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This series is designed to fill the need for a compact treatment of major
aspects of marketing management and practice based essentially upon
European institutions and experience. This is not to suggest that experience
and practice in other advanced economies will be ignored, but rather that
the treatment will reflect European custom and attitudes as opposed to
American, which has tended to dominate so much of the marketing
literature.
Each volume is the work of an acknowledged authority on that subject
and combines a distillation of the best and most up-to-date research
findings with a clear statement of their relevance to improved managerial
practice. A concise style is followed throughout, and extensive use is made
of summaries, check-lists and references to related work. Thus each work
may be viewed as both an introduction to and a reference work on its
particular subject. Further, while each book is self-contained, the series as a
whole comprises a handbook of marketing management.
The series is designed for both students and practitioners of marketing.
Lecturers will find the treatment adequate as the foundation for in-depth
study of each topic by more advanced students who have already pursued
an introductory and broadly based course in marketing. Similarly, mana-
gers will find each book to be both a useful aide-mimoire and a reference
source.
Ronald McTavish
Senior Lecturer in Marketing, University of Strathclyde
Angus Maitland
Director of Marketing Services,
R. W Kinnaird & Co. Ltd
M
© Ronald McTavish and Angus Maitland 1980
McTavish, Ronald
Industrial marketing. - (Macmillan studies
in marketing management).
1. Marketing
I. Title 11. MaitIand, Angus
658.8 HF5415
ISBN 978-0-333-27488-0 ISBN 978-1-349-16317-5 (eBook)
DOI 10.1007/978-1-349-16317-5
This book is sold subject to the standard conditions of the Net Book Agreement.
The paperback edition of this book is sold subject to the condition that it shall not, by
way of trade or otherwise, be lent, resold, hired out, or otherwise circulated without
the publisher's prior consent, in any form of binding or cover other than that in which
it is published and without a similar condition including this condition being imposed
on the subsequent purchaser.
To our wives, Jo and Margaret
Contents
Preface xi
List of Tables xiii
List of Figures xiv
1 Basic Considerations 1
What is Marketing? 2
Implementing the Marketing Concept 3
Industrial Marketing is 'Different' 4
Special Features of Industrial Marketing 5
The Function of the Industrial Marketing Executive 15
Summary 16
7 Forecasting 105
The Industrial Dimension 105
The Time Scale 107
The Forecasting System 108
The Selection of Forecasting Techniques 110
Qualitative Techniques 111
Quantitative Techniques 113
The Use of Computers 118
Technological Forecasting 119
Summary 119
8 Channel Management 121
Main Distribution Channels 121
Aspects of Contractual Arrangements 124
Advantages and Disadvantages of the Use of
Middlemen 125
Factors in Channel Choice 129
Selling to Middlemen 132
CONTENTS IX
9 Pricing 139
The Simple Pricing Models 139
The Real World 141
Pricing Objectives 142
How Industry Prices 143
Price Monitoring 148
The Use of Probability in Pricing 149
Legislation and Pricing 150
Export Pricing 151
Summary 152
Postscript 175
Notes and References 179
Index 201
Preface
both with the present and future - which can alone provide the
foundation of effective marketing and selling. At the same time
emphasis is placed on the fact that in marketing not all can be neatly
quantified. In such areas as personal selling and advertising, dealt
with in detail in the book, much room still remains for creativity.
Throughout the book modem practical examples are given which
will have an obvious appeal to both managers and students.
R.McT.
A.M.
List of Tables
Basic Considerations
1 What is Marketing?
A modern view of marketing in general is presented here as a
prelude to discussing the industrial dimension.
WHAT IS MARKETING?
The firm advised to 'embrace the marketing concept' may find the
recommendation attractive in theory but difficult to implement in
practice. Moreover, the firm would be ill advised to seek in it instant
salvation to poor market performance. 4 In part this is because
market success can flow from doing certain basic things very
familiar to managements, e.g. improved selling effort in overseas
markets, better design and quality of product, more competitive
prices. More fundamentally, the marketing concept still remains at
times elusive for managements to tie down and make operationally
useful. This is not helped by the proliferation of definitions.
One reason for the apparent ethereal nature of the marketing
concept is the alleged failure of its academic and practical worlds to
communicate effectively with one another. 5 To the extent that the
academic is preoccupied with mathematical model building, the
marketing manager is left to find out whether what he sees as a
persuasive theory has any practical utility. One danger is that he
may fail to distinguish between theory and objectives on the one
hand, and techniques on the other. 6 He may become preoccupied
with techniques, e.g. market research and forecasting, at the ex-
pense of securing desirable changes in man~gerial attitudes, with
the result that the marketing concept is only partially implemented,
if at all.
The difficulties experienced by companies in adopting marketing
have led to pleas that the concept should be revised. There is a
strong case for deepening the concept by developing operational
marketing theories which could then be tested, perhaps by the
collaborative efforts of academics and industry.? Again, there is a
case for replacing the somewhat unique 'consumer satisfaction' by
emphasis on 'the consumer's best interests', thus leaving the sup-
plier with some scope to make his own interpretation. 8 (This is
4 INDUSTRIAL MARKETING
We have seen that the adoption of the marketing concept calls for a
flexible attitude on the part of managements. Successful marketing
in the industrial sphere also calls for an understanding of the special
features of these markets.
BASIC CONSIDERATIONS 5
Before dwelling on these distinguishing features, one must say
that 'marketing is marketing'. There may be a danger in over-
stressing the differences. 12 A comprehensive view of the whole is
probably the best basis for understanding particular specialisations.
The total marketing process involves a variety of different types of
marketing organisations. These might be categorised as:
effort. Both he and the user benefit, especially where the customer
can be persuaded to join in collaborative effort.22 The supplier
trying to break in faces a daunting task, particularly where a price
reduction is not thought worth the trouble of upsetting an estab-
lished relationship.
SUMMARY
Major Equipment
This category includes industrial equipment and machines such as
boilers, furnaces, cranes, lathes, printing presses and sawmills.
Some of these items are highly specialised and are built in order to
meet the needs of buyers; others are more or less standardised and
are used by a number of different industries. Rolling mills and sinter
cooling fans for steelworks are examples of large and highly special-
ised industrial products. Normally such specialised equipment is
custom built and sold in a restricted market. On the other hand,
items such as lathes, drills, or small printing presses are standardised
and less often built to special order.
In this category we are concerned with equipment whose unit
purchase prices are so large that expenditure on them will probably
be charged to a capital account, the cost therefore becoming part of
the buying firm's capital structure.!
In evaluating this type of equipment, buyers will consider such
properties as productivity, versatility, durability, economy of oper-
ation and maintenance, and time and labour-saving features. Be-
cause the equipment is of high value and of great significance to the
buyer, its acquisition will be subject to participation by various
executives in the buying firm, e.g. production manager (assessment
of proposed equipment's ability to lower unit costs and 'fit' with the
production system), accountant (financial implications), and design
and engineering representatives. Buying will be expert and ration-
ally motivated with the end product frequently user-specified.
Because buyers seek the most effective communications with sellers
to enable speedy negotiation of particular needs, direct buying is
favoured.
In some industries such as oil this direct buying may be carried out
on behalf of the ultimate user by specialist consultant/contracting
firms. In the case of chemical plant, the NIESR survey of 6000
plants erected in the 1960s showed that while some of the largest
20 INDUSTRIAL MARKETING
Accessory Equipment
This equipment is used to facilitate rather than to perform the basic
operations of a plant. Typically it is less specialised and of smaller
unit value than installations of major machinery and equipment. It
consists of items such as cutting tools, fork-lift trucks, chain hoists,
small motors, jacks, and various office machines and equipment,
e.g. adding and calculating machines. These products are typically
built for stock rather than custom built. They are somewhat stan-
dardised in design and identical items can be sold to various
customer types.
As far as buyers are concerned, this equipment usually costs less
than major items, represents smaller capital outlays, and is pur-
chased more frequently. The purchasing officer or junior echelon
buying staff may be able to deal satisfactorily with such acquisitions,
probably in liaison with foremen, office managers, or other relevant
company personnel.
DEMAND AND PRODuer CHARACTERISTICS 21
Accessory equipment is frequently sold through manufacturers'
agents or independent distributors, in other words the nature of the
product calls for less intimacy of relation between seller and buyer.
However, some types of accessory equipment are complex and of
high unit value (e.g. mechanised information systems). In such cases
the manufacturer may use his own sales force or work partly in
collaboration with technically capable independent distributors.
Because of the greater standardisation of many items in this cate-
gory, advertising can be conducted on a much broader scale in
trade, business and financial periodicals.
One would also include here materials that have gone through a
more elaborate manufacturing process but have still to enter the
end product, e.g. cloth, structural steel, and plate glass.
A major concern of the buyer is quality. Broadly this means
suitability for the product to be made, but purchasers will examine
such factors as physical and chemical properties, workability and
uniformity of dimension. This will be done to ensure uniform results
in standard processing, and to permit the use of mass production
methods with minimum readjustment of machinery. The buyer will
also consider characteristics such as appearance, finish and desir-
able bulk or weight with an eye to the saleability of his firm's end
product.
In addition to quality, the purchaser is concerned with price
delivered to the plant, and with dependability of the seller. Raw
22 INDUSTRIAL MARKETING
Operating Supplies
Operating and maintenance supplies are materials consumed in the
operation of a business and which do not enter into the final
product. Lubricants, drills, cleaning solvents and abrasives are
examples of production supplies. Clerical or administrative supplies
include, ink, pencils, paper clips, and carbon paper. In buying, the
purchasing officer is concerned with such attributes as utility, ease
of application or use, efficiency, economy of use and durability.
Because the typical operating supply is used by many firms in
numerous industries it needs to be marketed on a widespread basis.
Thus its method of marketing resembles that used in the sale of
consumer products.
The standardised nature of these end products minimises the
need for direct contact between seller and buyer. Because the unit
purchase is small, and the product requires distribution over a wide
area, the use of direct sales forces is difficult to substantiate on
economic grounds. The pressure is therefore towards indirect mar-
keting methods through middlemen.
SUMMARY
The last chapter emphasised that the industrial marketer can obtain
useful insights into the demand for his .products by studying their
characteristics and the indirect way in which need for them arises.
But this information needs to be supplemented by a closer examina-
tion of the motives and behaviour of actual customers themselves.
By using information of this sort to influence resource allocation
decisions, the seller is in a position to satisfy the basic requirement
of a marketing-oriented approach.
Elsewhere in this series of books a more detailed analysis of
industrial buying, broadening into organisational buying as a whole,
is provided.! For the purposes of this chapter a selection of major
issues will be discussed. This will provide a framework for the study
of industrial marketing decisions which follows in later chapters. To
contain the study further, emphasis will be placed on buying by
manufacturing organisations, though in any complete analysis one
would have to recognise the special problems of all sorts of middle-
men and public authorities in their roles as buyers, as well as
contractors and consultants in the case of major capital projects.
G. van der Most has recently summarised the major research
findings of Anglo-American and European writers studying the
industrial buying process. 2 He finds that together they have intro-
duced four basic concepts which are thought to play an important
role in industrial buying. These are:
Buying stages.
The decision-making unit.
Factors influencing purchasing decisions.
Purchasing systems and techniques.
BUYING STAGES
The key unit within the buying centre is the decision-making unit,
which consists of those people who actively participate in the
decision, either in the role of deciding and recommending, or in that
of authorising the decision.
Two other important groups in the buying centre are the control
unit and the information unit.
To take control firstly, purchasing decisions are influenced by
business policy decisions taken at top management level. Thus the
36 INDUS1RIAL MARKETING
decision making unit finds itself working withi~ limits set by the
company's policy on such matters as reciprocal trading, the
minimum of suppliers, and the degree of centralisation or decen-
tralisation of purchasing activities. lo
The other important group in the buying centre is the information
unit, i.e. those in the company who provide information of various
types for the use of the decision-making unit.
Hill feels there is a strong argument for regarding the buying
centre as consisting of only three units, a classification which he sees
as a simple and practical way of identifying the role which each
individual plays in the buying process. The three units can be shown
as:
DECISION-
INFORMATION CONTROL
MAKING
UNIT UNIT
UNIT
Environmental factors.
The type of purchase.
'Intrinsic' factors.
Time available.
Information available and digested.
Risk involved.
THE INDUSTRIAL CUSTOMER 39
Environmental Factors
Environmental factors can operate to reduce the buying centre's
freedom of action in taking decisions. A particular case in point is
the state of the national economy. Anti-inflationary policies, by
dampening consumer demand, may lead to pressure on the profit
margins enjoyed by buying companies. This in turn can exert
pressure on costs, and lead to a search by the companies to reduce
costs and to question the prices of all consumable supplies and
services. If the pressure on profit margins continues, then the search
to reduce costs will extend into new equipment. Where the buying
firm's end markets are becoming more international and competi-
tive, the impetus to question total costs is accelerated.
There is evidence to suggest, too, that in times of recession the
degree of formalisation within the firm seems to increase. This is
shown by the work of Guillet de Monthoux among Swedish indus-
trial buyers in manufacturing companies. 14 Decisions in boom
times, in contrast, are taken 'in a more informal atmosphere'.
Moreover, where the market is expanding rapidly, the production
department has a significant say in the buying decision. This is in
contrast to recession where the marketing department's influence
increases. This is because careful purchasing can influence the
attractiveness of the end product sold in a sluggish and highly
competitive market.
Buying decisions are also influenced by prevailing managerial
attitudes particularly towards the use of newer methods or tech-
niques. There is an increasing awareness in industrial countries of
the need to improve the standards of industrial management. Such a
movement has influenced all branches of management, including
industrial buying, leading to increasing professionalism on the part
of industrial buyers and enhancement of their status. IS
One managerial concept which is bringing fundamental changes
in conventional purchasing procedures is that of materials
management. 16 The purchasing department has always recognised
the need for co-ordination with other specialised departments such
as traffic, inspection, engineering and production. But in the pro-
cess of integrating its operations with those of other groups involved
in the materials cycle, it has had to move in new directions. One such
direction is integration with marketing. Purchasing needs to re-
spond, sometimes rapidly, to changes in the firm's product strategy;
equally marketing needs to take account of material and parts
40 INDUSTRIAL MARKETING
Purchase Complexity
While the foregoing approach, based as it is on the novelty of
purchase, is useful in its simplicity and familiarity, it would be a
mistake to assume that the behaviour of buyers will always be
predictable, say for all modified rebuys. One would also have to
consider how the purchased item was to be used, and the reasons for
its purchase. Accordingly, there are limitations on the use of the
concept as a basis for segmenting markets.
Lehmann and O'Shaughnessy propose an alternative framework
based on what they call the purchase complexity.18 In other words,
they seek to classify products on the basis of problems inherent in
their adoption, arguing from the premise that buyers will weight the
attributes of both products and suppliers so as to minimise the
problems associated with the purchase.
The purchase complexity categories they put forward are:
'Intrinsic' Factors
This point can be illustrated by referring to the case of media
influences on the purchasing process. By examining such basic or
intrinsic data as company size, type of industry, type of end product,
and so on, it is possible to obtain some idea of the type of media
most likely to influence the buying decision.
Most suggests the following examples: 19
Time Available
This point may be dealt with briefly, being largely self-explanatory.
Lack of time will tend to shorten and simplify the purchasing
process, while abundance of time will tend to lengthen it, and
increase the number of people involved in it.
44 INDUSTRIAL MARKETING
1 Salesmen.
2 Catalogues from suppliers.
3 Direct mail.
4 Trade fairs and exhibitions.
5 Trade publications (advertising and editorials).
6 'Other' editorial and advertising.
7 Trade organisations.
8 Seminars and conferences.
9 Scientific publications.
10 Personal contacts.
Risk Involvetf21
The element of risk may influence purchasing decision-taking
significantly, such risk relating both to the company as well as to the
decision-makers themselves.
Pioneering work on the relationship between risk reduction
motives and buying behaviour has been conducted by Bauer, who
concluded that the desire to reduce risk was of key importance in
explaining buying behaviour, to the extent that risk was in fact
involved. 22
With "regard to the purchasing officer, he may be uncertain about
how others will react to his decisions and the consequences, or he
may be uncertain due to lack of information. At any rate, he will at
times wish to 'play safe'. Some writers have said that the major
influence in the buying process is fear, particularly of suppliers. 23
This may overstate the case, but there can be little doubt that most
personnel in a firm will try to avoid situations where they unneces-
sarily expose themselves to the risk of error.
The desire to reduce or avoid risk can be deduced from the
following types of behaviour, though risk reduction will not be the
sole motive operating:
product requisitions;
write purchase orders;
initiate follow-up orders;
audit vendors' invoices;
prepare document papers and cheques.
Value Analysis
To assess value, the buyer measures what he obtains for his pur-
chase against what he pays. He may, for example, find he is paying a
premium price for quality features that do not contribute substan-
tially to the suitability of the item acquired. To that extent the
expenditure will be judged wasteful by the buyer and value to him
and his company is diminished.
The purchaser is thus brought to a study of the purpose or
function for which the item is acquired, looking to a revision of the
quality definition that may allow a cost reduction without impairing
the suitability of the item for its intended purpose. It is a logical and
legitimate extension of purchasing activity to make a systematic
search - or at least contribute to such a search - for the most
economic means of meeting the required performance standards.
We are discussing what has come to be referred to as value
analysis - the search for unnecessary cost factors in purchased items
with a view to their elimination. The intention is to eliminate waste
whatever its form, e.g. by a simplified component, a cheaper
substitute material, or a lower quality fitting, but still to maintain
the desired efficiency of the purchased item.
THE INDUSTRIAL CUSTOMER 49
This approach to the problem of cost is well summarised in the
checklist of ten 'Tests for Value' compiled and used in the purchas-
ing department of the General Electric Company, as long ago as
1950.34 Every material, part or operation must pass the following
tests:
Sub-Total 60
QC 'Reacts to quality problem' 5
QC 'Offers good degree of technical
quality co-operation' 5
MC 'Reacts to emergency' 5
MC 'Keeps promises' 5
MC 'Advises of his potential troubles' 5
GP 'Efficiency: handles introduction of
new components/materials' 5
GP 'Invoices and advice notes are accurate' 5
GP 'Conscious of our need to hold costs
down (includes value analysis, price
stability, etc.)' 5
Sub-Total 40
TOTAL 100
QC = Quality Control
MC = Materials Control
GP= Group
quality, service and price. These three items are allocated 60 per
cent of the total, the remainder 40 per cent.
Looking at service more closely, we see that delivery is awarded
20 per cent, as are price and quality. Delivery to schedule is a major
element of any seller's service. On occasion this will be referred to
as delivery service.
In addition, the second part of the Assessment Scale (those
factors together receiving a points allocation of 40) implies the
importance attached by this buyer to a variety of services. Thus the
buyer's quality control department want not only a prompt and
fruitful response to any quality problem arising, they expect good
liaison on quality matters with the seller.
Materials control is clearly concerned with a possible disruption
of incoming supplies which might lead, among other things, to upset
production schedules. Group's interests are slightly more varied. To
take two examples, the concern with invoices and clerical matters
could be responded to by the seller by seeking the fullest possible
integration of his own data processing methods with those of the
buyer. Concern for the customer's cost problems by the seller could
be demonstrated by the marketer in numerous ways - perhaps by
taking innovative steps to serve the purchaser better, e.g. suggesting
substitute materials, or by passing on his own experience of holding
down costs.
It is clearly of importance to the marketer to know if he is being
rated formally, and if so how. By formalising and perhaps quantify-
ing the factors thought important, the customer is in effect writing
the basic guidelines for the seller's marketing planning, to which we
turn in the next chapter.
SUMMARY
OVERALL PLANNING
Why Plan ?
The basic reason for all planning is that it is necessary for manage-
ment to take the decisions it must take today that will influence or
determine its efficiency, success or failure in the future. Planning is
essentially long-term management, though the time scales will vary
depending on the type of planning: the corporate planner may be
looking some years ahead, while the sales territory planner will be
more constricted.
PLANNING THE MARKET OFFERING 55
A major justification of formal planning is that it holds out the
hope of replacing 'seat of the pants' management with something
more systematic. However, some managements are more en-
thusiastic about planning than are others. It has been suggested that
where, among other things, the firm faces fairly benign competition
and a relatively low degree of environmental uncertainty, the
pressure to indulge in formal planning exercises is reduced. 2 On the
other hand, all managements will want to take advantage of future
opportunities, avoid threats, and allocate long-term capital invest-
ments efficiently, all of which imply a degree of planning.
With regard to marketing planning in particular, various reasons
may be put forward to account for its importance, especially in
conditions of change. 3 For example:
1 It is necessary to build a formal structure of objectives and
controls to guide and trigger the greater frequency with which
decisions have to be taken.
2 Planning forces management to think ahead systematically and
curtails their tendency uncritically to extrapolate present trends
into the future.
3 Planning stimulates achievement. In hard times, it is even more
crucial to have management participate in the determination of
objectives and to utilise this motivation to monitor perfor-
mance.
BACKGROUND
ANALYSIS
QUANTITATIVE
OBJECTIVES
MARKETING
[
STRATEGY
ACTION
PROGRAMME
I BUDGETS]
I CONTROLS I
Figure 4.1 The market planning framework
Multi-dimensional Planning
The argument for this approach stems from the axiom that in a
competitive world the firm will have a higher performance if it
builds on and protects strengths relative to competitors than if it
builds where it has nothing that competitors do not have. Strengths
will include not simply physical assets but also accumulated know-
how, customer contacts and loyalty, and a well-known name. A
rational approach to planning would thus be to look at assets - the
firm's heritage from the past - and begin to identify strengths among
these.1 6
Such an approach runs counter to the view that planning should
start in the market-place. However, customers are not totally
ignored because the existence of opportunity to make use of
strengths is implicit in the definition of a strength - it implies a
potentially profitable market given competitors' products, re-
sources, and likely reaction. Industrial goods companies build up
62 INDUSTRIAL MARKETING
1 Price.
2 Delivery.
3 Company reputation for
(a) delivery reliability;
(b) before-sales service;
(c) after-sales service;
(d) performance and reliability of machine.
4 Existence or otherwise of past experience of the machines.
5 Technical specification.
6 Whether the machine was UK manufactured or imported.
7 Availability of credit facilities.
8 Offer of trading in current machine.
9 Existence of reciprocal buying agreements between buyer and
seller companies.
for choosing firm X may erode in importance when firm Yand firm
Z have developed similar offerings. X may continue to enjoy an
acceptable market share, perhaps because of past good service, but
the rationale for favouring this firm will have changed. Indeed such
a situation can be an insecure one for the company if his favoured
position is questioned by, say, new, professionally trained buying
staff recruited by customers.
The seller in such a situation will require exceptional efforts to
sustain his competitive position. Such efforts will not relate solely to
the product. 'Small things' may, paradoxically, exert a more than
proportionate influence. Thus Bursk has noted that the importance
of personal selling varies 'in inverse proportion to its weight in the
marketing mix', showing that as closely competing sellers correctly
anticipate the buyer's price, quality, delivery and performance
needs - his 'big' requirements - the scope for an activity such as
personal selling to differentiate one supplier from another actually
increases even though the seller must place the major weight on
these larger factors.41 Equally, industrial firms may pursue other
means to make themselves the favoured supplier, for example,
integrated image projection and public relations campaigns, or
company-wide training to promote total customer sensitivity
perhaps flowing from deliberate top management steps to create a
better climate of customer awareness in the firm. Obviously such
activities can be pursued by companies already enjoying product
and services advantages hence giving a formidable combination, but
there can be no complacency about competitor reaction.
On the side of the product as such, one approach is for the firm to
cultivate what has been called the 'just noticeable difference' in
quality. Kamen has noted in several industries the tendency for
manufacturers to introduce marginal product changes over time,
e.g. slightly better finish, minor improvements in performance and
reliability, and so on.42 Each at the time may have minimal customer
impact, but over a period of successive mofifications a lost product
advantage may be regained. Equally the seller complacent about his
product may be outdistanced by the cumulative incremental pro-
duct improvements of a rival. Despite the pervasive tendency for
firms to move towards high planes of competitive equality, the
competitive situation is dynamic. The product strategist can still
make a contribution by differentiating the firm's physical offering.
PLANNING TIlE MARKET OFFERING 69
PLANNING MAJOR PROJECTS
SUMMARY
MARKET PLANNING
There are at least three questions that the industrial company will
wish to ask in relation to its market research function:
2 The internal market research function. These are clearly not the
best circumstances under which to create the market research
function. However once introduced, perhaps with a title such as
market analyst, market research officer, or marketing services
manager, responsibilities will include both the co-ordination
and execution of some, or all, of those functions which are
considered to be marketing services.
in each case to identify and assess their firm's market research needs
and to institute the means to satisfy these needs.
SUMMARY
Industrial Marketing
Research: an Overview of
Techniques
In the last chapter it was noted that the manner in which market
research is executed is a function of the needs and resources of the
industrial organisation. Before embarking on a description of mar-
ket research techniques it is useful to clarify the differences in
emphasis between industrial and consumer market research as this
influences the importance of the techniques used. These differences
are adequately described by both Gordon1 and Hutchison,2 and the
most important can be summarised as follows:
Secondary Data
The extent and depth of secondary data on industrial markets is not
always appreciated and much primary research is undertaken un-
necessarily. Some of the most important secondary sources avail-
able in the United Kingdom are as follows:
It is not possible to list here all the sources which may be of interest
to the industrial marketing researcher. A number of different
situations have been identified with regard to information,13 includ-
ing: information which is thOUght to exist but does not exist;
information which exists but which has not been identified; infor-
mation which has been identified but has not been located.
The first step is to identify sources to meet information needs and
88 INDUSTRIAL MARKETING
PRIMARY DATA
Steam tanker X X X X
Motor tanker X X X X
Bulk carrier X
Steam container X X
Motor container X
General cargo X
The main technique used to obtain primary data is the survey, but
before describing the main types of survey it is worthwhile to
consider the subject of sampling in the industrial market.
INDUSTRIAL MARKETING RESEARCH 91
SAMPLING
Continuous
Pressure, Batch driers only driers only Supplier Problems?
Feed vacuum or No. of units and approx.
Material Type of moisture atmospheric Continuous Batch Batch Evaporation performing year of With With
handled drier content operation? or batch? size time rate this duty supply process equipment
~-
---
2. Please state opposite, in general or specific terms, - --]
your likely future requirements for driers.
Drier Survey
Vacuum Ruidised
Competitor Spray band bed Total
Company A % % % %
CompanyB % % % %
CompanyC % % % %
Total % % % %
2 Age Distribution
Age (years)
Spray % % %
Vacuum % % %
Fluidised bed % % %
Spray 20
Vacuum 30-40
6 Etc.
INDUSTRIAL MARKETING RESEARCH 97
the assumption that the preceding one has been lost. A follow-up
exercise can improve the response rate by up to 10 per cent, and use
of the telephone can improve this further.
INPUT OUTPUT
Budgets Analysis by product,
Enquiries customer, and market,
Quotations SALES ANALYSIS SYSTEM against budget
Orders
Sales
Profits
Trade journals
Catalogues
COMPETITOR ANAL YSIS SYSTEM
Analysis of competitors'
I
Customer-visit reports strengths and weaknesses
Annual reports
~
10
10
100 INDUSlRIAL MARKETING
4 The Market Data System. This system should reflect the nature
of secondary data. The existence of the nation state means that
most statistical information will be produced by country. The
same will be true of economic and market information and the
market data system should reflect this, storing information by
country. Data also tend to be produced by industry, and again,
this should be reflected in data storing with cross referencing to
geographical area where necessary for easy retrieval.
The output from the market data system should be on a
regular basis covering country and industry market reports
which monitor and analyse trends, and forecast business pros-
pects. The system can also be used on an ad hoc basis.
SUMMARY
Forecasting
(ii) The Year Ahead. Part of the annual forecast will reflect the
current order book and the extent to which it does so will depend on
existing factory load and the nature of the product mix. The annual
forecast can be expected to be very detailed, providing the basis for
cash budgeting, machine loading, manpower planning, and pur-
chasing planning for the year ahead.
r---
1
Funding
I
Market size, Market
market trends research requirement
and f- Finance :
planning
l l
Production
Capacity
requirement
(!)
~
:.£
«
~
z
w
:;
I IPlantrequirement
an~ materials
:;
Z
0
Z Purchasing I in
0 U
a: w
:; 0
z
l
w
j
Manpower
requirement
Personnel
Trends, major
Product development
projects, company
I requirement
I
performance
Sales
I- R&D
I
r-
Feedback
'--
range from five to fifty years. The need for a lengthy time frame in
industrial marketing can arise from a variety of reasons including
the following:
(i) announce the availability of the new product via the media
using a Reader Information Service
(ii) survey the respondents using a questionnaire
(iii) review questionnaire returns
(iv) test survey results for validity and in addition review non-
respondents
(v) provide design and price data to development engineering
(vi) prepare a market forecast
QUANTITATIVE TECHNIQUES
These techniques tend to be used as a means of quantifying future
demand. For the purposes of discussion they will be sub-divided
into causal models and time series.
114 INDUSTRIAL MARKETING
Causal Techniques
The purpose of causal techniques is to demonstrate the relation-
ships between a set of known inputs and outputs in any given system
and to use these relationships as a basis for prediction. It should be
noted that such relationships need not be described quantitatively.
1 Regression Models. When a functional relationship exists be-
tween two or more variables in a system they are said to be
correlated and a formula can be established describing this
relationship in quantitative terms. The relationship can be used
in the forecasting process. A good example is the relationship
which has been established between Gross Domestic Product
(GDP) and energy consumption, and frequently demonstrated
by Felix and others.30 Before energy can be forecast a GDP
forecast must of course be established. However, if the latter
proves to be accurate, then energy consumption can be esti-
mated with a high degree of accuracy. A study31 has estimated
the correlation between GDP and energy consumption to be
high and increasing in the period 1953-68.32
2 Econometric Models. These comprise a system of interdepen-
dent regression equations which describe an economic system.
They represent the most sophisticated attempt to describe such
systems quantitatively and have had their most widespread
application in short-term economic forecasting. The complexity
of such models can be appreciated by the work done by Klein,
Duesenberry and others on a quarterly economic model of the
US economy.33 This project aimed at construction of a model
which would contain up to 200 equations with an ultimate
potential for double that number.
Simpler econometric models have been used by the United
Nations in estimating long term prospects for the electricity
industry.34 They can also be useful at an industrial level ; perhaps
as part of a forecasting package as shown in Figure 7.2 which
contains a schematic representation of a forecast of the demand
for power station auxiliary plant.
3 Input-Output Models. These are constructed on the basis of the
inter-industry flow of goods and services in the economy as
illustrated in the extract from the UK input-output matrix in
Table 7.1, published by the Government Statistical Service. 36
FORECASTING 115
Regression model
Econometric model
t
Analysis in terms of
station type and size
~~
Figure 7.2 A forecast of demand for auxiliary plant for electricity
generating stations
......
Table 7.1 Industry X industry flow matrix 1970 (figures in £ million) ......
0\
Dyestuffs Shipbuilding
Coal General and and marine Motor ~
mining chemicals pigments engineering vehicles
Pumps, valves
Compressors 3·6 2·3 0·4 4·2 3·7
I
Industrial engines 1·3 0·7 0·1 4·7 1·9
Other non-electric
machinery 8·2 3·2 0·6 17·5 8·0
Industrial plant
and steelwork 1·4 3·8 0·6 2·2 3·6
Instrument
engineering 0·5 0·1 0·1 4·1 8·4
'------ ----- ---
FORECASTING 117
Supplemented by applicational research, this technique is a use-
ful weapon in industrial forecasting. It can be used to break down
investment intentions in major industrial markets. However, it is
important to examine data over a period of time in order to identify
any significant trends in the purchasing patterns of end-user indus-
tries.
SUMMARY
Channel Management
1 Direct Selling
It is as well to emphasise that in any discussion of distribution the
'direct route' is still an option open to the firm, and will be favoured
by many.
The direct channel is normally defined as that in which the
producer controls the distribution of his products from factory to
user. This will frequently involve local or branch operations. Two
aspects of these are worthy of mention. First, the branch may
perform a stockholding function, i.e. receive stocks of the products
to be sold, which are subsequently split into smaller lots for local
delivery. Second, the branch provides a convenient organisational
facility. This covers at least three aspects. First, the branch office
acts as the focal point of the local sales force. Second, it can act as
the focal point of the local service engineering force, including
122 INDUSTRIAL MARKETING
2 Agents
A manufacturer's agent has been defined as a self-employed sales-
man, working for two or more principals in related but non-
competing fields, and whose renumeration consists primarily or
entirely of commission on orders received and paid for from his
agreed territory.2
In other words, the agent has the right to sell a specified range of a
manufacturer's products, with limitations on selling similar com-
petitive products in the same range. To give an example, the
typewriter agent is defined by the Typewriter (and Allied) Trades'
Federation as 'a dealer in typewriters who holds an agency or
agencies which materially affect his selling policy and prevent him
buying and selling any other make of new standard typewriter'. The
office machinery dealer holding more than one agency is thus
encouraged to represent a range of non-competing manufacturers.
In practice the agent may represent, in addition, selling agents who
act as sole distributors or sole importers for a particular product.
The latter are referred to as 'concessionaires' in some trades.
This restriction on their selling activities is not necessarily a
source of dissatisfaction to agents. Often the opposite is the case.
The producer may be a nationally known firm engaged in extensive
advertising of the product the agent sells. Some manufacturers will
provide the agent with considerable support, including help with
choosing his sales force, advice on sales methods, and general
assistance with sales management problems. Because some of the
burden of sales planning may be taken off his shoulders, the agent is
often content to accept selling restrictions stipulated by the man-
ufacturer. Most important of all, the agent normally receives a
geographical monopoly in the sale of the products in question.
3 Distributors
The basic distinction between the manufacturer's agents and the
distributors is that the latter normally have no exclusive selling
rights. They therefore need to face competition from other dis-
CHANNEL MANAGEMENT 123
tributors in the same geographical area who are selling identical
products.
From the manufacturer's viewpoint the employment of non-
exclusive distributors has the advantage of giving a much wider sales
coverage. When a manufacturer's end product is 'open to the trade',
any distributor can have access to it for resale, whereas a system of
sole agencies restricts the sale of a producer's products to one agent
in each city or geographical area. On the other hand the supplier
-narketing through distributors recognises that they have less in-
ducement than the agent to place particular emphasis on the sale of
his products.
From this description it will be seen that distributors are indepen-
dently owned firms buying, and taking title to goods from manufac-
turers which they resell to users, as distinct from the agent, who
represents sellers on a commission basis and does not take title to
the goods. (N.B. Sometimes the product changes its form in the
hands of the distributor; for example when the independent steel
stockholder cuts stock size steel to specific lengths for individual
customers. )
Distributors are of two main types. The general distributor will
carry a wide variety of industrial supplies and minor equipment
and will sell to a diverse range of customers. The speciality dis-
tributor restricts himself to a specified category of products (e.g.
electrical supplies) or concentrates on limited markets (e.g. hospi-
tals, or the catering trade).
Advantages ofAgents
According to Stephenson, use of an agent's services confers a
number of benefits on the manufacturer who employs him. These
are:
126 INDUSTRIAL MARKETING
1 Cost. The producer stands to gain in that he eliminates many
selling costs because he pays the agents by results. In other
words, the principal need not go to the expense of hiring and
training a sales force, and if the venture fails, the cost to him is
negligible when compared with a full time sales force which does
not succeed.
Disadvantages of Agents
The use of agents is not an unmixed blessing as far as manufacturers
are concerned. The following drawbacks can be noted:
Advantages ofDistributors
Arguments put forward for or against using agents will frequently
apply to distributors as well. Thus both types of middlemen offer
cost advantages to the manufacturer, both can have established
connections, and both can suffer such drawbacks as control difficul-
ty and lack of flexibility in dealing with price matters.
Nevertheless, it is worth drawing attention to the benefits and
drawbacks of distributors as such, even at the expense of some
overlap. Consider the following advantages from the producer's
viewpoint:
Disadvantages of Distributors
Against the above, certain disadvantages in using distributors need
to be noted. Among these are:
1 The manufacturer must put out time and effort to monitor the
activities of distributors.
2 The manufacturer's own local sales force must spend time
servicing the distributor.
3 There is always the possibility of conflicting sales efforts.
4 The manufacturer's field sales force may be reluctant to process
orders through distributors as this lessens the commission en-
joyed by the sales force.
5 The producer must have distributor-oriented advertising and
product literature available if required.
6 Assistance and education of distributor personnel may be man-
datory.
7 A reorientation of the manufacturer's sales and marketing
personnel to distributor thinking must be achieved.
'In future goods will be segregated not by their origin but by their
consumer characteristics and service content', and
'service content will also separate goods into different establish-
ments even if frequency of purchase is the same'. 8
SELLING TO MIDDLEMEN
the point where the results of the production process are delivered
to the customer or user.
The importance of efficient conduct of these activities is under-
lined by the fact that the purchase decision for many industrial
products will frequently favour sellers able to offer quick and
dependable delivery. In the case of heavy industrial equipment
manufactured to specification, the problems of production schedul-
ing have to be faced, as well as the problems of the physical
transportation of sometimes awkward and bulky end products.
Where the producer manufactures for stock, additional problems
connected with warehousing, inventory control and traffic manage-
ment, to mention three, present themselves. In this case the sup-
plier's production line becomes, in a sense, an extension of the
buying firm's production process.
Dependability of delivery enables the buying firm to reduce its
investment in stocks and in storage capacity. It is this fact, together
with the desire to give prompt emergency supply to customers, that
encourages· industrial suppliers to warehouse stocks at places near
areas of concentrated demand, to establish branch plants, or to
work with distributors who carry relatively full stocks in or close to
areas of heavy demand. Additional emphasis is given to decentral-
isation of supply by the needs of smaller customers to buy their
requirements without incurring all the higher transportation costs
involved in small shipments.
So many elements are involed in the logistics of physical distribu-
tion that producers face a real problem in finding an optimum mix.
As in the case of managing the total marketing mix, different
combinations of elements are possible, each yielding different
cost/revenue patterns, and with varying impact on the level of
service offered to the end customer. Examples of some of the
questions that have to be answered are:
SUMMARY
Pricing
In the history of economics, price theory has held a central part and
a great deal of attention has been paid to it. The price of a product or
a service is simply the rate at which is can be exchanged for another
product or service, but despite its apparent simplicity pricing re-
mains one of the most difficult areas of decision making in industry.
This chapter addresses itself to the problem of pricing in indus-
trial marketing, outlining the type of decisions with which the indus-
trial company is faced in the field of pricing.
Price
(P)
Demand (D)
Figure 9.1 Demand curve
PRICING OBJECTIVES
Over the last decade a great deal of attention has been paid to the
objectives of pricing in practice. 4 Some of the more important which
have been identified are as follows:
1 Rapid Cost Recovery. This might arise from a weak cash flow
situation in a company or from a situation where the market
conditions are seen to be changing adversely. Prices will be set at
a level where all costs related to the particular products can be
recovered as soon as possible, and this may not be consistent
with long-run profit maximisation.
market share erosion or move into line with industry prices and
accept a lower return. It is essential, of course, that this information
is known. Once again in the area of pricing we come up against the
need for market information to provide the basis for decision
making. There is never a true equilibrium situation in industry but
despite its inherent dynamism there is often a tendency in industrial
sectors to move towards common price levels. This is particularly
true in the industrial market where costs are difficult to assess
accurately and, at a corporate level, it also reflects the basic human
tendency towards conformity. The tendency towards common price
levels will probably be less marked where there is significant
product differentiation but it is unlikely to be significantly affected
by the structure of the industry. In the situation tending towards
theoretical perfect competition the need to conform is evident, but
even at the other end of the spectrum, in the oligopolistic situation,
the need still exists. In the latter case the reason is that with
oligopolistic competition it is difficult for the individual company to
maintain confidentiality as far as its price structure is concerned,
mainly because the competitors are well known to each other and to
their customers.
When the industrial company receives an invitation to tender
against a particular requirement the customer, or potential cus-
tomer, is unlikely to specify to whom enquiries have been submitted
in his call for tender. Thus in practice bids are often built up and
submitted in complete ignorance of the strength of competition. If
the bidding company has a market information system, quotations
will be followed up by the sales force and information on competi-
tive bids will be fed back. There is often some flexibility in the
bidding situation where, if a company finds it is out of line with its
competitors, it is possible to submit a revised quotation. This will be
a competition-oriented bid rather than a cost-oriented bid. Where
time is of the essence such action will not be possible and with
increasing use of critical path analysis in the execution of major
construction projects, there is less scope for flexibility in this area of
industrial marketing. The same no doubt applies in many other
areas where purchases are related to consumables or replacement
plant owing simply to more efficient organisation and control of the
purchasing function.
Revised bidding is also a costly burden on the supplier and is best
avoided. This can best be achieved by a thorough knowledge of
PRICING 147
competition, which will enable anticipation of their actions. KotIer4
identifies the sealed-bid pricing situation in defence contracts or
original equipment manufacture as 'a prime example of pricing
based on expectations of how competitors will bid rather than a
rigid relation based on the firm's own costs or demand'. In fact this is
not necessarily true. The bidding company's approach is likely to be
similar to that which it would adopt in the normal bidding situation.
This is because in practice the opportunity to identify competing
bidders can arise not only when pre-bid discussions with client are
undertaken, but also if the bidder himself is sub-contracting. In the
latter case the prospective sub-contractor may disclose these com-
panies from whom he has had enquiries for the same project. Not
only can competitors be identified, but the opportunity will often
arise to obtain information on competing bids. When all bids have
been submitted and opened on a predetermined day it is usual for
queries to arise regarding specification. During clarification of these
queries the opportunity to revise a quotation on the basis of
competing bids can arise.
PRICE MONITORING
EXPORT PRICING
SUMMARY
Sales Promotion
PERSONAL SELLING
Awareness 'Things to do' with Types of buyers and Differences between Indicators of Differences among
regard to buyers buyer expectations own and buyer's goals strategically relevant own, buying system's
buying systems and selling system's
goals
Commitment Rhetorical Adaptive competence Performance Buying systems and Integrated value
competence competence and communicative structure with
achievement of buyer relationships involved reference to all
satisfaction relevant systems
Source: P. J. Robinson and B. Stidsen, Personal Selling in a Modern Perspective (Boston, Mass.: Allyn & Bacon, 1967) p. 235.
SALES PROMOTION 163
tool for identifying, diagnosing and correcting problems arising
from the conduct of selling tasks, and communications between
seller and buyer.
A review of the selling activities of a company might reveal
behaviour such as (a) willingness to yield to customer objections,
(b) preoccupation with solving customer problems, (c) unclear
objectives when calling. Using the COMPACf model, one sees that
such activities are 'low level' in competence (in terms of attaining
communications goals), i.e. they fall short of Levels 4 and 5 of
competence on that (horizontal) dimension, e.g. ability to select
strategically relevant buyer relationships. Thus the model helps to
'categorise' weaknesses but also points towards and describes rele-
vant higher competence levels.
At the same time, the model helps to pick out aspects of selling
performance (vertical left-hand column) where remedial action
might be needed. The salesman may be unaware of the true nature
of the selling job, or he may be ill trained, for example.
In pursuing such an analysis, other suggestions might be promp-
ted, for example more attention to the salesman's negotiating
ability,20 better structuring of the sales force,21 more research
information to aid the salesman,22 or even work study of selling
activities. 23
sales forces, Fussell argues that one must first state the 'simple
essentials' for an effective salesman. These are that he should be
competent in:
ADVERTISING
Sales Effects
The published literature is almost devoid of formal studies of the
impact of industrial advertising on sales. 28 This is in part a reflection
of the perhaps well-known point that the industrial buyer takes
various factors into account when purchasing - advertising may play
only a small, often unknown, part in the process. Moreover the
advertiser frequently does not seek a direct sales result at all - he
SALES PROMOTION 167
may want to stimulate enquiries, encourage visits to showrooms or
pave the way for the salesman. Thereafter sales are a function of a
variety of influences including the salesman's efforts and the buyer's
price, quality, delivery and other requirements.
Accordingly the dearth of studies on sales results is not surprising.
On the other hand, there is strong evidence indicating that advertis-
ing does payoff by making personal selling more effective (i.e
advertising used in conjunction with personal selling can reduce
selling costs),29 but there remains the problem of accurately assess-
ing what each has done in isolation.
Budgeting Practices
In the light of the paucity of empirical knowledge of response to
industrial advertising, managements usually depend on some blend
of judgement, experience with similar situations, and simple rule-
of-thumb guidance in setting budgets. Working closely with experi-
enced advertising agencies has obvious attractions to the advertiser.
While the necessity for an intuitive approach to budgeting has been
bemoaned, lack of relevant information presents a huge obstacle to
the use of quantified models. 34
A study by Hart in the United Kingdom shows that many
industrial companies are now using approaches which approximate
the task method. 35 This is shown below. (A similar pattern has been
reported in the USA. )36
But such 'lessons' and suggestions can only have limited applica-
170 INDUSTRIAL MARKETING
bility elsewhere: they fall far short of a set of universal norms and
guidelines. These await development.
SUMMARY
This book has pursued the theme that effective industrial marketing
must ultimately be based on a thorough understanding of the needs
of markets, both in the sense of 'micro' markets (individual com-
panies, buyers, market segments), and of 'macro' markets (how the
firm's overall market behaves, or can be expected to behave).
Much attention is thus paid to analysing how the marketer's
customers organise themselves for buying, and how they choose
between competing suppliers. In an ideal world, the seller's market-
ing operations will constitute almost a mirror image of customer
requirements. This in turn calls for a willingness on the marketer's
part to pay great attention to the opinions of buyers, and to those
who influence buying decisions, which means that the appropriate
market information must be acquired. The techniques of industrial
market research and forecasting have thus figured prominently in
the book, demonstrating what steps the firm can take in order to
assess its markets systematically and thoroUghly.
But no successful marketing can take place unless the firm is
willing and able to manoeuvre its resources in order to respond to
the priorities the market sees as important. The company capable of
producing standard products for sale ex-stock and competing on
price, will find it difficult to respond to a market demand for special
designs on critical delivery promises competing on quality and
design flexibility. Carrying out marketing recommendations may
therefore call for changes in manufacturing organisation, facilities
and systems; and one option open to the firm is to reject markets
whose needs seem incompatible with existing production and tech-
nological capability. Ultimately successful marketing is a matter of
matching company capability, in the broadest sense, with market
requirement, at some level. Such a prescription appears straight-
forward, but the difficulties of attaining it can be formidable in
practice, as is attested to, for example, by the frequent criticisms of
the United Kingdom manufacturing industry's unreliable delivery
performance, among other things.
Even the process of removing disadvantages such as erratic
176 INDUSTRIAL MARKETING
CHAPTER 1
CHAPTER 2
CHAPTER 3
CHAPTER 4
CHAPTER 5
CHAPTER 8
CHAPTER 9
CHAPTER 10