Industrial Marketing

INDUSTRIAL MARKETING
MACMILLAN STUDIES IN MARKETING

MANAGEMENT
General Editor: Professor Michael J. Baker
University of Strathclyde
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.
The titles so far published in the series are:
Marketing - Theory and Practice Michael J. Baker

Product Policy and Management Michael J. Baker
and Ronald McTavish
Public Relations in Marketing
Management Frank Jefkins
Organisational Buying Behaviour RoyW. Hill
and T. J. Hillier
Pricing F. Livesey
International Marketing Management J. M. Livingstone
A Management Guide to Market
Research J. M. Livingstone
Industrial Marketing Ronald McTavish
and Angus Maitland
INDUSTRIAL
MARKETING
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
All rights reserved. No part of this publication

may be reproduced or transmitted, in any form
or by any means, without permission.
First published 1980 by

THE MACMILLAN PRESS LTD
London and Basingstoke
Associated companies in Delhi Dublin
Hong Kong Johannesburg Lagos Melbourne
New York Singapore and Tokyo
Filmset by Vantage Photosetting Co. Ltd

Southampton and London
British Library Cataloguing in Publication Data
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
2 Demand and Product Characteristics 18

Types of Industrial Product 18
The Derived Nature of Demand 24
Summary 31
3 The Industrial Customer 33

Buying Stages 34
The Decision-making Unit 35
Factors Influencing Purchasing Decisions 38
The Human Dimension 46
Purchasing Systems and Techniques 47
Summary 52
4 Planning the Market Offering 54

Overall Planning 54
Market Segmentation Planning 58
Planning New Products 60
Planning the Product/Services Mix 64
Planning Major Projects 69
Summary 70
viii CONTENTS
5 Researching the Industrial Market 72

The Companies and their Environment 72
Market Research and Decision-making 75
The Industrial Dimension 76
Information Requirement and Bow 78
Market Planning 80
Organisation for Market Research 80
Summary 84
6 Industrial Marketing Research: An Overview of

Techniques 85
The Sources of Marketing Information 85
Using Secondary Data 88
Primary Data 90
Sampling 91
Selecting the Sample 91
The Importance of Systems 98
The Role of the Computer 102
Summary 103
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
A Note on Physical Distribution 133

Distribution Effectiveness Analysis 136
Summary 138
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
10 Sales Promotion 155

Influencing the Buyer 156
Personal Selling 157
The COMP ACf Model 161
Advertising 166
Other Forms of Sales Promotion 170
The Co-ordination of Promotion 172
Summary 173
Postscript 175
Notes and References 179
Index 201
Preface
The range of products covered by the phrase 'industrial marketing'

is enormous - from turbo-generators to shop fittings, from elec-
tronic computers to carbon paper, from oil rigs to nuts and bolts. It
is the purpose of this book to convey, as concisely as possible, some
understanding of the problems of marketing this vast array.
Any analysis in this field needs to recognise at least three things:
that industrial marketing is 'different'; second, that while products
are numerous they can be grouped by common characteristics; and
third, as with all marketing, prime importance must be laid on the
nature of demand for them, and methods of gauging this demand,
otherwise no coherent merketing and selling can take place.
Accordingly this book emphasises the special features of indus-
trial marketing in Chapter 1. In Chapter 2 an analysis of the
peculiarities of demand for these products, allied with a study of the
main features of product groups, is provided in order to give a broad
backcloth to the more detailed study of market factors which
follows.
Chapter 3 specifically deals with the motives and behaviour of
industrial buyers - the ultimate foundation of successful supplier
marketing. Chapter 4 deals with marketing planning and discusses
how new products can be planned to cater for market needs.
Chapters 5 to 7 are concerned with market research and forecast-
ing. The modem industrial marketer has a double problem - he
needs not only an appreciation of the contribution of conventional
market research, but also some acquaintance with the problems and
methods of forecasting. These chapters meet these needs not only
by discussing relevant techniques in the two areas, but also by
showing the varied needs of different sizes and types of companies
and how these can be met in different ways. Drawing on practical
experience, it is shown that market research and forecasting are
moving towards consolidation as a common discipline.
The remaining chapters deal respectively with channel manage-
ment, pricing and sales promotion. The theme is therefore pursued
that it is this detailed base of market knowledge - in connection
xii 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
3.1 Vendor assessment scale 51

5.1 OECD countries ranked by GNP 73
6.1 Drierswvey 94
6.1 (contd) Analysis of results (drier swvey) 96
6.2 The main marketing information systems 99
7.1 Industry x industry flow matrix 1970 116
10.1 Outline of the concept of selling competence 162
10.2 Qualitiesofasalesman 165
10.3 Forms of industrial promotion 170
List of Figures
4.1 The market planning framework 56

7.1 A schematic representation of the main flows on the
short- to medium-term forcasting system 109
7.2 A forecast of demand for auxiliary plant for electricity
generating stations 115
9.1 Demandcurve 140
Chapter 1
Basic Considerations
This chapter introduces industrial marketing.

It discusses the fundamentals of this branch of marketing, and
shows that it is distinctive enough to demand special treatment. It
also points to the major tasks facing the practical industrial
marketer.
The chapter is divided into five parts:
1 What is Marketing?
A modern view of marketing in general is presented here as a
prelude to discussing the industrial dimension.
2 Implementing the Marketing Concept

The key feature of the marketing concept is that companies should
organise their activities on the basis of consumer needs. Realisation
of this ideal has not always been found easy. This part examines the
problems of making 'marketing orientation' a reality.
3 Industrial Marketing is 'Different'

There are many similarities between consumer and industrial mar-
kets and marketing. However, the special features of the industrial
area need to be highlighted. This is done in 4 below.
4 The Special Features ofIndustrial Marketing
5 The Function of the Industrial Marketing Executive

2 INDUSTRIAL MARKETING
WHAT IS MARKETING?
Definitions of the word 'marketing' abound. This has led to at-

tempts to identify schools of thought! and to suggest an all-
embracing definition. However, after J;eviewing more than fifty
definitions, all reflecting the particular frames of reference of their
authors, Crosier2 found that no single one appeared to encapsulate
the whole essence of what marketing is. We should realise, he says,
that the single word 'marketing' is used in practice in three different
contexts:
1 The marketing process - enacted via the marketing channel

connecting the producing company with its market.
2 The marketing concept or philosophy - the idea that marketing is
an exchange process involving willing consumers and producers,
for example the often recited view that marketing is adjusting
the total activities of a business to the needs of customers.
3 The marketing orientation - the phenomenon which makes the
concept and the process possible, i.e. the somewhat lofty view
that part of the human personality recognises that the source of
everything good lies, to an extent, in exchanges with other
individuals at all levels, in social exchange. In this sense 'market-
ing orientation' is a term which can be used to describe both
producers and consumers.
The Case ofIndustrial Marketing

The marketing of industrial products involves all three facets.
1 With regard to the marketing process, the book deals with

channels of distribution.
2 With regard to the marketing concept, the chapters concerning
marketing research, forecasting, marketing and product plan-
ning, and sales promotion, are all concerned with the way in
which companies seek the better to adjust their resources both
to respond to, and to influence, the markets they face.
3 Finally, in the case of marketing orientation, the importance of
this in industrial markets will be stressed throughout the book,
though the stance taken is that this is more a matter of profit-
conscious managements seeking to respond to and to exploit
BASIC CONSIDERATIONS 3
markets than an inherent personality trait as suggested by
definition 3 above.
In other words, while marketing can be looked upon as a social

process, one is more concerned in industrial marketing, with mar-
keting as an aspect of management technology.3
IMPLEMENTING THE MARKETING CONCEPT
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
particularly important in markets where consumers have difficulty

in being precise about what their future wants are. The marketer
may then lead the market by innovative design ahead of an expres-
sed consumer need, a strategy which has often succeeded.)9
To the extent that such proposals assist in the implementation of
the marketing concept, they are to be welcomed. But one cannot
disguise the fact that much debate still goes on as to its nature and
applicability. It is too much to suggest that marketing may therefore
be wasteful. \0 On the other hand, marketers will need to adopt a
highly flexible approach. This need for flexibility has been stressed
by Levitt. ll
Levitt is concerned lest the marketing concept becomes dogmat-
ised, i.e. interpreted into progressively narrower and more inflex-
ible rules. There cannot be any rigid and lasting interpretation of
what the marketing concept means for the specific ways in which a
company should operate, he contends. The world is one of vola-
tility. The marketing concept remains broadly 'in charge' but has to
be adapted to meet the changing circumstances of the firm.
Citing IBM as an example, Levitt shows how its early growth was
based on the classical marketing concept involving, inter alia, design
of the customer's installation facilities, training his staff, and re-
design of his data collection systems. The large educational element
required to market effectively in the fifties is no longer relevant in
the seventies and eighties because customers have become know-
ledgeable. Thus Levitt says the proper market-oriented approach
today is to sell the simple hardware hard without the attendant
benefit clusters of the past. This is not a change to production
orientation. It is only that there are stages in the evolution of
marketing that may require policies which may appear superficially
product-oriented or insular. The move to a more vigorous selling
stance is a response to a change in customers, and hence constitutes
a new marketing mode.
INDUSTRIAL MARKETING IS 'DIFFERENT'
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.
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:
Rapid Turnover Consumer Goods.

Durable Consumer Goods.
R,apid Turnover Industrial Goods.
Semi-manufactures.
Durable Industrial Goods.
This classification can be useful in giving the industrial marketer a

broad perspective. Thus Durable Industrial Goods (the last item)
calls for specialised buying teams, incurring much risk, and expend-
ing large sums, in contrast with Rapid Turnover Consumer Goods
(the first item). Similar, if less marked, differences can be expected
between all the items in the list. The point is that decision-making
can be improved if one's position vis-a-vis the others is known.
Industrial and consumer marketing are not so totally different
that one cannot learn from the other. But the practising executive
still needs to face the special problems of the industrial market, and
it is to these that we now turn.
SPECIAL FEATURES OF INDUSTRIAL MARKETING
The main difference between industrial and consumer goods does

not rest on differences in the products or services themselves. (But
these differences can be great, as will be seen in Chapter 2.) What
distinguishes the two are:
1 differences in the buyers, and

2 differences in the uses to which products and services are put.
Industrial goods, for example, raw materials, components, sup-

plies - e.g. coal, carbon paper - services, and capital equipment -
e.g. welding machines - are bought by business firms including
'middlemen' such as retailers, in the conduct of their business
operations. They are not bought to resell to final householders or

individual buyers. Businesses and individuals on occasion buy the
same product, e.g. cars, paper towels, scrap, but the motives for
purchase are different. A business purchase has an impact on the
firm's profit and loss statement. A consumer purchase contributes
to the well-being of members of the family.
Industrial goods are also bought by government departments,
local authorities and public bodies. Here, economic, cost-benefit
motives, while not disappearing, compete with social and profitable
ones, for example, the desirability of building a new library, or
buying laboratory equipment for a government research establish-
ment. Two characteristics of public spending can be noted at this
stage:
1 Political and social motives are frequently derived from an
economic purpose, for example where governments cut spend-
ing to reduce inflationary pressure in an economy.
2 Social, political and economic motives at times conflict and
controversy is aroused. A government may come under pressure
to bring forward its power station ordering programme in order
to keep the supply industry (e.g. boilermakers) busy. Here the
political pressure to maintain employment conflicts with the
economic arguments about the desirability of building further
power stations if electricity consumption is static or falling. 13
Taking business and government buying together, therefore, we

see that in the industrial market as a whole, goods are not purchased
for themselves but only for the contribution they can make to the
economic, political or social objectives of the purchaser. It is this
difference in buying purpose which clarifies the basic nature of
industrial marketing.
Having made this fundamental point, let us summarise some
other major features of the industrial market. These are:
1 Buyers are rationally motivated.

2 Buyers are less susceptible to sales promotion.
3 The buyer's techno-economic needs must be met.
4 Reciprocal arrangements between buyer and seller may exist.
S Seller/buyer relations can become stultified.
6 The market is readily identifiable.
7 Individual customers/orders are important.
8 The end market is relatively fixed.
We now consider these in more detail.
Buyers are Rationally Motivated

Although it has become fashionable in some quarters to point to an
emotional content in industrial buying, the acquisition of industrial
goods is typically based on an objective assessment of technical and
commercial considerations. But there are variations in the ways in
which buyers perceive such considerations: the question of mana-
gerial attitude and what influences it is taken up in Chapter 3. This
applies regardless of who is actually concerned in buying, or in
influencing buying decisions, be he accountant, civil servant, en-
gineering manager, contracts manager, managing director, or a
team.
Taking professional purchasing officers, it is a commonplace in
purchasing literature that purchasing responsibility is buying the
right quality, in the right quantity, at the right time, at the right
price, from the right source. 14 This is a broad generalisation, but it
does indicate the scope of the purchasing function, and implies the
strict economic motivation which underlies it. Performance of the
function typically involves analysis of various alternative pos-
sibilities prior to the act of purchase. The whole may be supported
by a battery of modern management techniques (for example
vendor rating systems) in an attempt to secure some objectivity in
the selection of supplier.
This in turn contributes to overall purchasing objectives which
might include:
1 Maintenance of continuity of supply to support manufacturing

schedules;
2 To do so with the minimum investment in stocks consistent with
safety and economic advantage;
3 To avoid duplication, waste and obsolescence with respect to
purchased items;
4 To maintain standards of quality in purchased goods based on
suitability for use;
5 To acquire necessary supplies and capital items at the lowest
cost consistent with the quality and service required.
Clearly the industrial goods manufacturer needs a thorough

understanding of such motivations as a basis for his marketing
approach. But this knowledge alone may not guarantee success if
rival suppliers have a similar understanding and can offer competi-
tive products and services. Then loyalty to an established and
proven supplier may emerge as a strong buying motive. 15 While
there are limitations on the effectiveness of the supplier's sales
promotion efforts, as discussed in the next section, this too may
have a decisive impact on the buyer in some circumstances. Indeed,
there is evidence to suggest that purchasing decisions can be
strongly influenced by the marketing strategy of the supplier .16
Buyers are Less Susceptible to Sales Promotion

Let us not start by suggesting that industrial marketers have no use
for sales promotion techniques. This is false, as will be shown in
more detail in Chapter 10. The point is that some buying companies
look on themselves as wholly responsible for the initiation of seller
selection and purchase. The buyer will often see himself as taking all
the initiatives: the seller's sales promotion is largely superfluous.
In part what we are dealing with here is a growth in the impor-
tance attached to the purchasing function by modern industry.
There is evidence to suggest that purchasing is playing an increasing
role in company decisions, is employing more sophisticated tech-
niques, and is achieving higher corporate statusP Moreover, in
parts of the public sector, consortium buying strengthens the hand
of the purchaser, perhaps leading to supplier resistance.1 8 In the
case of the progressive assembly of, for example, consumer dur-
ables, strong professional buying teams may emerge to direct the
flow of necessary in-coming materials and supplies. Here suppliers
cannot escape the need to meet laid-down purchasing procedures.
It is difficult to sidetrack them by salesmanship.
Advertising and other forms of promotion do have a role in
announcing the arrival of a new supplier or new product, or in
emphasising the seller's various capabilities. Again, buyer attitudes
to suppliers will to some extent be a function of the past marketing
and sales activities of vendors. But ultimately meeting his specifica-
tion and conforming to his procedural requirements will be seen by
the buyer as of central importance. 'The buyer buys, he is not sold
to' sums up this situation, though it is not one that the creative
salesman necessarily accepts without question.
The Buyer's Techno-economic Needs Must be Met
A corollary of the lesser importance attached by industrial buyers to
the vendor's sales promotion is the greater importance they attach
to acquiring the 'right' products and services at the right prices.
Ultimately, the buying organisation may go to the length of
informing materials and components suppliers about its production
control, quality and delivery requirements, as in the case of Hyd-
rovane Compressors. 19 Literature may be given to current and
prospective suppliers, and the buyer may even organise a confer-
ence the better to communicate his needs to intending vendors.
The effect of this is to throw the emphasis of the seller's market-
ing effort on to those non-selling activities which influence the
technical features of the end product, its quality, price, and as-
sociated services. Thus in industrial markets, capabilities in such
areas as design and technical development, quality control and
assurance, production planning and control (influencing prompt
delivery dates) and value engineering (influencing prices) bear most
pressure on customer attitudes to industrial sellers.
Selling activities' by manufacturers are basically concerned with
drawing the customer's attention to the excellence of the product
and service 'package' offered. But many companies successfully sell
despite suffering competitive disadvantages, i.e. the top-class in-
dustrial salesman may overcome relatively high product price,
reputation for poor after-sales service, limited range, and so on by
persuasively promoting the compensating 'plus' features of his own
product. In an analysis of this sort it is vital to avoid any understate-
ment of the contribution that industrial selling might make.
However, selling effectiveness can only be enhanced as the
excellence of the package is improved, this in turn depending upon
standards attained by a variety of works and engineering activities.
Where many of the producer's staff are involved with customers
(e.g. designers to discuss aspects of a product's features, production
planners to advise on the progress of an order going through the
works) much is gained by forging strong producer/user links.20 Here
top management can contribute crucially by establishing a policy
framework for the conduct of these customer relations.
Reciprocal A "angements Between Buyer and Seller May Exist

Reciprocity is the practice of extending purchasing preference to
those sellers who are also customers. What may be called direct
reciprocity involves an arrangement between a producer and a user

who have reciprocal needs. For example, Firm A may find that it is
buying regularly £15,000 worth of operating supplies per month
from Firm B, which also buys the final product made by Firm A and
its competitors. Firm B, however, buys most of the final product
from A's competitors. The first £15,000 per month representing
perhaps one third of A's requirements provides a powerful argu-
ment to influence B to shift a larger portion of its purchases to A.
Reciprocity is frequently more indirect. Because of integration
and diversification industry has become increasingly complex. One
result has been an increase in the scope for reciprocal agreements
perhaps involving various subsidiaries, divisions, associated com-
panies and customers linked with either the buyer or the seller. Thus
a paper and box manufacturer might put pressure on those suppliers
from whom they buy paint to utilise the services of the box-maker's
carton design subsidiary.
Regardless of the type of agreement, or whether the purchase of
substantial quantities from a manufacturer is used as an additional
sales argument, reciprocal buying is at odds with the basic tenets of
marketing if price, quality and other factors are ignored in favour of
increased quantity from a favoured source of supply.
Seller/Buyer Relations Can Become Stultified

Because the sale of many industrial products involves the establish-
ment of relationships between the producing and using company,
perhaps involving personnel at various organisational levels in each,
the success of the individual manufacturer is conditional upon the
way in which he conducts the relationship, and the way in which the
buying firm wants it to be conducted. As in all relationships, various
results are possible, ranging from the short and estranged to the
long and mutually satisfying. It is with the latter that we are
concerned.
Discussions with purchasing officers in various industries about
what they find attractive about their main suppliers suggests the
importance of good, long-term relations. The following are com-
ments made by some buyers: 21
'We enjoy a good, established relationship, with consistent qual-

ity and service.'
'We have had a good service maintained over 10 years.'
'We like our existing suppliers because of the mere fact that we
hear nothing about them.' (A reference to the fact that suppliers
are so well integrated with the user's requirements that all
operations are smooth and complaints rarely arise.)
Thus the establishing of a long-lasting relationship involves, first,

demonstrating an ability to meet the buyer's various technical and
commercial needs, then meeting these consistently over a long
period. In doing this~ the sheer fact of conducting the relationship
well gives rise to further motivating forces binding the buyer to the
seller - what might be called loyalty motives. Thus the original
technical/cost benefit motives for selecting a supplier are overlaid
by subtler human and emotional ones - the proven supplier becom-
ing identified in the buyer's mind with 'the old friend who won't let
us down'.
Asked in what circumstances they would change from their
well-established suppliers, purchasing officers reply:
'Almost nothing short of a catastrophe in the operations of

existing suppliers would make us change.'
'The necessity to change suppliers has not arisen.'
'I have not been seriously let down by any supplier.'
'The market situation does not change from year to year- I don't
need any new suppliers.'
Of course, buyers do change suppliers. This might occur if there

was failure on a serious matter, e.g. price or quality. One purchasing
officer remarked that he would only change 'if ever' because of lack
of reliability and speed of delivery, then quality, and then price.
Also change might arise because the buyer is attracted by a novel
aspect of a new supplier's offering, or because of the 'undying and
unwearying enthusiasm' of a competing supplier's sales efforts
(words of one purchasing officer), or because of the emergence of
acute shortage of capacity in the supply industry making it difficult
for the buyer to obtain essential purchases from favoured sources.
But to the extent that the supplier becomes entrenched - he is 'in'-
then his marketing efforts will be directed towards sustaining the
relationship, perhaps leading him to exceptional customer relations
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.
The Market is Readily Identifiable

This point can be made by taking obvious examples. At one extreme
are manufacturers whose market consists of one or only a few
customers. In the United Kingdom the coal-cutting machinery
maker's dependence on the National Coal Board, and the tele-
phone switching system maker's dependence on the Post Office, are
cases in point.
Moving from this extreme, we find industrial goods companies
facing broader, but still well identifiable markets. Thus the manu-
facturer of wood-working machinery finds his products used in
joinery, building, furniture, engineers' pattern shops, saw mills and
breweries, railways and shipyards. At an opposite extreme we find
products capable of application in virtually any office, shop or
works. Standard machine tools, filing cabinets, and the Ubiquitous
typewriter come into this category. Even in these cases marketing
companies can, without undue effort, establish the names and
locations of industrial and commerical organisations of all sorts
using published sources, though the ease with which this will be
accomplished will depend upon the availability of data in individual
countries. What cannot be obtained from library sources can prob-
ably be supplied by salesmen working at the grass roots level in
geographical territories.
A readily identifiable market presents certain advantages to the
producer. There are fewer headaches for marketing research; sales
promotional effort can be streamlined and focused on the target
markets; research, design and development can become expert in
the present and future product needs of the markets; and the
producer's organisation as a whole can build up detailed knowledge
and experience of the markets.
One major disadvantage in dealing with a narrow market is the
danger of having too many eggs in one basket. The point belongs
more logically in the section that follows below.
Individual Customers/Orders are Important
Various forces in an economy can work towards the emergence of
fewer and larger industrial units. These include the desire for
economies of scale, take-overs and mergers, and any growth of state
participation in or control of industry. One consequence of great
significance to the industrial market is any tendency for purchasing
to become centralised.
Such tendencies force the producer to intensify his efforts to
comprehend the motives not of whole markets, but of individual
customers. In this sense, the need for a strong marketing approach is
intense for the industrial goods producer. Nothing less than the
most comprehensive knowledge will suffice for a manufacturer
selling a major installation to the British Steel Corporation, a
nationalised electricity undertaking, or a major chemical plant.
Marketing activities will reflect the desire to maintain business with
large, influential buyers, and to avoid losing single, but very impor-
tant, orders.
From the buyer's point of view, this situation offers a source of
power. Recognising that too great a dependence by anyone seller
{)n his patronage might be disastrous if the business were suddenly
withdrawn, large purchasers will frequently split orders in order to
maintain competition.
One danger facing the producer is an over-anxiety to meet the
large buyer's requirements, with unfortunate repercussions subse-
quently. This has happened in the United Kingdom machine tool
industry where the machine maker has gone to exceptional lengths
to meet the advanced technical requirements of one large firm, only
to find the product, contrary to expectations, far too specialised for
any other customer. Thus desirable market orientation to dominant
customers may conflict with the needs of a wider market. At least
one comment is that such a producer should be content to meet the
large buyer's needs, and regard any subsequent sales to other firms
as a bonus rather than a necessity. Alternatively, such a firm might
consider strategies such as diversification in order to safeguard
itself.23
At any rate manufacturers will often find it necessary to make
special organisational arrangements to deal with significant large
orders or customers. 24 This might be insisted upon by the customer
himself when he places one of his own employees in the seller's
works. Again, the manufacturer may appoint a manager to oversee

the project. In this way organisation structures are modified to take
account of customer motivations.
The End Market is Relatively Fixed

The market for industrial products is a relatively fixed one derived
from the end consumer market over which the seller can only have
limited influence. The implications of the derived nature of demand
for industrial products is discussed in more detail in the next
chapter. However, it may be noted at this point that whereas in the
consumer market short- and indeed long-term sales may be stimu-
lated by promotional effort thereby enlarging the total size of the
market, the industrial marketer cannot normally produce this effect
directly. For example an increase in demand by breweries for
automatic bottling plant ultimately derives from an increase in beer
consumption, not from an increase in the plant industry's advertis-
ing. Such advertising might induce a brewer to select plant maker
A's bottling system in preference to plant maker B's, but will not
induce him to buy both. In other words the requirements of
manufacturing industry for plant, equipment and supplies of all
sorts are determined by output requirements, which in turn are
derived from the buoyancy or otherwise of end consumer sales. The
manufacturer bent on improving his sales performance can only do
so by and large at the expense of competitors. He can enlarge his
share of the market but not usually total size.
We have said that the industrial seller cannot 'normally' increase
the total size of the market by his unilateral efforts. Is this always the
case?
As far as the consumer market is concerned, this can be enlarged
directly via changes in the consumer's savings/consumption ratio,
i.e. the consumer may be willing to slow down or stop saving in
order to release resources to buy a persuasively-advertised durable
such as a car or deep freeze unit. Why should not a similar argument
apply to the manufacturer of consumer goods?
In theory there seems no reason why such a manufacturer, or
indeed a manufacturer of industrial goods, cannot be persuaded to
buy goods rather than retain or distribute profits. For example
many products in the office machinery field - and of course other
fields - are subject to intense advertising and personal selling efforts
by sellers. It is difficult to believe that such efforts have not been a
significant force in influencing the size and growth of some markets.
It would be hard to persuade the marketing team of Rank-Xerox
that the market they face for their copier is 'fixed' immune from
their sales and advertising efforts.
Thus although the demand for industrial goods is ultimately
linked with trends in consumer goods buying, the relationship is
more complex than it at first appears, and sales and marketing
efforts by suppliers can and do play a part in some instances.
THE FUNCTION OF THE INDUSTRIAL MARKETING

EXECUTIVE
In view of the difficulties of implementing the marketing concept,

and the numerous special problems of the industrial market, what
should one's conception be of the job of the industrial marketing
executive?
The answer to this question has in general gone through three
broad stages of thinking.2s
The early view was of the executive as a demand stimulator. He
had knowledge of the firm's markets, and knew how to combine
marketing mix tools for maximum impact on the market.
More recently this conception has been broadened to incorporate
demand management. The executive works with varied and chang-
ing demand problems. If the demand is low, he stimulates it; if
irregular, he smoothes it out; if excessive, he reduces it by lowering
the level of marketing effort - 'demarketing'.26 The executive is a
demand manager.
But even this approach may be too limited. The executive who
focuses only on attaining a certain demand level may cause undue
costs, in, for example, engineering, packaging, manufacturing and
after-sales service. In other words, the marketing executive should
be able to develop marketing strategies that are profitable - he
should be effective at systems management, the newest view of his
function. Such strategies should strike a balance between the needs
of the marketing mix (product quality, sales effort and services, for
example), business functions (manufacturing, finance, and market-
ing), and the external system (customers, distributors, suppliers)
from the viewpoint of profits.
The 'ideal' marketing executive, therefore, is one with general

management experience, not simply sales and marketing: he should
be able to deal knowledgeably with other functional areas such as
manufacturing, research and development, and finance, having
gained direct contact with these as part of his career development.
Only with such a breadth of experience will he be able to deal
flexibly with the changing markets he has to face. The marketing
concept will be his main guide, but his interpretation of it will not be
rigid or dogmatic, but liberal, to reflect the volatile environment
with which he deals.
SUMMARY
There are many definitions of marketing and it is not always fruitful

for the practitioner to pursue the fine differences. A useful distinc-
tion is between the marketing process, the marketing concept and
marketing orientation. The last, which is broadly the firm's belief in
the importance of customers, makes the other two possible.
Partly because of differences in definition, the concept has not
always been found easy to implement in practice. There is a danger
in being too dogmatic, in failing to realise that the broad concept can
be applied flexibly in different modes. The provision of a 'cluster' of
consumer-satisfying products and services reflects the marketing
concept, but so too does movement towards a more positive selling
stance with fewer services if the market demands it.
There are similarities between consumer and industrial market-
ing, one being capable of learning from the other. But the industrial
market does display a number of special features which sellers need
to be familiar with. These are that the buyer is usually rationally
motivated (though there can be an emotional content), he is less
susceptible to sales promotion (though promotion can play a sig-
nificant part in some instances), his techno-economic needs must be
met, reciprocal pressures can exist, seller/buyer relationships can
become stultified, the market is readily identifiable, individual
orders are more important, and the end market is relatively fixed.
All of these have a bearing on the type of marketing strategies
developed by industrial sellers.
In the light of the problems of implementing the marketing
concept, and the special problems of the industrial market, the role
of the industrial marketing executive must be seen in terms of
systems management, i.e. this executive needs not only sales and
marketing knowledge, but also experience and understanding of the
firm's basic functions such as finance, production and research and
development. It is only from this standpoint that he will be able to
implement the marketing concept flexibly in the light of changing
market and customer requirements.
Chapter 2
Demand and Product

Characteristics
We discuss in this chapter the two features of the industrial market,

mentioned in Chapter 1, whose importance justifies separate and
more detailed treatment. These are:
1 Types of industrial products and

2 The derived nature of demand
TYPES OF INDUSTRIAL PRODUCT
The variety of products and services embraced in the phrase 'indus-

trial marketing' is enormous. It ranges from complex, custom-made
machinery costing many thousands of pounds to mass-produced
supply items of standard design and little cost. Attempts to classify
this broad array will never be completely satisfactory because of the
difficulty of establishing mutually exclusive categories. Some goods
may defy classification, other rating borderline status.
But it is still useful to identify different product categories
because this gives an insight into the main influences affecting
buying decisions and choice of vendor. Also, the way in which
buyers themselves classify products will give clues to the marketer
about his selling, promotional, and channel decisions. In short, a
study of the different categories of products including major fea-
tures such as unit price, frequency of purchase, necessity for vendor
service, and so on, is helpful to the marketer who wants to clarify
differences in demand associated with different types of product.
The categories to be described are:
DEMAND AND PRODuer CHARACTERISTICS 19
Major equipment
Accessory equipment
Raw and processed materials
Component parts and sub-assemblies
Operating supplies
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
chemical firms still preferred to design, engineer, procure

and construct their own new plants with their own 'captive'
design-engineering organisations, the majority of plants are now
engineered and built by process plant contractors.2 Such contrac-
tors, where they are used, therefore operate partly as 'buyers',
though in fact they come between the 'ultimate' buyer (in the case
cited, the chemical company) and sellers.
As far as marketers are concerned, selling is largely direct be-
cause of the small numbers of users, the concentration of the
market, the large unit of sale, and the need to provide various types
of service (e.g. installation advice and the supply and training of
operators).3 Creation of demand is difficult for the seller as the
equipment will only be required in connection with new plant, for
expansion or replacement. This calls, among other things, for
favourable business conditions which in turn depend upon condi-
tions in the user's markets. Among advertising objectives might be
keeping the selling firm's name before all buying influences against
the time when the user feels he must invest again, or stressing
cost-benefit features of a product with a view to hastening the
replacement of outmoded manufacturing methods. In this market,
the possibilities of various financial services such as leasing or hire
purchase need investigation by sellers.4
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.
Raw and Processed Materials

Raw and partly manufactured materials are goods that enter into
the completed product which must be subjected to further manufac-
ture before sale to the final consumer. Such materials include a
diverse range of items from newly mined ore to completely fabri-
cated materials for use in assembled products.
Two broad classifications suggest themselves:
1 Products of the mine, forest or farm such as timber, ores and

cotton which have yet to go through a manufacturing process.
2 Commodities that have been sUbjected to one or more manufac-
turing process but which are still in relatively crude form.
Included in this category are pig iron, thread, linseed oil and tin.
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
materials are usually bought in large quantities, often in advance of

production requirements. As they are a basic element of total costs,
buyers are vitally interested in market prices and often buy on a
price basis. Prices may fluctuate widely.5 To ensure adequate
supplies, buying firms will frequently buy futures, or buy goods for
storage, or integrate their operations to produce their own supply of
raw materials.
Various kinds of agents, especially brokers, are an important
element in the system for marketing raw materials. This is the case
where the firm or industry has not integrated its raw material
extraction activity with refinement of the product and ultimate sale
to the end consumer (e.g. the oil companies).
Where the material or materials have gone through perhaps quite
elaborate processing to yield.an end product, e.g. structural steels,
the product may be sold either directly by the producer or
indirectly. In the case of many steel products, independent stock-
holders are able to compete successfully with the mills. They can
offset a possible price disadvantage by offering a number of com-
pensating benefits, especially that of assuming the stock-holding
function on behalf of the user. 6
Component Parts and Sub-assemblies

Fabricated parts which perform a specific function and do not
require further modification to be installed as part of the final
product are classified as components. A feature of modern, pro-
gressive assembly industry is the emphasis placed upon buying-in a
wide variety of parts and components and assembling these to give
the end product. Thus the truck manufacturer might find himself
buying, among other things, batteries, tyres, wheels, axles, springs,
bumpers and many other parts from specialised makers of such
products, to be incorporated in the final truck.
The purchaser will frequently prepare his own specification of the
product, although many products, as in the case of tyres in the
automotive industry, are standardised according to the specification
of the parts producer. The purchaser will want regularity of delivery
and so may place a contract for a year's supply, or part thereof. The
procedure might be to place the annual contract, then 'call off' at
regular intervals, perhaps two-monthly, as the need arises. The
purchaser also seeks uniformity of quality, and while this may push
him towards a single supplier, other considerations, notably the
DEMAND AND PRODuer CHARAcrERlSTICS 23
need for continuity of supply, may induce him to use mUltiple
sources. Where the supplier can offer consistency of quality and
delivery much will be done to satisfy a major motive of the user,
namely the desire to economise on stocks.
Many component parts are sold directly to original equipment
manufacturers, for example tail pipes and exhaust systems bought
by manufacturers to become part of the original equipment of a car
or lorry. But as these parts wear out they may be replaced by
garages, service stations, and company-owned repair units. This
illustrates the existence of a second major market segment for
components - the replacement market. The problems and methods
of approach to this market are those of reaching the various
intermediaries, e.g. retailers, garages, repair shops, who may be
present. In both instances advertising can be used by the supplier to
stress quality and service, and in some instances advertising can be
carried to the final consumer, e.g. car accessory manufacturers. 7
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.
A Note on Systems Selling

It is wrong to assume that industrial products are always sold as
separate items, as might be implied by the discussion above. In some
instances, products and services are sold in 'families' as part of a

total system; hence the phrase 'systems selling'. 8
Broadly this means that the seller offers a combination of hard-
ware products and soft-ware (including problem solution and ser-
vice), which together form an integrated system able to carry out a
total function or set of functions in the buying organisation.
Examples are information processing systems, mechanical handling
systems, and preventive security systems. The business systems
buyer, for example, is concerned not only with the central proces-
sor, but also with various items of ancillary equipment, and with
operating supplies such as carbon ribbons. He has an obvious
interest in buying a 'package'. Manufacturers are therefore under
pressure to respond, though there are limits, and independent
suppliers of, for example, office supplies, continue to flourish.
THE DERIVED NATURE OF DEMAND
The demand for the various categories of industrial goods discussed

above is derived from the demand for the products of which they
form a part or are needed to produce. Indirectly, therefore, the
demand for industrial goods is dependent upon various economic
and social pressures within an economy, while social, political and
economic forces are at the root of public authority buying.
The demand for industrial goods is also subject to other influ-
ences. It is intended to discuss these first of all before turning to
derived demand in more detail. In particular, it will be useful to say
something about the broad nature of both public authority expendi-
ture, and expenditure by the private sector.
The Nature of Public and Private Investment Expenditure

(a) Public Authorities' Expenditure. 9 Public authorities' expenditure
is both on current account, i.e. for the provision of public
services currently enjoyed (administration, defence, etc.) and
also for capital formation, i.e producers' goods to further future
services (building of schools, construction of roads, etc.).
Some of the characteristics of public authority expenditure of
interest to the industrial marketer are as follows:
DEMAND AND PRODUCT CHARACTERISTICS 25
1 Because this spending is independent of the profit motive, it is
one form of expenditure which can be varied arbitrarily to suit
the requirements of the economy. The cuts in various avenues of
spending announced by the British Chancellor of the Exchequer
in 1979 (e.g. education, industry aids, etc.) are examples of
attempts to meet broad national economic objectives, i.e. to
reduce public spending and leave scope for an increase of
private investment to create more wealth.
While purposeful control of this form of spending can be of
great assistance in maintaining general economic stability, the
repercussions for marketers may be less happy, particularly if an
atmosphere of austerity is generated by the government. 10 Also
this type of spending may be less easy to predict where projects
are brought forward or abandoned to suit broad economic goals.
The industrial goods seller may therefore find it beneficial to
augment his commercial and economic intelligence sources with
political ones in an attempt to foresee what way a policy decision
might go.
2 Political direction may affect the nature of an economy's capital
investment by increasing the amount used for social capital
schemes. Welfare-state economies will tend to develop the
educational, health and general amenity aspects of life such as
libraries and housing. This may be coupled with increased state
spending in industry with the overall objective of attaining what
are seen as desirable changes in the infrastructure of
economies.u Such capital investment programmes represent
considerable market opportunities for industrial goods sellers.
3 Although liable to be varied to suit national economic policy
goals, public authority spending tends to be relatively more
stable than private sector investment, which may react strongly
to short-term economic fluctuations. Thus the larger the ele-
ment of public spending in an economy the greater the stability
of the economy. Relatively stable, perhaps, but not necessarily
more prosperous, if industrial investment is stagnant or falling. 12
An atmosphere of economic stability is more propitious to
stimulating investment of all kinds than a wildly fluctuating one.
4 The arbitrary nature of much public authority spending to-
gether with its independence of the profit motive produces a
number of effects, not least an indirect impact on private sector
spending.
(i) The provisions of services for the benefit of the community

is not necessarily governed directly by consumer wishes.
This can be an advantage to individual companies and
indeed industries (e.g. award of contracts to build com-
munity centres benefits builders and suppliers of building
materials). Indeed many vital services would never be prop-
erly provided if left to the preference of individuals, for state
initiatives in providing services create an investment de-
mand which would not occur to the same extent in the free
market. While individual sectors of the industrial market
tend to gain from such spending, others may lose if the state
cuts spending elsewhere. (A cut in defence spending would
adversely influence suppliers of aircraft components, for
example.) A redistribution of state spending may thus pro-
duce no overall advantage or disadvantage if one looks at
this from the stand-point of industrial marketers as a whole.
(ii) The absence of the profit motive may lead to inefficient
production and rigidity!3 which, to the extent that this
adversely influences a country's economic performance,
might contribute to a fall-off in private investment.
(iii) Where public authority activity competes with private busi-
ness, perhaps drawing on public funds and avoiding the
costs of commercial borrowing, it may cause a decline in
private initiative and private investment.
(iv) An increasing proportion of publicly provided services
means that an increasing proportion of income must be
taken in tax instead of being spent freely. To the extent that
this produces an adverse psychological effect on produc-
tivity, some private investment projects might be postponed
or scrapped.
(b) Private Investment. In strict theory, the industrial marketer

should be on much safer ground in seeking to comprehend and
predict private investment behaviour. This is because the profit-
conscious spender can be expected to incur outlays voluntarily
only if he believes that the expected additional benefits or
profits over the life of the investment will outweigh the disad-
vantages or costs in undertaking it. Strictly speaking, therefore,
the decision as to whether a project is worth while will depend
on the following estimates:
DEMAND AND PRODuer CHARACfERISTICS 27
1 The expected additional receipts over its life, depending on:
(a) prospective additional output;
(b) prospective future prices.
2 The expected additional running costs.
The difference between these is the expected net yield of the

project which, when expressed as a percentage of the cost of
installing the equipment, gives a measure of what can be termed the
marginal efficiency of capital or of the investment. (In practice the
firm may use discounted cash flow analysis to determine the present
value of the investment, i.e. the time value of money needs to be
taken into account.) 14
Schedule of Marginal Efficiency

At any given time the intending private spender can be considering
various potential projects, some of which offer a high expected net
yield, others a low yield. An important factor determining how
many of these projects will be undertaken will be the rate of interest
- either the interest to be paid on borrowed finance or the interest
forgone if the firm's own reserves are used. For a project to be
undertaken the firm will ideally favour a situation where the
marginal efficiency of capital at least equals or exceeds the rate of
interest, so that at any given rate those projects whose marginal
efficiencies exceed the rate of interest will be undertaken and those
which fall below will not be undertaken. Thus at higher rates some
projects would cease to be worth while, and at lower rates more
projects would be worth while.
Theoretically, then, one could construct a hypothetical schedule
showing the volume of investment expenditure which at anyone
time would be made at each hypothetical rate of interest. A feature
of such a schedule would be to show how much more (or less)
investment would be forthcoming at each rate of interest if there
were a rise (or fall) in net yields.
Marginal Efficiency of Capital in Practice

The comfortable picture of the industrial marketer predicting pri-
vate industry capital expenditure using a neat formula now needs to
be exploded. 15 Expected net yields from capital projects depend

upon a host of factors, some of the important ones being:
(i) The expected technical results of any project.

(ii) Expected future demand and prices over the life of the asset.
(iii) The existing stock of competing assets and expectations as
to the future capacity of the industry.
(iv) The expected annual depreciation costs depending on:
(a) the probable life of the asset
(b) the probable replacement cost.
(v) Expected future labour costs.
(vi) Expectations with regard to general business conditions.
Judgement depends, therefore, upon a wide variety of expecta-

tions relating to the perhaps distant future. Since the data, despite
advances in forecasting methods, will contain large conjectural
elements and elements of uncertainty, it is inevitable that dispro-
portionate weight should be attached to the current situation. The
result is that investment activity tends to be bunched and feverish
when the current situation is favourable and when a mood of
optimism catches on. But it is subject to sudden reversion to
apathy and pessimism and a postponement of projects when the
current situation deteriorates. 16
An example is the United Kingdom situation in the autumn of
1976. As widely noted in the press, all important indicators of
business confidence pointed to pessimism despite government ex-
hortations that industry should prepare itself for a hoped-for
export-led economic recovery. An upturn in investment spending
was expected to be delayed at least until 1977 .
It is because of this susceptibility of private investment to moods
of optimism and pessimism, together with general uncertainty, that
the marginal efficiency of capital can be subject to frequent and
acute shifts. This in turn contributes to the problems faced by
industrial sellers seeking planned attacks on their markets and
balanced utilisation of their resources over time.
The Characteristics of Derived Demand

As suggested above, industrial investment is conditioned by the
spender's estimate of likely net yield, which in turn depends upon a
DEMAND AND PRODuer CHARACfERlSTICS 29
variety of factors about which great uncertainty will exist. Among
these factors will be estimates about future consumer demand for
the spender's end products. Where this demand is thought likely to
be buoyant and expanding, the capital expenditure decision will be
approached with optimism, and vice versa. Thus the behaviour of
the end consumer can cause induced changes in investment. In
other words, we are discussing a crucial feature of the demand for
industrial goods, namely that it is derived from the demand for the
product or service to which they contribute.
The level of consumer transactions is translated into marketing
activity not only for the firms making these products, but for their
numerous suppliers as well. Thus the demand for cars produces a
derived demand for sheet steel which in turn creates demand for
steel cutting and shaping machines. The machinery producer in turn
seeks to satisfy his demand for parts, sub-assemblies and operating
supplies to sustain his production.
An aspect of induced changes in investment spending, to the
extent that they occur, is that they depend less on the level of
consumption of finished goods than on the rate of change of
consumption. Clearly the pressures on companies to invest will vary
depending on whether:
(a) consumption of consumer goods is at a constant level;

(b) consumption of consumer goods increases during one time
period, say a year, then remains at the higher level without
taking any further leaps forward;
(c) consumption of consumer goods continues to increase at the
same rate per period of time.
In strict theory, it is only in case (c) that the business community

can anticipate a steady growth in investment demand, because in
case (a) investment will be mainly to replace worn-out equipment,
and in case (b) investment will be 'bunched' to meet the new
consumer demand, then fall back to mere replacement once indus-
try is equipped.
In practice the situation is far more complicated, and one finds
companies investing 'against the trend', i.e. deciding to invest in
new plant and machinery when all the economic indicators point to
depressed consumer demand. Where a government is forced to take
counter-inflationary action which results in high bank interest
charges, a credit squeeze, and falling household consumption, some

companies will see this as a desirable course for the economy in the
long run, and will not be put off from placing money where they
think it rightly belongs, i.e. in modern machinery and factories.
Such investment spending may be reinforced where the firm wants
enough capacity when the economic upswing comes, or where the
depressed economic outlook is taken as a spur to efficiency and
investment is incurred to improve productivity or change the
labour/capital ratio. Again, companies bidding strongly for export
business, and facing severe international competition, will want to
'stay with' investment programmes undertaken to meet these ob-
jectives.
Other factors which tell us not to over-simplify the connection
between consumer and investment spending are as follows:
1 Some investment is undertaken more or less for its own sake

rather than being mainly an adjustment of capital to changing
requirements of output. Such 'autonomous' (as distinct from
'induced') investment might be the decision to exploit a new
technique, or pursue basic research in a field of acknowledged
technological importance, e.g. telecommunications, computer
technology. Management motives might be a desire to partici-
pate in the stream of change without knowing where it might
lead, an anxiety not to be 'out-researched' by competitors, or
the wish to support broad strategic objectives. 17
2 The demand for industrial goods is more likely to be affected by
the expected future volume of consumption so that changes in
consumer spending which are not firmly expected to last may
have a minimal impact on investment. A great deal depends on
managerial expectations.
3 The relationship between consumer and industrial goods spend-
ing is mainly one-way. That is to say, an increase in consumption
may lead to magnified increases in the demand for industrial
equipment, but a decrease in consumption cannot lead to mag-
nified decreases in its demand. This is because 'dis-investment'
in equipment can only occur over a longish period of time by
failure to replace. Thus the immediate effect of a falling off in
consumption is the creation of excess capacity. Running down of
stocks is accomplished more quickly.
4 There is an output lag - the increase in consumption cannot lead
DEMAND AND PRODUCT CHARACTERISTICS 31
to an immediate increase in investment because of the time
needed for construction.
5 In conditions of full employment an increase in consumption
would tend to lead to higher prices rather than to increased
output, though higher prices might act as an inducement to
investment.
Thus although derived relationships are no more than tendencies

operative under certain conditions, they are nonetheless important
in determining the demand for many industrial products.
SUMMARY
Two features of major importance in industrial marketing are the

types of product sold, and the derived nature of demand.
With regard to products, the industrial market presents a very
wide spectrum which can usefully be categorised as major equip-
ment, accessory equipment, new and processed materials, compo-
nents and sub-assemblies, and operating supplies. A study of these
categories helps the industrial marketer the better to appreciate the
most appropriate marketing approach. For example, the high unit
value, technical complexity, infrequent purchase and high service
content of major equipment implies complex buying decisions and,
for the seller, direct contact. On the other hand, the standardised
nature of operating supplies implies 'routine' buying and minimises
the need for direct seller-buyer contact: because the unit purchase
is small, the product is bought regularly and needs wide distribution,
the pressure is towards the use of middlemen. Products are not
necessarily sold independently, but may form part of a 'package' in
systems selling.
With respect to derived demand, the demand for all categories of
industrial product derives ultimately from the demand for the
products they help to produce. Public authority buying is influenced
by various social, political and economic forces. Before studying
derived demand in more detail, the chapter looks, first, at the nature
of public and private spending.
Public authority spending has various characteristics with which
the marketer should be familiar, including its arbitrary nature, its
political motivation, its stabilising effect on the economy, and the
possibility of adverse effects on private spending. While in theory

private investment spending is dictated by cost-benefit formulae, in
practice a judgement element is present, influenced by prevailing
moods of optimism and pessimism. Forecasting of either type of
spending by the marketer is thus difficult.
The relationship between consumer spending and the capital
expenditure ultimately related to it is complex: for example, firms
may invest when consumer demand is sluggish because they believe
it will revive, or may undertake investment for its own sake, perhaps
for strategic or competitive reasons. Thus derived relationships are
merely broad tendencies. However, they still remain important in
determining the demand for industrial products.
Chapter 3
The Industrial Customer
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:
1 The concept of a multi-phased decision procedure.

2 The concept of a decision-making unit.
3 The concept of three different purchasing situations.
4 The concept of risk.
It is intended to examine each of these at appropriate points in

this chapter, which is organised under the following main headings:
Buying stages.
The decision-making unit.
Factors influencing purchasing decisions.
Purchasing systems and techniques.
BUYING STAGES
The purchase of an industrial product does not occur at any specific

point in time. Usually it is the culmination of a variety of activities
which may in some instances span a considerable time period.
Many classifications of the stages or phases in the buying process
have been proposed,3 but there is no universat list which fits all
situations. This is because some stages are missing and others are
telescoped together. But regardless of the buying situation, there
will be a number of key decision points which the industrial mar-
keter must identify.
A widely quoted classification is the Robinson and Faris buy
phase. 4 This includes eight stages or activities as follows:
(i) Anticipation or recognition of a problem (need) and a

general solution.
(ii) Determination of characteristics and quantity of needed
item.
(iii) Description of characteristics and quantity of needed item.
(iv) Search for and qualification of potential sources.
(v) Acquisition and analysis of proposals.
(vi) Evaluation of proposals and selection of supplier(s).
(vii) Selection of an order routine.
(viii) Performance feedback and evaluation.
It is doubtful, however, whether the industrial marketer can be

expected to devise strategies capable of encompassing all the stages.
It is more realistic to suppose that three to five key decision points
will be identified. Certainly research in UK capital equipment
purchases suggests that there are four key decision areas: 5
(i) The precipitation decision stage - when it is decided that

definite action will be taken to solve a problem.
(ii) The problem specification stage - when broad solutions to a
THE INDUSTRIAL CUSTOMER 35
problem are translated into specific hardware and software
requirements.
(iii) The supplier selection stage - when potential suppliers are
located, some short-listed and one or more selected.
(iv) The commitment decision stage - when a customer decides to
what extent a supplier has fulfilled his expectations.
No matter how classified, the relative importance of phases will

vary from purchase to purchase. The acquisition of complex capital
equipment can be expected to be prolonged, and much activity may
be expended at the early stages to determine whether funds should
be committed at all. 'Routine' purchases will emphasise the later
stages, with much effort put out on vendor selection and appraisal.
THE DECISION-MAKING UNIT
In trying to identify and describe the people who make or influence

decisions in the buying process, Hill suggests it is useful to think in
terms of a buying centre and a number of units within it. 6 The buying
centre includes all those people who have a significant involvement
in a purchase. Such people do not constitute a formal group and may
have little contact with each other. However, within the buying
centre there are a number of sub-groups or units whose roles have
been classified in different ways:
1 Users, influencers, deciders and gatekeepers.?

2 Contributors, participants, responsibles and directors. 8
3 Those who make major buying decisions; make recommenda-
tions; must approve purchases; affect the conditions of use;
conduct the buying negotiations. 9
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
Source: R. W. Hill, Organisational Buying Behaviour: A Review Paper,

ed. M. J. Baker. Proceedings of National Conference on Buying Behaviour,
Marketing Education Group of the United Kingdom (University of
Strathclyde, 1976) p. 11.
Factors Influencing Composition of the Decision-making Unit

How can one classify the factors likely to influence the composition
of the decision-making unit in individual cases? This might be done
by using the idea of 'product complexity'.u Fisher suggests that
buying responsibility is largely determined by both product com-
plexity and commercial uncertainty.
The degree of product complexity measures the relationship of
the product technology and the existing technical knowledge of the
customer. Commercial uncertainty relates to the degree of business
risk and its impact on future company profits.
Where product complexity and commercial risk are low the
purchasing officer and his department are the key activity, whereas
when technology is complex and untried and commercial risks are
high, numerous personnel at various levels may be involved. With
high product complexity and low commerical uncertainty the tech-
nologist is dominant. With high commercial risk and low product
complexity, a specialist buyer and senior finance personnel become
involved.
Composition of the Decision-making Unit Over Time

The foregoing is probably only a broad tendency subject to numer-
ous variations in practice. A particular weakness is the absence of
reference to the fact that the composition of the DMU is not static.
As the buying firm progresses through the various buying stages,
the importance of particular functional activities and management
levels changes. Early in the purchasing process dominant roles may
be played by the finance director and personnel such as designers
and production planners. When financial authorisation has been
given and the requirements of the items to be purchased become
clear emphasis passes to lower echelon purchasing personnel and
supervisors in the using departments. In the final stages when
negotiations with vendors have begun, purchasing itself frequently
plays a key role. Shipping, receiving, inventory control and quality
control personnel play important roles after the order has been
placed and when it has been delivered.
Thus as any purchasing process takes its course, the significance
of individuals and functions involved in the process changes. For
example, membership of committees may be rotated thus making it
difficult for a selling firm to develop a list of group members without
it becoming rapidly outdated. Again, where the purchase negotia-
tion is protracted, not everyone concerned is active throughout the
whole time span of the decision process.
Ideally the industrial marketer would like to know who is in-
volved at all stages of the buying process, in terms both of the
participant's functional position as well as his relative seniority in
the organisation. However, these problems make it difficult to draw
any general conclusions about patterns of involvement over indus-
try as a whole, despite the availability of surveys seeking to deter-
mine this. 12
The marketer is on safer ground when dealing with single buying
organisations. But even here the required marketing strategy is by
no means obvious. The producer may seek to 'match' individuals in
his own company with their 'counterparts' in the customer com-
pany. This exercise demands the use of human relations skills by a
variety of non-selling personnel whose training and background will
be (necessarily) technical. At best there is a danger of personality

clashes which will influence customer attitudes to the marketer.
Despite such difficulties, industrial marketers will want as much
information as they can get about those who buy from them.
McNutt suggests two useful methods of identifying members of the
buying centre, both based on field research. 13 These are:
1 Enquiries Among Publishers. Here is suggested contact with the

editors and publishers of business newspapers and magazines for
their opinions on the important buying/influencing factors for a
given product.
2 Enquiries Among Customers. A question such as the following

might be asked: 'Insofar as product X is concerned, who, by title
or function, in your organisation
Initiates or requests purchase?

Specifies make or brand?
Authorises expenditure?
Issues actual purchase order?'
A further question would try to seek out more indirect influences

on buying.
FACTORS INFLUENCING PURCHASING DECISIONS
Using the above methods, the industrial marketer hopes to improve

his knowledge of the composition of the decision-making unit and
the location of buying responsibility within it. However, the pur-
chasing process itself, at times including several participants, is
influenced by several factors. Among the most important are:
Environmental factors.
The type of purchase.
'Intrinsic' factors.
Time available.
Information available and digested.
Risk involved.
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
supply problems in formulating its product strategy. This inter-

dependence between purchasing and marketing within a company
is a fundamental part of the grand task of ensuring co-ordination
between all functions involved in the movement of materials from
supplier through manufacturing to the customer.
Pressures such as these have led a number of companies to
experiment with a broad concept of materials procurement that
goes beyond basic purchasing. Known generally as materials man-
agement, it has been used by a number of industrial firms in recent
years. One study in Canada revealed more integration of materials
related functions in manufacturing industry than anticipated,17
although the scope of any materials management organisation will
vary from company to company depending on the size of the
enterprise, the nature of the end product, the stage of evolution of
the purchasing department, and the willingness of top management
to implement it.
At its extreme, materials management will co-ordinate all ac-
tivities concerned with material and inventory requirement, from
the initial development of the production requirement (based either
on customer orders or from sales forecasting data) until the final
delivery of the product to the customer - in effect a systems
approach to the materials problem. A major reason for the welcome
given to the concept by many companies is the improved communi-
cation and co-ordination between departments that it permits. A
central administration is provided where conflicting functional or
departmental interests can be balanced out in the overall interests
of the company.
A further important environmental factor is the development of
larger industrial units, typified by the modern multi-national com-
pany. In seeking to standardise and integrate their world-wide
operations, many such enterprises are attracted by the benefits of
centralised buying. Among these are the aggregating of company or
group-wide needs for greater quantity-purchasing advantages and
tactical purchasing power; the attractions of a single buying policy
and procedure for the whole organisation; and the need for central
controls to evaluate purchasing activities and keep high perfor-
mance standards. Any movement towards greater centralisation
will have an impact on the freedom of the buying centre, perhaps
where a single buying policy rules out individual approaches, or
where local buying is subjected to centralised economic standards.
TIiE INDUSTRIAL CUSTOMER 41
The Type of Purchase
A study by the Marketing Science Institute3 suggests that purchas-
ing should be thought of as falling into one of three 'buy classes'.
These are:
1 Straight Rebuy. This is the most common type of industrial

purchase. Here what is purchased is merely a 'repeat' of items
bought regularly in the past. The item acquired need not be
identical to that obtained on a previous occasion. Although the
purchase need not be from the same supplier as before, it must
be from a previously approved list. However, such changes as
occur from one purchase to another must not be so great as to
require a re-evaluation of the possible alternatives.
2 Modified Rebuy. This type of purchase occurs when the firm is

dealing with a problem which it has dealt with before but it has
been decided to make a new evaluation of the solutions offered
by vendors.
3 New Task. Purchases in this class are intended to solve a

problem which is new and different from any other which the
customer has dealt with in the past.
In the straight rebuy situation the purchasing officer will, in most

cases exercise the major influence over the purchase decision
because it is, by definition, a basically routine procedure. The
specifications of the product have been previously defermined and
the users of the product are apparently satisfied with its perfor-
mance, so all that is necessary is for the purchasing department to
negotiate a reorder. In some circumstances, adjustments will be
made to price, and minor modifications may be made to the
product, but no change to the basic specifications is possible.
The purchasing officer has less influence in the modified rebuy
case because consideration is given to an adaptation to the currently
accepted purchase specifications. This inevitably involves other
members of the firm than just the purchasing officer and thus
lessens his influence. Depending on the type of product, design
engineers, production engineers and many others may also be
involved.
The new task type of purchase occurs where the purchasing
officer has least influence, on occasion being reduced to the role of

information gatherer. In these situations, a major influence will be
with those responsible for selling the specifications of the product to
be purchased. However, other staff, notably those who will ulti-
mately use the product, will take part.
Generally, therefore, the straight rebuy is a less complex purchas-
ing procedure than a modified rebuy, and a modified rebuy is less
complex than an entirely new buy, and the decision-making process
is influenced accordingly.
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:
1 Routine order products, which are frequently ordered and

present no significant usage problem because everyone is fam-
iliar with them.
2 Procedural problem products, which are known to 'do the job',
but problems may arise because personnel must be taught how
to use them.
3 Performance problem products, where the problem concerns
the technical outcome of using the product.
4 Political problem products, where there is likely to be difficulty
in reaching agreement among those affected if the purchase is
made. This kind of problem arises when large capital outlays are
involved and more frequently when the products are an input to
several departments whose needs may not be compatible.
TIlE INDUSTRIAL CUSTOMER 43
Such a framework goes beyond that of the 'buy classes' and may
be more promising as a basis for segmenting industrial markets. The
critical factor is how readily purchased products can be classified as
the authors suggest. To the extent that this is possible, the classifica-
tion would have a valuable predictive utility notably in forecasting
which suppliers buyers are most likely to favour.
'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
1 Size of Company. Smaller companies are likely to use fewer

trade publications.
2 Industry. The number of trade fairs and trade publications

available varies per industry.
3 Policy of Company. A company motivated by conservatism may

favour long-established trade journals, more 'staid' advertising.
4 Type of Product. The influence of trade fairs and trade pub-

lications varies depending on the product, e.g. capital goods,
materials, services, and so on.
Obviously basic research into such fundamental factors would

permit tentative conclusions about other aspects of buying. For
example, small firms may have less formalised buying, rely less on
committees than large firms, and so on.
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.
The seller needs to be conscious of factors influencing the time

available for purchase. Thus at times of economic upswing, com-
panies will want supplies promptly in order to cope with growing
order books. Again, delivery performance may be paramount in the
eyes of some buyers, so that their choice of vendor is influenced
accordingly. The latter's choice of supplier will equally reflect the
importance of this factor.
Information Available and DigestetP°

The following are some of the major information sources available
to industrial buyers:
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.
Selected comments may be made about how some of these

influence the buying firm's decision-taking.
Generally information sources or media act upon the purchase in
two different ways: first, indirectly - acting before any purchase is
considered - and, second, directly - acting during the actual pur-
chase. Most media combine these direct and indirect effects. For
example, salesmen may give information which will only affect
purchases at some time in the future. At the same time they are
usually involved when an actual purchase takes place to give more
information if needed, to assist with installations, or to provide
after-sales assistance.
Catalogues from suppliers are frequently used as a basis for
documentation and to assist the buyer to build libraries of informa-
tion. At least one implication for the supplier is that his material
should contain much technical data for on-going or future reference
by the purchasing company.
Trade publications are frequently seen as being 'literature' and
are therefore often kept for reconsideration at a later stage. How-
ever, there may be a lack of time to read them thoroughly.
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:
1 resistance to change from an existing satisfactory source of

supply;
2 splitting orders so as to have an alternative (and acceptable)
source available;
3 purchasing from sources designated desirable by engineers;
4 loyalty to the supplier when buying a new item which is part of
his (the supplier's) product line.
To develop the point relating to established suppliers, Blois has

suggested that in the case of both modified rebuys and new task
situations, the purchasing officer will tend to favour such suppliers
because to opt for a new source of supply is more risky.24
THE HUMAN DIMENSION
That industrial buyers, regardless of their status or contribution to

the buying decision, are basically human beings and as such are
susceptible to emotions, has long been recognised,25 and certainly
cannot be ignored by industrial marketers. Superficially this means
that an appeal to emotions through, say, advertising, may be
obligatory, perhaps by the use of visual displays.26 More deeply, the
significance of human attitudes, behaviour and motivational forces
in industrial buying must be recognised. Buying involves hierarchi-
cal and organisational pressures on those who perform or influence
the function; the need to meet economic and technical criteria is
only part of the story. Thus effective industrial marketing manage-
ment demands familiarity with the status and position in the organ-
isational hierarchy of all key personnel in the eventual buying
decision: it is on this basis that the marketer is able to respond to
peculiar behaviour and needs. 21
In the specific case of purchasing officers, Strauss is frequently
quoted for his research pointing to the way in which organisational
factors influence behaviour.28 The function of purchasing, and
hence its office-holder, is usually cut off from any vertical or line
relationships. Both formally and informally his relations are lateral.
He enjoys staff status advising line managers such as designers,
engineers and sales managers, but he does not normally initiate
work in the way his managerial associates do. Instead, he works to
specifications given to him by others in a lateral relationship to him.
Strauss points out that this situation lacks any source of authority,
with the result that the purchasing officer resorts to various devices
to enhance his status in the managerial group, e.g. querying specifi-
cations, and suggesting substitute materials. The purchasing officer,
according to his view, uses his legitimate activities to enhance his
status, to point to his indispensability. Though the implications for
the industrial marketer are subtle (the analysis may be strenuously
opposed by purchasing officers themselves!) the selling firm will at
least want to consider the advantages of, for example, making
advertising more informative (aids the purchasing officer in his
interdepartmental discussions), avoiding brand advertising (stres-
ses the mechanical order-placing aspects of purchasing work), or
utilising senior company executives to support the sales force
(enhances purchasing officer's perception of his status).
Industrial Buying and the Adoption ofInnovations
The potential value of an ability to identify and measure the
attitudinal dimension of managerial behaviour in the field of indus-
trial buying has long been a preoccupation among researchers in the
area of diffusion of innovation. 29 Such researchers stress that indus-
trial marketers can only gain from fore-knowledge of how receptive
potential buying firms are likely to be to their (the sellers') new
product proposals. Ideally, the most receptive firms would be the
main focus of the innovator's marketing efforts, thus starting a
bandwagon or 'contagion' effect; i.e. those who adopt the new idea
earliest will set an example which other firms ('followers') will
pursue, in a diffusion sequence which Baker believes conforms
almost to an immutable law. 30
The point of interest here is the extent to which the decision to
adopt (buy) a new product is in fact influenced not only by economic
and technical advantages as such, but by the firm's perception of
these advantages. A review of the work of various researchers
shows that economic factors alone cannot explain the sequence in
which firms adopt innovations - 'managerial attitude' probably
accounts for as much as 50 per cent of the variance in the
sequence. 3 ! Moreover research in specific industries, notably the
case studies of buying decisions in the textile and earth-moving
industries reported by Baker and Parkinson, confirm the impor-
tance of both economic and behavioural factors in buying
decisions. 32
PURCHASING SYSTEMS AND TECHNIQUES
Having said something about the process of buying, the role of

various individuals in it, and some of the factors influencing them,
let us conclude the chapter by briefly discussing buying systems and
techniques.
In a large and complex purchasing programme there may be
scores of working forms and several intricate systems in daily use.
These will be associated with a broad range of necessary purchasing
activities including:
receipt of request for purchases by using departments;
selection of vendors and issue of orders;
follow-up of outstanding orders;

receipt and inspection of goods from sellers;
checking vendors' invoices.
Mechanisation of the clerical work in purchasing is common, and

reaches its most advanced form when computers are employed. A
typical machine, for example, can accomplish the following:
product requisitions;
write purchase orders;
initiate follow-up orders;
audit vendors' invoices;
prepare document papers and cheques.
For the purpose of this chapter we confine ourselves to a brief

outline of two important systems developed to support purchasing
operations. These are value analysis and vendor rating analysis.
(For further data on these and other methods, the reader should
refer to the literature on purchasing. )33
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.
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:
1 Does its use contribute value?

2 Is its cost proportionate to its usefulness?
3 Does it need all its features?
4 Is there anything better for the intended use?
5 Can a usable part be made by a lower cost method?
6 Can a standard product be found which will be usable?
7 Is it made on proper tooling, considering quantities used?
8 Do material, reasonable labour, overhead, and profit total its
cost?
9 Will another dependable supplier provide it for less?
10 Is anyone buying it for less?
It will be noted that answers to such questions will not be

provided by the purchasing department alone, and savings may only
be made by the involvement of other departments, for example
engineering design and manufacturing. In other words value
analysis for cost reduction should be a company-wide interest and
will be most effective when its principles are applied throughout the
organisation wherever requirements and specifications originate.
However, in practice the purchasing department will frequently
initiate and promote the activity in a firm, partly because of its
experience of evaluating alternative materials and methods, and
partly because of its position as a focal point where individual
requirements from various company sources pass in review.
Value Analysis Methods

Heinritz and Farrell suggest four major methods whereby value
analysis may be performed: 35
1 Disassembly and Display of Purchased Item. Here the item

purchased, say a fully assembled product, is dismantled down to
its smallest part and mounted on perhaps a panel board. Such a
visualisation aids analysis, a refinement of this method being to
fix on the board competing components to judge the merits of

the original choice.
2 Detailed Checklists. The checklist technique mentioned above

can be developed in greater detail with particular reference to
selected classes of products, e.g. electrical components or safety
equipment. This approach shares the benefit of all checklists,
namely that it is a guard against overlooking any possible line of
enquiry.
3 Use of Case Examples. Published case histories of successful

cost-reduction programmes by other organisations can be ex-
amined for relevant suggestions.
4 Brainstorming. This well-known technique has a role in value

analysis programmes by its encouragement of free-ranging
thinking and the cross-fertilisation of ideas.
Generally the industrial seller needs to be able to respond to the

cost - benefit motives of buyers as reflected in their use of value
analysis methods. The marketer who is conscious of the role of
value analysis and can contribute to the customer's researches, can
strengthen his position.
Vendor Rating System

The evaluation of vendor performance is of great importance to
buying firms, but this is not always performed on the basis of
objective ratings.
A buyer may be aware, for example, that some suppliers are
persistently late with deliveries, or that others are guilty of quality
deficiencies. His measurement of these shortcomings may be more
in terms of his annoyance than of an adjustment of previously
determined performance ratings.
In order to show how vendor rating might be put on a more
systematic footing, a case study will be used. Reference should be
made to Table 3.1 in conjunction with the case.
The company, a large manufacturer of a range of consumer
durable products including washing machines and vacuum cleaners,
has specified the various factors they consider when selecting a
THE INDUS1R!AL CUSTOMER 51
Table 3.1 Vendor assessment scale
Manufacturer of consumer durable goods
Department Maximum
Concerned Factor Point:;
QC 'Has good quality' 20
MC 'Delivers to schedule' 20
GP 'Has competitive price' 20
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
vendor. Each factor is awarded a maximum number of points

(right-hand column) and the department most concerned with
supplier performance on each, and therefore able to participate in
giving scores to sellers, is indicated in the left-hand column. These
departments are quality control, materials control (this includes,
apart from purchasing itself, a variety of activities connected with
the flow of materials from the point of original requirement to the
eventual delivery of the product to the customer), and group (as the
company is part of a group, headquarters' specialists are best able to
evaluate certain aspects of seller performance, e.g. accuracy of
advice notes and other documentation processed centrally using
group resources).
This Assessment Scale highlights the importance attached to
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
The industrial goods company seeking a market-oriented approach

to its activities cannot escape a close study of the motivation and
behaviour of customers.
The acquisition of industrial products will in many cases involve
many people and span a considerable period of time. The seller
needs to be familiar with the main stages so that he can plan his
marketing strategy accordingly. Four important decision areas are
the precipitation decision stage, the problem specification stage, the
supplier selection stage, and the commitment decision stage.
The marketer should seek to identify and describe all those who
make or influence decisions in the buying process. It is convenient
to describe such people, whether they have any formal contact with
one another or not, as making up a buying centre, the centre in turn
comprising the information unit, the control unit, and the decision-
making unit, the last named being of key importance. The composi-
tion of the buying centre is likely to change over time, with
repercussions on the supplier's marketing approach.
Numerous factors influence the decision-making unit, in particu-
lar the following: environmental factors; the type of purchase
(whether routine order, procedural problem, performance problem
or political problem products, to cite one classification); intrinsic
factors such as size of the firm, its policy and type of end product;
time available; information available and digested; and the risk
involved. Sellers need familiarity with the nature of these influ-
ences, as well as with the fact that decision-makers are not solely
motivated by the objective appraisal of technical and economic
matters.
Marketers also need knowledge of procedural aspects of buying
behaviour, in particular the use of techniques such as value analysis
and vendor rating. The criteria used in vendor rating in effect point
to the motivational priorities of the customer and hence are a key
input to marketing planning where the ratings are known to the
seller.
Chapter 4
Planning the Market

Offering
Planning in general can be defined as the process of guiding the

business towards clearly stated objectives consistent with a realistic
view of the future. This process includes planning decisions in areas
other than marketing, although these will impinge on marketing
and marketing on them. Examples of such areas are finance,
research and development, labour relations, purchasing and organ-
isation.
Marketing is a key element in the firm's overall corporate
planning,! and its main parts comprise the product to be sold,
services, channels of distribution, price, and sales promotion. The
planning process involves the use of concepts and information
developed in the first three chapters, notably analysis of buyer
behaviour and motivation. In addition, planning depends upon
information derived from market research and forecasting, which
are taken up in the next three chapters.
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.
The Marketing Planning Process

The process of planning can be conceptualised as a series of simple
questions:
1 Where are we and how did we get here?
2 Where are we heading?
3 Where do we want to go?
4 What is the best way to get there?
5 Who should do what? When?
6 How will we know when we are in the future?4
Marketing, however, is concerned with the more specific problem

of identifying market needs and satisfying these at a profit. To meet
these objectives one must build a marketing plan, the constituent
elements of which can be seen in Figure 4.1. 5
BACKGROUND
ANALYSIS
QUANTITATIVE
OBJECTIVES
MARKETING
[
STRATEGY
ACTION
PROGRAMME
I BUDGETS]
I CONTROLS I
Figure 4.1 The market planning framework
The make-up of the plan can be described in more detail, as

follows:
Step 1: Background Analysis. The market plan begins with a

detailed situation study of each product. The aim is to identify and
define the current and potential problems arid opportunities facing
it. The first component of the study should be a historical analysis
showing where the product is now and the factors that have shaped
its performance. Factors studied in detail will include sales, profits,
cash flow, the structure of the market, the influence of inflation and
economic activity, sources of sales, distribution channels and com-
petitive strategies. The second component is the forecast of the
performance of the product, usually over the next five years.
Finally, conclusions from the analysis are drawn concerning poten-
tial problems and new opportunities foreseen from gaps in the
market.
Step 2: Quantitative Objectives. The background analysis should
permit meaningful goals to be established for sales, market share,
profit contribution, cash flow and return on investment over the
next five years. These goals must be precisely quantified if they are
to form an unambiguous basis for control. Objectives should also be
drawn up at the division or corporate level for new initiatives.
Step 3: Marketing Strategy. The strategy has three components.

First, the description of the target market - which segment of the
market the product is aimed at. Second, the differential advantage
or core strategy which is going to attract that segment (e.g. lower
price, quality, performance). Finally, the strategic focus - how is
profit performance going to be attained: via market expansion,
market penetration or productivity gains.
Step 4: Action Programme. The marketing strategy provides the

guidelines for the marketing tactics or action programmes. This
consists of a detailed specification of the marketing mix necessary to
implement the strategy statement and the means of pulling the mix
into action. The latter will include organisational responsibilities
and a decomposition of strategy into a sequence of time-phased
activity plans - when to move into new markets, commence adver-
tising, acquire resources, etc.
Step 5: Budgets. The marketing budget summarises in a series of

financial statements the sales forecasts, cost projections and re-
source requirements which are th~ outcome of the planning process.
It shows in detail for the forthcoming year and in more aggregate
terms for the next five years the profit contribution and cash flow
expected from each product. It serves as a focus for the plan and a
basis for co-ordination and control.
Step 6: Control. The budget provides the mechanism for effective

management control in the large or decentralised organisation. The
budget incorporates standards for performance over clearly defined
time periods. Effective exception reporting procedures can then
trigger management attention and focus action on problem areas.
MARKET SEGMENTATION PLANNING
The broad marketing plan is only a beginning. More data is required

on the particular market segments at which the marketing strategy
will be aimed.
Broadly, the fact that markets are heterogeneous and customers
are different gives the reason for segmenting markets. This in turn
provides the justification for differentiating products and specialis-
ing marketing efforts according to the needs of customers and their
sensitivity to marketing stimuli.
How is market segmentation to be planned?
Bases for Segmentation

There is an increasing recognition that useful segmentation of
industrial markets can fruitfully be found beyond conventional
divisions such as industry type, product application, or customer
location, important though these are. Segmentation variables may
have to be sought according to buyer behaviour, for example,6 or in
the relationship between the selling and buying firm - i.e. whether
the relationship is according to a 'marketing mix' point of view,? or
an 'interaction' approach. 8 Moreover, segmentation can be per-
formed on both the macro and micro levels.9 'Macro segmentation'
applies for example to broad customer groupings, whereas 'micro
segmentation' is concerned with how individual customers vary in
terms of, say, their technology or buying behaviour. Again, the
segmentation policy pursued may be a function of the type of
decision being taken, i.e. whether strategic (macro segmentation
most relevant), or tactical/operational (micro segmentation most
relevant).lO Such considerations suggest that there are differences
between industrial and consumer markets which will have conse-
quences for segmentation.!!
Flodhammar,!2 on the basis of such factors, says that in summary,
industrial customers differ from each other with regard to:
1 the technology (T) in their production processes;

2 their economy (E), for example their price sensitivity;
3 their market growth and potential (M);
4 the competition (C) for the customer;
5 the customer's buying policy (O!);
6 the composition of the buying centre (0 2).
This analysis yields the author what he calls his TEMC0 10 2
approach. Marketing planning thus becomes a matter of identifying
segments, describing their characteristics and probable reactions to
seller mixes, evolving strategies and tactics for each segment, and
bringing a programme into action.
Not all firms, however, will require to plan formally from the
beginning. Different companies will start at different levels depend-
ing on previous experience of their markets and constituent seg-
ments.
The Necessity for Segmentation

Companies do not have equal opportunities to segment their mar-
kets. The firm with a limited product line and limited markets will
feel its openings are fewer than a multi-product enterprise facing
many markets, whose products have wide applications. On the
other hand the firm with only a few main customers may deliber-
ately seek new market segments in order to avoid over-dependence
on a vulnerable one, e.g. shipbuilding. Again, the firm bent on
expansion needs better market knowledge, which in turn leads to a
search for new segments and niches in the market. Thus the selling
firm's need for segmentation is partly a matter of how it chooses to
react to its market environment. However, the following factors will
influence the firm's ultimate segmentation decisions:
Variations in Customer Size. The well-known 80/20 rule (or the
heavy half-rule) has wide application in industrial markets, i.e. the
seller finds that 80 per cent of his sales are derived from 20 per cent
of his customers. The firm in this position will want to give the large
customers special attention. Small customer groups can be aggre-
gated and served through middlemen.
Variations in Technological Content of Product Range. Some
products/systems are complex and demand technical sales support,
technical service, and technical dialogues with potential users.
Others are more standardised, less technically complex, and lower
priced. Such differences are fundamental to segmentation policies.
Application Width of a Product. Generally, the wider the applica-
tion of the product the greater the potential for segmentation.
Products such as office copiers or hand welding machines find
numerous applications in different industries, perhaps justifying
special organisation and resource allocation by the producer to
reflect the peculiarities of different segments.
Customer Industries are Heterogeneous. Some industries are

heterogeneous and can consist of customers buying simple compo-
nents or complex systems, and customers buying as end users or as
contractors, as original equipment builders or for replacement
markets. Segmentation by industry alone will be insufficient in such
cases and would have to be supplemented by more searching
criteria.
Variations in the Financial and Profitability Characteristics of
Customers. Take, for example, the price sensitivity of firms. At
times of boom, and with much-needed new capital equipment on
long delivery, the price sensitivity of buying firms may be low in
contrast with their desire to get new machines quickly while the
boom lasts. Again, variations will be found in the business aims of
customers. Aims may range through profit maximisation (however
defined), growth (perhaps at the expense of short run profits), and
'satisfactory' or 'steady' profits. Such variations provide segmenta-
tion clues to the seller, including guide-lines for possible promo-
tional appeals.
Variations in Customers' Buying Strategy. This point can be put
simply by example. The small private firm with perhaps informal
and unsophisticated buying procedures can be contrasted with
the public service authority with its formal political budgets and
decision processes. Or consider international markets, character-
ised by multi-national companies, contracting organisations, and
perhaps state tender boards. Segmentation policies can reflect such
differences.
PLANNING NEW PRODUcrS 13
Aiming marketing strategies at identified market segments implies

decisions as to what products will be developed to meet the needs of
the segments. This leads us to a discussion of new product planning.
Avoiding Bias in New Product Planning

Simmonds has pointed to the existence of certain biases in product
planning literature which have tended to restrict the firms' planning
to a limited number of characteristics of its existing activity.1 4
One such bias is what Simmonds calls a 'customer retention' bias.
This flows directly from the ideas popularised by Levitt,15 by which
the firm asks 'What business are we in?' The manufacturer of
flameproof clothing might see himself as being in 'the safety busi-
ness', the computer manufacturer in problem-solving, the oil com-
pany in energy, and so on. Such ideas were first stimulated by a
desire to broaden managements' conception of their activities
beyond the simple making of restricted and potentially obsolete
physical products. But Simmonds believes that, in seeking to correct
a bias towards inward thinking, another bias was introduced - an
emphasis on existing customers. The manufacturer of flameproof
clothing might well find new opportunities in a broader conception
of safety, but might he not equally build on, say, distribution or
technical know-how, and reach into entirely new markets?
A second bias noted by Simmonds is the use of single-word
descriptions of the firm's activities as a basis for product planning.
Words such as 'safety' and 'problem-solving', noted above, tend to
force the firm in limited directions, when in practice it is complex,
operating in a complex environment, and therefore capable of going
in several directions. It is important not to ignore such dimensions
of the firm's capability as order size, outlets, price, location, and so
on. What is needed, in the words of Simmonds, is a multi-
dimensional approach, not a uni-dimensional one.
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
manufacturing capability and technical know-how, often over a

long period of years. They would be ill advised to ignore these when
seeking something new, because it is precisely such capabilities, and
others, that are valued in the market place.
The idea of building on strengths is not new. In the literature one
finds terms such as 'core strengths',n 'distinctive competence', 18
and 'competitive advantages' .19 Also, one finds companies in prac-
tice building on strengths; for example the Swedish specialty steel
manufacturer Sandvik, who capitalised on a knowledge of the
industrial consumables market to introduce a profitable range of
carbide cutting-tools. 20
But the problem facing the industrial goods company is to find
techniques by which the various dimensions of its strengths can be
identified, and successful new products based on these evolved.
Ward21 suggests that the firm should first of all examine its products,
processes, product applications and sales outlets, with a view to
picking what he terms 'dynamic product areas'. These are the areas
or dimensions of the firm's capabilities which are broad enough to
encompass several aspects of its resources and experience, embrac-
ing but not limited to its existing business. Thus the shipbuilder
examining his resources might decide a major capability was 'en-
gineering accommodation in bulk', suggesting other products such
as warehouses, football stadia, and multi-storey car parks. Such an
area is termed 'dynamic' because it should be capable of suggesting
new product ideas continuously.
Having defined perhaps a dozen such areas, Ward suggests a
series of steps aimed at generating new ideas and ultimately whitt-
ling these down to the point where concrete new product proposals
emerge. Among these steps are:
1 A world-wide search for new product opportunities within the

dynamic areas.
2 Market study to uncover the demand for the new products
discovered.
3 An investigation of the prospects of acquiring companies to
provide resources necessary to exploit the products discovered.
4 A technical and commercial evaluation of the products brought
to light through a procedure ranging from coarse screening to
fine screening and to in-depth market research.
5 The drawing up of implementation plans showing cash flows and
prospeCts for further innovation.
PLANNING TIIE MARKET OFFERING 63
The Management ofNew Product Planning
While approaches such as those outlined above help the manager to
bring some system to his search for and evaluation of new products,
it is a serious mistake to assume that innovation is therefore largely
'manageable' providing one has the right set of techniques.
Among the factors which distinguish innovation from other
functional activities in the firm, thus arguing a different managerial
approach, are the following:
1 We are concerned not solely with maintaining a research and

development laboratory, but with a broad spectrum of company
activities ranging from idea generation and evaluation to techni-
cal development, production, and sales. 22
2 There can be an unusual degree of uncertainty. The develop-
ment of microprocessors is having widespread repercussions on
those companies engaged in the field. 23
3 Those engaged in innovation are not always motivated by
considerations of market acceptability: for instance, scientists
and engineers may wish to follow where curiosity points, or may
become enthralled by the 'technical sweetness' of a project.24
4 It is difficult to measure results because each task is unique and
never repeated. It is therefore difficult to obtain feedback for
the next decision.
S Major innovation (e.g. transistors, television) may cause conflict
in established organisations, forcing them in unpredictable
directions. 25
6 Successful innovation will at times depend upon imponderable
human factors such as the emotional involvement of the in-
novator, his personal qualities, or his determination to see things
through ('product champions').26
It has long been recognised that, for such reasons, it is difficult to

lay down hard-and-fast rules about how innovation should be
managed. An early post-war writer, John Jewkes,27 could find no
guiding principles in successful innovation and so recommended
variety of attack - an eclectic approach. In a famous study in the
fifties, Carter and WiIIiams suggest that consciousness by manage-
ments of the nature of the innovation problem is more important
than the use of any technique or method. This conclusion was to·be
supported later by, among others, Burns,28 who sees innovation as
identical with the function of the classical entrepreneur - the task of

organising industrial science is simply to facilitate technical entre-
preneurship.
The importance of creating conditions favourable to such entre-
preneurship has led to strenuous efforts to change organisational
structures, perhaps by introducing venture teams or business
development departments.29 In the case of venture management, it
is hoped that one individual, in charge of a full-time team, will enjoy
the advantages of a 'small firm' environment; namely flexibility,
commitment, and rapid decision-taking.
Entrepreneurship is thus expressed not only in terms of indi-
vidual managers, but also in terms of organisational structures
capable of overcoming functional barriers within the firm. A further
important dimension is the financial one. Studies show that most
firms find it hazardous to measure costs and benefits either before
or after innovation is undertaken, and that qualitative judgements
are widely used. Thus entrepreneurship also needs to underpin
evaluation methods such that technological and market uncertain-
ties are adequately accounted for - a view supported by an OECD
study.30
Current practice, as reported in modem management literature,
reflects these views. Thus the chief executive of one large firm
remarked: 'Managers don't pursue numerical goals, they pursue
situations such as gaining a leading position in a market. Then they
work backwards from there for the figures. '31
It is true that much has been learnt in recent years about the
conditions of success and failure in industrial innovation.32 Also,
technique and system can have a place at various points in the
innovative cycle; for example, computerised screening procedures
for new products,33 discounted cash flow methods,34 and systematic
marketing. 35 But one cannot deny the need for a strong entre-
preneurial input, resulting from the relatively recent growth of
innovation as a management function creating new managerial
problems, with unique characteristics calling for a modification of
conventional management practices.
PLANNING 1HE PRODUCf/SERVlCES MIX
The industrial marketer not only faces decisions as to what new

products he will seek, he must also ensure that the 'mix' of products
PLANNING 1HE MARKET OFFERING 65
and services he offers is attuned to the detailed needs of the
market. 36 Moreover, he needs to take price, promotional and
channel decisions in conjunction with product/service ones.
In an ideal world, the seller would have knowledge of the
configuration of the buyer's requirements (i.e. the importance
attached to various factors relative to one another - product quality,
design, price, availability of spares, etc.) and on the basis of this data
would plan his offering. This in turn would require him to take
decisions on the utilisation of a broad range of company resources,
e.g. design and quality, spares and after-sales service, production
capability and so on. Such decisions would have to be correlated and
weighted in such a way that the resulting product, incorporating its
design, quality, and other features, and the package of services,
exactly matched the 'mixture' required by customers.
As an example the following is a list drawn up by Cunningham
and White,37 to suggest the factors determining a buyer's choice of
machine tool supplier:
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.
In this case the creation of a favourable reputation for delivery,

product reliability and service was found to be of major importance
to the manufacturer. On the other hand factors such as the existence
of reciprocal buying, trading-in facilities, and credit, were found to
have little bearing on the purchasing decision. On this basis the
manufacturer can take steps to realign his resources, perhaps by
bolstering the production planning and control function to correct a
delivery deficiency, or by directing more company funds to the
training and development of technical personnel to improve 'back-

up' services. 38 This broad approach can be used within the customer
service area alone to determine which aspects of service (e.g. spares,
operator training, installation services, etc.) are rated most highly
by customers. 39
Functional Position Analysis

In the process of adjusting his resources to meet market require-
ments, the manufacturer hopes to establish a reasonably durable
source of competitive differential advantage. Equally, he will want
to reinforce any existing advantages, and remove sources of disad-
vantage.
In analysing his competitive position, a useful approach is func-
tional position analysis. 40 Basically the firm's sales can be looked
upon as a function of several controllable and uncontrollable vari-
ables. The former includes company decisions on such things as
product range, quality levels, and services. The latter is exemplified
by government monetary policies perhaps leading to a dampening
of aggregate demand in an economy. Fundamentally the firm wants
to know the reasons lying behind customer preference (or non-
preference) for its products vis-a-vis competitors. Armed with such
information, steps can be taken to combat any incipient threat to
competitiveness.
Looking at the controllable variables, the firm may find its sales
closely correlated with the physical product; for example its reliabil-
ity, ease of maintenance or operation, labour saving, general
economic appeal, and compactness. This correlation might flow
from the firm's accurate assessment of motivational profiles, and its
response to these: for example, quality has been stressed for
defence work; reliability emphasised when consequences of pro-
duct f~ilure were great; or price lowered when customer costs were
under pressure.
Alternatively it may be found that sales are functionally related to
non-product factors, including promotion. This might flow from,
say, a policy of providing exceptional services to less knowledgeable
buyers; from success in guaranteeing reliable delivery to firms
anxious to cut stock-holding costs; or from stepping up operator
training programmes for customers in under-developed countries.
Clearly the firm's competitive position may be a function of both
PLANNING TIIE MARKET OFFERING 67
product and non-product advantages, and in some instances of less
tangible factors such as past satisfactory service, the personalities
and social relationships of technical sales representatives, and
long-established contacts built up between key personnel in selling
and buying organisations.
Knowledge of functional position is a forerunner to determining
the firm's optimum position, and the changes in the existing market-
ing mix necessary to attain that position. Overall efficiency may
have- to be improved if an advantage is sought through price;
production planning and control may have to receive more atten-
tion and become more systematic if a delivery deficiency must be
rectified; the quality control function may require reorganisation to
correct product quality defects, and so on. Broadly speaking, the
firm has achieved an optimal position when any change in one or
more of the marketing mix elements will not lead to a net profit
advantage.
The Problem ofAmorphous Functional Position

Competition between manufacturers can develop to the point
where customers have difficulty in distinguishing between compet-
ing offerings. The seller's original source of market distinctiveness-
his differential advantage, however attained - typically erodes
through prolonged competitive attrition. Product advantages may
be short-lived because of the potential copy ability of physical
objects, and the ease of transfer of technical knowledge as evi-
denced by the 'information explosion' of advanced societies. Non-
product advantages have the seeds of greater durability in them
because what has to be emulated is not a physical product, but the
unique organisational structure and managerial skills of rivals. Such
abilities, including the personalities and management styles of key
individuals, can underlie a successful 'market-oriented' approach to
service, customer relations or market development. A product may
be imitated, but it is far more difficult to duplicate a rival's manage-
mentteam.
None the less, firms do seek to equal or improve on any aspect of
competitor activity. The result is a move to higher and higher planes
of competitive rivalry to the point where it becomes difficult for one
company to decide what has 'caused' his sales - the functional
position is 'amorphous'. The original technical/cost-benefit reasons
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
An area in which the various planning activities of the firm find a

major focus is that of project planning, particularly of major
international projects. In some industries, member companies un-
dertake immense projects which represent a major, if not dominant,
proportion of turnover. Aerospace, defence, mining, shipbuilding,
and engineering contracting come immediately to mind; yet despite
their significance these types of projects are under-represented in
the literature. This important area will not be neglected here,
though selected features are summarised rather than given an
exhaustive study. In a limited literature, further information can be
found in Claxton's article. 43
'Jumbo' projects in the process engineering field involve the
engineering, construction and commissioning - often for fixed
prices - of a wide variety of facilities; such as petrochemical plant,
pipelines, terminals, power plant, desalinisation plant, steel produc-
tion facilities and telecommunications systems. Their main features
are their comprehensiveness, their immense size in volume and
value, and long project time scales, with operations spanning geo-
graphical boundaries and taking place often in remote and unfamil-
iar terrain. Such projects, and turnkey projects, now represent the
front line for contractors, as for much of United Kingdom manufac-
turing industries' export effort, at least in process, electrical and
heavy engineering.
Companies engaged in such contracts face complex planning
problems extending beyond the relatively straightforward
seller/buyer situation. The contractor has the problem of establish-
ing effective relationships between the parties to the contract -
notably sub-contractors and suppliers - so that the contractural
framework encourages the desired performance level by all. Clax-
ton points to the weaknesses of unstructured consortium agree-
ments which may, for example, leave the prime contractor carrying
all the risks, thus making it difficult to quote a competitive price. He
then points to the advantages of partnership contractual arrange-
ments by which all parties share risks and losses in proportion to the
financial contribution of each to the project.
Thus the contractor's planning has much to do with establishing
correct contractual relationships, apart altogether from the unusual
market situation he faces with much government involvement, the

need for protection against late delivery and technical fault penel-
ties, and often difficult overseas conditions. Sub-contractors and
suppliers find themselves almost on a joint venture footing with
their customer/contractor. While the contractor will negotiate with
the ultimate end user, this is not to say that the user will have no say
in what sub-contractors will be employed - he may specify a firm of
proven reliability. Equally it is in the sub-contractor's interest to
monitor any trends towards a strengthening of user specification of
products and suppliers, perhaps occurring as users gain experience
and come to depend less on contractors and consultants.
The nature of the firm's planning problem therefore depends
critically on whether it is part of a large project or not, and if so
which partner. It will also depend upon the type of contractual
agreement drawn up.
SUMMARY
This chapter examines planning in a broad setting before looking at

important aspects of planning, namely market segmentation plan-
ning, new product planning. planning the product/services mix. and
project planning.
In general planning is an essential ingredient of efficient manage-
ment decision-taking. Marketing planning in particular is con-
cerned with identifying market needs and satisfying these at a profit.
To meet these objectives a marketing planning framework can
usefully be established consisting of the following steps: back-
ground analysis, quantitative objectives. marketing strategy, action
programme, budgets, and control.
The broad marketing plan must be filled out to meet the needs of
specific market segments. There are several ways in which an
industrial market might be segmented based on differences in
customers. Among such differences are their technology. economy.
market growth, competition, buying policies, and composition of
the buying centre. Various factors influence the firm's decision
whether to segment a market or not, including variations in cus-
tomer size, application width of a product, and variations in the
financial characteristics of customers.
In developing new products to meet market requirements, how-
PLANNING TIlE MARKET OFFERING 71
ever segmented, it is important to avoid any restricting biases as are
given by over-emphasis on existing customers and 'one word'
descriptions of the firm's activities. It is better to acknowledge the
multi-dimensional strengths of the firm and develop products based
on these. The management of new product planning, however, is
not an area for the easy application of set techniques.
Planning the mix of products and services calls for knowledge of
customer motivational profiles and a willingness to adjust company
resources to reflect these. A major problem is the tendency for
comparative advantages to erode through competitive pressure
leading to strenuous efforts by rivals to sustain their positions,
perhaps by cultivating just noticeable differences in the product, or
by doing 'small' things exceptionally well.
An important area for the focus of all planning activities is the
major project, where the possible existence of contractual partner-
ship arrangements between participants modifies the customary
seller/buyer relationship.
Chapter 5
Researching the Industrial

Market
As government, society and industry develop and become increas-

ingly complex, there is an accompanying need for specialised infor-
mation to use as a basis for all types of planning. One of the features
of the post-war development of industrialised countries has been a
shift in resources from manufacturing to services with a concomi-
tant increase in the burden which has been placed on manufacturing
industry. It has been required to produce increasing amounts of
physical wealth with a diminishing proportion of the factors of
production at its disposal.
In the struggle to achieve the most efficient utilisation of scarce
resources, there exists a crucial role for industrial marketing re-
search; to ensure that the planning and decision making process is
underpinned by a sound information base.
THE COMPANIES AND THEIR ENVIRONMENT
The generation of wealth arises from the interaction between the

companies with their skills, products and resources, and the envi-
ronment. It is the complex nature of the latter which creates the
need for a market research activity. The environment has many
aspects, but in the context of industrial marketing, three aspects are
most significant:
1 The Economic Environment: The main factor influencing the

pattern of demand for industrial goods is the economic environ-
ment, which at its simplest is the distribution of global gross
national product. Table 4.1 shows the major non-communist
RESEARCHING THE INDUSTRIAL MARKET 73
Table 5.1 DECD countries ranked by GNP
Marine tonnage Installed gener-

on order ating capacity
DECD countries GNP 1974 (June 1977) (1974)
$x109 % Dwtx10 6 % GW %
United States 1411·33 39·28 5·968 10·02 495·361 46·69
Japan 455·30 12·67 23·399 39·31 105·156 9·91
Germany 384·53 10·70 1·899 3·19 69·792 6·58
France 246·10 6·85 2·906 4·88 49·302 4·65
United Kingdom 188·99 5·26 3·918 6·58 79·560 7·50
Italy 149·81 4·17 2·036 3·42 42·309 3·99
Canada 145·30 4·04 0·630 1·06 56·864 5·36
Spain 85·50 2·38 4·786 8·04 24·000 2·26
Australia 78·39 2·18 0·152 0·26 18·200 1·72
Netherlands 69·18 1·92 0·936 1·57 13·861 1·31
Sweden 56·10 1·56 6·621 11·12 20·768 1·96
Belgium 53·42 1·49 0·605 1·02 8·980 0·85
Switzerland 47·29 1·32 11·400 1·07
Austria 33·00 0·92 0·012 0·02 9·240 0·87
Denmark 30·40 0·85 1·421 2·39 6·284 0·59
Turkey 29·43 0·82 0·186 0·31 3·113 0·29
Yugoslavia 27·81 0·77 0·943 1·58 8·694 0·82
Norway 23·30 0·65 0·858 1·44 16·158 1·52
Finland 22·03 0·61 1·254 2·11 6·793 0·64
Greece 19·17 0·53 0·323 0·54 3·969 0·37
New Zealand 13·36 0·37 4·449 0·42
Portugal 13·32 0·37 0·680 1-14 2·848 0·27
Ireland 6·73 0·19 0·002 2·101 0·20
Luxembourg 2·13 0·06 1-157 0·11
Iceland 1·39 0·04 0·493 0·05
TOTAL 3593·31 100·00 59·535 100·00 1060·852 100·00
industrialised nations ranked by national product.! Such anal-

yses indicate for instance that if a company elects to ignore the
US market it is denying itself access to around 40 per cent of the
wealth of the non-communist world. It is important also to
consider industrial market structure. The USA is a minor ship-
building nation whereas smaller economies like Japan, Sweden
and West Germany are major shipbuilders. 2 Other industrial
markets may follow GNP more closely as shown in Table 4.1.
Electrical generating capacity3 is an example and shares in this
sector are more in line with the pattern of national product.
The economic aspect is also important at the micro level. For
example as the price of heavy oil rises the economics of propul-
sion systems, and process are altered. One of the most striking
examples during the period following the oil crisis of 1973/4 was
the change in the economics of steam and diesel propulsion in
large oil tankers and deep-sea container ships in favour of diesel,
with all the subsequent implications for the industrial supplier,
particularly marine steam turbine manufacturers such as
General Electric, Stal Laval and Mitsubishi. These companies
are still fighting to re-establish their turbines in the marine
market. 4 The same crisis changed the economics of electricity
generation and created substantial changes in the distribution of
investment between generating systems, in favour of coal and
nuclear fuel. 5
2 The Techno-Economic Environment: This aspect is concerned

with technological change. When technological change is rapid,
as is the experience of industrial economies, it is necessary to
monitor such changes in order to avoid product obsolescence or
missing new opportunities. Such change tends to be most rapid
in the modern growth industries such as chemicals or elec-
tronics. Historical examples abound, ranging from the simple
pen nib to reciprocating compressors in high throughput am-
monia and methanol plants. 6
To assume that products and processes cannot be improved or
developed is to assume that perfection has been achieved and
that consumer taste will remain static. Although such assump-
tions are in themselves absurd, there is a continuing debate
within and without industry as to the relative importance of
technical change and consequently to what extent a company's
RESEARCHING 1HE INDUSTRIAL MARKET 75
resources should be devoted to the new product planning func-
tion.
3 The Political Environment: This is of increasing importance in

industry, particularly to the multi-national company. To give a
straightforward example, it would be naIve to direct one sixth of
the efforts of a company towards marketing to the USSR
because that country accounts for around 16 per cent of global
GNP. To do so would be to ignore the existence of the political
system in the USSR and its resultant effect on the operation of
the economy. Another clear example is the Arab 'blacklist'
which has resulted in many large US and European Corpora-
tions being denied access to the lucrative OPEC market.
The implications of national politics for companies are not of
course restricted to developing countries In the politically
sophisticated countries of Western Europe, even within the
EEC, products for strategic industries such as power and water
supply are typically purchased within the country of use.
MARKET RESEARCH AND DECISION-MAKING
It is against this background of the company together with its

products, services, skills and resources, existing in a highly complex
environment, that market research must be considered. It is this
interaction between the industrial organisation and its markets that
generates wealth. The companies which survive and prosper are
those which take the correct decisions on the form and scale of this
interaction and manage it in such a way as to achieve effective
resource utilisation. How are these decisions taken?
The development of industry has been characterised by indi-
vidual entrepreneurial flair, and the apparent ability of the execu-
tive to take correct decisions at the correct time by virtue of
intuition. If however such intuition is examined more closely, one is
likely to fined that in many cases 'intuitive' managerial decision-
taking has its foundation in an implicit mental process involving the
selection and evaluation of information and the formulation of
conclusions on that basis. One reason for the apparent decline in
entrepreneurship in mature industrialised economies is the size,
complexity and the rapidity of change of both industry and the
environment in which it must function, which demands a battery of

aids to assist managerial understanding. This does not imply that the
basis of management decision-taking has changed, merely that the
process will frequently become a more formalised and explicit one,
involving a complex of highly developed information inputs and
decision-making at a variety of levels by a variety of specialists.
The responsibility for producing information on which decisions
relating to a company's product/market mix are based lies with
market research. 7 This function is basically an information produc-
ing one and needs to be assessed upon the relevance and quality of
the information generated. There are, of course, numerous deci-
sions taken within the firm which do not directly involve the market
research function. All decisions, however, are in some way related
to the interaction of the company and its environment, and as such
have a market dimension. 8 It is also interesting to note the develop-
ing interest in market research in planned economies where the
market is increasingly being taken into account. 9
Decision-making is concerned with the future, although the only
firm data on which it can be based must by definition be historical.
The historical facts cannot, however, be considered in isolation - a
theme which will be developed in Chapter 7 when forecasting is
discussed. What can be stated at this point is that in the industrial
context, market research and forecasting are interdependent ac-
tivities. The essence of forecasts is that they should be developed on
the basis of historical data with as full as possible an understanding
of the causal factors involved. On the other hand, unless the market
research function can provide an assessment involving past, present
and future, it cannot provide the necessary means for decision
making.
THE INDUSTRIAL DIMENSION
Acceptance of the necessity for formal market research has pro-

ceeded relatively more slowly in industrial marketing than in the
consumer goods field, and it will be instructive to examine some of
the reasons why this should be so. Three possible explanations are
put forward below:
1 The 'Technological A"ogance' of Capital Goods Companies.

Some firms have grown successfully on the basis of engineering
skill and technological development. While it would be foolish
to denigrate such capabilities, a highly competitive market will
frequently demand something more, particularly in the shap~ of
marketing skills and market knowledge.
2 The Quantity and Ouality of Official and Semi-official Statistical

Data. In contrast with consumer markets, 'desk' information in
the industrial field has often been difficult to acquire. The result
has been that industrial market research departments have
found it relatively more difficult to build up usable data banks,
and have therefore been hampered in their basic function of
information provision.
This situation will obviously be a function of the state of
development of official and semi-official sources in individual
countries, but as far as the United Kingdom is concerned, a
growing output by the Government and bodies such as the
National Economic Development Office can only help the
industrial researcher. A similar trend is evident in other
countries. to
3 The Nature of the Population Examined. In consumer markets

this tends towards normal distribution and is therefore often
open to a wide variety of statistical analyses based on the
sampling of relatively small proportions of th'e total popUlation
under consideration.!! In industrial market research, the need is
for a more detailed knowledge of the population examined,
perhaps leading to detailed study of the needs of one or two
major buying firms.!2 In the case of turbo generators, for
example, there are few manufacturing firms, whereas in the case
of chemicals numerous companies are concerned. Obviously the
methods by which a supplier would survey these two sectors
bear little relation to each other. In the latter case the relatively
larger numbers of companies poses the problem that their
distribution is unlikely to be normal when considering their
purchases of a specific plant item, but heavily skewed. Further-
more, information may not be held at head office level but at
plant level and this may alter the approach significantly.
There are grounds for believing that a further coming to-
gether of industrial and consumer research will be difficult.
While their objectives are basically the same, the circumstances

under which they operate tend to make them quite separate
disciplines.!3 On the other hand, industrial marketing research
owes some thanks to its companion in the way of development of
techniques and acceptability as a discipline. Ultimately, how-
ever, it is worth stressing that all forms of marketing research
seek an understanding of human motivation and behaviour
whether it occurs in the retail establishment or in the firm's
purchasing department.
INFORMATION REQUIREMENT AND FLOW
Industry can be thought of as a complex of skills and resources

producing an infinite variety of products and services to meet the
changing needs of a complex world. The problems of planning such
an interaction to ensure the most efficient use of resources are
formidable, but the changing structure of industry is perhaps evi-
dence of a constant process of adaptation, and economic progress a
sign that at least some success is being achieved. It is probably a
truism to say that success can never be guaranteed in industry.
Careful use of information can, however, contribute materially to
successful decision-taking. Much depends on the attitude of the
decision-making function, i.e. senior management, to market re-
search, and how the latter function is organised and controlled.
The basic responsibility of market research can therefore be seen
to be that of producing information relevant to the structure of
present and future markets for the company's product lines. In
proportion as the market research activity gains stature in a firm,
this responsibility can be expected to be extended to cover at least
two further areas: recommendations on future product/market
strategy; and recommendations on methods to ensure achievement
of strategic objectives.
Typically the industrial market researcher needs to assess what
information is relevant and should therefore be sought. An obvious
starting-point is the company's current product/market mix, par-
ticularly if it is desired to make an informational contribution to
strategic planning decisions. The methods employed to conduct
necessary research, and the details of information required, will
depend on the size of the company and the range and complexity of
its products and markets. However, the company will normally wish
to acquire detailed information about the major markets it serves,
and the following are examples of the types of information which
may be sought:
1 An examination of the company's historical performance. Market

size is estimated over a specific period and the company's sales
to this market, broken down by product type, compared with
past market levels. Among other things such an analysis can be
expected to throw light on trends in market size, the trend in
company performance, and the trend in product performance.
2 An assessment of the company's present position in the market.
Historical data are updated as far as possible along the lines
mentioned above. This serves as a basis for the setting of
different objectives, for example the pursuit of better market
penetration for a given product. On receipt of information of
this type, management can be expected to judge whether or not
the current situation is acceptable to them, and if not what action
should be taken
3 A forecast of demand. The forecasting detail required is deter-
mined by both the company's position in the chain of derived
demand, and, at the other extreme, by the output detail required
in terms of product type, installation type, geographical area and
industrial market.
4 An assessment of trends which may have implications for the
products under consideration. Economic, technological and
political factors are constantly changing, and the effects of these
changes should be assessed.
5 An assessment of competition. A crucial part of the analysis is the
competitive situation, which will have a direct bearing on the
company's ability to progress. Competitor information which
may be sought includes details of product ranges, financial
status, pricing and distribution policies, and technical and mar-
keting strengths and weaknesses.
6 A forecast of available market and likely share. All the above
areas can be employed as a basis for forecasting the market
likely to be available to the company's product lines over a
specified period, and the likely share of the market which it is
hoped to gain. This information, where available, is a critical
input to strategic planning decisions. 14 As such it is capable of
contributing towards financial, purchasing, manpower and pro-

duction planning decisions, and can throw light on longer-term
problems such as capacity and earnings growth.
MARKET PLANNING
On the basis of the data submitted to management, marketing

objectives can be established, and plans developed to meet these
objectives, final responsibility for the control of plans residing with
senior management.
A typical objective may be to increase market penetration with
an existing product line. This might involve:
recruiting additional sales staff;

increasing advertising expenditure;
opening additional branches overseas, or entering into agency
agreements;
altering the pricing structure of the range;
improving product and packaging appearance.
All such actions require to be planned, controlled and monitored

in the light of the objectives which have been laid down. At the same
t~e, the cost aspect of these objectives needs to be assessed, and
deadlines placed on actions.
As noted earlier, the market researcher may find himself increas-
ingly involved in the field of market planning through recommend-
ing methods by which strategic objectives can be achieved.
ORGANISATION FOR MARKET RESEARCH
There are at least three questions that the industrial company will
wish to ask in relation to its market research function:
1 How much should be invested in market research in terms of

manpower and operating expenses?
2 What should be the responsibilities of the market research
function?
3 To whom should the function be responsible?
The answers to these questions will depend on a number of
different factors, the most important of which are:
the size of the company;

the complexity of its product/market mix;
its need for diversification;
its financial situation;
its 'image'.
In general, it can be said that the larger a company, the more

complex its product/market mix, the greater its need to diversify,
the greater its financial resources, and the more it is concerned with
its image as a technical and/or market leader, then the more likely it
is to invest heavily in a large and sophisticated market research
function which has a well defined range of responsibilities, which
reports directly to a senior director, and which has a great deal of
political strength within the organisation.
It may be useful to attempt some sort of categorisation in this
area, although it must be recognised that each company has its own
specific needs. Companies serving industrial markets which have
been active historically in industrial market research cover a wide
spectrum, the approximate limits of which might be categorised as
the small-/medium-sized organisation, perhaps built up on one
product line, and with a limited turnover, and the industrial giant,
probably a multi-national with a substantial turnover and a multi-
plicity of interests perhaps ranging from heavy industrial to con-
sumer durable.
The organisational alternatives relating to market research with-
in the above categories are manifold, but it is still helpful to study
the typical situation.
The Small- Medium-sized Enterprise

A typical example might be one of the many small engineering
companies selling to the process industries, turning to market
research in the hope that an answer can be found to the massive
swings in order input levels which characterise the industry. The
approach will often follow two stages:
1 The external consultant. In an attempt to define its present

situation and future outlook this type of company may turn

initially to the external consultant. The pros and cons concern-
ing the use of outside consultants for industrial market research
is a subject of some debate. IS
However, the importance of the exercise is probably twofold:
It strengthens the political position of the Managing Director

by giving him objective support against restrictive practices,
particularly in relation to information.
It gives him the opportunity to continue the work of the

consultant on a regular basis by employing either a Personal
Assistant or a Marketing Research Executive. The latter may
report to the Sales Director rather than the Managing Direc-
tor, depending on the political situation existing at the time.
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.
The Large Industrial Organisation

The situation in the large company is substantially different - in
particular because the market research executive can afford to
become more specialised. Where greater specialisation occurs, an
improvement in the quality of information is a reasonable expecta-
tion, though the danger has to be avoided of becoming too far
removed from the day-to-day operation of the company. There are
probably three main types of the large industrial company in terms
of market research organisation:
1 Centralised. Typically, the centralised company will have

rationalised many if not all of its activities, and will be dealing
with complex industrial operations with a large and specialised
headquarters staff, perhaps located at one of the production
plants. In this case the market research function is likely to stand
on its own with no responsibilities for other marketing services
which will enjoy a measure of autonomy. The function might
report to the chief executive or the directors of sales, marketing,
or corporate planning. It may report through the Marketing
Manager, who, in that case, would also be responsible for sales,
advertising and public relations. It is likely to be headed by a
Market Research Manager supported by qualified and experi-
enced Market Analysts, and clerical and secretarial staff. The
analysts may be educated to degree standard, and where neces-
sary their knowledge may be supplemented by training in
economics and finance.
2 Decentralised. In this case there may also be a headquarters
staff, concerned with market research, utilised at the discretion
of the Market Research Manager in the subsidiary company or
division. The reason for decentralisation probably arises from
the amount of research to be done, and the manner in which the
company is organised. For example the international oil major
may be divided into three operating subsidiaries owned by a
holding company: Petroleum Holdings Limited; Petroleum
Chemicals Limited; Petroleum Shipping Limited; Petroleum
Exploration and Production Limited.
Even if this imaginary organisation did not market to the final
consumer, its size and organisation would logically suggest at
least three market research departments. In this example these
might be supplemented by an Economics Department and a
Forecasting Department.
3 Diverse. This describes the large organisation whose interests
are so wide-ranging that it has little option but to decentralise.
An example is the world's largest manufacturer of nuclear
reactors who also produce refrigerators and cookers. It is likely
that such a company will be structured on a divisional basis, with
each division headed by a chief executive, who will also find a
place on the group board. Personnel requirements for the
industrial part of the company will probably be similar to those
in the decentralised organisation. The major difference will lie
in the requirement for consumer marketing. It is probable that
analysts will require the support of statistically trained person-
nel with in-depth experience of consumer market research.
Between the extremes of the spectrum, as described above, there

will be a large number of permutations, arising from both needs and
management attitudes. It is the responsibility of senior management
in each case to identify and assess their firm's market research needs
and to institute the means to satisfy these needs.
SUMMARY
The development of society and industry through time has led to an

ever increasing need for specialised information to ensure that in a
complex system, scarce resources are utilised to full advantage. In
this process, market research has a crucial role to play.
The generation of wealth in our society arises from the interac-
tion between the company and its environment. It is essential that
the relevant aspects of this environment are continually monitored
by the company in order that economic, political and technological
trends can be assessed, and it is against this background that market
research must be considered. The companies which survive and
prosper will be those which take the right decisions concerning the
form and scale of interaction between themselves and the environ-
ment, and the role of market research is to produce the information
on which these decisions are based.
Industrial market research has lagged behind consumer market
research owing mainly to the nature and characteristics of the
industrial market, but has now established itself as a separate
discipline which in many ways requires more of the researcher than
consumer research. However, both ultimately seek an understand-
ing of human motivation.
The basic responsibilities of industrial marketing research are; to
produce information relevant to current and future market mix; to
recommend on future product/market strategy; and to recommend
on methods to ensure the attainment of strategic objectives.
The way in which a company organises for industrial marketing
research will depend mainly on its size, the complexity of its
product/market mix, its need for diversification, its financial situa-
tion and its 'image'. It is the responsibility of senior management to
determine their company's market research needs and ensure that
these are satisfied.
Chapter 6
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:
1 Consumer goods are purchased by members of the public

whereas industrial goods are purchased on behalf of an organ-
isation.
2 The industrial market researcher tends to require a knowledge
of product technology.
3 The consumer population tends to be normally distributed and
thus subject to sophisticated statistical analysis, whereas the
industrial population is less numerous, and less easily categor-
ised, and random samples are not likely to be representative of
the total industrial popUlation.
These differences must be kept in mind when considering the

methodology of industrial market research.
THE SOURCES OF MARKETING INFORMATION
By providing comprehensive and accurate information to manage-

ment, market research assists in ensuring that rational decisions are

taken. There are two kinds of data; primary and secondary. Primary
data is that which is obtained from original sources to meet a
specified need. Secondary data is that which already exists within
company records, or has been published by government, trade
associations, consulting firms, and so on.
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:
1 Government Sources. These are expanding and improving con-

stantly. Of particular value is the statistical series known as
'Business Monitors',3 which cover manufacturing, production,
services, distribution, and other miscellaneous sectors. The
production series is the one most widely used in industrial
market research and it encompasses around 150 industries and
4000 product types. The information sources are more than
50,000 establishments which make statistical returns to the
Business Statistics Office. Other valuable regular publications
are the 'Monthly Digest of Statistics', the 'Department of
Employment Gazette' and 'Overseas Trade Statistics of the
United Kingdom'.4
There are many other publications, some of which are irregu-
lar, and these can be monitored in the daily list published by
Her Majesty's Stationery Office. 5
2 Trade Associations. Many trade associations gather and collate
statistics relevant to their industry. These may not be available
to non-members. A useful guide to both the associations and
the nature of information which they can provide is published
byCBD .6
3 Libraries. Most of the main cities in the UK have comprehen-
sive libraries which contain a wealth of information relevant to
the industrial market. One of the most important is the Statis-
tics and Market Intelligence Library at the British Overseas
Trade Board in London.
4 The Organisation for Economic Co-operation and Develop-
INDUSTRIAL MARKETING RESEARCH 87
ment. The Paris-based OECD is well known for its economic
research, but it also produces excellent industrial reports, 7
some of which are issued on a regular basis.
5 United Nations Organisation. The Economic and Social Re-
search Department of UNO publishes many useful statistical
series, particularly in the field of energy.8
6 National Economic Development Association. Since its forma-
tion in 1961 NEDO together with its 'little Neddies' have done
much useful work in providing information on UK industrial
sectors. The Process Plant Working Party,9 and the Mechanical
Engineering NEDC,lO are two good examples.
7 Banks. A large proportion of the publications produced by
banks are concerned with basic economic data. However,
there are notable exceptions such as the publications of the
Bank of Scotland on the oil industry.
8 Stockbrokers. In the course of their operations the major
stockbrokers produce information on industrial markets as a
basis for their forecasts of sectoral and company performance.
Most of their publications are for restricted circulation only but
many are more widely available, and of course are distributed
to relevant companies in the sector which has been studied.
9 Trade Publications. There are a large number of journals,
many of which are invaluable to the industrial market re-
searcher, both for market intelligence, and market
characteristics. 12
10 Trade Directories. There is a large number of trade direc-
tories, which are very useful for gathering data on the financial
status and product ranges of competitiors, and also provide
lists of customers and potential customers for sampling pur-
poses. The most comprehensive example in the UK is the
Kompass Register of Companies which is also available for
many overseas countries.
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
a useful start is to identify existing research on sources. In the

United Kingdom, the Government Statistical Service has produced
a useful booklet introducing the service. 14 This booklet produces
guidance on the use and location of government statistics, lists
statistical publications and describes departmental responsibilities.
The H.M.S.O. daily list is also useful, particularly as it covers
publications sold but not published by H.M.S.O., such as those
issued by UNO and OECD. Attention has already been drawn to
the Directory of associations published by CBD Research Ltd. The
latter also publish a number of useful source guides. IS
USING SECONDARY DATA
Having identified and obtained the relevant information the next

step is to use it and at this stage a word of caution is necessary. The
printed word (or statistic) always has an air of authenticity. The real
art in the use of secondary data lies in an understanding of the extent
of its validity and an ability to use the data to maximum advantage.
In many cases those responsible for the production of secondary
data are unwilling to provide a detailed description of how the data
were obtained. It is often the case that data are estimated on the
basis of samples, and experience and good judgement are needed to
assess validity. Even in the case of comprehensive surveys like those
which provide the basis for the production data in the Busine~s
Monitor series, a significant degree of estimation is used. In the case
of this series a response rate of 60 per cent is judged to be sufficient
to allow government statisticians to estimate total output. The latter
is calculated on a pro rata basis using the employment of establish-
ments responding as a percentage of employment in all establish-
ments covered by the survey.
One of the greatest problems in estimating market size from
government statistics arises from import statistics. In the Business
Monitor series and in similar series in other industrialised countries,
production and export data are drawn from manufacturing estab-
lishments in a form which meets the planning needs of government,
and to a lesser extent, industry. Import data, on the other hand, are
drawn from customs statistics (H.M. Customs and Excise in the case
of the UK) and reflect different needs. The end result is that the
statistics cannot be harmonised. A good example is the case of
industrial valves: 16
Production and Export Import

Classification Classification
ferrous metal: pressure-reducing valves:
gate of brass and other alloys of
globe copper
plug of steel
ball of cast iron
relief safety and reducing of other materials
check other:
diaphragm of brass and other alloys
butterfly of steel
parallel slide of cast iron
penstock of other materials
automatic process control
cocks
(similar for non-ferrous metal)
Even within product classifications interpretation can be difficult,

as different product types may be lumped together, for convenience
or to avoid disclosure.
A further problem can arise from rapid technological change.
Minton pinpointed this problem in the case of the electronics
industry: 'In less than ten years semi-conductor active and as-
sociated passive components have grown from virtually nothing to
nearly 5% of the U.K. electronics industry's output (which itself
accounts for over 3% of U.K. GNP) and yet only one fifth of this
total can be found in the six specific sub-classifications used in
Business Monitor, PO 364.'17
It is these difficulties, together with the fact that secondary data
will never be comprehensive, that makes primary research so
crucial in the industrial marketing research process. It must also be
said, however, that many information seekers do fall into the
expensive trap of rushing out to get primary data before exhausting
secondary sources. Furthermore, much work is currently underway
at government and industrial level to solve the problems in both
domestic and international statistics through increased contact
between government and industry, and through international
economic co-operation (e.g. the EEC is moving towards NIMEXE
- Nomenclature Harmonizee pour les Statistiques Exterieurs Pays
de laCEE).
PRIMARY DATA
There are two principal methods of obtaining primary research data

- by observation, and by survey. The former technique has widest
application in consumer research but is also relevant to the indus-
trial situation in two respects:
1 Production processes can be observed giving the basic end use

understanding which is essential to the industrial researcher.
From such observation, marketing ratios can be developed
which can overcome any deficiency in secondary data. A simple
example is as follows. IS
Marine auxiliary Steam Cargo Sea-water cooling

ship type turbines pumps De-oilers pumps
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
From the above observation of an installation (in this case

ships), together with secondary data (statistics on new ship
orders), the researcher can estimate the annual demand in the
marine industry for the products shown. This information is not
available from secondary sources.
2 Competitors' products can be observed and this can give some
indication of product range applications, and in certain cases,
market share. As far as product range is concerned there are of
course severe limits on the information which can be obtained
by observation, but it may help to fill gaps in the researcher's
knowledge.
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.
SAMPLING
The difference in approach in the consumer and industrial situation

arises from the nature of the population under study.
In the first place, consumer populations tend towards normal
distribution. Thus random samples can be expected to be represen-
tative of the population as a whole and a variety of statistical tests
have been developed to check accuracy. Industrial populations tend
not to be distributed normally,19 but more often in accordance with
Pareto's law, with 80 per cent of the industrial market being
accounted for by 20 per cent of the population. In certain industrial
sectors where extensive concentration exists this means that only a
few large companies need be sampled. The more common industrial
situation is one in which there are a few large firms, and a multipli-
city of small specialist firms. A good example is the UK chemical
industry. Depending on the nature of the information required
there is scope here for including all large firms in a survey, and
taking a random sample of the remainder. It is at this point in a
survey that the second problem arises. Most published listings of
industrial companies are prepared on the basis of enterprise rather
than manufacturing establishments, and it is in the latter that the
information required by the industrial researcher is most likely to be
located.
In the current edition of Kompass,20 the largest UJ{ chemical
company, indeed one ofthe largest in the world with an authorised
share capital of £575 million, is listed under its London Head Office
address for all the products under which it is classified. The indus-
trial researcher would find, however, that any information on
current or potential equipment requirements or characteristics
would be held at divisional or plant level.
These problems mean that sample selection must itself be the
subject of careful research and while this can be time consuming and
costly, it is an essential prerequisite to a successful industrial market
research survey.
SELECTING THE SAMPLE
In any industrial market research survey there will probably be four

stages in sample selection:
1 Identifying current and potential applications for the product

in question.
2 Identifying the industries in which the products are used or
could be used.
3 Identifying the companies within the industry from which a
sample is to be drawn.
4 Selecting the companies from which information will be
sought.
The basis for applicational analysis will be internal research on

enquiries and quotations, perhaps supplemented by limited tele-
phone contact with experts. Industry identification will follow and
may in part be answered by applicational research. A useful cross
check on this aspect can be found in the input/output analysis of UK
industry.21
It is at this stage that the sampling problems referred to above are
likely to arise. To overcome the problem of skewed distribution, it is
necessary to obtain information on the relative size of companies in
the industry. This can be achieved on the basis of sales, number of
employees or capitalisation, or perhaps all three. Sources on these
are patchy, but, if necessary, the annual reports of the companies
concerned can be obtained.
Having established relative size, it is then necessary to identify
the location where the information is held. This can often be
established by a limited number of telephone calls to the major
companies concerned. The extent to which such research is carried
out will depend on the size of the sample, and the nature of the
survey. In the case of field research for instance, it will be necessary
to establish this in advance or a great deal of time can be unneces-
sarily wasted.
Mail Surveys. In industrial marketing these generally involve the

preparation of a fairly detailed questionnaire which is posted to a
list of companies, either comprehensive, covering a complete indus-
try or industries, or based on a sample, selected in the manner which
has been discussed above. The survey will form part of a market
research project, and the information requirement will have been
predetermined by the project remit.
There is an undoubted art in the production of a good question-
naire, and its success is, to a large extent, dependent on how it is
produced. The art involves:
Producing a clear, comprehensive and attractive document.
Finding the right balance between asking for too much detail and
destroying the incentive to complete the document, and asking for
too little and being left with unanswered questions.
Wording the accompanying letter in such a way as to attract the
attention of the reader and create an incentive to complete the
questionnaire.
Table 6.1 provides details of a successful mail survey.22 The ques-
tionnaire which was produced is shown, together with a selection of
the analyses which were drawn up from the information obtained. A
sample of over 200 companies involved in food and chemical
processing was selected on the basis of type of product and size,
which covered an estimated 80 per cent of the market. The response
rate was 30 per cent which is near the maximum that can be
expected in a large industrial survey. It can be seen that the
questionnaire is divided into two basic parts. The first of these seeks
statistical information on the existing technical structure of the
market and is the type of information which might be used in
developing a new product range. The second part is more general,
leaving much to the discretion of the respondent. This is important
in the industrial market where one may be soliciting information
from a technical specialist who appreciates the opportunity to
express his ideas freely.
There are many other small points to consider, which, taken
together, can mean success or failure, for example:
Enclosing a stamped addressed envelope for easy return.

Ensuring that the respondent has the opportunity to fill in his
name, position, address, company and telephone number. If this
information is missing, interpretation and follow-up can be difficult.
Assuring the respondent that any information he does supply will
be treated as strictly confidential.
Follow-up questionnaires can also be considered after a suitable

time period. Practice suggests the importance of a carefully worded
letter accompanied by an additional copy of the questionnaire on
Table 6.1 Drier suroey
1. Please enter below the operating details of the driers your company/plant has in use. Details should relate to EACH specific duty performed
by one or more driers.
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.
3. Please state opposite in what direction you feel

progress could best be made in providing your
company with an improvement in its drying I
operation.
4. Are there any trends in your industry which are [--- - - - - -
likely to affect the demand for driers, in total, or

by particular type?
Thank you for your co-operation in completing this CONFIDENTIAL: Name:

questionnaire. If you would complete the section
opposite this would help us clarify any points which Position:
might arise. You have our assurance that this
information will be STRICILY CONFIDENTIAL.
Company:
Should you have any queries, require further

information, or wish additional copies of this Address:
questionnaire, please contact:
Henry Balfour & Co. Ltd,
LEVEN, Fife,
Scotland KY8 4RW Tel.No:
Table 6.1 (continued) Analysis o/results

1 Market Structure
Drier Survey
Vacuum Ruidised
Competitor Spray band bed Total
Company A % % % %
CompanyB % % % %
CompanyC % % % %
Total % % % %
2 Age Distribution
Age (years)
Drier type 0-5 5-10 Over 10
Spray % % %
Vacuum % % %
Fluidised bed % % %
3 Future Requirements (ImmediateIShon-Term)
Drier type No. required
Spray 20
Vacuum 30-40
Fluidised bed 40-50
4 Technical data (by Drier type)
5 Problems (by Competitor; by Drier type)
6 Etc.
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.
Telephone Surveys. The telephone is regarded by many market

researchers as probably the most important link in the industrial
market research situation. It is not used merely to arrange inter-
views or to follow-up questionnaire surveys, but as a survey instru-
ment in its own right. Its use in the collection of routine survey
information is, of course, limited, principally by the amount of time
the respondent is prepared to sustain the discussion.
As in the case of the mail survey, a judgement has to be made as to
what one can reasonably hope to derive from use of the method.
Perhaps the most difficult problem to be overcome in practice is in
locating the respondent able to supply the required information, but
the ability to overcome this difficulty develops rapidly with experi-
ence.
The telephone is probably used much more in day-to-day market
research - for example, checking published information or enquir-
ing into the location of information sources. In a major project
situation, it is a useful means of smoothing the path for field
interviews.
Field Surveys. These are undoubtedly the most valuable type of

survey in industrial market research, and, of course, the most
expensive to execute. The information to be collected will vary
depending on the assignment, but it will frequently be of a qualita-
tive nature, relating to such considerations as techno-economic
trends, competition and purchasing procedures. If the project calls
for more routine statistical information, this can be obtained using a
questionnaire which can then be followed up, or alternatively
questionnaires can be left with those persons who have been
interviewed.
In sectors where there has been a failure to obtain information by
mail perhaps because a large number of companies make up the
market sector, fieldwork consultancy firms might be used. This type
of organisation employs part-time field interviewers, who are
merely instructed on which companies to visit and what questions to
ask. No knowledge is presumed. The number of major industrial
concerns using these companies can be inferred from their prolifer-
ation in the United Kingdom in recent years. Advice on their use is

available from such organisations as the British Institute of
Management. 23 We have assumed to this point that the researcher
will conduct what can be termed a fully structured interview. This is
in contrast to the semi-structured or unstructured interview. A
common procedure (assuming respondent identification has been
carried out and a meeting successfully arranged) is to prepare a
series of questions to which answers are sought. These questions
then form the core of the discussion, but allowance is made for
unplanned divergence.
The crucial role of exports in the economic well-being of the
United Kingdom and the relative stagnation of many UK industrial
markets has led to a surge in export market research during the
1970s. Overseas field research is a difficult and costly area of
market research, and it is essential that it is carefully planned and
controlled. Advice and assistance are available from the British
Overseas Trade Board, and any company about to engage in export
field research is advised to contact the BOTB in the first instance,
and carefully to study any information which has been published on
the subject. 24 In 1977 over 400 overseas market research projects
were financially assisted by the BOTB which represents a 100 per
cent increase on the number of projects undertaken in 1975. 25
THE IMPORTANCE OF SYSTEMS
So far we have examined the sources of industrial marketing

information and the techniques which can be employed to gather
this information. With the continuing growth in company size and
the increasing complexity of the market environment, it is becoming
increasingly necessary to organise the industrial market research
function on a more systematic basis. Indeed, the prescription for the
ideal industrial market research department is that it should be as
systematic as possible without rendering itself rigid and inflexible or
restricting what has been described as the creativity which should
spring from the well organised market research situation. 26 The
industrial marketing research function should aim at a minimum of
five systems schematically represented in Table 6.2.
1 The Sales Analysis System. During the enquiry-sale cycle a

Table 6.2 The main marketing information systems
INPUT OUTPUT
Budgets Analysis by product,
Enquiries customer, and market,
Quotations SALES ANALYSIS SYSTEM against budget
Orders
Sales
Profits
Customer contacts New busi ness prospects

Trade journals BUSINESS INTELLIGENCE SYSTEM • by market
Export intelligence service
~
Customer-visit reports CUSTOMER CONTACT SYSTEM Analysis of sales visits by
product and market
Analysis of business won
and lost ~
Economic and industrial statistics
Published reports on producers
MARKET DATA SYSTEM Market reports
and industrial and geographic
markets
Trade journals
Catalogues
COMPETITOR ANAL YSIS SYSTEM
Analysis of competitors'
I
Customer-visit reports strengths and weaknesses
Annual reports
~
10
10
100 INDUSlRIAL MARKETING
large amount of information is generated by both the customer

and the seller, and this system involves the systematic gathering,
and collation of this information.
Analyses are of course historical, and should cover enquiries,
quotations and orders by product type, sales area, customer and
industrial market. Sales analysis may not be practical in the
industrial marketing situation due to the widespread practice of
progress payments on major contracts. While comparison of
current performance with historical performance is important, it
is vital that current performance is measured against budget, as
the latter should be constructed so as to take into account both
historical performance and future market trends. If possible the
sales analysis system should also cover profitability, which
should be analysed in a similar manner.
Such a system has the merit of showing up structural weak-
nesses in terms of sales or profitability at an early stage and it
enables remedial action to be taken at an early opportunity.
2 The Business Intelligence System. The steady global economic

expansion which has taken place throughout this century, to-
gether with the need continually to replace worn out capital, has
meant a rapid growth in business planning. The starting-point is
the consumer, and as the implications of his increasing demands
are appreciated industrial companies are required to build the
capital stock to ensure that these demands are met. The fact that
this must be planned in advance gives tremendous scope for an
industrial business intelligence system. One of the main sources
is the company's sales force, but in most cases it cannot be
expected to advise on all opportunities; some reliance on secon-
dary sources is necessary, and these sources are being developed
rapidly, particularly by trade journals. In the UK an excellent
intelligence service covering the export market is provided by
the British Overseas Trade Board. 27
To be effective the business intelligence system should be:
(a) centralised in the market research department which should
act both as a source and as a clearing house for business
intelligence;
( b) controlled by senior management to ensure all opportunities
are being followed up;
( c) analysed by market research to identify areas where business
is being lost.
3 The Customer Contact System. Customers and potential cus-
tomers should be visited on a planned basis by the sales force,
and each visit should of course be reported. In addition, contact
will be made by letter and telephone, not only by the sales force,
but by other company employees. This contact should also be
reported. Senior management will have difficulty assimilating
this information unless a system is created which clearly iden-
tifies the information required (without being unnecessarily
restrictive) and develops the documentation and procedures
necessary to handle the information in an efficient manner. Any
complex report should be handled separately by internal
memorandum, but cross referenced in the system.
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.
5 The Competitor Analysis System. Competition cannot be met

effectively unless it is understood and recognition of this has led
to the development of systems designed to collect and analyse
information on competitors on an ongoing basis. The five main
sources of information are: trade journals, trade exhibitions,
competitors' catalogues, competitors' annual reports, and cus-
tomers or potential customers.
In-depth understanding is necessary in the following areas:
(a) product range;
(b) organisation;
(c) financial structure and performance.
Information should be stored in a logical manner, perhaps by
company and product type, cross referenced, and regular re-
ports on the strengths and weaknesses of competition should be
produced.
lHE ROLE OF 1HE COMPUfER
The development of marketing information systems has been

accompanied by the rapid growth of electronic data processing in
this field. By 1972 around 50 per cent of the department in the UK
carrying out industrial marketing research were using computers.28
There is no doubt that the computer will play an increasingly
important role in the processing of marketing information,29 but
management should be aware that use of computers in this field is
not without problems. A recent survey carried out in the UK by
Jobber and Rainbow (covering The Times Top 500 companies and
yielding a 38 % response) found that in those companies operating a
marketing information system: 30
22 per cent of respondents had computer related problems when

establishing a marketing information system;
33 per cent of respondents had difficulty in using the computer
for date storage/analysis/retrieval;
22 per cent of respondents had unresolved computer related
problems impeding 100 per cent efficient system operation.
Notwithstanding these problems, it is interesting to note that the

same study showed that 40 per cent of respondents indicated that
the existence of a marketing information system had a 'high' or
'very high' impact on their company's performance and this would
suggest that greater investment in solving computer-related prob-
lems is certainly worth while.
The Economics ofIndustrial Market Research

With the rapid growth of industrial market research two problems
are becoming increasingly apparent:
1 The need to control the function in terms of both cost and

load.
2 The difficulty in measuring the performance of the function.
The control problem is not difficult to resolve. As Airey and Weston

have pointed out,31 much of its solution lies in the determination of
both projects and priorities on the basis of cost and likely benefits
taking into account the major problems of the company and its
strategic objectives. Performance measurement is more difficult
and for the most part must be qualitative, based on the usefulness of
the research. However, it is important that performance is seen to
be monitored and controlled, and the significant benefits which can
derive from the operation of a sound industrial marketing research
function should not blind management to the many areas in which
costs can be cut. 32
SUMMARY
The function of market research is to provide comprehensive and

accurate information to management as an aid to rational decision-
taking. There are two kinds of data sources, primary and secon-
dary.
Secondary data are defined as data which already exist within the
company or have been published by external agencies, such as
governments, trade associations, banks and consultants. Lack of
control over research methods and data presentation and interpre-
tation means that caution must be exercised in the use of secondary
data.
Such difficulties, together with the fact that secondary data can
never be comprehensive, make primary research crucial in the
industrial marketing research process.
The two principal methods of gathering primary data are obser-
vation and survey. In the industrial research context, the former is
useful as a means of gathering information on competitors' products
and in helping the researcher to gain a better understanding of the
production processes involved in his industrial markets. The survey,
however, is the main industrial market research technique and it
raises the problem of sampling in the industrial market.
The populations of industrial markets, unlike those of consumer
markets, tend not to be distributed normally. In addition, published
listings of industrial companies tend to be prepared on the basis of
enterprises rather than manufacturing establishments. It is crucial,
therefore, that before any survey is undertaken, time is spent in
developing an understanding of the distribution of the industrial
market and identifying where the relevant information is likely to
be held.
Industrial market research surveys are undertaken by mail, tele-

phone, and field visits. The first of these involves the preparation of
a fairly detailed questionnaire, and may cover a complete popula-
tion or a selected sample, depending on the nature of the market
and the information required. The telephone is the most widely
used link in industrial marketing and is an important survey instru-
ment in its own right.
The most valuable method of survey is undoubtedly personal
interviewing. The information sought will vary but frequently it will
be of a qualitative nature relating to such areas as techno-economic
trends, purchasing procedures and competition.
The growing importance of exports, both to the economy and to
individual companies, has led to a significant increase in overseas
field research. This is a difficult and costly area of market research
and it is essential that it is carefully planned and tightly controlled.
The growth in company size together with the increasing com-
plexity of industrial markets has led to the need for a more systema-
tic approach to the generation and collation of marketing informa-
tion. Typical systems which can be computer generated include
sales analysis, market intelligence, customer contact, market data,
and competitor analysis. Industrial experience suggests that the
development of good marketing information systems can have a
significant impact on company performance.
It is not always easy for management to measure the effective-
ness of their market research activities. But a measure of control is
provided by asking how far the research team is supplying the
information requested. Again, research can be done well or badiy,
so the quality of research can be controlled and monitored. Cer-
tainly management should not be deterred from examining areas
where the most cost effective research can be conducted.
Chapter 7
Forecasting
Looking into the future is certainly not a new experience for

mankind, but as a discipline it is relatively new. The roots of
systematic forecasting have been traced to the mid-nineteenth
century when trend curves were used as an expression of population
growth.!
During the twentieth century governments have made increasing
efforts to identify and forecast particular needs in order that policies
can be enacted to fulfil these needs. Since the traumatic experience
of the 1930s, economic policy has been directed with a view to
avoiding erratic fluctuations in economic activity, through forecast-
ing the effect on the economy of differing policy options. At present
most nation states accept responsibility for economic performance
and have developed sophisticated techniques for short-term
economic forecasting. 2
As far as industry is concerned there has been an increasing
realisation that forecasting is implicit in the decision-making pro-
cess whether or not it is formalised. Decision making implies the
selection of one course of action among several, each of which may
have a different outcome, and before a decision is reached there
must be some assessment of possible outcomes.
THE INDUSTRIAL DIMENSION
One of the outstanding featUTes of recent economic history has been

the relative stability in the economies of the industrialised world
since 1945, reflected in the underlying trend of steady economic
growth. This steady growth, together with the relationships which
have been established linking national income with personal con-
sumption, have given a significant degree of success in the projec-
tion of consumer demand. 3
Industrial forecasting has been less fortunate, as the industrial

company's business is not only affected by such variables as dispos-
able income and consumer taste, but also the principle of the
accelerator,4 and by the forward planning of other suppliers nearer
to the final consumer. Being so placed in the chain of derived
demand means suffering fluctuations in activity on a much greater
scale than the manufacturer of, for example, a basic foodstuff. One
example is the shipbuilding industry where in the five year period up
to the end of 1976 in terms of change over the previous year
shipping demand fluctuated within the range of - 6·1 per cent to
+ 17·6 per cent. On the same basis orders for new tonnage fluc-
tuated within the range -64·7 per cent to +116·4 per cent.s
Another example is the UK electrical plant industry. The Electricity
Council forecast of simultaneous maximum demand on the Central
Electricity Generating Board system for 1976/7 drawn up in 1971
was around 14 600mw above the actual outrun in terms of required
installed generating capacity.6
Such fluctuations and errors are often pointed to as an argument
against industrial forecasting. However, they should be looked
upon as a warning that great care should be taken in both the
development and interpretation of forecast for two reasons:
1 While wild fluctuations in business input can create numerous

problems in the short term, they do not necessarily affect the
validity of any long term trends which may have been estab-
lished.
2 Decision-making is concerned with the future; it is thus
rational to consider it.
Increased volatility of markets is in fact often cited as an argu-

ment in favour of forecasting.
Doyle and Fenwick7 have identified four factors which they
consider to account for the growth of interest in formal sales
forecasting methods:
(i) Increasing rates of change in technology, taste and competi-

tion together with increasing economic instability.
(ii) Greater time span of decisions which require longer term
and more hazardous market forecasts.
(iii) Adoption of comprehensive planning procedures leading to
FORECASTING 107
increased need for forecasts which are the roots from which
strategy is developed.
(iv) Growing familiarity with the power of the computer and the
availability of standard computer forecasting packages.
THE TIME SCALE
In terms of time scale most industrial companies' needs should be

met by forecasts covering four time periods:
(i) The Immediate Future. In the industrial sphere this will be

mainly a reflection of the current order book and consequently the
detailed forecasts developed can be expected to be firm, with
variations arising mainly from cancellations. The main purpose of
forecasts in this time scale will be to plan production.
(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.
(iii) The Medium Term. Industrial companies at the heavy end of

the product spectrum (e.g. manufacturers of large boilers,
generators, reactors, etc.) can have some idea of factory base load
perhaps up to five years ahead, and in some cases longer. However,
in most cases, medium-term company forecasts will have to rely
heavily on market forecasts as their base. As such, they will be more
tentative than their shorter term counterparts but should include
estimates of factory loading and manpower, purchasing and financ-
ing requirements.
The medium-term forecast can be expected to provide an early
indication of future problems such as over- or under-capacity, and
sales or earning gaps and should be monitored on an ongoing basis
in order that the effect of changing market conditions can be
reflected in the forecast.
(iv) The Long Term. It is now commonplace for companies in

many sectors to predict events twenty-five years hence, and in some

cases longer. This is particularly apparent in energy related
industries8 due to both the length of the time scales involved (e.g.
exploration to oil production in the North Sea may take up to ten
years) and the anticipated depletion of the oil resource.
Long-term forecasts will not generally be detailed and may not
even be quantitative and the fact that they are not commonplace in
industry is not a reflection of their importance. The acceleration of
social economic and technological change means increasing scope
for long-term forecasting to enable outline planning of product
development, capacity, raw material resources and finance.
THE FORECASTING SYSTEM
The increasing size and complexity of industrial companies has

created the need for comprehensive planning and control proce-
dures, and these in turn, have demanded a complex forecasting
system, particularly with regard to short- and medium-term re-
quirements. Complexity varies according to individual company
needs, but in general the short- to medium-term forecasting system
should approximate to that shown in Figure 7.1, where the main
information flows are shown. The stages are as follows:
(i) The Market Research Department produces a forecast cov-

ering say five years in terms of orders by number units and by value.
This forecast should be broken down by product type, end user,
industry and geographical area to enable forward planning.
(ii) The order forecast is considered by the decision-making
function, where it is checked to ensure that it fulfils the appropriate
strategic objectives of the company.
(iii) The order forecast is then passed to the Finance Depart-
ment, where a sales forecast is agreed with other functions.
(iv) The sales forecast is then considered by Production, Per-
sonnel and Purchasing, who subsequently produce forecasts of
plant, materials and manpower requirements.
(v) These forecasts are passed back to Finance where a forecast
is prepared.
(vi) A policy document containing all forecasts is then put
together by the Planning function and submitted to the Decision-
making function.
FORECASTING 109
Forecast of orders
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
'--
Figure 7.1 A schematic representation of the main flows on the short- to

medium-term forecasting system
Where forecasts do not meet strategic objectives a reappraisal of

the company's organisation and activities may be necessary. One of
the major benefits of a formalised forecasting system such as that
described above is that deviations from plan can be drawn up.
In the longer term forecasts may comprise no more than a general
treatise on the future of society and the broad implications of this
future for industrial markets. The time frame considered will be
dependent on the nature of the company concerned and might
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:
1 The long lead times associated with penetrating new or differ-

ent technological fields. The US project Hindsight, for in-
stance, concluded that under a fifth of technological events
stem from scientific discoveries occurring less than thirty years
previously. 9
2 The long life-cycles of many existing industrial products, some
of which 'remain on the scene so long that it seems they have
always been there and always will be'.1O
3 The question of the limitations of vital raw material reserves
such as oil and uranium which demand the consideration of
alternative sources on a long-term basis.
THE SELECTION OF FORECASTING TECHNIQUES
In industry there is no single approach to forecasting. There is a

place for many disciplines in the forecasting function including
economics, technology, psychology and demography. There is also
a place for both quantitative and qualitative techniques. The tech-
niques selected depend on the forecasting need to be met, and Jones
and others have identified three needs in the industrial context. 12
(i) the identification of new opportunities or threats;

(ii) the identification of potential markets;
(iii) market estimation and product specification.
In the light of the earlier discussion in this chapter we must add

market share forecasting, which through sales estimates forms the
basis for the company planning process.
A useful guide to the selection of techniques is given in a 1971
article by Chambers, Mullick and Smith.I3 Thirteen techniques are
listed, described briefly and compared on accuracy, and ability to
identify running points.
It is worth emphasising, however, that different techniques may
be required for different industrial markets, even when the fore-
casting need is common, and that the latter may best be met by a
combination of techniques.
FORECASTING 111
QUALITATIVE TECHNIQUES
Qualitative techniques tend to apply to the longer-term time scale

and to cover the broad identification of future needs as a basis for
selecting the best options open to the company.
1 Researching Expert Opinion. This is the most widely used quali-

tative technique, its attraction being its relative simplicity. It
involves identifying established experts in a particular field and
consulting them on a specific topic. It may apply at the tentative
forecasting stage in the development of a new product when no
secondary information exists. It may also be used as an input to a
long-term forecast of the markets for established products.
There are two problems associated with this technique.
Firstly, it may be difficult to identify the 'experts' if indeed they
exist. This difficulty can be overcome by sequential sampling14
until all leads are exhausted, or perhaps using the approach
reported by Miller and Haines 15 in their case study involving the
forecasting of the market for a new industrial product. The steps
suggested were as follows:
(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
The second problem arises from the possibility of bias. It is more

difficult to identify, and is perhaps the main weakness of this
techqique. The possibility of bias had led to the development of
further techniques involving the consultation of expert opinion, the
most important of which is now described.
2 The Delphi Technique. This technique was developed in the

1960s, and it has been used in a variety of forecasting applica-
tions since then, induding future levels of medical achieve-
ment,16 future chemical output,17 the future market for ships,18
and even to evaluate industrial technological forecasting. 19
The technique itself is simply a development of research into

expert opinion and its advantage is that it helps to overcome
bias. The procedure involves the following steps:
(a) selection of a number of potential respondents

(b) circulation of a questionnaire to members of this group
(c) central processing of answers to determine average re-
sponse and variation ranges
(d) circulation of results together with another copy of the
original questionnaire for further response taking account
of the results
(e) repeat of (c) and (d) until it is judged that no improvement
in the result can be expected.
There is no restriction on the techniques used by the respondents

in arriving at their answers, but they may be asked to reveal
methodology where an answer is significantly different from the
average.
During the 1970s industry showed an increasing interest in this
technique. This was reflected in the formation of a Delphi Club in
the UK in 1976 which conducts opinion forming exercises in annual
stages. 20
A great deal has been written about the Delphi technique since its
development by the Rand Corporation. 21 Several books have been
entirely devoted to the technique and provide a useful base for more
detailed study. 22
3 The Scenario. The introduction of the Scenario as a useful

forecasting tool has been credited to Kahn and Weiner in the
late sixties.23 Its use in industry has been less widespread than
the Delphi technique but there is a growing interest in the
technique in the field of energy planning,24 and it is anticipated
that companies wishing to speculate on long-term developments
in society will make increasing use of the construction of alterna-
tive futures.
The technique itself consists broadly of constructing
hypothetical futures and testing the likelihood of these futures
by identifying avenues by which they can be achieved. This line
FORECASTING 113
of thought is by no means new but since 1967 it has become
explicit and has commanded widespread attention among those
concerned with long range planning.25
4 Morphological Techniques. In the context of forecasting, these

techniques are mainly concerned with identifying the impli-
cations of certain courses of action and assisting in the com-
prehensive consideration of alternatives by the use of forms.
The most common forms used are the matrix and the relevance
tree.
These forms are particularly useful as a first stage forecast
where a new product is involved or where opportunities are
being sought for existing products in new markets. The impor-
tance of forecasting the market in the new product area is
particularly vital, as the experience of ICI has confirmed. 26
The matrix is used to show in tabular form the interaction of at

least two sets of parameters. A good example of the use of a simple
matrix to identify applications for existing products in a new market
(North Sea Oil and Gas Exploration and Production) is described
by Rowlinson reporting on the work of a research team at Tube
Investments Limited. 27
The relevance tree is used schematically to represent possible
product needs arising from particular trends in the business envi-
ronment. For instance, increased emphasis on energy conservation
will affect a number of industrial sectors. 6 Selecting transportation
as one of these, needs may arise for fuel changes, or new propulsion
systems. These needs may create a demand for a variety of products
ranging from coal-fired turbines to liquid hydrogen.
Morphological forecasting techniques are relatively new but have
already been used in such diverse areas as the market for industrial
materials,28 and the implications of pollution control for an oil
company.29
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.
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
Construct model including GDP,

energy consumption, electricity
consumption, load factor and plant margin
Econometric model
Forecast of generating plant

requirement
t
Analysis in terms of
station type and size
Research ing expert opinion

~
~
Forecast of aux iliary plant
demand
~~
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
Machine tools 0·8 0·3 0·1 1·6 7·1
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
Textile machinery 0·2 0·1 - 0·3 0·4 I

Construction and
mechanical 7·4 0·7 0·2 6·3 4·2
Office machinery 0·2 0·3 - 0·4 0·6
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.
Time Series Techniques

A time series refers to a set of historical recordings of the quantity or
value of a variable measured at specific points in time. Such series
are generally analysed to determine to what extent any variations
can be attributed to factors which are time-related. The distinguish-
ing factor in these techniques is the method used to damp down
seasonal fluctuations and other irregularities in order that the
underlying trend curve can be isolated prior to projection. Thus in
contrast to causal techniques, time series analysis and projection
merely describe the behaviour of a variable and are not concerned
with external relationships.
1 Moving Average. To construct a moving average from a histori-

cal series a number of consecutive points in the series are
summarised and averaged. The art is to construct the moving
average series in a way in which irregularities are removed. For
instance, the effect of an extended strike in a particular industry
might distort a long-term trend in production. This effect could
be smoothed by averaging production in months 1, 2 and 3,
months 2, 3 and 4, months 3, 4 and 5 and so on.
2 Exponential Smoothing. As in the latter technique, the raw data

are time series of variables. The variable is again in chronologi-
cal order and recorded at equally spaced time intervals. In this
technique more recent data points are given more weight.
Standard computer packages are available for this technique
and these perform an analysis which indicates any regularly
recurring deviations, as well as identifying the trend.
3 Curve Fitting. These techniques involve describing a trend line in

terms of a mathematical equation and projecting the line on the
basis of this equation. Again, standard computer packages are
available and are inexpensive to use. A typical package will

comprise around six curve types, and the computer output will
provide the following:
(i) the equation which best fits the data;

(ii) the value of the constants;
(iii) the correlation coefficient;
(iv) the actual and estimated values of the dependent variable
and the percentage differences.
THE USE OF COMPUTERS
Most requirements in modelling and trend analysis and projection

including simple and multiple regression models can now be met by
computer forecasting packages which can often be adapted to meet
the individual needs of a company. Even those companies without
computers or terminals should seriously consider accessing this
facility as it is both inexpensive and efficient.
In an article describing some aspects of computer forecasting at
Atkins Planning, Menzies lists some advantages of computerised
methods: 37
(i) they are easy to understand and simple to use;

(ii) sophisticated statistical techniques can be applied with the
researcher needing only a general understanding of statisti-
cal theory.
(iii) the large amounts of data which can be processed means
that alternative projections can be tested in a very short
period oftime;
(iv) processing costs are low.
Computers should also be considered where detailed models

have been constructed. Forecasts developed from such models will
be based on a wide range of inputs about which many assumptions
will have been made and which may be very sensitive to a small
change in anyone input. These forecasts can be more realistically
assessed by management if the implications of a change in any of the
inputs can be quickly and clearly illustrated, and such speed and
clarity can best be achieved by electronic data processing.
FORECASTING 119
TECHNOLOGICAL FORECASTING
It has been said that 'technology is possibly the most important

component of culture and determines the relationship of a com-
munity with its natural environment' .38 The growing appreciation of
the role of technology in society has led to a great deal of emphasis
on the possibility of forecasting the evolution of technology. The
future of particular technologies was, of course, an implicit consid-
eration in industrial decision-making before the phrase 'technologi-
cal forecasting' was coined. However, its development as a disci-
pline has undoubtedly served to emphasise its importance and
widen its practice in industry.
By its nature, technological forecasting tends to be associated
with long-term qualitative predictions, thus the methods used tend
to be those described above as qualitative techniques. However,
there is also some scope for quantitative techniques. 39
The name still most associated with technological forecasting is
that of Erich J antsch, and the best introduction to technological
forecasting is his report to the Organisation for Economic Co-
operation and Development, despite the fact that it was written
more than ten years ago. 40
SUMMARY
Forecasting developed as a formalised discipline relatively recently

and its first widespread use was in the fields of demography and
economics.
Consumer market forecasting has enjoyed a significant degree of
success, but industrial market forecasting has been less fortunate.
Demand for industrial goods is not only affected by such variables
as disposable income and consumer taste, but also by the principle
of the accelerator, and by the forward planning of other companies
further along the chain of derived demand. Despite these added
difficulties, formalised industrial forecasting is still a necessary
planning tool which can contribute substantially to efficient re-
source utilisation.
The forecasting needs of most industrial companies can be met by
forecasts covering four time frames: the immediate future; the year
ahead; the medium term (one to five years); and the long term. The
need for comprehensive planning and control procedures in mod-

ern industry has created the need for a complex forecasting system.
The starting point is the market research function whose respon-
sibilities include the production of forecasts of orders in terms of
units and value, analysed by industrial and geographical markets.
This forms the basis for manpower, purchasing, production and
financial planning.
A wide variety of forecasting techniques are available to the
practitioner, and these can be divided into qualitative and quantita-
tive techniques. The former tend to be associated with the longer
term and with the broad identification of future needs. Researching
expert opinion is the most widely used technique, but there is
evidence of increasing use of the Delphi, Scenario and Morphologi-
cal methods.
Quantitative techniques can be further divided into causal
methods and time series methods, and tend to be used as a means of
quantifying future demand.
Causal techniques are based on the demonstration of relation-
ships between sets of known inputs and outputs in a given system
and include Regression Models, Econometric Models, and
Input-Output Models.
Time series simply refer to sets of historical recordings of the
quantity or value of a variable taken at regular intervals. Among
the main time series methods are Moving Average, Exponential
Smoothing and Curve Fitting.
Many requirements in both causal techniques and time series
analysis and projection can now be met by standard computer
forecasting packages and this is an area where the computer can
contribute substantially to increased efficiency and cost reduction.
The speed of processing can also enable management to compare
different methods of projection and quickly to see the implications
of any changes in the assumptions which have been built into a
forecasting model.
The possibility of forecasting the evolution of technology is now
gaining ground in a technologically conscious society. Its further
development has the potential significantly to improve business
decision-making, particularly in terms of long-range planning.
Chapter 8
Channel Management
Discussions of distribution channels are most often heard in con-

nection with consumer goods, yet it would be a serious omission to
overlook the fact that industrial products must equally find their
way to the eventual user. This chapter is therefore concerned with
the peculiar problems of industrial distribution. The main channels
are described and an assessment is made of the advantages and
disadvantages of each. The chapter also considers, inter alia, how to
choose a channel, physical distribution, and overall distribution
effectiveness.
MAIN DISTRIBUTION CHANNELS
These will be discussed under three main headings, namely direct

selling, agents and distributors.!
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
repair workshop facilities. Lastly, the branch office provides ad-

ministrative support to local sales and service personnel, in particu-
lar by passing on orders to the home office for their delivery.
In some instances the firm will do without a branch organisation
and sell directly to final users.
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).
Organising the Channel Structure

Shapiro 3 states that the problem of organising distribution channels
has three main steps:
1 determining the tasks to be performed;

2 designing a structure to accomplish the tasks; and
3 implementing the structure.
The tasks to be performed depend on the marketing needs and

nature of the product (see Chapter 2), customer buying practices
and needs, and the company's goals and competitive situation.
The product itself determines many of the demands to be put on
the channel. The nature of complex capital equipment urges direct
selling, but where distributors have developed the necessary techni-
cal and service capabi!ity, some use of indirect channels becomes
possible. Service can be so important in some markets that it is the

prime factor determining a useful distribution system: machinery
critical to the customer's manufacturing process must be repaired
quickly, making local service obligatory. With regard to the seller's
position, smaller companies, for example, may not be able to afford
their own distribution channels or sales force, and may use small
independent distributors.
Generally the ability of the company to implement a particular
structure depends on the availablity and needs of channel members.
For example, in the office machinery field the granting of exclusive
selling rights by sellers to agents has had the effect of restricting
available outlets to new entrants.4 In addition, Shapiro cites the case
of a small manufacturer of photo-identity cards and badges facing a
large and diverse market. In this instance the low initial sales and
complex selling process meant that no distribution channel with the
necessary breadth could be found.
Thus channel selection and organisation cannot be controlled as
simply as is sometimes suggested. It is not a matter solely of
reviewing the merits of direct selling, agents and distributors and
then making a choice, though obviously such a process is important.
As Weigand points out, 5 in many instances the channel is dictated
by forces that are largely beyond the control of the top marketing
executive. For example, differences in customer volume require-
ments push the steel maker to selling directly to large customers,
and indirectly to small customers, via stockholders. A maker of
industrial parts may sell directly in densely populated cities, but
indirectly in the 'hinterland'. These are examples of what Weigand
calls multimarketing - most companies sell a variety of products
through several channels and to various customers, who differ in
type, volume of purchases, and other characteristics. It is not a
question simply of selling 'my product' to 'the market'.
A major reason why channels are difficult to plan is the possibility
of divergence between company resources and markets - the firm
may find it cannot produce all it can sell, or vice versa, and thus must
look for alternative distributive arrangements. These may not
always be the ideal sought.
ASPECTS OF CONTRACTUAL ARRANGEMENTS

Where the manufacturer seeks to market through independent
middlemen, it is usual for him to seek some kind of continuing
contractual arrangement with them. From the point of view of the
agent, such arrangements are of critical importance, and agents are
urged to obtain from each of their principals a written agreement on
the terms and conditions of the agency.6 That the drawing up of a
mutually satisfactory agreement is not a simple affair is borne out by
Stephenson, who suggests thirteen areas where accord must be
found. These include products, outlets, commission and expenses,
authority of the agent, advertising and sales support, stock carrying
and after sales servicing. 7
Because contractual arrangements are a matter of debate be-
tween the distributor and the manufacturer, different forms of
agreement are to be found in operation. For example, the dis-
tributor's agency will, in some circumstances, prevent him from
accepting an agency for competing products, but in other cases he
may be free to deal in competing products without holding agencies
for them. What factors determine the ability of manufacturers to
restrain sole agents from dealing in competitive products?
Clearly, various factors will influence the eventual shape of a
contact between producer and agent, but perhaps the most impor-
tant is the strength of the producer's desire to secure the middle-
man's services relatively to the latter's need of the manufacturer's
franchise. Thus a relatively small manufacturing firm marketing a
little-known product is likely to find it difficult to impose exacting
terms on a long-established, reputable intermediary, whereas a
nationally known company may find it easy to insist that the agent
accept restricted selling rights.
It should be stressed that the successful employment of middle-
men of whatever type will never be solely a matter of written
contracts. Equally important will be such factors as the building up
of productive relationships, the quality of support services given by
the principal, and the agent's enthusiasm.
ADVANfAGES AND DISADVANfAGES OF THE USE

OF MIDDLEMEN
Advantages ofAgents
According to Stephenson, use of an agent's services confers a
number of benefits on the manufacturer who employs him. These
are:
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.
2 Established Connections. Most agents have established connec-

tions in their own particular trades or industries in the areas in
which they operate. Use of the agent thus gives a quick and
inexpensive access to desirable markets.
3 Multiplicity of Products Handled. Stephenson argues that where

the agent handles the products of two or more principals, he
increases the chance of selling anyone of them. The full-time
company salesman has to call on potential purchasers with only
one range of products. If he fails to sell the product, he may find
subsequent sales calls more difficult to make. The agent, on the
other hand, having been rejected by the buyer on one product,
can offer another during the same interview, or on a subsequent
visit.
4 Seasonal Products. It is advantageous to use an agent where

seasonal demand leaves the principal with an under-utilised
sales force.
5 Small and/or Unknown Principals. While the benefits of using

agents can be enjoyed by manufacturers of any size, there are
special benefits to be enjoyed by the smaller, less well-known
firms, particularly those launching a new product. The small
firm finds itself in a vicious circle - lack of financial resources
leads to inability to afford enough salesmen of the right calibre,
which in turn leads to inability to build up trading connections.
The agent can help solve such problems, and give additional
assistance; for example by advising on the credit status of
potential customers.
6 Production-minded Principals. The agent is particularly valuable

to companies or individual inventors whose interests lie more in
such areas as design engineering and production.
7 Business Depression. Use of an agent can be attractive to the
manufacturer suffering a fall-off in sales and anxious to reduce
selling costs. This, however, may not be the happiest circum-
stances for the agent to conclude a contract if, by the same
token, the principal reverts to full time salesmen when times are
better. Much depends on the agent's ability to secure the right
contract.
Disadvantages of Agents
The use of agents is not an unmixed blessing as far as manufacturers
are concerned. The following drawbacks can be noted:
1 Weaker Control. The manufacturer does not have the same

degree of control over an agent as he would over his own sales
force. This is most clearly demonstrated by the fact that an agent
may work for three or four different manufacturers. The princi-
pal thus does not enjoy exclusive access to the agent's services.
2 Variations in Sales Methods. While the agent will normally

welcome guidance on sales methods and territory coverage from
the principal, he will frequently make his own decisions as to
how, where and when to sell. The manufacturer may thus be
forced to accept variations from the sales methods he himself
prefers.
3 Discipline. The manufacturer cannot discipline his agents in the

same way as he can company salesmen. This is not the same
thing as saying that agents are undisciplined - indeed their
standards of discipline will be high, motivated as they are by the
independent operator's need to achieve results. But the manu-
facturer does face an additional motivational problem arising
from the fact that the agent is more a business associate than an
employee.
4 Lack of Flexibility. The agent prides himself on his marketing

and sales ability, and on his many contacts. However, the
successful conclusion of a sale will often demand price bargain-
ing. Even company salesmen can find themselves at a disad-
vantage here if given no guidance on relevant price matters by
their head office. The agent can be in a particularly disadvan-
tageous position where competitive bidding is involved, and the
intervention of the manufacturer/principal may be the only
solution. Moreover, the agent, like the distributor, is not likely
to welcome price reductions which reduce his financial return.
In short, the agent will often lack knowledge of basic cost and
output information and so be hampered in dealing with price
matters.
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:
1 The distributor provides an additional sales force.

2 Additional advertising is provided if the distributor has a
catalogue and the manufacturer's products are presented in it.
3 The cost of dealing with small orders is eliminated.
4 The distributor enables business to be done at the grass roots
level, which is particularly important where the manufacturer
seeks widespread distribution of his product, perhaps in remote
geographical areas.
5 The local distributor is well placed to service end users through
immediate availability of the end product, though such a service
obviously depends on the distributor's stocking and physical
distribution capability.
6 The distributor can reach markets and customers not concen-
trated on by the producer's salaried sales force, e.g. small
contractors, infrequent users, etc.
7 Advertising and promotion are available through distributor
mailing lists.
8 A distributor network provides an opportunity for the producer
to promote his name and image on a large scale.
9 The distributor sells a type or size of order to customers which
may not be economically or effectively handled even by agents.
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.
FACTORS IN CHANNEL CHOICE

It follows from the above analysis that a key input to the manufac-
turer's thinking about channel choice will be a knowledge of the
different types of agents and distributors in existence, and an ability
to differentiate between them.
However, perhaps more fundamental guidance is provided by
knowledge of the broad classification of the product in question; for
example, whether it is classed as a major installation, component
part, and so on, as discussed in Chapter 2. This analysis is worth
developing because of the light it throws on the factors influencing
choice of channel by a manufacturer.
Industrial products in general, and indeed products found in
specific industries, vary in terms of, for example, unit value, fre-
quency of purchase, degree of standardisation. It is such factors, and
combinations of them, that are crucial in influencing the type of
channel selected by a manufacturer.
Two examples, taken from the business machinery field, will

illustrate this point. At one extreme an instance is provided by the
electronic computer used for commercial data processing purposes
- the 'business' computer. This is of relatively high unit value, is
purchased infrequently by individual customers, and normally de-
mands detailed investigation of clerical procedures, information
flows and possible areas of application before purchase is com-
pleted. The close association between user and manufacturer which
such conditions demand has the result that computers are typically
sold directly by manufacturers to customers without the interven-
tion of third parties such as office equipment agents or distributors.
(The same applies to non-office products sharing the same charac-
teristics. )
A contrasting example is the portable typewriter. This type of
product enjoys a high degree of consumer acceptance and is purch-
ased relatively frequently. In addition, it is highly standardised, of
relatively low unit value, and requires little service either before or
after purchase. In consequence it is difficult to find instances of
manufacturers marketing these products directly to final users.
Instead, the machines are frequently sold indirectly, not only
through the specialist channel of office equipment retailers, but also
to an extent through department stores, stationery shops, and even
mail order houses. (The reader will not fail to note the similarity
between the characteristics of this product and those of a wide
variety of standard industrial products, e.g. wheel-barrows for the
building trade, bench planes, pneumatic saws, and micrometers.)
A Comparison with the Consumer Goods Field

A comparison with consumer goods helps to throw light on the
factors influencing the nature of channels through which goods
move. W. G. McClelland has argued:
'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
Thus with the spread of branding, national advertising, pre-

packing and refrigeration, an increasingly wide range of consumer
goods can be sold effectively by supermarkets. On the other hand
some commodities, for example furniture, are still likely to require a
degree of service which cannot be provided by the supermarket, and
are therefore likely to remain the province of outlets such as
department stores which are prepared to provide the service
needed.
The channels of distribution through which industrial goods
move are influenced similarly. Thus hand tools can be sold econo-
mically through engineering distributors or even hardware shops
where a numerically controlled machine tool installation could not.
Dynamic Aspects of Industrial Channels

No matter how the manufacturer approaches the problem of chan-
nel choice, he will do well to remember that the situation is dynamic.
Today's optimum choice may not be tomorrow's. An important
case in point is a possible diminution of the importance of direct
channels in some instances.
For various reasons the channels for industrial goods less fre-
quently include a middleman than do those for consumer goods.
This is because of the need to tailor products to suit buyers'
requirements, hence extensive seller/buyer collaboration before
the sale, the need for after-sales maintenance, and the need for
applications assistance either before or after the sale. Manufac-
turers are thus led to take responsibility for both the essential
channel functions of exchange and physical distribution.
However, Guirdham suggests that in some fields there is a
lessening pressure to use direct channels. 9 As she points out,
manufacturers seeking production economies are aiming for
greater standardisation of their product lines. A high proportion of
products in the electronics field, for example, including
analOg/digital, digital/analog converters, chemical process control-
lers and mUltiplexors are now produced on a production-line basis.
At the same time there is emerging a growing body of inter-
mediaries able and willing to take over the functions of maintenance
and applications assistance, i.e. selling not just hardware but total
applications.
As Guirdham emphasises, where such conditions exist, the ad-
vantages of using intermedi~ries begin to tell. In industrial markets,
the 80/20 rule is common - i.e. 80 per cent of customers generate
only 20 per cent of total sales revenue. The industrial marketer

willing to use a dual-channel system can concentrate his salaried
sales force on the key customers generating most of his revenue,
leaving intermediaries to deal with the rest. Of course the effective-
ness of using agents and distributors is a complex matter, and the
manufacturer would have to face up to the problems of dealing
indirectly even for a portion of his output.
SELLING TO MIDDLEMEN
Once a decision has been taken to utilise distributive channels of

one sort or another, the manufacturer needs to carry his sales and
promotional effort to them. Various aspects of sales promotion in
the industrial market are dealt with in the last chapter. However,
these are key activities in selling to distributors, and they therefore
demand some treatment here, particularly the role of direct selling.
An important factor influencing the type and level of selling
activity indulged in by the producer are the sorts of middlemen
actually chosen. The grant of exclusive selling rights to a small
number of agents will lead to a relatively close relationship with the
principal. In contrast, a policy of selling to all distributors (e.g.
minor products in the building industry) with no exclusivity
arrangements, will be less binding on both parties.
In some instances the manufacturer's direct selling to an exclusive
agent may involve a variety of activities. These might include
assistance with selection of the agent's sales force, advice on sales
methods, and general help in the field of sales management. By
reducing the agent's burden of planning his selling effort in this way,
the principal is better placed to secure acceptance of selling restric-
tions associated with the award of exclusive rights.
More generally, the manufacturer's selling efforts can be ex-
pected to encompass at least the following:
1 The salesman will seek to ensure that distributors do stock the

product and that the stocks are adequately maintained.
2 The salesman will provide 'on the spot' support and assistance to
the distributor and his staff, in particular to ensure that every-
thing is done to 'move the product out'. This will involve, among
other things, checking the local impact of national product
advertising, checking on the attitude of stores people to the
product's packing, and judging the effectiveness of in-store sales
literature.
3 The manufacturers may wish to operate courses for the benefit
of distributor personnel, covering both product and salesman-
ship aspects.
4 In addition to servicing his own accounts, the manufacturer's
salesman may on occasion sell to the distributor's customers,
perhaps to help the distributor to achieve a more concentrated
sales effort.
5 Closely related to the previous point is the possibility of joint
selling activies involving both the manufacturer's and dis-
tributor's sales forces.
6 The manufacturer may indulge in advertising, public relations,
and promotions of various kinds designed to keep the name of
the product before not only customers, but also the distributor's
staff. On occasion manufacturer and distributor will engage on
joint promotional work.
One way to summarise these points would be to say that the

manufacturer needs to look upon his intermediaries as a group or
segment of customers. As such they require to be the focal point of
his marketing planning, and he must direct his sales efforts to them
with as much vigour as to any other customer group. In other words
sales to them and by them will be encouraged or discouraged by the
nature and scale of his selling efforts. This will include building up
good relations with the intermediaries,lo and seeking in-depth
understanding of their motivations. l l
A NOTE ON PHYSICAL DISTRIBUTION
If the manufacturer's choice of channels is to be effective, this must

be supported by planned co-ordination of the movement of pro-
ducts through the various intermediaries involved.12 This will de-
mand such varied activites as production scheduling, storage, inven-
tory control, materials handling, order processing, transportation,
and the selection of warehouse sites. Generally this might be termed
the area of business 10gistics,13 i.e. the whole process of moving
materials into the start of the production pipeline right through to
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:
How should one reconcile the economies of long production runs

with the resulting diseconomies of high inventory levels?
How should one reconcile the high sales given by frequent de-
liveries with the resulting high delivery costs?
How far should one go to maintain customer goodwill - to the
extent of providing 'round the clock' availability of supplies?
An underlying theme of many of the problems posed in physical

distribution is that sales are lost because of poor performance (e.g.
stocks not available, long delivery time), while providing a high
level of distribution service is costly. The producer is thus engaged
in a perpetual process of trading off the cost benefits of various
elements in his mix against one another.
It would be ideal if it were possible to measure the mix variables.
Two writers say that it is. Thus Hutchinson and Stolle quote an
example of a large machine manufacturing company whose wareh-
ousing, transportation and inventory costs, together with different
levels of service from field warehouses, were measured for the spare
parts operation. 14 An indispensable input to such calculations is an
attempt to quantify customers' reaction to service. IS In this connec-
tion those writers quote interviews with customers receiving service
from an electric materials supplier. This field work showed, for
example, the percentage of customers who waited the required
number of days for their regular warehouse to be replenished by the
factory, as against the percentage who did not wait but obtained
their supplies from a competitor.
Their experience leads Hutchinson and Stolle to outline six steps
in the management of logistic supply, steps which, incidentally,
equally apply to other areas of service, notably maintenance and
repair, and technical services. The steps are:
1 Define the elements of service.

2 Determine the customer's viewpoint.
3 Design a competitive service package - using the trade-off
principle.
4 Develop a programme to sell the service.
5 Market test the programme.
6 Establish performance controls.
There is nothing particularly novel or revolutionary about such

steps. However, these writers are perhaps more down to earth when
they emphasise that positive selling of elements of a distribution
programme may be vital to offset a necessary reduction in service
perhaps forced for cost reasons. This stresses an important market-
ing, or more specifically a selling principle, namely that firms may
have to overcome deficiencies in aspects of their product/services
offering by vigorously selling the 'plus' features of the package.
Thus the eventual physical distribution methods used will be a
compromise between cost, profitability, and what the customer can
be persuaded to accept.
DISTRIBUTION EFFECTIVENESS ANALYSIS
Whatever may be said about methods of distribution, the pros and

cons of different channels, and the problems of physical distribu-
tion, an over-riding fact remains, namely that the whole field of
industrial distribution still awaits the systematic research and
analysis that has been accorded to the consumer goods field.
The point is dealt with at length by Wilson, who stresses that the
elements of distribution effectiveness analysis 'have yet to be set out
as a formula' .16 This neglect in part reflects the tendency for many
categories of industrial goods, for reasons discussed in this chapter,
to find their way to end users by direct means. By neglecting the
channel element in his marketing mix the individual producer, to
the extent that he does so, can only weaken the impact of his total
mix. Accordingly Wilson urges the importance of adequate market-
ing research to enable managements to develop the most effective
distributive arrangements. He suggests six areas in which research
can provide vital data. These are:
1 Analysis of Sales Data

This should be conducted to determine the homogeneity of the
markets served by the distribution channels. These are:
(a) geographical-purchasing patterns;

(b) products-purchasing patterns;
(c) quantities-purchasing patterns;
(d) timing;
(e) distribution of sales among customers;
(f) relationship between high stock-term and low-stock-
term items and their distributors.
Here the objective is to determine how business in low-volume

sales items with relatively high distributive costs should be
transacted, as opposed to high-volume sales items. Wilson
thinks this type of study is rarely, if ever, carried out by manufac-
turers, but would give valuable cost analysis data if it were.
2 Analysis of Sales Characteristics of the Products Related to Sales
Fluctuations
Here it is important to establish sales variability rather than sales
average, the former being vital to distribution decisions. Sales
variations about the average can be extremely wide and short
term in character but in other cases steady and predictable.
However, as Wilson emphasises, it is the characteristics of the
variations which determine how a distributive system will work,
and thus, how one should design it to operate most economi-
cally.
3 Analysis of Sales Variations in Terms of Time, Size, Location

and Volatility
A major intention of this is to determine replenishment lead
time, i.e. the period between placing an order and receipt of the
goods, to assess how large the pipeline stock of an item must be
to maintain a desired delivery period.
4 Analysis of Stock Functions in Relation to Companies' Needs

Stocks are not merely reserves to meet customer demands. They
fulfil other functions including reservoirs from periodic ship-
ment, 'safety' stock, and take-up pool to even production fluctu-
ations. Only by detailed knowledge of these functions by re-
search can optimum levels be determined.
5 Analysis of Costs ofPhysical Distribution

The market researcher can make a particular contribution here,
especially where conventional accounting procedures do not
yield direct unit costs for each type of product in relation to, for
example, stockholding and handling. Wilson suggests that this
type of analysis can create impetus for improved and refined
cost studies which in turn help the measurement of distribution
efficiency .
6 Analysis ofAlternative Distribution Channels and Methods

Just because channels have been chosen and are being used by
the producer is no justification for not reviewing new channels
and methods. Changes in manufacturing techniques and pro-

ducts also need to be examined in relation to the effectiveness of
the distributive channels to cope with these changes.
SUMMARY
The manufacturer may use three major means of bringing his

product to the market: direct methods, using agents, or using
distributors.
The direct channel is that in which the producer controls the
distribution of his products from factory to user, perhaps involving
local or branch operations. The agent normally receives certain
selling rights (e.g. exclusivity) in return for which he agrees to
certain restrictions, notably on selling similar competitive products.
The distributor on the other hand has no exclusive selling rights, and
while he may give wide coverage his loyalty to anyone manufac-
turer is not guaranteed.
Organising the channel structure is more complex for the manu-
facturer than simply reviewing the pros and cons of each. Uncon-
trollable factors may force a particular choice. Again, the desired
outlet may not be available in type or quality. Where intermediaries
are used, contractual arrangements between the parties may be
called for, their nature varying from situation to situation.
Agents confer various advantages (for example, good connec-
tions, selling cost economies and where the principal is unknown)
but suffer disadvantages (problem of control, discipline, and lack of
flexibility). Equally distributors have advantages and disadvan-
tages. Knowledge of these is important to the manufacturer in
selecting channels. Equally important is knowledge of the consumer
characteristics and service content of products; though the situation
is dynamic and today's channel may not be apt tomorrow.
Intermediaries, once selected, need to be nurtured: hence the
manufacturer's need to bring his sales and promotional effort to
bear.
An important aspect of channel organisation is physical distribu-
tion management. The key problem is to find the optimum mix of
the elements involved in the logistics of physical distribution. The
degree of success attained can be measured through distribution
effectiveness analysis.
Chapter 9
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.
THE SIMPLE PRICING MODELS
In his General Theory! Keynes reminds us that 'so long as econom-

ists are concerned with what is called the Theory of Value, they have
been accustomed to teach that prices are governed by the conditions
of supply and demand'. Goods and services have prices for two
reasons. First, because they are useful; and second, because they are
not in infinite supply. Their price, therefore, will be determined by
the prevailing conditions of usefulness and scarcity which are
relevant to them.
So far we have the basis of a simple price model derived from the
theory that the utility of a product or a service is of central
importance in considering its value, and that the price which the
consumer is prepared to pay for a particular product or service is an
indication of the utility of that product or service to the consumer.
How then does the company determine the price level for its
product? Immediately we come across the first hurdle in pricing -
what is the demand schedule for the product? The simplistic model
must assume that this is known. The shape of the demand schedule
will approximate to that shown in Figure 9.1:
Price
(P)
Demand (D)
Figure 9.1 Demand curve
This chart demonstrates the general rule that demand increases as

price falls, and vice versa, and that in the above example their
relationship is described by the function D = (alp). It was from this
type of demand schedule that the 19th-century economist Marshall
explained the law of diminishing utility;2 that the total utility which
the consumer derives from the possession of a product will increase
as his stock of these products increases, but will do so at a diminish-
ing rate. He also explained what is known as the elasticity of
demand. With the information contained in the demand schedule it
is possible to determine the rate of change in amount demanded for
a series of changes in the price level.
In drawing up a theoretical demand schedule it is assumed,
among other things, that price levels can be set without changes in
supply, which would lead to an overall shift in the position of the
demand curve. In general, it can be said that the sellers of a product
will tend to increase supply when price rises. Changes in a com-
pany's price levels thus tend to generate reaction from its com-
petitors.
In describing a simple pricing model of this nature it must be
further assumed that the seller will set his price with a view to
maximising his profits. Therefore, he must also know his cost
schedule, that is the total cost of producing a given level of goods at
PRICING 141
a point in time. With the knowledge of quantity demanded at
particular prices, he can then determine at which price his revenue
will be maximised. This price will reflect the level of output where
marginal cost is equal to marginal revenue. In this context the term
'marginal' means 'one extra': marginal cost is thus the cost of
producing one extra unit of output. At the point where the cost of
producing an additional unit of output is equal to the revenue
derived from it, profit will be maximised.
THE REAL WORLD

In the real world, of course, companies do not set price by equating
marginal cost and marginal revenue, nor will they be able to
produce an accurate demand schedule. The reason is that the
number of factors influencing demand and supply and their com-
plexity are such that the information required to produce a marginal
analysis or a demand schedule is just not available. In that case one
might ask what is the use of micro-economic analysis in the field of
pricing. Briefly, it serves to explain quantitatively one of the most
basic corporate objectives, profit maximisation. In doing so it can
serve to help business towards this objective by providing analytical
tools which can be used in empirical research. Although the latter is
by definition a priori and thus not necessarily applicable to future
pricing strategy, it can at least provide some basis for decision
making.
In practice, the demand and supply conditions which will affect
profit maximisation are constantly changing. While price, there-
fore, should change in the light of these dynamic environmental
conditions, it is rarely possible to do so. The exception is in basic
commodity markets where there is an excellent information flow on
demand and supply conditions, and no product differentiation. As
Wright points out in an article on the mineral industry, 'in most
circumstances, metallic and non-metallic prices are tied into a
world-wide pricing structure, based on a global supply-demand
balance, and consequently largely beyond the control of any indi-
vidual producer'. 3
Industry, therefore, tends to make pricing decisions at certain
points in time where price is seen to be a crucial factor in the
attainment of strategic corporate obj ectives. Price strategy will stem
from these overall objectives and in practice the resultant pricing
objectives may not necessarily be consistent with short- or even

long-term profit maximisation.
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.
2 Market Share Improvement. On the basis that demand will

increase as price is lowered a company may decide that such a
strategy will enhance its market share without attracting new
competitors to the particular market sector concerned. This
could be of particular importance in industries where costs are
particularly sensitive to small changes in turnover.
3 Satisfactory Return on Capital Employed. This objective is typi-

cal of many 'middle of the road' companies and carries with it
the implication that a balance is sought between risk and securi-
ty at the expense of maximisation of profit. The return which is
defined as satisfactory will vary over time and, in periods of high
inflation, will be difficult to measure accurately. The problem of
setting price levels to achieve a satisfactory return will become
more difficult on the industrial side as the time lag between
order receipt and final payment increases; and with the high
interest rates which have been experienced in the nineteen
seventies, a satisfactory return on capital has become increas-
ingly difficult to achieve in practice, if we define the minimum
satisfactory level as equivalent to the external rate of return.
4 Elasticity Related Objectives. Where a market can be identified

as having a price inelastic sector, it may be the objective of the
PRICING 143
supplier to exploit the sector by setting as high a price as
possible. In this case the implication is that penetration is being
sacrificed initially for short-term profits and this may be part of a
longer-term penetration strategy based on an initially high level
of revenue, with overall price elasticity. However, the objective
may be to set prices at a level where maximum penetration is
achieved. The danger inherent in both the foregoing objectives
is competitive reaction to pricing extremes.
It is unlikely that a company will pursue a single pricing
objective and, in practice, it will be more commonly found that
there is a mix of related objectives. Some, of course, are
incompatible, but all will be concerned with the long-term
survival and growth of the industrial organisation.
HOW INDUSTRY PRICES
Pricing is one part of the marketing mix where little is to be gained

by a comparative analysis of the consumer and the industrial
situation. The objectives of companies are likely to be similar,
whether marketing to the final consumer or to other companies on
the chain of derived demand. Although it might be argued that the
industrial buyer is more rational than his consumer counterpart, the
crucial difference, which must be recognised when prices are being
set, relates to the nature of the product and can be illustrated by
examining the extremes of the price setting spectrum. At the one
end there is the established pricing structure atthe wholesale level,
typical of many consumer goods, but also increasingly typical.of a
wide range of industrial goods. At the other end, and typical of
many industrial goods but also some consumer goods there is
'one-off' pricing. This relates to products which contain such a wide
variety of unique features that a separate price (generally referred
to as a quotation in industrial marketing terminology) must be
calculated for each enquiry from a potential customer. This differ-
ence has been described adequately in a short book by Brown and
Jaques,5 who refer to individual product pricing as 'delegated
pricing', in recognition of the fact that the large number of everyday
pricing decisions which need to be made require that responsibility
for these decisions is delegated. The authors' objectives are to
establish delegated pricing policies which meet minimum condi-
tions of consistency and flexibility and to describe an associated

expense and profitability control system. In doing so, they assert
that their analysis shares common ground with consumer pricing in
that it orientates pricing away from costing, which is indeed one of
the problems of industrial pricing.
Few industrial companies set their prices wholly on the basis of
their costs, 6 but there is widespread over-emphasis on cost plus
pricing, the dominant consideration being financial: to ensure cost
recovery generally in a situation where market knowledge is less
than adequate. The procedure is generally in five stages:
1 Selection of the particular product which is closest to meeting

the specified requirement of the customer.
2 Analysis and pricing of the bought-in component.
3 Estimation of the labour cost.
4 Allocation of overhead expense.
S Mark-up to allow for predetermined profit level.
This approach is essentially conservative, but despite this it has

real dangers in that it can often militate against an internally
consistent price structure, and may take no account of the effect of
volume on cost, as regards component purchasing, production and
overhead absorption. The conservative view is that this approach is
reasonable because there is little danger of loss of a specific job and
that any over-absorption just means increased profit margins. It is
in this situation that market research has a vital role to play,
providing at least basic data on market size and structure and the
price levels of competing companies, and at best a soundly based
demand schedule. In a situation of cost-based pricing it is likely that
market share will steadily be eroded through high pricing and the
spiral of increased costs, leading to higher prices and further
erosion, will be underway. This situation has been responsible for
many of the longer term structural problems which still obtain in the
more traditional industrial sectors. It may not be recognised in the
short term due to lack of market information, or it may be disguised
by selling ability. The latter is always possible where a complex of
product features exist, related to technical performance and effi-
ciency, and a precise techno-economic price comparison is not
PRICING 145
possible. Indeed, it must be recognised that in such circumstances a
relatively low price is no guarantee of an increasing or even static
market share. 7
The market share erosion spiral can be countered by greater
attention to four areas:
1 The effect of volume on purchasing and production;

2 flexible overhead allocation;
3 competitors' price levels;
4 the dynamics of demand.
The Effect of Volume. This area is becoming less of a problem

mainly due to the increasing sophistication of internal information
systems relating to such areas as materials and equipment procure-
ment, work allocation and machine loading. These systems enable
optimum solutions to be approached at all levels and at all permuta-
tions of forward factory load. The cost advantages which accrue
enable a more flexible pricing policy to be pursued, and provide the
possibility of further cost reduction through increased turnover if
market conditions are sympathetic and spare capacity exists.
Flexible Overhead Allocation. There has been less progress in this

area, even in companies where the product mix ranges from small
standard units to complex plant items requiring a sophisticated and
costly design, engineering and procurement input. In the last case, if
overhead allocation is executed on the basis of direct labour input
the standard units may be required to carry an overhead cost out of
all proportion to the real amount of overhead cost involved in its
production. The opposite may apply to the complex product. The
implications are likely to be declining market share for standard
units through prices above those of competition and a less than
adequate margin on complex units. It is unlikely in such a situation
that competitors' prices will tend towards the higher prices of the
standard units but it is likely that competitors' prices will tend
towards the lower prices of complex units.
Competitors' Price Levels. Where the cost structure in a company

produces a higher cost per unit of output than that of its com-
petitors, the company can either maintain its margins and risk
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.
The Dynamics of Demand. In our earlier reference to the demand

schedule we noted the theoretical effect of changes in price on
quantities demanded and went on to note that a large number of
complex factors affect demand in practice.
At the aggregate level there will be a tendency to adjust price
levels upwards in periods of boom and downwards in times of
slump. In the former case such action may be motivated by the
realisation of an opportunity to increase margins without a signific-
ant effect on demand or simply by the need to restrict an increasing
order backlog. The industrial demand cycle need not necessarily
coincide with the overall economic cycle and, in fact, will tend to lag
behind the latter. This time lag may affect the confidence of the
industrial company in its approach to pricing and might discourage
price changes. The extent of any price change will also be influenced
by the assessment of its effect on customer loyalty. This will tend to
discourage large price increases in cyclical upturns in anticipation of
adverse customer reaction in downturns.
At the individual company level price setting will also be influ-
enced by the customer's purchasing function. In general, it can be
said that the larger customer with sophisticated purchasing systems
will tend to extract lower price levels from their suppliers. This is not
to say that such companies set out deliberately to squeeze their
suppliers' margins to loss-making levels; it is not in their interests to
do so. It simply means that they seek recognition of their position as
a major customer through preferential pricing and are in a position
to carry out accurate techno-economic bid assessments to identify
what they might consider excessive price levels by means of a highly
trained and specialised purchasing staff.
Such a situation can be taken into account by the seller through
differential pricing, whereby the action of the larger concern can be
anticipated and the lack of resources in the smaller concern can be
exploited. Differential pricing is discussed briefly in a number of
textbooks,4, 8 but it is not a widespread practice in industrial market-
ing. The great danger implicit in such a practice is its potential effect
on customer loyalty.
PRICE MONITORING
We have already referred to the vital role of research in pricing. It is

essential that pricing policy is based on sound information, not only
on internal costs, but also external demand and competitors' prices.
One of the main sources of information on the latter is the field sales
force which may receive such information during negotiations with
a potential client. It may not necessarily be quantitative; perhaps
only an indication of differentials in qualitative terms; it is impor-
tant that in the first place the sales force are made aware of the
importance of price information; and in the second place it is
essential that the appropriate system exists which will allow the free
flow of competitor price data and will ensure that it is analysed and
reported on a regular basis.
Where the product is a complex item, comparative price analysis
will be difficult due to design differences. Even in such cases it is
generally possible to isolate the most important features in terms of
material specification and performance and it is certainly worth
while to invest manpower in such a function which could be the
responsibility of the market research department. The cost of an
industrial product may for instance depend, among other things, on
weight and type of material, power consumption and design. Where
a company is offering its product against a particular duty, perhaps a
boiler required to produce a specific quantity of steam at a certain
PRICING 149
pressure, a comparison of its price against its competitors will be
possible, but must be shown in relation to such factors as materials,
specification, design and power consumption. If such analyses are
undertaken it is possible to isolate poor design or unnecessarily
conservative material specification, and this can provide the basis
for price reduction through lower cost design. If price alone is
considered, the real problem may never be isolated.
Industrial companies do not tend to change real prices frequently
(adjustments for inflation are built into all offers which will be
delivered over a specified time period) mainly because the effort
involved in doing so would tie up resources unnecessarily. Price
changes tend to take place as a reaction to competition or severe
fluctuations in demand. The most successful companies will be
those who react quickly on the basis of the best information and this
is why a formalised price monitoring system is so important. It is
also important to monitor the reaction to any price change by both
competitors and customers, to react accordingly and to store such
information with a view to feeding it into the decision-making
model when further price changes are being considered.
THE USE OF PROBABILITY IN PRICING
It has been argued in Chapter 5 that decision-making is concerned

with the future. Thus any decisions that are made must estimate
future outcomes. Many companies are now experimenting with
estimates linked to probability. In certain cases it has led to the
building of probability distribution models and this is applicable to
pricing decisions. In an article describing experience at Ferranti,
Williams outlines an interesting pricing model built up from experi-
ence in bid situations. 9 This model shows successful price in a series
of bid situations against a cost datum base with frequency of success
plotted. From the cumulative histogram, a price elasticity curve was
derived.
A useful description of simple bidding models can be found in
Livesey's book on pricing. to The models shown assume all elements
of the marketing mix with the exception of pricing are held constant.
This is of course unrealistic, particularly in bid situation where
product differentiation may be significant. However, if combined
with a good knowledge of competition it is a useful analytical tool.
LEGISLATION AND PRICING
Freedom of action in pricing decisions is restricted in most countries

by legislation and the latter must be carefully considered in the
price-decision-making process. In the UK, prior to May 1979, all
manufacturing companies with sales over £lm. and all distributors
with sales over £0·28m. had to fix prices in accordance with a code
administered by a body known as the Price Commission, which was
responsible to the Department of Prices and Consumer Protection.
Briefly, the code allowed manufacturers to raise prices only as a
result of certain 'allowable' cost rises. A proportion of any rises in
labour cost did not qualify. Reference profit margin levels were laid
down (the means of the best two years in the period 1968-73), and
price increases could not result in a margin greater than this.
At first sight this appeared to be an oppressive system but,
according to the results of a survey by NIESR, 11 market forces often
prevailed. Some of the most interesting findings were:
1 Since the recession of 1975 it was a slump in consumer demand

that had kept prices down rather than the code.
2 Manufacturers and distributors felt that the Price Code should
not be allowed to take precedence over commercial considera-
tions.
3 Thirty per cent of manufacturers stated that the Price Code had
tended to make them devote more resources to exports.
4 Though the Price Code was felt to have become subordinate to
general market conditions its continued operation could lead to
serious problems in a situation of sustained economic growth.
5 Two-thirds of the sample of manufacturers indicated that the
code had affected their systems for reviewing and determining
price changes.
There is also a bureaucratic burden which is inevitable where a

government organisation comes between the decision-making
process and the implementation of business decisions. It has been
estimated that the recent reference of a 2·04 per cent rise in the
price of sugar and syrup cost Tate & Lyle about £1m. in lost revenue
due to a two-month delay in getting the increase through.12 This is
an industry with beet sugar quotas, guaranteed prices and market
sharing with the government-owned British Sugar Corporation,
PRICING 151
and where the price of raw cane sugar is controlled by the European
Commission.
At the time of writing, the Conservative Administration had
announced its intention in the Queen's Speech proposals of 15 May
1979 to discontinue the Price Commission and to strengthen com-
petition by increasing the powers of the Director General of Fair
Trading in the Monopolies and Mergers Commission. One of the
main purposes of this move is to deal with prices in conditions of
limited competition. Where a prima facie case of limited competi-
tion is found, it will be referred to the Monopolies and Mergers
Commission. In announcing this change, the Secretary of State for
Trade stated that a study of the workings of the Price Commission
had concluded that its impact on inflation had been negligible.
While the history of government interference in pricing in the UK
is relatively recent (the Restrictive Trade Practices Act of 1956), in
the USA it can be traced back to the Sherman Act of 1890, and is
now both complex and widespread. The Robinson-Patman Act
does not allow suppliers to operate a differential pricing policy in
the case of customers who are in competition with one another
unless any price difference makes 'due allowance for differences in
the cost of manufacture, sale or delivery, resulting from the differ-
ing methods or quantities in which commodities are to such pur-
chasers sold or delivered'.
Britain's entry into the EEC meant that UK companies now have
to take account of Community legislation on pricing. For instance,
collective price agreements are not allowed by the EEC Treaty and
companies operating within the Coal and Steel Community are
prohibited from operating local price reductions.
EXPORT PRICING
During 1976 sterling depreciated by over 16 per cent against the

dollar. The volatile behaviour of the exchange rate in 1976 is
illustrated by the 10 per cent depreciation which took place over
two months in the autumn of that year .13 In the same year inflation
was running at a level of over 19 per cent in terms of consumer
prices,14 and over 21 per cent in terms of the prices of goods and
services exported. 15
These movements led to a great deal of rethinking among indus-
trial market personnel on the question of export pricing strategy.

Two problems were apparent:
(i) Inflation allowances built into longer-term industrial con-

tracts rendered many tenders uncompetitive on the interna-
tional market.
(ii) Price rises in imported components and raw materials were
placing increasing pressure on exporters' costs.
During 1976 an increasing number of industrial exporters reacted

by extending the practice of pricing long-term contracts in strong
foreign currencies. These included many of the major UK industrial
exporters such as GEC, GKN and Lucas. 16 In this way companies
were able to submit long-term tenders without huge allowances for
projected UK inflation; also, export volume did not have to be
increased to maintain export earnings.
The recovery of sterling in 1977 eased the above problems only to
leave another in their place: that of declining export price competi-
tiveness in the face of a continuing decline in the UK's share of the
world export market. Exporters now began to express concern at
the strength of sterlingY It seemed that the UK's export market
share was on a downward trend whether sterling was rising or
falling.
During 1977 the Cambridge Economic Policy Group estimated
that a 30 per cent depreciation of sterling would be necessary
significantly to improve the UK's export market share. 18 The issue
was further complicated by an important NEDO study,19 which
concluded that, rather than increasing price competitiveness, UK
exporters need to increase non-price competitiveness. This conten-
tion is in some ways supported by the strength of German and
Japanese exports in the face of rising currencies, and emphasises the
complexity of the export pricing problem. It is increasingly neces-
sary that management recognises this complexity and tackles the
problem in three ways:
(i) By adopting a flexible approach to export pricing policy.

(ii) By ensuring that an adequate company information base
exists covering market price levels, competitors' products,
and inflation and currency trends.
PRICING 153
(ill) By preparing comprehensive export marketing plans to
ensure that adequate recognition is given to every compo-
nent in the marketing mix.
SUMMARY
The price of a product is simply the rate at which it can be exchanged

for another product or service. Products have prices because they
are useful, and because they are not in infinite supply.
Price theory holds a central part in economics. In turn, economics
has provided some useful analytical tools which can be used in
empirical research and can help to provide a sound basis for
decision-making.
Price strategy in industry is a reflection of overall corporate
strategy. The more important aims of pricing policy have been
identified as: rapid cost recovery; market share improvement;
satisfactory return on capital employed; and aims related to the
elasticity of price in specific market sectors. It is unlikely that any
industrial company will have a sole pricing objective and in practice
it will be found that there is more likely to exist a complex mix of
related objectives, concerned with the long-term survival and
growth of the company.
The objectives of industrial and consumer pricing are the same,
although the former tends to be based on costs, particularly in
'one-off' pricing. The conservatism of the industrial approach can
often militate against internal price consistency and may lead to
long-term decline of market share if factors other than cost are
ignored. The possibility of market share erosion can be avoided by
greater attention to the following: the effect of volume; flexible
overhead allocation; competitors' price levels; and the dynamics of
demand.
It is essential that pricing policy is based on sound information,
both internal and external. Price comparisons can be difficult where
product differentiation exists and it is worth while to invest in
comparative product research to produce data on such items as
materials of construction, specification and performance in addition
to price.
The use of probability models as an aid to pricing decisions is
becoming more widespread. Where product differentiation exists,

their predictive ability may be severely restricted, as they cannot be
expected to simulate the real situation. However, even in such cases
it is a useful discipline, as it can contribute to a fuller understanding
of the pricing problem and of the possible implications of proposed
actions.
Legislation is creating increasing constraints on the freedom of
pricing decisions. Examples are the imminent Competition Act
in the UK and the Price Code which it abolished, the US Robinson-
Patman Act and European Community legislation. In many cases it
is difficult to ascertain the extent of their influence on pricing
decisions, but it is sufficient to say that the implications of such
legislation must be carefully considered in any pricing decision.
The rapid rate of inflation and the volatility of certain currencies
in the mid-seventies caused reconsideration of export pricing
strategy by many industrial companies. It has become increasingly
clear that management must recognise the complexity of export
pricing decisions; adopt a flexible approach to export pricing policy;
ensure that adequate information exists on which to base export
pricing decisions; and give adequate recognition to other elements
in the marketing mix.
Chapter 10
Sales Promotion
To the extent that the industrial goods manufacturer indulges in

sales promotion of one sort or another, these activities in similar
fashion to the product, price and distributive channels, must 'fit'
into the total marketing mix so as to make the most effective
contribution possible to attaining the firm's marketing goals. At the
same time, the area of promotion, in that it calls for co-ordinating
different activities (e.g. sales representation and advertising)
presents its own 'mix' problem - that is, the elements of the pro-
motional programme must be balanced.
Another general consideration is that because the industrial
market is heterogeneous, a variety of promotional mixes emphasis-
ing one element or another will be found in current use. A final
point by way of introduction has to do with measurement of
effectiveness. Frequently sales promotional tools such as advertis-
ing and public relations are used to generate enquiries, create
market awareness of the company and product, or pave the way for
the salesman's call. Again, in highly rationally motivated markets,
buying decisions are influenced by price, quality, reliability and
service, and while the salesman can and does influence the final
outcome, it is often difficult to quantify his precise contribution. In
such circumstances, measurement of promotional effectiveness
presents special problems to the industrial producer, and it has
become fashionable to speak in terms of the 'communications
effectiveness' of promotion. This theme of communication is a
recurring one in this chapter.
While recognising the variety of promotional means available,
pride of place is given to personal selling and advertising. Before
turning to these, let us say something about the firm's overall tactics
for influencing its markets.
INFLUENCING THE BUYER
The industrial goods manufacturer can be looked on as engaging in

a two-way process of interaction with customers. Buying organisa-
tions have different needs which they strive to satisfy, and selling
firms have means of influencing the buyer - their influencing tactics.
It is useful to look at this interaction process firstly from the buyer's
viewpoint as a basis for discussing different possible seller tactics.
Hakansson et al. l suggest that industrial customers face three
broad types of uncertainty which predispose them to behave in
certain ways:
1 Need Uncertainty. Firms often face difficulty in deciding exactly

what machinery, materials, etc., they will buy. This uncertainty
increases or decreases depending on the situation, e.g. if an
unsuitable product could stop the whole production process.
2 Market Uncertainty. When many suppliers exist, all capable of

meeting the buyer's needs, and there is much dynamic change in
their offerings, the market uncertainty is greater because the
buyer may be tempted to forgo the predictable benefits of close
association with anyone in order to exploit changes.
3 Transactions Uncertainty. This has to do with the problems of

getting the product (physically, on time etc.) from the seller to
the buyer. The delivery of some products must be co-ordinated
in time with other events, e.g. production schedules, thus in-
creasing the desire for certain delivery. Also any differences in
language, culture and technology widen the 'distance' between
the two parties.
To an extent these uncertainties are a function of the given

situation, but they also depend on the interaction process itself. For
example, need uncertainty can be reduced if the seller supplies new
facts, or gives a fresh and helpful perspective of a buyer problem. It
can be increased if the seller stresses extra difficulties the buyer had
not thought of. An important task is thus to understand how
uncertainty increases or decreases during interaction in these three
areas.
SALES PROMOTION 157
Seller Tactics
By influencing the perceived uncertainty of the buyer in different
ways the finn can obtain different behavioural results. The uncer-
tainty can either be increased or decreased depending on the
content of the influencing tactics, as suggested above in the case of
need uncertainty. The seller might increase market uncertainty by
using sales promotion to emphasise differences and changes in the
market, thus inducing the buyer to compare prices, qualities, etc.,
more extensively. Emphasis on delivery capability can reduce per-
ceived transactions uncertainty.
Different combinations of tactics are suggested by different
market situations. Breaking into a new market and consolidating
one's position in an existing one are two cases in point worth
exemplifying.2
Soderberg and Haak, a prominent Swedish steel wholesaler,
entered the market for structural alloy steel with an aggressive and
somewhat strident voice in order to say that something new was
happening. They sought to intensify customers' market uncertainty
while reducing need uncertainty partly by emphasising the width of
their product line. Transactions uncertainty was reduced by pro-
moting their investment in materials handling equipment and
stocks. The company succeeded in breaking established buyer-
seller relations and in building profitable new ones.
In contrast a manufacturer of presses (ASEA) succeeded in
stabilising already existing relations by avoiding any influence on
need and market uncertainty, but trying to reduce transactions
uncertainty by emphasising reliability.
Clearly these finns' ability to bring home their messages
effectively depended crucially on promotional methods, notably
personal selling and advertising. It is to these that we now turn.
PERSONAL SELLING
In its broadest sense personal selling is interpersonal communica-

tion that influences the economic performance of an enterprise. 3
Companies have an obvious interest in understanding how such a
process 'works' and how therefore sales 'performance' can be
improved.
Various studies suggest the difficulty of laying down hard and fast
rules as to selling effectiveness. In one study of factors contributing
to success in a selling career,4 two main factors were emphasised,
namely empathy and ego drive. (Empathy is a kind of super
sympathy with the needs and problems of others, an ability to
identify oneself fully with a buyer's wants. Ego drive is the 'push'
towards success in which the total personality is immersed.)
Another tried to identify factors making for successful salesmen and
found that a combination of life history and personal traits were
more reliable predictors of success than either on its own. s The
ability of the salesman to 'pick up' non verbal information from the
customer is stressed in another study,6 while the job attitude/sales
performance issue has not been neglected.?
Much of the emphasis of the sales management and salesmanship
literature, however, is on 'learning the rules' of selling. In a recent
text one reads: 'In every case the rules of persuasion are the same'-
such rules 'form a logical framework'. 8 Also the salesman is seen as
if acting unilaterally - he must 'identify the man he must sell to';
selling is 'the art of communication for persuasion'. In other words,
the literature on personal selling generally reflects a highly
mechanistic and one-sided interpretation of human behaviour and
interpersonal influence.
But one needs a balanced view. Sales practitioners need some
guidance, and there is merit in drawing on the experience of others,
no matter how well or badly verbalised in texts. Moreover, selling
'approaches' based on fully blown theories of interpersonal be-
haviour have yet to be fully developed,9 so reliance on what is
available now is understandable. Io Finally research has yet to de-
monstrate that selling 'rules' must always be out of step with an
interpersonal behaviour approach. For example the salesman
taught methods of overcoming buyer objections may feel them
potted and contrived, but to cite only one case (the so-called
'Yes-But' approach based on conceding the buyer's viewpoint
before presenting one's own) seems well rooted in a desire to foster
good relationships.
Yet the way ahead does seem to lie in viewing personal selling as
an interactive process between salesman and customer, even if such
a description implies a rather different view of the selling process
than that generally stressed in a substantial literature. An early
writer to emphasise interpersonal interaction was Evans. ll Work by
SALES PROMOTION 159
Hovland,12 Bauer,13 and Levitt,14 suggest a communications ap-
proach which takes into account the influence of buyers on sales-
men. Also management literature suggests the importance of a
marketing approach (i.e. one based on knowledge of customer
needs) in industrial selling,15 and of seeing customers as part of the
sales management activity.16 Finally the study of seller/buyer rela-
tionships is now seen as a fundamental next step in modern indus-
trial marketing research. 17
However, any approach which stresses the interdependence of
human behaviour raises serious problems for those charged with the
management of that behaviour, if only because the participants in a
relationship cannot separate themselves and their behaviour from
other individuals. Accordingly, there is a need for some kind of
conceptual framework which will facilitate the analysis of the
behaviour, and goes beyond a simple plea for 'more psychology' to
'aid' the salesman. IS
An attempt to provide such a framework is presented in the work
of Robinson and Stidsen for the Marketing Science Institute. 19 This
is described briefly below in connection with the salesman's com-
munications activities as an example, though the matrix can be
applied to other areas, e.g. training, buyer behaviour. In a field
where knowledge of the conditions of success and failure has always
been elusive, we would recommend the approach as a useful
working tool.
Elements of the Salesman's Communications Ability

The performance of individual salesmen can be looked on as being
made up of a series of elements or phases. These are:
Phase 1. A wareness of Job Requirements. A basic first requirement
is that the salesman should be familiar with how personal selling
combines with other activities such as advertising and sales promo-
tion to make up the firm's overall marketing strategy.
Phase 2. Acquisition of Needed Skills. The question of whether the

salesman is born or made is irrelevant because it builds on a
one-dimensional approach to selling competence. The 'answer', in
the view of Robinson and Stidsen, is: 'Salesmen are made and they
make themselves', thus pointing to the roles of both training and
self-development as parts of selling activity.
Phase 3. Establishment of Communicative Relationships. The sales-
man must be able to 'feel' the way in which buyers define their
problems and take decisions if he is to set up good communications
with buyers.
Phase 4. Harmonisation of Self and Job Concepts. The salesman

interprets messages received from management and buyers on the
basis of a self-concept, i.e. the family of concepts he holds of himself
vis-a-vis his environment. Motivational efforts by sales manage-
ment (e.g. compensation schemes) confirm or deny his expectations
and evaluations of his own efforts, and are thus more or less
successful.
Phase 5. Internalisation and Commitment. Successful salesmen

'internalise' the factors making for their success, i.e. they work at an
intuitive level. But ineffective performance is also internalised:
salesmen will commit themselves to a standard which satisfies them.
Commitment may occur at varying levels of competence and it is
these levels of competence which provide the proper concept of
effectiveness. For example, encouraging industrial salesmen to
commit themselves to a performance based on number of calls
made is akin to treating them like 'wandering advertisements'.
While this may accord with the competence levels at which some
may wish to work, others will see their function in a more sophisti-
cated light. Management needs to know the 'commitment levels' of
salesmen as a basis for motivating and directing their efforts.
The Competence Level of the Salesman/Communicator

Each of the above components of the selling task can be performed
at different levels of competence. For example, in Phase 2 training
can vary from memorising 'canned' sales approaches to the creative
analysis of buyer requirements. In Phase 4 the salesman can be
more or less effective in harmonising his self and job concept. In
Phase 5, salesmen commit themselves to high and low levels of
competence. The actual level of competence at which a salesman
operates depends on the effectiveness of available training proce-
dures, and partly on his authority and responsibility.
Five distinct levels of competence can be outlined:
SALES PROMOTION 161
Level 1. Physical Activity. The mechanical 'spouting' of a memor-
ised sales presentation is the lowest level of communications ability.
Level 2. Adaptive Behaviour. The development of a range of sales

presentations adaptable to different buying situations is an im-
provement on 1, but still suffers the limitation of minimising the
buyer's perception of them.
Level 3. Instrumental Performance. Here the salesman has the

ability to select a communications approach, not just deliver a
message, and can be given some freedom of action to determine his
tactics.
Level 4. Systems Integration. The salesman is capable of developing

a system of contacts and relationships with customer firms, in this
case. This includes social relationships, arguing the many-sided
roles he must play at this level of competence.
Level 5. Value Integration. Ultimately salesman effectiveness de-

pends on the degree to which his personal values can be integrated
with those of the organisation. Conflict arises where the organisa-
tion sees him as information disseminator, while he sees the func-
tion as a more responsible one. Resolution of the difference can
only flow from greater recognition of the high competence levels
which the function can attain in providing links between buyer and
seller.
THE COMPACT MODEL
To summarise, the general elements of the salesman's performance

can be acted out at different levels of competence. This provides a
framework or matrix called the COMPACT (Competence-Activity)
model. This is illustrated in Table 1O.l.
While the word 'model' is used, what we have here is not a
computer or accounting model but simply a methodical approach or
'system of action' taking into account (a) the kinds of activities
salesmen perform, and (b) the relative dexterity and level of compe-
tence with which they carry out their tasks. It is therefore useful as a
Table 10.1 Outline of the Concept of Selling Competence
Direction of Competence 0) ( Direction of Control
Flow of Levell Level 2 Level 3 Level 4 LevelS

Performance System Values
1action Activity Behaviour
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
Acquisition Memorisation of Development of Acquisition of Acquisition of Development of

presentation and rules ability to adapt to information and skills information and information and skills
for place and object of buyer's viewpoint relevant to perceived ability to creatively relevant to
presentation goals analyse buying achievement 0 f
situations buyer's, seller's and
own goals
Goal-seeking Flawless delivery of Achievement of Achievement of self- Establishment of Selection of

presentation, in a prescribed goals approved goals communicative strategically relevant
prescribed number of relationships with buyer relationships
situations relevant set of buying
systems
Harmonisation Quality of delivery of Quality of Evaluation of Evaluation of Strategic effectiveness

sales presentation performance performance in communicative of relationships
measured against relation to self- effectiveness in
prescribed standards concept relation to own and
organisational 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
The Selection and Training of Salesmen

The correct selection and training of the sales force is so fundamen-
tal to effectiveness that it warrants specific mention. In a short book
only brief comments can be made, and the reader is referred to the
literature for further details (see n. 10). In addition various special-
ist articles appear from time to time24 and official and semi-
official publications provide useful guidelines and check-lists. 25
A number of practical proposals are put forward by Fussell,26
based on his UK experience. These are described briefly as an
example of the types of guidelines available to managers. However,
we would stress that no matter how practically useful these may be
found, there is a danger of superficiality if action is not based on the
fullest possible knowledge, for example the salesman's self-
concept, and the degree of his commitment, as described in the
COMP ACf model.
In order to assist managements increase the effectiveness of their
sales forces, Fussell argues that one must first state the 'simple
essentials' for an effective salesman. These are that he should be
competent in:
1. Planning - so that he knows what and where his objectives are,

for example to contact the right number of prospects/customers,
and how to get into the right position to persuade.
2. Persuading - so that he can succeed in deploying effective
selling skills and win a planned number of orders.
3. Prospecting - to enable him to find new customers in order to
increase the numbers and replace lost ones.
To achieve improvements on these fronts calls for attention to the

following: better selection of salesmen; better training and develop-
ment; more enthusiastic managerial support; more self-
development by salesmen.
1. Better selection of salesmen. Since people are the most impor-

tant asset of an organisation it is necessary to appreciate what sort of
people become salesmen. The range may vary from those with
academic qualifications, to others with only primary education who
get into selling because it requires personality and ability to get on
with others. According to this writer, selection is often conducted
inefficiently with the result that the good, mediocre and poor enter
the sales force.
One approach to salesman selection is to attempt a detailed
listing of the qualities and knowledge necessary to do the job.
Interviewing can then be conducted on the basis of assessing the
candidate's ability to meet the requirements. (Table 10.2 shows one
such listing.) A detailed study of formal selection procedures is
beyond the scope of this book, but there is much to be learned
elsewhere. 27
2. Better training and development. Fussell takes the view that
planning, persuasion and prospecting methods can be taught. In-
creased skill in selling, the principal objective of sales training,
becomes in his view a permanent stimulation to salesmen and is
their major support need. The real necessity in order to develop
people to be effective salesmen 'lies in understanding the type of
people available and establishing systematic and objective pro-
grammes for their development'.
SALES PROMOTION 165
Table 10.2 Qualities of a salesman
Attitudes Knowledge Skills

Enthusiasm Company Self-expression
Determination Products Mathematical Ability
Ambition Industry/Competitors Work Organisation/Journey
Courtesy Market/ Customers Planning
Empathy Area Selling Skills
Confidence Suppliers Introduction
Appearance Use of Questions
Initiative Establishing Requirements
Co-operation Overcoming Objections
Closing
Pioneering
Source: R. Montford, 'Sales Training', paper read at the 18th Conference

on Selling, National Association of Steel Stockholders, Banbury (Oct
1976).
The writer's experience of sales training suggests some of the

following guidelines:
1. Train the trainers. It sometimes occurs that sales training comes

within the orbit of the training officer or other manager perhaps
without relevant experience. Those who conduct sales training
should at least have had some exposure to practical field selling.
2. Favour regular training. Experience suggests that regularinjec-
tion of new knowledge or skills and subsequent field practice always
surpasses the 'one-off immersion' approach. The latter is deficient
partly because the salesman cannot absorb all he is taught in the
time, and partly because it does not cater for individual problems.
3. Favour modular training or development programmes run on
tutorial lines. Among the benefits of this approach are thought to be:
(i) More time to deal with individual problems and situations.

(ii) Opportunity for practice, review and introduction of new
themes.
(ill) It can be mentally absorbed more slowly, but is retained
better.
(iv) Salesmen need only be taken out of the field for a few hours
at a time, so that they can continue with their selling work.
4. More enthusiastic managerial support. Courses and training

schedules should not only be used to improve selling skills and
knowledge, they should also 'motivate and enthuse'. If trainers or
managers could enthuse more often, 'it would make the spirit of
individuals and the whole sales force soar'. But in Britain at least,
enthusiasm and animation are not always sufficiently present
among managers.
5. More self-development by salesmen. Salesmen should be
encouraged in effect to develop their own self-development pro-
grammes, perhaps by studying publications on selling technology
and attending sales conferences.
In these ways, Fussell believes that company salesmen can be
effectively selected and trained and make an improved contribution
to the attainment of profitable sales.
ADVERTISING
If the sales manager needs to know more about interpersonal

interaction, an equal necessity is that the industrial advertiser
should know about the response to his advertising. In this area a
crop of difficulties present themselves once again, not least because
the advertising budget of the industrial firm is frequently too small
to justify the research necessary to determine effectiveness. Yet
such information is crucial if expenditure decisions are to be well
founded.
Let us therefore in this section look at what is known about
advertising effectiveness in this market, and briefly examine
budgeting practices in the light of available knowledge of advertis-
ing response.
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.
Non-sales Measures ofAdvertising Response

Research that focuses on attitudinal and other non-sales measures
of response to industrial advertising is by far the most common type
undertaken.
Levitt's controlled experiment demonstrated the possible influ-
ence of company reputation on the effectiveness of industrial
salesmen. 3D Results suggested, among other things, that a seller's
reputation made a difference in a salesman getting a favourable first
hearing with both purchasing and technical personnel. But, unex-
pectedly, when making an actual purchase decision, the advantage
of reputation manifested itself with the technical personnel but not
with the purchasing agents.
Work has been carried out on industrial buyers' use of, or
preference for, different information sources in connection with the
adoption of new products. The amount and quality of information
available to a firm's decision-makers appears to play a central part
in influencing the rate of adoption of innovation. 31 Also there
appears to be a pattern of diminishing reliance on impersonal
sources such as media advertising, and increasing influence of
salesmen and other personal sources as buyers move from the initial
awareness stage through the evaluation and decision stages of the
adoption procesS.32 In this respect Turnbull, in a study of marketing
communications policies of ferrous components producers in the
UK,33 reported what he saw as a failure of firms to understand that
buyers may have different communication needs and channel pre-
ferences at different stages in the buying process, and in different
industries.
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
Method ofDetermining Sales Promotion Budget

Method % using
Percentage of turnover 17
Cost related to objectives (task method) 53
Arbitrary sum 30
Percentage of Sales. Decision rules based on this approach, while a

pervasive influence in setting advertising budgets, suffer the well-
known deficiency of implicitly making advertising a consequence
rather than determinant of sales and profits. Using the expected
sales in budgeting would, for example, reduce expenditure in an
economic downturn, yet there is evidence of the benefits of sustain-
ing outlays during recessions. 37
On the other hand, one has to sympathise with the manager
seeking some kind of budgeting guideline in the absence of concrete
evidence of advertising's influence. Other heuristics, such as spend-
ing what competitors do, while helpful as management control
devices, are difficult to justify on economic and rational grounds.
The Task Method. This focuses on communication rather than on

the sales effects of advertising. It is therefore immediately attractive
to the firm in difficulty over trying to assess sales response. Basically
the firm using this approach seeks to attain what could be called an
intermediate objective for advertising, for example trying to per-
suade 'X' customers to visit 'Y' dealers in 'Z' months. 38 This
SALES PROMOTION 169
appears to offer a degree of control of advertising operations, but its
great stumbling block is that it requires knowledge of how attain-
ment of an objective is linked to purchasing behaviour. 39 The
existence and nature of such relationships remain areas of consider-
able controversy.40
To the extent that managements are prepared to learn from the
practical experience of others, the marketing literature provides
much 'how to do it' guidance and lessons drawn from experience.
Brittain gives practical examples which in effect show how the task
method might work effectively.41 Thus he starts by suggesting
various objectives for industrial advertising. These are:
Find new users.

Provide support for salesmen.
Reduce selling expenses.
Reach buying influences inaccessible to salesmen.
Establish recognition and reputation.
Motivate distributors.
Establish company identity.
Measurement of the effectiveness of advertising in reaching such

goals might be attempted, for example, by stUdying:
Changes in attitudes to the company, its products or sales force.

Numbers of leads or replies.
Readership of advertisements.
Conversion ratio of leads and coupons.
Finally this writer offers his personal experience as to what makes

for successful industrial advertising. He suggests these characteris-
tics:
Advertisements with a strong promise are effective.

Case histories are effective.
Testimonials are effective.
Demonstrations and problem solution advertisements are effec-
tive.
A single advertising format for all the firm's products is effective.
But such 'lessons' and suggestions can only have limited applica-
bility elsewhere: they fall far short of a set of universal norms and
guidelines. These await development.
OTHER FORMS OF SALES PROMOTION
Another writer to offer prescriptive guidelines, this time in the field

of industrial promotion, is Spillard.42 In general he describes this
Table 10.3 Forms of industrial promotion
FORMS OF INDUSTRIAL PROMOTION
Types ofpromotion Example

Price-off promotions Special terms for specific customers at
specific times
Couponing Coupons entitling the holder to special
terms
Contests Prizes awarded to salesmen or middlemen
for achieving pre-set objectives
Loyalty schemes £50 off next purchase. Give-aways to loyal
customers
Reciprocal trading schemes Guaranteeing to a customer that your or-
ganisation will in turn buy his products
Credit schemes Leasing, consignment schemes, delayed in-
voicing
Premium offers Special 'linked product' package deals: '13
for 12' offers: free spares
Trade-in allowances Special terms for trading-in a competitive
or obsolete model
Guarantees Extra special guarantees for specific risky
products
Sampling Distributing trial offers of a product. Free
demonstrations or trial installations
Co-operative advertising Allowances given for dealer advertising
featuring a specified product
Training schemes Free training for operatives of middlemen
Container premiums Products distributed in a free multi-use con-
tainer
Full-range buying schemes Special terms for across-the-range orders
Co-operative promotions Offering a range of products and services as
a 'system' with the help of complementary
suppliers
Source: P. Spillard, 'How to Promote Industrial Products', Marketing (Feb

1977)p.45.
SALES PROMOTION 171
activity as meaning the same thing as it does in the consumer
market, namely the making of special offers with a specific time-
limit to precise market segments. In industrial marketing such offers
can take the forms shown in Table 10.3. There is, however, a
reluctance to use the full range of promotional devices.
Spillard makes five propositions:
Proposition 1. The more discretion a buyer has over choice of

product or supplier the more his buying behaviour will approximate
that of a consumer.
If this holds true it is possible to transfer the use of schemes,
suitably modified, 'straight across from industrial to consumer
marketing'. This is of great significance to the industrial promoter
because the suggestion is that he can learn effectively from con-
sumer marketing where such practices have a long and successful
pedigree.
Proposition 2. Up to a point, the larger the deal, the more the

appeals of a promotion should be aimed at increasing the monetary
value of that deal, and at guaranteeing performance.
Proposition 3. The more standardised the product and the more

generalised the statements it is possible to make about the problems
it solves in use, the more generalised the promotional proposition
can be.
Proposition 4. The longer the time-span over which a buyer is

committed to a product, the more must promotions be aimed at
reducing perceived risk. The buyer over time faces technical risks of
malperformance, obsolescence, and misuse in the hands of inex-
perienced operatives. Such dangers can be alleviated by schemes
such as:
Free consultancy and training.

Guaranteed buy-back terms.
Insurance deals at low premiums.
Good technical and service back-up.
Trial installations.
172 INDUSlRIAL MARKETING
Proposition 5. The more similar industrial products are to consumer

goods the more that schemes customarily used by consumer durable
goods marketers can be transferred to industrial markets.
Spillard maintains that there is much more in common between

the two categories of product than is generally supposed, for
example, the fact that both may use middlemen, both need financ-
ing and service, and both are sold via a sales force needing stimula-
tion and support.
Implications of the Propositions

Such propositions form a planning guide to use before the design of
an actual scheme. The author maintains that such thinking will help
to reduce panic price reductions to obtain orders - the industrial
marketer needs to open his mind to other possibilities, some of
which can be adapted from consumer goods marketing.
THE CO-ORDINATION OF PROMOTION
The activities of personal selling, advertising and industrial promo-

tion need to be co-ordinated into the most effective mix, together
with other activities, notably public relations,43 branding and
packaging44 and the use of exhibitions. 45 (Space prevents a detailed
discussion of the last three categories: the reading list should be
consulted for references.)
As far as advertising and personal selling are concerned, the
volume of evidence suggests that these activities perform com-
plementary and synergistic roles. Most managers might expect that
a split of the industrial marketing budget between advertising and
personal selling categories would be more efficient than a total
allocation to a single category. But there is no indication about
either what the overall budget should be, or what split between
advertising and personal selling expenditures would be most
efficient. 46 The desirable split between the other forms of promo-
tion such as exhibitions and public relations work is also hard to
determine.
Accordingly there is much to recommend thinking in terms of a
total promotional programme, the elements of which are deter-
SALES PROMOTION 173
mined on a task basis. Such an approach has clear deficiencies,
notably the abandonment of final sales as an objective, and it will
not please those who hanker after a more strictly quantified ap-
proach. But given the problems of defining and measuring what
promotional efforts actually accomplish either in total or singly,' and
in the light of management's need for some degree of control over
operations, the task approach has at least some merit.
Let us therefore conclude the chapter by summarising the essen-
tial steps in applying the method. These are:
1 Establish specific marketing objectives for the product in terms

of factors such as sales volume, market share, and profit con-
tribution, as well as target market segments.
2 Assess the promotional functions that must be performed to
realise the overall marketing objectives and determine the role
of all elements of the promotional mix in performing these
functions.
3 Define the specific goals for each element of the promotional
mix required to achieve marketing objectives.
4 Estimate the budget needed to accomplish promotional goals.
SUMMARY
Industrial goods companies have available to them various sales

promotional methods - personal selling, advertising, promotion,
public relations, branding and packaging and exhibitions are major
examples - and these form the basis of what can be termed the firm's
influence tactics in a market. A knowledge of the uncertainties
buyers face, in terms of need, market and transactions, is helpful in
determining the type of promotion to use.
Personal selling and advertising are two major components of the
promotional mix. With regard to personal selling, this ultimately
needs to be thought of in terms of interpersonal interaction. Such a
conception poses considerable problems for sales management, so
that a conceptual framework able to facilitate analysis of the
behaviour is clearly needed. Such a framework is provided by the
COMPACT model.
The industrial advertiser also finds it difficult to gauge the impact
of his programmes and most emphasis has been placed upon trying
to assess non-sales results. This creates problems for budgeting and
the task method is widely used. Advice on improving industrial
advertising effectiveness is available in published case studies, but it
cannot be assumed that this will have universal application.
Different forms of sales promotion offers such as buy-back terms
and trial installations are available. It is useful to know the circum-
stances under which each might be appropriate in the industrial
market, perhaps as an alternative to 'panic' price-cutting to obtain
an order. Much can be learned from experience in the consumer
goods market.
The various components of overall sales promotion perform
complementary roles. There is therefore a case for thinking in terms
of a total promotional budget and allocating expenditures on a task
basis.
Postscript
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
deliveries, out-of-date designs, or inadequate after-sales service,

may not be sufficient to ensure market survival for some firms. One
cannot ignore the question of competitor reaction. It is a paradox
that in industries strongly motivated by such rational considerations
as price, quality and product performance, non-product factors can
make the key difference if competitors are viewed as being broadly
equal. The persuasive power of the salesman may not figure highly
in the contractor's assessment of which sub-contractors he will
employ on a major contract, but if the tenders submitted by all
competing sub-contractors appear similar, then the work may go to
the firm which has distinguished itself in some way - perhaps by
exceptional sales persistence, by a more imaginative design of
tender documents, or by displaying a greater customer sensitivity.
As a minimum requirement the industrial marketer needs to be
familiar with the factors that cause him to lose business, and what
steps he should take to win it in competitive markets.
Advertising, personal selling and promotions generally are often
viewed with some scepticism in the industrial market. Yet these
activities can be of great importance if only because they enable
companies to draw the market's attention to the fact that an
excellent product or service is available. But more than that, the
salesman is a key communications link between seller and buyer: it
is he who points to his firm's ability to meet the design, price,
delivery and other needs of the buyer. In a sense he acts as
spokesman for the firm and its capabilities, putting forward and
arguing the case for utilising its skills.
A BRIEF LOOK INTO 1HE FUTURE
The future of industrial marketing undoubtedly lies in a greater

integration of total company activities, no matter how prosaic such a
statement might appear. It is worth repeating that success in this
market depends crucially upon doing non-marketing things well, for
example designing and developing new products, controlling qual-
ity and planning production. Yet doing anything well in isolation
from what is wanted by the market is foolish. Hence the future will
see an intensification of efforts to understand and predict market
requirements, and to respond to these by mobilising and integrating
overall company activities.
POSTSCRIPT 177
But the techniques of market research and forecasting are avail-
able to all - hence possession of market knowledge will not be
sufficient as a long term source of advantage for most firms.
Competition between rivals is thus likely to develop to more and
more sophisticated levels. Ultimately firms will work harder at
making their market contribution unique, if they are not already
doing so. Creativity in selling and promotion is one possibility.
Efforts to establish company-wide customer relations policies,
perhaps backed by integrated public relations campaigns, will be
favoured by some companies. Also, greater attention will be paid to
the management styles of key individuals interfacing with cus-
tomers as part of manpower policies aimed at sustaining a
market position or improving one.
Marketing as it has been developed in this book therefore cannot
be· hived neatly off into a functional department. No company
activity can claim immunity from judgement by the market place.
Market knowledge needs to be aligned with manufacturing and
technological capability as key inputs to corporate strategies aimed
at giving expression to the policy objectives of the firm. It is towards
the unification of these various objectives that firms will increas-
ingly move in the future.
Notes and References
CHAPTER 1
1. J. G. Kaikati and W. B. Nation, 'The Marketing Concept

Syndrome', Management Decision (Feb 1977).
2. K. Crosier, 'What Exactly is Marketing?', The Quarterly
Review of Marketing (Winter 1975).
3. For a discussion of this difference see D. J. Sweeney, 'Market-
ing: Management Technology or Social Process?', Journal of Mar-
keting(Oct 1972}.
4. C. McIver, 'Confessions of a Marketing Man', Management
Today (Feb 1973).
5. R. H. Ostheimer, 'The Two Worlds of Marketing', Journal of
Advertising Research (Feb 1977).
6. J. A. Murray, 'Marketing, a Provocation', Management Deci-
sion (Spring 1973).
7. B. M. Enis, 'Deepening the Concept of Marketing', Journal of
Marketing (Oct 1973}.
8. R. Groeneveld and R. D. Medford, 'Is it Time to Revise the
Marketing Concept?', Industrial Marketing Management (Nether-
lands) (June 1973).
9. See M. J. Baker and R. McTavish, Product Policy and Manage-
ment(London: Macmillan, 1976} chap. 8, pp. 119-36.
10. D. Jessop, 'Is Marketing a Waste of Buyer's Money?', Modem
Purchasing (Mar 1977).
11. T. Levitt, 'Bending the Marketing Concept', Harvard Busi-
ness Review (Nov/Dec 1977).
12. D. W. Smallbone, 'Is Industrial Marketing Different?', British
Journal of Marketing (Summer 1969).
13. For a full discussion of the problems facing the UK power
plant manufacturing industry and a review of possible solutions see
The Central Policy Review Staff, The Future of the United Kingdom
Power Plant Manufacturing Industry (London: H.M.S.O., 1976).
14. See, for example, P. J. H. Bally, Purchasing and Supply
Management, 3rd ed. (London: Chapman & Hall, 1976).
15. See P. L. Bubb and D. T. Van Rest, 'Loyalty and the
Industrial Buying Decision', Industrial Marketing Management
(Netherlands) (Oct 1973).
180 NOTES AND REFERENCES
16. D. W. Cravens, 'Supplier Marketing and Purchasing Deci-

sions', Atlanta Economic Review (Jan/Feb 1977).
17. M. E. H. Bonfield and T. W. Speh, 'Purchasing's Role in
Industry', Journal of Purchasing and Materials Management (Sum-
mer 1977).
18. C. Edwards, 'The Growing Power of the Public Purchaser',
Modern Purchasing (April 1977).
19. 'The Buyer-Seller Relationship', Industrial Purchasing News
(July 1977).
20. See D. H. Farmer and K. MacMillan, 'Voluntary Collabora-
tion vs Disloyalty to Suppliers', Journal ofPurchasing and Materials
Management (Winter 1976).
21. These remarks, and other comments made in this section, are
drawn largely from field interviews conducted by one of the writers
in connection with a survey of the Scottish market for selected types
of packaging material. Forty-five producing companies were inter-
viewed covering the whisky, light engineering, consumer durable,
food, and paper markets. The bulk of interviews was carried out
with representatives of buying departments in the companies, this
being supplemented where thought necessary by contact with other
categories, examples being managirig director, planning manager,
packaging engineer, bond manager, and materials manager. In
addition to establishing such factors as the size, structure and trends
of the market, the survey sought to throw light on the nature of
existing seller/buyer relationships with a view to assessing the
difficulties likely to face a new entrant.
22. D. H. Farmer and K. MacMillan, 'How to Buy Together',
Management Today (July 1977).
23. K. J. Blois, 'Large Customers and their Suppliers', European
Journal of Marketing, vol. 11, no. 4 (1977).
24. J. Lidstone and A. Melkman, 'Marketing Plans for Major
Customers', Marketing (Oct 1977).
25. For more detail see P. Kotler, 'From Sales Effectiveness to
Marketing Effectiveness', Harvard Business Review (Nov/Dec
1977).
26. P. Kotler and S. J. Levy, 'Demarketing, Yes, Demarketing',
Harvard Business Review (Nov/Dec 1971).
CHAPTER 2
1. For a discussion of the problems of capital spending from the

buyer's viewpoint see, for example, P. J. H. Baily, Purchasing and
Supply Management, 3rd ed., op. cit., chap. 5.
NOTES AND REFERENCES 181
2. C. Freeman et al., 'Chemical Process Plant: innovation and the
world market', National Institute Economic Review, no. 45 (1968).
3. The selection of distribution channels is dealt with in more
detail in Chapter 8. Sales promotion, including advertising and
personal selling, is dicussed in Chapter 10.
4. See, for example, M. Craig, 'The Leasing Answer', Manage-
ment Today (June 1976).
5. For a discussion of the problems of commodity buying over-
seas, with emphasis on unpredictable aspects of the market such as
exchange rate fluctuations, see D. Sheridan, 'Financial Implications
of Purchasing Abroad', Modern Purchasing (Aug 1976).
6. R. McTavish, 'Steel's Second Revolution', Scotland (Dec
1967).
7. An interesting case in the car field is given in Rosson's article
which, while dealing with new vehicles rather than components,
provides insights into car dealer attitudes. See P. Rosson, 'Dealer
adoption of a new car franchise: an exploratory study', Journal of
Management Studies, vol. 14, no. 3 (Oct 1977).
8. L. G. Mattsson, System Selling, MIC Report No. 1 (Stock-
holm, 1975).
9. Detailed study of the workings of economics and the role of
government in directing them is beyond the scope of this book, but
the reader will find the following useful: J. M. Livingstone, The
British Economy in Theory and Practice (London: Macmillan,
1974); and G. G. Dorrance, National Monetary and Financial
Analysis (London: Macmillan, 1978).
10. See, for example, 'Public Spending Cuts Cost 500,000 jobs'
(The Times, 15 Feb 1978).
11. For details of Government expenditure in UK industry, see
The Government's Expenditure Plans, vol. 2 (Cmnd 7049-11)
(London: H.M.S.O., Jan 1978).
12. For example, the 'predicament.' of the UK economy in terms
of low industrial investment, poor manufacturing productivity, poor
living standards, relatively high inflation and tendency to balance of
payments crises, has been the subject of prolonged debate. For a
recent discussion see Sir H. Phelps Brown, 'What is the British
Predicament?', Three Banks Review, no. 116 (Dec 1977).
13. Concern about performance in state industries and the effec-
tiveness of public involvement in business has been voiced fre-
quently. See, for example, J. Gardiner and G. Wilkinson, 'The Rise
of State Capitalism', Management Today (Dec 1976); and R.
Leigh-Pemberton, 'Public Participation in Business', National
Westminster Bank Quarterly Review (Feb 1978).
14. Most modern managerial finance texts cover the rudiments of
present value analysis. For specific treatment of this topic, and

investment decisions as a whole, see G. D. Quinn, The Capital
Expenditure Decision (Homewood, 1lI.: Irwin, 1967).
15. For a critique of theoretical approaches to capital expenditure
decisions see P. King, 'Is the Emphasis of Capital Budgeting Theory
Misplaced?', Journal of Business Finance and Accounting (Spring
1975).
16. The cyclical nature of the buying of machine tools, for
example, is well known. As long ago as 1962 the Machine Tools
Trades Association proposed a scheme aimed at assisting buyers to
purchase new machinery at times of economic recession.
17. For more data on managerial investment motives see G. H.
Webster and J. M. OIiver, The Manager's Environment, an
Economic Approach (London: Pan Books, 1970).
CHAPTER 3
1. R. W. Hill and T. J. Hillier, Organisational Buying Behaviour

(London: Macmillan, 1977).
2. G. van der Most, 'Research in Industrial Buying', paper
presented at the Fourth World Industrial Advertising Congress,
Amsterdam, 1976, and referred to in Industrial Marketing (Oct
1976) pp. 120-9.
3. See, for example, W. B. England, 'The Purchasing System'
(Homewood, 1lI.: Irwin, 1967) p.156; R. J. Robinson and B.
Stidsen, 'The Case of the Industrial Buying System', in Personal
Selling in a Modem Perspective (Boston, Mass.: AIlyn & Bacon,
1967) pp. 135-47; and W. B. Ozanne and G. A. Churchill, 'Adop-
tion Research: Information Sources in the Industrial Purchasing
Decision', in R. L. King, Proceedings of the American Marketing
Association (Fall 1968) pp. 352-9.
4. P. J. Robinson and C. W. Faris, Industrial Buying and Creative
Marketing (Boston, Mass.: AIlyn & Bacon, 1967).
5. T. J. Miller, 'Decision-Making in the Industrial Buying Pro-
cess', Ph.D. thesis, Management Centre, University of Bradford,
1973.
6. R. W. Hill, 'Organisational Buying Behaviour: A Review
Paper', National Conference on Buyer Behaviour, Marketing Edu-
cation Group of the United Kingdom, Strathclyde University, July
1976.
7. F. E. Webster and Y. Wind, Organisational Buying Behaviour
(Englewood Cliffs, N.J.: Prentice-Hall, 1972).
8. B. Klass, 'What Factors Affect Industrial Buying Decisions?',
Industrial Marketing (May 1961).
9. 'Profiles in Purchasing: How Large Manufacturers Buy', Sales
Management (Jan, Feb, Apr and Aug 1963).
10. For a case example of one firm's experience with different
centralised and decentralised purchasing arrangements see
M. Syddell, 'Buying at BOC', Modern Purchasing (May 1977).
11. See L. Fisher, 'Understanding Industrial Markets', in Indus-
trial Marketing (London: Business Books, 1969) chap. 2,
pp. 11-27.
12. (1) H. Buckner, How British Industry Buys (London: Hutch-
inson, 1967). (2) Financial Times, 'How British Industry Buys',
Joint Financial Times/lndustrial Market Research Ltd Survey, Nov
1974. (3) Scientific American, 'How Industry Buys - A Study of the
Systematic Procedure for Purchasing Materials, Component Parts
and Equipment', 1970.
13. G. McNutt, 'How to Identify Buying Influences In Your
Market', Industrial Marketing (June 1976) pp. 134-6.
14. P. GuiIlet de Monthoux, 'A Study of Organisational Buying
for Industrial Marketing Purpose', paper presented at the Market-
ing Workshop of the European Marketing Education Association
(May 1973).
15. For a discussion of actual and predicted changes in the buying
function see G. Willis (interviewed by G. Tavernier), 'Purchasing
Over the Next Ten Years', Industrial Purchasing News (Jan 1974).
16. See D. S. Ammer, Materials Management as a Profit Centre
(Homewood, Ill.: Irwin, 1968).
17. D. L. Blenkhom, 'The Status of the Materials Management
CORcept - an Examination of Current and Likely Future Adoption
Levels of the Materials Management Concept', Ph.D. thesis, Man-
agement Centre, University of Bradford, 1976.
18. D. R. Lehmann and D. O'Shaughnessy, 'Differences in
Attribute Importance for Different Industrial Products', Journal of
Marketing, vol. 38 (Apr 1974).
19. Op. cit.
20. For further information, see G. Constendine, 'Inside Media
Research: Understanding the Industrial Buying Process', Admap
(Jan 1971).
21. For a model of the implications of risk handling behaviour for
communication policies in industrial marketing, see J. Newall,
'Industrial Buyer Behaviour', European Journal of Marketing, vol.
2, no. 3 (1977).
22. R. A. Bauer, Consumer Behaviour as Risk Taking (Chicago:
American Marketing Association, 1960).
23. For example, G. M. Robertson, 'Motives in Industrial Buy-

ing', Proceedings of the AMA Conference (June 1960) pp. 266-76.
24. K. J. Blois, 'The Effect of Subjective Factors on
Customer/Supplier Relations in Industrial Marketing', British Jour-
nal of Marketing (Spring 1970).
25. R. F. Shoaf, 'Here's Proof - the Industrial Buyer Is Human',
Industrial Marketing (May 1959).
26. W. Kroeber-Riel, 'Emotions in Industrial Marketing',
Rationalisierung (Federal Republic of Germany) (Qct 1977).
27. P. Allen, 'Psychology of the Buying Decision', Purchasing
and Supply Management (Dec 1977).
28. G. Strauss, 'Tactics of Lateral Relationship: the Purchasing
Agent', Administrative Science Quarterly, vol. 7 (Sep 1962).
29. For an overview of modern research in this field see M. J.
Baker (ed.), Industrial Innovation: Technology, Policy, Diffusion
30. M. J. Baker, Marketing New Industrial Products (London:
Macmillan,1975).
31. See M. J. Baker, 'Industrial Buying Behaviour and the
Adoption of Innovations', in Industrial Innovation: Technology,
Policy, Diffusion, op. cit.
32. M. J. Baker and S. T. Parkinson, Predicting the Adoption and
Diffusion of Industrial Innovation, Report to the Social Science
Research Council (Apr 1976).
33. See, for example, L. Lee and D. W. Dobler, Purchasing and
Materials Management, 3rd ed. (Maidenhead: McGraw-Hill,
1977).
34. General Electric Company, 'Value Analysis', Purchasing
Magazine (June 1950) p. 94. For other checklists see Lee and
Dobler, op. cit., chap. 13.
35. S. F. Heinritz and P. V. Farrell, Purchasing: Principles and
Applications (Englewood Cliffs, N.J.: Prentice-Hall, 1965) pp.
219-22.
CHAPTER 4
1. For a discussion of the relationships between marketing plan-

ning and corporate planning, see A. M. Leyshon, 'Marketing Plan-
ning and Corporate Planning', Long Range Planning, vol. 9, no. 1
(Feb 1976).
2. C. B. Saunders and F. D. Tuggle, 'Why Planners Don't', Long
Range Planning, vol. 10, no. 3 (June 1977).
3. See P. Doyle, 'Marketing Control and Pricing in Inflation', in
Marketing in Adversity, ed. M. J. Baker (London: Macmillan,
1976).
4. P. Kotler, Marketing Management: Analysis, Planning and
Control, 2nd ed. (Englewood Cliffs, N.J.: Prentice-Hall, 1972)
p.366.
5. P. Doyle, op. cit.
6. See, for example J. N. Sheth, 'A Model of Industrial Buying
Behaviour', Journal of Marketing (Apr 1973).
7. See Kotler, op. cit., and numerous other basic marketing texts.
8. An example of the use of this approach in industrial marketing
is H. Hakansson, J. Johanson and B. Wootz, 'Influence Tactics in
Buyer-Seller Processes', Industrial Marketing Management, 5
(1977) pp. 319-32.
9. For a discussion of this issue see R. N. Cordozo and Y. Wind,
'Industrial Market Segmentation', Industrial Marketing Manage-
ment(Mar 1974).
10. H. I. Ansoff, Corporate Strategy (New York: Penguin Books,
1965).
11. This point has been made by, among others, B. Schyberger in
Market Segmentation (Stockholm: Department of Business Ad-
ministration, 1973) and D. T. Wilson et al., 'Industrial Buyer
Segmentation: A Psychographic Approach', in Marketing in Mo-
tion, ed. F. C. Allvine (Chicago: American Marketing Association,
1971).
12. A. Flodhammar, Industrial Marketing Segmentation (English
summary) (Linkoping University, Sweden, 1978).
13. The area of new product planning commands a wide and
growing literature. For a recent text in the industrial area, see M. J.
Baker, Marketing New Industrial Products (London: Macmillan,
1975). See also M. J. Baker and R. McTavish, Product Policy and
Management (London: Macmillan, 1976); M. Stone, Product Plan-
ning (London: Macmillan, 1976); and J. T. Gerlach and C. A.
Wainwright, Successful Management of New Products (New York:
Hastings House, 1968).
14. K. Simmonds, 'Removing the Chains from Product Strategy',
Journal of Management Studies, vol. 5 (1968).
15. T. Levitt, 'Marketing Myopia', Harvard Business Review
(July/Aug 1960).
16. See M. J. Baker and R. McTavish, op. cit., pp. 53-4, for a
discussion of methods of auditing the firm's capabilities.
17. G. R. Conrad, 'Unexplored Assets for Diversification', Har-
vard Business Review (Sept/Oct 1963).
18. S. Tilles, 'Strategies for Allocating Funds', Haroard Business

Review (Jan/Feb 1966).
19. H. I. Ansoff, op. cit.
20. 'Sweden: A Steel-maker's Profits in Non-Steel Products',
Business Week (12 June 1978).
21. E. P. Ward, 'The Dynamics of Business Planning', Journal of
International Marketing and Marketing Research, vol. 2, no. 2
(1977).
22. See S. Myers and D. G. Marquis, Successful Industrial Inno-
vations, N.S.F. 19-17 (Washington: National Science Foundation,
1969).
23. P. Hughes and T. Armstrong, 'The Micro-Revolution',
Management Today (March 1978).
24. R. Jungk, Brighter than a Thousand Suns (London: Gollancz
in association with Hart-Davis, 1958; Harmondsworth: Penguin
Books, 1964).
25. As examples, see A. Wormald, 'Managing the Scientist',
Management Today (Feb 1969); T. Levitt, The Marketing Mode
(Maidenhead: McGraw-Hill, 1969); and D. A. Schon, Technology
and Change, the New Heraclitus (Oxford: Pergamon Press, 1967).
26. Studies supporting such views include K. J. B. Earle, et aI.,
'Inventiveness and Innovation in Industry', Advancement of Sci-
ence, vol. 28, no. 128 (British Association for the Advancement of
Science, Exeter Symposium, 1969); L. G. Cook and W. A. Morri-
son, The Origins of Innovation, General Electric Research Labora-
tory, June 1961, Dept No. 61-GP-214; and R. Charpie, 'Tech-
nological Innovation and the International Economy', Science
Policy News (July 1969).
27. J. Jewkes, D. Sawers and R. Stillerman, The Sources of
Invention, rev. ed. (New York: St Martin's Press, 1967).
28. T. Burns, 'The Innovative Process and the Organisation of
Industrial Science', in Main Speeches, Conference Papers, European
Industrial Research ManagementAYsociation, vol. 5 (Paris, 1967).
29. See R. M. Hill and J. D. Hlavacek, 'The Venture Team: A
New Concept in Marketing Organisation', Journal of Marketing,
vol. 15 (July 1972) pp. 44-50; J. Hillier, 'Venture Activities in the
Large Corporation', IEEE Transactions on Engineering Manage-
ment, vol. 15 (June 1968); J. W. Lorsh and P. R. Laurence,
'Organisation for Product Innovation', Haroard Business Review,
vol. 43 (Jan/Feb 1965).
30. Organisation for Economic Co-operation and Development,
The Condition for Success in Industrial Innovation (Paris, 1971).
31. S. SaImans, 'CSR Plans Strategy for Change', International
Management (June 1978).
32. For a summary of studies of technological innovation, see R.
Rothwell, 'Characteristics of Successful Innovations', Rand D
Management, vol. 7, no. 3 (1977).
33. T. C. Coram and R. W. Hill (eds), New Ideas in Industrial
Marketing (London: Staples Press, 1970).
34. K. Lacey and S. Gould, 'A Market-Oriented DCF', Journal of
Management Studies, vol. 5 (1968).
35. R. Rothwell, 'Marketing, a Success Factor in Industrial
Innovation', Management Decision (Jan 1976).
36. For a study of methods of analysing industrial product mixes
see L. P. Flaitman, 'Industrial Product Mix Analysis', Industrial
Marketing Management (Aug 1973).
37. M. T. Cunningham and J. G. White, 'The Determinants of
Choice of Supplier', European Journal of Marketing, vol. 7, no. 3
(Winter 1973/4).
38. A discussion of the way in which supportive services can
stimulate sales in industrial markets is given by T. White, 'How
Product Support makes Technical Sales', Marketing (UK) (May
1974).
39. M. T. Cunningham and D. A. Roberts, 'Customer Service in
Industrial Marketing', European Journal of Marketing (Spring
1974).
40. A detailed study of how such an analysis might be conducted
is contained in R. Ferber and P. J. Verdoorn, Research Methods in
Economics and Business (New York: Macmillan Co., 1962).
41. E. C. Bursk, Text and Cases in Marketing: A Scientific
Approach (Englewood Cliffs, N.J.: Prentice-Hall, 1962).
42. J. M. Kamen, 'Controlling "Just Noticeable Differences" in
Quality', Harvard Business Review (Nov/Dec 1977).
43. C. Claxton, 'Planning Major International Projects', Long
Range Planning, vol. 11, no. 2 (Apr 1978).
CHAPTER 5
1. Statistics taken from OECD, Economic Surveys - United

Kingdom (Paris: Organisation for Economic Co-operation and
Development, 1977).
2. Statistics taken from Motor Ship (July 1977).
3. Statistics from World Energy Supplies, Series J, no. 19 (New
York: United Nations Organisation, 1977).
4. See 'Steam Turbine Challenge for Diesel', Marine Week (Apr
1977); 'Lynn Strikes back at the Diesel', Shipbuilding and Marine
Engineering International (July/Aug 1977); 'Americans Cling to

Steam Turbine" Fairplay International Shipping Weekly (Aug
1977).
5. See' A Year of Alarms and Excursions', Financial Times (21
Oct 1974); Energy Prospects to 1985 (Paris: Organisation for
Economic Co-operation and Development, 1975).
6. The displacement of reciprocating compressors by centrifugal
units in medium- and high-capacity ammonia plants is described by
F. Franzchetti, U. Fillipini and P. L. Ferrara, in Quaderni Pignone
(1967).
7. The role of marketing research in the decision-making process
is succinctly summarised by C. R. Hutchison, in 'The Practice of
Industrial Marketing Research in a Changing Environment' , Jour-
nal of the Industrial Marketing Research Association, vol. 9, no. 2
(1974) p. 4.
8. See for instance J. R. Morgan, 'The Kind of Information
Managers Use in Making Decisions and the Way they Use it',
Journal of the Industrial Marketing Research Association, vol. 9,
no. 1 (1974).
9. See for instance G. Hovanyi, 'Marketing Strategy in Socialist
Industrial Enterprises', European Journal ofMarketing, vol. 6, no. 1
(1972); A. Myszewski, 'The Polish Marketing Scene', European
Journal of Marketing, vol. 6, no. 3 (1972).
10. Research on information sources has been undertaken by the
Industrial Market Research Association Techniques Committee.
See IMRA Techniques Committee, 'Sources for European Indus-
trial Marketing Research', Journal of the Industrial Marketing Re-
search Association, vol. 10 (1975).
11. This is described at a simple and easily understood level in
J. M. Livingstone, A Management Guide to Market Research
12. This need is described in more detail in F. T. Pearce, 'Industri-
al Surveys: The Potential Role of Value Added', Journal of the
Industrial Marketing Research Association, vol. 10, no. 2 (1975).
13. See page 8 of Hutchison's article (note 7, above).
14. A good description of the use of market research data in a
major oil company can be found in L. R. Pincott, 'A Management
View of Industrial Marketing Research', Journal of Industrial Mar-
keting Research Association, vol. 8, no. 4 (1972).
15. The case for and against commissioning consultants is sum-
marised in I. Maclean, 'The Organisation and Control of an Indus-
trial Marketing Research Department', Journal of the Industrial
Marketing Research Association, vol. 8, no. 1 (1972).
CHAPTER 6
1. L. L. Gordon, 'The Methodology of Industrial Market Re-

search', Journal of the Industrial Marketing Research Association,
vol. 9, no. 2 (1974).
2. C. R. Hutchison, 'The Practice of Industrial Marketing Re-
search in a Changing Environment', Journal of the Industrial Mar-
keting Research Association, vol. 9, no. 2 (1974).
3. Business Monitors (London: Government Statistical Service;
H.M.S.O.).
4. Monthly Digest of Statics and Department of Employment
Gazette (London: Government Statistical Service; H.M.S.O.).
5. Daily List of Government Publications from Her Majesty's
Stationery Office (London: H.M.S.O.).
6. Directory of British Associations and Associations in Ireland
(Beckenham, Kent: CBD Research Ltd, 1976/7).
7. For example, Maritime Transport (Paris: OECD, 1975), and
Energy Prospects to 1985 (Paris: OECD, 1975).
8. For instance 'World Energy Supplies', Department of
Economic and Social Affairs, UNO Series Journal, no. 19 (New
York,1976).
9. Process Plant Investment Forecasts, Process Plant Working
Party (London: NEDO, June 1977).
10. Short Term Trends, Mechanical Engineering Industry
Economic Development Committee (London: H.M.S.O.
(monthly)).
11. For example Facts About Oil (Edinburgh: Bank of Scotland,
Oct 1974).
12. Good examples are Contract Journal, IPC Business Press Ltd
(weekly) for market intelligence; and HPI Market Data, prepared
by Hydrocarbon Processing, Gulf Publishing Co., for market
characteristics.
13. R. Bucknall, 'Classification and Search Systems for Published
Marketing Information', Journal of the Industrial Marketing Re-
search Association, vol. 6, no. 4 (1970).
14. Government Statistics - A Brief Guide to Sources (London:
Government Statistical Service, Central Statistical Office,
H.M.S.O., 1977).
15. These include: (1) Statistics Europe: Sources for Market
Research; (2) Current European Directories; and similar publica-
tions for Africa (1 and 2), and America (1).
16. Business Monitor - Valves, PO 333 (London: Government
Statistical Service, H.M.S.O. (quarterly)).
17. P. K. Minton (Chairman, IMRA Techniques Committee),

Technology Statistics and Industrial Marketing Research, a paper
presented on behalf of the Industrial Marketing Research Associa-
tion at the Statistics User's Conference, March 1974.
18. A. J. Maitland, 'The Scope and Limitations of IMR in the
Marine Equipment Market', Journal of the Industrial Marketing
Research Association, vol. 10, no. 1 (1975).
19. For examples of industrial markets where random sampling is
possible, see A. R. McIntosh and R. J. Davies, 'The Sampling of
Non-domestic Populations', Journal of the Market Research Society
(Oct 1970).
20. Kompass, 15th ed. (Haywards Heath: Kompass, 1977).
21. 'Input-Output Tables for the United Kingdom', Business
Monitor, PA 1004 (London: Department of Industry, H.M.S.O.,
1974).
22. Private research, Sybron Corporation, Balfour Division,
1972.
23. See T. Cauter, 'Marketing Research for Executive Action',
Journal of the Industrial Marketing Research Association, vol. 5,
no. 3 (1969).
24. See for instance Export Marketing Research Scheme (London:
British Overseas Trade Board, H.M.S.O., 1974): and S. Poulder,
'Market Research Abroad', Export Direction (Feb 1976).
25. 'More British firms using Market Research in Exporting',
Trade and Industry (7 Oct 1977).
26. H. O. Baker, 'The Effective Application of Marketing Re-
search', Journal of the Industrial Marketing Research Association,
vol. 5, no. 3 (1969).
27. Export Intelligence System Daily Gazette, British Overseas
Trade Board (London: Department of Industry, H.M.S.O.).
28. A. E. Ansell, 'The Use of Computers in Industrial Market
Research', Journal of the Industrial Marketing Research Associa-
tion, vol. 8, no. 4 (1972).
29. See D. Jobber, 'Information and Management', Quarterly
Review of Marketing (Autumn 1976).
30. D. Jobber and C. Rainbow, A Study of the Development and
Implementation of Marketing Information Systems in British Indus-
try (Huddersfield Polytechnic, 1975).
31. R. D. Airey and D. Weston, 'Building up a Corporate Market
Research Department', Journal of the Industrial Marketing Re-
search Association, vol. 5, no. 3 (1969).
32. L. Adler, 'How to Economize in Industrial Marketing Re-
search', Industrial Marketing Management (Oct 1975).
CHAPTER 7
1. For further background see Mathematical Trend Curves: An

Aid to Forecasting (London: Imperial Chemical Industries, 1964).
2. Accounts of the methods of short-term forecasting used in
several advanced industrial economies are given in Techniques of
Economic Forecasting (Paris: OECD, 1965).
3. For a detailed study of consumer demand predictions in the
UK see A. Deaton, Models and Projections of Demand in Post- War
Britain (London: Chapman & Hall, 1975).
4. This principle is that the level of investment is not a function of
the level of consumption but of the rate of change of the level of
consumption. A simple explanation of the principle is given in
A. Stonier and D. Hague, A Textbook of Economic Theory (Lon-
don: Longmans, 1964).
5. Statistics derived from Review 1976 (Oslo: Fearnley & Egers
Chartering Co. Ltd, Jan 1977).
6. A. J. Maitland, World Energy Outlook and the Implications for
the Engineering Industry. Paper presented to The Institution of
Mechanical Engineers, Scottish Branch, Edinburgh (Nov 1977).
7. P. Doyle and I. Fenwick, 'Sales Forecasting Using a Combina-
tion of Approaches', Journal of Long Range Planning, vol. 9, no. 3
(June 1976).
8. See for instance Energy: Global Prospects 1985-2000. Work-
shop on Alternative Energy Strategies (New York: McGraw-Hill,
1977); 'OPEC's Long Range Speculation Brings No Comfort',
Petroleum Times (15 Apr 1977); and 'Mobil, Shell See Oil Crunch
by 1985-90', Oil and Gas Journal (18 Apr 1977).
9. National Science Foundation, Proceedings of a Conference on
Technological Transfer and Innovation (Washington: NSF, 1966).
10. B. Archer, 'Design as an Element in a New Approach to
Britain's Industrial Future', Quarterly Review ofMarketing (Winter
1976).
11. See for instance Uranium Resources (Paris: OECD, Press
Release, Mar 1976); 'Is There a World Energy Crisis?', C. Robin-
son and E. M. Crook, National Westminster Bank Review (May
1973); and note 8 above.
12. P. M. S. Jones (ed.), Market Research in an R & D Environ-
ment (London: Industrial Marketing Research Association Study
Group, Oct 1970).
13. J. C. Chambers, S. K. Mullick and D. D. Smith, 'How to
Choose the Right Forecasting Technique', Harvard Business Re-
view (July/Aug 1971).
14. For a description of the sequential sampling procedure see

Jones, op. cit. pp. 29-30.
15. A. W. Miller andJ. G. HainesJnr, 'A Market Study of aNew
Industrial Product', Journal of the Industrial Marketing Research
Association, vol. 6, no. 4 (1970).
16. Office of Health Economics, Medicine in the 1990's (London:
Office of Health Economics, 1969).
17. E. F. Parker, 'British Chemical Industry in the 1980's - A
Delphi Method Profile', Chemistry and Industry (Jan 1970).
18. C. T. Gilligan and G. Darling, 'Forecasting the North Sea
Survey Ship Market', Industrial Marketing Management (Dec
1975).
19. G. B. Gechele, 'Evaluating Industrial Technological Fore-
casting', Journal ofLong Range Planning, vol. 9, no. 4 (Aug 1976).
20. Delphi Club, Henley Centre for Forecasting.
21. N. Dalkley and O. Helmer, 'An Experimental Application of
the Delphi Method to the Use of Exports', Management Science,
val. 9 (1962).
22. For instance The Delphi Method - Techniques and Applica-
tions, ed. H. A. Linstone and M. Turoff (Reading, Mass.: Addison-
Wesley, 1975).
23. H. Kahn and A. J. Weiner, The Year 2000-A Framework
Speculating about the Next 33 Years (London: Macmillan, 1967).
24. See note 6 above. Also P. F. Chapman, 'Three Energy
Scenarios for the United Kingdom', Journal of Long Range Plan-
ning, vol. 9, no.2 (Apr 1976) and Exploring Energy Choices
(Washington: Ford Foundation, 1974).
25. A useful series of essays demonstrating the range of interest in
the subject contained in Planning Alternative World Futures, ed.
L. R. Beres and H. L. Targ (New York: Praeger, and London:
Martin Robertson, 1975).
26. F. J. Long, 'Use of Research in Long Range Planning',
Journal of the Industrial Market Research Association, vol. 5, no. 3
(Aug 1969).
27. J. S. Rowlinson, Identifying the Opportunities (London:
IMRA Conference on North Sea Oil, 1975).
28. P. M. S. Jones and H. Hunt, Programme Evaluation as
Practised by the PAU and Three Case Studies, PAU-M12 (London:
H.M.S.O., 1969).
29. P. M. S. Jones, 'The Evaluation of Government R &D',
Management, vol. 2 (1971).
30. F. Felix, 'World Energy Needs in Relation to Economic
Growth and Quality of Life', Energy International (July 1972).
31. V. Smil and T. Kuz, 'A New Look at Energy and GDP
Correlation', Energy International (Jan 1976).
32. The degree of association is shown by the correlation coeffi-
cient which is expressed as a number between + 1.0 and -1.0. The
closer the coefficient is to the ends of this range the better the
correlation between the two variables: the closer it is to zero the
poorer the correlation. A clear and comprehensive treatment of
correlation and regression is given in M. J. Moroney, Facts from
Figures (Harmondsworth: Penguin Books 1965).
33. J. S. Duesenberry, G. Fromm, L. Klein andE. Kuh(eds), The
Brookings Quarterly Economic Model of the United States Economy
(Chicago: Rand McNally, 1975).
34. See Annex 11 of Long Term Prospects of the Electric Power
Industry in Europe, 1970-85 (New York: Economic Commission
for Europe Secretariat, United Nations, 1974).
35. A. J. Maitland, Industrial Forecasting, Paper presented to the
British Industrial Marketing Association, April 1975.
36. 'Input-Output Tables for the United Kingdom', Business
Monitor 1004 (London: Government Statistical Service, H.M.S.O.,
1974).
37. J. I. Menzies, 'Computer Forecasting - A Reply', Journal of
the Industrial Marketing Research Association (Nov 1973).
38. S. Encel, P. K. Marstrand and W. Page (eds), The Art of
Anticipation: Values and Methods in Forecasting (London: Martin
Robertson 1975).
39. See for instance A. B. Nutt et al., 'Data Sources-for Trend
Extrapolation in Technological Forecasting', Journal of Long
Range Planning, vol. 9, no. 1 (Feb 1976).
40. E. Jantsch, Technological Forecasting in Perspective (Paris:
OECD,1967).
CHAPTER 8
1. For further discussion of the distributor role in marketing, see

F. E. Webster, 'The Role of the Industrial Distributor in Marketing
Strategy', Journal of Marketing (July 1976).
2. C. P. Stephenson, Handbook for the Manufacturer's Agent
(London: British Agents Register, 1969) p. 7.
3. B. P. Shapiro, 'Improve Distribution with your Promotional
Mix', Harvard Business Review (Mar/ Apr 1977).
4. R. McTavish, 'The Marketing Channels of Office Machinery',
Journal of Management Studies, vo!. 3, no. 1 (Feb 1966).
5. R. E. Weigand, 'Fit Products and Channels to Markets',
Haroard Business Review (J an/Feb 1977).
6. Stephenson, op. cit., p. 62.
7. Ibid., chap. 6, pp. 61-73.
8. W. G. McClelland, Studies in Retailing (Oxford: Blackwell,
1963) p. 91.
9. M. Guirdham, Marketing: The Management of Distribution
Channels (Oxford: Pergamon Press, 1972) p. 83.
10. J. D. Canton, 'Distributor Relations', Industrial Marketing
(Dec 1976).
11. F. E. Webster, 'Perceptions of the Industrial Distributor',
Industrial Marketing Management (Oct 1975).
12. The area of physical distribution management has attracted a
good deal of attention in recent years. See, for example, D. Hollier
et aI., 'Physical Distribution', Business Administration (Sep 1977);
J. Weeks, 'Planning for Physical Distribution', Long Range Plan-
ning (June 1977); J. G. Keeble, 'The arrival of physical distribution
management', I.M.C. Journal (U.K.) (Dec 1973); and D. E. Hus-
sey, 'Corporate Planning for Physical Distribution', International
Journal of Physical Distribution, vol. 3, no. 6 (Summer 1973).
13. See R. Gregson, 'Marketing Logistics and Analysis', Euro-
pean Journal of Marketing, vol. 2, no. 3 (1977); P. B. Schary and
B. W. Bencker, 'The Marketing/Logistics Interface', International
Journal of Physical Distribution (Spring 1973); and G. W. Rider,
'Logistics and Materials Management', Journal of Purchasing (Aug
1973).
14. W. M. Hutchinson and J. F. Stolle, 'How to Manage Cus-
tomer Service', Harvard Business Review, vol. 46 (NovIDec 1968).
15. For more information on the service aspect of physical
distribution see, for example, P. Gilmour, 'Customer Service: Dif-
ferentiating by Market Segment', International Journal of Physical
Distribution (Mar 1977); and W. Wagner, 'The Customer Service
Function in Distribution', International Journal of Physical Dis-
tribution (Mar 1977).
16. A. Wilson, The Assessment of Industrial Markets (Hutchin-
son, 1968) p. 34.
CHAPTER 9
1. J. M. Keynes, The General Theory of Employment, Interest and

Money (London: Macmillan, 1936) chap. 21.
2. A. Marshall, Principles of Economics (1890) book Ill, chaps
3-4, and book IV, chap. 13.
3. V. C. Wright, 'Corporate Planning in the Mineral Industry',
Journal of Long Range Planning, vo!. 9, no. 2 (Apr 1976).
4. See, for instance, P. Kotler, Marketing Management Analysis:
Planning and Control (Englewood Cliffs, N.J.: Prentice-Hall, 1976)
chap. 7; and S. Majaro, International Marketing - A Strategic
Approach to World Markets (London: Allen & Unwin, 1977)
chap. 7.
5. W. Brown and E. Jaques, Product Analysis Pricing (London:
Heinemann, 1964).
6. See, for instance, G. Foxall, 'A Descriptive Theory of Pricing
for Marketing', European Journal of Marketing, vo!. 6, no. 3 (1972)
p.193.
7. See, for instance, G. Briscoe, T. Gannon and A. L. Lewis, 'The
Market Development of New Industrial Products', European Jour-
nal of Marketing, vo!. 6, no. 1 (Spring 1972).
8. D. W. Smallbone, The Practice of Marketing (London: Staples
Press, 1965).
9. L. A. Williams, 'Instant Forecasting', Journal of the Industrial
Marketing Research Association, vo!. 5, no. 3 (Aug 1969).
10. F. Livesey, Pricing (London: Macmillan, 1976).
11. R. Eveley, 'The Effects ofthe Price Code', National Institute
Economic Review, no. 77 (London: NIESR, 1976).
12. 'Can We Afford the Price of this Commission?', Daily
Telegraph (17 Feb 1978).
13. 'World Value of the Pound', Financial Times (13 Nov 1976).
14. Phillips & Drew, Economic Forecasts (1977).
15. Central Statistical Office, National Income and Expenditure
1966-76 (London: H.M.S.O., 1977).
16. M. Reid, 'Exports Priced in Foreign Currencies', Financial
Times (18 June 1976).
17. L. Barling, 'Exporters Face up to a Stronger Pound', Finan-
cial Times (5 Dec 1977).
18. See, for instance, 'Never Mind the Quality', The Economist
(3 Apr 1977) p. 112.
19. NEDO, International Price Competitiveness: Non-Price Fac-
tors in Export Performance (London: NEDO, 1977).
CHAPTER 10
1. H. Hakansson, J. Johanson and B. Wootz, 'Influence Tactics in

Buyer-Seller Processes', Industrial Marketing Management, vol. 5
(1977).
2. Op. cit.
3. H. L. Davis and A. J. Silk, 'Interaction and Influence Processes
in Personal Selling', Sloan Management Review, vol. 13, no. 2
(Winter 1972).
4. J. Greenberg and H. Greenberg, 'Predicting Sales Success:
Myths and Reality', Personnel Journal (Dec 1976).
5. L. J. Rosenberg, 'Job Performance in the Industrial Sales
Force', Industrial Marketing Management, vol. 6, no. 2 (1977).
6. C. M. Crikscheil and W. J. E. Cressy, 'Improving Interpersonal
Communication Skill', MSU Business Topics (Autumn 1973).
7. J. Cotham, D. Cravens and A. Pennington, 'Examining the Job
Attitude/Salesman Performance Issue', European Journal of Mar-
keting, vol. 6, no. 2 (Summer 1972).
8. P. R. Lund, Compelling Selling: A Framework for Persuasion
9. J. D. Staunton, 'Theories of Interpersonal Behaviour', Sales
Meetings (Dec 1973).
10. Among texts which the reader can consult for more detail on
sales management and salesmanship are: D. Smallbone, How to
Motivate and Train Your Salesmen (London: Staples Press, 1971);
B. P. Shapiro, Managing the Sales Programme (Maidenhead:
McGraw-Hill, 1977); D. D. Seltz, Industrial Selling (Maidenhead:
McGraw-Hill, 1976); J. Wage, The Successful Sales Presentation:
Psychology and Technique (London: Leviathan House, 1974);
A. A. Jeffries and T. S. Duxfield, Management and Training of
Technical Salesmen (London: Gower Press, 1969); C. S. Goodman,
Management of the Personal Selling Effort (New York: Holt,
Rinehart & Winston, 1971); and V. Markham, Effective Industrial
Selling with Total Marketing Communications (London: AlIen &
Unwin, 1970).
11. F. B. Evans, 'Selling as a Dyadic Relationship - A New
Approach', American Behavioural Scientist, vol. 6 (May 1963).
12. C. I. Hovland et al., Communication and Persuasion (New
Haven, Conn.: Yale University Press, 1953).
13. R. A. Bauer, 'Communication as Transaction', in The Obsti-
nate Audience, ed. D. E. Payne (Ann Arbor, Michigan: Foundation
for Research on Human Behavior, June 1965).
14,: T. Levitt, Industrial Purchasing Behaviour (Cambridge,
Mass.: Harvard Business School, 1965).
15. B. C. Ames, 'Build Marketing Strength into Industrial Sell-
ing', Harvard Business Review (Jan/Feb. 1972).
16. B. P. Shapiro, 'Manage the Customers, not just the Sales
Force', Harvard Business Review (Sep/Oct 1974).
17. S. T. Parkinson, Research into Organisational Buying Be-
haviour - the Next Step, paper presented at the Annual Conference
of the Marketing Education Group of the United Kingdom, Uni-
versity of Strathclyde, Glasgow, on 6-9 July 1976.
18. As examples of this approach see, for example, P. Mouvid,
'The Psychology of Sales Performance', Marketing (Dec 197 5); and
D. G. Walker, 'Psychology can help your salesmen', Marketing
(Nov 1971).
19. P. J. Robinson and B. Stidsen, Personal Selling in a Modern
Perspective (Boston, Mass.: Allyn & Bacon, 1967).
20. F. Porsers and S. Marks, 'The Negotiating Art', Marketing
(May 1972) and P. M. Chisnall, 'Successful Negotiation in Busi-
ness', Purchasing Journal (Sep 1972).
21. C. D. Fogg and J. W. Rokus, 'Structuring a Profitable Sales
Force', Journal of Marketing (July 1973); and L. M. Lodish, 'Sales
Force Allocation', Harvard Business Review (Jan/Feb 1974).
22. M. Wilson, 'Research to Aid the Sales Force', Marketing
(Aug 1973); andM. Wilson, 'ResearchinSalesOperations',IMRA
Journal (Nov 1973).
23. J. Handley, 'Work Study for Better Salesmanship' , Industrial
Advertising and Marketing (Dec 1972).
24. D. Howard-Allen, 'The Training of Mature Salesmen', Mar-
keting (Dec 1976); J. F. Ryan, 'Training to Improve Salesman
Performance', Industrial and Commercial Training (Jan 1977);
v. Stewart, 'A basic do-it-yourself training course', Industrial
Training International (May 1976); D. J. Scott Lewis, 'How to
Motivate and Train a Sales Force', Industrial Advertising and
Marketing (Sep 1972); and A. Warseny, 'Fundamentals of Sales
Training', Industrial Training International (Apr 1972).
25. See, for example, Department of Employment, Training for
Marketing (London: H.M.S.O., 1972}.
26. M. Fussell, 'How to Make Salesmen', Management Today
(Nov 1975).
27. See, for example, P. Doyle, 'The Recruitment and Selection
of Effective Salesmen', Management Decision (Spring 1973);
C. Ingleton, 'A Strategy for Salesman Selection', Management
Assessment (Spring 1972); and B. Austin, 'Selecting a Sales Man-
ager', Marketing (Nov 1973).
28. G. L. Lilien et aI., 'Industrial Advertising Effects and Budget-
ing Practices', Journal of Marketing, vol. 40, no. 1 (Jan 1976). This
source quotes only one 'noteworthy exception', namely R. S. Wein-

berg, 'Multiple Factor Break-Even Analysis: The Application of
O.R. Techniques to a Basic Problem of Management Planning and
Control', Operations Research, vol. 4 (Apr 1956).
29. Lilien, op. cit.
30. T. Levitt, Industrial Purchasing Behavior: A Study of Com-
munications Effects (Boston, Mass.: Harvard University Press,
1965).
31. S. T. Parkinson, 'The Role of Information in the Adoption of
Industrial Innovation', unpublished M.Sc. thesis (University of
Strathclyde, 1975).
32. See, for example, F. E. Webster Jr, 'Informal Communica-
tions in Industrial Markets', Journal of Marketing Research, vol. 7
(May 1970); J. A. Mortille, 'Word of Mouth Communication in the
Industrial Adoption Process', Journal of Marketing Research, vol. 8
(May 1971); and U. B. Ozanne and G. A. Churchill Jr, 'Five
Dimensions of the Industrial Adoption Process', Journal of Market-
ing Research, vol. 8 (Aug 1971).
33. P. W. Turnbull, 'The Allocation of Resources to Marketing
Communications in Industrial Markets', Industrial Marketing Man-
agement, vol. 3 (Oct 1974).
34. C. Gilligan, 'Budgeting for Advertising - Time for a New
Approach?', Advertising Quarterly, no. 46 (Winter 1975/76).
35. N. Hart, 'Budgeting for Advertising in the UK', Industrial
Marketing (Apr 1978).
36. See note 28.
37. Buchan Advertising Inc., Advertising in Recession Periods:
1949, 1954, 1958, 1961 - a New Yardstick Revisited (Chicago:
Buchan Advertising Inc., 1970).
38. These and other examples, together with a description of the
much quoted 'DAGMAR' approach, can be found in R. H. Colley,
Defining Advertising Goals for Measured Advertising Results (New
York: Association of National Advertisers, 1961).
39. A method to relate the attainment of a communications
objective with an ultimate sales result has been proposed by
C. Freeman, in 'How to Evaluate Advertising's Contribution',
Harvard Business Review (July/Aug 1962), butthe method is based
on numerous assumptions and there is little evidence that it has
been found of practical use.
40. See M. L. Ray, 'Marketing Communications and the Hier-
archy of Effects', in New Models for Communications Research, ed.
P. Clarke (Beverly Hills, Calif.: Sage, 1974).
41. J. Brittain, 'Bad Advertising? The Main Culprit must be the
Client', Industrial Advertising and Marketing, vol. 12, no. 2 (Sum-
mer 1975).
42. P. Spillard, 'How to Promote Industrial Products', Marketing
(Feb 1977). For case examples see the same author's 'Industrial
Sales Promotion in Practice', Marketing (Sep 1977).
43. See for example, J. Peters, 'PR Strategy', Industrial Market-
ing (Feb 1976); R. Gugenheimer, 'PR can play a key role in
industrial selling', Industrial Advertising and Marketing (Sep 1974);
and W. P. Margulies, 'Make the Most of Your Company Identity',
Harvard Business Review (July/Aug 1977).
44. M. Sharman, 'Industrial Packaging can boost sales', Market-
ing (Dec 1976).
45. R. K. Swandby and J. Cox, '1975 Trade Show Trends for 25
British Shows and 25 Top Shows in the US', Industrial Marketing
(Apr 1976). See also D. McDermott, 'How to Improve the Cost
Efficiency of Exhibition Work', Industrial Advertising and Market-
ing(Mar 1972).
46. Lilien, op. cit., note 28.
Index
accelerator principle 106 capital investment 25

accessory equipment 20,21 catalogues 44
advertising 14,20,166fl. causal techniques in
after-sales service 9,65,66 forecasting 114 fl.
agents 21,122 centralised purchasing 13,40
applicational analysis 92 channel choice 129
Arab 'blacklist' 75 channel management 121 ff.
autonomous investment 30 chemical industry 19,77,91
coal 74
coal-cutting machinery 12
banks (as a source of marke t
co-ordination of promotion 172
data) 87 COMPACfModel 161ff.·
benefit clusters 4
competitive bidding 146,147,
branding and packaging 172
149
British Institute of competitive differential
Management 98 advantage 66ff.
British Overseas Trade Board 86,
competitor analysis system 101
98,100 component parts 22
British Steel Corporation 13
computer (in forecasting) 118
brokers 22
computer (in marketing
budgeting practices in
research) 102
advertising 168ff.
consortium buying 8
business intelligence system 100
'contagion' effect 47
business logistics 133ff.
Business Monitor 86,88 contractors 20, 69
cost plus pricing 144
Business Statistics Office 86
curve-fitting 117
buy classes 41
customercontactsystem 101
buyphase 34
customs statistics 88
buyer motivation 7ff., 33, 46
buying centre 35
buying decisions 37 decision-making unit 35
definitions of marketing 1
buying process 35,37
'delegatedpriclng' 143
buying stages 34
delivery 9,22,44,50,65,66,70
134 '
Cambridge Economic Policy Delphi technique 111
Group 152 demarketing 15
202 INDEX
Department of Employment implementing the marketing

Gazette 86 concept 2,3
derived demand 14,24,28ff.,79, individual customers, significance
106 of 13,37
design 9,65, 149 induced investment 30
differential pricing 148 industrial marketing, special
diffusion of innovation 47 features of 5
direct selling 121, 13 2 industrial marketing
distribution channels 121ff. executive 15, 16,83
distribution effectiveness industrial promotion 170 ff.
analysis 136ff. influencing the buyer, tactics
distributors 15,21,122ff. for 156ff.
dual-channel system 132 information sources 44
dynamic product areas 62 input/output analysis of UK
industry 92
econometric models 114 input/output models 114
EEC (European Economic installation advice 20,66
Community) 75,151 interviewing (in market
electricity generation 74 research) 97,98
electricity industry 114
electronics industry (UK) 89 'jumbo'projects 69
empathy 158
energy conservation 113 Kompass Register of
energy consumption 114 Companies 87,91
entrepreneurship 64,74
exhibitions 44, 172 loyalty motivations 11, 147
expert opinion 111 LucasIndustries 152
exponential smoothing 117
export market research 98 machine-tool industry 13
export pricing 151 mail surveys 92
external consultant (in marke t major equipment 19,20
research) 81,82 management style 67
marginal efficiency of capital 27,
field surveys 97 28
fixity of end industrial market 14 marine market 74
food industry 93 market data system 101
forecasting 76, 105 ff. market planning 80
functional position analysis 66 ff. market segmentation
planning 58 ff.
GeneralElectric 74,152 market -share erosion
GNP (gross national product) 74 spiral 145 ff.
Guest, Keen, & Nettlefold 152 market trends 79
marketing communications 19,
heavy-half rule 59,131 155ff.
Hydrovane Compressors 9 marketing mix 66,143,155
marketing planning process 55 ff.
mM (International Business marketing ratios 90
Machines) 4 marketing research 12, 72ff., 136
INDEX 203
marketing research original equipment
techniques 85 ff. manufacturers 23
materials management 40 Overseas Trade Statistics of the
matrices in forecasting 113 UK 86
measurement of advertising
response 166ff. Pareto's Law 91
microprocessors 63 personal selling 157 ff.
middlemen 124ff. physical distribution 133 ff.
Mitsubishi 74 planning, overall 54
modified rebuy 41 planning major products 69 ff.
Monthly Digest of Statistics 86 Post Office 12
morphological techniques (in power stations' auxiliary plant
forecasting) 113 (demand for) 114
moving average 117 price 11,22,41,66
multi-dimensional planning 61 Price Commission 150
multimarketing 124 price monitoring 148,149
pricing 139ff.
National Coal Board 12 pricing models 139 ff.
NEDO (National Economic pricing objectives 142
Development Office) 77,87, primary market research 90
152 private investment
new-product planning 60 ff. expenditure 26ff.
new task purchase 41 Process Plant Working Party 87
NIESR (National Institute of producer/user links 9
Economic and Social product advantages 66
Research) 150 product range 9,90
NlMEXE (Nomenclature product/services mix,
Harmonizee pour les Statistiques planning 64ff.
Exterieurs Pays de la CEE) 89 production planning and
normal distribution 77 control 9,65,67
non-product advantages 66 public relations 68, 155
nuclear fuel 74 publicspending 5, 24ff.
nuclear reactors 83 purchase complexity 42
purchasing officers 7,10,20,23,
observation in market research 90 37,41,45
OECD (Organization for purchasing systems and
Economic Co-operation and technique 47ff.
Development) 86,119
office equipment distribution 130 qualitative techniques in
oil industry 19 forecasting 111ff.
'one-off pricing 143 quality 21,22,51,65
OPEC (Organization of Petroleum quality control and assurance 9,
Exporting Countries) 75 51,67
operator supplies 23 questionnaire design 93
operator training 20,66
operatgr training programmes 66 RankXerox 15
organisation for market raw materials 21
research 80ff. reciprocity 9,10,65
204 INDEX
regression models 114 systems management 15

relevance tree in forecasting 113 systems selling 23,24,131
research and development 16,63
risk in buying 45 task method 168,173
Tate&Lyle 150
sales analysis system 99 technical development 9
sales promotion 12,66,132, techno-economic environment 74
155ff. technological forecasting 119
salesman selection 163 ff. telephone surveys 97
salesmanship, measuring TEMCOl 02 approach 59
effectiveness of 158 ff. time series techniques in
sampling 91ff. forecasting 117
Sandvik 62 trade associations 86
scenario 112 trade directories 87
secondary data 86ff. trade publications 87
seller/buyerrelations 10ff. training of salesmen 163 ff.
services 124 Tube Investments Ltd 113
shipbuilding industry 74,59,62 turbo-generators 77
skewed distribution 92 turnkey projects 69
sources of marketing typesofindustrialproduct 18ff.,
information 85 ff. 129
spare parts 65 Typewriter (and Allied) Trades
StalLaval 74 Federation 122
steel stockholders 22, 123
UNO (United Nations
stockbrokers (as a source of market Organization) 87,114
data) 87
USSR 75
stockholding 22,66,121,134
straight rebuy 41 value analysis 48,49
strategic objectives 30,78 value engineering 9
subassemblies 22 vendorrating 50ff.
systems in marketing
research 98ff. welfare state economies 25

Industrial Marketing

Diunggah oleh

Informasi Dokumen

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

Industrial Marketing

Diunggah oleh

Hak Cipta:

Format Tersedia

INDUSTRIAL MARKETING

MACMILLAN STUDIES IN MARKETING

The titles so far published in the series are:

Marketing - Theory and Practice Michael J. Baker

All rights reserved. No part of this publication

First published 1980 by

Filmset by Vantage Photosetting Co. Ltd

British Library Cataloguing in Publication Data

2 Demand and Product Characteristics 18

3 The Industrial Customer 33

4 Planning the Market Offering 54

5 Researching the Industrial Market 72

6 Industrial Marketing Research: An Overview of

A Note on Physical Distribution 133

10 Sales Promotion 155

The range of products covered by the phrase 'industrial marketing'

3.1 Vendor assessment scale 51

4.1 The market planning framework 56

This chapter introduces industrial marketing.

2 Implementing the Marketing Concept

3 Industrial Marketing is 'Different'

4 The Special Features ofIndustrial Marketing

5 The Function of the Industrial Marketing Executive

Definitions of the word 'marketing' abound. This has led to at-

1 The marketing process - enacted via the marketing channel

The Case ofIndustrial Marketing

1 With regard to the marketing process, the book deals with

In other words, while marketing can be looked upon as a social

IMPLEMENTING THE MARKETING CONCEPT

particularly important in markets where consumers have difficulty

INDUSTRIAL MARKETING IS 'DIFFERENT'

Rapid Turnover Consumer Goods.

This classification can be useful in giving the industrial marketer a

SPECIAL FEATURES OF INDUSTRIAL MARKETING

The main difference between industrial and consumer goods does

1 differences in the buyers, and

Industrial goods, for example, raw materials, components, sup-

operations. They are not bought to resell to final householders or

Taking business and government buying together, therefore, we

1 Buyers are rationally motivated.

We now consider these in more detail.

Buyers are Rationally Motivated

1 Maintenance of continuity of supply to support manufacturing

Clearly the industrial goods manufacturer needs a thorough

Buyers are Less Susceptible to Sales Promotion

Reciprocal A "angements Between Buyer and Seller May Exist

reciprocity involves an arrangement between a producer and a user

Seller/Buyer Relations Can Become Stultified

'We enjoy a good, established relationship, with consistent qual-

Thus the establishing of a long-lasting relationship involves, first,

'Almost nothing short of a catastrophe in the operations of

Of course, buyers do change suppliers. This might occur if there

The Market is Readily Identifiable

works. Again, the manufacturer may appoint a manager to oversee

The End Market is Relatively Fixed

THE FUNCTION OF THE INDUSTRIAL MARKETING

In view of the difficulties of implementing the marketing concept,

The 'ideal' marketing executive, therefore, is one with general

There are many definitions of marketing and it is not always fruitful

Demand and Product

We discuss in this chapter the two features of the industrial market,

1 Types of industrial products and

TYPES OF INDUSTRIAL PRODUCT

The variety of products and services embraced in the phrase 'indus-