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INDUSTRIAL MARKETING
How to connect to the Business World Prolo ue

M!r"etin in the #$st %entur&

It is gradually understood that marketing is the most critical component in the running of an organization. The inputs are critical throughout the entire strategic planning process and effective implementation for short turn survival and long term sustenance through the building up of sustainable competitive advantage. Marketing also contributes to the survival during severe downturns and subsequent decrease in financial resources, increase number and type of competitors and a more diversified consumer base disaster and other dynamic environmental factors. !elationship Marketing" Marketing in the contemporary conte#t can be viewed as a value adding process directed towards relationship marketing. $ollowing chart represents a critical set of relationships across the boundaries to be involved in such a process" %upplier !elationships &roducer !elationships (istributor !elationships 'ustomer !elationships Internal !elationships 'ommunity !elationships $acilitator !elationships

The process involves all the activities where marketing is involved. Marketers need to be innovative and fle#ible to make these mutually beneficial. Importance of relationship becomes even more compelling in view of the highly volatile and uncertain global environment. The nature and strength of such relationships and the overall management of marketing process are significantly affected by changes as the technological shifts, enhanced information availability and the transfer capabilities. %h!n e in rel!tionshi' (etween M!r"etin !nd other (usiness )unctions" The distinct functional boundaries are becoming irrelevant.)rgansations are developing more fle#ible structures to deal with the rapid changes in the operating environments. This is needed to take care of the issues inherent in the relationships and alliances. The focus now shifts to people and social processes that bind the actors together more than the products and firms as units of analysis. In the current scenario, marketing is integral to the cross functional network working in partnership. Marketing may even have the role of a prime driver in the network. !elationship between various functions includes an e#panded role for the customers of the organization. In the past one relied largely on customer surveys to determine marketing strategies, customers are now providing important inputs into the decisions of other functional areas an s well. Trend towards customer orientation invariably results in involving the customers in the design process of the new products and even more in the process of product modification. %h!n es in the *r !nis!tion!l Structures+ *s a consequence of the pressures on margins and continuous volatility in the markets, organizational structures are flatter and the time horizons e#tremely compressed. Middle management, the bearer of all bad news is gradually getting e#tinct. This means authority much earlier than in the past. This also involves working in cross functional teams which keep on evolving over time. This workload gets added to the normal

+ responsibility for bottom line performance, The transformation for marketing implies shift from transaction orientation and profit ma#imization to the management of strategic partnerships. Marketing decisions are made within the framework of matri# or cross functional organizations. ,ocus on %usto-er S!tis)!ction 'ustomer satisfaction is becoming the focal point of all long term plans. It therefore is necessary to know who the customers are, why do they buy and what gives them the satisfaction. %hifting demographics, economic concerns and advances in technology contribute to the change in the role of marketing to the end customers. )rganisational buying has been considerably affected by the economic and political conditions right across the world. -ottom line profitability, intensity of service at all stages of buying and assured quality has become the norms of buying. &urchasing processes have also gone through ma.or changes as a result of the impact of technology and the net. 'ustomer/s wants and needs are being considered right at the time of designing and delivery, both of goods and services. )ne very definitive role is that of point of sale scanning to capture and utilize customer based information. !$I( applications could add another dimension to the process. 'hanging markets and market conditions require shorter response time. *s a result designers and customers are getting more thoroughly involved in the design and manufacturing process to meet more comple# and sophisticated market demands. .!lue !dded -!r"etin 0 the right combination of quality service and value0 is the key to market success. 'ustomers perceive high value at a reasonable price not necessarily the lowest price. 1uality goes beyond the obvious and encompasses total e#perience during the life time of usage *dvances in technology have added value to the goods and services. $or e#ample, banks are using high tech '!M initiatives, integrating technology with the human touch to improve the service to the customer. 1uality and value are often defined in terms of service quality. &oor service leads to dissatisfaction resulting in the customer shifting suppliers and brands. %ervice evaluation depends upon the factors which the customer considers important and is likely to shift with the customer segments. I-'ort!nce o) intern!l M!r"etin " 'omprehensive internal marketing motivates employees to focus on the end customer because after all, service is everybody/s business. The pay off comes in terms of more satisfied customers as well as employees. added value for the brand and better bottom line. 2hen the workforce understands the needs of the customer it is likely to serve them well to have a higher level of retention. 3mployees are motivated when they feel that they are listened to and feel that their views are considered. This also results in higher employee retention, Buildin -!r"ets )or the Lon ter-+ !elationship with customers has become a primary concern of the marketers. )ne is shifting from the mass marketing strategies. !elationship, being preferred, implies treating each customer as a unique segment to ma#imize the share. 4ot topics like the 5markets of one6 .ust indicate the 7importance of such an approach. 8ew technologies make it possible to begin outside the company by knowing more about the wants and the needs of the key customer and then working backwards to develop the strategies for the organization and the brand. The range of marketing relationship e#tends from a single transaction to vertical integration as shown in the illustration below. %uch alliances are improvement to improve the competitive pulsation. Marketing is involved the formation and management of strategic alliances because of their involvement with the customers, resellers or even competitors for the development of new products, technology and markets.

The !ange of Marketing !elationships

%h!n es in the en/iron-ent+ M!r"etin *r !nis!tion Ecoc&cle+ *doption of natural eco cycle with the addition of human ability to take conscious rational action can be considered as organisation ecocycle. This is shown below"

Marketing Organization

)ne can briefly look at the phases of the marketing eco cycle shown in the illustration below" 3ntrepreneurial &hase" %pontaneous behaviour and learning gets promoted as organizational culture. &lanning tends to be short term in the absence of considered long term planning.

: This is followed by the stage of strategic growth when all the weaknesses of the earlier phase are eliminated. %ystems and structures get formalized. 4owever, with the success come increased competition and more demanding customer This leads to the marketing organizations losing the competitive edge, scarcity of resources and environmental threats. Monopoly like situation could result in stronger reactions, 'onstraints, including being the prisoners of success in the past, inhibit innovation and result in an inability to adapt fast enough. )rganisations now find themselves vulnerable. 'risis can even threaten the e#istence. This calls for flattening hierarchies, throwing the code books etc. The catharsis resulting from such a situations forces the organizations to move back the early stages of renewal curve of the cycle. 'onfusion and uncertainty prevail as managers try to salvage the operations by adapting and innovating. *dditional constraints may be generated internally or e#ternally through changes in the corporate culture, mergers and acquisitions, shortage of resources etc. (ifference between rising again and failures depends on the leadership.)rganisations survive because of leadership and shared values. 'onstant change in the environment affects the life of marketing organization. Many innovative opportunities have emerged from crisis both internal and e#ternal. 2ars have led to the emergence of new technologies and modes of communication even the importance to the concept of management, 'hanges are inevitable. It is up to the organizations to cease the initiative. &roactive action can resulting creative destruction while laid back approach would lead to destruction. Business %h!n es !nd En/iron-ent!l ,!ctors+ 2e give below a summary of many such changes" 3nvironmental $actors ;lobalisation IT and 'omputer !edesigned )rganisation %tructures Information age %ecurity, 3thics and '%! %HAPTER 0 I Marketers have to adopt to the macro environment Indian companies e#panding the world on both sides, as a source and also as a sourcer *lliances among the tech oriented $latter )rganisations, greater responsibilities, +:, < working )n line real time availability and sharing of the data Impact on world trade and relationships between businesses and the governments

INTR*DU%TI*N T* INDUSTRIAL MARKETING

Marketing is an e#tremely e#citing field. (ealing with consumer makes it quite glamorous. $ocus on the end customer takes most of the attention. This results in the process involved in the way the product is brought to the end customer is normally not getting sufficient attention. * close analysis of this process can be very instructive. )ne can consider almost any product for this e#ercise. 2e can consider the case of a cell phone. 'ell phone has, at a sub assembly level about 1= components. 3ach of these components is in its turn manufactured and processed by their own manufacturers. Thus even at the simplistic level, we would have 1= transactions taking place between vendor and assembler of the cell phone. *fter the assembly, the product goes to the distribution channel. This normally would have at least three intermediate stages before it is available to the customer. The entire analysis of marketing concentrates on the end customer cost. *s you have seen above, there are a minimum of 1> transactions before the

= product is offered to the customer. This is the amount of effort that goes in for bringing the product to the customer. 8ow all the 1> transactions would fall into the category of industrial marketing. The total value involved is quite large. 2e can look to the magnitude of industrial purchases a little differently. ;eneral 3lectrical purchase of products and services is more than the ;ross 8ational &roduct of more than half of the countries in the world. Industri!l M!r"etin Industrial Marketing is marketing products or services to other companies, government bodies, institutions ?such as hospitals@, and other organizations. Mc(onald/s and other companies buy products, such as salt, and services to use in the production of their product. 2ith the e#ception of the purchase you make from the Mcdonald counter, all the buying and selling in the process involves business marketing or industrial marketing. It is important to keep in mind the e#tent of this activity. &urchases by organizations such as companies, government agencies, and institutions account for more than half of the economic activity of any country.

2hat are these

Industrial markets All organizations that purchase goods and services to use in the creation of their own goods and services. Industrial marketing The process of matching and combining the capabilities of the supplier with the desired outcomes of the customer to create value for the customers customer.

Industrial marketing is unique. The channels of distribution are shorter and more direct. This leads to much more emphasis on personal selling and negotiation. 'omple# buying processes involved in organizational buying call for totally different and unique promotional strategies. !elationships are also different between buyer and seller when both are organizations. This a different ball game compared to a normal situation than the one when one of the two parties is an individual consumer.

Bu&er0Seller Rel!tionshi's
In industrial or business marketing, situations where strong personal and business relationships grow between buyer and seller are not as rare. The strategic importance of many purchases is too great for companies to always shop around when making a purchase they need to make absolutely sure that the

A product fits their needs and that it will be available when needed at the right cost. Therefore, many companies enter into long0term contracts, build relationships that enable buyers and sellers to plan .ointly, and work to secure the future for both companies. Tr!ns!ction!l M!r"etin Rel!tionshi' M!r"etin &urpose of marketing is to make sale. %ale is result and the measure of success -usiness is defined by its products and the manufacturing facilities. -rand, consequent image are critical. &urpose of marketing is to create a customer. %ale is beginning of relationship profit is measure of success -usiness is defined by its customer relationships. the Balue is added through technology, knowledge, informational and social ties.

&rice is determined by competitive market &rice is determined by negotiation and co0operation forces price is an input. between the two parties leading to .oint decision making &rice is an outcome. 1uality is largely related to the technicalities. 1uality is largely functional. &erception of the 'an be considered as an outcome of the customer is a sum of the multiple interactions. solutions. 'ommunications are aimed at aggregates of 'ommunications are targeted and tailored to customers. individuals. Balued is created by the products and prices. Marketer is valued for its present and future problem0solving capability.

%tress is to make the ne#t sale find the ne#t 3ffort is to satisfy the customer by delivering customer. superior value. %atisfaction is measurable by surveys. Market satisfaction can be measured directly by Market share can be used to estimate the managing the comparatively smaller customer base. customer satisfaction. !ole of internal interface is not significant as %atisfaction is achieved by managing the internal internal marketing is not important. interface. This makes the role of internal marketing very critical. T&'es o) Business Rel!tionshi's 2e can start looking at the nature of relationships involved in the conte#t of marketing. Transactions are always important as they form the base of moving forward. )n one side are the products which are elementary and do not need any great effort for shopping. There is not much more than the core product. Image of the company or the brand of its products can keep the customer attached to the seller or the products, perhaps by supplementing the promotions. !eplacements are easily possible and therefore the competition can always walk in. %omeone offering better price or better terms can always make an entry price sensitivity is critical in case of transactional marketing. There are transactional relationships, situations where buyers and sellers interact with only selfish consideration, without thought of the possibility of future interaction.

< Think of relationships as falling somewhere along a continuum. *t one end is the purely transactional relationship. *t the other end of the business relationship continuum is the partnership, which many writers liken to a marriage. %omeone approaching the relationship approach has to create more value to the customer than what can be provided by the core product alone. They would have developed more specific relationships. This is possible through technological inputs. This may be supplemented by knowledge or information related ties or even social ties. The effort is to go towards developing a partnership. *s we have seen in the table above, a partnership is a relationship characterized by mutual commitment, high trust, and common goals. *chieving partnership status is a marketing ob.ective for many marketing organizations. &artnership status offers much greater opportunities to develop new business. This helps the seller party a chance to gain direct access to valuable information amongst many other benefits. Issues o) 1u!lit&+ h!rd !nd so)t di-ensions Transaction marketing does not involve any contacts outside the product per se. -enefits looked for by the customer are embedded in the product itself. -rand image is the only additional benefits that are available to the customer. 'ustomer interface is much broader in case of the relationship marketing. The seller uses the opportunities to provide its customers with added value. 2ith this, the perception of the interactions by the customers gains a lot more importance. It becomes necessary to manage the quality of the interactions. This becomes a lever for gaining customer attention and hence gains in importance. This naturally makes it necessary to carefully control both the hard and soft issues involved in the interactions. It is normal for the hard quality of interactions to be carefully planned for and also taken care of. -ut the mode of delivery is equally important to help gain the full benefits. 3ven small slips could impact negatively on the carefully crafted technical support programmes. 2e all have the e#perience of being told how important our call is and still being kept on the hold for 1C minutes. This it self can be quite disconcerting. -ut worse cases can be cited. 3#cellent service being offered by rude staff for e#ample takes the sheen away from the entire effort. %or'or!te rel!tionshi's 'orporate relationships can also safeguard the e#change mechanism by ownership or vertical integration. This happens only in an e#treme situation but is a distinct possibility. * publisher assures itself of sustained access to printing services by having its own printing press. * medical equipment manufacturer may acquire a wholesaler to provide the selling and distribution services it requires. In these e#amples, the trading relationship shifts to an employment relationship. 3mployees work within a set of e#plicit rules and under an authority structure that is different from what is applicable between two organizations. Intern!l M!r"etin !s ! 'rere2uisite+ Internal marketing as a process has to be integrated with the total marketing function. 5Internal market of employees is best motivated for service mindedness and customer oriented performance by an active marketing like approach where a variety of activities are used internally in an active marketing like and coordinated way6 * thorough and on going internal marketing is a must for the relationship marketing efforts to be successful. It is not possible only for the marketing personnel to carry this through. %once't o) M!r"etin %ontinuuBarious types of goods and services can be placed along the imaginary continuum. Markets for $M'; will be most productive for the transaction type strategy. Marketing of capital goods or even services would

> suffer seriously with such an approach. Interface has to e#tend beyond the marketing department on a regular basis. Time perspective of marketing differs depending on where the product market lies on the marketing continuum. In transaction marketing one concentrates on the outcomes of each transaction. Time perspective has to be much longer in the process of development of relationships. The ob.ective is to look for long run enduring and profitable relationships. 2e have referred to the relevance of the product market. !elationship development process is time consuming and therefore e#pensive. (epending on the product market configuration one decides on the e#tent of relationship development. Thus, even when one is selling a commodity, product like paper to a large customer, it perhaps calls for a relationship approach. This is an important issue which makes this approach far more critical in the conte#t of industrial marketing. Shorter Distri(ution %h!nnels In most cases, distribution channels do not include anyone between the manufacturer and the customer who uses the product, or user. Many manufacturers sell directly to the user. 3ven when the intermediaries are used, this may include one or two members at the most. This is a large difference between industrial marketing and consumer marketing. %horter channels result in much closer relationship between manufacturer and buyer. -uyers can have more direct input into the product planning process. This leads to direct relationships between various functional areas within both buyer and seller as a natural outcome. Thus, for e#ample, the accounts payable department of the buyer may talk directly with the billing department of the seller to resolve problems. The arm/s length relations are avoided to have the full benefit of such a situation. E-'h!sis on Person!l Sellin %tronger relationships and shorter channels are two reasons why there is a greater emphasis on personal selling in industrial marketing. (irect communication between buyer and seller also increases the need for strong personal selling, because someone is needed to coordinate that communication. %alespeople are the members of the organisation responsible for coordinating their company/s efforts at satisfying their customers. That responsibility is greater when the organisation is concerned about creating and maintaining partnerships with its customers. 'omple# buying procedures involving many members of the buying organisation also require personal selling. )nly through personally getting to know each individual and coordinating the sales0purchase process can a business by successful. Multiple personal relationships can strengthen organizational relationships, and these relationships are the responsibility of the salesperson. 2e can summarise the differences between consumer marketing and Industrial Marketing in the following table"

Industri!l M!r"ets
%tructure &roducts -uyer -ehaviour (ecisions 'hannels !elatively fewer buyers 'lustering or geographical concentration 'omple#, needing customization, allied services important $unctional involvement, rational motives, importance of relationships (istinct, observable stages %horter, more direct

%onsu-er M!r"ets
Darge number of customers Mass markets %tandardised for mass markets &sychological motives, family involvement Mental, not observable Indirect, multiple

7 &romotion &rice Importance of personal selling *dvertising important -idding and negotiations a norm list prices Dist prices and standard discounts for standard products of low value

MARKETING ,UNDAMENTALS IN INDUSTRIAL MARKETS

Industrial markets at a very fundamental level are quite similar to consumer markets but with a very specific difference E motivation involved here are likely to be far more comple#. Fou are all very familiar with the traditional : &s. To clarify the concepts, we shall consider the basic difference in industrial markets against consumer markets. This will cover the traditional : &s. Product In general marketing theory, the term product refers to a core product ?or service@ that can be augmented by additional features and options that will appeal to different buyers. In a consumer product such as a new car, buyers can add many options to the core vehicle besides selecting the shade, such as a premium sound system, quality of seats or other au#iliaries. The vehicle manufacturer or the dealer may provide options to assist in the ownership process, such as financing, e#change options, insurance and even e#tended warranty. Taken together, these options, those that modify the performance of the vehicle and those that facilitate purchase and ownership, create the augmented product. -uyers have the choice to customize E to design E their vehicle to their own tastes and needs.

Marketing Mi#" Product

The total offering is created b& a partnership between the bu&ing organization and the marketing organization. The process creates an augmented product that is specific to the bu&ing units needs and ma(imizes the value creation capabilities of the marketer.

! "ore #roduct ! $inancing Terms ! %eliver& Options ' Total Offering

In contrast, consider the product when an automobile company markets a fleet of new cars to a company. The core product is still the cars, but now the quantity and assortment of models become important as well and can be considered part of the core product. In addition, the car company arranges an availability and delivery schedule. * contract for spare parts delivery becomes part of the deal. The arrangement may also

1C include training of service personnel. The car company may provide some or all maintenance and service. %uch a situation is more likely in case of trucks though. Price &rice is the mutually agreed upon amount ?of money or something else of worth@ that satisfies both sides in the e#change. It must be beneficial to both the sides. The buyer and the seller must perceive an increase in the value they hold as a result of the transaction. &rice, the measure of value e#changed, is determined by the market E not by the costs associated with the manufacture of the offering. In business markets, price determination can be the final step in a comple# process. The process may include the following steps" (esign, (evelopment and 8egotiation. This becomes even more important when the product is the result of a collaborative effort. $or less0comple# or standardized products, price may be the result of a competitive bidding process. )nly for the most generic of products will price in business0to0business markets be based on a 5list6 price as in consumer markets. Pl!ce In consumer markets, place is about getting the product to the customer in the right form ?size package, quantity, etc.@ at a convenient time ?availability of e#tended shopping time, short waiting periods for special orders, etc.@ with minimum inconvenience associated with the place of purchase and with possession ease ?transfer of ownership, such as cash, credit, acceptance of personal checks@. 3conomic utility is a necessary part of the concept of value in business0to0business markets. It very often takes the form of supply chain management, inventory services, and material resource planning. -ussinesses design their marketing channels to provide ma#imum value to their customers while looking for economy, reducing costs involved in the process of offering the customer the economic utility. This is true for both consumer and business0to0business channels. The ma.or differences lie in the length and concentration of the channel. The quantities purchased in business0to0business marketing are substantially larger than consumer purchases with timing of delivery a critical factor, leading to direct relationships between manufacturer and customer and eliminating channel intermediaries. Pro-otion Industrial marketing has a totally different emphasis on the parts of the promotion mi# ?advertising, sales promotion, personal selling and public relations@ than is commonly found in consumer marketing. Manufacturers attempt to create awareness of and interest in their products by intensive use of advertising. In consumer markets, advertising thus plays the largest role in the promotion mi#. &ersonal selling is the most used method in Industrial markets. It is the most effective type of promotion in the industrial marketing milieu. It allows for the intensive use of a dialogue, which allows rapid and accurate feed back to the marketer. 2e have earlier discussed that products in industrial marketing are often the result of collaboration between the supplier and the customer. This collaboration requires the building of relationships between individual in their respective organizations. * strong personal selling and the ensuing dialogue helps in this effort. The

11 carmaker in our e#ample may have a sales team focus on providing information and personal service to the e#ecutives and employees of the buyer company involved in purchasing, managing, and maintaining the rental car fleet. The organisation operating in the current marketing scenario has to make the optimum use these resources for identifying the needs of the customers. This is the driving force which defines the role of marketing towards meeting the customer needs. This is e#tremely important while approaching the industrial markets. Deri/ed De-!nd The nature of demand in industrial markets is significantly different from the consumer demand. (erived demand is caused by the chain of suppliers and producers that contribute to the contribution of the total offering. This comes out of the demand of goods and services by the individual consumers. Farn is needed to weave fabric. $abric is needed to make clothes which in their turn are needed to make shirts let us say. *ll these demands are derived demands E a result of the ultimate consumer demand for shirts. (emand in industrial markets is derived from consumer demand. -ecause of the derived nature, demand is leveraged E greater swings affect this demand than in consumer markets. * small percentage change in consumer markets leads to much greater change in business markets. The Bullwhi' E))ect The volatility of derived demand can be easily comprehended by a look at the concept of the bullwhip effect. It shows how the end result is far more e#aggerated at the end point. 'onsumer demand can vary as a result of seasonality or other market factors like spurt or drop in the market demand. 5Gpstream6 suppliers of services and components that contribute to the total offering e#perience a leveraged impact. This can cause wide swings in demand. %uppliers in the chain forecast production and inventory levels based on e#isting order rates. 2hen consumer demand drops, the order rate drops and supply chain members compensate with lower production and inventory levels. The initial correction is normally much greater than the difference between the old forecast and the actual demand that would be logical.

1+

The -ullwhip 3ffect

). *uppliers forecast their production on e(isting order rates. +. ,ut- if consumer demand drops- the order rate also drops.

.. *uppl& chain members are then likel& to over/ compensate the difference between the old and new forecasts- because0 A. ,. ". %. Inventor& levels can decline to fit new order rate"ustomers change orders fre1uentl&Minimum order 1uantities ma& e(ist- and2or Trade promotions ma& influence bu&ing patterns

(discontinuities of B2B demand add to the bullwhip effect)

Discontinuous de-!nd (iscontinuous demand is the result of the quantity demanded in the market. 2hen it makes large changes in response to the market conditions discontinuous demand is e#perienced by the manufacturers. The shift in the market conditions takes place in large increments rather than as a consequence of incremental changes in demand. 2hen a consumer goods manufacturer e#periences an increase in demand, additional raw materials and supplies are consumed. %uppliers of these items face greater demand. They may be tempted to increase production capacity. This in turn increases the demand for raw materials and supplies. 2hen the demand reaches a significantly high level, it may need new production capacity, a discontinuity in supply capacity is the end result. Inel!sticit& o) De-!nd (emand fluctuates more in industrial markets but it is also inelastic in the short term. * manufacturer may have integrated a component or a product into the design of its own offering to customers. *s a result it may not be able to substitute another component for that item. It is even more likely in the industrial markets as it is necessary to maintain a significant differentiation from the competitors. If the item/s cost goes up because of unforeseen factors, the manufacturer has the choice of continuing production by paying the higher price. The alternative available would be to change the manufacturing process or design by use of alternatives. This may alienate customers who may not be e#pecting any changes. The customer/s reluctance to dissatisfy its customers is a ma.or source of inelasticity. .ol!tilit& 2e have already referred to the bullwhip effect. It is only a part of cause of volatility of industrial markets. %mall changes in consumer buying attitudes have a potential for ma.or changes in the total demand. The demand being largely derived in nature has ma.or contribution towards this. This leads to a false sense of

19 security in the industrial markets with the e#pectation that short term demands would continue for long. This leads to inertia as its worse contribution. !apid changes in the economy can have ma.or impact. The slow down in mid 7Cs resulted in a sharp drop in the demand. Gnfortunately this came immediately after the e#pansion in the industrial markets as a consequence of liberalization in early 7Cs. The slow down in late 7Cs resulted in the manufacturers holding back on the investments. Ma.or shift in demand emerged in early +CCC. It therefore needed tremendous efforts in early +CCC to resume additional level of production. *dditional capacity creation has only started now in +CC=. 3oint De-!nd Hoint demand refers to a situation where two or more products are used together and as a result are in demand together. )ne can consider software and hardware, tyres and automobiles and bats with balls as suitable e#amples. Hoint demand can create challenges for the products based on technology. 2hen a superior technology comes in the products and services linked to the old technologies are likely to suffer. Thus the demand for rotary telephone instruments suffered with the advent of newer push button models. -ut the advent and popularity of cell phones has resulted in a dent in the likely demand of the landline phones. 2ith the introduction of '.(.M.*. Technology the rate of growth of cell phones using ;.%.M. technology got impacted. In case of .oint demand, the demand of both the products is almost simultaneous. This is against the case of derived demand. In that situation, consumption takes place much further downstream by a consumer several steps away from the manufacturer. %o-'le4it& o) De-!nd )ne of the ma.or implications of derived demand is that business marketers must understand their customers/ customers. )nly when the firms are customer focused they are able to fully understand their customers/ network of derived demand. This can help the industrial marketer to design products and services to give full benefit customers. This, on their part requires anticipation of changes in levels of demand as a result of the changes in their customers/ market. The impact of the discontinuity of demand can be reduced when the industrial marketers/ participate in the relationship with the customer on a continuing, ongoing basis. *s a result of complacency, marketer allows a competitor to take advantage by offering a lower price or better product. The resultant loss of short0term business is very likely to result in the loss of opportunities to be the supplier of the customer/s over a much longer time span. In industrial markets, modification or supplementing of the product design is often needed. This ensures that a product will further enhance customer value. The dialogue between customer and marketer is required to must quickly communicate comple# concepts. These are more comple# and therefore difficult to understand than those required in consumer marketing. This obviates the need of this process to be on0going. )ne effect of the necessity for close relationships is that switching costs E the costs of switching suppliers E become very high for both the customer and the supplier. In consumer markets, switching costs usually are normally not significant. 4igh switching costs in business0to0business markets can result from the investment that the partners make in matching buying, ordering, inbound logistics, and delivery systems to each other. 4igh switching costs can also come from the working relationships established on a personal level. This may be less tangible than the other logistical linkages but perhaps can be very significant.

1: M!r"et Structures Industrial markets have much smaller number of customers as compared to the consumer markets. $irstly, there are fewer organizations than there are consumers. The organizations differ greatly in their nature. 4ence, their needs for products and services differ. Many market segments have very few organizations constituting them. Many market segments with differing needs implies that mass marketing approach can not be particularly effective. %egments have smaller numbers of buyers. 3ach buyer has a different idea of what product provides the best value. The marketers shall have to customise offerings to specific perceptions that add value to the target customers. *bsence of economies of scale makes the costs high. This means that the product must have a great deal of value built in .ustify prices. *s an alternate the marketer has to identify and then target numerous segments whose needs allow a basic product design with minor customized modifications. %once't o) .!lue It is important to understand the concept of value in the industrial markets. It is applicable in consumer markets as well. They buy the disk for it entertainment value. It is important for both sides to derive a benefit. Balue is a sum of all the benefits that customer receives in the process of using a product or services. The marketer tries to sum all the benefits the customer can derive from the use. The same goes for costs incurred by the customer. There are costs involved in purchasing and maintenance at the very obvious level. -ut there are time costs and effort costs in the purchasing process, as well. &urchasers also have to face the hidden costs associated with usage. 'osts related to the learning time and the mistakes made while learning how to use the product can be considered falling in this category. The sum of all these costs can be considered as the evaluated price. The definitions of the best value can changes with time. This is a function of e#perience and technology as well. 'ompetitive situation in the market place also has its influence on what is considered as best value. 2hen a new technology is introduced, the leader automatically obtains the best value positioning. *s the products get commoditised the situation changes radically. The customer/s perception of benefits and costs includes the product and the service but goes much further. This also includes brand image, the economic utility provided by distribution such as availbility and appropriate quantity. )f course this includes evaluated price. 3valuated price includes all the costs that are subtracted from benefits to produce value. The direct activities are important. The support activities are very important as these make it possible to perform the direct activities. $or instance, marketing creates brand image, which is valuable to customers because it provides assurances of quality. Marketing is then a direct activity. 4uman resources recruits, trains, and motivates the people who take care of the marketing and other activities. Therefore, human resources management is a support activity. It is very important to note all prospects are not similar. %egments e#ist, based on what value the prospective customers are looking for and what they are willing to spend for their value satisfaction. The third implication is that direct and support activities are equally important. 2ithout critical links, the whole chain falls apart. This does not allow for the creation of customer/s value.

Su--!r&

1= Industrial marketing considers marketing to the companies that buy to make other products and to sell the offering in same or modified form to the other customers this also includes marketing to the government and non profit organizations. Industrial marketing differs from consumer marketing in the nature of customers, their size and locations. 8ature of industrial demand differs in a significant manner. -ut the most important difference is in the decision making and the nature nd importance of buyer seller relationships. (emand for industrial markets operates in a totally different manner. This demand ultimately flows from the demand of consumer markets. This adds to the volatility of the demand. 'hannels of distribution are much shorter. There is greater emphasis on personal selling. !elationship management is the core of industrial marketing. !elationships have to be carefully managed. Most of the participants are likely to spend reasonably long time in this interesting and e#citing field of Industrial Marketing. %HAPTER 0 II

%LASSI,5ING %UST*MERS AND MARKETS

Industrial marketing concentrates on the buying organizations. Its application by a specific organisation is largely governed by the situation in which it may be operating. (ifferent customer groups can be clubbed together on the basis of how their buying processes operate. This can provide an insight into what creates value from their own views. 2e give below an approach towards understanding the segmentation. %egmentation is the basic step in marketing and helps in decisions on the marketing strategies"

%o--erci!l enter'rises
These are the organizations looking for adding value from the use of services. This includes the following" Distri(utors These wholesale intermediaries work as middleman and provide utilities of form, time, place and possession. *ssortment of products available from the distributors helps manufacturers meet the customers/ demand. This is their contribution towards adding value in the process. Darge organizations use this method to approach customers which do not .ustify the cause and offer involved in direct sales. These intermediaries normally take ownership of the goods from the manufacturers. .!lue Added Resellers These are the intermediaries who supplement the products and in this process provide enhancement to the manufacturers/ products. They normally offer the customer a system solution. This requires integrating software and hardware and the solution tailored to meet customer/s need. They normally draw on many manufacturers to create system solutions. In the process they develop e#pertise in integration and system solution. In fact they create value network at user level. *ri in!l E2ui'-ent M!nu)!cturers 6)3Ms@

1A They purchase goods to incorporate them in their own manufacture for the end user. They are usually large volume users and therefore draw very serious attention of industrial marketers. 2e can consider for e#ample Maruti purchase tyres from M!$. (iesel engine manufacturers buy fuel in.ection equipment from MI'). This also helps the business in the replacement market. 'ustomer is very likely to go for the same brand when the time comes for replacement. Interesting point to note is that the core product does not change its nature. %o, in case it has a brand value, it adds to the value to the end user. * small machine tool manufacture adds value by using the control systems from %iemens. In most of the case, one tends to use a brand which is accepted in the market to avoid any loss of image. End Users These are the customers who are targeted by the manufacturers. It has traditionally been considered as undifferentiated. The situation is changing gradually as the customers become far more sensitive. 4aving a brand image becomes important. This largely accounts for the gradual importance of branding in the industrial markets.

Go/ern-ent !s Purch!sers
(irect purchase by ;overnment always forms an important part of the total business. This might appear anomalous in these days of liberalization. -ut a careful analysis will show that in reality at least one fourth of the business is handled by the ;overnment departments at the state and central level.. 2e are not considering the purchaser/s of public sector undertakings as these should ideally be considered with commercial enterprises. The purchases that can be considered are as follows" 1. !outine purchases to carry forward the activities of ;overnmental administration. +. &urchases for maintenance of the infra structure under government control. 9. &urchase for activities meant to generate pro.ects of capital nature. This is a very important area. 4ere, we can include activities of irrigation department for construction of dams road construction etc. *tomic energy and space has a substantial level of activities. These would also get in here. 'omple#ity and standardization is the norm. This results in significant negotiation. 8ature of the government set up leads to the involvement of very large and diverse group in the process. 'ompetitive bidding is almost always required to get away from the effects of favouritism and undue influence. 8egotiated contracts would be possible only in e#ceptional circumstances where issues of technology would be e#tremely important and would have ma.or effect on research and development being planned. &references for certain types of suppliers like public sector undertakings, small scale sectors also come into the picture. These at times may have nothing to do with the value the customer may be looking for and therefore can be very frustrating. 4owever, as a matter of principle, there is no difference between commercial enterprises and government as the customer would also be looking for value. Multiplicity of issues and individuals involved makes the matter e#tremely comple#. It therefore also needs careful recognition of buying center influences. De)ence Purch!se

1< * very important component of ;overnment purchases is that of arms and ammunitions. This would include buying both of defense department and ordnance factories. The specifics related to the government purchase get further accentuated. Most of the transactions are large. *s these are invariably related to the security of the borders, these get into much greater level of secrecy and confidentiality. In India, the situation gets more comple# as the munition is largely produced by the govt. owned ordnance factories or imported. In case of imports the value being large the senior levels of the armed force, bureaucracy and political leadership also gets involved. This allows full play to the international arms merchants. -ecause the veil of secrecy on the process, the decisions almost always lead to the accusations. )ne has to consider all these factors carefully when looking at dealing with defence.

Non Pro)it *r !nis!tions

8on profit organizations E customers such as hospitals, educational institutes 8;)% involved in social services fall into this category. *t a first look, they may appear to be very price conscious. -ut a careful analysis would show their interest in value. Many of these organizations are sub.ect to public scrutiny. This tends to make their buying procedures and behaviour similar to ;overnment.

M!nu)!cturers
Industrial markets can also be classified on the basis of the nature of their outputs. This has an influence on the buyer behaviour and hence helps in proper segmentation. R!w M!teri!l Producers %uch customers have significant contribution. They look for the possibilities of value added. %upplier of sugar to a large hotel may have to look specifically as to how value addition is possible. It needs some creativity at times. $or the hotel or transport operator sachets would be of interest for e#ample. 4ere, the raw material loses identity when combined into the customer/s product. The customer of the fabricator does not quite know the sources of steel utilized. The material has lost its identity. )nly if the brand is as strong as Tisco, the fabricator may try to leverage it but the benefits may not be noticeable. %o-'onent P!rts 'omponents and material retain their identity even when fully incorporated into the final product. &arts such as small motors are utilized in the disc drive. The contribution of the component is still recognizable in the finished goods. Accessories *ccessories may be added in a bundled form. Bendor of the primary product does not make the accessories. These are normally offered by the manufacturers who have enough e#pertise in design. They normally will have volume of production to have the economy of scale. This allows them to offer better products faster and cheaper. *ccessories manufactured must have the right standards. -randing can help pushing the market. %!'it!l Good M!nu)!cturer These are big ticket purchases and considerable risk for the customer. -uying process is lengthy and requires detailed specifications to ensure that needs of globalization are met completely. 'ustomer must place tremendous importance of trust in the supplier. It is essential for the marketer to understand the customers

1> view point. The supplier has to carefully analyse the customer needs. This shall help them come up with alternatives or modifications to make their offerings distinctive, better and different. 'ustomers in such situations e#pect services like installation, education and assurances on after sales service. I-'ort!nce o) custo-er7s needs (ifferent types of organizations have different environment in which the people take buying decisions. 'apital goods are ma.or decisions as they are normally used for production purpose. These decisions are also likely to bind the customer to a particular technology or a specific mode of production. This in its turn implies being bound to a specific vendor. %uch magnitude of the decisions makes it important enough to involve the senior most levels of the buying organizations. It therefore involves many people within the organizations. * routine purchase would not generate such a level of interest and decisions may proceed in a more straight forward manner.

INDUSTRIAL MARKETING EN.IR*NMENT

The environment in which the business operates is e#tremely important to the operation of industrial markets. This can have ma.or significant bearing on the selection of strategy to be successful. %ome of these factors are e#amined below. Pu(lics This includes interested parties who may not be directly involved as customers or channel members. Their interest might be on the effect of the marketing activity on the economy and society. ,in!nces 2e can consider lending institutions, investors venture, capitalists and other members of the financial community under this category. Their interest is to ma#imize the financial performance. They would naturally prefer the organizations that are able to offer such an optimisation of the resources They can influence corporate action with their ability and muscle. These entities have the resources available which are needed by the organisations. The entrepreneurs or even the senior managers may have to deal directly with the venture capitalists, bankers and brokerage house to e#plain the vision and strategy. &ublic sector financing institutions have a ma.or role in investments. %o far they have been less than active in running of the company. Their role and level of activity is likely to increase significantly in the near future. Press !nd the /isu!l -edi! Media, largely financial media can enhance and even destroy the position of the companies in the market. It is e#tremely important to take care of them. Their importance is increasing in India. This can be noticed by the increasing circulation of $inancial (ailies. It is also apparent with the popularity of '8-', 8(TB &rofit and even more new business channels. Pu(lic Interest Grou's They often get the attention of opinion makers. ;ood public relation efforts must be combined with a strategy to minimize the negative impact of marketing activities. -est e#ample in Indian conte#t is the hue and cry raised against 3nron *rundati !oy and Medha &atkar and activities of 8armada -achao *ndolan.

17 Intern!l Pu(lics The reputation and image of a firm is influenced by the attitudes of its employees. The feeling of goodness gets communicated by word of mouth by current and past employees. It is therefore important to promote belongings and ownership so that positive attitudes get reflected. This group has been traditionally ignored by almost all the groups in India with te e#ception of Tatas and ;odre.. Importance of this group is now being gradually recognised. M!cro en/iron-ent This includes the characteristics of the population across different regions. *ll these have influence on consumer consumption which in its turn has an effect on business. The Econo-ic En/iron-ent The state of the economy affects customers/ willingness and ability to buy. This affects personal income which influences derived demand in industrial markets. Interest rates contribute to the costs and company profits. The economy has a ma.or impact on the channel members similarly. &oor economy affects the competitive situation as well. 'ompetitors will also have lesser willingness to undertake new initiatives in an un favourable economy. )n the other side of the coin, competitors may be desperate and willing to attack when hurt badly in a poorly performing economy. &ublic policy may also be influenced by the state of the economy. The internal environment of a company is also affected by the economy. $ewer resources are available for new initiatives. It is essential to have a grasp of the trends in the economy. This will help a marketer to anticipate the response of various participants within the marketer/s environment. This will allow the proper strategizing to evoke a suitable response. The Socio cultur!l En/iron-ent The culture of the society in which the business operates has an impact on what people buy, why they buy it and use it to create the value for themselves. It also affects the mode and style of buying, and even the reaction to marketing stimuli. *t a very fundamental level, this is quite similar to the situation in the consumer markets. * culture is all the symbols and themes that reflect a society/s norms and values. In any large society, multiple cultures and subcultures may be relevant. The Technolo ic!l En/iron-ent The technological environment has been the moving force behind the industrial marketers. Technology enables customer service to be re designed and significantly improved. This is made possible as more information is readily available to marketers. Technology, however, is changing at an ever increasing pace. This obviates the need for being prepared. Technology was a ma.or contributor to the demise of vacuum tube electronics powerhouses such ;3 and !'*. %o-'etiti/e En/iron-ent Michael &orter shows the importance of competition. Theodore Devitt has dwelt on this issue in depth. Fou are all familiar with various types of competitive situation. 2e give a summary below"

+C Pure Competition Many buyers and sellers e#ist with no one having over powering influence on the price E no leverage positions. The market is significantly larger than any one player either buyer or seller. ;enerally e#ist in commodities, such as raw materials and agricultural products. &rice is a ma.or component of the marketing mi#. &roducts are not differentiable thus, sellers seldom deviation from the price is fairly rare.

Monopolistic Competition Many buyers and sellers, but product can be differentiated. * range of prices is possible. &roducts can vary in terms of quality, features, style etc. %pecialty steel fabrication or advertising services can be considered as e#amples. -randing, advertising, personal selling etc. help in the process and are important to differentiate.

Oligopolistic Competition Market consists of a few sellers who are very careful to each others/ strategies. &roducts can be uniform or non uniform. Typical e#amples include autos, airlines, steel industries. $ew sellers e#ist because of barriers to entry. &rice is aimed at maintaining stability any shift in the capacity or technology changes the stability carefully arrived at. 'haos in airline industry currently is a good e#ample.

Pure Monopoly

'onsists of one seller, 3#amples are &ostal %ervice !ailways 8ew6 competitors to the products and services provided by this group are generally small, niche players in the market.

Industrial markets by and large have oligopolies. This can operate either from the supplier/s side or from the buyer/s side. The marketing strategy is precarious. &artnership can always break apart because the problems of decision making by a group of organizations. &artnership evolving over the last few years is an interesting and positive development. Bery few companies have resources to pursue basic research or comprehensive technical development. It is necessary to look at partnership that e#ists for evaluation of a new technology. %tandard weakness of such alliances is the uncertainty it puts on the impact this will have an impact on the future. 2e can consider a .oint partnership for new versions of video technology. I-M/s efforts to work on software systems with the open systems to compete with Microsoft can also fall into this category.

Go/ern-ent!l Acti/ities In)luencin the Industri!l M!r"etin En/iron-ent

;overnment has a ma.or role in the systematic progress of economy. Towards this purpose it may have to take care of the following in controlling the economy as follows" 1. &rotect companies from each other. +. &rotect consumers from unfair business practices.

+1 9. &rotect the larger interests of society by restraining irresponsible business behavior. :. 2ork towards reducing the income inequality in society. =. Make efforts to reduce unemployment and inflation. This will help in reducing the hardships of the people at large which will go towards stabilizing the economy. To take care of all these issues referred to, government has to get involved in the following activities" 1. !egulating agencies like Monopolies commission +. (eciding on the policy issues related to ImportIe#port regulations. 9. 'ontrol of $iscal and monetary policies :. $unding of support for social services etc. =. $unding for !esearch and (evelopment A. Ta#ation proposals to take care of the raising of resources while encouraging the economic development It may even be considered that with the opening of the economy, the effect of the government on its environment would vanish. *s we can see by the list above, this cannot vanish but can only reduce. Ideally government must ensure that business is allowed to operate without any shackles on the freedom of action. *t the same time, they ensure a balance growth. %h!n es in the M!r"et Pl!ce It is necessary to understand the evolution of the markets. It is useful to understand how the markets have developed in the past and how they are likely to change in the future. $or instance, markets are generally not oligopolies from the very beginning. Gsually they start out as a temporary monopoly when a company introduces a product with a radically new technology. *s this product is improved, the customers learn more about the product and its technology. This results in the market becoming more competitive as new and more entrants are attracted. 2hen there are minimal barriers to entry, the product easily becomes a commodity. This leads to the market moving towards 5pure competition6 with many players and slim margins. This is an ideal situation for the consolidation. * few competitors may emerge by developing the brand identity and working on operating efficiency. The competitors who cannot match costs or develop suitable differentiation drop out. The market evolves to an oligopoly. The marketers utilise the concept of &roduct Dife 'ycle for their offering or markets to anticipate the behavior of customers. This can also help in understanding the general nature of competition, both at the moment and it is likely to be faced in the near future. The nature of competition reflects a mature industry much more than it does in an introductory market. 'ustomers, such as (ell 'omputers, 'ompaq and I-M, know their needs and how to meet them. 'ompetition e#ists and is well entrenched.

++

The &roduct Dife 'ycle

The usefulness of the &D' has two limitations. The &D' gives only general guidance on what to e#pect. It is not useful in predicting changes from one stage of the &D' to the ne#t. It is not helpful in suggesting strategies or actions that can be suitable during the current &D' stage or some future stage. The Technolo & Ado'tion Li)e %&cle 2hile the &D' has limitations on its usefulness, it stresses the reality that things will change. The marketers must be capable of adapting to survive the likely changes in the marketplace. It is important to look at the different nature of products or offerings as well. &D' may be help in understanding the marginal innovations which help in e#tending the useful life of the products. In the case of break through innovation, additional insight may be gained by e#amining another life cycle than can be superimposed on the &D', the technology adoption life cycle ?T*D'@. The T*D' focuses more on the kinds of customers and how they come to adopt the new technology.

+9

The Technology *doption Dife 'ycle

The T*D' describes how a breakthrough innovation gets adopted in the market. ;eoffery Moore has developed the innovation diffusion 4e updated the groupings on the basis of his research. 4e did not .ust change the names of the groups, though. 4e uses the T*D' as a framework for e#plaining two principal observations about how technology markets evolve. The first observation is the e#istence of a chasm, a break in the sales growth curve for a new technology. The second observation is the chaos that occurs in a period of rapid growth which Moore calls the tornado. The tornado eventually produces the emergence of a dominant supplier. These two observations and the implications of the T*D' have potential for providing useful guidance to the business in the industrial markets. Moore suggests that there are natural breaks in the T*D' curve. In the illustration given above, a relatively large break0 the chasm occurs between the visionaries and the pragmatists. This occurs because pragmatists will not treat visionaries as credible references when it comes to adoption. &ragmatists want proven solutions, with little trauma in their adoption. &ragmatists will not buy until other pragmatists buy and provide references. It is difficult, though, to find the pragmatists who buy first and then provide references for other pragmatists. Bisionaries, on the other hand, try to make quantum .umps in the way they compete. 4ence, they adopt an innovation before all the pieces are in place to make the product work well, that is, before a 5whole product6 e#ists. The visionary buyers then create or buy customized pieces of the system to make the whole thing work. The trial0and0error process of sculpting such a customized solution can create a state of chaos within the adopting organization. Thus, visionaries tend to obtain a reputation for wreaking havoc within their organizations. To cross this chasm, Moore claims that the vendor of an innovation must pass through the first two segments E the technophiles and the visionaries. These are necessary because the whole product cannot be defined and then developed until enough e#perience has been gained. Then the vendor must find a 5beachhead6, or foothold, nice among pragmatists on the other side of the chasm. This niche must have need for the product that is so compelling that pragmatist buyers will take the risk of buying without the assurance of references from other pragmatists who have already adopted. The vendor must find such a niche, create a whole product to meet the compelling need of these buyers, and offer the whole product to these buyers through proper positioning. The proper positioning means that the one or two most compelling benefits of the whole product are clearly communicated and delivered.

+: If the market is large enough, a groundswell of demand can develop. The market goes into a period of rapid sales growth, the tornado. This portion of the T*D' superimposes directly onto the growth period of the &D'. Moore claims that, in a tornado, the market wants to support the market leader. This occurs because the buyers, pragmatists that they are, face the least internal chaos if the systems they are buying are the recognized standard. There will be plenty of peripherals and software that will work easily with the leader/s product. There will be plenty of consultant e#pertise available to help them through problem periods. *s upgrades become available, adoption of these upgrades causes the least internal upheaval if they are backward compatible with the leader/s product that was purchased earlier in the tornado. Moore/s ideas give a framework for interpreting the dynamics of their markets. 3ven though many of these are not fully established, they offer interesting insights. !egis Mckenna, an authority on 5)ne to )ne Marketing6 in industrial markets suggests the concept of market ownership. This focuses on innovating the value proposition to the market rather than on the technology itself. ?This part is largely based on the following references" ;. *. Moore 5'rossing the 'hasm Marketing and %elling Technology to Mainstream 'ustomers6 4arper -usiness 1771 3verett M. !ogers 5(iffusion of Innovation6 :th 3d. $ree &ress 177=@ 'onclusion 'lassifying products and markets is useful for segmenting the market. (ifferent products helps one understand different value propositions the customers may be looking for. 'areful analysis also helps identify the constraints faced by the seller organizations. Markets are operating in an environment which is influenced by many and various factors, government being an important competition even in these days of open economy. 'ompetition is always very important to understand the industrial markets. It is necessary to understand how the markets change. &D' and T*D' offer two such frameworks. Interesting though these concepts are, these have to be taken for guidance only. %h!'ter 0 III

N!ture !nd %h!r!cter o) Industri!l M!r"etin

Markets offer a very unique medium for meeting the individual and organizational needs. They quickly and almost automatically ad.ust and allocate the resources for the optimum utility. The customer is looking for the means for a value satisfaction. Markets co0ordinate to ensure such a provision is made available to the customers. &urchasers are looking for value. They only shall determine what is of value to them. -ased upon this they decide what they are willing to pay for the offerings. %ituation and time could have critical influence on this as well. Thus for a breakdown situation the producer would not consider any negotiations. $or the same components and parts for routine supply the normal negotiations would take place. If annual business is being Gnder consideration, these negotiations can indeed be very tough, -ut the seller is equally and deeply involved in the process as well. Total sum of the costs of all the activities involved have to be low enough to result in a surplus. )therwise the seller can always opt out. %uch a

+= situation always reduces the number of players in the field and therefore can result in pushing the price up as a consequence . &rice therefore coordinates activities of various players in the marketplace. &rices can increase when the demand shoots up. This in turn slows down the process of purchasing. This offers an opportunity for new players to get into the system. )n the other hand a glut in supplies will push the price down and result in pushing the availability down. &layers in business and industrial markets have to be capable of ad.usting to the environment. They have to be very good at .udging the value creating quality issues. %ellers have to avoid complacency. They should be able to adapt to create economies in operation by improving their own operational efficiency and adding value to their products or offerings.

Su''l& M!n! e-ent

Industrial markets require the entire chain creating value to work in unison. This needs proactive management of the supply function. *n auto manufacturer has to ensure that the vendor has the ability to produce the right components in right quantity at right time. This involves the sub supplier being taken care of as much as the vendor be interested in taking care of the customer. Information sharing and .oint panning can be used to coordinate the work. This means that one goes beyond simply negotiating on price. !ack rate is not three only factor to be taken in consideration. )ne has to consider the total cost of acquisition and usage to have a proper picture of the efficiencies possible.

M!n! in Rel!tionshi's
2e have touched on the importance of relationships in the industrial marketing milieu. It is important for marketers to understand the customer/s preference. These are invariably a function of the market conditions and the buying situation. 2e can study it by having a look at the following table.

The s'ectru- o) Bu&er Seller Rel!tionshi's Tr!ns!ction!l E4ch!n e

A/!il!(ilit& o) Many *lternatives Altern!ti/es Su''l& M!r"et D&n!-is- %table I-'ort!nce o) Purch!se %o-'le4it& o) Purch!se In)or-!tion E4ch!n e *'er!tion!l Lin"! es Dow Dow Dow Dimited

%oll!(or!ti/e E4ch!n e
$ew *lternatives Bolatile 4igh 4igh 4igh 3#tensive

-ased on Hoseph &.'annon and 2illiam (. &erreault Hr., 5-uyer %eller !elationships in -usiness Markets6, Hournal of Marketing !esearch , 8ov. 1777. 'ustomers prefer transactional relationships when the market is competitive with many alternatives available to them. This is usual for routine decisions in a stable market.4ere purchase is not very important and is easily noted by the absence of any operational linkages. )ne can observe this in commoditised markets like stationery supplies, hardware etc.

+A In a dynamic market where technology is ever changing and the need of technical inputs is high the customers will be looking for collaborative e#changes. 2hen the seller is considered significant in importance and purchase important the clients will seek closer relationships. 5The closest partnerships J arise both when the purchase is important and when there is a need, from the customer/s perspective Eto overcome procurement obstacles that result from fewer supplier alternatives and more purchase uncertainty6?'annon K &erreault as in the table@ %uch relationships always involve operational linkages and very high levels of information sharing. %uch a situation arises in the case of large value capital equipment, software and critical components and spare parts. %witching costs play a very important part for the collaborative customers. )rganisations invest the relationships with the suppliers in many ways. 5They invest money, they invest in people, as in training employees to run new equipment they invest in lasting assets, such as the equipment itself and they invest in changing business procedure like inventory handling6. ?-arbara -und Hackson, 5-uild customer relationships that last6 4.-.!. 8ovember 17>=@ -ecause of these investments customers are reluctant to switch as similar costs shall have to be repeated when a new supplier is selected. *nother risk faced by the organizational buyer relates to the danger of making a wrong choice. The industrial marketers have analyse the situation carefully to decide on the effort invested in building relationships. It is useful to make efforts to build trust through frequent visits and discussions with the teams from across the functions. The method is e#pensive and even entails a certain amount of risk. These efforts utilize both intangible and tangible assets. These must only be committed when the business proposition calls for it. 'ustomers looking for routine products or services do not show any great loyalty and are liable to switch the supplier. It is a challenge to work out a suitably attractive combination of product, service, technical support and other benefits to win and retain business in such a situation. The mode of delivery with various innovative initiatives can be of help.

Model )or Buildin Rel!tionshi's

-uyer %eller relationships are very important in industrial marketing. This is an e#tremely comple# phenomenon. Metaphor of courtship and marriage is very often used and also happens to be the most relevant. Theodore Devitt observes that 5 The relationship between a seller and a buyer seldom ends when a sale is made. Increasingly the relationship intensifies after the sale is made and helps determine the buyer/s choice ne#t time around.6 5The sale then merely consummates the courtship, at which point the marriage begins. The quality of marriage determines whether there will be continued or e#panded business, or trouble and divorce.6 The relationship development can be split into four phases. These are *wareness, 3#ploration, 3#pansion and commitment. 2e discuss these briefly below.

Aw!reness+
The buyer and seller are barely aware of each other at best. %eller would tend to get adequate information of the specifications, buying processes etc. -uyer may get to know of the offerings from the publicity and trade shows.

E4'lor!tion"
This is the typical stage where the parties probe each other. %eller may approach the prospects. 3ven a trial order could be obtained. (ependence on each other does not e#ist at this stage. *ssociation can gradually develop or can be terminated without any ma.or difference to either side.

+< This is affected by the nature of attraction between the two parties. This is a function of the payoff that could be available out of the interaction. The benefits can be tangible or intangible. Thus sharing the same college or an association can be considered for this purpose. The buyer looks for all the usual benefits like quality and price. *ssociations supplement these qualities. The seller of course looks for steady business at a good price. 'ontrolling costs and restructuring operations have been stressed in the Indian industry in the last decade. This makes it necessary for the manufacturers to look for long standing relationships and to e#amine the opportunities for value addition. This can cover issues like .oint designing and product development. The process leads to reducing the number of vendors and give benefits for the manufacturer. 'ommunication and negotiation help in the process of development of relationship. It is necessary to be direct rather than beat around the bush in stating the goals, preferences and needs. This avoids the pitfalls in the development of relationship in future. The frankness needs a level of reciprocity to allow for a speedy growth in the relationships. 2hen the partners take 5the trouble of, go to the bother, and e#pend the psychic and physical energies necessary to negotiate6 the potential for association has to be evident. It is similar to the stage of courtship. )ne offers to have coffee second or third time when one wishes to continue the association. 'oncessions obtained from the negotiations have to be beneficial to both sides. 3venness and honesty should be the hallmark at the time of negotiations. This indicates a .ust use of power. This enables use all the resources beneficially. %uch resources can be available in many forms like e#pertise, economic benefits and status. (irect e#perience has an important role to play in carrying the relationship beyond the stage of e#ploration.

E4'!nsion+
This is the stage when the participants move further from probing to enlarging the scope. *ccount development is the normal indication of this stage. 'ross selling and up selling are the manifestations of this phase. The e#pansion leads to gradually increasing dependence between the buyer and the seller.

%o--it-ent+
'ommitment shows the need to maintain a relationship which is considered valuable and important. This may lead to the two parties sharing a belief in the effectiveness of the relationship in future. -uyers and sellers may even consider e#changing the employees. !elationships can be further strengthened by sharing systems and even equipment. %ocial relationships can also be strengthened to supplement.

Dissolution o) Rel!tionshi'+
!elationships can always be dissolved either by mutual consent or otherwise. This is quite easy at the earlier stage. Mutual dependency increases when the relationship lasts longer. 'osts of switching become significant. &arties in business retain the relationships largely because of the two following reasons" a@ !elationship is rewarding in either of these" financial, psychological or strategic. b@ There are no alternatives or the e#it is too costly. This can be seen in the case of software of process equipment manufactures. &erformance below the e#pected level is tolerated for some time. 2hen a partner suffers from a number of letdowns, the dissatisfaction goes very high. The consequent negativity in the relationship darkens the view of the future. In the inter organizational conte#t, formal notice and dialogue is quite usual. Thus the distributors might be invited for a formal meeting and notice being given to improve performance.

+> Marriage metaphor can be considered in many conte#ts. $or situations that allow gradual development and reliance on the trading partners, the metaphor is particularly befitting. It focuses on the mutual problem solving, the development of efficient routines and the reinforcement methods.

Su--!r&
Markets co0ordinate and bring efficiency to the economic system. $or comple# products and uncertain situations, buyers and sellers must find means to co0ordinate further. -uyers and sellers develop high performance relationships quite often. The process can be compared to that of courtship resulting in a marriage. It includes gradual probing, building on trust, customization and overall deepening of dependence. In some conte#ts, this development may not occur naturally. In such a case it may be necessary to protect the investments by either side. %h!'ter 0 I.

Pers'ecti/e o) the Bu&er

Industrial markets consist of three important segments. These are 'ommercial organizations, governmental sector and the institutions. These have unique and identifiable characteristics. It is necessary for the marketers to understand these unique dimensions to decide on the relevant marketing strategy. 2e consider below important feature with a special emphasis on the commercial buyers. Most of these are applicable to the other segments as well.

%o--erci!l Enter'rises+ The uni2ue )e!tures Si8e

* significant feature here is the heavy geographic concentration of such organisations. *s it is, the players in the industrial markets are much fewer. They are also much larger. Darge buyers are indeed very important in the industrial markets because of their muscle and large and at times overpowering presence in the marketplace. Thus, in auto sector, importance of Maruti, T3D') or 4yundai is self evident. %mall manufacturers are also an important component of the total business. *lmost two thirds of all manufacturers employ less than =C persons. )rganisational buyers in smaller set ups have different needs and orientation. It is necessary to ad.ust to such needs.

Geo r!'hic!l concentr!tion+

There is ma.or concentration in the industrial markets. This develops naturally as a result of the growth in clusters. 'lusters offer natural advantages. Most large metropolitan areas are lucrative business markets. This implies that a large potential e#ists in a specific area even though the needs of the buyers may differ significantly. This implies that the selling organizations can concentrate the efforts in such areas of high potential. This makes the use of the own sales force effective and economic. It is also much easier for them to take care of physical distribution easily.

The Purch!sin *r !nis!tion

+7 &rocurement is usually taken care of by a separate department. This is organized to ensure that the personnel in this department acquire a suitable level of technical competence and e#pertise. *s products and materials become more sophisticated, buyers have to more knowledgeable about material characteristics, manufacturing processes and specifications.

THE G*ALS *, PUR%HASING

Go!l
Gninterrupted flow of materials Manage inventory Improve quality Managing supplier relations *chieve lowest total cost *ssist in obtaining competitive advantage

Descri'tion
!egular flow of supply and services to allow operations Minimise the inventory levels Improving quality by suitable evaluation and selecting the offerings %electing suitable suppliers, develop and sustain relationships &urchasing the most economic offerings , simultaneously maintaining the operations at efficient level Improve the competitive position by reducing the costs of the supply chain and capitalizing on the capabilities

It is important for the marketer to understand the ob.ective and goals for which the purchasing organizations operate. They have a very large number of ob.ectives and they have to achieve a balance amongst these ob.ectives. These are summarized above.

Underst!ndin Tot!l %ost+

To have full benefit in terms of savings and growth it is necessary to understand the concept of total cost and value of a good service. It requires a careful consideration of the following"

$actors involved in bringing the products in the supply chain like transportation 'osts involved in acquiring and utilising the offerings over their lifetime. This has to take care of the costs of spare parts and servicing as well. 1uality, reliability and other such attributes. 'osts of installing and operation of the equipment. 'ost of disposal after the life of the product is over. This takes intro account the realisable value or the nett cost of getting rid of the product Balue of the offerings to the customers of the buyer.

The above really refers to the total cost of ownership. 4ere one has to consider the total cost over the usable life of the offering. Thus a premium product with better support is .ustified over a product with a lower ticket value. It is important to note here that even the services have a total cost of ownenership. Many organizations are outsourcing services like market research or market analysis to reduce the total cost of ownership.

Reducin %osts+
It is important to reduce the costs involved in the process of ordering. * method to achieve this by evaluating ordering and cost of carry of inventory is to determine the 3conomic )rder 1uantity. This is the level of arrived at by balancing the costs ordering and storing. This, at times may involve forward buying in large quantities than needed currently to avail of the discounts that may be available.

9C *nother method used quite often is Balue *nalysis. It involves a thorough analysis of costs and value associated with a component or part. To be effective, value analysis must take into account the value in use. The key question always is whether it is possible to reach the same level of operations with a lower cost.

I-'ort!nce o) Purch!se in the Pro)it!(ilit& o) the ,irIn the current competitive environment, direct contribution by various departments is very important. 2e can look at the illustration given below highlighting this contribution which purchase is capable of towards improving the profitability of the operations.

Pro)it I-'!ct )ro- M!r"etin !nd Purch!sin M!r"etin Purch!sin I-'!ct I-'!ct
8et !evenue 'ost of goods ;ross Margin &romotion 3#penses 8et &rofit !s. 1+,CC,CCC 7,CC,CCC 9,CC,CCC 1,CC,CCC 1,=C,CCC =C,CCC !s. 19,+C,CCC 7,7C,CCC 9,9C,CCC 1,+C,CCC 1,=C,CCC AC,CCC !s. 1+,CC,CCC >,1C,CCC 9,7C,CCC 1,CC,CCC 1,=C,CCC 1,:C,CCC

2e have taken a hypothetical case where the company wants to improve the profitability. Increased business needs push in the market resulting in the increase in the promotional e#penses. Ten per cent increase in the business results in +C L improvement over the net profit level. *gainst this, a decrease in the cost of goods purchased results in a ma.or improvement in the bottom line. 'ost savings the efficiency in purchasing has a direct impact on the net profit levels.

Purch!sin Philoso'h&
&urchasing has traditionally been characterized by what is best described as the adversarial philosophy. This involves increasing competition between various vendors. %uch competition is e#pected to reduce the price while increasing the attention and service. -uying from a large number of sources is likely to lower the quality of relationship and at times may also result in problems of availability, service and support. *n alternative to this is called preferred supplier system. It seeks to ma#imize the benefits of collaboration between the buyer and selected suppliers. %uch partnering relationships are likely to result in such situations of mutual benefit as given below" 4igher volume purchase of strategic importance. %pecialised and customized offerings. Gnique products with no other sources.

These result in contribution of greater value to the buyer besides offering benefits to the seller. *n obvious benefit is significantly reducing the number of vendors. This is used by almost all the ma.or companies. -a.a. *uto, for e#ample claims to have reduced the number of vendors from thousand plus to a few hundred in the first stage itself. %ingle sourcing is when a buyer to satisfy all needs in a given area. $or e#ample a company may decide to buy its maintenance supplier from one vendor. This can even be achieved by negotiate adversarially without any concern about the other side. This is meant to illustrate that partnering is a matter of philosophy. Multi sourcing or even single sourcing can be achieved in either of the situations.

91

Trends in Purch!sin
2e have already discussed the importance of purchasing to the organisation. In the current scenario, like all other areas, purchase has also been facing downsizing. More is being purchased in the same time by reducing the number of suppliers. This means reducing the shopping time as also reducing the number of transactions to be tracked. This also involves developing closer strategic relationships Important responsibilities are also moving outside the organisation selectively.

Ethics in Purch!sin +
3thics in business is gaining importance these days. This is of even greater concern in purchasing. -uyers act on behalf of their companies and deal with the outsiders. They are also susceptible to economic pressures. It is important to first recognize the ethical implications of the situation. Individual has to be keen to operate in the right manner. &robability of being caught in the act can be a deterrent to some but ideally the persons must have a strong desire to behave in an ethical manner. It is very important for the buyers to offer conditions suitable for 5$air 'ompetition6. This involves offering all the competitors an equal opportunity. This means giving every one an equal access to the buying opportunity. ;ifts are a normal part of the purchasing situation. It is deemed to be effective in enhancing the ability to sell by strengthening the relationships. The issue here is the type and value of the gift. *t what level can one consider it as a help and when can it be considered reaching levels which can be 5unethical6M %HAPTER 9.

SEGMENTATI*N
3veryone consumes goods and services. * considerable amonut of goods are bought are bought by people other than those who ultimate consume these. %imilarly, the decision maker with regard to purchase could neither consumer nor even purchaser. It is important for the marketer to carefully differentiate between these three categories.

In)luence o) the end custo-er decision -!"er !nd (u&er M!r"etin i-'lic!tions
User )ffering to satisfy Gser need and be acceptable Decision -!"er &romotions to target for Influence on him. -est pricing for motivating. 'hannels to be *cceptable and able to influence. Bu&er To be in accordance with the specifications. Transactions to be acceptable to the buyer. *vailability to be suitable.

Me!nin o) -!r"et se -ent!tion

The term market segmentation refers to the process of dividing the total market into one or more markets?sub0markets or segments@ each of which tends to be homogeneous in all significant respects..

9+ Manufacturers can supply the products to meet the needs of the customers and ensure supply of tailor made marketing mi# for each segment. The concept reveals that wants and desires of consumers are diverse. Therefore the strategy of marketing should be in conformity with the ob.ective of supplying the market with supplying the market with the product that is needed the most. %o, identifying the customer demand is the main premise of successful segmentation of the market. Thus marketing segmentation lays emphasis on demand side. This would even include the mode and method of need fulfillment as desired by the customer. This method is utilized to achieve optimal utilization of limited marketing resources for the customer response. 5Market segmentation is subdividing the market into distinct and increasingly homogeneous sub groups of customers, where any group can be selected as a target market to be met with a distinct marketing mi#.6 ?Notler@ It is the 5process of taking the total heterogeneous market for a product and dividing it into several sub markets or segments each of which tends to be homogeneous in all significant aspects.6?%tanton@ %egmentation, which is the core of strategic marketing, is based on demographic and similar factors. 2hen it comes to marketing strategies, most people spontaneously think about the :& ?&roduct, &rice, &lace, &romotion@ E maybe e#tended by three more &s for marketing services ?&eople, &rocesses, &hysical 3vidence@. Market segmentation and the identification of target markets, however, are an important element of each marketing strategy. They are the basis for determining any particular marketing mi#. Diterature suggests the following steps"

Adapted from Kotler and Doyle *s the heterogeneity and comple#ity of industrial ?or business0to0business@ markets has increased dramatically over the past decades and is e#pected to increase further, the segmentation of industrial markets can be seen as increasingly important for the survival and profitability of a company operating in such markets. The table below illustrates this comple#ity of the industrial markets"
Se -ent!tion o) the industri!l -!r"et

99

I-'ort!nce o) M!r"et Se -ent!tion

There are a number of reasons of strategic importance as to why a company should segment the market it wishes to serve. %uccessful segmentation of the market will" improve the knowledge and understanding of customers, partners and in the best cases, alsothe competitors -ased on the outcome of a successful and effective segmentation process, the company should be able to" a@ b@ c@ 3nsure more efficient resource allocation as all the marketing0mi# elements can be better focused on the target customers/ specific needs &rioritisation of the most profitable present and 'otenti!l customer groupings, including the finding of potential new growth segments %trengthen the competitive position of the company vis0O0vis the competition.

(ecisions regarding which segments to target should be primarily based on the potential profitability of the customers, which belong to a specific segment as well as the companys competence and strategic desirability to serve those customers. The importance of market segmentation results from the fact that the buyers of a product or a service are no homogenous group. *ctually, every buyer has individual needs, preferences, resources and behaviors. %ince it is virtually impossible to cater for every customer/s individual characteristics, marketers group customers to market segments by variables they have in common. These common characteristics allow developing a standardized marketing mi# for all customers in this segment.

9: *s already stated, segmentation is the basis for developing targeted and effective marketing plans. $urthermore, analysis of market segments enables decisions about intensity of marketing activities in particular segments. * segment0orientated marketing approach generally offers a range of advantages for both, businesses and customers. -etter serving customers needs and wants It is possible to satisfy a variety of customer needs with a limited product range by using different forms, bundles, incentives and promotional activities. The computer manufacturer (ell, for instance, does not organize its website by product groups ?desktops, notebooks, servers, printers etc@, but by customer groups ?privates, small businesses, large businesses, publicIstate organizations@. They offer the same products to all customer groups. 8evertheless, they suggest product bundles and supporting services that are individually tailored for the needs of each particular group. *s an e#ample, (ell offers to take on all IT0administration for companies. This service provides a huge potential for savings for corporate customers. 4owever, it would be absolutely useless for private customers. Thus, segment0specific product bundles increase chances for cross selling. 4igher &rofits It is often difficult to increase prices for the whole market. 8evertheless, it is possible to develop premium segments in which customers accept a higher price level. %uch segments could be distinguished from the mass market by features like additional services, e#clusive points of sale, product variations and the like. * typical segment0based price variation is by region. The generally higher price level in big cities is evidence for this. 2hen differentiating prices by segments, organizations have to take care that there is no chance for cannibalization between high0priced products with high margins and budget offers in different segments. This risk is the higher, the less distinguished the segments are. )pportunities for ;rowth Targeted marketing plans for particular segments allow to individually approach customer groups that otherwise would look out for specialized niche players. -y segmenting markets, organizations can create their own Pniche products/ and thus attract additional customer groups. Moreover, a segmentation strategy that is based on customer loyalty ?see loyalty ladder model@ offers the chance to attract new customers with starter products and to move these customers on to premium products. %ustainable customer relationships in all phases of customer life cycle 'ustomers change their preferences and patterns of behavior over time. )rganizations that serve different segments along a customer/s life cycle can guide their customers from stage to stage by always offering them a special solution for their particular needs. $or e#ample, many car manufacturers offer a product range that caters for the needs of all phases of a customer life cycle" first car for early twens, fun0car for young professionals, family car for young families, etc. %kin care cosmetics brands often offer special series for babies, teens, normal skin, and elder skin. %timulating Innovation *n undifferentiated marketing strategy that targets at all customers in the total market necessarily reduces customers/ preferences to the smallest common basis. %egmentations provides information about smaller units in the total market that share particular needs. )nly the identification of these needs enables a planned development of new or improved products that better meet the wishes of these customer groups. If a product

9= meets and e#ceeds a customer/s e#pectations by adding superior value, the customers normally is willing to pay a higher price for that product. Thus, profit margins and profitability of the innovating organizations increase. 4igher Market %hares In contrast to an undifferentiated marketing strategy, segmentation supports the development of niche strategies. Thus marketing activities can be targeted at highly attractive market segments in the beginning. Market leadership in selected segments improves the competitive position of the whole organization in its relationship with suppliers, channel partners and customers. It strengthens the brand and ensures profitability. )n that basis, organizations have better chances to increase their market shares in the overall market.

%riteri! )or Industri!l Se -ent!tion

There are a huge number of variables that could be used for market segmentation in theory. They comprise easy to determine demographic factors as well as variables on user behavior or customer preferences. In addition, there are differences between private customers and businesses. Marketers have to choose those variables that are relevant for segmenting the market for a particular product. The basic rule is to focus on a limited number of important variables. To segment the market into too many small, slightly distinct segments would require splitting up the marketing budget into too many ineffective chunks. %uch varied marketing activities in the diverse segments could confuse customers and would lead to cannibalization effects. %i# criteria have been proposed as criteria, which determine the effectiveness of the outcome of a segmentation process and the profitability of the resulting segments" Identifiable/measurable: refers to the degree to which marketersImanagers are able to identify distinct groups of customers based on a specific segmentation base and the degree to which the segments size and profitability can be measured. Substantial: the segments, which have been identified using a specific segmentation base, have to represent a large enough portion of the market in order to be profitable segments, worth targeting. ccessible: managers have to be able to reach the identified segments through communication and distribution channels. Stable: The stability criterion refers to the stability of specific segments over time. This criterion has not, unfortunately, received much attention so far. ctionable: The company has to be able to formulate effective marketing programs for serving the identified segments !ifferentiable: The different segments have to be heterogeneous in regard to their response to different marketing0mi# elements. 2ithin any one segment this response should be as homogeneous as possible. If two segments respond similarly to specific marketing0mi# elements, they should not be considered two separate segments. The following is an e#ample of how Tata %teel segments the market for its product"

9A

Tata Steel Market Segments

Product Chrome Ore/Conc. Segment Metallurgical Metallurgical Refractory SS- tensil FeCr. SS-In!ustrial tensil In!ustrial Metallurgical Sub- Segment Domestic Intl Intl Domestic Domestic Intl Domestic Domestic Domestic Japan, China China Japan, "orea Country

FeMn. Mn. Ore

*t any rate, 5market segmentation, targeting and positioning are the three crucial elements in strategic marketing management Qin order toR tailor our offering to particular needs and wants of certain groups6. ?'roft, 1777@ 'onsequently, 5segmentation is one of the most important concepts in industrial markets. It is the basis whereby market analysis and deeper understanding of customers can be developed into an organisational response that yields sustainable competitive advantage. That Pwhat/ and Pwhy/ of segmentation provides strong .ustification for its practice6. ?&almer K Miller, +CC9@ *cademics as well as practitioners use various segmentation principles and models in their attempt to bring some sort of structure.

Principles/Models of Segmentation
A Generic Principle )ne of the recommended approaches in segmentation is for a company to decide whether it wants to have a limited number of products offered to many segments or many products offered to a limited number of segments. -usinesses are encouraged not to offer many product lines to many segments, as this would dilute their focus and stretch their resources too much. Fet this happens relatively often in practice, which hints to the question, to what e#tent the recommended models realistic ?see figure 1@.

The advantage in attempting the above approach is that although it may nor work at all times, it is a force for as much focus as practicable. The one0to0many model ensures E in theory E that a business keeps its focus

9< sharp and makes use of economies of scale at the supply end of the chain. In 5kills many birds with one stone6. 3#amples are 'oca 'ola and some of the ;eneral 3lectric businesses. The drawback is that the business would risk loosing business as soon as a weakness in its supply chain or in its marketing forces it to withdraw from the market. 'oca 'ola/s attempt to sell its (esani bottled water in the GN turned out to be a flop mainly because it tries to position this 5purified tap water6 alongside mineral water of other brands. The trigger was a contamination scandal reported in the media. The many0to0one model also has its benefits and drawbacks. The problem is that a business would stretch its resource to thin in order to serve .ust one, or a limited number of markets. It can be fatal if the company/s image is ruined in its chosen segment. 4owever, there are many companies that have dedicated themselves to only one market segment, e.g. $lowserve is a G%0based supplier of many different types of pumps, valves, seals and other components E all dedicated to fluid motion and control ?www.flowserve.com@. *mong the above models, the most popular is the many0to0many version ?by will or by the force of nature@. *s companies constantly try to balance their risk in different technologies and markets, they are left with no choice but to enter into new markets with e#isting products or introduce new products into e#isting markets or even develop new products and launch them into new markets ?see figure +@.

The problem with the many0to0many model is that it really does stretch a company/s resources too thin as focus is lost. )ne of the ma.or reasons for the current financial problems of the world/s largest carmaker, ;eneral Motors, is that it has tried to be everything to everybody, launching model after model with no clear segmenting, targeting or branding strategy.

Two-Stage Market Segmentation (Wind & Cardozo Model

Foram 2ind and !ichard 'ardozo ?17<:@ suggested industrial market segmentation based on broad two0step classifications of macro0segmentation and micro0segmentation. This model is one the most common methods applied in industrial markets today. It is sometimes e#tended into more comple# models to include multi0step and three0 and four0dimensional models.

9> Macro"segmentation centres on the characteristics of the buying organisation Qas whole companies or institutionsR, thus dividing the market by" 0 'ompany I organisation size" one of the most practical and easily identifiable criteria, it can also be good rough indicator of the potential business for a company. 4owever, it needs to be combined with other factors to draw a realistic picture. 0 ;eographic location is equally as feasible as company size. It tells a company a lot about culture and communication requirements. $or e#ample a company would adapt a different bidding strategy with an *sian company than an *merican customer. ;eographic location also relates to culture, language and business attitudes. $or e#ample, Middle 3astern, 3uropean, 8orth *merican, %outh *merican and *sian companies will all have different sets of business standards and communication requirements. 0 &urchasing situation, i.e. new task, modified re0buy or straight re0buy. This is another relatively theoretical and unused criteria in real life. *s a result of increased competition and globalisation in most established industries, companies tend to find focus in a small number of markets, get to know the market well and establish long0term relationship with customers. The general belief is, it is cheaper to keep an e#isting customer than to find a new one. 2hen this happens, the purchase criteria are more based on relationship, trust, technology and overall cost of purchase, which dilutes the importance of this criteria. 0 (ecision0making stage. This criterion can only apply to newcomers. In cases of long0term relationship, which is usually the ob.ective of most industrial businesses, the qualified supplier is normally aware of the purchase requirement, i.e. they always get into the bidding process right at the beginning. %heth and %harma are quoted to have suggested 5with increasing turbulence in the marketplace, it is clear that firms have to move away from transaction0oriented marketing strategies and move towards relationship0oriented marketing for enhanced performance6. ?$reytag K 'larke, +CC1@ 0 -enefit segmentation" The product/s economic value to the customer ?4utt K %peh, +CC1@, which is one of the more helpful criteria in some industries. It 5recognises that customes buy the same products for different reasons, and place different values on particular product features. ?2ebster, 1771@ $or e#ample, the access control industry markets the same products for two different value sets" -anks, factories and airports install them for security reasons, i.e. to protect their assets against. 4owever, sports stadiums, concert arenas and the Dondon Gnderground installs similar equipment in order to generate revenue andIor cut costs by eliminating manual ticket0handling. 0 Type of institution, ?2ebster, +CC9@ e.g. banks would require designer furniture for their customers while government departments would suffice with functional and durable sets. 4ospitals would require higher hygiene criteria while buying office equipment than utilities. *nd airport terminals would need different degrees of access control and security monitoring than shopping centres. 4owever, type of buying institution and the decision0making stage can only work on paper. *s institutional buyers cut procurement costs, they are forced to reduce the number of suppliers, with whom they develop long0term relationships. This makes the buying institution already a highly e#perienced one and the suppliers are normally involved at the beginning of the decision0making process. This eliminates the need to apply these two items as segmentation criteria. 0 'ustomers/ business potential assuming supply can be guaranteed and prices are acceptable by a particular segment. $or e#ample, Pglobal accounts/ would buy high quantities and are prepared to sign long0term agreements Pkey accounts/ medium0sized regional customers that can be the source of 9CL of a company/s revenue as long as competitive offering is in place for them Pdirect accounts/ form many thousands of small companies that buy mainly ob price but in return are willing to forego service.

97 0 &urchasing strategies, e.g. global vs. local decision0making structure, decision0making power of purchasing officers vs. engineers or technical specifiers. 0 %upply 'hain &osition" * customer/ business model affects where and how they buy. If he pursues a cost leadership strategy, then the company is more likely to be committed to high0volume manufacturing, thus requiring high0volume purchasing. To the supplier, this means constant price pressure and precise delivery but relatively long0term business security, e.g. in the commodities markets. -ut if the company follows a differentiation strategy, then it is bound to offer customised products and services to its customers. This would necessitate specialised high0quality products from the supplier, which are often purchased in low volumes, which mostly eliminates stark price competition, emphasises on functionality and requires relationship0based marketing mi#. ?%udharshan, 177>@ Micro"segmentation on the other hand requires a higher degree of knowledge. 2hile macro0segmentation put the business into broad categories, helping a general product strategy, micro0segmentation is essential for the implementation of the concept. 5Micro0segments are homogenous groups of buyers within the macro0 segments6 ?2ebster, +CC9@. Macro0segmentation without micro0segmentation cannot provide the e#pected benefits to the organisation. Micro0segmentation focuses on factors that matter in the daily business this is where 5the rubber hits the road6. The most common criteria include the characteristics of the decision0 making units within each macro0segment, ?4utt K %peh, +CC1@ e.g." 0 -uying decision criteria ?product quality, delivery, technical support, price, supply continuity@. 5The marketer might divide the market based on supplier profiles that appear to be preferred by decision0makers, e.g. high quality E prompt delivery E premium price vs. standard quality E less0prompt delivery E low price6. ?4utt K %peh, +CC1@ 0 &urchasing strategy, which falls into two categories, according to 4utt and %peh" $irst, there are companies who contact familiar suppliers ?some have vendor lists@ and place the order with the first supplier that fulfils the buying criteria. These tend to include more )3M/s than public sector buyers. %econd, organisations that consider a larger number of familiar and unfamiliar suppliers, solicit bids, e#amine all proposals and place the order with the best offer. 3#perience has shown that considering this criterion as part of the segmentation principles can be highly beneficial, as the supplier can avoid unnecessary costs by, for e#ample not spending time and resources unless officially approved in the buyer/s vendor list. 0 %tructure of the decision0making unit can be one of the most effective criteria. Nnowing the decision0 making process has been shown to make the difference between winning and losing a contract. If this is the case, the supplier can develop a suitable relationship with the person I people that has I have real decision0 making power. $or e#ample, the medical equipment market can be segmented on the basis of the type of institution and the responsibilities of the decision makers, according to 4utt and %peh. * company that sells protective coatings for human implants would adapt a totally different communication strategy for doctors than hip0.oint manufacturers. 0 &erceived importance of the product to the customer/s business ?e.g. automotive transmission, or peripheral equipment, e.g. manufacturing tool@ 0 *ttitudes towards the supplier" &ersonal characteristics of buyers ?age, education, .ob title and decision style@ play a ma.or role in forming the customers purchasing attitude as whole. Is the decision0maker a partner, supporter, neutral, adversarial or an opponentM Industrial power systems are best 5sold6 to engineering e#ecutive than purchasing managers industrial coatings are sold almost e#clusively to engineers matri# and raw materials are sold normally to purchasing managers or even via web auctions.

:C The above criteria can be highly beneficial depending on the type of business. 4owever, they may be feasible to measure only in high0capital, high0e#pense businesses such as corporate banking or aircraft business due to high cost associated with compiling the desired data. 5There are serious concerns in practice regarding the cost and difficulty of collecting measurements of these micro0segmentation characteristics and using them6. ?%udharshan, 177>@ The prerequisite to implementing a full0scale macro0 and micro0segmentation concept is the company/s size and the organisational set0up. * company needs to have beyond the certain number of customers for a segmentation model to work.

Positionin in the Industri!l -!r"et 0 Introduction

&ositioning is defined as the distinct place a product ?or service@ occupies in the minds of the target customers relative to competing products ?or services@ for instance, Infosys Technologies is positioned as a leading computer software company in India. DKT is positioned as the leading engineering company. Tata is associated with quality. Wh!t is the o!l when &ou initi!te ! 'ositionin 'rocess: *n effective positioning strategy helps your target buyers associate a benefit with your product or company that makes them want to buy. 2ith some effort, time and money, you can claim a position by consistently e#ecuting an idea that has meaning to the target audience in all your marketing communications. Are 'ositionin 'ro(le-s new: ItSs been more than +C years since *l !eis and Hack Trout, said, in their marketing classic, &ositioning" the -attle for Four Mind" TToo many companies embark on marketing and advertising as if the competitorSs position did not e#ist. They advertise their products in a vacuum and are disappointed when their messages fail to get through.T $ailure to differentiate creates market confusion which in turn inevitably leads to longer sales cycles, a familiar problem for many -+- software companies. Fou probably know the symptoms, and most likely blame the buyer for the long sales cycle. -ut what about Tme0tooT marketingM (ifferentiation is what -+software companies covet the most. Fet few companies successfully differentiate, generally because they donSt have a positioning process in place that insures you have a thorough understanding of the 9'Ss of successful positioning. Wh!t !re the ;%s o) success)ul 'ositionin : Messages that Matter teaches a positioning methodology that emphasizes the importance of having a thorough understanding of your 'ompetitors 'ustomers 'hannel ?whether you sell direct, indirect or both@.

Wh!t<s the )irst ste': -efore you can start developing a compelling positioning strategy, you need to be able to answer these important questions"

:1 1. +. 9. :. =. 2hat pressing problem does your product solve for your prospective customerM 4ow is your prospect solving that problem todayM 2hat specific benefit does your product deliverM 2hy is your product better than the current solution and competitive alternativesM 2hat makes your product unique in a way that is relevant to your prospectM

A. 'an you communicate this difference in a way that sets your product apart from the competitionM

Procedure )or de/elo'in ! 'ositionin str!te &

*n industrial marketer should follow the following procedure while developing a positioning strategy" 1@ Identify the target markets needs in terms of ma.or attributes or benefits, while buying the product ?or service@. This is done by conducting market research. +@ %elect one or more ma.or attributes or benefits for differentiation based on the company/s strengths or distinctive competencies 9@ 'ommunicate the company/s positioning to the target market Identi)&in -!=or !ttri(utes )or di))erenti!tion The purpose of doing market research is to understand which are the ma.or attributes that the target customer organizations consider important when making buying decisions for a product. It is also necessary to understand the customer/s perceptions regarding various competing products with regard to the ma.or attributes. *n industrial marketer can use any of the following attributes to differentiate their products" a@ &roduct variables b@ %ervice variables c@ &ersonnel variables d@ Image variables Product variables# $or standard industrial products, the variation in product features may be little, but the product quality or performance can be used for differentiation. Many Indian firms have started getting I%) 7CCC certification to differentiate their superior product quality from that of the competitors. $or e#ample, 'erebra Integrated Technologies have differentiated and positioned their software and hardware solutions as having world class quality with authentic proof of I%) 7CC+ certification

:+

$or products that can be offered with various e#tra features, the industrial firms decide which features to make standard and which to make optional. The manufacturer of material handling equipment making standard pallet trucks can serve as an e#ample. This firm offers optional e#tra attachment for stacking material up to >01C feet. This attachment is a special design not offered by any other pallet truck manufacturer and hence is used to differentiate the product. Service variables" some industrial firms offer superior pre0sales service ?i.e., solving customer problems@, during sales service ?i.e., on0time delivery@, and after sales service i.e., repair service@. The importance of these services depends on the type of product. $or instance, industrial buyers give importance to better and faster sales service when they buy disel generating sets. 2hen buyers purchase raw material and components such as steel and spark plugs for manufacturing cars, on0time delivery and quality are important attributes. &re0sales service is considered as an important variable to differentiate one supplier from others when an industrial buyer obtains solutions to the problems of e#cessive wastage of raw material by a specially designed machine by the supplier. %ervice variables become the key competitive advantage when products offered by the various suppliers are similar. Uero# advertisements are e#amples of pre sales services" )ne ad spotlights a team of Uero# consultants under the banner T2e $ind Millions.T It focuses on document assessment services that result in millions in cost savings at companies like )wens 'orning and Inter'ontinental 4otels ;roup. *nother ad 0 titled T2e !etrieveT 0 shows a golden retriever with a duck decoy in its mouth, an analogy for how Uero# helps search, retrieve and manage everything from accounting and 4! documents to legal contracts at organizations such as H& Morgan 'hase and 3nterprise !ent0*0'ar 'ompany. * third ad, headlined T2e ;o )ne to )neT emphasizes personalized, targeted customer communications that boost response rates. Personnel variable+ Industrial firms differentiate from their competitors by recruiting better people and arranging training programs at all levels. &ersonenel are generally used as a differentiator in the field of clinical trials by clinical research organizations Image $ariables" Image is the way the buyers perceive a company. The company designs its identity building programs to shape the buyer/s image. The process takes a long time. The message is conveyed in a distinctive manner through all the available promotional tools. 3g., Tata and Infosys have a favorable image in the minds of consumers. This gives them a competitive advantage. Selectin the di))erenti!tin !ttri(utes

:9 The industrial marketer has to decide how many and which attributes should be selected in order to differentiate the company or the products from its competitors. Many companies select one benefit or attribute like best quality or best service or most advanced technology. 4owever some companies believe in double benefit positioning and there are few companies that promote three benefits. HN tyres has positioned itself by promoting multiple variables such as 8o 1 in car radial tyres, no 1 in quality, 8o 1 in !K(, 8o 1 in rallies etc. 'ompaq had promoted single0benefit positioning. 'ompaq had promoted single0benefit positioning, i.e. better answers. The company had positioned that it can deliver better solutions to business problems than any other company and gave several e#amples of the business problems that it had answered as a proof of its claim. *s seen in the following advertisement, )racle positions itself as the 2orld/s V1 database for %*& applications. )nce you have determined the competitorsS positioning, organize the ideas or themes in a table according to the conveyed benefit statement. It is common 0 and a mistake 0 for companies to make two or more benefit claims of equal importance. $igure 1 is a real world e#ample of how the following mid0market and enterprise accounting and 3!& software companies were positioned in mid0+CC="

Bene)it L!wson MBS Best SAP *r!cle SSA Gnderstand needs of small K U medium businesses Gnderstand business fundamentals U $le#ible, adaptable U U U *ffordable U U Balue U U !apid Implementation K !)I U U FouSve analyzed your competitors, and created an informative table. 8ow, how do you decide if there is an unclaimed gap you can claim for your ownM * perceptual map helps in this case. %ee $igure + below, which maps the positioning landscape for the software companies listed in the table. The a#is labels represent abstractions based on the positioning statements found in the following vendorsS +CC= advertising"

::

-y creating a perceptual map, you can easily determine whether your proposed product positioning is unique, and avoid creating me0too marketing materials that fail to set you apart from the competition. Testing your positioning statement for uniqueness is a critical step in the positioning process, but one that many -+software marketers overlook. It gives you confidence that youSve discovered the right position. %o--unic!tin the %o-'!n&7s 'ositionin Industrial marketers not only decide the positioning strategy but also endeavor to communicate the same effectively to the target markets. In consumer markets, the positioning is mainly communicated through advertising. In industrial marketing, the positioning is done through personal selling, sales promotion ?e#hibitions and trade shows@ and advertising in technical and trade .ournals. If a business firm chooses best quality as the positioning strategy, all the elements of marketing should communicate quality. The implementation of T1M is important for a company so that all the activities ?submission of quotations, sales presentations, negotiations, after sales0service etc@ display a superior quality in comparison to that of competitors. 4owever, the industrial marketer should find out customers/ perceptions through independent research before deciding on a positioning strategy.

Positionin c!se stud& 9 Intel

&erhaps the most successful technology company to balance the dual requirements of innovation and reliability in its branding is Intel. -ecause of the fears consumers have, when things go wrong with technology products they react disproportionately. Take the well documented e#ample of Intel, when initial faults discovered by customers after the launch of the &entium chip by Intel were potentially devastating,and the company was receiving up to 1C,CCC calls a day from dissatisfied or unhappy customers. ;ood crisis management saved the day, and Intel regained their position of trust and high quality performance in the minds of consumers. Intel is a model of good technology branding and positioning, and had it not already had a strong position crisis management may not have been enough to save the day. The company really survived and prospered because of this, and has shown how a power positioning approach can solve the problems of consumer technophobia, with its now famous Intel Inside campaign. *s a component that is not visible to consumers

:= who buy personal computers, and )3M producers offering price advantages to manufacturers, this was no easy task. The Intel position has always been based on authenticity, quality and performance, supported strongly by consistent global campaigns. The Intel Inside logo is placed on all print advertising, print and point0of0sale merchandising, shipping cartons, packaging, and is used by world brand and )3M computer manufacturers. %upported by e#planatory communication material, it has to a large e#tent succeeded in calming the fears of consumers who are doubtful of the performance of critical and complicated product elements they do not understand. The introduction of the Intel S-unny peopleS in astronaut0type attire in an attempt to humanise and add personality to product has not been so successful, being perceived by many as cold and impersonal. Interestingly, Intel has now developed individual product brands, as is the case with the Pentium and Pentium II range. The rationale for this is that a name like Pentium ? derived from the ;reek word pent meaning five and alluding to the fifth generation of U>A computer chips @ provides a kind of shorthand which is more meaningful to the consumer, summarising the benefits more easily. Pentium II is positioned as a high performance product aimed at business and consumer users. More recently the Intel equivalent of a Sno frillsS product range called Celeron has been introduced, still endorsed by the parental name, but meant for a different target audience. This is positioned around value, compatibility and quality, but the Celeron initial offering has not had a brilliant start. It remains to be seen whether Intel has really understood the needs of different market segments, and whether or not the cheaper product can hold true to the position and associations that Intel has so single0mindedly pro.ected over the last several years. *lso, if consumers will perceive the move as a more risky alternative, and even if it will devalue the position of the higher price e#isting products. In the worst scenario, the different products might cannibalise each others sales, and generate customer confusion. Intel intends to introduce more branded chips, and careful education of the consumer in this highly comple# market will be essential to negate customer confusion and achieve successful brand positioning %onclusion Thus, one of the most important strategic marketing decisions that an industrial marketer makes is with respect to market segmentation, target marketing and positioning. These processes are chronological steps which are dependent on each other and establish the relationship between a company and its customers.

!eferences
1. Notler, &hilip 5Notler on Marketing, 4ow to 'reate, 2in and (ominate Markets6 ?+CC1@, %imon K %chuster GN Dtd., pp. 90=. +. 'annon, Tom ?177A@ 5-asic Marketing E &rinciples and &ractice6, $ourth 3dition, 'assel 9. $erguson, 3uan ?+CC1@ W2hat we DikeM E That (epends 2here Fou Dook or Disten to5, The )vserver, %unday March 1>, +CC1 :. $riedman, Thomas WThe 2orld is $lat5 ?+CC=@, *llen Dane =. -rown, %tephen ?1779@, W&ostmodern MarketingM5, 3uropean Hournal of Marketing Bol. +< 8o. :, pp. 1709: A. -rown, %tephen ?177>@, W&ost Modern Marketing + E Telling Tales5, Thomson -usiness &ress <. 4utt, Michael K %peh, Thomas ?+CC1@, W-usiness Marketing Management E * %trategic Biew of Industrial and )rganisational Markets5 %eventh 3dition, 4arcourt 'ollege &ublishers >. $reytag &er Bagn K 'larke *nn 4o.b.erg, Industrial Marketing Management 9C, :<9E:>A ?+CC1@ 3lsevier 7. 4unter, Bictor K Tietyen, (avid ?177<@, -usiness to -usiness Marketing E 'reating a 'ommunity of 'ustomers, 8T' 'ontemporary &ublishing 'ompany

:A 1C. &almer, !. *. K Millier, & ?+CC9@, 5%egmentation" Identification, Intuition and Implementation6, Industrial Marketing Management, 3lsevier 11. %udharshan, ( ?177>@ 5%trategic %egmentation of Industrial Markets6, Hournal of -usiness and Industrial Marketing, Bol. 19, 8o. 1 177>, M'- Gniversity &ress 1+. &orter, Michael ?177>@, 5'ompetitive *dvantage E 'reating and %ustaining %uperior &erformance6 The $ree &ress 19. 2ebster, $redrick ?1771@ 5Industrial Marketing %trategy6, Third 3dition, Hohn 2iley K %ons 1:. Nalafatis, %tavros K 'heston, Bicki ?177<@, 58ormative Models and &ractical *pplications of %egmentation in -usiness Markets6, Industrial Marketing Management +A, 3lsevier 1=. ;umbel, &eter ?= (ecember +CC=@, 5Italy vs. 'hina6 Time Magazine, pp. +10+< 1A. India E The 8e#t 2ave, The 3conomist, (ecember 1<th0+9rd +CC=, pp. A10A= 1<. 4avaldar, Nrishna ?+CC=@, 5Industrial Marketing6, +nd edition, Tata Mc;raw 4ill 1>. http"IIwww.messagesthatmatter.comIdifferentiate.php 17. http"IIwww.tatasteel.comIfamdIchrome0alloys.asp +C. http"IIwww.tatasteel.comIfamdIport0operations.asp +1. http"IIwww.convergys.comIadvertising.htmlVtabs ++. http"IIwww.brandingasia.comIcasesIcase+.htm %HAPTER 0 I.

%HANNEL PARTI%IPANTS
.ertic!l Inte r!tion
In marketing channel management, decision to own the downward channel is similar to make0or0buy decisions in a broader conte#t. The decision to own some parts of its marketing channel or even a part of it has a long term influence on the ability to distribute and to produce. The manufacturer becomes identified with its marketing channels, influencing its base of end customers and forming their image of the manufacturer. In addition, the manufacturer gains much of its market intelligence from its channels" 2hat the manufacturer can learn about the markets is heavily affected by the approach to the market. It therefore is a critical decision of strategic importance. The decision to vertically integrate forward affects the current activities of the manufacturer. It has along term implications and would also influence its options in future. This decision, once made, is difficult to reverse because it involves making commitments that are not very easy to redeploy. Thus, a firm/s vertical integration choices in distribution are enduring and important" These structural decisions should be made carefully, with emphasis on how they influence the firm/s future path. It should not be a knee .erk reaction to opportunities or to problems, as they arise. Bertical integration of distribution involves many comple# issues. It is therefore necessary to ensure ob.ective discussion within the firm for discussing obstacles and demands.

%osts !nd Bene)its

It is e#tremely important to carefully analyse the gains that may be available to the manufacturer by the process of owning the channels.

E4!-'les o) Institutions Per)or-in So-e %h!nnel ,unctions

$unction 'lassical Market 'ontracting 1uasi0Bertical Integration Bertical Integration

:< 1.%elling ?only@ Manufacturers/ !epresentatives +. 2holesale distribution 9. !etail (istribution Independent wholesaler Independent ?third party@ 3#clusive sales agency (istribution Hoint Benture $ranchise store (irect sales force (istribution arm of &roducer 'ompany store

-enefits must substantially e#ceed the costs involved. )wning the channel is useful to an e#tent only. Improving the control over the overall results is really the issue. The process of establishing and running the channel activities is painstaking. !esults have to be worth the effort. 2ithout the improved profitability, control is not worth the trouble. This focus is essential as such a control is psychologically appealing to many operating managers but by itself is not sufficient. Taking over the channel functions involves directing the channel flow for improving sales and margins obtained at from the channel. The manufacturer is normally interested in using the channel to ultimately improve production results. They are not interested in running a profitable marketing channel operation as an end in itself. It is important to keep that the part of the channel under direct control, whether it is acquired or not must be managed well. Inability to do so can result in an une#pected loss. %uch an eventuality must be protected against. Si4 Re!sons to *utsource Distri(ution 8ormally the distribution activities are handed over to the independent operators. *n outside party has si# advantages in performing a channel function. 1. Motivation +. %pecialization 9. %urvival of the efficient :. 3conomies of scale =. 4eavier market coverage A. Independence from any single manufacturer 2e shall discuss these factors in some details now. Moti/!tion (istributors are independent. They accept risk. -oth these result in positive motivation. $ear of loss is likely to make them perform their tasks more efficiently and with greater intensity. *gents are more persistent and aggressive at the time of negotiations. (own stream operations need a lot more detailing. %uch a detail is often missed by the owned channel members. They work at a very narrow spread of margins. $or this purpose the control on stocks and utilization of inventories is much better. This control has a direct impact on their profitability. If any distributor is not performing, it is easier to shift to another distributor. The threat of such an action is highly credible. The distributors are therefore under constant pressure to improve the operating results for the manufacturer. $or the manufacturer, it involves increasing sales and for their own survival, they have to concentrate on controlling stocks. )wn distribution suffers is unlikely to offer such efficiency. Internal employees are likely to be protected within the organisation. *s a result integrated distribution often becomes inefficient and unresponsive. S'eci!li8!tion

:> )utsiders have this advantage. $or wholesalers, distribution is all their core competence E they have no distractions. The reverse is true for manufacturers. %pecialization ensures and deepens competence. 2hen a manufacturer moves in distribution, necessary competencies have to be buitlt. 3ven when such skills are hired from outside, the necessary supervision is e#tremely difficult to obtain. It also could mean spending the scarce management time in a non core activity. Sur/i/!l o) the ,ittest (istribution in most sectors has low mobility barriers" The business is easy to enter and easy to e#it. %uch business attracts many entrants and readily eliminates the performers who are not able to sustain the required level of performance. 8ewcomers can enter swiftly. Econo-& o) Sc!le )utside distributors combine the demands of multiple manufacturers for marketing channel flows. This allows them to achieve economies of scale by doing a great deal of similar set of activities ?a set of distribution flows@ for multiple parties. The resultant economies of scale enable the independent distributors to perform flows that would otherwise be uneconomical to do at all. He!/ier M!r"et %o/er! e 4eavy coverage of a market comes out of the ability to call on many customers, including small customers. This becomes economically viable because they carry with them a broad range of offerings suitable for their customer/s needs. This has an even greater impact in making multiple calls possible. $or e#ample, a manufacturers/ representative can create a portfolio of products and services meeting related needs. *s a consequence of portfolio, they can easily afford the activity of making a call on a prospect that is a small account E for any single brand of any single product. %imilarly, by meeting multiple needs, distributors are able to draw customers to their locations. )nce there, customers spend time making purchases, and one purchase often encourages another. $or e#ample, in office supplies, the prospect orders standard white paper for a printer, then remembers to order toner, then thinks of the need for nonstandard paper or colors and so forth. The astute salesperson uses this interchange to learn about the customer/s installation, information that is useful when it is time to replace the printer itself. -oth the situations discussed above highlight the ability to have attention of the customer over a greater length of time allowing for cross selling of allied products or even products totally different in nature. This also helps in building stronger and valuable relationships. )wned distribution suffers in comparison as the bouquet of offerings is likely to be very thin. Inde'endence )ro- An& Sin le M!nu)!cturer $or their customers, such distributors or agents provide services as a sort of independent consultant or advisor. They are often considered as an impartial source of advice that does not come from a single manufacturer. -y very nature these outside specialists, independent distributors are local parties. Therefore, they are stable with the same persons serving the same customers year after year. They have the opportunity to know their customers well. This allows for building of very strong relationships and strong customer loyalties often result.

WHEN .ERTI%AL INTEGRATI*N IS PRE,ERRED

:7 )ne therefore, needs a careful look to find out when the factors discussed above are not applicable and verticality must be preferred. Company-Specific Capabilities 2hen the company has specific capabilities, at least an economic rationale to vertically integrate forward e#ists. %uch the capabilities become valuable to the e#tent of being irreplaceable. The replacement has to be trained. -esides, there is an opportunity cost of less effective sales effort during the recruiting and training period.
4owever, the value of company0specific capabilities must be very high to .ustify vertical integration. -y integrating, the firm greatly increases its overhead. -esides, the manufacturer also loses out on the third party/s coverage

and economies of scale coming out of the factors discussed above. Thus the net effect is a likely decrease in effectiveness and efficiency. &otential opportunities have to constitute a greater threat than the cost of overhead and the lost benefits of dealing with an outsider. This is usual when a new product or a new technology is launched. It also becomes necessary when technology is new for the market place. %uitable skills may not be available in the markets. his is essential to maintain and build on the brand equity. (ownstream activities have a critical impact on this. -rand equity is created by their supportive actions. 'hannel members influence brand equity when * sales force is required to e#plain the brand. This is often the case for industrial products. The brand needs to be stocked, displayed, and presented in a favourable manner. * strategy could be to allow a low margin to the channel member and to provide the support directly. This is why perfume makers sometimes rent dedicated space from department stores and have their own salespeople. * support service, before or after sales, is required to make sure the branded product is properly installed and used, so that the customer is satisfied and positive word of mouth publicity is generated.

-rand equity is created and maintained via customer e#periences. These are driven by marketing channel activities. 2hen the brand name is made truly valuable, it becomes evocative. In such a situation it is a substantial asset, specific to the manufacturer. This may even call for vertical integration. It is also possible to protect the investment by working on a close relationships downstream by franchising. This may also be possible by other suitable actions for influencing its channel members. (istribution capability ?warehousing, transportation, selling, billing etc.@ has to be created. $or a manufacturer this represents overcapacity. Investment involved is like a sunk investment. Thus, if the manufacturer e#its the business, the downstream facility becomes e#cess capacity, which cannot be used productively. %ince it is dedicated it also cannot be easily sold off. &art of the flows can be outsourced looking at the functional needs and the economy and efficiency. Ma.or pharmaceutical manufacturers use a combination. Information, promotion and education of the medicines is handled by the own sales force. This ensures close control on these critical factors. This takes care of the needed efforts for brand building and protecting the brand equity. This also takes care of the consistency of presentations to avoid any possible ambiguity. %tocking, physical ownership and movement of material is handled by the channel members. They are able to offer a better value. Reduce Per)or-!nce A-(i uit&

=C *n uncertain environment is difficult to forecast. The environment could be fast changing@ or very comple# ?therefore, difficult to grasp@. %uch volatile environments pose special challenges. %hould the manufacturer integrate forward in order to meet themM The manufacturer agrees to pay an agent for services to be provided. If the services are not performed satisfactorily, the principal negotiates for better performance. It is also free to find another agent. Many other agencies are suitable, and their willingness for the business improves the efficiency of the services. This process works well as long as the principal is clear on what it wants to get. These services can be handled by a manufacturers/ representative. The performance can be evaluated in terms of sales wherever suitable. The manufacturer usually has some idea what level of sales is reasonable to e#pect. -ut in case of the product being radically new, say, a discontinuous innovation E unlike anything that currently e#ists E current sales may not be a good indicator of performance. %ales of such new products moves in a very uncertain manner, often e#tremely slowly. It therefore is very difficult to estimate a reasonable sales level for such a product. There are no benchmarks to refer to. 4ence, performance ambiguity is high. The fundamental issue is that the outputs, or achievements, of a third party would not serve as good indicators of performance. The solution is to vertically integrate in order to direct employees to perform the activities appropriately. *nother important point must be taken care of. -eing committed to the outside representations is not the same thing as being committed to a given member of the system. Bertical integration is too often used a way to go around unsatisfactory results from or relationships with another organization. In such a situation one should first consider whether the current relationship can be improved to work better. &ossibility of replacing the channel member with another should also carefully analysed. There is a good chance for a new party would be more effectiveM Bertical integration is a drastic step that invariably fails to reduce direct costs. It may not always increase revenue. This step should not be taken without serious analysis. Markets for distribution services are efficient. )ne has to be prepared to make a very substantial commitment to improve over that level. It is necessary to take large risks and make substantial commitments if the decision is to integrate. Bertical integration can always be used to gain market research. This also helps to create an option, to be evaluated and used in some eventualities in the future. In certain circumstances integration is a good way to improve learning about the end customer how and why of the decisions of purchase. It would also hold open a door to a future investment. This could also have an impact on the behaviour of the channel members. Integration forward or backward is often a means of improving overall performance, not improving the performance per se. Wh& .ertic!l Inte r!tion 2e can summarise the discussions as follows"

=1

Why Vertical Integration

)3 +3 .3 53 63 #oor availabilit& 4ni1ue #roducts or #rocedures "lose control on marketing essentials Availabilit& of economies of scale Transactions- sizeable 7 fre1uent

This invariabl& will be a3 8arl& stages in #9" b3 :igh service levels re1uired c3 #roduct is integral to the core business

Bertical Integration is required when the products are new to the market or they require e#clusive service and support which are e#clusive in nature. %uch a situation would take place at the initial stage and also be applicable when the product is totally new to the market. The gap analysis shows supply side options are .ust not available. $or e#ample, when electronic controls were introduced with machine tools in India, it was almost impossible to arrange for the support. This at initial stages resulted in all manufacturers going for %iemens systems. The quality of support from %iemens was not as per the e#pectations of the market. This resulted in Mysore Nirloskar, one of the leading manufacturers arranging for getting into collaboration for electronic controls systems in having a separate company. %uch a situation is likely to arise when product is critical or even integral to the core business. This normally requires a close controlling on marketing. Therefore when a new product is introduced, it is normally handled by the branch office. 2hen the product begins to get commoditized and pressure on price increase a a consequence, this is gradually shifted to the channels. %ometimes the product is very close to the core business. It may also offer economies of scale because of number of transactions, the size and frequency. In such a situation vertical integration appears e#tremely attractive and is normally used. In such a situation transaction cost of business across a market is high related to the transactions being handled in house. &roblems that are typical of vertical integration are" (ifficulty to overcome the need to move from one core business to another. *ny specific needs a certain level of competence. Theoretically it should be possible. -ut this simplistic response ignores one very basic reality. *ny activity also involves supervision. %enior levels of any organisation have limited time and skills. These are ideally utilized for the core activity. *ddition of non core activities eats into this availability. *s the skill sets are different, even this investment of time would not result in a suitable outcome. This creates the 5mobility barrier6. In competition with the channel member" This entry is likely to be perceived as a threat. It therefore could have negative spin offs which would need careful action to control the likely damage.

=+ 'apital requirement

%HAPTER 0 >I

WH*LESALING DISTRIBUTI*N
2e have .ust looked at the possibilities by the organizations owning the channels. 2e have gone in some detail regarding the pros and cons of the issue involved. 2e have indicated that this route might be useful in certain specific situations. 2holesaling ?wholesale trade, wholesale distribution@ refers to business establishments that do not sell products to a significant degree to ultimate household consumers. Instead, these business sell products primarily to other businesses" retailers, merchants, contractors, industrial users, institutional users, and commercial users. 2holesale businesses sell physical inputs and products to other businesses. These players create value through providing services, that is, channel flows. In a traditional channel structure stretching from the manufacturer to the final household user, wholesaling is a critical intermediate step. The term wholesaler usually refers to an organisation that resells products to another intermediary, whereas the term distributor refers to a company that resells product to the customer that will use the product. Thus, a pharmaceutical wholesaler resells prescription drugs to a retail pharmacy, which then resells the product to a household consumer. *n industrial distributor sells products such as cutting tools to an industrial customer that may use the tools in its manufacturing facilities. 2holesaler0distributors keep goods on hand that customers need and have them accessible instantly. That availability very often makes the wholesaler0distributor a backup for, and an e#tension of, the customer/s own inventory system. In breakdown emergencies and in cases of other unplanned repairs or maintenance, distributors are an invaluable resource for supplying products that eliminate or at least reduce the downtime. * trend in wholesaling is to find innovative ways to respond to such emergencies while keeping the costs under control. Integrated supplier is a more innovative customer0distributor relationship in changing wholesale distribution in industrial markets. In an integrated supply arrangement, a customer gives a single wholesaler0distributor ?or a selected group of wholesaler0distributors@ all of its business in a particular product category or categories. In e#change, the distributor agrees to provide a high level of service on the entire product mi# at set prices. !ather rare in a formal manner, this has been in practice. This is more often utilized where the customer is located in a remote area. This offers the customer a substantial economic benefit. They save on the manpower and the efforts involved in routine way of purchase.

=9

Wholeselling

Market Coverage Contact Inventory holding Order Processing Market Information Customer Support

!holesales Adds "alue

Product Availability Assortment Bulk break Credit Service Advice Support

8ow, let us look at the services being offered by the wholesalers. In the consumer goods industry, they assist the manufacturers fulfilling activities covering the market comprehensively. They are in the intermediate stage and they are in quite close contact with the retailers. It therefore becomes much easier to service individual retailers to be aware of their needs. 'ontacts can be on a regular basis. It must be kept in mind that a very large number of retailers have small operations and this results in a large number of small value orders. If these have to be serviced directly by the manufacturers, this will add a substantial strain and it may still be fairly difficult to offer satisfactory level of services. -ecause of pro#imity to the market, they are ideally suited to offer support both to the retailer and even to the end customer. The same pro#imity allows them to accumulate market information. %uch information can cover competitive activities and response to the 'ompany/s offerings. 2hen planned carefully, information on changing preference, life styles and demographics can also be obtained.

=:

Wholeselling
;Aid to direct selling ;Channel from Manufacturer ;Assistance in planning displays ;#uidance in $elationship Mgmt ;%re&uent order fulfillment ;Credit ;Inventory carrying ;Manuf can focus on core competence ;Shifting physical distribution service responsibilities ;Consultancy advisory functions ;'o the ultimate customer ;Packaging to offer systems solutions ("A$) ;Multiple brand coverage

!holesales Adds "alue

* very important flow handled by the wholesaler is physical possession. Thus inventory holding takes place at multiple levels over and above what is kept at the manufacturer/s end. This divides the risk and allows much more thorough availability at the customer/s end. $or the retailer and customer, they offer product availability and services at a primarily level. They are also in a position to advise and support for covering the market in a satisfactory manner. Two ma.or functions being provided are bulk break and assortment. -ulk break involves offering the material in a lot size which suits the channel partners. 2holesalers normally cover a much wider range of products than normally offered by single manufacturers. Thus a wholesaler offering 4industan Dever products might also have biscuits, cold drinks, milk etc. This allows for an assortment more suitable for the retailer. This facilitates the retailer to cover wider needs and offer a more interesting package to end consumer. 2holesalers and (istributors help in e#tending the reach of the manufacturer in case of business markets. Their assistance too can be even more interesting. They can e#tend their activities to offer system solution as well. %uch a role is normally covered by value added resellers. ,uture o) Wholes!lin 2ith the current trend of disintermediation and increasing growth of e0business question normally arises on the future of classical wholesaling. The tendency of manufacturers for integrating forward into wholesaling also adds to these questions. There is also a growing tendency to utilize agents, brokers and commission agents to buy or sell the products for commission. They focus on promotion and negotiations. They have a critical role in handling, collation and transmission of information up and down the marketing channel. %uch agencies are pure specialist in selling. The ownership and financing flows can be handled separately. This can be either handled by the manufacturers themselves a typical case for capital goods industry. )therwise the agency of ' K $ agents can be availed of. Manufacturers have much greater control over the channels in going through an agent. %uch representation works as an equivalent to the 'ompany/s sales force.

== (ecision to use such an arrangement would depend upon the nature of the market and the product and brand. They provide professional service. 3conomies of scale in this business are not very big and therefore most of the agents and manufacturers/ representatives cover a limited territory. 3lectronic interface available now tends to reduce the need of wholesalers as customers can be directly in touch and obtain relevant information directly. -y letting the customer come directly in touch with various divisions within the company, a number of functions and flows can be handled directly. %uch a situation is more likely happen in industrial markets. This scenario definitely indicates a cloud over the future of wholesaling. 2e discussed earlier that no channel member can e#ist unless it adds value to the chain. It therefore would be important for wholesalers to look at their own role and activity. They also possibly will have to consider their e#tending backwards or forwards to increase their activity levels. They shall have to carefully look at their own competence and could possibly add activities like transportation, warehousing and field selling to the e#isting activities. Altern!te %h!nnels The channels are fragmenting, so audiences are fragmenting and there/s no one single channel that can address the whole market. This is driving the marketers to try out different channels, and try to learn how to use them effectively.

=A %HAPTER 9 .II

ALTERNATE %HANNELS ,*R INDUSTRIAL G**DS

*n industrial goods manufacturer can use its sales force to sell directly to industrial customers or it can sell to industrial distributors, who sell to the industrial customers or it can sell through manufacturer/s representatives or its own sales branches directly to industrial customers, or indirectly to industrial customers through industrial distributors. Xero0, one0, and two0level marketing channels are quite possible in industrial marketing channels. *-- does actually the above mentioned from the data collected. *n upcoming channel for marketing and sale of industrial goods is that of eMarketplace or online marketplace. This is, in particular very attractive for commodities like steel, coal etc. or for goods such as fitments pipes etc., where the quality of the product can be ad.udge through its grade and assurance. %uch an enabler is wee.indiamart.com. India.mart.com is a -+- ?business0to0business@ e0marketplace that acts as an interactive hub for Indian suppliers and global buyers0be it foreign businesses seeking Indian suppliers or Indian businesses interacting with other Indian buyers, and vice0versa. )pportunities, backed by efficient and reliable mi# of online and offline value services that enable you to materialize your business dreams, irrespective of the size or type of the business. This concept has tremendously reduced the channel costs for industrial goods and made the products of smaller manufacturers more visible. The penetration of internet has led to formation of -usiness to -usiness commerce sites in the country and thereby reducing the need of physical distribution channel. The sellers and buyers are increasingly meeting each other over specialized -+- web portals to e#ecute their trade. Indiamarkets is one of the India/s largest -+- market place that brings together companies looking to buy and sell productsIservices ?http"IIwww.indiamarkets.com@. India markets has an e#tensive on0ground infrastructure managed by %enior &rocurement 3ngineers which ensures that the products procured and the suppliers and buyers selected are property validated using defined evaluation parameters. Indiamarkets has built an information and e0enablement services business aimed at facilitating transactions among its customer base. It provides" ?a@ Interactive e0commerce enabled catalogues to the site/s supplier base ?b@ 'omprehensive solutions to conduct procurement and distribution processes ?c@ 'lick and Mortar solutions ?d@ &rovision of value0added transaction enabling information to the business community ?e@ -usiness information aimed at enabling .udicious business decisions. %ome sector specific electronic marketplaces have also come up for facilitating buying and selling industrial goods and services at market0driven prices. $or e#ample %teel!U 'orp. is a leading 83GT!*D e0 commerce service provider for the steel industry in India ?http"IIwww.steelr#.comIeservices.cfm@. %eekand%ource is India/s largest online cross0industry marketplace. It is ideal for businesses buying and selling to a wide cross0section of industries. It features virtual storefronts, micro0website and online !$1 systems that allow online buy0sell activities. %eekand%ource.com is India/s most comprehensive horizontal, cross0industry community portal and -+- marketplace for buying and selling of industrial goods and business services. %eekandsource.com features a virtual office for a member that offers a web storefront and transaction facilities such as online enquiries, quotations and purchase orders.

=< %teel Ma.ors %*ID and TI%') along with some other Manufacturers have got together to form a portal for metal.unction.com. This offers the purchasers the opportunity of checking up availability and even place the orders which are then e#ecuted from the stocks yards. Information on availability is already on the site and hence the customer can also select the preferred source for checking up the material. %HAPTER >I.

-rand -uilding in Industrial Markets

2e are always looking for higher efficiency in operations. 2hen we go to the market we always tend to buy some products from some manufacturers far more readily than some others. 2hy does it happenM 2ell, we recall some names much faster than others resulting in the buying decisions. 2hat pulls us in the positive direction is the pull of the -rand

Brand- <hat is it=

; A ,rand is a distinguishing name and2or s&mbol- logo- trademark or package design3 intended to identify the goods or services of a seller- and to differentiate these from those of competitors. A brand thus signals to the customers the source of the product- and protects both sides from the competitors who would attempt to provide products apparentl& identical.
Det us have another look at why do we need -randing, what does it offer to usM

=>

>elevance and 9ogic of ,>A?%I?@

; ; ; ; ; ; Aims to segment the market *tarts with a big idea :as an enduring value Tries to protect the innovation Is a living memor& *hould sustain even though the product ma& die

*t this stage, it is useful to visit the difference between consumer markets and industrial markets. %onsu-er M!r"ets %imple &roducts (ifferentiation through stress on small features 1uick 'onsumption Dimited training, if any Impulse decision &ackage on the shelf 8ow, let us look at what makes for a strong -rand Industri!l M!r"ets 'omple# &roducts $eatures built up into single Idea making it simple )n going relationship %ignificant dependence on training 'onsidered &urchase %tudy specs, procedure bound

=7

,asics for a *trong ,rand

; At The "ore something of impeccable value ; A promise fulfilled ; Aualit& of 8(perience
B %&namic ,etween the promise and the felt e(perience3

; 8mplo&ees B after all some one has to deliver3 ; 9o&alt&- counts more than cost but less than Awareness

*uccessful ,rands C criteria

; At #roduct levelC *hould deliver benefits ; *hould offer intangibles besides tangible benefits ; ,enefits on offer should be consistent with the personalit& ; ,enefits offered must be relevant to the customer

It is obvious that basics would remain the same even in industrial markets. *s the nature of the product differs, the mode of value differs. In early +1st century, one does not have to stress the importance of quality in the process. 2e can look at the impact it could have. $or this purpose, one can divide it in two categories as given below.

AC

?eed for *uccessC Product

*uality
; #erformanceC :ow well does a washing m2c clean ; $eaturesC :ow man& channels on TD ; "onformance with specsC 9evel of defects ; >eliabilit&C <ill the mi(er work earl& in the morning ; %urabilit&C :ow man& &ears will the %D% last ; *erviceabilit&C 8fficient- competent 7 convenient ; $it 7 finishC $eel of Aualit&

?eed for *uccessC Service

*uality
; TangiblesC $acilities- e1uipment 7 personnel ; >eliabilit& C <ill the accounting work be done dependabl& and accuratel& ; "ompetenceC %oes the service staff have the re1uired knowledge and skills- do the& generate trust and confidence ; >esponsivenessC Is the staff willing to help ; 8mpath&C %oes the bank provide caring -individualized attention to the customers
8ow we can see how we can benchmark the success.

A1

,enchmarks of *uccess
; Market *hare ; %uration Bnumber of &ears of sta& in the market3 ; #rofit + Staying Po,er of the organisation
+Ob-ectives of the organisation

; A combination of these ; Brand SuccessC the abilit& to retain a reasonable market share despite market redefinition
2e can now look at developing strong brands in the industrial markets. *s e#ample we will look at an e#treme e#ample of 5technology6 markets.

,randing for Technolog&

; 8motions are an e1uall& important component ; Must understand the basis of customers relationship so that it can be worked upon. ; Two critical overriding valuesC %eel #ood and Performance ; ,ig ticket is often a one time purchase- so the fear of a wrong decision is naturalE ; Aura of Safety. $eliability and *uality offers Security
*s we can see above, most of these factors are equally applicable to almost all the industrial situations, not e#clusively to the technology markets.

A+ It is important to underline the importance of softer issues. )ne can look at the process of decision making in an industrial buying situation. 'oncept of 5buy centre6 says it all. 2e have a large number of participants with differing needs, preferences and priorities. *ll of them are looking at obtaining the 5feel good.6 * brand offers it. * better known -rand would offer the safety and security more easily across the buy0centre. 8ow we can see what the process of brand building offers over time.

,rand building in technolog& markets

; Technolog& changes and moves ver& fast ; Technolog& products are being picked up even in mass channels ; This calls for simplif&ing the purchase decisions ; This is afforded b& a ,rand a kind of a shorthand nomenclature to a name when meaningful
2e can end the discussions by looking at a model for building strong brands.

A9

-rand -uilding " a model

Assessme nt Inputs Outcomes

Inputs
; Identification of Fe& customer groups or segments. ; 4nderstanding customer e(pectations- needs and aspirations. ; Assessing competitive offerings- including substitutes ; ,uilding "ustomer confidence b&
/customising the product /establishing ke& image of the brand /dealer support/eas& availabilit& and push /innovative communication and promotion schemes /elegant packaging

; Total brand management/both hardware and software as

A:

Assessment
; "ontinuous feedback from customers and channels ; In1uiring customer satisfaction
/profiling the target segment /defining the constituents /measuring the satisfaction after designing the scale /trend anal&sis and pointers for management of customer satisfaction

; ,rand *trength *core

Outcome
; ; ; ; ; Market *hare ?ew "ustomers attracted "ustomer lo&alt& Increased profitabilit& ,rand Fnowledge

A=

%HAPTER >.

A)ter -!r"ets+ I-'ort!nce o) the ser/in !nd su''ort in Industri!l M!r"ets

? Dargely based on the article with the same title by Morris 'ohen, 8arendra *grawal and Bipul *grawal in 4.-.!. May +CCA@ This is the age of servicing. *fter all this is the only ma.or differentiator available to the organizations in the days of commoditised offerings and compressed product life cycles. Most companies do not provide after sales effectively. It is largely an afterthought. -ut this is imprudent. %lower demand growth and intense competition is compelling many to look at this seriously. *s businesses began offering solutions in stead of products, it became evident that spares, after sale services, repair and upgrades offer a potent source of revenue. 2hen one adds reconditioning equipment, carrying out audits and inspections, maintenance and operations, offering technical services, support and training could be bountiful in generating revenue and could be even more fruitful for improving the profitability. The source of this opportunity arises out of the large number of equipment sold out and operating in the market place. (espite the obvious attraction, most of the organizations squander this potential. It is considered a necessary evil and an unavoidable e#pense. This perhaps arises out of the fact that this business is e#tremely difficult to manage. It results ion profits if this is managed efficiently. *lthough the )3Ms carry about 1C L of their business from spares, most do not get the best out of these operations. &eople and facilities are often idle, inventory turns of one or two times with e#tremely high level of obsolescence. Many opt for the easy way out of using independent service providers. Third party vendors become so competitive that )3Ms lose this business as soon as the initial warranty is over. 'ustomers definitely e#pect the products to be fi#ed quickly. 'ustomer satisfaction with service is at least 1= L lower than their e#pectations. Gnless the performance levels improve, this satisfaction level is bound to reduce further. 'ompanies can benefit by providing these services. This provision generates a low risk revenue stream over a long period of time. To win the after markets it is essential to recognize that the after sale service is a commitment made to the customer to respond within a specific time frame to the customer/s need of support. This has the following implications" 1. *pproach this market to generate revenue. )ne has to go beyond simply offering free service. This is likely to affect the costs in longer term. 'ustomers do not mind paying for services provided these fulfill their requirements. +. It is necessary to offer a portfolio of service options. (ifferent customers have different needs of service even for the same products or similar applications. %ervice needs also vary at different times. It is therefore necessary to study different needs, satisfy different demands and price them to suit the customer/s propensity to pay. 9. It is also useful to take into account the customer focused metrices like up time. %uch demand can be taken care of by holding stock at the manufacturer/s works.

AA :. * separate supply chain has to be designed to take care of the delivery through a network of resources like parts, people, and infra structure for adequate support. &eople will have to include all the support staff as well. %ervice supply chain has to handle more %NGs than a manufacturer/s supply chain. Gnlike the factories, these services can not be produced in advance. 8eed of parts is difficult to forecast even in case of a predictable event like scheduled maintenance. 'ompanies should use a systematic approach to improve the after sales service quality levels and reduce investments. )perating costs can also be controlled by following steps. 1. Identify the products necessary to cover. *ll products that need the support have to be included. 'omplementary products must be added even competitive products can also be added. +. * portfolio of service offers must be created to position suitably for response time and prices. 9. %elect different models for different products at different stages in the life cycle. :. Modify and highlight the organizational structure for after sales. It is useful to provide visibility and focus. %pecific incentives are useful. =. (esign the after sales service supply chain and manage it vigorously. Docations can be critical contingency planning is a must. The best way for the companies to realize the economies of scale is to pool spare parts. %upply chains can be created for each service product. Thus, premium customers can be serviced from nearby locations. !ules for prioritization have to be clear to ensure that The premium customer receives the premium quality support. It is also necessary to sense the shifts in the environment and respond with suitable repositioning of the resources. 3nd0user of many types of product, ranging from computer systems to domestic appliances, require customer support at some time E assistance to help them gain ma#imum value from their purchase. In fact customer support entails all activities 5to ensure that a product is available for trouble0free use to consumers over its useful life span6?;offin +CC1@. The concept of customer service has been a generic term used by industry and academia to describe a set of activities in which a firm engages to win and keep customers. %imply differentiation of customer service refers it to a variable that e#pands the image of a product and thereby offers the possibility of giving the firm/s product market acceptance, growth and the possibility of market dominance ?Darissa, 177:@ In this prime role, customer service is viewed as an organized corporate philosophy consisting of a comprehensive and related set of activities. %pecifically, customer service is not a generic abstraction, but rather a series of specific services prior to the transaction, during the transaction, and after the transaction. $irms offer specific service elements, such as 5timely

A< deliveries6, 5efficient telephone handling of orders and queries6, 5accurate purchase statements6, and users receive customer service not in some abstract sense, but as the 5availability of an item6, 5after0sales service and back0up6, 5competent technical representatives6, 5demon0station of equipment6 or 5special product promotions6. 2hile there is broad agreement that these elements are commonly associated with customer service, the degree of importance attached to each respective service varies from industry to industry and company to company, depending on customer needs and the capability of the service0providing organization ?Darissa 177:@. There are two aspects of customer support, which particularly deserve management attention. $irst, there is the need for customer support requirements to be fully considered at the design stage E using what are called design for supportability techniques0 in order to develop products, which are economical and easy to support. %econd, the logistic of delivering customer support through suitable channels is key. 'ompanies, which are good at both of these aspects have differentiated themselves from their competitors and won significant market share. *ccording to 3ppientte ?177<@, customer service has been emerging as a competitive weapon for business firms. 4e mentioned 5 it is becoming harder and harder to compete on manufacturing e#cellence alone. Manufacturers who thrive... will compete by bundling services with products.6. )f course, use of customer service, as a form of competition does not apply only to manufacturers. 2ith the economy becoming increasingly service based and new kinds of services being offered continually ?%chmenner, 17>A@, the input of customer service may be even more dynamic for non0manufacturers. It is probably safe to say that, in one form or another, all businesses are concerned with customer service. *s early as 17<+, Devitt noted that everyone is involved in service and that the service sector of the economy includes everything from banking and airlines to product0related services and the sales0related services offered by manufacturers and retailers. )bviously, customer service is a part of all facets of our economy and is especially important to the long0term survival of companies. The importance of customer service will be more recognized when Michael &orter ?17>C@ considers it as a parameter for his value E chain analysis model that make margin for

A> company. *ccording to this analysis, which has shown in $igure +.1, all the activities of the entity are mapped into a value arrow. The right side of the arrow represents total value created by the organization in a competitive market, that is what customer are willing to pay, i.e. revenue. To create those values, costs are incurred the difference between revenue and costs is the margin. To increase margin, the enterprise can, for e#ample increase value for customer ?primary activities@. ;enerically, primary activities are inbound logistics, operations, outbound logistics, marketing and sales, and continuing service.

;ood customer support is prerequisite for achieving customer satisfaction it can increase the success rate of new products and directly contribute to competitive advantage. In addition, it can be a ma.or source of revenue for manufacturers ?-erg and Doeb 4ull and co# kneth, 1779@. In fact, the total worldwide market for high0tech support is estimated at Y:CCbillion ?blumber, 177+@ and the importance of support revenues to manufacturing companies in a range of industries has been identified. )ver the working lifetime of a product, the support revenues from a customer may be far higher than the initial product revenue ?Nnecht, 1779@. (espite the importance of customer support as a source of both revenue and profit, it is an area that has often only received scant attention from managers

Importance of After *ales *ervice

'an be a ma.or source of revenue, although it often receives too little management attention. Is essential for achieving customer satisfaction and good long0term relationship E as identified by a number of researches. 'an provide a competitive advantage. This is true in most high0tech industries but also in some low0tech sectors. *s product differentiation becomes harder in many markets, companies are increasingly looking to customer support as a potential source of competitive advantage. * number of e#amples of how companies have own market share through good support can be found in the trade press. &lay a role in increasing the success rate of new products.

A7 8eeds to be fully evaluated during new product development, as good product design can make customer support more efficient and cost0 effective. Increased competition within many industries has led to increased attention on customer service. Barious studies indicate that upset customers may have big effect on sales of company. Therefore, all firms try to put all their attention to keep their customers satisfied and fulfill their needs and wants as much as possible. )ne of the strong tools which help all companies in this matter is providing best after0sales service. In this regard Tore ?+CC9@ stats companies developing products and services need to understand what consequences and benefits product attributes have on customer needs and value, and how they affect customer e#pectation and satisfaction. 'ustomer satisfaction is, in other words, not only decided by value and performance of hardware purchased, but by the total value received, and by the quality of the interaction and relationship e#perience throughout the service life of the product. %ervice traditionally has been considered a post0sale capability, primarily focused on problem resolution or providing technical assistance. 8ow, these definitions are too limited. 'ustomers E whether internal or e#ternal E consider service a collective, organizational responsibility rather than a functional or departmental one. *s the relationships customers have with companies continue to widen, anyone who interacts with a customer is in a position either to .eopardize or to enhance that relationship. To ensure quality service, every person who interacts with customers in any way must have the appropriate skills to respond, efficiently and effectively, to customer needs ?Hennifer &otter, 177:@. &roviding good and reliable product, which is another main target of each company can be achieved by good after sales service. *vinder ?177A@ believes increasingly, after sales customer service is becoming the order0wining criteria for most firms and is now being recognized as an important research priority. *ccording to a ma.or study conducted by the conference -oard, the primary rationale of the manufacturers for offering after0sales service is the need to support their products. In fact after sales service adds the product/s value and is often treated as integral part of the product.

<C

&roper after sales service helps companies in customer retention too. Many companies have begun to align entire organization to deliver e#cellent service, since they know their investment will pay off in terms of competitive advantage and customer retention. ?Hennifer potter, 177:@ 'ustomer long0term retention will really helps companies to be more competitive in the market and enable them to implement their entire marketing plan. The recent and ongoing changes in the business environment E most notably escalating competition, increasing globalization of markets, and more demanding customers E are making it difficult to compete effectively on the basis of traditional marketing mi# variables alone. This reality is perhaps the primary impetus for the increasing attention that relationship marketing has been receiving from both practitioners and researchers. *nd, given that long0term customer retention is a key aim of relationship marketing, the focus is now shifting from merely to customers to serving them effectively. ?&arasuraman, 177>@ *fter sales service is often in response to a customer problem, e.g. product failure restoration, problem diagnosis, e#pert assistance to resolve a problem, problem with using the product, etc. Therefore, after sales service is a recovery process that attempts to resolve a customer problem, which, if not resolved, causes dissatisfaction and less satisfied customer. The service function therefore attempts to recover the customer satisfaction to the level it was before the occurrences of problems ?;ronroos, +CCC@. $inally, we may see the main important effects of after0sales service in improvement of each firm by &aul ?1779@ classification, which e#pressed the four main important aspects of after sales service as follows" $irst, service is perceived as high0profit, high0growth opportunity. 2ith profit margins for equipment sales under pressure from foreign and domestic competition, many G.%. firms target after0sales service as a key area for investment, a sharp contrast to its historical image as a backwater meriting little attention from top management.

<1 %econd, managers are also beginning to realize that customers will buy more often and more quantities from a company they feel will support them and give ma#imum post sale satisfaction. *fter sale service, therefore, is an important aspect of a company/s marketing mi# to build loyalty and repeat business. The after market is a crucial ingredient for success in international marketing.

Third, 'ompanies are also realizing that technological and feature advantages are short lived. The rapid diffusion of technological change makes it increasingly difficult to maintain a competitive advantage based on product features or design. *s a result, both customers and manufacturers focus on service as the key differentiator. Moreover, firms/ abilities to provide service support have increased significantly. $ourth, 'ustomer e#pectations are increasing and buyers today are demanding ever0higher levels of service support. 'ustomer e#pectations will create opportunities for innovative products that meet changing service support needs and will increase competitive pressures to continually improve product reliability and serviceability. They will make conventional service contracts and endangered species, force manufacturers to unbundled the prices of products and support services, and create a ma.or profit squeeze in key segments of such information age industries as telecommunications, computers, and office automation. In spite of all above advantages, which push distributors provide after0sales service there some other reasons that .ustify not relying on suppliers services only and having local after0 sales service. *ccording the ;offin ?1777@ an important aspect of customer support is the distribution channels used and whether companies have their own customer support organization, or use third parties. If customers are to be provided with good product support, companies need to select and effectively manage their distribution channels.

<+ Manufacturing companies may have their own E direct E organization for customer support, or they may use alternative. The review of the trade and popular management press confirmed the importance of good distribution channels. In coordinating distribution channels through contractual arrangements manufacturers must deal with retailers who compete not only in price, but also in important non0price factors such as in0store services, after sales support or faster check0out. 'oordinating the price and non0price competition among retailers can be a difficult task as illustrated by the following e#ample ?Dyer, 177>@. *rvinder ?177A@ mentioned that there different ways of after0sales service support for most of firms and manufacturers which has to be selected" )ffering it directly at the factory, Through their own network of service centers, Through channel intermediaries, Through authorized independent third0party service centers -y some combination of these organization. $or long time, the manufacturers preferred to use either the first or second above methods. (istributors only had responsibility for selling the products in local market and after sales service were handling through manufacturers. -ut this method is no longer useful. It was likewise noted foreign customers have not received effective service from their suppliers the tendency has been to leave these responsibilities to the importer in the host country ?&ual, 1779@. -esides local competitors have a natural advantage in their ability to provide such services in their own domestic markets, they can use high quality after sales services to augment their product, and increase value and quality perceptions of their products. This natural locational advantage allows local competitors to parlay quality after sales service into competitive advantage relative to foreign competitors ?'ohen and Dee,

<9 177C@.

There is another classification, which introduced by ;offin ?1777@. In this classification he states there are five main choices for customer support distribution channels and companies need to determine the best combination to meet their needs and customers/ requirements as" 1. (irect support from the factory. +. * direct after0sales network. 9. 'hannel intermediaries. :. *uthorized, independent third parties. =. %ome combination of the above possibilities. $or selecting one of above methods, either direct from factory, local support service or third party, companies have to consider other environmental factors. More comple# products usually require more support and therefore manufacturers will normally want to e#ert ma#imum control over customer support by having their own direct customer support organization. They also identify the limitations of particular distribution channels, for e#ample the high costs of a direct customer support channel and the lower degree of control resulting from indirect channels, such as dealers. ?*rmistead and 'lark/s, 177+@ $inally *rvinder ?177A@ mentioned that the demand for service support in a distribution environment has steadily increased in recent times and can be another reason for distributors to have their own local after0 sales service support. This trend can be accounted for by several factors" &roducts are now more comple# and, therefore, more service0sensitive ;reater customer awareness of rights regarding warranty servicing Inflationary pressures creating greater sensitivity to repair costs (ecline in product consistency as well as instances of poor design Ine#perienced and unqualified personnel maintaining and servicing products Increased, incidents of product misuse by the customer.

<:

Key elements of After-sales service

&roviding the proper after sales service is very important for firms and customers. Traditionally, support merely constituted maintenance, service and repair. 4owever, as the scope of product support has broadened over the past decade, it has also included such aspects as installation, commissioning, training, maintenance and repair services, documentation, spare parts supply and logistics, product upgrading and medications, software, and warranty schemes, telephone support, etc. ?Tore and Gday, +CC9@ *n after0sales support strategy associated with a product may include elements such as warranty provision, e#tended service contract provision, availability of repair service, loan availability, toll0 free phone support, etc. ?*rvinder, 177A@ %tudy on each of these elements and choosing the best one?s@ is a crucial activity for all firms. *ccording to ;ulden ?177<@, after sale service consists of a number of dimensions or elements. It is conceptualized as consisting of the following" The installation and start0up of the purchase product The provision of spare parts for products The provision of repair services Technical advise regarding the product The provision and support of warranties -ut ;offin ?1777@ e#planation may be more complete, that states seven elements of after0sales support which must be provided to customers over the working lifetime of products as follows" Installation" $or many products, the first element of product support following the sale is installation. This is usually performed for comple# products ?e.g. computer systems@, or where safety issues are involved ?e.g. medical devices@ by personnel from the manufacturing company, or their representatives. Increasingly, where product design allows it, customers themselves will install their purchases and manufacturers face the challenge of making this easy for, often, non0technically minded customers. * good e#ample of the importance of easy installation is that I-M recognized in 177C that their personal computer customers

<= wanted to be able to unpack their purchases and have them running quickly. This led to products with pre0 installed software and which consequently could be unpacked, assembled, switched on and in use within five minutes ?4aug, 177C@. 3ase0of0installation can also be an important consideration in sectors such as networking products, or computer systems. User training. The comple#ity of some types of equipment necessitates that manufacturers provide good training for users. $or e#ample, hospital staff need to well0trained in the use of critical care devices and the successful implementation of process innovations, such as new manufacturing equipment, depends on e#tensive training being given over a long period. Many computer0based products include functions which help users learn to use them more efficiently these can range from single 4elp functions, to full training packages as offered by manufacturers such as I-M. 4owever, training costs can still be very high business users have to invest significant amounts of money in training their employees in efficient use of personal computers. $or simpler products, training is not necessary and details of product operation are usually given in user documentation. Documentation. Most products have some form of documentation and industries such as medical electronics it playas key role. Typical forms of documentation cover equipment operation, installation, maintenance, and repair. ;ood documentation can lead to lower support costs and increased products is poorly written and hard to understand. 8ew technology is being applied to documentation and, for e#ample, '(0!)Ms are making car servicing more efficient. Maintenance and repair. 4istorically, maintenance and repair has been an important element of product support, which has required companies to invest significant resources. $or e#ample, an estimated =CC,CCC car mechanics are employed in the G%*. If equipment fails, fast and efficient repair is essential in many markets because 5 down0time costs run typically at anywhere from 1CC to 1C,CCC times the price of spare parts or service6. In markets where product failure has strong implications E for e#ample, computer systems for financial institutions0 companies need to offer either equipment, which is very reliable ?or even never fails@, or a rapid response to e#pedite repairs. )ne way to achieve a fast response is to provide customers with loaner equipment in the event of breakdowns, where this is feasible. *nother strategy for maintenance and repair is to design disposable products the approach used by some companies for watches, torches and other products. 2here repair costs do not e#ceed a significant percentage of product

<A replacement costs, having repairable products is the best strategy for companies. $or repairable products, it makes sense for companies to develop good diagnostics0 efficient means to test for problems and identify the causes. 4owever, where products are becoming cheaper and more reliable, as is the case with &cs, service is becoming less viable. In order to repair faulty equipment, companies need to have efficient logistics for the management and movement of spares, the parts used in repairs. %ome companies have focused strongly on this area, to gain an advantage over their competitors. Maintenance also referred to as preventive maintenance is undertaken to clean, refurbish or replace parts of equipment which otherwise would be liable to fail. Mechanical parts, for e#ample, normally require regular maintenance as in the case of cars. In the computer sector, where fewer mechanical parts are involved, remote support technology enables computers to be 5 updated...diagnosed and repaired6 by linking them to manufacturers support centers via telephone lines. The G% earth0moving equipment manufacturer 'aterpillar, which focuses on product serviceability E products that are easy to maintain and repair0 is using similar approaches. This has led them to develop products, which can be remotely monitored so that maintenance can be performed before fault occurs. Online support. Telephone advice on products is a ma.or element of customer support in many industries. &roduct e#perts give online consulting to customers to help them use products more efficiently or, sometimes to trace the cause of fault ?troubleshooting@. 2henever problems can be solved over the telephone, costs are much lower than an engineer having to visit the customer site. )nline support is particularly strongly utilized for software products ?software support@. $or e#ample, companies such as Microsoft have invested significant resources in telephone centers and support costs are typically A percent of revenues in the software industry. Many software products can now be remotely configured, so that they more e#actly match customer requirements E for e#ample, Microsoft/s 2indows 7= product has this capability. Warranty. Manufacturers of most products offer warranty and, in some markets such as automobiles, manufacturers may try to gain a competitive advantage by offering longer warranty periods. 2arranty reduces the financial risk of owning products and therefore it is an important element of customer support. )ver the lifetime of product, support costs may be greater than the initial purchase price. In the computer sector these costs are referred to as cost0of0ownership and 5the costs of buying and operating computer hardware for the office is rather like an iceberg E most of them are hidden6.

<< 'onsequently, as products have become more comple# and support costs have increased, customers have started to demand more economical and effective support. To reduce the risk of e#pensive repairs, many manufacturers offer customers the possibility to purchase e#tended warranty. 4owever, in the domestic appliance sector, manufacturers have been accused of charging e#cessively for this cover. Upgrades. )ffering customers the chance to enhance the performance of e#isting products can be an important aspect of support. $or e#ample, computer manufacturers offer upgrades because they increase the working lifetime of products and can be a significant source of revenue. )riginal equipment manufacturers have a competitive advantage in this business because they normally have records of where equipment has been sold which could benefit from upgrading.

A)ter S!les Ser/ice Str!te ies

*fter selecting the after0sales service method it is important that company choose the right strategy for after0 sales service too. -oth of these elements are essential for any company to have the most effective and efficient after0service center. $or implementing a top quality after sales service plan it is necessary to select the proper strategy too. The decision of how to distribute products and to after0sales service support such as warranty, service contract, repairs, etc. is linked to the overall strategy of the organization regarding its products and the markets it plans to serve ?*rvinder ,177A@ *ccording to *rvinder ?177A@, after study in various te#ts on marketingI logisticI distribution channels, the elements, that manager e#amine as they formulate their physical distribution and after0sales service support strategies can be grouped into various dimensional attributes. These include" &roduct0related attributes such as its life cycle, comple#ity, value, physical dimensions, and consumer perceptions $irm0related attributes such as managerial ob.ectives, resources, desire for control, and breadth of product line and Market0 or industry0 related attributes such as consumer preferences, and consumer v. organizational customers, geography, market size, competition, and nature and availability of channel intermediaries. There is another classification for service strategies, which is introduced by Milind ?177<@. 4e classified

<> service strategy in three basic groups" &roduct or design related" these focus on increasing product reliability, building in redundancy, and adopting a modular product design. %ervice support system" these concentrate on changing the way manufacturers provide service. These approaches can address either improvements in system design or reductions in equipment repair. !educe customer risk" it reduces risk chiefly through warranties and service contracts

%onclusion+
There is no doubt that providing after0 sales service has grate impact on overall improvement of the company. It helps company find better position in the market and has better sales and profits. %everal advantages of after sales service will convince the management to accept it as an effective factor for increasing the sales. %econd providing after sales service Is very helpful in company/s marketing plan. In fact in tough competition situation, such a service, help management to make them different and create better position in the market. In the other word, eliminating the after sales service for any computer components/ company is not possible if company management want to have successful business in the market. Third, it has shown that management must consider after sale service as factor, which, enable them to create trustable relationship between company and customers. &roviding better service is equal to more customer retention and satisfaction, which, is any company/s target for growth.

List of References Book and articles

1. *aker, (.*., K day, ;.%. ?177C@ Marketing !esearch, :th ed. 8ewyork" 2iley cop. +. *rvinder &.%.Doomba. Dinkage between product distribution and service support functions. International Hournal of &hysical (istribution K Dogistics Management. Bol +A 8umber : 177A. & :0++

<7

9. *rmistead, '., 'lark, ;.?177:@, )utstanding 'ustomer %ervice" Implementing the best ideas from around the world, $inancial TimesIIrwin &rofessional &ublishing, -urr !idge, ID. :. -arners, H.; ?1779@, 5 8ew technologies, new markets, and changing marketing practice6. Irish, marketing !eview, vol.A, pp.:=0=+ =. -usiness *merica. 5 The Twelve Most 'ommon Mistakes and &itfalls *waiting 8ew 3#porters.6 1C?17><@"1:01=. A. -lythe. Him and Ximmerman. *lan, -usiness to -usiness Marketing Management, first edition +CC=, Thomson Dearning +CC=, &1==. <. -ruce &eeling, 5 &artnering %ervice 2ith %ales6 , $oodservice equipment K supplies, Huly +CC:, pp=:

C/S 'O M0 $ O $I 01'A' I O 1

Ma2imisation
It is necessar& to understand the gradual shift in the perceptions and the e ( p e c t a t i o n s o f t h e c u s t o m e r. F o t le r s u m m a r i s e s t h e s e a s f o l lo ws C

>C

A *hifting #aradigm
Marketer3s 4Ps ; #roduct ; #rice ; #lace ; #romotion Customer3s 4Cs ; "ustomer Dalue ; "ost to the "ustomer ; "onvenience ; "ommunication

It is therefore essential to find out what creates the value s perceived b& the c u s t o m e r.

Customer Orientation is the focus on meeting the needs of oneGs customers- internal or e(ternal. This service establishes specific customer satisfaction standards and activel& monitors client satisfaction- taking steps to clarif& and meet customer needs and e(pectations Bboth e(pressed and une(pressed3. At lower levels the service involves courteous and timel& responsiveness to the re1uests of customers- while at the higher levels- it involves developing the relationship of partner and trusted advisor. #eople with this competenc& work with a genuine understanding of the HcustomerGsH needs and have a strong desire to provide for him2her. The& are proactive in helping and in adding value to constituents and MIT. #eople with this competenc& often understand the needs of the customer better than the customer does and the& use this wisdom to create a win/win impact on the organization. This results in getting the marketing orientation structured in the organizational ps&che.

>1

<eaving Marketing into the $abric of the $irm

; Market Orientation *kills of understanding and satisf&ing the customer #rinciple cultural foundation of learning organisation ; 4sing marketing to identif& re1uisites for success to learn faster than the competition

Suggested Practices
On a da&/to/da& level- work at responding to people in a helpful- supportive manner. Take the time to understand their real needs and what it would take from &ou to assist them effectivel&. $ollow up and be proactive in contacting others when &ou feel &ou are unclear of e(pectations. Take the responsibilit& for rolling out or installing a new program- s&stem or proIect. Dolunteer for a formal role in the roll/out and follow up on &our progress and performance with customers. >espond to a customerGs complaints b& first mentall& placing &ourself in their position. $ocus initiall& on listening to the complaint. Avoid defensive reactions that conve& anger or frustration. #ractice listening skills b& role/pla&ing a customer complaint scenario with a colleague or friend. *pend e(tra time with a customer. Take them out to lunch and practice active listeningJ reiterate what &ou see as their concerns and needs. *ummarize &our findings of their needs in a written format and ask for the customerGs feedback on &our report. Interview &our customer and those that ma& be affected b& providing service to that customer. Ask them a series of probing 1uestions to thoroughl& understand their perspective. <rite down the issues and needs of all involved and draw conclusions from this information in making decisions for and with the customer.

>+ Make a list of all the internal and e(ternal customers that &ou or &our team serve. ?e(t to each one- list the t&pes of services that &ou or &our team provide. Identif& the three most important internal and e(ternal customers. *et up a regular B1uarterl&3 audit program with them. Meet with them to review their present levels of satisfaction with &our service. Ask them for specific e(amples of what &ou are doing well- what areas &ou need to improve- and what services are no longer valuable to them. >esearch &our customerGs histor& with the organization. *eek out alternative or indirect sources of information Bsuch as databases- public administrative records- etc.3 to better understand the needs and values of customers. *et up a process or a HticklerH file to enable &ou to maintain regular contact and communication with customers. "reate milestones for delivering service to individuals and check them off as &ou reach them and successfull& meet the needs of &our customers. %evelop a long/term plan for service with a customer. ,alance the needs of the customer with the needs of others and the organization. ?egotiate with the customer to come to consensus and a win/win outcome. >esearch contingencies for the customer which ma& be more effective in the long run. #rovide alternative plans and solutions. Invite internal customers or other ke& individuals outside &our immediate area to department functions and social activities. 4se these opportunities to get to know other individuals outside &our function and e(pand &our network of contacts within the organization. @et to know &our HclientGs clientH // the people that &our customer serves. $ind out what e(pectations- opportunities and constraints are being presented to &our customer. Identif& which of these e(pectations- opportunities and constraints are likel& to impact on &our relationship with &our customer. <ork with &our customer to determine strategies to deal with the issues and concerns raised and develop mutuall& beneficial action plans. Adopt the role of customer advocate. #roactivel& take client problems and issues to &our Team 9eader. 8nsure that &our customer needs are visible and seen as a top priorit& in the organization. Take an& steps re1uired to bring resolution to a customer problem- even if it is necessar& to go outside normal channels. Implement a plan to develop an in/depth understanding of the busine Implement a plan to develop an in/depth understanding of the business needs and goals of &our customers. This might include one/on/one meetings where &ou e(plore business and financial issues relevant to successful growth and performance. It might also involve attending business planning and tracking meetings as an observer- so that &ou can better develop &our perspective on what specific teams and departments need to accomplish. Assume the Iob of users and actuall& do their Iob. "ommunicate directl& with users- delivering feedback and suggestions for improvement.

>9 Talk to others about the norms and values of a customer and his2her environment. $ind out how the& developed over time and make links to the larger values and obIectives of the organization. $ind wa&s to e(plain or bridge the gaps between the needs of the customer and the larger organizationJ conduct a gap anal&sis. 4se this information to create long term solutions for the customer.

Marketing Management in a CustomerOriented Business

The process of marketing management is about attracting and retaining customers by offering them desirable products that satisfy needs and meet wants. Marketing management in a customer-orientated business consists of five key tasks summarised in the table below: Marketing Task Identify target markets Commentary Management has to identify those customers with whom they want to trade. The choice of target markets will be influenced by the wealth consumers hold and the business' ability to serve them Management has to collect information on the current and potential needs of customers in the markets they have chosen to supply. Areas to research include how customers buy (which marketing channels are used and what competitors are offering "usinesses must develop products and services that meet needs and wants sufficiently to attract target customers to wish and buy

Market research

!roduct development

Marketing mi#

Having identified the target markets and developed relevant products, management must then determine the price, promotion and distribution for the product. The marketing mix is tailored to offer value to customers, to communicate the offer and to make it accessible and convenient The ob ective in marketing is to first attract customers - and then !most importantly" retain them by building a relationship. #n order to do this effectively, they need feedback on customer satisfaction. They also need to feed this back into product design and marketing mix as customer needs and the competitive environment changes

Market monitoring

>:

Structural characteristics of a CustomerOriented Business

$ business that has a customer orientation sees the needs of customers and consumers as vital. $s it develops and markets products to meet those demands, certain structural characteristics become apparent in the business. These are summarised in the table below: "usiness $unction Identifying customer%consumer needs and wants Activities Marketing research

&eveloping products to meet customer%consumer needs and 'esearch and development wants !roduction &eciding on the value of the product to customers !ricing (sales and marketing department

Making the product available to customers at the right time &istribution and place Informing customers%consumers of the e#istence of the product and persuading them to buy it !romotion

%ou should expect to see all the above activities well-established in a business that is marketing-oriented. The effects can be visible in how these organi&ations operate in the field.

"ustomer Oriented "ompanies

; *trong Market Orientation ; ,etter Anticipation ; *tronger >elationships across the internal interfaces ; 9inkage of internal processes with the customer

>= 'enefits of this approach are manifold. (conomies of scale and scope offer such benefits to the marketers. These become very obvious in the organi&ational markets.

>etention leads to 8conom& and *urplus Increased profitabilit& on account ofC

increased purchases cross selling and increased share price premiums reduced costs caused b& learning $eferrals

The exhibit clearly identifies the three obvious opportunities. ). 'uyer tends to buy more from a seller whose performance is satisfactory *elationships work in a very +uiet manner. This becomes obvious in business markets. This is even more noticeable in the commoditised offerings. ,radually the share of the seller keeps on improving even when the policy would be to encourage more than one supplier. -. $s the buyer tends to develop confidence, possibility of cross selling presents itself to the seller. This could be in case of bundled offerings, supplementary accessories and complimentary e+uipment or materials. This can also cover services and other post .ale offerings. #t really amounts to the seller working on capturing as much as possible of the customer/s purchase re+uirements. 0. $s and when a satisfied customer is happy, a positive reference is available if and when needed. 1hen the customer becomes totally satisfied, it shifts to the category of being an 2$dvocate3. .uch a customer is going to give a lot more to the seller. This is the real potential of the business from the referrals category. 'esides, the possibility of price premium has to be considered. 1ould the customer be wiling to pay more for the undifferentiated offering4 5ot a very likely situation in today/s competitive world. 'ut look at the other possibilities as well. 6remium offerings and premium services are more likely to be considered more favourably from a supplier who is well established. This has immediate effect on the bottom line.

>A 7ne must also consider the issue of lesser cost of doing business. The process takes effect very gradually over period of time. The selling organi&ation becomes familiar with the buyer8 their system and procedures besides the personalities involved. Thus their operations tend to become more efficient. Thus, the selling expenses can be better managed and because of better co ordination between the two sides, benefits of production and logistical efficiencies can also be shared

C/S'OM0$ 05P0$I01C0 MA1#0M01'

Customer e2perience management B"8M3 is Hthe process of strategicall& managing a customerGs entire e(perience with a product or a compan&H B*chmitt- +KK.- p. )L3. Marketing research has shown that about LK to MKN of all products are perceived as commoditiesthat is- seen as being more/or/less the same as competing products. This makes marketing the product difficult. Marketers have taken various approaches to this problem includingC brandingproduct differentiation- market segmentation- and relationship marketing. >elationship marketing- Balso called lo&alt& marketing3 focuses on establishing and building a long term relationship between a compan& and a customer. There are several approaches that have been espoused including customer e(perience management- customer relationship managementlo&alt& programs- and database marketing.

T!e C"M #ramework

"8M is a methodolog& that tries to overcome the gap between theor& and practice b& reformulating basic marketing principles. The result is that "8M stresses four aspects of marketing management C "8M focuses on all sorts of customer/related issues "8M combines the anal&tical and the creative "8M considers both- strateg& and implementation "8M operates internall& and e(ternall&

Although all marketing management and strategic management does all of these- "8M supporters claim that the& have a methodolog& that will &ield better results. ,eing convinced that the marketing concept is too product/centered- "ustomer relationship management too focused on 1uantitative data- and customer satisfaction too functional- "8M looks for another perspective on the relationship of a consumer with a product or service. And whatGs ke&= The e(perience linked to it is the ke&. This enables companies to strategicall& manage a customerGs e(perience with a brand and b& doing so- achieve a trul& customer focused management concept. To accomplish this- a framework is re1uired based on clearl& defined compan& obIectives. *chmittGs book H"ustomer 8(perience ManagementH offers the following five step framework that should help managers understand and manage the Hcustomer e(perienceHC

>< *tep )C Anal&zing the 8(periential world of the customer

anal&ze sociocultural conte(t of the customer Bneeds2wants2lifest&le3 anal&ze business concept Bre1uirements2solutions3

*tep +C ,uilding the 8(periential platform connection between strateg& and implementation specifies the value that the customer can e(pect from the product B8D# ' e(periential value promise3

<hereas steps ) BAnal&sis3 and + B*trateg&3 form the basis for "8M- steps .- 5- and 6 are focusing on Implementation. *tep .C %esigning the ,rand e(perience e(periential features- product aesthetics- look and feel - e.g. logos

*tep 5C *tructuring the "ustomer interface

all sorts of d&namic e(changes and contract points with customers intangible elements Bi.e. value- attitude- behaviour3

*tep 6C 8ngaging in "ontinuous 8(periential innovation an&thing that improves end customersG personal lives and business customersG working lives

And finall&- to bring all pieces together- a holistic approach is re1uired that provides a linkage between the different steps and connects them with the organization.

Importance of $etention
%esspite a tradition and vocabular&of con1uest- mmmarketing has embraced the renewed priorit& of customer retentionJ its even more critical in the business markets..$resh look at the lifetime value of the customers purchases reveals the opportunit& loss when a customer defects.. "hallenges can be profiled under two basic t&pes of business relationshipsC 9ost for good and alwa&s a share. 9ost& for goood are stuck for a while because of the significant switching costs. This could involve training- modification of designs etc to avoid letting the downstream customers down.

>> Alwa&s a share customer do not suffer from such limitations.This is t&pical of the commodit& markets. *uch customers are likel& to be far more responsive to promotions and pricing.>etentoion priorit& for the lost for lost for good customer is thus obvious. 9asting customer relationships can provide additional business opportunities forthrough new products- and product modifications. These can even spillover to the Ioint development and promotion. The challenge can reall& be broken down three processesC building- runniong and strengthening. ,uilding relationships consists of several interacting devices for bonding. It all has to start with a superior performance.. Onl& this can be followed up for repea purchases. *ocial ties also pla& a ke& role in business relationships.TO co operate in commercial e(changesit becomes necessar& to be comfortable e(changing the needs and dissatisfaction. *hared e(pectations and rciprocated each others abilities and motives are critical for productive relationship. The process of running relationships depends on good partner selection and effective communication. As in all relationships- one has to understand the other and not necessaril& e(pect them to change. 8ffective communication implies formal strucures for interaction like formal meetings.