activities • Personality & Attitudes
• Accounts / customers  overdue payments  Cooperation
 New accounts nos. collected  Enthusiasm
 Lost accounts nos.  No. of reports sent
Establish Performance
• 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
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
• 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
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 /
• Ask the salesperson to review his performance
• Sales manager presents his views
• Establish mutual agreement on the performance
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
• 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
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.
Assigning Salespeople to Sales
Consider two criteria:
2)Relative Ability of Salespeople.
• Based on key evaluation factors: (a)
Product & market knowledge, (b) past
sales performance, (c) selling skills, (d)
3)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
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.
Types of Quotas?

• Sales Volume Quotas: (a) Rupees / Dollars,

(b) Units, or (c) Points (When
• 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?).
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.

(Key) Account Management

• What is a key / major / national account?

• Objectives of key account management
• To become preferred or sole supplier.
• To ensure long-term growth in sales and
• Strategies to achieve objectives:
• Excellent long-term partnering
• Superior quality product and service.
• Special sales and marketing

Special programme / action plan for

Key Accounts

• Team selling.
• Relationship management.
• Support from senior management.
(Examples: MMM-TVS, STI-Hero Cycles).
Module – 8
Pricing Decisions in Business Marketing

The module includes:

• What is the meaning of price in B.M.?
• Describe the pricing decision process followed in
• Examine the factors which influence pricing
• What are the pricing methods / approaches in
• What are the pricing strategies for different
situations: like competitive bidding, across PLC,
Meaning of Price in B.M.

• Business buyers want highest delivered value

• HDV=Value delivered (or perceived) – cost to
=Benefits – cost to buyer.
• Cost to buyer=Price of the product / service +
freight + insurance + taxes + installation (if any)
+ risk of product / service failure + delivery
• Benefits = Tangible + Intangible
Pricing Decision Process
Before taking pricing decisions, a firm should
• 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,
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.
Pricing Objectives
Derived from corporate and marketing
objectives. Alternatives are:
• Survival (e.g. STI – recession in bicycle
• 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 –
• Others: avoid government intervention
Demand (or Customer) AnalysisBM/KKH-M8-6
For 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
Marketers should understand how target customers
• Benefits: Hard (Physical or tangible) and soft
Cost Analysis / Fundamentals BM/KKH-M8-7

For 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

e.g. Hero Cycles, (e.g. CGL –

Chinese Nagar
C C 10-30%
ost ost Reduction
Per Per
Unit U
Quantity produced Accumulated production
per year

(3) Break-even volume=(Fixed costs)/(Selling price / unit –

Variable cost / unit) (e.g. Sangam).
Competitive Analysis
Marketers 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
• Study major competitors’ sales, costs,
strengths, weaknesses, objectives, strategies,
tactics, culture, mind-set.
• Reactions: strong, selective, slow,
How to respond to competitors’ price changes?
(Price follower) (e.g. STI)

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)
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
• Assumes customer cares about supplier’s costs.
• Ignores relationship between price and demand.
• Value / benefits of the product not considered.
(Examples: Defence / govt. contracts)
Value-Based Pricing BM/KKH-M8-11

• 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) &

Pricing Strategies
• Pricing strategies vary for different product
/ market situations, like:
• Competitive bidding in competitive
• Pricing new products.
• Pricing across product life cycle (PLC).
Competitive Bidding
Followed mostly for government units /
public sector firms.
• Orders finalised on lowest price bidders.
• Can be closed or open tenders
Strategy for Competitive Bidding
Called ‘Probabilistic Bidding’, with two
• Pricing objective of seller is profit
• Order decided on lowest price bidder by
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
Most difficult task: to estimate P(A)
Example of Competitive Bidding Strategy BM/KKH-M8-14
A govt. closed bid tender for supply of cable joining kits.
Tender est. value=Rs. 600 million, 18 # bidders; Firm:
Bid Price Total Cost Probability of Profit (Rs) Expected
(Rs) (A) per unit (Rs) acceptance T(A)=(A)-(C) Profit (Rs)
(C) at the bid EA=P(A)xT(A
price: P(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?
Pricing New Products
Two 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-
Pricing Across Product Life-Cycle (PLC)

Pricing Strategies in introduction stage discussed earlier.

Growth Stage Pricing Strategy:
• More competitors enter. More customers use the
• Marketer faces pressure to lower prices. (What to
• Focus on product differentiation & line extension, new
segments. (MMM).
Maturity Stage Pricing Strategy:
• Aggressive competition. Customers do cost-benefit
• Marketer lowers prices to match competition. (CG-
Decline Stage Pricing Strategy:
• Maintain price, if product/service quality superior to
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
• Trade, quantity, and cash discounts.
Trade Discounts
• Offered to traders like dealers /
• 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.
Quantity (or Volume) Discounts BM/KKH-M8-19
• 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.
Size of each order or yearly purchases % Quantity
(in numbers) (in Rupees) Discount on list
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 Up to 10.0
Why ‘up to’ word used?
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?
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.
F.O.R. destination means
• Prices same for all customers at various
• Average freight cost added to basic / list prices.
Chapter-3 1(NIS)

Business Buying & Buying Behaviour

Business marketers must understand:

• Business buying process – called
• Business buying situations – called
• Buygrid framework – combining above
• Members of buying centre (or DMU), and
Business Buying Process – BM/KKH-Ch.3-
Business marketer must understand:
• Organisational buying process has 8 observable
and sequential stages / phases, called
• Consumer buying process has 5 mental stages.
Business Buying Process Consumer Buying Process
1. Problem/need recognition. 1. Problem/need recognition.
2. Decide characteristics &
quantity needed. (e.g.
3. Develop specifications.
1. Search for suppliers. 1. Information search.
2. Obtain proposals.
1. Evaluate & select 1. Evaluation.
1. Select order routine. 1. Purchase decision.
1. Performance feedback. 1. Post-purchase behaviour.
Buying Situations – Buyclasses BM/KKH-Ch.3-
Three common types of buying situations, called
2. 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
3. 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
4. Straight Rebuy/Repeat Purchase Situation.
• Buyer places repeat orders on existing
Buygrid Framework 4(NIS)
Buyclasses (Buying
Buyphases Situations)
(Phases in Buying Process) New Modifie Straig
Task d ht
1. Problem recognition. Yes Rebuy
May Rebuy
be No
2. Characteristics & quantity of Yes May be No
needed item.
3. Description/specification of needed Yes May be No
4. Search for and qualifications of Yes Yes No
potential suppliers.
5. Obtaining & analysing supplier Yes Yes May
6. Evaluating proposals & selection of Yes Yes be
7. Selection of order routine. Yes Yes May
8. Performance feedback & Yes Yes be
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.,
• Technical persons: Production, R&D,
quality control, maintenance, industrial
• Buyers: purchase/materials executives.
• Commercial persons: Finance, accounts,
Models of Organisational Buying 6(NIS)

• 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
• Comprehensive models:
• Webster & Wind model.
• Sheth model.
• Lilien & Choffrey model.
Chapter-4 1(NIS)

Buyer-Seller Relationship
Focus 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 /
• Relationship marketing.
• Customer relationship management
• Special dealings: reciprocity, dealing
with customer’s customers.
Buyer-Seller Interaction - Framework

Dr. 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).
Ideal Inefficient Compatible
Interaction Interaction Content
Inefficient No Incompatible
Interaction Interaction Content
Compatible Incompatible
Style Style

• Content includes information on

company/personal needs.
• Styles are: task-oriented, personal/social, self-
oriented communications.
Types of Relationships 3(NIS)
Buying and selling firms have a range of
Transaction Value- Partnering
Relationship added
Relationship Relationship
s s s

Transactional Relationships
• One-time transaction and relationship. (e.g. Govt.
& others)
• Price and availability main factors.
• Low profitable customers, large numbers, ‘C’
Value-Added Relationships
• ‘B’ category, medium profitable customers.
• Understand and meet customer needs better than
competitors – get higher share (e.g. TI: Hero)
Collaborative/Partnering Relationships
• ‘A’ category, high sales & profit potential
• Both supplier & buyer should have trust &
• Build strong social, economic, service,
technical ties.
• Long-term, mutually beneficial
• Joint teams to solve problems – superior
value to final customers.
• Integrate business processes.
(e.g. Automotive industry).
Relationship Marketing (RM)
• Select: high sales & profit potential
customers. (e.g. Key accounts, OEM
customers, ‘A’ category).
• Also applicable to major suppliers &
• Focus: long-term, mutually beneficial
• Build strong economic, social, service,
technical ties with key parties.
• Objective: Superior value to ultimate
• Both parties should have trust &
Customer Relationship Management (CRM)

• Improves customer loyalty by offering

superior value.
• Retain customers by superior customer
• Develop long-term relationship.
• Above result in higher profitability.
• Firm invests in CRM system, including
• CRM system gives up-to-date information
to all customer contact employees.
• Successful CRM system possible with
Special Dealings Between Business Buyers
and Sellers
Two types:
• Reciprocity
• Dealing with customer’s customers
Reciprocal 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.

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