Chapter 1: Marketing

1. Introduction:
The economic life of any business is depending on production and marketing of goods
and services. Organizations works onbothkey functions to fulfil their commitments to their
stakeholders. Thegoal of any manufacturer is to produce a zero-defect product and satisfy
need of consumers. Only manufacturing a product never creates the need of buying that
product in to mind of consumers. Hence, marketing plays a crucial role in sale of products. In
general, marketing focuses on satisfying consumer demands. ―Marketing is all about creating
a need in mind of consumers and satisfying that need: Philip Kotler”
The success of business is not only depending on producer, but also depends on
consumers. Marketing is one of primordial art which plays role directly or indirectly in all
business. It is the business function that point-outs need of the market along with market
potential and targeted customer segment which will give better position to a company. One
must remember that marketing the product is never ending process. To stand in market and to
survive in competition, the organization must create new customers. The profit of business
depends on creating new consumers. Hence, marketing is an endless race.
Role of marketing manager is again very important as it creates customers to the
organization.
Definitions and terminologies:

 Marketing is the blend of social and managerial process by to satisfy the requirement
of individuals and groups at good profit.
 Marketing is the process to relate creativity, productivity and profitability.
 It is the way to deliver right goods and/or services to right person with right
promotion.
 Marketing is the booster for business performance that directs the flow of product to
end customer.
 Marketing is the way to deliver product to target customer with the mutual gain.
 Marketing looks at the entire business process as a highly integrated effort to satisfy
the target.
The pharmaceutical marketing is no different from this. It is all about creating
prescription for your product. The only difference in marketing of other product and pharma
marketing is the consumer. In other products marketing, the consumer or customer is the user of
the products. But in case of pharma marketing the customer is physician or doctors who direct
end user to buy pharmaceutical products. So here, doctor who writes the prescription will be
taken in consideration while designing marketing strategies. Hence, the pharmaceutical
marketing efforts are concentrated to influence and educate doctors about your products.
1.1. Scope of Marketing:
The scope of marketing includes the entire thing that covered in marketing. Scope of
marketing starts from the generation of idea till the profit from the product.
The scope of marketing is as follows:
 1.2. Marketing and Selling
Many people mistake marketing with selling. Difference between them given in table
below:

Selling Marketing
Selling is one of the activities or steps in Marketing is broader terminology and includes
overall marketing process. number of activities.
Selling is act of convincing or influencing a Marketing process helps the selling of
customer to buy the product or service. For products. The consumers ask for particular
example, to sell a pain relief spray by retailer brand of pain relief spray from available
to consumer in exchange of money is selling. Brands is function of marketing.
Selling focuses on the needs of the seller Marketing on the needs of the buyer
Selling is preoccupied with the seller‘s need Marketing with the idea of satisfying the
to convert his product into cash needs of the customer by means of the
product and the whole cluster of things
associated with creating, delivering and
finally consuming it.

Henceforth; to make selling more effective, one need to perform good

marketing with activities like
 Assessment
 Marketing research
 Product development
 Pricing and distribution.
 Advertisement
If marketing team works properly then product will sell easily.
1.3. Marketing Environment
A company's marketing environment includes all the causes that help to maintain
business as well as relation between company and targeted customers. Factors influencing the
business are divided into two parts as internal and external.

Internal factors External factors

These are controllable factors These are beyond the control of a company
Examples. personnel, physical Examples. economic factors, socio-cultural
facilities, marketing-mix etc. factors, government and legal factors,
demographic factors, geophysical factors, etc.
Based on the factors affecting business, marketing environments are broadly classified in to
two categories.
a) The microenvironment
These are the factors associated with company‘s immediate environment that controls
the knack of marketers to serve their consumers. It includes following factors;
1. Suppliers: It includes anyone who supply the required material to the company. Company
should identify and work with more than one supplier in order to avoid any emergency and
unpredicted circumstances which interns may hamper the company production rate.
2. Customers: As discussed earlier, in order to stand in market for longer time and to
compete, major task of organization is to create new customer and sustain older customers.
Monitoring of the customers is one of the crucial aspect to maintain and uplift any business.
Targeted consumers may include individuals as well as any another. In order to sustain in
market, any company should target the large customers.
3. Competitors: This term is not only restricted for the any manufacturer or supplier of
similar product but also covers all those who directly or indirectly target the customers for
some optional income. For example, the competition for a company making antacid tablets
may come not only from other antacid tablets manufacturers but also from antibiotic tablets
manufacturers, antacid suspension manufacturer, etc. Such alternatives which satisfy a
category of desire are called generic competition.
4. Marketing intermediaries: It includes all those who help to company for product
promotion, distribution and selling to the end consumer. It also plays decisive role in overall
business and profit to the company. It is again recommended to have number of distribution
channel in order to maintain supply chain.
5. Public:

Many times company experience notable effect of ‗public‘ factor on business e.g. one
of the leading company ends with bringing down the share price of the company by ruining
image. Company also get affected by local publics such as environmental pollution.
Moreover; action by local publics also affects the business of company but not always.
Macro environment
Overall performance of company it depends on both microenvironment forces as well as
macro-environment forces. It is more uncontrollable factor which may be boon or threat for
company.
The macro environmental forces are as follow;
1. Economic environment: Economic conditions, economic policies and the economic
system are the important external factors that constitute the economic environment of a
business.
Country in which business is located is also matters a lot in overall development of
business. Economical structure of nation including but not restricted for economy nature,
income level, distribution of income, resources for development are the significant factors to
set business strategies.
A country with increasing economy is the best place for any business growth. As
person income increases, demand for product also increases. Economic policies of any
country affect to business in different way. It benefits one business at a time and negatively
affects another.
Government economic policy has a very strong impact on business. Some types of
businesses are positively affected by government policy; others are negatively affected, while
others are neutral.
The scope of a private business depends, to a large extent, on the economic system.
On the one hand, there is the free market economy, or the capitalist economy, and on the
other, the centralized economy or the Communist economy. Between the two extremes is a
mixed economy.
2. Political and Government environment: Political and government environment has a close
relationship with the economic system and economic policy. Every country wishes to protect
the staying population by ensuring quality of product. Henceforth; all government maintain
stringent regulation by implementing number of laws which need to be consider while
performing any business.
3. Socio-cultural environment: For any successful business, one should always focus on
socio-culture environment. It includes following aspects;
 Customs
 Traditions
 Taboos
 Tastes
 Preferences
While starting any business one should always focus on appropriate policies based on
concept of socio-cultural environment.
4. Demographic environment: Product demand and ultimately sale depends mainly on
demographic environment. It includes factors like educational level, sex composition, age,
growth rate, population etc. Marketing of product or service in the area with appreciable
growth rate and more young population is easy than in any another country.
Example: Marketing of baby product in country with increase in population like India will
always lead to good business. On the other hand, marketing of such product in country like
United State where birth rate is low will not earn good profit.
5. Natural environment: Geographical and ecological factors also affect to success of any
business. It includes following factors;
 Natural resources endowments
 Weather and climate conditions
 Topographical factors
 Location aspects in the global context
 Port facilities
Location of certain industries also dependent on geographical and ecological factors
as well as on climate and weather conditions.
Example: industries with high material index located near the raw material sources.

6. Physical facilities and technological environment: Development and ultimately stability

of business depends on physical facilities and technological environment.
Example: Television sale depends on coverage of telecasting
7. International environment: The international environment is very important for business
which is directly depends on exports and/or imports.
Example: a recession in foreign markets or the adoption of protectionist policies may help
the export-oriented industries.
International bodies like WTO, IMF, WHO, ILO etc. already showed impact on many
countries, especially India.
1.4. Industry and Competitive Analysis in Strategic Management
An organizational strategy is affected by the structural characteristics. It is thus
considered essential to make a detail analysis of the industry in which the firm operates its
business. As per on Michael Porter, suppliers, buyers, direct competitors, new entrants and
substitutes are the main pillars pf industrial structure. One must focus on industry structure
with proper strategy. After the external environmental analysis, company should focus on
industry analysis which may help to obtain proper information about future happening of
industry. Every business should perform analysis of Strengths, weaknesses, opportunities and
potential threats in market (SWOT Analysis). Establishment of any industry and progress it
depends on ability of company to face the completion. The competitive intensity affects
business operation significantly. Henceforth; industry should review and set competitive
intensity. No organizations can expect good strategy-making without a detailed analysis of
industry environment.

Analyse Competition in an Industry

Figure 1: Michael E. Porter’s five forces model for competitive analysis
For analysis of industry environment and competition majority of industries follows the
Michael Porter‘s Five Forces Model which provides a framework to identify SWOTs.
Significant factors affecting the industry growth in context with competition are shown in
figure 1.You will find that there are five factors or forces that shape competition in an
industry. These are:
(i) Threat of new entrants;
(ii) Bargaining power of suppliers;
(iii) Bargaining power of buyers;
(iv) Threat of substitute products; and
(v) Rivalry among the existing firms.
1. Threat of New Entrants: When potential competitors launch a new product, it creates
threats to the business. Some competitors are already operating their businesses are called
existing competitors. Potential competitors can enter into market and can take away the
market shares which create threats to existing companies (present companies). Thus, existing
companies depress possible competitors from inflowing into the market by creating ‗barriers
to entry‘. These are some measures taken by existing companies that are very costly for the
new competitors to adopt. Sometimes, whenever the risk after entry of potential competitors
is not significant, existing company increases price of product and enjoys higher profits.
2. Bargaining Power of Suppliers: any Industry has to obtain raw materials, components
and parts from the suppliers. If any company is more dependent on any supplier, then
supplier increases his/her bargaining power. Henceforth; any company should not relay on
single supplier.
3. Bargaining Power of Buyers: Product or service buyers may include end customers or
any intermediate like dealers, wholesalers and/or retailers. In any case, whenever supplier
depends more on buyers, suppliers bargaining power decreases and vice versa. Buyers and
seller relationship in terms of bargaining power plays significant role in overall progress of
any business. Details summarized in figure 2 and 3.
4. Threat of Substitute Products: One should also think of competition of alike product by
other industry. Pharma sector suffers a lot because of such availability of same product by
many industries. A factor that governs the strength of competition includes cost and
customer‘s satisfaction (quality). Majority of times, customer compares the cost of product if
they have option and in that case ultimately it increases pressure on any manufacturer to
reduce price to stand in market.
5. Rivalry among the Existing Firms: One of the important factors that affect the stability
of any industry is the completion with other established industry. It may lead to cold war
between industries in terms of the cost of product, which ultimately decreases profitability of
company.
 Figure 2: Reasons for increase in bargaining power of buyers

Figure 3: Reasons for decrease in bargaining power of buyers

Both the quality and quantity of competition must be carefully scrutinized. This
competitive analysis (figure 4) involves consideration of the number of competitive
analysis involves consideration of the number of competitors as well as the strength of
each.
 Figure 4: Components of competitive analysis

Several useful steps can assist an entrepreneur with examining the industry.
1. Clearly define the industry for the new venture will provide a better chance to sound start.
2. An analysis of the number, relative size, traditions, and cost structure of direct
competitors in an industry can help to establish the nature of competition.
3. Determine the strength and characteristics of suppliers.
4. Establish the value-added measures of the new venture are useful to introduce
backward or forward integration. Backward integration is the movement of buyer to
acquire supplier services. Forward integration is the movement of supplier to absorb the
duty of buyer.
1.5. Consumer Buying Behaviour
Consumer buying behaviour signifies more than just the approach of consumer towards
buying a product. Marketing efforts therefore also emphasize on consumer‘s consumption of
services, ideas and activities. The way consumer buys a product is extremely important to
marketers. It involves understanding a set of decisions (what, why, when, how much and
how often) that the consumer makes over the time.
In general terms ―Consumer is a person who consumes‖, especially an individual belonging
to a gender, age, sex, religion etc. and who take product for own use and not for sale to
other.
Consumer is an individual who buys products or services for personal use
and not for resale or reproduce‘. A consumer is an important person who can make the
decision to acquisition an item from a particular store and can be swayed by marketing and
advertisements.
Consumer buying behaviour means more than just how an individual buys product.
Marketing efforts therefore also focus on consumer‘s consumption of services, his activities
and ideas.
Consumer buying behaviour: it is the process that covers individuals or groups to select, use,
or dispose products, services, ideas or experiences (exchange) to satisfy needs and desires.
One should focus on this point to understand tendency of consumer for selection of any
product.
Consumer incentives are known as 4 P‘s (figure 5).Other important
factors in the consumer environment are changes in the economy, technology,
politics, and culture which affect their buying incentives. All these different
stimuli are put together in ―the buyer‘s black box‖ and will probably
observable results in buyer responses, as choice of product, amount and
purchase timing.
Consumer behaviour study is associated with several advantages as given below;
 Help to judge demands.
 Measures brands behave.
 Prediction in context with delivery of product in efficient manner.
Help to calculate own expenditure

Figure 5: Consumer incentives 4 P’s

In fact, the study of consumer behaviour is relatively a rich science that includes elements
from psychology, marketing, economic, consumer politics and many other fields of
scientific research. Consumer buying behaviour includes two important types of elements
i.e. tangible elements such as the concrete product or service, but also intangible elements as
mental processes and systems of beliefs, values and self-realization. Therefore, to
understand the consumer behaviour in a broad context as much as possible, it is best to build
a systematic and representative illustration on the matter as shown in Figure 6 below.
Buyer – A Riddle: Although any company should understand the buyer and set strategy
with product, but still many times consumer changes and same consumer refuse to take
product again. Consumer gets influenced by marketing of other product and their price,
color, quality as well as quantity. In today‘s era one should keep product in touch with mind
of consumer by using media, social media and other marketing strategies.
Factors Influencing Consumer Buying Behaviour
The factors affecting consumer behaviour have been categorised under two types;
 Internal Factors
 External or Environmental Factors.
External factors do not affect the decision making process of customer
directly. The factors that influence consumer buying behaviour in general are:
 Inspiration and involvement of consumers in obtaining exact product.
 Consumer‘s attitude.
 Personality and self-concept of any individual consumer.
 Ability to remember i.e. learning and memorizing power of the consumer.
 The channel or way through which Information
processing takes place. The most common external influences
or factors are summarised in figure 7.
Some Important Factors Which Influence Consumer‘s Behaviour Are Explained
Below
a) Cultural Factors: Culture is one of the important factors that help to
human being to communicate, interpret and evaluate as a member of
society. It affects person‘s wants, desires and behaviour. Although,
different social groups have their own culture that usually affects
consumers buying behaviour, but the extent to which this factor
influences the behaviour varies from country to country, region to
region. One can divide culture group further in several sub categories
by considering factors life style, education, occupation, income, wealth
etc.

b) Social Factors: The second important factor affecting consumer

behaviour is social groups, which are made up of small groups, social
roles and same social status. Some of these groups have a direct
influence on an individual buyer, i.e. membership of an individual in
particular groups, groups that a person can belong to, and reference
groups which serve as direct or indirect points of comparison or
reference in forming a person‘s attitudes or beliefs. However, some
people are affected by groups in which they are not a part of these
reference groups include inspirational groups, groups that a person
desires to be a part of and a fan‘s admiration for an idol, etc. Wife,
husband or a child has strong influences on a consumer and thus the
family of any individual is the most vital consumer buying organization
in the society.

c) Personal Factors: Various personal characteristics such as buyers age,

occupation, financial condition, lifestyle, personality and self-concept
also influences a lot on the buyer's decision. Shifting in person‘s
demand for products mainly depends on the occupation and financial
situation, as well as the stage in the life. An individual‘s lifestyle affects
his or her activities, interests, and opinions and affects the choice of
products. Moreover; all people are individuals with different
personality in terms of sociability, self-confidence, autonomy,
defensiveness, adaptability, dominance and aggressiveness etc.
 Many times, when consumer takes the product which has influence on lifespan as
stated previously, society influences the choice of customer and hence; person prefer the
product as per his/her surrounding.
 External values: It includes a sense of belonging, being well respected and security.
 Internal values: It deals withself-fulfilment, excitement, sense of accomplishment,
self-respect, fun and enjoyment and warm relationships.
 Psychological Factors: This group is constituted of four major factors, perception,
specifically motivation, attitudes, learning and beliefs. When a person is motivated, he
or she acts accordingly, and the actions taken over are affected by the person‘s
perception of the particular situation. Perception is an individual ability of selection,
interpretation of the information and organization which flows through the person‘s
senses, and consequently a meaningful picture of the world is formed. The experience
of new things brings changes to a person‘s behaviour. As a result, new beliefs and
attitudes are acquired and hence affect the normal buying behaviour.

Figure 6: Elements of consumer behaviour

 Figure 7: Significant external factors

1.5.1. Effect of consumer motivation, ability and opportunity

Behaviour of consumer is also affected by means of motivation, ability and

opportunity.
Motivation:
Early step for any product development and marketing is to identify the motivation
that will influence consumer to take product. In any one want to buy the jacket then
motivation for the same will be style and quality of product as per image in mind of
consumer.
Motivation generally makes customers to do things readily which are closely related
to their set goals, e.g. Mr. ABC has a aim to buy clothes of particular style and when such a
style comes in front of their eyes, they immediately go for that type of clothes.
Motivated people pay more attention and think about their goals, they examine the information critically
relevant to the same and they try to remember the information for further use. Personally, relevant
information or things also motivate consumers. Health product or ladies‘ cosmetics are the best example
of product to get a broad view on motivation in relevance to personally relevant products. Consumers
have different various specific kinds of needs behind the purchase. Maslow grouped these different
consumers‘ needs into five broad categories as shown in figure
8.
Figure 8: Maslow theory of motivation
1.5.2. Consumer Ability
Motivation of consumer is highly and significantly relevant to their ability of process
information. Ability is defined as the extent to which consumers have the necessary resources
to make the desired outcome happen. Consumers‘ knowledge, experience, cognitive style,
intelligence, education, age and money majorly affect the consumer‘s ability to process
information about a product or buying of certain products.
Consumer opportunity
One of the most important factors in buying process is time. Even though consumers
have high motivation and the ability to process information, still they could not get time to
decide or purchase. Many times customer take decision to buy any product because of some
pressure on them like festival purchasing where they do not take time to go through product
information. But whenever consumer taking product after detail reading of information then
placing of any complex information may affect the product sale.
Perception
Perception is defined as ―How a person sees the world around him‖. Two individuals may subject to
the similar situation under the same conditions, but the way they recognize, organize and interpret
stimuli is entirely different. Perception is an individual‘s own process based on their cognition, needs
and requirements, values, expectations and likes/dislikes. A motivated person is ready to act in one or
other way. The action of a person is influenced by his or her perception towards the situation.
Whenever information is spread by means of vision, hearing, taste, smell and touch, it leads to
perception. Additionally; music also affects the perception and ultimately sell of product.
1.5.3. Consumer Decision Making
Decision Making can be simply described as the act of choosing between two or more
courses of action. However, it must always be remembered that there may not always be a
correct decision amongst the available choices. There may have been a better choice that had
not been considered, or the right of information may not have been available at that moment
of time. Because of this, it is important to keep a track of all-important decisions and the
reasons of the decision taken, for improvements in future. This also provides justification for
any decision taken when something does not go in favour.
Consumer Decision Process
Normally decisions can be made using either intuition or the reasoning, a combination of both
approaches is often used. The consumer undergoes several steps in the process of decision
making. For very first step, the decision is made to solve any kind of problem. Forthis,
search for the information about the product is carried out, e.g. to find how the cooling can be
provided, through an air-conditioner or a cooler. This leads to the evaluation of alternatives
and a cost benefit-analysis which are largely made to judge which product and brand image
will be suitable and can take care of the problem suitably and adequately. Thereafter, the
purchase is finally made, and the product is used by the consumer.
1.5.4. The Process of Marketing Segmentation:
Segmenting Consumers by Demographic Dimensions:
It is the involvement of statistics which determines the visible aspects of a group.
Consumption typology explores the different ways that product and experiences can provide
meaning to people. There are 4 distinct types of consumption activities
 :

Figure 9: Consumption Typology

 Decision making (information search, consider brand alternatives)

 Habit (little or no information search, considers only one brand)

 Consumer behaviour includes post purchase satisfaction or dissatisfaction behaviour

 Two types of customers- personal and organizational consumer
1.5.5. Factors Influencing Purchase Decision
Outlet Selection and Purchase
With increasing number of brands, there is also increase in outlet (retail shop) which
increases the confusion the mind of customer regarding purchase of product from any of
store. The retail trade occurs from the stores as well as from catalogues, direct mail via print
media, television and radio and many novel internet technologies. Retailing is also possible
on day basis in different areas of city. Here is the main game begins as the customer have
choice for product or store or both. Conventionally one may also prefer to go with store visit
in order to obtain proper advice for product.
Purchase Behaviour
Purchase and post purchase behaviour plays more important role in any company.
Purchase give money to company and post purchase behaviour give idea about like or dislike
of product. Purchase of product is the measure of success of marketing strategies of company.
One has to focus more on selling strategies along with satisfaction of customer to generate
revenue from it.
Marketing Strategy
Successful marketing strategy is the one through which consumer can predict a need
which a company‘s product can resolve and, offers the best solution to the existing problem.
For a successful strategy, the marketer must emphasize on the product and brand image in the
consumer‘s mind. The marketers must try to make the product according to the customers‘
needs and his or her likes and dislikes. The brand which fulfils the desired image of a target
customer usually sells well. Sales are important and sales are likely to occur if the initial
consumer analysis was correct and correlates with the consumer decision process. Next part
is the post sales satisfaction of the consumer, which encourage repeat purchase.
The Marketing Strategies have strong influence on buying decisions and build a bond
with Consumers and give them various reasons to maintain a relationship with the company
over a long time so marketers conduct studies to determine which strategy would be most
effective. Small businesses need to be aware of the selected members of their target audience,
their needs, where they are located and how they will react to the product and its promotions.
They gather this information through surveys and also by studying data regarding the past
behaviour of customers. Data is also obtained from different sources such as marketing
databases, sales history and the Internet.
The Competition
For analysing the market, it is important to examine about the strengths and
weaknesses of the competitors, their strategies, their expected, anticipated moves and their
reaction to the companies‘moves and thereafter plans are to be made.
Researcher performs 2 main job viz. collection of data of competitors and to predict
their possible future movement.
The Conditions
The operating conditions of the firms are also to be seriously considered. The
common factors to be studied are majorly the economy, the physical environment, the
government regulations, the technological developments, etc. These effect the consumer
needs, i.e. the deterioration of the environment and its pollution may lead to the use and
innovation of safer products. People are more health conscious and are concerned largely
about their safety. Hence safer products would have a better chance with the consumer. The
flow of money is constrained to a great extent during the recession. This leads to the
formulation of different marketing strategies.
1.6. Industrial Buying Behaviour
Industrial buying is growing in importance because of the fast growth of the industrial
market. In an industry environment, the buying process is more complex and purchase
decisions are based on many factors such as compliance with product specifications, product
quality, availability or timely supply, acceptable payment and other commercial terms, cost
effectiveness, after- sales-service and the like. Purchase decisions generally take a longer
time and involve many individuals from technical, commercial, materials and finance
departments. After the initial offer made by a seller, there are negotiations and exchange of
information between specialists and representatives in each functional area from both the
buyer and the seller organizations. Thus, inter-organizational contacts take place and
interpersonal relationships develop. The relationships between the seller and buyer are highly
valued and over a period, they become stable because of a high degree of interdependence
 The channels of distribution in industrial markets are significantly different from that
of consumer markets. Chart displays the channels of distribution in industrial markets.
Channels of Distribution in Industrial Markets
As displayed in Chart, distribution channels are more direct from the manufacturer to
the customer in industrial markets and the number of middlemen involved is very few. Due to
the importance of inventory and stock control and the technicalities involved in selling,
manufacturers often use their own salespersons to sell directly to major customers.
Distributors or dealers are used for selling to small-scale customers
1.6.1. Types of Industrial Customers
Commercial Enterprises, Government Customers, Institutional Customers and Cooperative
Societies are the different types of industrial customers.
 Commercial Enterprises: These are private sector, profit seeking organizations
consisting of Industrial Distributors and Dealers, Original Equipment Manufacturers
(OEM‘s) and Users.
 Industrial Distributors and Dealers: here one takes product from industry and re-sale
as it is to other industry.
 Original Equipment Manufacturers (OEM’s): These industrial customers purchase
industrial goods to incorporate them in the products that they produce.
 Users: When a commercial enterprise purchases industrial products or services to
support its manufacturing process or to facilitate business operations it is classified as a
User.
 Government Customers: The largest purchasers of industrial products in India are
Central and State Government Departments such as Railways, Defence, Telephones,
State Transport Undertakings, State Electricity Boards and Director General of Supplies
and Disposal (DGS&D). These government units purchase almost all kinds of industrial
products and services and they represent a huge market.
 Institutional Customers: Public and private institutions such as Hospitals, Schools,
Colleges, Universities and Prisons are classified as Institutional Customers.
 Cooperative Societies: An association of persons form a Cooperative Society. It can be
manufacturing units like Cooperative sugar mills or non-manufacturing organizations
like Cooperative banks or Cooperative housing societies.

1.6.2. Classification of Industrial Products and Services

Materials and Parts, Capital Items and Supplies and Services are the different types of
Industrial Products and Services.
1. Materials and Parts: These are the goods that enter the product directly consisting of
raw materials, manufactured materials and component parts. The costs of these items are
treated by the purchasing company as a part of the manufacturing cost.
2. Raw Materials: These are the basic products that enter the production process with little
or no alterations.
3. Manufactured Materials: Manufactured materials include those raw materials that are
subject to some amount of processing before entering the manufacturing process. Acids,
fuel oil and steel are examples of manufactured materials.
4. Component Parts: Components such as electric motors, batteries and instruments that
can be installed directly into products with little or no additional changes are classified as
component parts.
5. Capital Items: It includes items which are used in the production process and they wear
out over a certain time frame and include Installations and Heavy Equipment,
Accessories and Light Equipment and Plant and Buildings.
6. Installations and Heavy Equipment: These are major and long-term investment items
such as general purpose and special purpose machines, turbines, generators, furnaces and
earth moving equipment.
7. Accessories and Light Equipment: These include power operated hand tools, small
electric motors, dies, jigs, typewriters and computers.
8. Plant and Buildings: These are the real estate property of a company and include the
firm‘s offices, plants (factories), warehouses, housing, parking lots and the like.
9. Supplies and Services: Supplies and services support the operations of the purchasing
organisation. Items such as paints, soaps, oils and greases, pencils and stationery belong
to this category.
10. Services: This includes a wide range of services like building maintenance services,
auditing services, legal services, courier services, marketing research services.
1.6.3. Buy-Phases in the Industrial Buying – Decision Process
The industrial buying activity consists of various phases or stages of buying decision
making process. The importance to be given to the various phases will depend on the type of
buying situations.
Robinson, Farris and Wind developed eight phases of buying- decision process in
industrial markets in 1967 and called the process Buy- phases. These are explained below.
Phase - 1 - Recognition of a Problem
Phase - 2 - Determination of the Characteristics and Quantity of needed Product
Phase - 3 - Development of Specifications of needed Product
Phase - 4 - Search for and Qualification of Potential Suppliers
Phase – 5 - Obtaining and Analysing Supplier Proposals
Phase-6 - Evaluation of Proposals and Selection of Suppliers
Phase-7 - Selection of an Order Routine
Phase-8-Performance Feed-back and Post- Purchase Evaluation

1.6.4. Types of Purchases or Buying Situations

For a better understanding of the buying process, it is necessary to consider different
types of purchases or buying situations. There are three common types of buying situations
called buy-classes and they are explained below.
A) New purchase
In this situation, the company is buying the item for the first time. The need for a new
purchase may be due to internal or external factors. In such situations, the buyers have
limited knowledge and lack of previous experience. Hence, they must obtain a variety of
information about the product, suppliers, price and the like. In a new task decision,

i) Risks are more

ii) Decisions may take longer time and
iii) More people are involved in decision making.
B) Modified Re-buy
A modified re-buy situation takes place when Purchase Company is not satisfied with
the supplier or another supplier is available with same quality but low cost.
C) Straight Re-buy
It occurs when one industry requires same material from other again. In such case,
initially signed deal remains same for fresh purchase.
1.6.5. Models of Organisational Buying Behaviour
Industrial buyers are affected by many factors when they take purchasing verdicts.
There are two models (or frame work) available to provide a complete picture of the major
factors that determines the acquiring behaviour.
i) The Webster and Wind Model
ii) The Sheath Model
I. The Webster and Wind Model of Organizational Buying Behaviour:
The Webster and Wind Model of Organizational Buying Behaviour explain the
buying behaviour in an organization with the help of four sets of variables (figure 10).
1. Environmental variables
2. Organizational variables
3. Buying centre variables
4. Individual variables.
II. The Sheth Model of Industrial Buyer Behaviour
The Sheth Model is developed by Professor Jagdish N. Sheth which explains
Industrial Buying Behaviour with the help of three components and situational factors (Figure
11). The differences among the individual buyer expectations (Component I) are caused by
factors such as
 The background of individuals
 Their information sources
 Active search
 Perceptual distortion and
 Satisfaction with past purchases
 Figure 10: The webster and wind model of organisational buying behaviour

The background of individuals is related with education, life style and role in the
organization. The factor perceptual distortion means the extent to which each individual
participant modifies information to make it consistent with his existing beliefs and previous
experiences
In Component II, there are six variables (Time pressure, perceived risk, Type of
purchase, Company size, Company orientation and Degree of centralisation) which determine
whether the buying decisions are autonomous (i.e. single individual) or joint (i.e. two or more
individuals). As per this model, larger is the size of organization major is the probability of
joint decision making process.
Component III in the model indicates the methods used for conflict resolution in the
joint - decision making process.

Figure 11: The Sheth model of industrial buyer behaviour

Situational factors can be varied like economic conditions, labour disputes, mergers
and acquisitions. However, the model does not explain their influence on the buying process.
Interpersonal Dynamics of Industrial Buying Behaviour
Organisational Buying Behaviour is ultimately influenced by forces within the
organisation as well as environmental forces. The status and operating procedures of
purchase, the degree of involvement and interaction of various groups and group members
and their different perceptions have a significant impact on purchase decisions. Information
of these factors is an essential part in the development of an effective industrial marketing
strategy. Purchase decisions are influenced by organisational group and individual forces as
well as external forces. The position of purchase department and its status within the
organisation has a significant influence on industrial buying behaviour. Purchases are also
affected by a complex set of decisions made by several individuals in buying centres -
individuals with different levels of information and expertise and different backgrounds. For
a marketing strategy to be successful, the industrial marketer must have a clear understanding
of how organisational groups interact, the amount of influence the various group members
possesses and how this influence varies throughout the buying- decision process.
Purchase Department’s influence on Buyer Behaviour
International material shortages, sky rocketing costs of materials and energy,
fluctuating nationalistic moods, conflicting social goals, profit squeezes and greater
government regulations of business have all brought about recognition of the importance of
the purchase function. The average industrial firm spends approximately 60 percent of its
sales on materials, services and capital equipment. In view of the above, purchase is now
being viewed as an ‗asset- management tool through asset- utilisation and inventory