Industrial Marketing

Part One: Introduction to Industrial Marketing
1. INTRODUCTION TO INDUSTRIAL MARKETING 3

Industrial Marketing and Industrial Markets 4
Defining Industrial Marketing 4
Understanding Industrial Marketing 5

Industrial Marketing vs. Consumer Marketing 5
Product Characteristics 7
Buyer Behavior 9
Channel Characteristics 10
Communication Process 10

The Industrial Marketing Environment 12
Technological Environment 12
Customer Environment 14
Competitive Environment 14
Legal/ Regulatory Environment 14
Economic Environment 14

Responsibilities of the Industrial Marketing Manager 15
Planning 15
Coordination and Execution 15
Control 16

2. PRODUCTS, SERVICES AND CUSTOMERS 18
Types of Industrial Products 19
Major Equipment 19
Accessory Equipment 20
Raw Materials 20
Processed Materials 21
Components and Sub-assemblies 21
MRO Items 22

Business Services 24

Systems Marketing 25

Industrial Customers 25
Commercial Enterprises 26
Institutions, Co-operatives, and NGOs 27
Government Agencies 28

Part Two: Understanding Industrial Markets

3. DEMAND ISSUES 37
Characteristics of Industrial Demand 38
Derived Demand 38
Joint Demand 39
Fluctuating Demand 39
Stimulation of Demand 42
Price Sensitivity 42
Oligopsony 43

Factors Influencing Industrial Demand 43
End Consumers 43
Business Conditions of the Customer 44
Financial Conditions of the Customer 44
Price 45

Demand Curves 46
Marketing Efforts and the Demand Curve 46

4. ORGANIZATIONAL BUYING AND BUYER BEHAVIOR 49
The Procurement Function 50
Objectives of the Procurement Function 50
Purchase Policy 52

The Buying Decision Process 53
Need Recognition 53
Product Characteristics 53
Searching for and Qualifying Potential Suppliers 54
Soliciting and Analyzing Proposals 55
Making the Purchase Decision 55
Selecting the Order Routine 55
Evaluating Vendor Performance 55

Types of Buying Situations 56
New Task 56
Straight Re-buy 57
Modified Re-buy 57
Buy-Grid Model 58

Profile of Business Buyers 59
Buying Center 59
Buying Committee 61

Value Analysis 61
Functions of Value Analysis 62
Activities of Value Analysis 63

Vendor Analysis 64
Criteria for Evaluating Potential Vendors 64
Vendor Rating 66

Models of Organizational Buying Behavior 68
Factors Influencing Organizational Buyer Behavior 68
The Sheth Model 68
The Webster and Wind Model 70
The Anderson and Chambers Reward/Measurement Model 72

5. BUYER – SELLER RELATIONSHIPS 76
Uncertainties in Buying Situations 77
Need Uncertainty 77
Market Uncertainty 77
Transaction Uncertainty 78

Evolution of Buyer-Seller Relationships 78
Pre-relationship Stage 78
Exploratory Stage 79
The Development Stage 79
The Stable Stage 80
The Final Stage 80
Implications for Industrial Marketers 80

Types of Buyer-Seller Relationships 81
Transactional Relationships 81
Collaborative Relationships 81
Alliances 82
Reciprocal Relationships 82

Managing Relationships with Suppliers 82
Analyzing Supplier Relationships 82
Managing the Relationship 84
Dimensions of Supply Strategy 84

Managing Relationships with Customers 86
Acquiring the Right Customers 86
Developing Customer-specific Propositions 86
Retaining Customers 86
Role of Sales Personnel 87
Role of Power in Relationships with Customers 88

Managing Relationships with Distributors 89

Conflict and Resolution 91
Problems in Buyer-Seller Relationships 91
Conflict Resolution Strategies 92

Part Three: Industrial Marketing – Analysis and Planning

6. ASSESSING MARKET OPPORTUNITIES 97
The Marketing Intelligence System 98
Developing a Marketing Intelligence System 99
Improving a Marketing Intelligence System 100
Marketing Research and Marketing Intelligence System 101

Differences between Consumer and Industrial Marketing Research 103

Major Tasks of Industrial Marketing Research 104
Market Share Analysis 104
Market Potential Assessment 105
Determination of Market Characteristics 105
Sales Analysis 106
Forecasting 106

The Marketing Research Process 107
Problem Recognition and Definition 108
Developing Research Objectives 108
Establishing Study Hypothesis 108
Planning the Research Design 108
Developing Information Sources 109
Deciding on a Sampling Plan 109
Data Collection 110
Data Analysis 112
Presentation of Findings 112

Demand Analysis 112
Demand Analysis Techniques 113
Common Forecasting Problems 115

7. STRATEGIC PLANNING 117
The Concept of Strategic Planning 118
Integrating Functional Areas 118

The Role of Marketing in Strategic Planning 120
The Hierarchy of Strategies 120
Marketing and Cross-functional Relationships 121

Types of Marketing Strategies 123
Product and Market-based Strategies 123
Demand-based Strategies 123
Competitive Strategies 123

The Marketing Planning Process 124
Awareness of Mission 125
Situational Analysis 125
Setting Marketing Objectives 126
Developing Marketing Strategy 126
Developing Marketing Plan 127
Implementing and Controlling Marketing Plan 128

Tools for Designing Business Marketing Strategy 128
Product Life Cycle 129
BCG Growth-Share Matrix 130
GE/McKinsey Nine Cell Matrix 131
Experience Curve 132
Technology Life Cycle 133

8. MARKET SEGMENTATION, TARGETING AND POSITIONING 136
Segmenting Industrial Markets 137
Benefits of Segmentation 137

Criteria for Segmentation 139
Measurability 139
Potential 139
Compatibility 140
Stability 140
Accessibility 140

Bases for Industrial Market Segmentation 140
Macro Bases for Segmentation 140
Micro Bases for Segmentation 141
Nested Approach to Segmentation 143

Evaluating Market Segments 145
Market Profitability Analysis 145
Competitive Analysis 146

Target Marketing Strategies 146
Undifferentiated Marketing Strategy 147
Differentiated Marketing Strategy 147
Concentrated/Target Marketing Strategy 147
Niche Marketing Strategy 148

Positioning 148
Positioning by Technology 149
Positioning by Price 150
Positioning by Quality 150
Positioning by Image, Distribution, or Service 150

Part Four: Industrial Marketing Mix Elements

9. PRODUCT STRATEGY AND NEW PRODUCT DEVELOPMENT 155
Industrial Product Definition and Characteristics 156
Product Life Cycle 157
Stages of Industrial PLC 157
Characteristics of Industrial PLC 160
Implications for Industrial Marketers 161

Determinants of the Product Mix 162
Internal Factors 162
External Factors 163

Managing Industrial Products 165
Product Quality 165
Product Portfolio Analysis 166
Product Policies 167

Product Innovation 170
Why Innovation? 170
Factors Affecting Innovation in an Organization 171
Innovation and Competitiveness 172
Technology and Innovation 173

New Product Development Process 174
Idea Generation 175
Idea Screening 175
Business Analysis 175
Product Development 175
Product Testing 176
Commercialization 177

Organizing New Product Development Initiatives 177
Product Manager 177
New Product Committee 178
New Product Department 178
New Product Venture Team 178

Adoption and Diffusion of New Products 178
Factors Influencing Adoption 179
Factors Influencing Diffusion 180

10. SERVICE DESIGN AND DELIVERY 182
Characteristics of Industrial Services 183
Intangibility 183
Inseparability 184
Heterogeneity 184
Perishability 185
Specialization 185
Technology 185

Classification of Services 186
Nature of Service Act 187
Type of Relationship between Service Organizations and Customers 187
Nature of Demand and Supply for Services 188
Delivery of Service 188

Service Quality 189
Customer Satisfaction and Loyalty 190
Zero Defections 191
Return on Quality 192

Services Marketing Mix 192
Product 192
Pricing 194
Promotion 194
Place 195
People 195
Process 196
Physical Evidence 196

Service Design 196
Design of Service Process 196
Design of Physical Environment 199

New Service Development 199
Direction 200
Design 201
Testing and Introduction 201

Challenges in Marketing Industrial Services 202
Intangibility 202
Heterogeneity 202
Perishability 202
Communicating the Service Offering 202
Implications for Industrial Marketers 203

International Industrial Services 203
Classification of International Services 204
Technology in International Services 206
Issues Facing International Service Providers 207

11. PRICING DECISIONS 210
Characteristics of Industrial Pricing 211
Types of Prices 212
List Price 212
Net Price 212
Geographic Pricing 213

Pricing Methods 213
Marginal Pricing 214
Economic Value to the Customer (EVC) 214
Break-even Analysis 215
Target Return-on-Investment 216
Target Costing 216
Cost-plus Pricing 217
Supply-Demand Pricing 218

Pricing Strategies 218
Cost-based Pricing 219
Market-based Pricing 219

Factors affecting Pricing Strategy 221
Company Objectives and Strategies 222
Competition 222
Cost 223
Nature of Derived Demand 224
Legal Considerations 224

Pricing across the PLC 225
Introductory Stage 225
Growth and Maturity Stages 225
Saturation and Decline Stages 226

Competitive Bidding 226
Types of Bidding 227
Competitive Bidding Procedure 228
Strategies for Competitive Bidding 228

Price Negotiation 229
Buyer-Seller Behavior during Negotiation 229
Price Negotiation Process 230

Leasing 230
Types of Leases 231
Advantages of Leasing 232

12. CHANNEL STRUCTURE AND DYNAMICS 235
Introduction to Channel Structures 236
Need for Industrial Channels and Intermediaries 236
Characteristics of Industrial Distributors 237

Channel Design 237
Channel Length 237
Channel Intensity 238
Steps in Channel Design 239

Channel Intermediaries and their Functions 241
Serving the Industrial Supplier 241
Serving the Industrial Customer 242

Types of Channel Intermediaries 244
Manufacturer’s Wholesalers 244
Value Added Resellers 244
Merchant Intermediaries 245
Agent Intermediaries 246
Brokers 248
Market Makers 248

Criteria for Selecting Channel Intermediaries 249
Product, Service and Pricing Factors 250
Experience Factors 250
Sales & Size Factors 250
Risk Factors 250

Managing Channel Relationships 250

Channel Conflicts and their Management 252
Sources of Conflicts 253
Types of Conflicts 255
Conflict Management Strategies 257

13. LOGISTICS MANAGEMENT 261
Physical Supply and Physical Distribution in Logistics 262
Physical Supply 263
Physical Distribution 263
Importance of Physical Distribution in Marketing Strategy 264

The Total Cost Approach 265
Interrelationships of Logistics Functions 265
Cost Trade-offs 265

Customer Service 266
Elements of Customer Service 266
Customer Service Standards 267
Impact of Customer Service 267

Warehousing 268
Public Warehouses 268
Private Warehouses 269
Site Location 269

Transportation 269
Modes of Transport 270
Carrier Selection Criteria 271

Inventory Management 271
Determining Inventory Levels 272
Inventory Control 272

Order Processing 274
Order Processing Cycle 275
Technology in Order Processing 275

Coordinating and Managing Logistics 276
Types of Logistics Providers 277

Special Topics in Industrial Logistics 278
Logistics in Government Organizations 278
Logistics in Service Industry 279
International Logistics 279

14. PLANNING THE PROMOTION MIX 282
The Communication Process 283
Components of the Communication Process 283

Marketing Communication Program 285
Establishing Communication Objectives 285
Defining the Target Audience 286
Setting Budget Levels 287
Developing the Message Strategy 289
Designing the Media Strategy 290
Evaluating the Results 291

Elements of Marketing Communications Mix 293
Personal Selling 294
Advertising 294
Sales Promotion 295
Direct Marketing 296
Publicity and Public Relations 297

Role of Literature in Industrial Promotions 298
Planning 298
Production 298
Distribution 299

15. ADVERTISING, SALES PROMOTION AND PUBLIC RELATIONS 301
Functions of Industrial Advertising 302
Creating Awareness 302
Increasing Sales Efficiency 303
Increasing Personal Selling Effectiveness 303
Supporting Channel Members 303

Advertising Planning Process 304
Setting Advertising Objectives 305
Setting Budgets 306
Selecting the Message 308
Developing Media Strategy 311
Evaluating Advertising Effectiveness 313

Sales Promotion 314
Tradeshows and Fairs 314
Sponsorship of Events 316
Catalogs 317
Technical Reports 318
Samples 318
Gifts and Entertainment 318

Public Relations & Publicity 319
Public Relations Planning 319
Target Audience for PR Initiatives 320
Outsourcing the PR Function 324

16. PERSONAL SELLING AND DIRECT MARKETING 327
Role of Personal Selling 328
As a Part of the Product Offering 329
As a Part of the Communications Mix 330

Industrial Selling Process 330
Identifying Potential Customers 331
Selecting Qualified Prospects 331
Pre-approach Preparation 331
Approaching the Prospect 332
Making the Sales Presentation 333
Closing the Sale 334
Follow-up 334

Types of Sales Organizations 335
Customer-based Organization 335
Geography-based Organization 335
Product-based Organization 335
Combination Organization 336
National Account Program 336

Managing the Sales Force 336
The Organizational Hierarchy 336
Recruitment and Selection 337
Training 337
Direction and Motivation 339
Compensation 340
Evaluating Sales Force Performance 341

Direct Marketing 342
Growth of Direct Marketing 342
Direct Marketing and the Communications Mix 343
The Direct Marketing Process 344

Part Five: Industrial Marketing – Evaluation and Control

17. PERFORMANCE MEASUREMENT AND CONTROL 349
The Control Process 350
Developing Performance Standards for Feedback Control 350
Measuring Actual Performance against Standards 352
Taking Corrective Actions 352
Feedforward Control 353

Types of Control 353
Strategic Control 354
Annual Plan Control 355
Efficiency and Effectiveness Control 355
Profitability Control 355

Tools for Marketing Control 356
Marketing Audit 356
Budget 356
Sales Analysis 358
Marketing Decision Support System 358

The Balanced Scorecard 361
Benefits of Balanced Scorecard 363

Part Six: Emerging Trends in Industrial Marketing

18. BUSINESS NETWORKS AND TECHNOLOGY 367
Business Networks in Industrial Marketing 368
Industrial Network Model 368

Relationships in Business Networks 371
Economic and Social Dimensions of a Relationship 371
Development of Interactions and Relationships 372

Technology and Business Networks 373
Technology Management in Business Networks 373

Information Technology in Industrial Marketing 376
Online Marketing 376
Electronic Marketplaces 377
E-collaborations 380

19. ETHICS IN INDUSTRIAL MARKETING 382
Ethics and Industrial Marketing Management 383
Societal Marketing Concept 383

Ethical Issues in Industrial Marketing Research 386
Rights and Obligations of Researchers 386
Rights and Obligations of Sponsors 387
Rights and Obligations of Respondents 388
Ethics and Forecasting 388

Ethical Issues in Buyer-Seller Relationship 391
Ethics in Buying and Selling 391
Ethical Concerns Resulting from Close Buyer-Seller Relationships 393

Ethical Issues Facing the Sales Force 393
Ethics in Dealing with Customers 393
Ethics in Dealing with Employers 394

Ethical Issues in Promotion 395
Comparative Advertising 395

Ethical Issues in International Industrial Marketing 396
Culture and Ethics 396
Marketing Mix in International Marketing 397

20. INTERNATIONAL INDUSTRIAL MARKETING 400
International Industrial Marketing Environment 401
The Economic Environment 402
The Socio-cultural Environment 403
The Political/ Legal Environment 403
The Competitive Environment 404
Adaptation vs. Standardization 404

Entry Strategies in International Markets 405
Exporting 406
Contracting 407
Strategic Alliance 408
Joint Venture 410
Subsidiary 410

Decision Making in International Industrial Marketing 412
Product Decisions 413
Pricing Decisions 413
Distribution Decisions 417
Promotional Decisions 417