Download UNIT ONE - Rift Valley University

SECTION ONE
Definition of Industrial Marketing: Concept
1.1 Industrial Marketing
Industrial marketing is the marketing of goods and services from one business to another.
Industrial goods are those which are used in Industry for producing a Different end product
from one or more raw materials. The word "industrial" means machinery run by power to
produce goods and services. But "industrial marketing" is not confined to these types of
business activities. Broadly, marketing could be split into consumer marketing (B2C
"Business to Consumer") and industrial marketing (B2B "Business to Business").
1.2 Blurring between the Definitions
As in all things, the definitions are not clear cut. For example, an organization that sells
electronic components may seek to distribute its products through marketing channels (see
channel (marketing)), and be selling relatively low value products. However, the final
purchaser is still a business. Equally there are big ticket items purchased by non-business
consumers (houses and motor vehicles being the obvious examples). However, even though
these definitions are blurred, sales and marketing activities aimed at B2B are distinctly
different from B2C (as outlined above).
1.3 Competitive tendering
Industrial marketing often involves competitive tendering. This is a process where a
purchasing organization undertakes to procure goods and services from suitable suppliers.
Due to the high value of some purchases (for example buying a new computer system,
manufacturing machinery, or outsourcing a maintenance contract) and the complexity of such
purchases, the purchasing organization will seek to obtain a number of bids from competing
suppliers and choose the best offering. An entire profession (strategic procurement) that
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
1
includes tertiary training and qualifications has been built around the process of making
important purchases. The key requirement in any competitive tender is to ensure that...

The business case for the purchase has been completed and approved.

The purchasing organization’s objectives for the purchase are clearly defined.

The procurement process is agreed upon and it conforms with fiscal guidelines and
organizational policies.

The selection criteria have been established.

A budget has been estimated and the financial resources are available.

A buying team (or committee) has been assembled.

A specification has been written.

A preliminary scan of the market place has determined that enough potential suppliers
are available to make the process viable (this can sometimes be achieved using an
expression of interest process).

It has been clearly established that a competitive tendering process is the best method
for meeting the objectives of this purchasing project. If (for example) it was known
that there was only one organisation capable of supplying; best to get on with talking
to them and negotiating a contract.
Because of the significant value of many purchases, issues of probity arise. Organizations
seek to ensure that awarding a contract is based on "best fit" to the agreed criteria, and not
bribery, corruption, or incompetence.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
2
1.4 Bidding Process
Suppliers who are seeking to win a competitive tender go through a bidding process. At its
most primitive, this would consist of evaluating the specification (issued by the purchasing
organization), designing a suitable proposal, and working out a price. This is a "primitive"
approach because...

There is an old saying in industrial marketing; "if the first time you have heard about
a tender is when you are invited to submit, then you have already lost it."

While flippant, the previous point illustrates a basic requirement for being successful
in competitive tendering; it is important to develop a strong relationship with a
prospective customer organization well before they have started the formal part of
their procurement process. (more needed)
1.5 Non-tender purchasing
Not all industrial sales involve competitive tendering. Tender processes are time consuming
and expensive, particularly when executed with the aim of ensuring probity. Government
agencies are particularly likely to utilize elaborate competitive tendering processes due to the
expectation that they should be seen at all times to be responsibly and accountably spending
public monies. Private companies are able to avoid the complexity of a fully transparent
tender process but are still able to run the procurement process with some rigour.
1.6 Developing a sales strategy/solution selling/technical selling
The "art" of technical selling (solution selling) follows a three stage process...

Stage 1: Sell the appointment: Never sell over the telephone. The aim of the first
contact with a prospective purchaser is to sell the appointment. The reason is simple;
industrial sales are complex, any attempt to sell over the phone will trivialize
(underestimate) your product or service and run the risk of not fully understanding the
customer's need.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
3

Stage 2: Understand their needs: The best method of selling is to minimize the
information about your goods or services until you have fully understood your
customer's requirements.

Stage 3: Develop and propose a solution. The solution is (of course) developed from
your (or the firm that you represent's) product or service offerings.
The important point about solution selling is that it is essential not to sell the solution before
you understand the customer's requirements; otherwise you are highly likely to unwittingly
sell them on how ill-suited your solution is to meeting their requirements. To illustrate;
imagine a couple seeking the services of an architect start their first meeting with the
inevitable "we want to build a house." If the architect leapt in at that point and proceeded to
show them his favorite design influence "the Mediterranean look" only to discover that they
hate "Mediterranean" and wanted something "a bit more Frank Lloyd Wright" he will have
gone most of the way toward alienating the sale. You can see that if he had "kept his powder
dry" for a bit longer and first discovered what they were looking for; he could have better
understood which way to skew his pitch. He was equally capable of designing in a Frank
Lloyd Wright style.
The marketing function is able to support this solution sell through tactics like accountbased marketing – understanding the requirements of a specific target organization and
building a marketing program around these. As research shows, sales success is heavily
weighted towards suppliers who can understand their audience before selling to them (in UK
research, 77 percent of senior decision-makers believe that the marketing approaches made
by new suppliers are poorly targeted and make it easy to justify staying with their current
supplier).
Sales force management has a critical function in industrial selling, where it assumes a
greater role than other parts of the marketing mix. Typical industrial organisations are highly
dependent on the ability of its sales people to build relationships with customers. During
periods of high demand (economic boom) the sales force often become mere order takers and
struggle to respond to customer requests for quotations and information. However, when
economic downturn hits it becomes critical to direct the sales force out selling.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
4
1.7 From cannon fodder to preferred tenderer
The term "cannon fodder" derives from the World Wars and refers to the massing of
undertrained and recently recruited troops sent to the fronts to face the enemy. It was noted
that such troops invariably had a short survival rate but provided the tactical advantage of
distracting the enemy while professional soldiers mounted a flanking manoeuvre and came
around from the side or from behind the enemy. In adopting the term to Industrial Marketing
it means those bids being submitted that have no chance of winning but are involved to make
up the numbers (you can't have only one bid in a "competitive" tender process; that wouldn't
satisfy the requirements of probity (for example in government tenders, or for private
enterprise the requirement to "truly test the market" and to "keep them honest"). The reader
might be wondering why anybody would go to all of the work of submitting a tender when
they had no chance of winning; for the same reason that troops were sent in to battle to die;
they thought they had a real chance.
1.8 The key features of a successful industrial sales organization
In industrial marketing the personal selling is still very effective because many products
must be customized to suit the requirements of the individual customer. Indicators such as
the sales tunnel give information on the expected sales in the near future, the hit rate
indicates whether the sales organization is busy with promising sales leads or it is spending
too much effort on projects that are eventually lost to the competition or that are abandoned
by the prospect.
1.9 The internet and B2B marketing
The "dotcom" boom and bust of the late 90's saw significant attempts to develop a new
retailing business model: on-line shopping. Many entrepreneurs (and their investors)
discovered that merely having a website (no matter how innovative) was insufficient to
generate sales; the amount of conventional main media advertising required to promote the
sites burnt cash at a faster rate than they could generate through on-line sales. They also
presumed that consumers would eschew the irksome shopping experience (driving, parking,
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
5
poor service etc.) for the wonder and convenience of shopping on-line. Some did; but not in
sufficient numbers. There were many unforeseen problems and apart from some notable
exceptions (Amazon.com and others) the B2C online model was a spectacular failure.
However, the same cannot be said of B2B selling where some quite impressive results have
been achieved.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
6
SECTION TWO
Understanding Industrial Marketing: Behavior
September 03, 2009
GlobalSpec's Chris Chariton, Vice President of marketing services and product management,
and lead management consultant Mac McIntosh will be presenting at Marketing Sherpa's
B2B Summit in Boston. The presentation on October 6th is called Taking Lead
Generation to the Next Level: One B2B Company's Success Story.
The case study covers how GlobalSpec generated more high quality leads for the sales team
and delivered those leads faster. Topics will include lead generation and management best
practices that GlobalSpec was able to apply, the keys to its success at getting those best
practices implemented, and some of the lessons learned along the way.
As a presenter, GlobalSpec can save you $400 with this special discount that expires on
September 11.
Attendees of the Taking Lead Generation to the Next Level session will learn:

How to gain internal buy-in to insure success

Low cost, easy ways to create new content for lead generation

How to generate more leads by focusing on audience relevant topics including today's
challenging economy

How to further qualify leads without sacrificing quantity
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
7
The B2B Summit covers two days packed with speakers and addresses the top B2B
marketing challenges.
Recently we wrote about Seven Ways to keep your Web Site Content Fresh. One of the
ways discussed was to begin a blog. However, if you haven't started one yet, it may seem
overwhelming.
Mark Jackson, the President and CEO of Vizion Interactive, has been involved in interactive
marketing since 2000. In his article Blogging for Search Engine Optimization he offers
some advice to make it less intimidating. Specifically he discusses whether you should use a
sub-domain, sub-directory, or a completely separate domain for your corporate blog.
Once you've set up the blog, or if you already have one, it isn't always easy to know what to
write. This article by Peter Da Vanzo, editorial director at SEO Book, How to Overcome
Writers Block offers seven suggestions to try when you aren't sure what to write.
Regardless of whether your blog is new or one you've managed for some time, it is important
to remember that keeping content fresh is a very important strategy for search engine
optimization.
August 28, 2009
Creating a lead nurturing process may be on your list of marketing efforts to look into
sometime in the future....when things are less hectic. The value of lead nurturing is simply an
unknown to most and in today's market, professionals responsible for lead generation and
sales need to know what their efforts will produce. Lead nurturing simply doesn't qualify.
Right? Not so fast.....
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
8
Five reasons why lead nurturing is important within a marketing program
1. Lead nurturing 'fills in the gaps' for your prospects. Providing you a way to promote
your entire offering while keeping each email specific to one subject. A much easier
way to understand and digest information.
2. Creating a lead nurturing program is efficient and effective! Unlike typical email
campaigns, once the process is set up, it's an automatic way to keep your brand in
front of your target audience.
3. It's intelligent! It's triggered by specific criteria, like a download of a white paper, so
you have the opportunity to craft your messaging around that specific event, subject
interest or industry.
4. Lead nurturing programs offer you multiple yet separate opportunities to
communicate with the same prospect - keeping your brand top-of-mind.
5. Lead nurturing programs work by 'warming up the prospect' with information so that
when a sales person contacts that prospect, their conversation can progress faster
because they are spending less time educating and more time discussing your
company's products and services.
August 27, 2009
Trade Shows shouldn't be your primary marketing strategy - however, if you are exhibiting at
a show this year, there are things you can do to get the most mileage out of your presence
there.
We all know trade shows are expensive - the cost for booth space, promotions, staff travel,
giveaways, etc. And on top of the expense, it's very hard to measure just how effective trade
shows are at generating new business.
To make your trade show presence as successful as it can promote your presence at the show
well ahead of time. Think about using banners and advertising in e-newsletters in places
where your target audience goes online. You'll also want to send out marketing emails and
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
9
direct mail pieces to your customers and potential customers exhibiting at the show, or that
lives or works in the area where the show is held.
Another idea is to hold a special event during the trade show that you can invite your
customers and prospects to attend. Consider holding your event at the beginning or end of the
show day to ensure highest attendance. Your event should provide not only a
compelling educational program but an opportunity for socialization - like a cocktail party as well. This will give your Sales force a chance to engage with attendees on a personal level.
Ensure that you publicize your event well in advance of the show through direct mail
invitations and emails and get people to register to attend using a form on a specialized
landing page - thus obtaining their contact information - making it easy to follow up with
them if they did, or even did not, attend your event.
August 24, 2009
The Institute for Supply Management July 2009 Manufacturing ISM Report on Business
indicated that the decline in manufacturing slowed in July. Some of the leading indicators such as new orders and production - rose to their highest levels in two years and the new
export orders index showed growth as well. The Chair of the Institute for Supply Chain
Management, Norbert J. Ore, said the data suggests that we will see growth in the third
quarter if the trends continue.
This is welcome news in what has been a very difficult year for anyone in the industrial
space. There have been layoffs and we’ve seen that personally, with many of our customer
contacts changing over the past year. For those who were fortunate enough to retain their
jobs, they’ve often been left to pick up all the work of departing colleagues.
Despite prudent wisdom to maintain or increase your marketing presence during a down
economy, marketing budgets were put on hold faster than calls to your HMO. When those
budgets were finally released, they were often 20% - 30% smaller. Industrial marketers have
had to deal with fewer people and less money at a time when even more is needed to make
up for reduced demand.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
10
It is back to school time, the leaves will be changing color and the end of year is not too far
away. Good riddance to 2009. There are signs of recovery and regardless of how fast that
recovery comes, 2010 will be a better year. The uncertainty of how bad is it going to get is
behind us. Give yourself a pat on the back, stand a little taller and look forward to better
times ahead. And with that, start planning early for 2010. Scrutiny of budgets and ROI won’t
go away, so have your ducks in a row to support your marketing plan. This is also an
excellent opportunity to cast off marketing methods and tactics that weren’t working before
and revitalizes your strategy.
August 18, 2009
We’ve all heard the expression “Content is King.” This maxim especially holds true for your
company Web site. Fresh, relevant and up-to-date content will help your site perform better
in search engine rankings and will keep customers and prospects engaged and coming back.
The challenge is coming up with all this fresh content. As busy marketers, we don’t always
have time to write or update copy, which is an important task but not always the most urgent.
Sometimes it gets pushed down the to-do list and before you know it, your Web site hasn’t
had a fresh posting in weeks or even months. That brings us to recommendation #1 on how to
keep your Web site content fresh.
August 11, 2009
Your company invests good money to generate leads for its sales team. And your sales team
turns those leads into paying customers. In theory, that’s how it works. In reality, the story is
often different.
Research shows that 80% of leads are ignored, lost or discarded. That’s not just some of the
leads that are a vast majority. The reasons are many: poor handoff of leads from marketing to
sales, lack of responsibility and accountability, no tracking of leads through the sales process,
sales doesn’t like the leads that marketing generates, no agreed upon definition of what
constitutes a lead, leads are followed-up with once and then forgotten if an immediate sale
isn’t made … you get the picture.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
11
To avoid these costly pitfalls and wasted resources, your marketing and sales teams must
make a commitment to work together to agree upon the definition of a lead, manage leads
once they come in the door, and track the outcome of leads that pass through your marketing
and sales process.
August 07, 2009
Looking for a way to generate higher quality leads? Who isn't? Why not consider featuring a
"tour" of your business on your Web site or in your marketing emails?
A "tour" is a brief (usually about 3 minutes) presentation that provides an overview of who
your company is and what your value proposition is to potential customers. It ensures that
what you want conveyed about your company is done in a consistent manner. Your tour is
also a good way to bring attention to additional offers you'd like to promote. And best of all the main objective of the tour is to convert viewers into qualified prospects.
Leads are generated when tour viewers complete a registration form at any time during the
tour. Registration provides them access to an array of offers - like White Papers, Articles, a
Media Kit, etc., while providing you with their contact information.
August 04, 2009
A lot of work goes into putting a web-site together: content creation, page design, and site
architecture are all important elements. One element that may seem obvious but is often
overlooked is the URL for each page. In his article URL Best Practices and Guidelines
Reminder, Jody Nimetz of Enquiro Search Solutions Inc. offers a list of best practices to
consider when creating and or revising the URL's for your site. Jody Nimtez is an on-line
marketing specialist who offers tips and advice on his blog Marketing Jive.
July 23, 2009
I have worked for GlobalSpec for nearly a decade. Through the years, our sales team has
shared with me different reasons potential customers have decided not to add GlobalSpec to
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
12
their marketing mix. Some of these reasons, when I first heard them, struck me as
incredulous and irrational. I assumed it was an isolated case – an outlier. But after hearing
these reasons repeated every year, albeit by a small number, I’ve come to realize it is reality.
However, when these explanations for not spending on marketing were uttered in this current
economic climate, I was shocked once again. Despite my mother’s aversion to the word
“dumb,” that is what comes to mind when I hear this rationale. This is not unique to
GlobalSpec. You can insert any potential marketing investment in front of the following
excuses for saying no.
About
The Marketing Maven Blog offers news, research and analysis, designed for industrial sales
and marketing professionals interested in the latest trends in online marketing.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
13
SECTION THREE
NATURE AND SCOPE OF INTERNATIONAL
ORGANISATIONAL/INDUSTRIAL MARKETING
3.1 Key Features or characteristics of Industrial Markets
The concept of organizational or industrial marketing is used to describe marketing activities
targeted at all individuals and organizations that acquire products and services that are used
in the production of other products and services. These products include capital goods (e.g.
buildings, land and machines), operational products (e.g. accessory equipment, supplies,
maintenance services), and output products (e.g. raw materials, components, production
services). The justification for creating industrial marketing as a specific field of study in
marketing derives from the awareness that the market behavior, which affects the demand
and purchases of industrial products and services, is generally quite different from that
experienced in consumer markets. One of the distinctive differences between industrial and
consumer markets is that the demand for industrial products is a derived demand, meaning
that the magnitude of demand for these products varies with the demand for the finished
products and services based on them.
The purchasing process of industrial products is also relatively more complex, and may be
divided into a number of stages taking place over time. The purchase decision making
process usually involves many people who are drawn from different departments of the
buying organization, depending on the strategic importance of the products or services being
purchased. In contrast to consumer markets, industrial products are funded with
organisational resources. That is, the buyers of industrial products do not finance the
purchase with their personal money, but rather use organisational funds for the purpose.
Finally, it is assumed that members of the purchase decision making units (buying centre
members) act rationally in the decision making process. That is, idiosyncratic considerations
scarcely enter the decision making process. This implies that the decision makers must be
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
14
provided with substantial “objective” information by vendors on the basis of which their
decisions can be made.
3.2 Factors Influencing the Buying Process
Three groups of factors influence industrial buying process;
A. the environment,
B. the organization, and
C. the decision making unit
A. The Environment
The environment in this regard covers government regulations, the economic climate within
which the buyers operate, and the general technological changes within the economy. In the
increasingly globalised economies of today, buying processes must take not only the
domestic environmental changes into account in their purchasing decision. Changes
elsewhere in the world must also be factored into the purchase decision process. The
international environment is in fact assuming greater importance than the domestic
environment of most firms. The organisational structure, politics and culture also shape the
manner in which purchase decisions are made. Finally, the decision making unit (the buying
centre) to which the purchasing task has been assigned also has a tremendous influence on
the purchase process.
B. Buying Organizations
There are three groups of buyers at which industrial marketers target their products. These
are:
I. Manufacturers,
II. Intermediate customers, and
III. Public institutions
I. Manufacturers
Manufacturers usually buy raw materials, components, and finished items that they use in the
manufacture of final goods. These customers tend to be geographically concentrated (e.g. in
industrial areas/zones of a country), buy in relatively larger quantities and their purchasing
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
15
decisions are taken by a selected number of people. These characteristics make it relatively
easier for a vendor to serve them than they can serve consumers.
II. Intermediate customers
Intermediate customers are channel members or resellers. They buy and sell to make profit.
Some make changes to the products they sell (e.g. repackage them). Thus, an export
company or a distributor is an intermediate customer whose purchase decisions are
influenced by the demand of the customers that they serve.
III. Public institutions
Public institutions such as schools, hospitals, prisons, the military and public offices
constitute a major category of buyers of industrial products. The annual budgets of some
public bodies in the developed countries can be a multiple of the expenditure of private
sector organizations.
C. Public Sector Buying Decisions
Many different purchasing terms are used in public sector purchasing. In most countries,
however, most public sector purchasing is through tenders. Three tendering procedures can
be identified, each with a different level of publicity of the tender notice:
I. Open tendering-where the invitation to tender is given the widest publicity;
II. Selective tendering-where the invitation is restricted to a predetermined list of suppliers,
III. Private contracting-where the awarding authority contacts suppliers individually to
make a tender. Contracts may be awarded on the basis of the
following criteria.
• Automatic tendering, where the contract is awarded on the basis of a predetermined
criterion such as the lowest bid, or some other criterion either in
isolation or in conjunction with price.
• Discretionary tendering, in which the contract is awarded to the bid that is assessed
to be most advantageous to the buying authority. The criteria are
not pre-determined.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
16
• Negotiated tendering, in which the awarding authority negotiates freely with the
supplier.
3.3 International Dimensions of Industrial Marketing
Four key factors have been identified as influencing industrial market systems
(Sheth and Sharma, 1997):

Global Competitiveness

Total Quality Management Philosophy

Technology Enablers

Industry Restructuring
Global competitiveness has necessitated the use of inter firm collaborative arrangements as a
means of sustaining the competitive advantages of firms. Close relations between suppliers
and buyers allow them to acquire new technical skills or technological capabilities. Inter firm
relations can take a wide variety of forms. They include simple vendor – customer exchanges
where the collaboration is restricted to the transfer of the contracted technology and
knowledge, to joint ownership and development arrangements (Borys and Jemison 1989;
Mowery, Oxley and Silverman 1996).
The increasing cross-national vendor-buyer relations have also been reflected in the
increasing use of contract production and outsourcing of inputs in different parts of the
world. The increasing demand for technology capacity enhancement packages in the
emerging market economies of the world as well as the increasing demand by governments
and multilateral public bodies of goods and services is also some reflections of inputs of the
globalization process. These developments have brought into focus problems of doing
business across disparate cultural and business systems. The differences of the operational
environments of existing customers that have internationalised their business as well as local
businesses located in diversified environments cannot be ignored if firms would wish to
sustain their competitiveness within the current dynamic global environment. Alongside
these developments, it has been noted that the philosophy of total quality management has
caught up very fast within the global manufacturing sector and has enabled firms to reduce
production cycle times and maintain zero inventories. This strategy again requires close
Copyright © 2009 Rift Valley University College
Adama
17
Industrial Marketing
collaboration between suppliers and buyers of industrial goods. The interaction between
companies has been greatly facilitated in recent years through advances in information
technology, particularly the increasing usage of Internet facilities as well as the establishment
of regional economic blocks.
3.4 Overview of the Lecture Notes
Some of the key concepts and models that describe the industrial market system and
marketing strategies are:
• The buy grid model
• The buying centre concept
• Vendor-buyer relationship models
The rest of this lecture notes will be devoted to providing students with a gist of the key
issues discussed under these concepts and models.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
18
SECTION FOUR
ORGANISATIONAL/INDUSTRIAL BUYING BEHAVIOUR:
MOTIVES
Industrial buyers are reputed for making rational decisions and go through a number of
clearly defined stages in their decision making. The purchase behavior that they exhibit and
the kind of information they require to make their decisions will depend on the experience of
the decision -makers with the purchase of the same or similar products. The stages in the
decision making process and the influence of the purchase situations on the decisions are
described in the literature by a model referred to as buygrid model. Furthermore,
organisational buying decisions are usually made by a group of organisational members
labeled in the marketing literature as a buying centre. This section provides an overview of
the buygrid model and the buying centre concept.
4.1 The Buy grid Model
The buygrid model is a conceptual model, which describes the different combinations of
buying phases and buying situations. It incorporates three types of buying situations:
(1) the new task,
(2) the straight rebuy, and
(3) the modified rebuy, combined with eight phases in the buying decision process.
The model serves as an easy framework for visualizing the otherwise complex business
buying process and enables the vendor to identify the critical phases and situation requiring
specific types of information.
4.1.1 Buying Situations
As mentioned above the buying situation is usually classified into three major categories; the
new task, the modified rebuy, and the straight rebuy situations.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
19
A. New Tasks
It is a buying situation in which the business buyer purchases a product or service for the first
time. In a new task buying situation the buyer seeks a wide variety of information to explore
alternative solutions to his purchasing problem. The greater the cost or perceived risks related
to the purchase, the greater the need for information and the larger the number of participants
in the decision making unit. This provides the vendor with considerable opportunity and
challenge. The vendor is in a greater position to influence the decision making process by the
information that it provides. At the same time its personnel must respond to the information
needs and scepticism of a large number of people within the decision-making unit.
B. Modified Rebuy
It is a buying situation in which the business buyer wants to replace a product or service that
the firm has been using. The decision making may involve plans to modify the product
specifications, prices, terms or suppliers. This is the case when managers of the company
believe that significant benefits such as quality improvement or cost reduction can be
achieved by making the change. The fact that the company had previous experience with the
purchase and use of the product means that the decision criteria may be well defined in such
situations. Nevertheless, some uncertainties still linger in the minds of some decision-makers.
There is the risk that the new supplier may perform poorer than the present one. Again the
situation carries enormous opportunities and challenges for vendors competing for the order.
The decision making unit is however usually smaller than in new task situation and therefore
makes it relatively easier for the vendor’s marketing personnel to attend effectively to the
information needs of the buyers.
C. Straight Rebuy
It is a buying situation in which the buyer routinely reorders a product or service without any
modification due to satisfaction with the supplier. The supplier is retained as long as the level
of satisfaction with the delivery, quality and price is maintained. New suppliers can only be
considered if these conditions change. The challenge for the new supplier then is to offer
better conditions or draw the buyer’s attention to some benefits that it is missing for doing
business with its present supplier. The buyer may in turn use the new offerings from
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
20
competitors to renegotiate its purchase conditions with the present supplier. It is therefore
difficult to capture orders from companies engaged in routine purchases. In a recent article,
Buun (1993) argues that the business buying situations are more complex than is generally
considered in the existing literature. He has therefore suggested an additional classification of
each of the three buying situations as shown in exhibit… The thrust of his argument is that
the behavior that buyers exhibit in each of the situations will depend on how strategic the
purchase is for the company.
4.1.2 Phases in the Purchase Decision Process
Conventionally, business purchase decisions are expected to go through a set of phases.
Purchases in new task situations go through eight phases, the number of phases and their
relative importance decreases in the case of the other purchase situations.
Phase 1: Anticipation or Recognition of a Problem (Need)
In rational purchase situations, the purchase decision will be triggered by the buying
organization’s recognition of a need, problem or potential opportunity to gain new benefits
within the changing environment. The trigger may be either external (e.g. new information
from a potential supplier), or internal (e.g. an awareness of declining efficiency due to
outmoded technology). This is a phase in the purchase decision process during which the
information a vendor provides is critical since the buyer is in wide search for solutions to the
problem identified.
Phase 2: Determination of the Characteristics and Quality of the Needed Items
Having acknowledged the problem, the next stage is to explore alternative solutions. It may
be decided to solve the problem in a novel manner, i.e. exploring technical solutions
unfamiliar with the buyer- a new task situation. Alternatively management may decide to
find a modified/improved version of solutions with which they have been familiar –modified
rebuy situation. Questions such as “what application requirements must be emphasized” and
“what performance specifications should be used in evaluating in coming proposal” receive
attention at this phase. The department whose staff is the users of the product is prominent at
this stage. Their suggestions receive serious attention. Prospective suppliers are therefore
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
21
advised to examine the information needs of the users and provide it to them to enable them
make the choices that favour their products.
Phase 3: Description of the Characteristics and Quality of the Needed Items and Phase
4: Search for and Qualification of Potential Sources
Having specified the characteristics that buyers should look for, the market is then scanned
for the products that fit these characteristics and the quantities to buy. If a supplier has
contributed information to the first phase, that supplier will be certainly consulted to advise
the buyer on where to get the best products. If the supplier has the product in question within
its product line, it is placed in a lucky position of influencing the choice decision. It may
suggest modifications to its own product to fit the specific needs of the buyer. It has been
shown that such partnering relationship with a buyer is highly advantageous in new task
situations.
Phase 5: Acquisition and Analysis of Proposals
In this phase, qualified vendors are contacted with a request to make product offerings that
can address the buyer’s problem. In straight rebuy situations, the existing vendor will be the
only supplier that the buyer will contact. For modified rebuy situations, there will be the need
to analyze incoming proposals carefully before a final decision is made. The analysis of
proposals becomes even more elaborate in new task situations.
Phase 6: Evaluation of Proposals and Selection of Suppliers
The decision-making unit carefully compares the various offers in terms of the criteria
decided upon earlier. A few of the proposals are selected and the purchaser is authorized to
initiate negotiations with the vendors concerned. Where the differences between the
proposals are not pronounced, personal taste and considerations indirectly enter the decision
making process.
Phase 7: Selection of an Order Routine
Order is placed with the selected vendor and the delivery as well as payment conditions are
specified. For some types of machines and equipment, the delivery may also include
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
22
installation and training of users. Here again the users’ voice becomes very important since
their evaluation is important in determining how successful the purchase has been.
Phase 8: Performance and Feedback Evaluation
This is the phase in which the performance of the product in matched against the
expectations of the buyer in order to determine the gap, if any between them. As noted
above, the evaluation of the users carries a heavy weight in the overall assessment of the
performance of the vendor.
4.2 The Buying Centre Concept
Companies do not buy, people do. It is therefore important to have a substantial knowledge
about those involved in the buying decision making process of the goods and/or services that
a vendor intends to sell. It has been shown that many individuals are involved in the buying
processes of industrial goods. The theoretical foundation of the buying centre construct can
be found in role theory. Role theory suggests that people behave with a set of norms or
expectations that others have in the roles in which they have been placed. Roles can be both
formal and informal. Formal roles are defined by organisational structure and managers’
position within the structure. Apart from the formal roles that managers play, they (like all
other people) have the natural tendency to develop informal social groupings within their
organizations. These informal groupings can be harnessed to support the performance of the
main tasks that have been assigned to them. Occasionally, however, some informal social
relations can obstruct the performance of these tasks.
4.3 The Roles of Buying Centre Members
Buying managers are known to assume some common of roles in a buying process. These
roles are classified into six groups.
4.3.1 Initiator
The initiator is the one or group of individuals who become aware of a company problem
and recognize that the problem can be solved via acquisition of a product or service.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
23
4.3.2 Gatekeepers
The gatekeepers usually act as problem or product experts. They have information about a
range of vendor offerings. Other buying centre members therefore rely on their information
for their assessment of prospective vendors’ offerings. Thus, by controlling information, and,
by having access to decision-makers in the firm, the gatekeepers largely determine which
vendors get the chance to sell.
4.3.3 Influencers
Influencers have been described as those who have said in whether a product or service is
bought or not. The more critical a purchase is to a company’s business, the higher the number
of influencers. Critically strategic purchases frequently entail high resource outlays and affect
the task performance of several employees the heads of whom naturally "have a say" in the
purchase decision making process.
4.3.4 Deciders
The deciders make the actual purchase decision. That is, they say ‘yes’ or ‘no’ to what
vendors offer. In less complex purchase situations, the decision-making responsibility may
fall on one person. But where the purchase is complex, group decision may be required.
4.3.5 Purchaser
The purchaser is the one who makes arrangements for the delivery of the goods. He is also
often directly involved in negotiating the conditions under which the transactions will be
made.
4.3.6 Users
The users are those who actually make use of the products in normal working process. A
buying centre can be formalized, but not always so. Even in formalized buying centres
members are not designated with the titles of gatekeepers, influencers etc. A buying centre
member may play more than one role at different stages in the buying process. There may be
as few as one person playing all the six roles or as many as 50 or more in complex buying
situations. The degrees of influence of these buying centre members will depend on their
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
24
power base within the organization. One major characteristic of buying centres is that
members come and go. The centre is therefore fragmented in terms of time, a phenomenon
described in the literature as time fragmentation. The more buying centre members are
involved for only short periods of time in the purchase decision making process, the more
fragmented the buying centre is over time. This means that the influence of key buying centre
members can be limited to a particular stage in the purchasing process. It is therefore of
utmost importance to vendors to exert the best impact on them at the critical point in time to
convince them of the superior value of their offerings.
4.4 Buyers’ Perception of Vendors
The concept of perception addresses the basis of human behaviour in encounters with other
social actors. It is generally acknowledged that human perceptions are informed by prior
experiences, knowledge, expectations and understanding. In fact people “perceive” more
than they actually see in any given situation (Crossley 1996) since we tend to use our
previous knowledge and experiences to ascribe meaning to what our senses register. Most
often we hold firmly to our perceptions, believing them to be right. Buyers therefore carry
different perceptions about vendors, based on some previous encounters with them or
information received about them from external sources. It is therefore prudent for vendors to
be aware of how potential buyers perceive them prior to making any sales effort. Figure 1
provides a simple scheme for analyzing customers’ perception. Two perceptual dimensions
require attention:
(i)
customers’ perception of the offerings made, and
(ii)
customers’ perception of the vendor’s organization and its salespeople.
As mentioned earlier, buying centre members are expected to be rational and their
perceptions are also based on specific set of “objective” criteria. Product and service
attributes that have been found to influence customers’ perception of the offerings include
quality, reliability, post-delivery arrangements, price, and conditions of payment. Similarly
customers’ perception of the vendor’s salespeople will be based on the criteria such as
reliability, credibility, responsiveness, product knowledge, persuasiveness, knowledge about
competitors, oral communication, personal charm/friendship as well as mutual trust and
respect.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
25
4.5 Vendor Perception Matrix
A customer’s location within the matrix should influence the pre-sale marketing mix strategy
that a company will adopt. Although overall buying centre perception of the vendor is useful
it is equally important to assess each buying centre member’s perception of the vendor. This
will help the vendor’s sales people to plan their marketing efforts. The reasons why a specific
buying centre member has a negative perception of the vendor must be thoroughly analyzed
and steps taken to correct any possible misunderstanding that might have produced the
negative perception.
Activity 3 provides a framework for assessing the profile of the individual buying centre
members’ uncertainties and information requirement of buying centre members.
Buying centre members need information in order to reduce one or more of the following
three types of uncertainty.
4.5.1 Need Uncertainty
That is, the buying centres member’s doubts concerning the nature of needs that the vendor’s
offerings are to satisfy. The general view is that buyers have clear knowledge of the problems
that new products to be purchased are to address. In practice, however, not all the buying
centre members are likely to be convinced about the nature of the problem and the type of
solutions suggested. The reason may be due to lack of technical knowledge or the lack of
clarity about the problem for the overall performance of the firm. Vendors may supply
information that clarifies the nature of the problem.
4.5.2 Market Uncertainty
Some buying centre members may initially reject the vendor’s offerings simply because they
do not know whether there exist superior offerings on the market. They may therefore delay
the decision making, particularly if they have substantial authority in the overall decision
making process. Here again the vendor can help speed up the decision-making process if its
salespeople can assist in providing information about the types of offerings found on the
market and indicate how the vendor’s offerings compare with other possible offerings.
4.5.3 Transaction Uncertainty
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
26
This concerns problems that may arise in getting the product/service from the vendor to the
buyer. Some buying centre members may be concerned about delivery and post-delivery
problems. This may be particularly true for deliveries to customers in foreign countries where
logistical problems can be anticipated. It is important for the vendor to provide detailed
information about how the delivery will be made and arrangements to be made to forestall
any difficulties that can arise. As much of the deliberations with the buying centres are aimed
at addressing these uncertainties, by supplying relevant information at appropriate times and
stages in the decision making process, the vendor can facilitate and speed up the decision to
be taken, preferably in its favour. There are two other important dimensions of the buying
centre that require attention, the vertical dimension and the horizontal dimension. The
vertical dimension refers to how many layers of management are involved in the purchase
decision process. The horizontal dimension concerns the number of departments involved.
The more complex a purchase decision, the wider both the horizontal and vertical coverage
of the buying centre. It implies that individuals with a wide variety of interests and
departments with different norms and rules of behaviour are involved in the process. This
may create problems of coordination and may produce conflicting decision signals to the
vendor.
4.6 Buying and Selling Relationships
Business performance is frequently measured in terms of profit, not necessarily on single
transactions but on the overall operations of a company. Companies therefore undertake their
marketing activities in order to make profit. Similarly, industrial customers engage in
transactions with their vendors for the purpose of obtaining values/benefits that can enhance
their profitability. Hitherto, vendor – customer interactions have products/services of interest
at the centre stage. Recent academic observations and studies however indicate that both
vendors and buyers will most effectively attain their respective goals if their emphasis is on
the relationships rather than the products/services they sell/buy. The more intimate and
enduring the relationship, the more committed vendors and buyers will be fulfilling each
other’s needs and the more efforts they make to solve problems identified. Such relationships
assume the form of self-organizing systems, creating new opportunities for the partners.
The single sales are then seen as “punctuation marks” or natural “fall outs” of the broader
relationship. (See discussions on relationship marketing below).
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
27
SECTION FIVE
Purchasing Systems: International Marketing Implications of the
Buying Centre Concept
5.1 Geographical separation of buying centre members
Where decision on a vendor’s offerings is to be made by buying centre members located in
different countries (e.g. selling machines to an international joint venture company) it is
important to note that the buying centre members may have different preferences due to the
diversity of their backgrounds. The information needs of each of the buying centre members
must therefore be carefully studied and catered for.
5.2 Differences in priorities of the buying centre members located in different countries
Again, depending on their specific situations and preferences, the buying centre members
may have different priorities. This may be a problem in situations of joint financing. The
purchase decision making may be delayed. A prolonged decision making process can impact
on the vendor’s marketing efforts negatively, since it will mean that lesser resources can be
devoted to other clients.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
28
SECTION SIX
MARKET MONITORING AND ASSESSMENT OF
INTERNATIONAL
6.1 Industrial Market Opportunities
Collection, analysis and dissemination of market information are considered as key elements
in a firm’s performance. Managers require reliable data on which to base their decisions
regarding the defence of their existing market positions or the exploration of new market
opportunities. The data collection methods adopted will depend on firm preferences,
idiosyncrasies of individual managers or the data collection traditions within the industry or
country. Sources of information can be classified according to internal and external sources.
6.1.1 Internal Sources
Internal sources are the information from company’s own employees. Everyday, employees
are exposed to new knowledge. Some come in contact with new customers and competitors;
others are in contact with suppliers. They learn more about the company’s stakeholders as
they jointly solve operational problems that confront them and discover better ways of doing
things together. The stockpile of individual experiences generated through the interactions
can constitute a rich reservoir of business knowledge within the company. But the application
of such individual experiences to organisational problems requires the cultivation of
organisational learning culture in which front-line employees (i.e. those interacting on
regular basis with external stakeholders) feel free to challenge long-standing practices within
the company.
6.1.2 External Sources
External come from two sources, primary and secondary. Secondary sources refer to any of
published information from public and private institutions. Primary data can be collected
using survey approach or through personal interviews. The choice of approach depends on
business culture and industry traditions in a particular country. Westerners are known to
favour the survey approach to some extent while managers in Asian countries tend to favour
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
29
interviewing key customers. For example, Japanese managers are reputed for collecting
market information through personal interactions with current and potential customers and
distributor rather than using survey methods popular in Western industrialised countries. The
advantage of the Japanese approach is that since the investigator is usually a key decisionmaker and implementers, he can monitor the implementation process and react quickly to
feedback on past actions or to new opportunities or threats in the market. The Western
approach allows for collection and of large volumes of data that provides decision –makers
with broader overview of the marketing situation at a relatively lower cost. It has, however,
been observed that even Western business marketers seldom use the elaborate survey
approaches found in consumer marketing. For example, Keegan (1984) found in an empirical
study of American international business managers that their most frequent sources of
information are from personal contacts with customers. Hardly did they use market research
or publications of any kind as sources of information. Permutt (1977) also concluded from a
study of European business executives' use of market research that the development of more
sophisticated techniques seemed far less important to them than having action-oriented
sources of information on which they could rely. These findings are consistent with the
results of Cavusgil's (1984) study involving international marketing executives from 70
American companies. Cavusgil noted in that study that the executives typically adopted less
rigorous, less formal and less quantitative approaches to international market information
collection than was the case when investigating domestic markets. A rigorous quantitative
analysis of the international marketing data, if collected, and a rank ordering of foreign
markets in terms of the opportunities they offer was an exception rather than a rule. He
further noted that "management appeared to be expending relatively little effort in terms of a
systematic and objective assessment of foreign market opportunities, identification of
distributors, assessing profit potentials or monitoring foreign performance" (P. 267).
Consistent with the evidence in Keegan's study, many of the executives in Cavusgil's study
identified travel or personal contacts as their most valuable and reliable sources of overseas
information.
The aim of this section is therefore to present a number of considerations that influence
market information collection by vendors of industrial products and some of the typical
methods used.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
30
6.2 Strategic Market Intelligence System
Distinction is drawn in the literature between three kinds of market intelligence
(Montgomery and Weinberg (1991):
6.2.1 Defensive market intelligence
6.2.2 Passive market intelligence
6.2.3 Offensive market intelligence
6.2.1 Defensive Market Intelligence
Defensive market intelligence is oriented towards avoiding surprises. Managers behave on
the basis of certain implicit and explicit assumptions about the environment within which
they operate. These assumptions are normally based on the past performance of the company.
Long periods of successful performance in a given market create overconfidence in managers
that past routines and assumptions are adequate. There is therefore little perceived need to
alter operational routines and the motivation to seek new information is low. Only those
types of information that reinforce existing routines will be sought. Learning becomes
additive and incremental. Defensive intelligence seeks to counteract such a tendency.
Information is collected to make certain that the assumptions continue to be valid and to
draw managers’ attention to major changes (usually threats) within the environment.
Defensive market intelligence entails collecting data not only on current competitors, but on
potential competitors as well. The identification of potential competitors will enable the
company to take proactive steps to avoid or blunt the effects of their market entry. In this
regard, it is important to realise that customers can also become potential competitors if their
strategy considerations include vertical integration into the vendor’s business domain.
6.2.2 Passive Intelligence
Passive intelligence is designed to provide benchmark data on the bases of which
management can evaluate its performance in previous years. This is usually done by
collecting data on performance of key competitors as well as the industry as a whole.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
31
6.2.3 Offensive intelligence
Offensive intelligence is designed to identify market opportunities. Companies take proactive
strategic actions on the basis of the information and expand the prospects of improving their
performance or maintaining satisfactory performance over a long period of time.
6.3 Monitoring Existing Customer Mix
Defensive market intelligence allows companies to access the extent to which their current
customer mix fulfils their marketing objectives and the extent to which the customers are
satisfied with the vendor’s offers and sales activities. The retention of existing customers
depends on these assessments. It is therefore important for us to take a look at some of the
methods used to evaluate existing customers. To a business marketer, a good customer is
seen as one with many of the following attributes:
1. A high technical or operational capability
2. A willingness to share in joint technical and/or operational development
3. A willingness to make the vendor an important part of the customer’s business
activities
4. Substantial sales potential
5. Long-term profit potential
6. Good cultural fit
6.4 Customer Value Analysis
Customer Value Analysis (CVA) is a technique adopted in the evaluation of a business
marketer’s current customer base. It uses internal sources of data, drawing on existing
information that the vendor already possesses about each customer- sales volume, profits
generated, growth trends, technical strengths etc. Following Canning (1982) the CVA
proceeds along the following steps:
1. Create a profit profile comparing the profit contribution of each customer.
2. Determine the source of the profit
3. Assess the value elements beyond profits
4. Determine the overall value ranking within the customer group
5. Determine the marketing requirements for serving the customers
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
32
6. Develop a sales/marketing programme commensurate with the customer’s value (See
exhibit… for a more detailed model)
The first three steps allow the vendor to assess the total value of each of the customers. An
assessment of the profit contributions of existing customers involves determining sales and
profits by each principal product line supplied to the customer. The profit analysis requires
detailed break down of marketing costs assignable to the products sold to the customer,
including order processing costs and field service costs. Customers are then ranked in terms
of profitability. Overall profit obtained from a customer may come from many different
sources. It may be due to the frequency of orders, sizes of orders, share of customers’ total
purchases and location of the customer. All these profit determinants require close attention.
These analyses may be done in three steps:
1. Assessment of the growth (or decline) that is expected to occur in each customer’s
demand for the vendor’s products
2. Assessment of the degree of market risk associated with each customer
3. Assessment of the marketing efforts required satisfying the needs of the current buyer mix.
Sales gap analysis provides the vendor with an indication of changes in customers’ demand
for the vendor’s products. Distinction is usually drawn between present and future sales gap.
The present sales gap is the difference between actual sales to the customer of a given
product/service and customers’ total purchase volume of product/service. Thus, if the vendor
supplies only 30% of the total purchases made by the customer of the product in question, the
sales gap is 70%. The future sales gap is based on the customer’s projected demand of the
product/service in question. A customer that has a superior competitive position within a
growing market is likely to increase its demand for inputs at least in proportion to the market
growth rate.
Apart from an assessment of the customer’s contribution to the business marketer’s total
sales, it is also important to evaluate it in terms of:
(a) capacity to develop the vendor’s image,
(b) contribution to vendor’s know-how development, and
(c) new market development potential, the so called network effect.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
33
For example, a small electronic company in Northern Jutland may pride itself in supplying
unique components to a major international company such as Nokia, Ericsson or IBM. This
will enhance the company’s standing within the industry as a serious and reliable supplier. A
vendor may also keep within its buyer mix, customers that do not contribute substantially to
its sales but provide challenging and innovative ideas that are of strategic importance to its
overall competitive profile. The network effect refers to the access that a customer can
provide to new markets or market segments. A vendor must prune its customer mix regularly
to ensure that its customer profile can fulfil its marketing objectives.
6.5 Sales Forecasting
Business marketers need information as basis for their sales forecast. Good sales forecasts
will enable the company to gauge the lead-time necessary to get out an order and to ensure
that it is shipped in time for it to fulfill the customer’s delivery expectations. Sales forecasts
will also enable the firm to plan its input orders and manage production schedules. On some
occasions, retooling may be required to modify some products in response to changes in
customer requirements. The manager needs time to do so efficiently. In order to minimize the
problems of collecting adequate data on timely basis from customers and channel members,
business marketer can make a better use of internal sources of data for their sales forecasts.
6.6 Analysis of New Market Opportunities
Apart from retaining profitable customers, management must continuously look for new
markets whose need might be met by its current products or slight modifications thereof.
This is what offensive market intelligence systems try to accomplish. A key consideration in
new market opportunity assessment is the estimation of the size of demand. Market demand
measurement calls for a clear understanding of the market involved. Various classificatory
models have been presented in marketing textbooks to help analysts in gaining insights into
the nature of the markets of interest to them. Analysts are usually advised to start their
demand measurement with an assessment of the potential market for their products in a given
country or industry.
The potential market for a product or service is the set of customers who have shown some
level of interest in the product. Only part of the potential market may have the required
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
34
finance to back up their need recognition. This is different from the available market, which
is the set of customers who not only have the need for the product or service but also the
income to acquire it. A distinction is also drawn between the served or target market and the
penetrated market.
The label “served market” is used to describe that part of the available market that the
company is interested in serving and the penetrated market is the set of buyers/ users who
have already bought the product. Vendors can therefore only target the “unpenetrated” part of
the target market or encourage the “penetrated” segment to switch over to their products
when they are making a repurchase decision. Toyne and Walter (1989) also suggest that a
market can be grouped into the following three categories:
6.6.1 Incipient Demand
6.6.2 Latent Demand
6.6.3 Current Demand
6.6.1 Incipient Demand
Incipient market demand is demand that is expected to exist in the future. For example if the
companies in a specific country are aware of a particular need or want, but lack the resources
to acquire the relevant inputs; their needs then constitute incipient market demand. Thus,
incipient demand forms part of the potential market for a vendor’s product at any given point
in time. This holds true for certain categories of equipment and inputs that can enhance the
operational capacities of firms in developing and transitional economies. The vendor can tap
such incipient demand either through the development of cheaper variants of the products
that the companies in these countries need or by modifying its conditions of payment to
accommodate the financial problems faced by these potential customers. This can give them
a competitive leverage when the financial conditions of the firms improve and they are
capable of paying for the products outright. A relationship marketing strategy permits the
entry into markets with substantial incipient demand.
6.6.2 Latent Market Demand
Latent market demand represents an untapped demand. This is the case where a demand
exists for a particular product or service, but no company has discovered it and therefore has
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
35
not offered the customers the desired products or services. As Whitely (1994) informs, each
economy develops a unique successful recipe. It also creates demand for products and
services that may not be immediately found in other countries. By understanding the patterns
of change in various economies around the world a vendor can identify new (unsatisfied
needs) that its current knowledge and resources can serve without major additional
investment. Alternatively, such need can be served through collaborative arrangements with
local firms in the specific markets.
6.6.3 Existing Market Demand
Existing market demand is what customers in a given country are prepared to pay for. It is the
immediately available market for the product. It can be higher than the level of current
purchases, since it includes that proportion of demand not as yet satisfied by currently
available products due to imperfections in the marketing system. For example, some
companies located within the existing industry served by the vendor may change their
product lines and therefore become new potential customers of the vendor. There may also
be new entrants into the industry who are likely to use inputs that can be supplied by the
vendor. Their demand increases the size of existing demand for the vendors’ products and
services. Vendors must assess all three categories of demand in their analysis of market
potential. Depending on the vendor’s marketing objectives, strategies can be formulated for
one or more of the demand categories.
6.7 Methods of Demand Estimation
Various methods have been suggested for estimating demand for a product. They vary in the
levels of sophistication, from relying on the opinions of a few individuals (sales people and
experts) to the use of sophisticated econometric models. One of the middle range models that
have found popular usage in the West is barometric analysis.
The barometric analysis assumes that if there is a direct relationship between the
consumption of a product or service in one country, the same relationship will hold in other
countries granting similar levels of economic development. For example it is estimated that
there is a correlation between the demand for cement, paper or glass in a particular country
and the GNP of that country. That is the higher the GNP, the higher the demand for these
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
36
products. Similar correlation can be found between agricultural implements and the level of
industrialization.
If one knows the relationship between GNP in any of these products in country A (the base
country) one can estimate its demand in country B and subsequent countries.
Segment extrapolation is a version of the barometric analysis. Here the focus is on the
relationship between the some indicators and the pattern of demand within specific segments
of a market. The underlying premise is that different segments may have different levels of
market penetration. It would therefore be a gross error for a marketer to base his marketing
strategies on aggregate demand estimates. The market penetration rate for each segment and
country must be carefully examined before a useful demand estimate can be made. For
example, although the demand for personal computers can be estimated on the basis of macro
economic indicators, the level of penetration in key segments such as financial institutions,
commercial data processing companies and public institutions may vary. It is therefore
necessary to have information about the number of potential buyers in each of the key
segments and assess the degree of market penetration in them before making demand
estimation. Breaking down companies within each of the segments can further refine the
technique. The break down can be done in terms of size, sales volume or other factors
indicative of sales potential. The penetration rates in each of these within-industry segments
are then estimated. The country for which data is available becomes the base country. The
number of companies in each of these segments in the second country is then determined and
multiplied by the relevant segment penetration rates.
To illustrate: Let us take the example of a vendor of microwave ovens in the industrial
sector. From the sales people’s experience, three main groups of potential users are identified
– hotels, fast food chains, and restaurant chains. Data on market performance in the base
country show that for hotels, the number of units of microwaves purchased was related to the
number of rooms in a given hotel. Sales potential of the microwave in that segment is
therefore determined by size of hotels. For fast food chains, demand varied with sales volume
and for restaurants the number purchased varied with number of tables. If the analyst wants
to estimate demand for the microwaves in a second country he starts by determining the
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
37
number of hotels in each class size. (The data can be obtained from the tourist board’s
database). This is then multiplied by the relevant size class sales potential figure to obtain
market potential estimates for hotels. Similar analysis is done for the other segments in order
to obtain an aggregate demand estimate.
6.8 Segmentation of Industrial Markets
Market segmentation is a process of dividing a market into distinct groups of buyers with
similar requirements or homogenous responses to marketing stimuli. It is a difficult task to
conduct a meaningful segmentation of industrial markets. Often the same industrial products
have multiple applications and several products can be used in the same application.
Moreover, industrial and organisational customers differ greatly and it is hard to agree on
which characteristics can serve as a useful basis for segmenting them. Nevertheless it is
useful for industrial marketers to segment their potential customers in order to make choices.
Segmentation helps vendors in the following three specific areas of decision making:
6.8.1 Analysis of the Market
Analysis of the market, i.e. allows for better understanding of the buying behaviour of
customers.
6.8.2 Selection of Key Markets
Selection of key markets, i.e. choosing market segments that can help vendors to attain their
marketing objectives.
6.8.3 Development of Appropriate Marketing Strategy
Development of appropriate marketing strategy if marketing plans and programmes are to be
cost-effective, they must be carefully tailored to the needs of the specific target markets.
There are two major approaches to market segmentation. The first is a priori approach in
which the segmentation variables and their categories are decided before data are collected.
The second approach is a clustering-based segmentation design in which the segments are
determined a posteriori, for example through the use of cluster analysis of relevant variables.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
38
6.8.4 Criteria of Segmentation of Industrial Markets
Taking the priori approach first, Shapiro and Bonoma (1995) suggest that industrial markets
can be meaningfully segmented using the following criteria:
A. Demographics
B. Operating variables
C. Purchasing approaches
D. Situational factors
E. Personal characteristics
A. Demographics
Demographic characteristics include the nature of the industry, the sizes of the companies
and their location.
I. Industry
Knowledge of the industry offers the vendor a broad understanding of the needs of potential
customers and the purchasing behaviour that they exhibit. A computer company may sell its
products to a wide variety of industries, each industry having specific need pattern and
growth rate that will affect its purchasing behaviour. Each of the industries can also be
subdivided for the vendor to get a better understanding of their needs. For example a
computer company wishing to sell its products to the financial sector, can subdivide the
sector into commercial banks, insurance companies, stockbrokerage houses and savings and
loans associations. Each of these sub-industry groups differs remarkably in their purchase
behaviours.
II. Company size
The size of the companies in the industry will also determine the nature and magnitude of
marketing efforts required satisfying them. Larger companies will demand greater resources
and buy larger quantities. A small vendor may consider the marketing requirements of such
companies to be beyond its capacity and may therefore target the smaller companies within
the industry.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
39
III. Location
The location of the potential customers will determine the logistics costs that will be incurred
to serve them. Where customers are concentrated within one geographical area, e.g. an
industrial district of a country, it becomes easier to reach many of them. If the products sold
by the vendor are bulky it will be advantageous targeting geographically concentrated
customers, since the average marketing resources per customer becomes lower as compared
to customers spread over a wider geographical area.
B. Operating Variables
Operating variables enable the vendor to make more precise identification of existing and
potential customers within the demographic categories. The variables include company
technology, nature of products, customer capabilities (i.e. technical, financial and
operational)
I. Company Technology
A company’s needs depend to a considerable extent on the type of technology it uses in its
production process. Most products can be produced with different types of technology and
production methods. Top management preferences, financial constraints and industry
traditions in a particular country may determine the type of technology chosen by a particular
company. Thus it has been observed that the production of Japanese colour TV is highly
automated while similar TVs are produced in the US and Europe using manual production
methods.
II. Nature of Products
A company’s product line will also influence its purchase need regarding raw materials,
components, equipment and accessories. When product lines are changed or expanded, it will
generate new needs and create new market opportunities
III. Customer Capabilities
Companies have different configurations of technical, financial and operating capabilities.
Some operate with basic technology and are hesitant to modernise, maintain tight material
inventories and show high preferences for vendor credit facilities as well as reliable delivery
of high quality inputs. Others may have internal facilities to control the quality of inputs
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
40
delivered and make demands on the vendor’s delivery schedules. These differences must be
carefully noted in the classification of the customers, since it will determine the nature and
amount of marketing resources to be spent on each of them.
C. Purchasing Approaches
Companies differ also in terms of the manner in which they organise their purchasing
process, the power structures that characterise the purchase decision making units and their
policies and attitudes to vendor-customer relationship. These characteristics can therefore be
used as segmentation variables.
I. Organization of the Purchasing Function
Some companies have a centralised approach to buying , while others adopt a decentralised
approach. The composition of the buying centre (i.e. the size as well as the levels of
managers involved in the purchase decision) is determined by whether a centralised or a
decentralised approach is used by the company.

Power Structure
Customers also vary widely in terms of power structures. In some companies financial
controllers are most powerful and no significant purchase decision is made without their
consent, in others, the production manager may have the dominant power. A vendor might
find it useful to adapt its marketing strategies to customers’ strengths and power structures.
II. Vendor-Buyer Relationships
Some companies prefer an arms-length relationship with some of its vendors while requiring
close relationships with other. It is important to verify what factors determine the preferred
relationship. This will help the vendor to decide whether the customer’s policies are in
concordance with its own and whether to initiate a trading relationship with the customer.
III. Situational Factors
Compared to operational variables, situational factors are temporary features of customers.
They include the urgency of order fulfilment, product application, and the size of order.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
41
a. Urgency of Order Fulfillment
Some companies have a policy of zero inventories. This necessitates fast order replacement
on just in time basis. Such companies look for vendors that can supply small, urgent orders
quickly. Other companies may lack the capacity to plan their production schedules
effectively and therefore make urgent orders for raw materials and components. Orders from
these companies can be erratic and with varying order sizes. Vendors willing to serve these
customers may need to keep stock of materials ordered by the customers in order to serve
them effectively, possibly at higher prices.
b. Product Application
Product application can have a major impact on the purchase process, purchase criteria and
thus on the choice of a vendor. Water pumping machine required for intermittent service by a
construction company will differ in terms of robustness from that needed by a farmer who
relies on the machine to irrigate his farm on regular basis.
c. Size of Order
A vendor who wished to target customers with large unit volumes has to pay attention to the
order sizes of the various companies within the market. By this differentiation, it will not
include small order buyers in its customer mix. If existing customers change their order size
it is important to examine the reason for the change and to determine whether the change is
temporary or permanent. This will affect the decision as to whether to retain the customer
within the customer-mix.
D. Buyer Personality Characteristics
It has been frequently stressed that people, not organisations, make purchase decisions. It is
therefore important to examine the personality characteristics of the major purchase decisionmakers in potential customer firms/organisations. Some people are generally risk averse
while others are risk receptive. The level of risk a buyer is willing to assume is found to
relate to such personality variables as the degree of tolerance for ambiguity and selfconfidence. Buyers who are risk averse have difficulties changing to new vendors. They are
willing to do so only when the present vendor has betrayed the trust reposed in it, for
example, by not living upto its delivery promises. Risk averse buyers are also very reluctant
to try new products. Although personality attributes are useful factors to consider in market
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
42
opportunity analysis, it is difficult to collect reliable data on such variables. The market
analyst may therefore use this variable only when the necessary information is at his
disposal.
 Posteriori Segmentation
With regard to a posteriori segmentation, Day (1990) identifies four response profiles:
application or usage situation benefit sought or (derived), sensitivity to marketing variables,
and purchase behaviour and loyalty variables. Among these variables, benefit is considered
to provide the best segment for a marketer, since the main purpose for which products or
services is bought by a customer is the benefits that they offer.
6.9 Impact of Interpretation of Market Environment on Market Analysis
Finally, it must be noted that gaining knowledge of these market opportunities requires an
interpretation of signals within the market environment. Interpretation is the process that
gives meaning to data, establishes the significance of events and identifies the range of
options. Based on selective attention to events, interpretations lead to the acceptance,
rejection, or modification of an organization’s strategies and practices. Interpretations are
based on the individual manager’s past experience, values, skills and self-interest. Hence the
same set of data will generate differential interpretations and responses from decision makers
in a company. The reason is that individuals attune selectively to different subsets of the data
available to them and attribute different meaning and significance to what they choose to
focus attention on.
As hinted above, the choice of approach to market knowledge acquisition will also depend on
the degree of stability evident in the operational environment. In stable environments where
past cause-effect relationships have been established and provide relevant guidance, multiple
interpretations are less common and perceptions play a lesser role (Daft and Weick, 1984). In
such situations, organisations tend to employ routinized data collection procedures and
delegate the task of reporting to lower personnel levels.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
43
6.10 Relationship Marketing
The concept of relationship marketing (RM) has been described as a new marketing
paradigm, a new marketing strategy and a new emerging school of marketing (Aijo 1996).
Companies have become increasingly conscious of the fact that unique (i.e. non-imitable)
and superior customer value is best created through relationships. This allows vendors to
retain their customers over a longer period of time than they used to. Vendors now see
customer retention as a goal in itself.
Kotler (1991) expresses the development in the following words" What I think we are
witnessing today is a movement away from a focus on exchange - in the narrow sense of
transaction – and towards a focus on building value-laden relationships and marketing
networks. We start thinking mostly about how to hold on to our existing customers.... Our
thinking is therefore moving from marketing mix focus to a relationship focus"1.
Crucial elements in the RM framework include interactivity, networking, trust, long term
orientation and exchange of promises. As Shapiro et al (1995 p. 186) explain, “relationship
selling is not just a better set of techniques for making sales. It is a different philosophy based
upon continuity and trust”. Concepts such as symbiotic marketing, co-marketing alliances,
internal marketing are now widely used in the literature to explain the characteristics of
relationship marketing. Several factors have contributed to the importance of RM in current
business practices. They include the general affluence in the Western industrialised
economies, globalisation, technological innovations, information revolutions (computer and
telecommunication developments) all of which have combined to produce a buyer’s market
characterised by limitless buyer choices. These circumstances have compelled companies to
simultaneously raise efficiency through cost minimisation and improve the level of quality of
their products. Quality expectations of customers everywhere have increased. To serve them
vendors must have up-to-date awareness of these expectations and work with them to
succeed.
As marketers of consumer products come under increasing pressure to be strategically
flexible and to mass-customise, they put pressure on their suppliers as well to reduce cost and
improve quality. To achieve these twin goals of low cost and high quality of products and
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
44
delivery services, it has become imperative for firms to collaborate closely in their businessto-business transactions. From international industrial marketing perspective, this
requirement implies that suppliers must either be located in close proximity to customers
and/or strengthen their connectivity through the use of Internet technology. It has also been
noted that successful relationships between suppliers and customers require the broader
involvement of organisational actors in the collaborating companies, i.e. pulling together
knowledge, commitment and trust from many people.
6.10.1 Typology of Relationships
Four broad types of vendor-buyer relationships can be identified as:
A. Systematic sought out relationship, where vendors conduct elaborate market search to
identify customers and design proactive marketing strategies aimed at building relationship
with them.
B. Emergent relationship, where initial transactions with customers leads to incremental
development of relationship. This happens when customers are satisfied with the outcome of
the initial transactions and therefore request the vendor to supply other products to the
company.
C. Arranged relationship
They are the types of relationships that are initiated by third parties, e.g. on the initiative of a
public institution as part of government policy. The Danida sponsored private sector
development programme is a good example.
D. Strategically unavoidable relationships
These are relationships that companies consider imperative for the sustenance of their
competitive advantages. For example, a furniture company that uses tropical wood may have
to enter into alliances with suppliers in tropical countries in order to ensure sufficient supply
of logs.
Business-to-Business marketing relationships are likened to marriage. Both partners believe
that each has unique skills and functional abilities the other lacks. They bring into the
relationship a faith that they will be stronger together than either would be separately and are
willing to work diligently over time to make the union work
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
45
The process starts with selection and courtship. The vendor first assesses its product
offerings and matches it against the expectations of the customer in order to determine its
ability to fulfill these expectations. Contacts are then initiated and agreements are worked out
and signed. After this details of the relationships are negotiated and implemented. The
interactions between the staff of the buyer and vendor lead to the identification of problems,
the discovery of differences and the agreement of acceptable approaches to solving emerging
problems. At some point in the future exit becomes inevitable, either through “death or
divorce”. To manage the relationships effectively it is important for both vendor and
customer organisations to empower their front line personnel to take decisions that can
smooth the process of interaction. Companies engaged in relationship marketing must
therefore be mindful of the fact that relationships involve a substantial loss of autonomy. As
Shapiro et al (1995 p. 184) explain it “decisions will no longer be made only on the basis of
the needs and desires of one organisation, but on the joint needs and desires of both
partners.”
6.10.2 Key Accounts Management
Relationship marketing is resource demanding, in terms of management time and broad
management involvement in all aspects of the relationship. In order to manage a vendor’s
resources effectively, customers may be classified in terms of the sizes of businesses
transacted or expected to be transacted with them as well as the amount of resources that they
expect to devote to them. Major customers receive high quality of co-ordinated support from
a variety of functional units (e.g. manufacturing, sales, technical support services, marketing)
within the company. The management of such relationships has been dubbed strategic
accounts management and is based on the following three attributes:
1. Importance
2. Intimacy
3. Longevity
Importance relates to the sales and/or profit that can be generated from a particular account.
Customers must be expected to represent high financial payouts for vendors to devote
substantial resources on them. Intimacy allows vendors and customers to gain insight into
each other’s businesses, and to share operating information. Intimacy is based on trust and
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
46
trust in turn promotes intimacy. (See the discussion of trust below). Longevity of
relationships is also necessary to encourage companies to invest the required resources in the
relationship with the hope that the partners will reap the anticipated rewards from their
investments.
In the very intense relationships, vendors may have to post their employees in the customer’s
organisation to work together with the customer’s employees. In such situations, strong
personal relationships may develop between the employees of the two companies and
influence the longevity of the relationship. The close collaboration will enable the vendor to
gain good knowledge about how its product is used and help develop unique applications for
the focal customers. The buyer is also willing to share such knowledge with the vendor as
long as this will help the buyer to gain new knowledge and unique support for its activities
from its vendor company. The knowledge leads to improvements in the competitive positions
for both companies. It is important that vendors avoid the following four types of errors in
the management of their strategic accounts:
1. Attempting to develop too many strategic account relationships.
2. Picking poor strategic account partners.
3. Allocating too few resources to the relationship.
4. Losing sight of the importance of cultural compatibility in the relationships.
In order to satisfy key accounts fully and explore opportunities that emerge from the
relationship, it is essential that the number of accounts must match company resources. Since
vendors have to concentrate their resources on few accounts, the selected accounts must be
must be truly strategic in terms of business volume. A poor choice will naturally lead to
waste resources and high opportunity cost.
Finally it must be noted that strategic accounts justify and require the broader involvement of
the best managers/employees of the vendor and customer organizations. An inability to
assign adequate staff to the relationship or empowering them to make quick decisions can act
as a serious constraint to the performance of the relationship. Furthermore, focusing on quick
financial performance of such relationship can jeopardize its prospects. This implies that
companies entering into the relationship must have some degree of slack resources to start
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
47
with and may be able to leverage external resources when necessary. Finally, if personal
relationships are to develop, people must spend time together. Improvements in information
technology (intra and Internet facilities) have added new possibilities for interaction even in
the absence of geographical proximity.
6.10.3 Trust and Relationship Marketing
Trust is widely recognised as a critical component in successful relationship marketing. In
the social science literature, trust is believed to be that social attribute that generates a
willingness among people in dyadic relations to sacrifice their short-run individual self
interests for the attainment of joint goals or longer term objectives (Sabel, 1993). People who
trust each other believe that their relationships are worth sustaining and therefore actively
contribute to its continuity. That is, trust leads to higher levels of loyalty and long term
collaboration between people (Fukuyama 1995). Similar perspectives are reflected in the
industrial marketing literature. Anderson and Narus (1990 p.45) define trust as “the firm’s
belief that another firm will perform actions that result in positive outcomes for the firm, as
well as not take unexpected actions that would result in negative outcomes for the firm”.
Trust allows firms to reduce or avoid reliance on costly formal monitoring mechanisms to
maintain their partnership. It also produces mutual concern for longer term benefits by
partners, raises market performance through the improvement of efficiency, and allows for
information exchange, joint problem solving attitude and mutual learning (Aulakh, Kotabe
and Sahay 1996). Furthermore, trust complements written contracts between firms. A
contract cannot be expected to address every eventuality and contingency faced over the
course of a long-term relationship. Where trust exists between the partners they will adapt to
unanticipated contingencies without resorting to opportunism. As Sabel (1993) observes,
trust requires a mutual suspension of self interest of the interacting partners. That is, it lays
the foundation for a mutual confidence among business partners that no party to an exchange
will exploit the other’s vulnerability. Universal suspicion is therefore replaced by shared
confidence. The need for cultural sensitivity is closely related to trust between cross-national
partners. The argument here is that cultural sensitivity promotes regular and effective
communication between the collaborating firms and thereby reduces the incidence of
misunderstanding and suspicion. Trust is therefore seen as a culture-dependent concept.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
48
That is, the underlying logics of trust differ across societies. Thus, Johnson, Cullen, Sakano
and Takenouchi, (1996) found a wide discrepancy between Japanese and Western ideas of
trust. They further noted that the rules of trust building observed by partners based in the
same culture differ from those observed by partners belonging to different cultures.
6.10.4 Power and Relationship Marketing
This brings the issue of power in supplier-distributor relationship into focus. Some
researchers acknowledge the possible asymmetry in benefits accruing to the participants in
the relationship. That is to say, parties in a relationship may not draw equal benefits from a
relationship. The differences in benefits may be indicative of the power differences between
the parties. Power derives from having resources that the other needs and from controlling
the alternative sources of the resources. Brown and Lusch (1983) have presented the
following typology of power situations:
A. Reward Power
Reward Power, based on a channel member's perception that the other party has the capacity
to provide him with rewards that he will find hard to secure from other firms. A typical
reward in this regard will be the ability of an exporting firm to grant credits over longer time
periods than usual. Such a reward will doubtlessly be inductive to developing country-based
firms relying on a European firm to enhance its technological capacity through supply of
equipment and relevant skills.
A. Coercive Power
Coercive Power, based on a partner's perception that the other party has the ability to mediate
punishments, e.g. reducing supplies or slowing down shipment of products on which his firm
is highly dependent.
C. Legitimate Power
Legitimate Power, i.e. what the industry accepts as the right way of doing business and this
relates to the hierarchies of power within the business. It may also be contained in legally
enforceable contracts.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
49
D. Referent Power
Referent Power, based on a partner's desire to be closely associated with the other party due
to perceived benefits from such association. The more attractive the resources a supplier
controls, the more likely it will be for the other party to view the relationship as essential.
E. Expert Power
Expert Power, based on a channel member's belief that a given channel member has
specialised information or knowledge that will benefit its operations. This kind of power can
form the basis of the referent power mentioned above. Asymmetrical power relations will
invariably engender ill will. A non-dominant party will feel cheated and may, in turn, cheat
on the dominant partner as a way of relieving pent-up frustrations and bring balance into any
perceived inequities. Morgan and Hunt (1994) have therefore suggested that commitment and
trust should be considered the foundations of a supplier-customer relationship. The
committed party believes the relationship is worth working on and therefore actively
contributes to its continuity. Commitment is built on trust, i.e. confidence in each other’s
reliability and integrity. Trust therefore leads to higher levels of loyalty. "When both
commitment and trust - not just one or the other - are present", they argue, "they produce
outcomes that promote efficiency, productivity and effectiveness" (Morgan and Hunt 1994,
P.22).
6.10.5 Challenges in Relationship Marketing
Relationship marketing has its challenges. It can result in relationship-specific investments.
As the transaction costs theory informs, these are specialised investments that partners make
that are of little value outside the specific vendor-buyer relationship due to their idiosyncratic
nature. For example, a vendor who devotes its engineering expertise to solve a unique design
problem for a manufacturer has made a relationship-specific investment. At least in the short
run, the vendor’s investment is neither easily transferred nor recovered if the relationship
terminates. Thus the more relationship-specific investment partners make, the more
dependent they become on each other.
Exit barriers also constitute a negative dimension of relationship marketing. Exit barriers are
said to be present in a relationship when partners believe that terminating established
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
50
relationships would be costly. The more difficult it is to gain access to the resources supplied
by the other party to a relationship, the more dependent a company is to the relationship.
When avenues exist to gain the same resources (in terms of quality, delivery reliability and
post sales support) the more likely it is for partners to pull away from the relationship.
 An Intergrated Framework for Analysing Industrial Buying Behaviour
Factors Influencing the Nature of the Purchase Problem
 Company Specific Factors
• Orientation to business
• Size
• Culture
• Resources
 Product Specific Factors
• Urgency
• Anticipated risk
• Complexity
 Background of key buying centre members
• Specialized education
• Perception
• Personality
• Role
 PerceptualDistort
• Recognition and analysis of proposals
• Evaluation of proposals
• Selection of Suppliers
• Negotiation and placing order
• Problem recognition
• Need description
• Product specification
• Active search
 Type of Purchase
• New task
• Modified re-buy
• Routine
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
51
SECTION SEVEN
TYPES OF MARKET
7.1 Headline Head-games
Almost daily, there are conflicting reports on the state of the economy and markets. Some
analysts predict “doom and gloom,” others say the best is yet to come, while others sit on the
fence. In fact, the three headlines above all appeared on the same day in September 2006!
This type of uncertainty may cause you to feel uneasy about your current investments and
where to invest your money for the coming year. When the news is positive, the tendency is
to react with enthusiasm and take a more risky stance in hopes of capturing all of the upside
in the market. When headlines warn of tougher days ahead, feelings of anxiety or concern
often take hold, and you may sit on the sidelines waiting for more positive signs. Today’s
environment of conflicting viewpoints has many investors asking, “how can I work with my
advisor to make the right decisions so that I feel comfortable with my investments?”
7.2 Turning Uncertainty into Opportunity
The road to your financial objectives can sometimes feel like a maze. There are no maps or
directions and there are lots of twists and turns along the way – career, family and friends,
health – it’s not clear where the next turn will take you. With all the choices available and all
the mixed messages in the media, how do you make the decisions that will get you to the end
of the maze, to the place where your investment goals – the hopes and dreams for you and
the people you care about – are found? There is a strategy you can use to find your way out
of a maze, and there are also strategies that will help you become a better investor through
the twists and turns of any market condition. In most mazes, keeping your hand on the right
wall will eventually get you to the end – it may not be the fastest way out, but it ensures that
you will reach your goal. Similarly, there are a few basic rules and strategies you can apply
to your investment plan that will make you a better investor and improve the chances of
reaching the financial goals that are important to you. There are also people ready to guide
you through the maze, and help you make the right choices that will lead to success. This is
the role of your advisor. Investing
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
52
7.3 The only certainty is uncertainty
For years, you’ve probably heard that the best way to achieve long-term investment success
is to have a plan in place and stick with it. The reason why this advice is important is because
it works. During markets like we’re experiencing today, adhering to key principles or “rules”
of investing can ensure that your portfolio stays on track and is not derailed by emotional
reactions to the daily news. And although most investors say they are comfortable with a
certain degree of market volatility, the numbers suggest that many often react emotionally to
short term fluctuations.
Why are some investors more successful than others?
In the late 1990s, markets were reaching new highs and many people became risk-takers,
buying stocks with the feeling that the markets could do no wrong. This sentiment changed
between 2000-2003 when stock markets declined and many investors became risk averse –
they felt that stocks would never bounce back and sold their holdings as a result. Across both
periods, one of the only consistencies was how inconsistently many people approached their
investment plan.
A consistent approach is critical in order for investors to navigate through the ups and downs
of the market. And this is accomplished by sticking to proven strategies that have shown to
be successful. Strategies help investors avoid taking action based on how they feel and guide
them to make decisions based on what they know. This is where an advisor plays a critical
role. In addition to being a partner who can help you work towards your financial goals, an
advisor helps you keep your emotions in check and ensures that your portfolio stays on track.
For example, during weak equity markets in Spring 2006, data from the Canadian mutual
fund industry showed that investors redeemed close to $800 million in Canadian equity
funds. In many cases, this was an emotional reaction to a short-term move in the market. Six
months later, the Canadian equity market had regained most of its losses, and those who had
sold missed out on the rebound they would have enjoyed had they stuck to their long term
investment plan. Numerous periods throughout history show investors reacting the same way
to market volatility – selling their investments after the market dropped, then getting back in
after the market rebounded higher.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
53
7.4 Markets are uncertain, so make sure you know the “rules”
Solid strategies provide guidelines or “rules” for keeping investors on track, especially
during periods of volatile markets. And believe it or not, the most effective investment
strategies revolve around a few simple principles – they should be easy to follow, repeatable,
proven over time, and based on facts. Some key strategies that will make you a successful
investor are:
1) Use “dollar cost averaging” to make market volatility work in your favour
2) Rebalance regularly so that you “buy low and sell high”
3) Work with your advisor to take advantage of current investment trends
4) Look for investments that appear on sale.
7.5 Cause Effect Action
Use dollar cost averaging to make market volatility work in your favour Recognizing that
markets go up and down is something that all investors need to understand – recent volatility
has served as an excellent reminder. Knowing this, is there any way to take advantage of
market fluctuations in the way you approach your investments? The answer is yes, and the
strategy is known as dollar cost averaging.
7.6 Understanding the strategy
Dollar cost averaging involves making regular, equal contributions to an investment over
time. With this strategy, you don’t need to worry about ‘the right time to buy’ because you’re
always investing. There are two key advantages to dollar cost averaging. First, it allows you
to invest smaller amounts of money on an ongoing basis, which is typically easier on your
budget. Second, investing a fixed amount of money on a regular basis ensures that you don’t
overpay for an investment. When prices are high, your fixed dollar amount buys less of the
investment. When prices are low, your money buys more. Mutual funds are a perfect
investment to use when implementing a dollar cost averaging plan. The chart below
illustrates how dollar cost averaging would work with $100 per month invested into a mutual
fund that started and ended the year at the same price.
During periods when an investment is flat (with no gains or losses), dollar cost averaging is
an approach that can increase your returns. In the chart above, the fund started and ended the
year at the same price. Although it might appear that the return on the investment would be
0%, an investor making regular contributions would have actually earned a positive return of
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
54
8.4%. This is because dollar cost averaging ensures that you buy more units when prices are
lower and fewer units when prices are higher. Dollar cost averaging is an easy way to
maintain discipline and allows you to take advantage of volatility and uncertainty in the
markets. $100 investment buys 11.76 units at $8.50. By year end, these units have increased
to $10.00

Unit Pricein volatile fluctuations – Buy more when prices are low and less
Even though prices started and ended the year at $10, contributing regularly allowed the
total dollars invested to grow by 8.4%
1. Work with your advisor to take advantage of current investment trends. There’s no
shortage of information available that talks about the markets – the hard part is figuring out
what’s important and what’s not. This is why working closely with an advisor can make a
real difference. Your advisor will help you understand the events that will have an impact on
your long-term investment plan and help you make the right decisions at the right time. They
can help you work your way through the maze of differing views and conflicting
information. It is important to recognize that market conditions are always changing. This
doesn’t mean you have to become a market expert or even watch the market everyday, but
being aware of current investment trends can help you have more meaningful conversations
with your advisor. And your advisor can help.
2. Rebalance regularly so that you always buy low and sell high One of the most important
investment decisions is determining the right mix of cash, bonds and equities in your
portfolio. But this process isn’t a one-time affair. Once your asset mix is set, market
movements will cause these allocations to drift over time. That’s why it’s important to
rebalance regularly in order to keep your portfolio on track. Besides keeping your asset mix
on track, regular rebalancing also helps you to systematically buy low and sell high. As one
holding appreciates faster than another, rebalancing will result in some of these gains being
sold and reinvested into holdings that have not risen as much in value. Effective rebalancing
requires that investments be monitored on an ongoing basis with adjustments made when the
asset mix is no longer appropriate. It is generally recommended that investors review and
rebalance their portfolios at least on an annual basis with the help of an advisor. An advisor
can manage the rebalancing process for you, helping to keep your portfolio well structured
and effectively positioned for long-term success. Professionally managed portfolio solutions,
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
55
like the RBC Select Portfolios, are automatically rebalanced on an ongoing basis to help you
take advantage of the benefits of rebalancing without any time or effort spent making
changes to your portfolio on your own.
7.7 Approach uncertain markets with certainty
Following these time-tested strategies will help you stay on track through all types of markets
and give you peace of mind that you will reach your financial goals. Complicated and
conflicting information will always exist but, like a maze, there are ‘rules’ that will help you
reach your end goal. Your advisor can guide you along the way, keeping you informed and
focused on what’s impacting your investments, and helping you stick to a strategy designed
to meet your needs. The net result – you will be a great investor in all types of markets.
Following three years of strong gains, the Canadian equity market now appears to be trading
just above its fair value range. In contrast, the U.S. equity market is trading in the middle of
its fair value range. This suggests that valuations in the U.S. are currently more attractive
than those here in Canada.
Although these types of models can identify when certain markets appear attractive, it is
impossible to identify precisely when markets will rise or fall. Instead, valuation estimates
serve as a guide to indicate what markets appear expensive versus those that appear ‘on sale’.
Working with your advisor to gain awareness of market valuations will allow you to make
more educated decisions within your portfolio and help determine where to place your next
investment dollar.
Consistently following this process will improve your chances of investment success over
time.
You don’t have to figure this out on your own. An advisor can help you find markets that
appear on sale and incorporate this strategy into your investment plan. And valuations are a
key component of the investment decisions made in all RBC Select Portfolios.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
56
SECTION EIGHT
DEMAND IN INDUSTRIAL MARKETS
8.1 Economics of Industrial Demand
Demand for the industrial demand develops from the ultimate demand for consumer goods
and services. Demand is derived from the choice and likes of consumers. There are
principally three types of demands in industrial marketing. They are: 8.1.1 Derived Demand
8.1.2 Joint Demand
8.1.3 Cross Elasticity of Demand
Now let us try to understand them one by one with examples from industry.
8.1.1
Derived Demand
It is the single most important force in the marketing of industrial goods and services. We
shall now clarify this statement with an example. The garment industry, which makes
readymade garments, will have a constant requirement for buttons, zips, labels etc. Since the
garment industry will sell the garments to the consumers as per their taste and choice the
demand for the finishing items like buttons and all will always be there for continuous
production. They may vary in size shape or color but the demand will always be there as long
as we have the garments with us.
8.1.2
Joint Demand
Joint demand is commonplace in industrial marketing. It is when one product requires the
existence of other product to be useful. While exceptions may be found most products
require several component parts or ingredients.
8.1.3
Cross Elasticity of Demand
It is the responsiveness of the sales of one product to a price change of other. The example of
this kind of demand estimate we can say in industrial market is steel and aluminum The
quantity of steel in demand is closely related to its close substitute aluminum. Industrial
marketing will also exist in resellers market also. By the term resellers market we mean the
buyers who buy the materials but do not consume it for some final product but again sell the
product further ahead to some other final goods manufacturer. We can also term the resellers
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
57
as merchandisers. Examples of this kind of resellers/merchandisers are like the people who
market dyes & chemicals, industrial chemicals and machine accessories etc. With this we end
our discussion on the basics of industrial marketing and in the next page we shall discuss
classification of industrial products and unique ways of procurement of industrial products.
8.2 Understanding Industrial Markets
The industrial market is composed of commercial enterprises, governmental organizations,
and institutions whose purchasing decisions vary with the type of industrial good or service
under consideration. Effective marketing programs thus depend upon a thorough
understanding of how marketing strategy should differ with the type of organization being
targeted and the products being sold. The objective of this section, then, is to expose you to
1. The diversity of industrial customers and the types of products and services they
purchase.
2. The type of customer being served and the product or service being marketed
influences marketing strategy.
3. The unique characteristics of organizational purchasing.
The industrial market is characterized by tremendous diversity both in customers served and
products sold. General Motors, for instance, purchases $500 worth of electronic fuel
injectors, microelectronic sensors, and electronic noses for each subcompact car it produces;
the federal government purchases $2,900 Allen wrenches to keep its spare parts inventory up
to date; universities purchase $100 surge suppressors to protect their investment in IBM
computers; while Computer Land, the largest U.S. computer chain, sells maintenance
Component parts, spare parts, accessory equipment, and services are only a small example of
the types of products purchased by the variety of customers in the industrial market. As
indicated in Figure 2-1, industrial distributors or dealers who in turn sell to other industrial
customers, commercial businesses, government, and institutions buy a variety of products
that, in one way or another, are important to the functioning of their business endeavors.
Knowing how this vast array of industrial customers purchase and use products and what
criteria are important in their purchasing decision is an important aspect of industrial
marketing strategy.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
58
SECTION NINE
CHARACTERISTICS OF INDUSTRIAL PRODUCT
9.1 Definition
Industrial Production is an economic report that measures changes in output for the industrial
sector of the economy. The industrial sector includes manufacturing, mining, and utilities.
Although these sectors contribute only a small portion of GDP (Gross Domestic Product),
they are highly sensitive to interest rates and consumer demand. This makes Industrial
Production an important tool for forecasting future GDP and economic performance.
Industrial Production figures are also used by central banks to measure inflation, as high
levels of industrial production can lead to uncontrolled levels of consumption and rapid
inflation.
9.2 Characteristics of Genetically Modified Organisms
Definition of GMO: A genetically modified organism (GMO) is an organism that has
undergone a recombinant DNA procedure. Recombinant DNA technology involves the
transfer of genetic material from one organism to another plant or animal. GMOs are also
called transgenic organisms because genes have been transferred. Cloning is not the same
as genetic modification because cloning involves replicating the DNA sequence of one
organism without changing any genes within the DNA sequence. Genetic modification
requires that genes within the DNA sequence be modified. Replication of genetically
modified organisms is usually conducted via cloning to maintain the exact gene sequence
desired.
The genetic engineering process utilizes viruses and bacteria most often to implant the
desired gene(s) into the organism. The gene is surrounded by an activator that causes the
gene to switch on or off when desired. The ability to activate or deactivate a trait is the
driving force behind genetic engineering.
Genetic engineering is occurring within both plants and animals. Genetic engineering in
plants is occurring for food crops, trees, grasses and flowers, industrial products,
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
59
pharmaceuticals, and environmental remediation and conservation. Genetic engineering
in animals is occurring in mammals, aquatic organisms, and insects.
Plants:
Food Crops
Genetic engineering within food crops is done to create pest and disease resistance,
improve crops, and improve product characteristics.
Pest and disease resistance: resistance to viruses, fungi, bacteria, insects and mites, and
nematodes.
Crop improvements: herbicide tolerance and resistance, improved nitrogen utilization,
hormone regulation, and increased yield.
Improved product characteristics: more nutrients, more anti-nutritional factors, fewer
allergens, and more functional attributes.
Trees
Genetic engineering within trees is done to improve pest, disease, and herbicide
resistance and improve product characteristics.
Pest, disease and herbicide resistance: resistance to viruses, bacteria, fungi, and disease.
Improved product characteristics: increase energy production, increase efficiency of pulp
milling, straighter trees for lumber and building, modifying tree fruits to improve flavor
and color.
Grasses and Flowers
Genetic engineering in grasses and flowers is conducted to improve herbicide, pest, and
disease resistance, improve stress tolerance, and improve product characteristics.
Herbicide, pest, and disease resistance: help minimize the invasion of weed species and
improve resistance to pests and disease.
Improve stress tolerance: enhance tolerance to heat, cold, and drought.
Improve product characteristics: bring to market new colors of flowers, long-lasting
plants, and low mow grass.
Industrial Products
Genetic engineering is being conducted to produce proteins, biopolymers, plastics, fatty
acids, oils, waxes, and dyes. These products are often developed in food products, so
cross-contamination may occur.
Pharmaceuticals
Genetic engineering is being conducted to develop plant-produced and edible vaccines,
antibodies, and therapeutic proteins.
Environmental Remediation and Conservation
Genetic engineering is being conducted to develop plants that remove heavy metals from
contaminated soil. In addition, plants are being engineered to become biosensors to detect
or monitor hazardous substances.
ANIMALS
Mammals
Genetic engineering in mammals in being conducted in mammals for basic research, to
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
60
produce human proteins for medical therapy, and for xenotransplantation to increase the
availability of organs for transplantation in humans. In farm animals, genetic engineering
is being conducted to increase growth or weight gain, to alter milk properties to reduce
lactose or increase shelf life, or increase disease resistance. Industrial products are also
being produced within mammals, such as spider silk protein in goat milk.
Aquatic Organisms
Genetic engineering in aquatic organisms is focused on enhanced growth, stress
resistance, disease resistance, and sterility (to control unintended release of GMOs into
the environment). In addition, research is being conducted to reduce allergens, produce
pharmaceuticals, and increase biosensitivity.
Insects
Insects are being genetically modified to control their population and to control the
transmission of pathogens, such as malaria.
The genetically modified organisms will often look the same as their conventionally bred
counterparts. Determining the gene flow of the genetically modified organisms will prove
to be difficult.
References
Harvest
on
the
Horizon:
Future
Uses
of
Agriculture
Biotechnology.
Pew
Initiative on Food and Biotechnology. September 2001.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
61
SECTION TEN
PRODUCT TIME
10.1 “The Time vs. Money Effect”
Shifting Product Attitudes and Decisions through Personal Connection
References to time and money are pervasive in the consumer landscape. Consider, for
example, the marketing campaigns of two brands of beer: Miller’s “it’s Miller time”
commercials have appealed to consumers by guiding attention to time, whereas Stella
Artois’s “perfection has its price” campaign has appealed by focusing attention on money.
Even Citibank, an institution based on monetary transactions, brings focal attention to how
one chooses to spend time (not money) in their “live richly” campaign (e.g., “there is no
preset spending limit when it comes to time with your family”). In fact, a content analysis of
ads in four magazines targeting a wide range of consumers (Money, New Yorker,
Cosmopolitan, and Rolling Stone) revealed that, out of 300 advertisements, nearly half of the
ads (48%) integrated the concepts of time and/or money into their messages. Despite the
preponderance of marketers’ decisions to use these constructs in their communications, little
is known about the downstream effects of directing consumers’ at- *Cassie Mogilner is a
PhD candidate in marketing at Stanford University, Graduate School of Business, Stanford,
CA 94305 (mogilner_cassie@ gsb.stanford.edu). Jennifer Aaker is the General Atlantic
Professor at Stanford University, Graduate School of Business, Stanford, CA 94305 (aaker
[email protected]). This article is based on the first author’s dissertation.
The authors thank the participants in Stanford’s Marketing Brown Bag Seminar for their
qualitative insights, Ravi Pillai for his analytical insights, and Cooper and Devon for their
lemonade stand acumen. In addition, the authors are grateful for the helpful input of the
editor, associate editor, and reviewers. Correspondence: Cassie Mogilner.
John Deighton served as editor and Susan Broniarczyk served as associate editor for this
article.Electronically published January 22, 2009 tention to time or money. Does the mere
mention of time (vs. money) change the way consumers evaluate products? If so, why? To
address these questions, we conducted a series of experiments in the field and laboratory, the
results of which converge to show that increasing the relative salience of time (vs. money),
Copyright © 2009 Rift Valley University College
Adama
62
Industrial Marketing
through either explicit or implicit methods, systematically shifts product attitudes and
decisions.
This “time versus money effect” appears to be driven by a differential focus on experiencing
versus possessing the product. Because one’s experience with a product tends to foster
feelings of personal connection with the product, activating time (vs. money) typically leads
to more favorable attitudes and decisions. However, there are also conditions, albeit more
limited in number, where one’s mere possession of the product reflects the self (e.g.,
ownership of a highstatus good or for materialistic consumers). In such conditions, activating
money (vs. time) can have more favorable effects. Together, the results illuminate the time
versus money effect on product attitudes and decisions (experiments 1–5), the driving role of
personal connection (experiments 2–3), and the determinant roles of product type
(experiment 4) and consumer type (experiment 5) in the effect.
10.2 The Psychology of Time and Money
Time and money are complex constructs that have enjoyed considerable attention across a
wide variety of disciplines. As a small sampling, researchers have examined the impact of
Characteristics such as fungibility and ambiguity are but one type of important distinction
defining time and money; another might be the extent to which each is personally meaningful
(e.g., linked to personal experiences, identity, and emotions). In this light, merely mentioning
time versus money may have broad consequences—fostering differential meaning for
consumers thinking about their products. Our basic premise is that activating the construct of
time (vs. money) tends to encourage personal connection with products (i.e., feeling that the
product is “me”), particularly when the product is experiential—where using the product
defines the product’s value.
Three lines of research give rise to such a premise. First, in the context of charitable giving,
individuals report how they spend their time to be more reflective of one’s personal identity
than how they spend their money (Reed et al. 2007). Consequently, individuals prefer
donating their time rather than their money to charity, particularly when they are motivated
to be perceived as moral (Reed et al. 2007). Second and relatedly, recent research shows that
asking questions about donations of time versus money to a charity differentially fosters
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
63
beliefs of personal happiness, which drives actual donations (Liu and Aaker 2008). For
instance, when individuals are asked to donate some time to a charity, they are likely to
consider the personal happiness that would ensue from making that donation. If instead they
are first asked to donate some money to a charity, they are less likely to consider their
personal happiness. Consequently, individuals give significantly more money to the charity
when first solicited for time (vs. money).
A third and broader research stream also highlights the link between time and the self,
particularly as it applies to the representation of time as an ultimately scarce resource: As
time becomes more constrained (either from getting old or as a phase of life comes to a
close), personally meaningful goals become more important (Carstensen et al. 1999). For
example, when time is seen as limited, people are more /persuaded by messages that are
emotionally meaningful (Williams and Drolet 2005) and reflect personally important goals
(Liu and Aaker 2007). Thus, not only is time precious because it is unable to be regained
(Leclerc et al. 1995), but the ways individuals choose to spend their time, and the experiences
they accumulate over the course of such temporal expenditures, quite literally constitute each
person’s life and who they perceive themselves to be (Van Boven and Gilovich 2003).
Therefore, we propose that activating the construct of time while consumers evaluate a
product will lead them to focus on their experiences using the product, which generally will
heighten their personal connection to that product—their feeling that the product reflects the
self. So, much like accumulating shared experiences from spending time with other people
increases feelings of interpersonal connection (Aron et al. 2000), spending time with
products should augment consumers’ feelings of personal connection to those products.
In contrast, spending money tends to be less representative of oneself (Reed et al. 2007),
suggesting that the activation of money during product assessment should not afford the
same feelings of personal connection. Money is a colder unit of exchange that when made
salient may, in fact, lead consumers to feel personally disconnected from their products.
Indeed, the primary value of money comes from its instrumentality in acquiring products and
services (Lea and Webley 2006), with greater amounts of money promising access to higherquality goods (Kirmani and Wright 1989). In this light, the value of spending money is less
about the personal experience it offers; rather, it is about the possessions it affords—which
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
64
anyone can acquire as long as he or she is willing to pay that price. We therefore propose that
activating the construct of money (during product assessment) will lead individuals to focus
on simply having the product, which typically does not grant heightened feelings of personal
connection. This prediction conceptually dovetails with recent research showing that
activating the concept of money leads individuals to interpersonally disconnect from others.
Indeed, when money is primed (e.g., a stack of monopoly money is in one’s visual periphery
or individuals arrange words to form phrases that are related to money: “a high-paying
salary”
10.3 The Time vs. Money Effect
Figure 1
Conceptual Model for the Effect of Activating Time vs Money people do not want to depend
on others, and they do not want others to depend on them (Vohs, Mead, and Goode 2006).
So, much like activating money decreases people’s feelings of personal connection to others,
activating money may also lead consumers to feel personally disconnected from their
products. There may be particular instances, however, where the mere possession of the
product feels more “me” than the actual usage of the product (Escalas and Bettman 2005;
Kleine, Kleine, and Allen 1995). For example, prestige possessions (e.g., designer jeans,
expensive jewelry, high-status cars) is a category of goods in which spending a large amount
of money on the product reflects one’s identity (Bearden and Etzel 1982; Richins 1994).
Likewise, for materialisticconsumers, who largely identify themselves by the prestige of their
possessions, the products they own communicate their self-worth (Richins and Dawson
1992). Individuals indeed have been shown to lay out considerable sums of money to own
brands that they feel reflect aspects of themselves (Aaker 1999), and it has been argued that
in some instances possessions can even serve as extensions of one’s self (Belk 1988). One
consumer notes, “[buying prestige products have become] a part of my life. They reflect my
lifestyle. I spend 30% to 40% of my salary on these goods” (Ray 2008). In the case of
prestige possessions, consumers extract value from merely owning the product, whereas the
time spent actually using the product wanes in importance (Van Boven and Gilovich 2003).
Indeed, in many cases, very little time is spent with the product once purchased (Silverstein,
Fiske, and Butman 2005). Thus, we predict that for prestige possessions and for materialistic
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
65
consumers, priming money (vs. time) will instead increase feelings of personal connection by
increasing focus on product possession.
10.4 Effect of Personal Connection on Product
 Attitudes and Decisions
Irrespective of whether feelings of personal connection stem from experiences gained using
the product or from the mere possession of the product, we hypothesize that increasing one’s
feelings that the product is “me” will lead to more favorable product attitudes and increased
choice. Indeed, decades of research in psychology have given credence to the assumption
that individuals are motivated to (and do) view themselves favorably (Allport 1961; James
1890; Taylor and Brown 1988). Consequently, people tend to have positive automatic
associations with respect to themselves— which can influence their feelings about almost
anything that is associated with them (Greenwald and Banaji 1995; Hetts, Sakuma, and
Pelham 1999; Paulhus and Levitt 1987). For example, people like the letters that appear in
their own names more than those that do not (Nuttin 1985), and they are nicer to strangers
who share their birthday than they are to other strangers (Miller, Downs, and Prentice 1998).
It therefore seems highly likely that people will also like products more that are more closely
connected to the self than products that are not. Evidence from consumer research offers
support for this prediction, showing that consumers report more favorable attitudes toward
products that reflect their personal identities (Beggan 1992; Reed 2004).
Thus, we posit a causal link whereby heightening feelings of personal connection to a
product will foster more favorable attitudes toward that product as well as an increased
likelihood to choose that product. Departing from prior research, we argue that when these
feelings of personal connection stem from experiences gained using the product, activating
time (vs. money) should lead to more favorable product attitudes and decisions. In contrast,
when feelings of personal connection stem more from product possession, activating money
(vs. time) should lead to more favorable effects (see fig. 1). More formally, we predict
H1: Activating time (vs. money) positively affects product attitudes and decisions.
H2: The effect of activating time (vs. money) is mediated by shifting consumers’
feelings of personal connection to the product.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
66
H3a: When personal connection stems from product experience, activating time leads
to more favorable attitudes than activating money.
 Journal of Consumer Research
H3b: When personal connection stems from product possession, activating money
leads to more favorable attitudes than activating time. To test these hypotheses, five
experiments were conducted. The first experiment takes place in the field, where the mere
mention of time (vs. money) in the signage of a lemonade stand reveals a favorable effect on
consumers’ actual purchasing decisions, willingness to pay, and product attitudes. The
second experiment examines the case of iPod, revealing more favorable product attitudes
when consumers think about their time (vs. money) spent on the product. The subsequent
studies further examine the effect, showing that such a shift cannot be explained by benefit
(vs. cost) associations (experiments 2 and 3) nor does it require explicitly making consumers
think about their time spent with a product versus money spent on a product (experiment 5).
Instead, the time versus money effect appears to be driven by heightened feelings of personal
connection with the product, and it occurs even when the constructs of time and money are
implicitly activated. Together, the results suggest that activating time tends to lead to a
greater focus on one’s experience using the product, whereas activating money leads to a
greater focus on one’s value from having the product. That is why in the more typical case,
where personal connection stems from product experience, activating time boosts product
attitudes and decisions. However, for certain products (i.e., prestige possessions; experiment
4) and for certain consumers (i.e., high materialists; experiment 5) where personal connection
stems from merely possessing the product, activating money instead boosts product attitudes
and decisions.
 The Lemonade Stand Experiment 1:
When Time 1 Money
Testing for the basic effect of activating time versus money, experiment 1 was a field
experiment conducted in a context wherein many first learn effective marketing practices— a
lemonade stand. In experiment 1, we examined whether the mere mention of time (vs.
money) in a product’s marketing materials could influence product attitudes regarding
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
67
consumers’ decisions to actually purchase the product and the amount they are willing to pay
for the product. Method
On a Saturday afternoon, we set up a lemonade stand next to a San Francisco park path,
which for increased external validity was manned by two six-year-olds (see appendix fig.
A1). The signage for the lemonade stand (which mentioned time, money, or neither) was
switched every 10 minutes so as to randomly assign passersby to the single-factor, betweensubjects experimental design. In the time condition, the sign read “Spend a little time, and
enjoy C & D’s lemonade.” In the money condition, the sign read “Spend a little money, and
enjoy C & D’s lemonade.” There was also a control condition where neither time nor money
was mentioned:
“Enjoy C & D’s lemonade.”
To measure purchasing decisions, a confederate counted the total number of people who
passed by (walking or on bikes; N p 391) and those who stopped to purchase a cup of
lemonade. Those who stopped (n p 40) represented a range of ages (14–50 years old), both
genders (58% male),
and a variety of occupations (e.g., bankers, the military, students, marketers); they were not
observed to differ demographically from the passersby who did not stop. As an additional
behavioral measure, we tracked the amount customers were willing to pay for the product.
Customers were told that they could pay anywhere between $1 and $3 for a cup of lemonade;
the precise amount was up to them. The relatively high price of the lemonade was justified
because all customers were invited to keep the high quality C & D’s lemonade logoembossed plastic cup.
After customers purchased their cup of lemonade, we administered a customer satisfaction
survey to measure customers’ attitudes toward the product. Customers reported their attitudes
toward the lemonade on three 7-point semantic differential scales (unfavorable/favorable,
bad/good, negative/positive; a p .90). Upon completing the survey, customers were thanked,
and they continued on their way, taking the remainder of their lemonade with them. Results
and Discussion As predicted, activating time versus money via a product’s marketing
materials proved to affect consumers’ decisions and attitudes. First, a chi-square analysis
revealed a marginal overall effect of condition on purchasing decisions ( 2 , ). In support of
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
68
hypothesis 1, a greater x p 4.65 p ! .10 proportion of passersby decided to purchase a cup of
lemonade when the sign mentioned time (14%) than when the sign mentioned money (7%; 2
, ). There was x p 4.59 p ! .05 no significant difference between the proportion of passersby
in the control condition who purchased (9%) than in either the time or money conditions (p’s
1 .10). Second, an ANOVA conducted on customers’ willingness to pay revealed a
significant effect of condition (F(1, 37) p 15.16, p ! .001). Customers in the time condition
paid more for their cup of lemonade (M p $2.50) than either those in the money condition (M
p $1.38; p ! .0001) or the control condition (M p $2.18; p ! .001).
Customers in the money condition paid significantly less than those in the control condition
(p ! .001). Finally, an ANOVA conducted on customers’ attitudes toward the product also
revealed a significant effect of condition (F(1, 37) p 6.46, p ! .01). Customers in the time
condition reported more favorable attitudes toward the lemonade (M p 6.71) than either those
in the money condition (M p 5.74; p ! .001) or the control condition (M p 6.44; p ! .001).
Those in the money condition reported significantly less favorable attitudes than those in the
control condition (p ! .05). In the context of a real business, conducted among a variety of
consumers, this experiment shows that merely
 The Time vs. Money Effect
000 mentioning time, rather than money, in a product’s marketing materials can make
the very same product more alluring and better liked. The question remains why
activating time (vs. money) has this favorable impact on consumers’ decisions and
attitudes. The following experiment, therefore, explores the mechanism driving the effect.
The IPOD Experiment 2:
Why Time 1 Money
Following up on the previous field experiment, experiment 2 examined the basic effect of
activating time versus money in a more controlled laboratory setting. To gain insight into the
mechanism underlying the effect, we measured consumers’ feelings of personal connection
with the product and examined participants’ spontaneous thoughts generated by the
activation of time or money. Method One hundred fifteen Stanford University students (42%
male, mean age p 20) were paid $5 to participate in a consumer behavior study on iPods—a
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
69
product in which the student sample had invested considerable amounts of both time and
money. The experiment was a single-factor between- subjects design: the activated construct
(time or money) was manipulated, and a control condition was included.
All participants were presented with a questionnaire depicting the iPod logo at the top of the
first page. Participants in the time condition were asked, “how much time have you spent on
your iPod?” Participants in the money condition were asked, “how much money have you
spent on your iPod?” Both groups responded to this initial priming question on a 7-point
scale (1pnone at all, 7pa lot). Participants in the control condition were not asked an initial
question. Directly following the prime, to gain insight into the thinking associated with
temporal versus monetary mindsets, participants were asked, “when considering your iPod,
what thoughts come to your mind?” Next, participants reported their attitudes toward the
iPod using the same three 7-point semantic differential scales as in experiment 1 (a p .90).
Then, participants were asked to report their feelings of personal connection to the product
by rating the extent to which they agree with four statements: “Listening to my iPod
represents who I am”; “. . . is a voluntary choice”; “. . . reflects the type of person I am”; and
“. . . is an important priority for me” (1pstrongly disagree, 7pstrongly agree; a p .73; Reed et
al. 2007). Finally, to control for the actual amount of time and money participants spent on
their iPods, participants wrote the average number of hours they spent listening to their iPods
per week, as well as the dollar amount they had spent on their iPods, including accessories.
Participants who indicated that they did not actually own an iPod (7%) were removed from
the analyses. Upon completing the questionnaire, participants were debriefed, paid, and
thanked.
 Results and Discussion
First, an ANCOVA was conducted on product attitudes, with the actual amount of time and
money participants had spent on their iPods included as covariates. Although the actual
amount of time spent revealed a positive main effect on product attitudes (F(1, 102) p 6.05, p
! .05), neither covariate interacted with the independent variable (p’s 1 .10). More
importantly, we found the predicted effect of condition (F(2, 102) p 8.64, p ! .001). In
support of hypothesis 1, pairwise comparisons revealed that participants led to think about
time (M p 6.28) reported more favorable attitudes toward iPods than did participants led to
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
70
think about money (M p 5.28; p ! .001). Moreover, indicative of distinct effects of activating
time versus activating money, the attitudes of participants in the control condition (M p 5.81)
were significantly less favorable than those in the time condition (p ! .05) and more favorable
than of those in the money condition (p ! .05). These results, therefore, suggest that
irrespective of the actual amount of time or money one has spent on a product, leading
consumers to think about time can boost product attitudes, whereas leading consumers to
think about money with respect to the very same product can hurt product attitudes. To gain
insight into the underlying mechanism, we examined whether the time versus money effect
was indeed driven by feelings of personal connection to the product. An ANCOVA on
ratings of personal connection showed that the actual amount of time spent had a main effect
on personal connection (F(1, 102) p 8.11, p ! .01), but neither covariate significantly
interacted with the independent variable (p’s 1 .10). Importantly, we found the predicted
effect of condition (F(2, 102) p 15.30, p ! .001). Pair wise comparisons showed that
participants in the time condition (M p 5.14) felt more connected to the product than did
either those in the money condition (M p 3.81; p ! .001) or those in the control condition (M p
4.39; p ! .01). Additionally, those in the money condition felt less personally connected to the
product than those in the control condition (p ! .05).
Further, in support of hypothesis 2, a mediation analysis among participants in the time and
money conditions revealed a mediating role of personal connection (Baron and Kenny 1986;
Sobel 1982). First, product attitudes were regressed on condition (b p _.44, t p _4.15, p !
.001).
Next, personal connection was regressed on condition (b p _.62, t p _6.71, p ! .001). Then,
attitudes were regressed on personal connection (b p .52, t p 5.19, p ! .001). Finally, attitudes
were regressed on both condition and personal connection and, supportive of mediation, the
effect of condition became insignificant (b p _.19, t p _1.48, p 1 .10), whereas the effect of
personal connection remained highly significant (b p .41, t p 3.19, p ! .01; Sobel z p _4.11, p !
.001). Of note, when a mediation analysis was conducted with product attitudes as the
mediator and personal connection as the dependent variable, the effect of condition remained
significant (p ! .001) when personal connection was regressed on both condition and product
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
71
Journal of Consumer Research attitudes, and the Sobel test was weaker (p ! .05). This overall
pattern suggests that personal connection drives the effect on product attitudes, rather than
product attitudes subsequently influencing feelings of personal connection. To gain
convergent evidence for this driving role of personal connection in the effect, two coders
blind to the hypotheses read the thoughts that participants generated and counted the number
of personal references with respect to the product through mentions of “I,” “me,” or “my” (a
p 1.00). An ANCOVA on this index of personal connection revealed an effect of condition
(F(2, 102) p 9.24, p ! .001) and a similar pattern as above: participants primed with time (M p
1.22) made more personal references than did participants primed with either money (M p
.57; p ! .05) or not primed at all (M p .15; p ! .001).
Participants in the money and control conditions differed marginally in their number of
personal references (p ! .10). These results suggest that directing consumers’ attention to time
(vs. money) makes them more likely to think about their personal connection to that product,
resulting in more favorable attitudes. However, one salient alternative explanation involves
basic principles of valence. Perhaps thinking about spending money evokes negative
thoughts (as it relates to the cost of acquiring the product), whereas thinking about spending
time evokes more positive thoughts (as it relates to the benefits of consuming the product). In
other words, not many would enjoy spending money to purchase a product, but people almost
certainly would enjoy spending time using the product. We explored this possibility with
three empirical approaches. First, we examined the valence of the thoughts generated by
participants following the time and money manipulations and found the ANCOVA’s results
to reveal insignificant effects of condition (F (2, 102) p pos 1.18, p 1 .10; F (2, 102) p .09, p
1 .10). Second, we con- neg ducted a second version of this experiment with one slight
change in the manipulation. We asked participants (N p 104), “how much time [money] have
you spent on your iPod—including buying it and downloading music?” Even with the
additional phrase to encourage those in both the time and money conditions to think of their
expenditures as costs, the results replicated, thereby casting further doubt on the alternative
explanation. Finally, we designed experiment 3 as an even stronger test of the alternative
account, addressing the question, does the favorable effect of activating time (vs. money)
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
72
persist when the activation of time (like money) is explicitly tied to the negative cost of
owning the product?
 The Fixing Laptop Experiment 3:
It’s not about Costs vs. Benefits
Experiment 3 sought to disentangle the driving role of personal connection from an
alternative account whereby the activation of money simply highlights costs whereas the
activation of time highlights the benefits of product consumption. This experiment, therefore,
examined whether the activation of time (vs. money) would lead to more favorable attitudes
even when spending time, like money, was explicitly tied to a negative cost.
Method
Forty-two Berkeley students (45% male, mean agep20) were paid $5 to participate in a
consumer survey about laptops. The experiment was a single-factor between-subjects design
in which either time or money was activated via the first question on the survey. Participants
in the time (money) condition were asked, “how much time (money) have you spent fixing
your laptop?” Both groups responded to this initial priming question on a 7-point scale
(1pnone at all, 7pa lot). Next, participants shared their thoughts about their laptops. An
analysis of these thoughts provided confidence in the manipulation, as the priming question
made participants in both conditions think about costs accrued. For example, participants in
the time condition wrote such thoughts as “frustrating, but it is worth it,” and participants in
the money condition wrote such thoughts as “well spent” and “frustration and anger.” The
one computer science major among the participants (for whom fixing his laptop was
associated with his “love and passion”) was excluded from the analyses. Using the same
scales as in experiment 2, participants then reported their attitudes toward their laptops (a p
.89) and their feelings of personal connection to their laptops (a p .70). Finally, to control for
the actual amount of time and money participants spent fixing their laptops, participants
wrote their estimates of the total number of hours they had spent, as well as the total dollar
amount they had spent. Upon completing the questionnaire, participants were debriefed, paid,
and thanked.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
73
 Results and Discussion
An ANCOVA conducted on product attitudes (with the actual amount of time and money
participants had spent fixing their laptops included as covariates) revealed insignificant
effects of the covariates (p’s 1 .10) but a significant effect of condition (F(1, 37) p 4.74, p !
.05). In support of hypothesis 1, participants led to think about time (M p 5.98) reported more
favorable attitudes toward their laptops than did participants led to think about money (M p
5.25). This suggests that even when the activation of time (like money) is explicitly tied to a
cost, leading consumers to think about their time invested in a product results in more
favorable attitudes toward that product than leading consumers to think about their money
invested in the product. Further, this effect occurs irrespective of one’s actual temporal or
monetary investment in the product. The results of the same ANCOVA conducted on
participants’ feelings of personal connection with their laptops revealed that participants led
to think about time (M p 5.07) also felt more personally connected to their product than
participants led to think about money (M p 4.35; F(1, 37) p 4.08, p p .05). (Neither covariate
had an effect;
 The Time vs. Money Effect
Further, in support of hypothesis 2, a mediation analysis revealed these feelings of personal
connection to drive the effect of condition on product attitudes (Baron and Kenny 1986).
First, product attitudes were regressed on condition (b p _.33, t p _2.24, p ! .03). Next,
personal connection was regressed on condition (b p _.35, t p _2.39, p ! .02). Then, attitudes
were regressed on personal connection (b p .43, t p 2.97, p ! .01). Finally, when attitudes
were regressed on both condition and personal connection, the effect of condition became
insignificant (b p _.21, t p _1.39, p 1 .10), whereas the effect of personal connection
remained significant (b p .35, t p 2.32,p ! .05). These results reveal that activating time does
not cause more favorable attitudes by merely leading consumers to think about the positive
benefits of product consumption, whereas activating money causes more unfavorable
attitudes by leading consumers to think about the negative costs from product ownership.
Ruling out this alternative account, the favorable effect of activating time (vs. money)
persists when the activation of time, like money, is explicitly tied to a negative cost. Instead,
directing consumers’ attention to time makes consumers feel more personally connected to
the product, resulting in more favorable attitudes.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
74
 The Designer Jeans Experiment 4: The Role of Product type
The experiments so far showed that for lemonade, iPods, and laptops—all experiential
products for which product usage is more important than product possession—activating
time (vs. money) led to more favorable attitudes by increasing feelings of personal
connection to the product. However, are there conditions where activating money (rather than
time) leads to more favorable attitudes? Might there be particular types of products (e.g.,
prestige possessions) for which the mere act of spending money to own the product
communicates more about one’s personal identity than the experiences gained using the
product? The objective of experiment 4 was to examine whether the time versus money
effect found for experiential products can be reversed for prestige possessions—where
personal connection is more likely to stem from having than from using.
Method
One hundred forty-two Stanford students (40% male, mean agep20) participated in the
experiment in exchange for $5. The design utilized was a 3 (prime: time vs. money vs.
control) # 2 (purchase type: experience vs. possession) between-subjects design. Participants
were presented with a consumer survey where the first question contained the prime and
purchase type manipulations. Randomly assigned participants were asked to rate on a 7-point
scale (1pnone at all, 7pa lot) either how much time or how much money they had spent in the
last year on either going out to restaurants (in the experience conditions) or on designer jeans
(in the possession conditions; Khan and Dhar 2006; Van Boven and Gilovich 2003).
Participants then reported their attitudes toward their purchase using the same three 7-point
semantic differential scales as in the previous experiments (a p .89). Participants in the
control conditions were asked to report their attitudes without first being asked the priming
question.
To tap the underlying process, we asked participants to rate their feelings of personal
connection to the purchase using the same items as in experiments 2 and 3 (a p .90). Next,
adapted from Van Boven and Gilovich (2003), checks were included to assess the extent to
which participants perceived their purchase to be “experiential (i.e., involves the acquisition
of a life experience—an event or series of events that you personally encounter or live
through)” and “material (i.e., a material possession—a tangible object that you obtain and
keep in your possession)” (1pnot at all, 7pa lot). To decrease concern of potential confounds,
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
75
we also measured whether the purchase was seen as “hedonic (i.e., pleasant and fun)” and
“utilitarian (i.e., useful, practical, functional)” (Dhar and Wertenbroch 2000). Participants
perceived both purchases to be relatively hedonic (M p res 5.55 vs. M p 5.23; F(1, 120) p
2.52, p 1 .10) and not jeans particularly utilitarian (M p 3.76 vs. M p 4.45; res jeans F(1, 120)
p .84,p 1 .10).
Finally, to control for the actual amount of time and money spent on the purchase,
participants were asked to write the dollar amount they had spent, as well as the total number
of hours they spent eating out at restaurants (wearing their jeans) in the last month. At the
end of the questionnaire, participants indicated whether they had eaten at a restaurant (100%
had) and whether they owned a pair of designer jeans (n p 14 did not and were eliminated
from the analyses to decrease noise). Upon completion, participants were debriefed, paid, and
thanked.
Results and Discussion To test whether the manipulations operated as intended, a 3 (prime:
time vs. money vs. control)# 2 (purchase type: experience vs. possession) ANCOVA was run
on each purchase- type check. As expected, participants considering going out to restaurants
(M p 4.79) reported their purchase to be more experiential than participants considering their
pair of jeans (M p 2.83; F(1, 120) p 49.14, p ! .001). In turn, participants considering jeans
(M p 5.23) reported their purchase to be more material than participants considering going
out to restaurants (M p 4.12; F(1, 120) p 8.83, p ! .01). No other effects were significant.
Next, to test the effects of activating time versus money for each type of purchase, a 3
(prime) # 2 (purchase type) ANCOVA was conducted on purchase attitudes, with the actual
amount of time and money spent included as covariates.
The results showed that although the actual amount of money spent had a main effect on
attitudes (F(1, 120) p 5.89, p ! .05), neither covariate interacted with the independent variable
(p’s 1 .10). More importantly, we found the predicted interaction (F(2, 120) p 14.57, p !
.001). Pairwise comparisons showed that among participants considering an experiential
purchase, those primed with time (M p 5.80) reported more favorable attitudes than those
primed with money (M p 4.60; p ! .001) and those in the control condition (M p 5.14; p ! .05).
Those primed with money had marginally less favorable attitudes than of those in the control
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
76
condition (p ! .10). However, for the prestige possession, the reverse effect occurred:
participants primed with money (M p 5.89) reported more favorable attitudes than those
primed with time (M p 4.43; p ! .001) and those in the control condition (M p 4.95; p ! .05).
There were no significant differences between the control condition and those primed with
time (p 1 .10).
To examine why this pattern of results occurred, we conducted the ANCOVA on the
personal connection index. Although the amount of money spent had a main effect (F(1, 120)
p 9.82, p ! .01), neither covariate interacted with the independent variable (p’s 1 .10).
Moreover, the results revealed the expected interaction (F(2, 120) p 10.30, p ! .001). Pairwise
comparisons showed that for the prestige possession, greater feelings of personal connection
were felt in the money prime condition (M p 4.46) than in the time condition (M p 2.99; p !
.01) and in the control (M p 3.23; p ! .05). Time prime and the control did not differ (p 1 .10).
For the experiential purchase, however, priming time led to increased feelings of personal
connection compared to priming money (M p 3.85, M p 2.65; time money p ! .01), and
marginally greater feelings of personal connection than the control (Mtime p 3.85, Mcont p
3.08; p ! .10). Money prime and the control did not differ (p 1 .10).
To more directly examine process, two sets of mediation analyses were conducted with
personal connection as the mediator. The first set examined the effect of priming time versus
money on attitudes toward the experiential purchase. The second set examined the effect of
priming time versus money on attitudes toward the prestige possession. First, among
participants considering an experiential purchase, attitudes were regressed on prime (b p .54,
t p 4.52, p ! .001). Next, personal connection was regressed on prime (b p .41, t p 3.19, p !
.01). Then, attitudes were regressed on personal connection (b p .62, t p 5.57, p ! .001).
Finally, when attitudes were regressed on both prime and personal connection, the effect of
prime was reduced significantly (b p .34, t p 3.03, p ! .01), whereas the effect of personal
connection remained significant (b p .48, t p 4.23, p ! .001; Sobel z p 2.77, p ! .01),
supportive of mediation. Second, among participants considering a prestige possession,
attitudes were regressed on prime (b p _.50, t p _3.46, p p .001). Next, personal connection
was regressed on prime (b p _.44, t p _3.01, p ! .01). Then, attitudes were regressed on
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
77
personal connection (b p .67, t p 5.43, p ! .001). Finally, attitudes were regressed on both
prime and personal connection and, supportive of mediation, the effect of prime was reduced
significantly (b p _.25, t p _1.87, p 1 .05), whereas the effect of personal connection
remained highly significant (b p .56, t p 4.19, p ! .001; Sobel z p _2.63, p ! .01). Together
these results suggest that feelings of personal connection drive consumers’ attitudes. In the
case of experiential purchases, priming time heightens these feelings of personal connection,
thereby eliciting more favorable attitudes. However, for prestige possessions, priming money
appears to heighten feelings of personal connection, resulting in more favorable attitudes.
 The Car Experiment 5: The Role of Consumers’ Materialism
The previous experiment compared product type, revealing that for experiential purchases,
activating time leads to more favorable attitudes, but for prestige possessions, activating
money leads to more favorable attitudes. To ensure that these differential effects were
determined by the products’ value as an experience versus a possession (rather than some
other distinguishing feature), experiment 5 examined a single product that is experiential for
some consumers but more of a prestige possession for others—namely, one’s car. Indeed,
this next experiment identified individuals who largely define themselves based on their
possessions (i.e., materialists) to test if consumer type, like product type, can moderate the
effect of activating time versus money on product attitudes.
Further, we examined whether the effects of drawing attention to time versus money persist
with more subtle primes of the constructs—in part for generalizability and in part to assuage
concerns of demand (as participants should not be able to align their attitudes with any
suspected hypotheses if the time and money manipulations occur outside of awareness).
Thus, we activated time and money using a supraliminal nonconscious priming technique
(Chartrand and Bargh 1996) prior to measuring product attitudes.
Method
Sixty-four individuals from a national sample representing a range of ages (21–69 years; M p
35) and occupations (e.g., engineer, homemaker, student), 36% of whom were male,
participated in the online experiment in exchange for $5.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
78
A week prior to the experiment, participants completed a battery of scales including an 18item individual difference measure of materialism, which was used to identify individuals
who highly value possessions as an indicator of self worth (a p .91; Richins and Dawson
1992). For these materialistic individuals, the value of consumption comes more from
possession than from usage, and possessions communicate one’s level of prestige (Richins
1994). Indeed, participants who scored high on the materialism scale (M p 5.17) valued
owning their car (in terms of pride of ownership, prestige, and financial investment; a p .81)
more than participants low on the materialism scale (M p 3.93; F(1, 65) p 13.86, p ! .001).
Participants who scored low on the materialism scale (M p 6.34) valued their experience
using their car (in terms of comfort, how well it drives, and how useful it is; a p .79) more
than high materialism participants (M p 5.85; F(1, 65) p 5.53, p ! .05).
Figure 2
 Experiment 5: Moderating Role of Materialism
in the Time vs. Money Effect
The results of a paper-pencil implicit association test conducted among a separate group of
individuals (N p 40), sampled from the same population as this experiment’s participants,
provided strong conceptual support for the relevance of individuals’ level of materialism in
the effects of activating time versus money. These individuals were given 20 seconds to
categorize as many words as possible from a list of time versus money–related words and
self versus non-self–related words by placing them into one of two columns (self or time vs.
nonself or money; self or money vs. nonself or time). The individuals’ level of materialism
significantly influenced how easily they could categorize self-related words (F(1, 38) p
12.23, p p .001). Individuals who scored low on the materialism scale correctly categorized
more self-related words when they were to be placed in the same column as the time-related
words (M p9.77) than when they were to be placed in the same column as the money-related
words (Mp8.36; p p .01). In contrast, individuals who scored high on the materialism scale
correctly categorized more self-related words when they were to be placed in the same
column as the money-related words (M p10.11) than when they were to be placed in the same
column as the time-related words (Mp8.78; p ! .05). These results reveal that low materialists
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
79
more closely associate the self with time than with money, whereas high materialists more
closely associate the self with money than with time.
Importantly, this ancillary study not only shows that time and money assumes different
meaning for materialists and nonmaterialists; it also shows how fundamental the concept of
the self is in these meanings. Just before beginning the advertised car survey, participants
were asked to complete an ostensibly unrelated questionnaire that was described as
measuring how people construct meaningful English sentences. Based on this pretense,
participants completed a sentence construction task (adapted from Srull andWyer 1979),
during which they were exposed to primes of either time or money. First, participants were
given 18 sets of four randomly arranged words and were told that the words in each set could
be used to form two different three-word sentences. Their task was to underline the three
words that composed the first sentence that came to mind. The sentences formed from nine of
the sets were filler items; the remaining nine items included words associated with either
time or money. For example, participants in the time condition were asked to construct a
sentence out of the sets of words: sheets the change clock and are they old we; participants in
the money condition were asked to construct a sentence out of the sets of words: sheets the
change price and are they wealthy we. All were given 3 minutes to construct as many
sentences as possible.
Next, on the same scales used in the previous experiments, participants completed the car
survey where they reported their attitudes toward their car (a p .92) and feelings of personal
connection (a p .91). To control for the actual amount of time and money participants had
invested in their cars, they wrote the dollar amount paid for their car as well as the average
number of hours per week they spent driving. Upon completing the survey, participants were
debriefed, paid, and thanked.
 Results and Discussion
To assess whether priming time versus money affects product attitudes differently for
individuals who largely define themselves by their possessions, participants’ attitudes toward
their cars were regressed on prime, participants’ materialism score, and the interaction
between the two, controlling for the actual amount of time and money that participants spent
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
80
on their cars. The results revealed only the interaction between prime and level of
materialism to significantly influence product attitudes (b p _.53, t p _4.36, p ! .001; see fig.
2). Indeed, none of the other variables—actual amount of time spent (b p _.13, t p _1.10, p 1
.10), actual amount of money spent (b p .09, t p .73, p 1 .10), prime (b p _.07, t p _.64, p 1
.10), or materialism (b p _.03, t p _.28, p 1 .10)—showed main effects. To more closely
examine the interaction, a spotlight analysis was performed at 1 standard deviation below the
mean of materialism revealing a significant difference (b p 0.56, t p 2.84, p ! .01): low
materialists reported more favorable attitudes toward their cars when primed with time than
when primed with money. A similar spotlight analysis performed at 1 standard deviation
above the mean of materialism also revealed a significant difference (b p _0.74, t p _3.58, p !
.001): high materialists reported more favorable attitudes toward their cars when primed with
money than when primed with time.
To examine why this pattern of results occurred, we regressed participants’ feelings of
personal connection with their cars on the same set of variables: prime, materialism, the
interaction between prime and materialism—again controlling for the actual amount of time
and money participants spent on their cars. As expected, the results revealed only an
interaction effect (b p _.38, t p _3.04, p ! .01). None of the other variables—actual amount of
time spent (b p _.07, t p _.60, p 1 .10), actual amount of money spent (b p .15, t p 1.19, p 1
.10), prime alone (b p _.05, t p _.45, p 1 .10), or materialism alone (b p .13, t p 1.04, p 1
.10)—showed significant effects. Again, to more closely examine the interaction effect, a
spotlight analysis was performed at 1 standard deviation below the mean of materialism,
revealing a significant difference (b p 0.49, t p 1.97, p p .05): low materialists felt more
connected to their cars when primed with time than when primed with money. A similar
spotlight analysis performed at 1 standard deviation above the mean of materialism revealed
a significant difference (b p _0.64, t p _2.52, p ! .05) such that high materialists felt more
connected to their cars when primed with money than when primed with time.
Finally, two sets of mediation analyses were conducted with personal connection as the
mediator. Using a median split to distinguish participants who were highly materialistic from
those who were not, the first set of analyses examined the effect of priming time versus
money among the low materialists. First, attitudes were regressed on prime (b p .35, t p 2.05,
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
81
p ! .05). Next, personal connection was regressed on prime (b p .37, t p 2.17, p ! .05). Then
attitudes were regressed on personal connection (b p .81, t p 7.57, p ! .001). Finally, when
attitudes were regressed on both prime and personal connection, the effect of prime became
insignificant (b p .06, t p .51, p 1 .10), whereas the effect of personal connection remained
significant (b p .79, t p 6.76, p ! .001; Sobel z p 2.09, p ! .05), supportive of mediation.
Second, among the high materialists, product attitudes were regressed on prime (b p _.48, t p
_3.12, p ! .01). Next, personal connection was regressed on prime (b p _.36, t p _2.17, p !
.05). Then attitudes were regressed on personal connection (b p .86, t p 9.37, p ! .001).
Finally, when attitudes were regressed on both prime and personal connection, the effect of
prime significantly reduced (b p _.20, t p _2.19, p 1 .01), whereas the effect of personal
connection remained highly significant (b p .78, t p 8.47, p ! .001; Sobel z p _2.11, p ! .05),
supportive of mediation.
Together these results showed that for all participants— both those high and low in
materialism—feelings of personal connection drove attitudes toward one’s car. Importantly,
however, these feelings of personal connection were differently activated for the two types of
consumers. For materialists (those who highly value the mere possession of their car),
activating money fostered feelings of personal connection, thus leading to more favorable
attitudes. However, for the others who largely value the experience of using their car,
activating time increased feelings of personal connection, in turn boosting attitudes. These
findings support our proposition that the influence of activating time (vs. money) on attitudes
depends on where consumers extract their feelings of personal connection with the product—
either product experience or product possession.
10.5 General Discussion
The findings of five field and lab experiments show that product decisions and attitudes can
be shifted by what is as subtle and as pervasive as mere references to time and money.
Indeed, activating time (vs. money) tends to boost product attitudes and decisions. This time
versus money effect is driven by heightened personal connection that consumers feel toward
products (i.e., the extent to which the product is “me”). These feelings of personal connection
typically result from focusing on one’s experiences gained using the product, which become
highlighted by mentions of time. However, for certain products (i.e., prestige possessions)
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
82
and certain consumers (i.e., materialists), feelings of personal connection stem more from
mere possession of the product, which becomes highlighted by the mention of money.
Therefore, in these particular instances, activating money (rather than time) leads to more
favorable effects. So, whether activating time or money boosts product attitudes and
decisions depends on where consumers extract their feelings of personal connection with the
product: experience or possession. Further, this time versus money effect not only occurs
when consumers are led to think about the amount of time or money spent on the product
(experiments 1–4) but is robust across more subtle manipulations— where the constructs are
activated nonconsciously (experiment 5).
10.6 Shifting Product Attitudes
These findings support recent research suggesting that one’s investments of time and money
are not subjectively equivalent (DeVoe and Pfeffer 2007a, 2007b) and extend it by
identifying the downstream effects of considering one’s investment of each. One insight
gained is that time and money do not differ just in terms of their ambiguity or fungability
(Leclerc et al. 1995; Okada and Hoch 2004; Saini and Monga 2008) or their quantifiable
subjective valuations (Zauberman and Lynch 2005). Importantly, they also differ in the
degree to which they tap personal processes (Reed et al. 2007). Moreover, the degree to
which consumers are made to feel personally connected to their products affects their
attitudes toward the product—revealing a surprising instability of consumers’ attitudes. How
might we reconcile these findings, showing that consumers’ attitudes toward the products
they know and use can shift quite easily with the traditional view of attitudes as evaluations
that are stored in memory, that persist over time, and that systematically influence
information processing (Sherif and Cantril 1947; Wilson, Lindsey, and Schooler 2000)? One
way to couch the current findings is in the context of decision-making research that
highlights the power of contextual manipulations (e.g., option framing, choice set
construction) to shift preferences (Simonson 1989; Simonson and Tversky 1992). We
contribute to this stream by showing that something as subtle as the conscious or
nonconscious activation of a particular construct can influence how consumers evaluate
products. Indeed, the psychological context in which attitudes are elicited seems to matter.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
83
More specifically, this research shows that activating time (vs. money) can boost consumers’
attitudes toward experiential products by leading individuals to focus on the experiences
gained with the product. However, another possible explanation for this effect is that the
specific constructs, time and money, are valenced as they apply to consumer products. One
might argue that money is always negative because it involves the costs associated with
acquiring a product, whereas time is typically positive because it involves the benefits of
consuming the product. Although we have provided evidence to suggest that this account is
unlikely (experiments 2 and 3), it begs an interesting question: would the favorable effect of
activating time (vs. money) also occur if the product was free and one’s temporal expenditure
was a cost?
To examine this question, we conducted a field experiment at an outdoor music concert in
San Francisco. The concert was free and required extensive amounts of time waiting in line
to ensure getting decent seats (M p 2.82 hours). Prior to the start of the concert, we activated
time or money by asking random individuals standing in the queue either “how much time
will you have spent (before the concert starts) to see this concert today?” or “how much
money will you have spent in order to see this concert today?” Even in this case, where time
spent was a cost, activating time led to more favorable product attitudes than activating
money. Notably, this time versus money effect found among the concertgoers occurred
irrespective of the actual amount of time the participants spent waiting in line, suggesting
that it is not one of self-perception. In fact, controlling for the amount of time and money
individuals actually invested in the product across all of the reported experiments, we found
that the effect was not influenced by the amount of either resource spent. Therefore, it is
unlikely that participants merely deduced their liking of the product by considering the
amount of time (or money) they were willing to spend on it. As further evidence against a
self-perception explanation, we found the effect of activating time versus money to extend
from a manipulation in which we asked participants to consider how much time or money
they had spent on the product to a nonconscious priming technique. Simply making people
think about time versus money (in general) can shift attitudes toward whatever product is
under consideration. Furthermore, this effect is robust enough to play out in the noisy
environment of the real world, when the product is consumed in real time. For example,
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
84
Mogilner and Aaker (2009) employed the same nonconscious priming technique as was used
in experiment 5 to activate either time or money among consumers entering a cafe´. The
results revealed that upon exiting the cafe´, those who had been primed with time reported
significantly more favorable attitudes toward the cafe´ than those who had been primed with
money.
Even though the time versus money effect does not appear to be driven by self-perception,
the effect has important implications for the vast literature on intrapersonal consistency,
which is built on the premise that individuals are motivated toward consistency between their
attitudes and behavior. When the two are inconsistent, individuals shift their attitudes to more
closely align with their behavior (Festinger 1957). Our work contributes to this stream of
research by showing that an expenditure of time (vs. money) is generally more closely
connected to the self—an effect that seems to result in differential motivation to shift
attitudes. So, although consistency paradigms have tended to interchange temporal and
monetary spending as their behavioral manipulations (Festinger and Carlsmith 1959), the
current findings suggest that time might be a greater source of dissonance than money and
thus a stronger driver of individuals’ ultimate attitudes. The Role of Personal Connection The
role of personal connection is sizable and consistent across these studies. However, the exact
role played by personal connection still merits additional examination. Perhaps the closer one
feels to the product, the more favorable one’s attitudes, which then further fuels feelings of
connection. Although such an infectious mechanism remains unexplored in this work, some
empirical evidence sheds light on this question. For instance, the results of experiment 2
reveal a better fit when personal connection was the mediator and product attitudes were the
dependent variable (relative to when product attitudes were the mediator and personal
connection was the dependent variable). However, to more carefully examine the potential
bidirectionality of the personal connection-attitudes relationship, longitudinal research that
systematically measures both constructs across time is needed. Perhaps more interestingly,
future work could disentangle personal connection from (positive) attitudes. For example, in
the case of food addictions, cigarette addictions, or even certain consumer brand relationships
(e.g., Microsoft), the consumer might experience close personal connection with the product
but hold negative attitudes toward that product (Ramanathan and Williams 2007). In such
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
85
cases, where increased personal connection is undesirable, evoking time (vs. money) might
lead to less favorable attitudes.
From an applied perspective, this research sheds light on a construct that marketing
practitioners are eagerly trying to grasp—consumer engagement. Motivated to strengthen
their relationships with customers, marketers often feel that they must increase the degree to
which consumers feel connected to the brand (Fournier 1998). However, little is known
about how to boost consumers’ sense of engagement with the brands they use, let alone what
engagement is. Akin to research on interpersonal relationships showing that strong
relationships are ones wherein partners spend time together (Aron et al. 2000), the current
results suggest that consumers’ engagement with a brand is tied to the time consumers spend
with it. Therefore, to actively foster feelings of connection, brands should draw consumers’
attention to their time spent and thus the experiences gained with the brand. Notably,
however, not all brands or products will benefit from time shared with the consumer. We
found that for prestige possessions, highlighting a large outlay of money appears to increase
consumers’ sense of personal connection. This research, therefore, more precisely suggests
that brands can cultivate consumer relationships by first considering how consumers most
identify with the product (through experience or possession) and then highlighting either
their time or money spent accordingly.
10.7 Future Directions
This research poses several other intriguing questions that merit follow-on work. First, a
deeper dive into the role of personal connection within the broader concept of personal
meaning is needed. Here we find evidence supporting the link between time and personal
meaning—and, more specifically, its link to personal connection. A more general question is
thus posed: to what degree does personal meaning connote self-reflection (Reed et al. 2007),
personal experience
(Van Boven and Gilovich 2003), socioemotional fulfillment (Carstensen et al. 1999), or
personal happiness (Liu and Aaker 2008)? How easily can these facets be parsed out, and
under what conditions will each loom larger? Relatedly, what antecedents other than the
activation of time can prompt personal meaning (Aaker, Liu, and Mogilner 2009)?
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
86
The current findings revealed that in the context of product perceptions, thinking about time
(vs. money) increases feelings of personal connection, which then manifests in more
favorable attitudes. In the context of charitable giving, thinking about contributing time (vs.
money) to an organization is associated with greater personal happiness and thus greater
giving (Liu and Aaker 2008; relatedly, see Pfeffer and DeVoe 2008). In the context of
decision making, Saini and Monga (2008) demonstrated that thinking about spending time
(vs. money) results in a greater reliance on heuristics and less cognitive processing. When
taking a step back from these findings, each in its distinct contexts with distinct mechanisms
and dependent variables, there appears to be an overarching theme, namely, that individuals
in a temporal mind-set apparently weigh emotional factors more heavily than individuals in a
monetary mind-set, who seem more objective in their processing.With the growing number
of studies comparing the effects of thinking about time versus money, efforts should be made
to examine the broader emotional role of time and the more utilitarian role of money in
consumers’ attitudes, behaviors, and decision making. For example, why does time (vs.
money) appear to be more emotionally charged?
The current research suggests that one reason is that time tends to be more personal. Thus,
one moderator for the time-ask effect (Liu and Aaker 2008) may be the personal versus
impersonal nature of the question (e.g., “we need help in raising money” vs. “we need your
help in raising money”). Boundary conditions of the time versus money effect imposed by
cultural contexts are another promising avenue to explore. Of theoretical interest is whether
the effect remains robust in cultures where the meaning of money and time fundamentally
differ, as does the relationship of time and money to life satisfaction. For example, Williams
and Lee (2007) demonstrate that individuals with highly interdependent selves (e.g., Chinese
participants) report higher life satisfaction when they enjoyed high relationship wealth (e.g.,
having the time to do things they enjoyed), whereas individuals with highly independent
selves report higher life satisfaction when they enjoyed high material wealth (e.g., luxury
items that make life more comfortable). Such findings suggest that the favorable effects of
activating time (vs. money) documented in this research may become stronger in cultures
where an interdependent self is fostered. Finally, this work speaks to prior findings, which
show that purchasing experiences rather than material goods leaves consumers happier, by
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
87
pointing out that the dichotomy between experiential and material purchases may not be so
clear (Van Boven and Gilovich 2003). Indeed, leading consumers to reflect on the
experiential versus material aspects of the very same purchase (through activating time rather
than money) can allow consumers to extract greater happiness from their purchases.
Important next steps would explore the possibility that activating time (vs. money)might also
(a) lead to a greater focus on experiences more generally (Mogilner and Aaker 2009) and (b)
motivate consumers to choose to spend their money on experiences over material goods—
thus bringing them greater happiness (Mogilner 2009). So, whether it is through changing
one’s perceptions or behavior, this research stream hints that to be happier, it may be better
(in general) to think in terms of time than in terms of money.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
88
SECTION ELEVEN
PLANNING
11.1 Definition
In which we see how an agent can take advantage of the structure of a problem to
construct complex plans of action.
The task of coming up with a sequence of actions that will achieve a goal is called planning.
We have seen two examples of planning agents so far: the search-based problem-solving
agent of Section 3 and the logical planning agent of Section 10. This section is concerned
primarily with scaling up to complex planning problems that defeat the approaches we have
seen so far.
Section 11.1 develops an expressive yet carefully constrained language for representing
planning problems, including actions and states. The language is closely related to the
propositional and first-order representations of actions in Sections 7 and 10. Section 11.2
shows how forward and backward search algorithms can take advantage of this
representation, primarily through accurate heuristics that can be derived automatically from
the structure of the representation. (This is analogous to the way in which effective heuristics
were constructed for constraint satisfaction problems in Section 5.) Sections 11.3 through
11.5 describe planning algorithms that go beyond forward and backward search, taking
advantage of the representation of the problem. In particular, we explore approaches that are
not constrained to consider only totally ordered sequences of actions.
For this section, we consider only environments that are fully observable, deterministic,
finite, static (change happens only when the agent acts), and discrete (in time, action, objects,
Classical and effects). These are called classical planning environments. In contrast, no
classical Planning.
Planning is for partially observable or stochastic environments and involves a different set of
algorithms and agent designs, outlined in Sections 12 and 17.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
89
11.2 The Planning Problem
Let us consider what can happen when an ordinary problem-solving agent using standard
search algorithms—depth-first, A_, and so on—comes up against large, real-world problems.
That will help us design better planning agents. 375
The most obvious difficulty is that the problem-solving agent can be overwhelmed by
irrelevant actions. Consider the task of buying a copy of AI: A Modern Approach from an
online bookseller. Suppose there is one buying action for each 10-digit ISBN number, for a
total of 10 billion actions. The search algorithm would have to examine the outcome states of
all 10 billion actions to find one that satisfies the goal, which is to own a copy of ISBN
0137903952. A sensible planning agent, on the other hand, should be able to work back from
an explicit goal description such as Have(ISBN 0137903952) and generate the action
Buy(ISBN 0137903952) directly. To do this, the agent simply needs the general knowledge
that Buy(x) results in Have(x). Given this knowledge and the goal, the planner can decide in
a single unification step that Buy(ISBN 0137903952) is the right action.
The next difficulty is finding a good heuristic function. Suppose the agent’s goal is to buy
four different books online. Then there will be 1040 plans of just four steps, so searching
without an accurate heuristic is out of the question. It is obvious to a human that a good
heuristic estimate for the cost of a state is the number of books that remain to be bought;
unfortunately, this insight is not obvious to a problem-solving agent, because it sees the goal
test only as a black box that returns true or false for each state. Therefore, the problemsolving
agent lacks autonomy; it requires a human to supply a heuristic function for each new
problem. On the other hand, if a planning agent has access to an explicit representation of the
goal as a conjunction of subgoals, then it can use a single domain-independent heuristic: the
number of unsatisfied conjuncts. For the book-buying problem, the goal would be Have(A)^
Have(B) ^ Have(C) ^ Have(D), and a state containing Have(A) ^ Have(C) would have cost 2.
Thus, the agent automatically gets the right heuristic for this problem, and for many others.
We shall see later in the section how to construct more sophisticated heuristics that examine
the available actions as well as the structure of the goal.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
90
Finally, the problem solver might be inefficient because it cannot take advantage of problem
decomposition. Consider the problem of delivering a set of overnight packages to their
respective destinations, which are scattered across Australia. It makes sense to find out the
nearest airport for each destination and divide the overall problem into several sub problems,
one for each airport. Within the set of packages routed through a given airport, whether
further decomposition is possible depends on the destination city. We saw in Section 5 that
the ability to do this kind of decomposition contributes to the efficiency of constraint
satisfaction problem solvers. The same holds true for planners: in the worst case, it can take
O(n!) time to find the best plan to deliver n packages, but only O((n=k)! _ k) time if the
problem can be decomposed into k equal parts. As we noted in Section 5, perfectly
decomposable problems are delicious but rare.1 The design of many planning systems—
particularly the partial-order planners described in Section 11.3—is based on the assumption
that most real-world problems are nearly decom posable. That is, the planner can work on
subgoals independently, but might need to do some additional work to combine the resulting
subplans. For some problems, this assump- 1 Notice that even the delivery of a package is
not perfectly decomposable. There may be cases in which it is better to assign packages to a
more distant airport if that renders a flight to the nearest airport unnecessary. Nevertheless,
most delivery companies prefer the computational and organizational simplicity of sticking
with decomposed solutions.
 The Planning Problem
Interaction breaks down because working on one subgoal is likely to undo another subgoal.
These interactions among subgoals are what makes puzzles (like the 8-puzzle) puzzling.
 The language of planning problems
The preceding discussion suggests that the representation of planning problems—states,
actions, and goals—should make it possible for planning algorithms to take advantage of the
logical structure of the problem. The key is to find a language that is expressive enough to
describe a wide variety of problems, but restrictive enough to allow efficient algorithms to
operate over it. In this section, we first outline the basic representation language of classical
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
91
planners, known as the Strips language.2 Later, we point out some of the many possible
variations in STRIPS-like languages.
 Representation of states
Planners decompose the world into logical conditions and represent a state as a conjunction
of positive literals. We will consider propositional literals; for example, Poor ^ Unknown
might represent the state of a hapless agent. We will also use first-order literals; for example,
At (Plane1; Melbourne) ^ At (Plane2; Sydney) might represent a state in the package
delivery problem. Literals in first-order state descriptions must be ground and function-free.
Literals such as At (x; y) or At (Father(Fred); Sydney) are not allowed. The closed-world
assumption is used, meaning that any conditions that are not mentioned in a state are
assumed false.
 Representation of goals
A goal is a partially specified state, represented as a conjunction of positive ground literals,
such as Rich ^ Famous or At (P2;Tahiti ). A propositional state GOAL SATISFACTION s
satisfies a goal g if s contains all the atoms in g (and possibly others). For example, the state
Rich ^ Famous ^ Miserable satisfies the goal Rich ^ Famous.
 Representation of actions
An action is specified in terms of the preconditions that must hold before it can be executed
and the effects that ensue when it is executed. For example, an action for flying a plane from
one location to another is:
Action(Fly(p; from; to);
PRECOND:At (p; from) ^ Plane(p) ^ Airport(from) ^ Airport(to)
EFFECT::At (p; from) ^ At (p; to))
 Action Schema
This is more properly called an action schema, meaning that it represents a number of
different actions that can be derived by instantiating the variables p, from, and to to different
constants. In general, an action schema consists of three parts: _ The action name and
parameter list—for example, Fly(p; from; to)—serves to identify the action.
PRECONDITION _ The precondition is a conjunction of function-free positive literals
stating what must be true in a state before the action can be executed. Any variables in the
precondition must also appear in the action’s parameter list.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
92
Effect _ The effect is a conjunction of function-free literals describing how the state changes
when the action is executed. A positive literal P in the effect is asserted to be true in 2
STRIPS stands for STanford Research Institute Problem Solver.
Planning the state resulting from the action, whereas a negative literal :P is asserted to be
false. Variables in the effect must also appear in the action’s parameter list. To improve ADD
LIST readability, some planning systems divide the effect into the add list for positive
literals and the delete list for negative literals. Having defined the syntax for representations
of planning problems, we can now define the semantics. The most straightforward way to do
this is to describe how actions affect states. (An alternative method is to specify a direct
translation into successor-state axioms, whose semantics comes from first-order logic; see
Exercise 11.3.) First, we say that an action
APPLICABLE is applicable in any state that satisfies the precondition; otherwise, the action
has no effect. For a first-order action schema, establishing applicability will involve a
substitution _ for the variables in the precondition. For example, suppose the current state is
described by
At (P1; JFK) ^ At (P2; SFO) ^ Plane(P1) ^ Plane(P2)
^ Airport(JFK) ^ Airport(SFO) :
This state satisfies the precondition
At (p; from) ^ Plane(p) ^ Airport(from) ^ Airport(to)
with substitution fp=P1; from=JFK; to=SFOg (among others—see Exercise 11.2). Thus,
the concrete action Fly(P1; JFK; SFO) is applicable. Starting in state s, the result of
executing an applicable action a is a state s0 RESULT that is the same as s except that any
positive literal P in the effect of a is added to s0 and any negative literal :P is removed from
s0. Thus, after Fly(P1; JFK; SFO), the current state becomes
At (P1; SFO) ^ At (P2; SFO) ^ Plane(P1) ^ Plane(P2)
^ Airport(JFK) ^ Airport(SFO) :
Note that if a positive effect is already in s it is not added twice, and if a negative effect is not
in s, then that part of the effect is ignored. This definition embodies the so-called STRIPS
STRIPS ASSUMPTION assumption: that every literal not mentioned in the effect remains
unchanged. In this way, STRIPS avoids the representational frame problem described in
Section 10.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
93
Finally, we can define the solution for a planning problem. In its simplest form, this is just
an action sequence that, when executed in the initial state, results in a state that satisfies the
goal. Later in the section, we will allow solutions to be partially ordered sets of actions,
provided that every action sequence that respects the partial order is a solution.
 Expressiveness and extensions
The various restrictions imposed by the STRIPS representation were chosen in the hope of
making planning algorithms simpler and more efficient, without making it too difficult to
describe real problems. One of the most important restrictions is that literals be functionfree.
With this restriction, we can be sure that any action schema for a given problem can be
propositionalized—that is, turned into a finite collection of purely propositional action
representations with no variables. (See Section 9 for more on this topic.) For example, in the
air cargo domain for a problem with 10 planes and five airports, we could translate the Fly(p;
from; to) schema into 10 _ 5 _ 5 = 250 purely propositional actions.
Figure 11.1 Comparison of STRIPS and ADL languages for representing planning problems.
In both cases, goals behave as the preconditions of an action with no parameters. in Sections
11.4 and 11.5 work directly with propositionalized descriptions. If we allow function
symbols, then infinitely many states and actions can be constructed. In recent years, it has
become clear that STRIPS is insufficiently expressive for some real domains. As a result,
many language variants have been developed. Figure 11.1 briefly ADL describes one
important one, the Action Description Language or ADL, by comparing it with the basic
STRIPS language. In ADL, the Fly action could be written as Action(Fly(p : Plane; from :
Airport; to : Airport); PRECOND:At (p; from) ^ (from 6= to) EFFECT::At (p; from) ^ At (p;
to)) : The notation p : Plane in the parameter list is an abbreviation for Plane(p) in the
precondition; this adds no expressive power, but can be easier to read. (It also cuts down on
the number of possible propositional actions that can be constructed.) The precondition (from
6= to) expresses the fact that a flight cannot be made from an airport to itself. This could not
be expressed succinctly in STRIPS. The various planning formalisms used in AI have been
systematized within a standard syntax called the the Planning Domain Definition Language,
or PDDL. This language allows researchers to exchange becnchmark problems and compare
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
94
results. PDDL includes sublanguages for STRIPS, ADL, and the hierarchical task networks
we will see in Section 12.
380 Section 11. Planning Init(At(C1; SFO) ^ At(C2; JFK) ^ At(P1; SFO) ^ At(P2; JFK)
^ Cargo(C1) ^ Cargo(C2) ^ Plane(P1) ^ Plane(P2) ^ Airport(JFK) ^ Airport(SFO)) Goal
(At(C1; JFK) ^ At(C2; SFO)) Action(Load(c; p; a); PRECOND: At(c; a) ^ At(p; a) ^
Cargo(c) ^ Plane(p) ^ Airport(a) EFFECT: : At(c; a) ^ In(c; p)) Action(Unload(c; p; a);
PRECOND: In(c; p) ^ At (p; a) ^ Cargo(c) ^ Plane(p) ^ Airport(a) EFFECT: At(c; a) ^ : In(c;
p)) Action(Fly(p; from; to); PRECOND: At(p; from) ^ Plane(p) ^ Airport(from) ^ Airport(to)
EFFECT: : At(p; from) ^ At(p; to))
Figure 11.2 A STRIPS problem involving transportation of air cargo between airports. The
STRIPS and ADL notations are adequate for many real domains. The subsections that follow
show some simple examples. There are still some significant restrictions, however. The most
obvious is that they cannot represent in a natural way the ramifications of actions. For
example, if there are people, packages, or dust motes in the airplane, then they too change
location when the plane flies. We can represent these changes as the direct effects of flying,
whereas it seems more natural to represent the location of the plane’s contents as a logical
consequence of the location of the plane. We will see more examples of such state
constraints in Section 11.5. Classical planning systems do not even attempt to address the
qualification problem: the problem of unrepresented circumstances that could cause an
action to fail. We will see how to address qualifications in Section 12.
 Example: Air cargo transport
Figure 11.2 shows an air cargo transport problem involving loading and unloading cargo onto
and off of planes and flying it from place to place. The problem can be defined with three
actions: Load, Unload, and Fly. The actions affect two predicates: In(c; p) means that cargo
c is inside plane p, and At (x; a) means that object x (either plane or cargo) is at airport a.
Note that cargo is not At anywhere when it is In a plane, so At really means “available for
use at a given location.” It takes some experience with action definitions to handle such
details consistently. The following plan is a solution to the problem: [Load(C1; P1; SFO);
Fly(P1; SFO; JFK); Load(C2; P2; JFK); Fly(P2; JFK; SFO)] : Our representation is pure
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
95
STRIPS. In particular, it allows a plane to fly to and from the same airport. Inequality literals
in ADL could prevent this.
 Example: The spare tire problem
Consider the problem of changing a flat tire. More precisely, the goal is to have a good spare
tire properly mounted onto the car’s axle, where the initial state has a flat tire on the axle and
a good spare tire in the trunk. To keep it simple, our version of the problem is a very abstract
one, with no sticky lug nuts or other complications. There are just four actions: removing the
spare from the trunk, removing the flat tire from the axle, putting the spare on the axle, and
leaving the car unattended overnight. We assume that the car is in a particularly bad
neighborhood, so that the effect of leaving it overnight is that the tires disappear. The ADL
description of the problem is shown in Figure 11.3. Notice that it is purely propositional. It
goes beyond STRIPS in that it uses a negated precondition, :At (Flat; Axle), for the
PutOn(Spare; Axle) action. This could be avoided by using Clear(Axle) instead, as we will
see in the next example. Init(At(Flat; Axle) ^ At(Spare;Trunk)) Goal (At(Spare; Axle))
Action(Remove(Spare;Trunk), PRECOND: At (Spare;Trunk) EFFECT: : At(Spare;Trunk) ^
At(Spare; Ground)) Action(Remove(Flat; Axle), PRECOND: At (Flat; Axle) EFFECT: :
At(Flat; Axle) ^ At(Flat; Ground)) Action(PutOn(Spare; Axle), PRECOND: At(Spare;
Ground) ^ : At(Flat; Axle) EFFECT: : At(Spare; Ground) ^ At(Spare; Axle))
Action(LeaveOvernight, PRECOND: EFFECT: : At(Spare; Ground) ^ : At(Spare; Axle) ^ :
At(Spare;Trunk) ^ : At(Flat; Ground) ^ : At(Flat; Axle))
 Example: The blocks world
Blocks World: One of the most famous planning domains is known as the blocks world.
This domain consists of a set of cube-shaped blocks sitting on a table.3 The blocks can be
stacked, but only one block can fit directly on top of another. A robot arm can pick up a
block and move it to another position, either on the table or on top of another block. The arm
can pick up only one block at a time, so it cannot pick up a block that has another one on it.
The goal will always be to build one or more stacks of blocks, specified in terms of what
blocks are on top of what other blocks. For example, a goal might be to get block A on B and
block C on D.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
96
We will use On(b; x) to indicate that block b is on x, where x is either another block or the
table. The action for moving block b from the top of x to the top of y will be Move(b; x; y).
Now, one of the preconditions on moving b is that no other block be on it. In first-order
logic, this would be :9 x On(x; b) or, alternatively, 8 x :On(x; b). These could be stated as
preconditions in ADL. We can stay within the STRIPS language, however, by introducing a
new predicate, Clear(x), that is true when nothing is on x.
The action Move moves a block b from x to y if both b and y are clear. After the move
is made, x is clear but y is not. A formal description of Move in STRIPS is
Action(Move(b; x; y);
PRECOND:On(b; x) ^ Clear(b) ^ Clear(y);
EFFECT:On(b; y) ^ Clear(x) ^ :On(b; x) ^ :Clear(y)) :
Unfortunately, this action does not maintain Clear properly when x or y is the table. When
x=Table, this action has the effect Clear(Table), but the table should not become clear, and
when y =Table, it has the precondition Clear(Table), but the table does not have to be clear
to move a block onto it. To fix this, we do two things. First, we introduce another action to
move a block b from x to the table:
Action(MoveToTable(b; x);
PRECOND:On(b; x) ^ Clear(b));
EFFECT:On(b;Table) ^ Clear(x) ^ :On(b; x)) :
Second, we take the interpretation of Clear(b) to be “there is a clear space on b to hold a
block.” Under this interpretation, Clear(Table) will always be true. The only problem is that
nothing prevents the planner from using Move(b; x;Table) instead of MoveToTable(b; x).
We could live with this problem—it will lead to a larger-than-necessary search space, but
will not lead to incorrect answers—or we could introduce the predicate Block and add
Block(b)^
Block(y) to the precondition of Move.
Finally, there is the problem of spurious actions such as Move(B;C;C), which should be a noop, but which has contradictory effects. It is common to ignore such problems, because they
seldom cause incorrect plans to be produced. The correct approach is add inequality
preconditions as shown in Figure 11.4.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
97
11.3 Planning With State-Space Search
Now we turn our attention to planning algorithms. The most straightforward approach is to
use state-space search. Because the descriptions of actions in a planning problem specify
both preconditions and effects, it is possible to search in either direction: either forward from
the initial state or backward from the goal, as shown in Figure 11.5. We can also use the
explicit action and goal representations to derive effective heuristics automatically.
11.3.1 Forward state-space search
Planning with forward state-space search is similar to the problem-solving approach of
Section
PROGRESSION 3. It is sometimes called progression planning, because it moves in the
forward direction.

The actions that are applicable to a state are all those whose preconditions are
satisfied.
The successor state resulting from an action is generated by adding the positive effect literals
and deleting the negative effect literals. (In the first-order case, we must apply the unifier
from the preconditions to the effect literals.) Note that a single successor function works for
all planning problems—a consequence of using an explicit action representation.

The goal test checks whether the state satisfies the goal of the planning problem.

The step cost of each action is typically 1. Although it would be easy to allow
different costs for different actions, this is seldom done by STRIPS planners.
Recall that, in the absence of function symbols, the state space of a planning problem is
finite.
Therefore, any graph search algorithm that is complete—for example, A_—will be a
complete planning algorithm.
From the earliest days of planning research (around 1961) until recently (around 1998)
It was assumed that forward state-space search was too inefficient to be practical. It is not
hard to come up with reasons why—just refer back to the start of Section 11.1. First, forward
search does not address the irrelevant action problem—all applicable actions are considered
from each state. Second, the approach quickly bogs down without a good heuristic. Consider
an air cargo problem with 10 airports, where each airport has 5 planes and 20 pieces of cargo.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
98
The goal is to move all the cargo at airport A to airport B. There is a simple solution to the
problem: load the 20 pieces of cargo into one of the planes at A, fly the plane to B, and
unload the cargo. But finding the solution can be difficult because the average branching
factor i huge: each of the 50 planes can fly to 9 other airports, and each of the 200 packages
can be either unloaded (if it is loaded), or loaded into any plane at its airport (if it is
unloaded). On average, let’s say there are about 1000 possible actions, so the search tree up
to the depth of the obvious solution has about 100041 nodes. It is clear that a very accurate
heuristic will be needed to make this kind of search efficient. We will discuss some possible
heuristics after looking at backward search.
11.3.2 Backward state-space search
Backward state-space search was described briefly as part of bidirectional search in Section
3.
We noted there that backward search can be difficult to implement when the goal states are
described by a set of constraints rather than being listed explicitly. In particular, it is not
always obvious how to generate a description of the possible predecessors of the set of goal
states. We will see that the STRIPS representation makes this quite easy because sets of
states can be described by the literals that must be true in those states.
The RELEVANCE main advantage of backward search is that it allows us to consider only
relevant actions. An action is relevant to a conjunctive goal if it achieves one of the
conjuncts of the goal. For example, the goal in our 10-airport air cargo problem is to have 20
pieces of cargo at airport B, or more precisely,
At (C1;B) ^ At (C2;B) ^ : : : ^ At (C20;B) :
Now consider the conjunct At (C1;B). Working backwards, we can seek actions that have
this as an effect. There is only one: Unload(C1; p;B), where plane p is unspecified.
Section 11.2. Planning with State-Space Search 385
Notice that there are many irrelevant actions that can also lead to a goal state. For example,
we can fly an empty plane from JFK to SFO; this action reaches a goal state from a
predecessor state in which the plane is at JFK and all the goal conjuncts are satisfied. A
backward search that allows irrelevant actions will still be complete, but it will be much less
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
99
efficient. If a solution exists, it will be found by a backward search that allows only relevant
actions. The restriction to relevant actions means that backward search often has a much
lower branching factor than forward search. For example, our air cargo problem has about
1000 actions leading forward from the initial state, but only 20 actions working backward
from the goal.
REGRESSION Searching backwards is sometimes called regression planning. The principal
question in regression planning is this: what are the states from which applying a given
action leads to the goal? Computing the description of these states is called regressing the
goal through the action. To see how to do it, consider the air cargo example. We have the
goal
At (C1;B) ^ At (C2;B) ^ : : : ^ At (C20;B) and the relevant action Unload(C1; p;B), which
achieves the first conjunct. The action will work only if its preconditions are satisfied.
Therefore, any predecessor state must include
these preconditions: In(C1; p) ^ At (p;B). Moreover, the subgoal At (C1;B) should not be
true in the predecessor state.4 Thus, the predecessor description is
In(C1; p) ^ At (p;B) ^ At (C2;B) ^ : : : ^ At (C20;B) :
In addition to insisting that actions achieve some desired literal, we must insist that the
actions Consistency not undo any desired literals. An action that satisfies this restriction is
called consistent. For example, the action Load(C2; p) would not be consistent with the
current goal, because it would negate the literal At (C2;B).
Given definitions of relevance and consistency, we can describe the general process of
constructing predecessors for backward search. Given a goal descriptionG, let A be an action
that is relevant and consistent. The corresponding predecessor is as follows:
_ Any positive effects of A that appear in G are deleted.
_ Each precondition literal of A is added, unless it already appears.
Any of the standard search algorithms can be used to carry out the search. Termination
occurs when a predecessor description is generated that is satisfied by the initial state of the
planning problem. In the first-order case, satisfaction might require a substitution for
variables in the predecessor description. For example, the predecessor description in the
preceding paragraph is satisfied by the initial state
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
100
In(C1; P12) ^ At (P12;B) ^ At (C2;B) ^ : : : ^ At (C20;B) with substitution fp=P12g. The
substitution must be applied to the actions leading from the state to the goal, producing the
solution [Unload(C1; P12;B)].
4 If the subgoal were true in the predecessor state, the action would still lead to a goal state.
On the other hand, such actions are irrelevant because they do not make the goal true.
386 Section 11. Planning
11.3.3 Heuristics for state-space search
It turns out that neither forward nor backward search is efficient without a good heuristic
function. Recall from Section 4 that a heuristic function estimates the distance from a state
to the goal; in STRIPS planning, the cost of each action is 1, so the distance is the number of
actions. The basic idea is to look at the effects of the actions and at the goals that must be
achieved and to guess how many actions are needed to achieve all the goals. Finding the
exact number is NP hard, but it is possible to find reasonable estimates most of the time
without too much computation. We might also be able to derive an admissible heuristic—
one that does not overestimate. This could be used with A_ search to find optimal solutions.
There are two approaches that can be tried. The first is to derive a relaxed problemfrom the
given problem specification, as described in Section 4. The optimal solution cost
for the relaxed problem—which we hope is very easy to solve—gives an admissible heuristic
for the original problem. The second approach is to pretend that a pure divide-and-conquer
SUBGOAL algorithm will work. This is called the subgoal independence assumption: the
cost of solving Independence a conjunction of subgoals is approximated by the sum of the
costs of solving each subgoal independently. The subgoal independence assumption can be
optimistic or pessimistic. It is optimistic when there are negative interactions between the
subplans for each subgoal— for example, when an action in one subplan deletes a goal
achieved by another subplan. It is pessimistic, and therefore inadmissible, when subplans
contain redundant actions—for instance, two actions that could be replaced by a single action
in the merged plan.
Let us consider how to derive relaxed planning problems. Since explicit representations of
preconditions and effects are available, the process will work by modifying those
representations.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
101
(Compare this approach with search problems, where the successor function is a black box.)
The simplest idea is to relax the problem by removing all preconditions from the actions.
Then every action will always be applicable, and any literal can be achieved in one step (if
there is an applicable action—if not, the goal is impossible). This almost implies that the
number of steps required to solve a conjunction of goals is the number of unsatisfied goals—
almost but not quite, because (1) there may be two actions, each of which deletes the goal
literal achieved by the other, and (2) some action may achieve multiple goals. If we combine
our relaxed problem with the subgoal independence assumption, both of these issues are
assumed away and the resulting heuristic is exactly the number of unsatisfied goals.
In many cases, a more accurate heuristic is obtained by considering at least the positive
interactions arising from actions that achieve multiple goals. First, we relax the problem
further by removing negative effects (see Exercise 11.6). Then, we count the minimum
number of actions required such that the union of those actions’ positive effects satisfies the
goal. For example, consider
Goal (A ^ B ^ C)
Action(X; EFFECT:A ^ P)
Action(Y; EFFECT:B ^ C ^ Q)
Action(Z; EFFECT:B ^ P ^ Q) :
The minimal set cover of the goal fA;B;Cg is given by the actions fX; Y g, so the set cover
heuristic returns a cost of 2. This improves on the subgoal independence assumption, which
Section 11.3. Partial-Order Planning 387 gives a heuristic value of 3. There is one minor
irritation: the set cover problem is NPhard.
A simple greedy set-covering algorithm is guaranteed to return a value that is within a factor
of log n of the true minimum value, where n is the number of literals in the goal, and usually
works much better than this in practice. Unfortunately, the greedy algorithm loses the
guarantee of admissibility for the heuristic.
It is also possible to generate relaxed problems by removing negative effects without
removing preconditions. That is, if an action has the effect A ^ :B in the original problem, it
will have the effect A in the relaxed problem. This means that we need not worry about
negative interactions between subplans, because no action can delete the literals achieved by
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
102
another action. The solution cost of the resulting relaxed problem gives what is called the
EMPTY-DELETE-LIST empty-delete-list heuristic. The heuristic is quite accurate, but
computing it involves actually running a (simple) planning algorithm. In practice, the search
in the relaxed problem is often fast enough that the cost is worthwhile.
The heuristics described here can be used in either the progression or the regression
direction. At the time of writing, progression planners using the empty-delete-list heuristic
hold the lead. That is likely to change as new heuristics and new search techniques are
explored.
Since planning is exponentially hard,5 no algorithm will be efficient for all problems, but
many practical problems can be solved with the heuristic methods in this section—far more
than could be solved just a few years ago.
11.3.4 Partial-Order Planning
Forward and backward state-space search are particular forms of totally ordered plan search.
They explore only strictly linear sequences of actions directly connected to the start or goal.
This means that they cannot take advantage of problem decomposition. Rather than work on
each subproblem separately, they must always make decisions about how to sequence actions
from all the subproblems. We would prefer an approach that works on several subgoals
independently, solves them with several subplans, and then combines the subplans.
Such an approach also has the advantage of flexibility in the order in which it constructs the
plan. That is, the planner can work on “obvious” or “important” decisions first, rather than
being forced to work on steps in chronological order. For example, a planning agent that is in
Berkeley and wishes to be in Monte Carlo might first try to find a flight from San Francisco
to Paris; given information about the departure and arrival times, it can then work on ways to
get to and from the airports.
Least Commitment The general strategy of delaying a choice during search is called a least
commitment strategy. There is no formal definition of least commitment, and clearly some
degree of commitment is necessary, lest the search would make no progress. Despite the
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
103
informality, least commitment is a useful concept for analyzing when decisions should be
made in any search problem.
5 Technically, STRIPS-style planning is PSPACE-complete unless actions have only positive
preconditions and only one effect literal (Bylander, 1994).
388 Section 11. Planning
Our first concrete example will be much simpler than planning a vacation. Consider
the simple problem of putting on a pair of shoes. We can describe this as a formal planning
problem as follows:
Goal (RightShoeOn ^ LeftShoeOn)
Init()
Action(RightShoe; PRECOND:RightSockOn; EFFECT:RightShoeOn)
Action(RightSock; EFFECT:RightSockOn)
Action(LeftShoe; PRECOND:LeftSockOn; EFFECT:LeftShoeOn)
Action(LeftSock; EFFECT:LeftSockOn) :
A planner should be able to come up with the two-action sequence RightSock followed by
RightShoe to achieve the first conjunct of the goal and the sequence LeftSock followed by
LeftShoe for the second conjunct. Then the two sequences can be combined to yield the final
plan. In doing this, the planner will be manipulating the two subsequences independently,
without committing to whether an action in one sequence is before or after an action in the
other. Any planning algorithm that can place two actions into a plan without specifying
which PARTIAL-ORDER comes first is called a partial-order planner. Figure 11.6 shows
the partial-order plan that is PLANNER the solution to the shoes and socks problem. Note
that the solution is represented as a graph of actions, not a sequence. Note also the “dummy”
actions called Start and Finish, which mark the beginning and end of the plan. Calling them
actions symplifies things, because now every step of a plan is an action. The partial-order
solution corresponds to six possible LINEARIZATION total-order plans; each of these is
called a linearization of the partial-order plan.
Partial-order planning can be implemented as a search in the space of partial-order plans.
(From now on, we will just call them “plans.”) That is, we start with an empty plan.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
104
Then we consider ways of refining the plan until we come up with a complete plan that
solves the problem. The actions in this search are not actions in the world, but actions on
plans: adding a step to the plan, imposing an ordering that puts one action before another, and
so on.
We will define the POP algorithm for partial-order planning. It is traditional to write out the
POP algorithm as a stand-alone program, but we will instead formulate partial-order planning
as an instance of a search problem. This allows us to focus on the plan refinement steps that
can be applied, rather than worrying about how the algorithm explores the space. In fact, a
wide variety of uninformed or heuristic search methods can be applied once the search
problem is formulated.
Remember that the states of our search problem will be (mostly unfinished) plans. To avoid
confusion with the states of the world, we will talk about plans rather than states. Each plan
has the following four components, where the first two define the steps of the plan and the
last two serve a bookkeeping function to determine how plans can be extended:
_ A set of actions that make up the steps of the plan. These are taken from the set of actions
in the planning problem. The “empty” plan contains just the Start and Finish actions. Start
has no preconditions and has as its effect all the literals in the initial state of the planning
problem. Finish has no effects and has as its preconditions the goal literals of the planning
problem.
Figure 11.6 A partial-order plan for putting on shoes and socks, and the six corresponding
linearizations into total-order plans.
A set of ordering constraints. Each ordering constraint is of the form A_B, which is read as
“A before B” and means that action A must be executed sometime before action B, but not
necessarily immediately before. The ordering constraints must describe a proper partial
order. Any cycle—such as A_B and B _A—represents a contradiction, so an ordering
constraint cannot be added to the plan if it creates a cycle.
A set of causal links. A causal link between two actions A and B in the plan is written as A
p ACHIEVES �! B and is read as “A achieves p for B.” For example, the causal link asserts
that RightSockOn is an effect of the RightSock action and a precondition of Right Shoe. It
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
105
also asserts that RightSockOn must remain true from the time of action Right Sock to the
time of action RightShoe. In other words, the plan may not be extended by adding a new
action C that conflicts with the causal link. An action C conflicts with A p �! B if C has the
effect :p and if C could (according to the ordering constraints) come after A and before B.
Some authors call causal links protection intervals, because the link A p�! B protects p
from being negated over the interval from A to B.
 A set of open preconditions
A precondition is open if it is not achieved by some action in the plan. Planners will work to
reduce the set of open preconditions to the empty set, without introducing a contradiction.
We define a consistent plan as a plan in which there are no cycles in the ordering constraints
and no conflicts with the causal links. A consistent plan with no open preconditions is a
solution. A moment’s thought should convince the reader of the following fact: every
linearization of a partial-order solution is a total-order solution whose execution from the
initial state will reach a goal state. This means that we can extend the notion of “executing a
plan” from total-order to partial-order plans. A partial-order plan is executed by repeatedly
choosing any of the possible next actions. We will see in Section 12 that the flexibility
available to the agent as it executes the plan can be very useful when the world fails to
cooperate.
The flexible ordering also makes it easier to combine smaller plans into larger ones, because
each of the small plans can reorder its actions to avoid conflict with the other plans.
Now we are ready to formulate the search problem that POP solves. We will begin with a
formulation suitable for propositional planning problems, leaving the first-order
complications for later. As usual, the definition includes the initial state, actions, and goal
test.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
106
The initial plan contains Start and Finish, the ordering constraint Start _Finish, and no causal
links and has all the preconditions in Finish as open preconditions. The successor function
arbitrarily picks one open precondition p on an action B and generates a successor plan for
every possible consistent way of choosing an action A that achieves p. Consistency is
enforced as follows:
1. The causal link A p �! B and the ordering constraint A_B are added to the plan.
Action A may be an existing action in the plan or a new one. If it is new, add it to the plan
and also add Start _A and A_Finish.
2. We resolve conflicts between the new causal link and all existing actions and between the
action A (if it is new) and all existing causal links. A conflict between A p �! B and C is
resolved by making C occur at some time outside the protection interval, either by adding
B _C or C _A. We add successor states for either or both if they result in consistent plans.
The goal test checks whether a plan is a solution to the original planning problem.
Because only consistent plans are generated, the goal test just needs to check that there are no
open preconditions.
Remember that the actions considered by the search algorithms under this formulation are
plan refinement steps rather than the real actions from the domain itself. The path cost is
therefore irrelevant, strictly speaking, because the only thing that matters is the total cost of
the real actions in the plan to which the path leads. Nonetheless, it is possible to specify a
path cost function that reflects the real plan costs: we charge 1 for each real action added to
Section 11.3. Partial-Order Planning 391 the plan and 0 for all other refinement steps. In this
way, g(n), where n is a plan, will be equal to the number of real actions in the plan. A
heuristic estimate h(n) can also be used.
At first glance, one might think that the successor function should include successors for
every open p, not just for one of them. This would be redundant and inefficient, however, for
the same reason that constraint satisfaction algorithms don’t include successors for every
possible variable: the order in which we consider open preconditions (like the order in which
we consider CSP variables) is commutative. (See page 141.) Thus, we can choose an
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
107
arbitrary ordering and still have a complete algorithm. Choosing the right ordering can lead
to a faster search, but all orderings end up with the same set of candidate solutions.
CONSTRAINTS constant symbol. In this case, we would resolve the conflict by adding z 6=
B, which means that future extensions to the plan can instantiate z to any value except B.
Anytime we apply
a substitution to a plan, we must check that the inequalities do not contradict the substitution.
For example, a substitution that includes x=y conflicts with the inequality constraint x 6= y.
Such conflicts cannot be resolved, so the planner must backtrack.
A more extensive example of POP planning with variables in the blocks world is given
in Section 12.6.
11.3.5 Heuristics for partial-order planning
Compared with total-order planning, partial-order planning has a clear advantage in being
able to decompose problems into subproblems. It also has a disadvantage in that it does not
represent states directly, so it is harder to estimate how far a partial-order plan is from
achieving a goal. At present, there is less understanding of how to compute accurate
heuristics for partial-order planning than for total-order planning.
The most obvious heuristic is to count the number of distinct open preconditions. This can be
improved by subtracting the number of open preconditions that match literals in the Start
state. As in the total-order case, this overestimates the cost when there are actions that
achieve multiple goals and underestimates the cost when there are negative interactions
between plan steps. The next section presents an approach that allows us to get much more
accurate heuristics from a relaxed problem.
The heuristic function is used to choose which plan to refine. Given this choice, the
algorithm generates successors based on the selection of a single open precondition to work
Section 11.4. Planning Graphs 395 on. As in the case of variable selection on constraint
satisfaction algorithms, this selection has a large impact on efficiency. The mostconstrained-variable heuristic from CSPs can be adapted for planning algorithms and seems
to work well. The idea is to select the open condition that can be satisfied in the fewest
number of ways. There are two special cases of this heuristic. First, if an open condition
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
108
cannot be achieved by any action, the heuristic will select it; this is a good idea because early
detection of impossibility can save a great deal of work. Second, if an open condition can be
achieved in only one way, then it should be selected because the decision is unavoidable and
could provide additional constraints on other choices still to be made. Although full
computation of the number of ways to satisfy each open condition is expensive and not
always worthwhile, experiments show that handling the two special cases provides very
substantial speedups.
11.3.6 Planning Graphs
All of the heuristics we have suggested for total-order and partial-order planning can suffer
PLANNING GRAPH from inaccuracies. This section shows how a special data structure
called a planning graph can be used to give better heuristic estimates. These heuristics can
be applied to any of the search techniques we have seen so far. Alternatively, we can extract
a solution directly from the planning graph, using a specialized algorithm such as the one
called GRAPHPLAN.
LEVELS A planning graph consists of a sequence of levels that correspond to time steps in
the plan, where level 0 is the initial state. Each level contains a set of literals and a set of
actions.
Roughly speaking, the literals are all those that could be true at that time step, depending on
the actions executed at preceding time steps. Also roughly speaking, the actions are all those
actions that could have their preconditions satisfied at that time step, depending on which of
the literals actually hold. We say “roughly speaking” because the planning graph records
only a restricted subset of the possible negative interactions among actions; therefore, it
might be optimistic about the minimum number of time steps required for a literal to become
true.
Nonetheless, this number of steps in the planning graph provides a good estimate of how
difficult it is to achieve a given literal from the initial state. More importantly, the planning
graph is defined in such a way that it can be constructed very efficiently.
Planning graphs work only for propositional planning problems—ones with no variables.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
109
As we mentioned in Section 11.1, both STRIPS and ADL representations can be
propositionalized. For problems with large numbers of objects, this could result in a very
substantial blowup in the number of action schemata. Despite this, planning graphs have
proved to be effective tools for solving hard planning problems.
We will illustrate planning graphs with a simple example. (More complex examples lead to
graphs that won’t fit on the page.) Figure 11.11 shows a problem, and Figure 11.12 shows its
planning graph. We start with state level S0, which represents the problem’s initial state. We
follow that with action level A0, in which we place all the actions whose preconditions are
satisfied in the previous level. Each action is connected to its preconditions in S0 and its
effects in S1, in this case introducing new literals into S1 that were not in S0.
A planning graph, once constructed, is a rich source of information about the problem. For
example, a literal that does not appear in the final level of the graph cannot be achieved by
any plan. This observation can be used in backward search as follows: any state containing
an unachievable literal has a cost h(n)=1. Similarly, in partial-order planning, any plan with
an unachievable open condition has h(n)=1.
This idea can be made more general. We can estimate the cost of achieving any goal literal as
the level at which it first appears in the planning graph. We will call this the level LEVEL
COST cost of the goal. In Figure 11.12, Have(Cake) has level cost 0 and Eaten(Cake) has
level cost 1. It is easy to show (Exercise 11.9) that these estimates are admissible for the
individual goals. The estimate might not be very good, however, because planning graphs
allow several actions at each level whereas the heuristic counts just the level and not the
number of actions.
 SERIAL PLANNING
For this reason, it is common to use a serial planning graph for computing heuristics. A
serial graph insists that only one action can actually occur at any given time step; this is done
by adding mutex links between every pair of actions except persistence actions. Level costs
extracted from serial graphs are often quite reasonable estimates of actual costs.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
110
To estimate the cost of a conjunction of goals, there are three simple approaches. The maxlevel MAX-LEVEL heuristic simply takes the maximum level cost of any of the goals; this is
adLEVEL SUM missible, but not necessarily very accurate. The level sum heuristic,
following the subgoal independence assumption, returns the sum of the level costs of the
goals; this is inadmissible but works very well in practice for problems that are largely
decomposable. It is much more accurate than the number-of-unsatisfied-goals heuristic from
Section 11.2. For our problem, the heuristic estimate for the conjunctive goal
Have(Cake)^Eaten(Cake) will be 0+1 = 1, whereas the correct answer is 2. Moreover, if we
eliminated the Bake(Cake) action, the esSET -LEVEL timate would still be 1, but the
conjunctive goal would be impossible. Finally, the set-level heuristic finds the level at which
all the literals in the conjunctive goal appear in the planning graph without any pair of them
being mutually exclusive. This heuristic gives the correct values of 2 for our original problem
and infinity for the problem without Bake(Cake). It dominates the max-level heuristic and
works extremely well on tasks in which there is a good deal of interaction among subplans.
As a tool for generating accurate heuristics, we can view the planning graph as a relaxed
problem that is efficiently soluble. To understand the nature of the relaxed problem, we need
to understand exactly what it means for a literal g to appear at level Si in the planning graph.
Ideally, we would like it to be a guarantee that there exists a plan with i action levels that
achieves g, and also that if g does not appear that there is no such plan. Unfortunately,
making that guarantee is as difficult as solving the original planning problem. So the
planning graph makes the second half of the guarantee (if g does not appear, there is no
plan), but if g does appear, then all the planning graph promises is that there is a plan that
possibly achieves g and has no “obvious” flaws. An obvious flaw is defined as a flaw that can
be detected by considering two actions or two literals at a time—in other words, by looking
at the mutex relations. There could be more subtle flaws involving three, four, or more
actions, but experience has shown that it is not worth the computational effort to keep track
of these possible flaws. This is similar to the lesson learned from constraint satisfaction
problems that it is often worthwhile to compute 2-consistency before searching for a solution,
but less often worthwhile to compute 3-consistency or higher. (See Section 5.2.)
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
111
 The GRAPHPLAN algorithm
This subsection shows how to extract a plan directly from the planning graph, rather than just
using the graph to provide a heuristic. The GRAPHPLAN algorithm (Figure 11.13) has two
main steps, which alternate within a loop. First, it checks whether all the goal literals are
present in the current level with no mutex links between any pair of them. If this is the case,
then a solution might exist within the current graph, so the algorithm tries to extract that
solution. Otherwise, it expands the graph by adding the actions for the current level and the
state literals for the next level. The process continues until either a solution is found or it is
learned that no solution exists.
We know that planning is PSPACE-complete and that constructing the planning graph takes
polynomial time, so it must be the case that solution extraction is intractable in the worst
case. Therefore, we will need some heuristic guidance for choosing among actions during the
backward search. One approach that works well in practice is a greedy algorithm based on
the level cost of the literals. For any set of goals, we proceed in the following order:
1. Pick first the literal with the highest level cost.
2. To achieve that literal, choose the action with the easiest preconditions first. That is,
choose an action such that the sum (or maximum) of the level costs of its preconditions is
smallest.
 Termination of Graph plan
So far, we have skated over the question of termination. If a problem has no solution, can we
be sure that Graph plan will not loop forever, extending the planning graph at each iteration?
The answer is yes, but the full proof is beyond the scope of this book. Here, we outline just
the main ideas, particularly the ones that shed light on planning graphs in general.
The first step is to notice that certain properties of planning graphs are monotonically
increasing or decreasing. “X increases monotonically” means that the set of Xs at level i + 1
is a superset (not necessarily proper) of the set at level i. The properties are as follows:
_ Literals increase monotonically: Once a literal appears at a given level, it will appear at all
subsequent levels. This is because of the persistence actions; once a literal shows
up, persistence actions cause it to stay forever.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
112

Actions increase monotonically: Once an action appears at a given level, it will
appear at all subsequent levels. This is a consequence of literals’ increasing; if the
preconditions of an action appear at one level, they will appear at subsequent levels,
and thus so will the action.

Mutexes decrease monotonically: If two actions are mutex at a given level Ai, then
they will also be mutex for all previous levels at which they both appear. The same
holds for mutexes between literals. It might not always appear that way in the figures,
because the figures have a simplification: they display neither literals that cannot hold
at level Si nor actions that cannot be executed at level Ai. We can see that “mutexes
decrease monotonically” is true if you consider that these invisible literals and actions
are mutex with everything. The proof is a little complex, but can be handled by cases:
if actions A and B are mutex at level Ai, it must be because of one of the three types
of mutex. The first two, inconsistent effects and interference, are properties of the
actions themselves, so if the actions are mutex at Ai, they will be mutex at every
level. The third case, competing needs, depends on conditions at level Si: that level
must contain a precondition of A that is mutex with a precondition of B. Now, these
two preconditions can be mutex if they are negations of each other (in which case
they would be mutex in every level) or if all actions for achieving one are mutex with
all actions for achieving the other. But we already know that the available actions are
increasing monotonically, so by induction, the mutexes must be decreasing.
402 Section 11. Planning
Because the actions and literals increase and the mutexes decrease, and because there are
only a finite number of actions and literals, every planning graph will eventually level off—
all subsequent levels will be identical. Once a graph has leveled off, if it is missing one of the
goals of the problem, or if two of the goals are mutex, then the problem can never be solved,
and we can stop the GRAPHPLAN algorithm and return failure. If the graph levels off with
all goals present and nonmutex, but EXTRACT-SOLUTION fails to find a solution, then we
might have to extend the graph again a finite number of times, but eventually we can stop.
This aspect of termination is more complex and is not covered here.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
113
11.4 Planning with Propositional Logic
We saw in Section 10 that planning can be done by proving a theorem in situation calculus.
That theorem says that, given the initial state and the successor-state axioms that describe the
effects of actions, the goal will be true in a situation that results from a certain action
sequence. As early as 1969, this approach was thought to be too inefficient for finding
interesting plans. Recent developments in efficient reasoning algorithms for propositional
logic (see Section 7) have generated renewed interest in planning as logical reasoning.
The approach we take in this section is based on testing the satisfiability of a logical
sentence rather than on proving a theorem. We will be finding models of propositional
sentences that look like this: initial state ^ all possible action descriptions ^ goal :
The sentence will contain proposition symbols corresponding to every possible action
occurrence; a model that satisfies the sentence will assign true to the actions that are part of a
correct plan and false to the others. An assignment that corresponds to an incorrect plan will
not be a model, because it will be inconsistent with the assertion that the goal is true. If the
planning problem is unsolvable, then the sentence will be unsatisfiable.
11.4.1 Describing planning problems in propositional logic
The process we will follow to translate STRIPS problems into propositional logic is a
textbook example (so to speak) of the knowledge representation cycle: We will begin with
what seems to be a reasonable set of axioms, we will find that these axioms allow for
spurious unintended models, and we will write more axioms.
Let us begin with a very simple air transport problem. In the initial state (time 0), plane
P1 is at SFO and plane P2 is at JFK. The goal is to have P1 at JFK and P2 at SFO; that is, the
planes are to change places. First, we will need distinct proposition symbols for assertions
about each time step. We will use superscripts to denote the time step, as in Section 7. Thus,
the initial state will be written as
At (P1; SFO)0 ^ At (P2; JFK)0 :
(Remember that At (P1; SFO)0 is an atomic symbol.) Because propositional logic has no
closed-world assumption, we must also specify the propositions that are not true in the initial
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
114
Section 11.5. Planning with Propositional Logic 403 state. If some propositions are unknown
in the initial state, then they can be left unspecified (the open world assumption). In this
example we specify:
:At (P1; JFK)0 ^ :At (P2; SFO)0 :
The goal itself must be associated with a particular time step. Since we do not know a priori
how many steps it takes to achieve the goal, we can try asserting that the goal is true in the
initial state, time T =0. That is, we assert At (P1; JFK)0 ^ At (P2; SFO)0. If that fails, we try
again with T =1, and so on until we reach the minimum feasible plan length. For each value
of T, the knowledge base will include only sentences covering the time steps from 0 up to T.
To ensure termination, an arbitrary upper limit, Tmax, is imposed. This algorithm is shown in
Figure 11.15. An alternative approach that avoids multiple solution attempts is discussed in
Exercise 11.17.
function SATPLAN(problem,T max) returns solution or failure
inputs: problem, a planning problem
T max, an upper limit for plan length
for T = 0 to T max do
cnf , mapping TRANSLATE-TO-SAT(problem,T)
assignment SAT-SOLVER(cnf )
if assignment is not null then
return EXTRACT-SOLUTION(assignment, mapping)
return failure
11.4.2 Complexity of propositional encodings
The principal drawback of the propositional approach is the sheer size of the propositional
knowledge base that is generated from the original planning problem. For example, the
action schema Fly(p; a1; a2) becomes T _jPlanesj_jAirportsj2 different proposition symbols.
In general, the total number of action symbols is bounded by T _jActj_jOjP , where jActj is
the number of action schemata, jOj is the number of objects in the domain, and P is the
maximum arity (number of arguments) of any action schema. The number of clauses is larger
still. For example, with 10 time steps, 12 planes, and 30 airports, the complete action
exclusion axiom has 583 million clauses.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
115
Because the number of action symbols is exponential in the arity of the action schema, one
answer might be to try to reduce the arity. We can do this by borrowing an idea from
semantic networks (Section 10). Semantic networks use only binary predicates; predicates
with more arguments are reduced to a set of binary predicates that describe each argument
separately. Applying this idea to an action symbol such as Fly(P1; SFO; JFK)0, we obtain
three new symbols:
Fly1(P1)0 : plane P1 flew at time 0
Fly2(SFO)0 : the origin of the flight was SFO
Fly3(JFK)0 : the destination of the flight was JFK :
406 Section 11. Planning
SYMBOL SPLITTING This process, called symbol splitting, eliminates the need for an
exponential number of symbols.
Now we only need T _jActj_P _jOj.
Symbol splitting by itself can reduce the number of symbols, but does not automatically
reduce the number of axioms in the KB. That is, if each action symbol in each clause were
simply replaced by a conjunction of three symbols, then the total size of the KB would
remain roughly the same. Symbol splitting actually does reduce the size of the KB because
some of the split symbols will be irrelevant to certain axioms and can be omitted. For
example, consider the successor-state axiom in Equation (11.1), modified to include LAX
and to omit action preconditions (which will be covered by separate precondition axioms):
At(P1; JFK)1 , (At(P1; JFK)0 ^ :Fly(P1; JFK; SFO)0 ^ :Fly(P1; JFK;LAX)0)
_ Fly(P1; SFO; JFK)0 _ Fly(P1;LAX; JFK)0 :
The first condition says that P1 will be at JFK if it was there at time 0 and didn’t fly from
JFK to any other city, no matter which one; the second says it will be there if it flew to JFK
from another city, no matter which one. Using the split symbols, we can simply omit the
argument whose value does not matter:
At (P1; JFK)1 Left right arrow (At (P1; JFK)0 ^ :(Fly1(P1)0 ^ Fly2(JFK)0))
_ (Fly1(P1)0 ^ Fly3(JFK)0) :
Notice that SFO and LAX are no longer mentioned in the axiom. More generally, the split
action symbols now allow the size of each successor-state axiom to be independent of the
number of airports. Similar reductions occur with the precondition axioms and action
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
116
exclusion axioms (see Exercise 11.16). For the case described earlier with 10 time steps, 12
planes, and 30 airports, the complete action exclusion axiom is reduced from 583 million
clauses to 9,360 clauses.
There is one drawback: the split-symbol representation does not allow for parallel actions.
Consider the two parallel actions Fly(P1; SFO; JFK)0 and Fly(P2; JFK; SFO)0.
Converting to the split representation, we have
Fly1(P1)0 ^ Fly2(SFO)0 ^ Fly3(JFK)0 ^
Fly1(P2)0 ^ Fly2(JFK)0 ^ Fly3(SFO)0 :
It is no longer possible to determine what happened! We know that P1 and P2 flew, but we
cannot identify the origin and destination of each flight. This means that a complete action
exclusion axiom must be used, with the drawbacks noted previously.
Planners based on satisfiability can handle large planning problems—for example, finding
optimal 30-step solutions to blocks-world planning problems with dozens of blocks. The size
of the propositional encoding and the cost of solution are highly problem-dependent, but in
most cases the memory required to store the propositional axioms is the bottleneck. One
interesting finding from this work has been that backtracking algorithms such as DPLL are
often better at solving planning problems than local search algorithms such as WALKSAT.
This is because the majority of the propositional axioms are Horn clauses, which are handled
efficiently by the unit propagation technique. This observation has led to the development of
hybrid algorithms combining some random search with backtracking and unit propagation.
Section 11.6. Analysis of Planning Approaches 407
11.4.3 Analysis of Planning Approaches
Planning is an area of great current interest within AI. One reason for this is that it combines
the two major areas of AI we have covered so far: search and logic. That is, a planner can be
seen either as a program that searches for a solution or as one that (constructively) proves the
existence of a solution. The cross-fertilization of ideas from the two areas has led to both
improvements in performance amounting to several orders of magnitude in the last decade
and an increased use of planners in industrial applications. Unfortunately, we do not yet have
a clear understanding of which techniques work best on which kinds of problems. Quite
possibly, new techniques will emerge that dominate existing methods.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
117
Planning is foremost an exercise in controlling combinatorial explosion. If there are primitive
propositions in a domain, then there are 2p states. For complex domains, p can grow quite
large. Consider that objects in the domain have properties (Location, Color, etc.) and
relations (At , On, Between, etc.). With d objects in a domain with ternary relations, we get
2d3 states. We might conclude that, in the worst case, planning is hopeless.
Against such pessimism, the divide-and-conquer approach can be a powerful weapon.
In the best case—full decomposability of the problem—divide-and-conquer offers an
exponential speedup. Decomposability is destroyed, however, by negative interactions
between actions. Partial-order planners deal with this with causal links, a powerful
representational approach, but unfortunately each conflict must be resolved with a choice
(put the conflicting action before or after the link), and the choices can multiply
exponentially. GRAPHPLAN avoids these choices during the graph construction phase,
using mutex links to record conflicts without actually making a choice as to how to resolve
them. SATPLAN represents a similar range of mutex relations, but does so by using the
general CNF form rather than a specific data structure. How well this works depends on the
SAT solver used.
Sometimes it is possible to solve a problem efficiently by recognizing that negative
SERIALIZABLE interactions can be ruled out. We say that a problem has serializable
subgoals if there exists SUBGOALS an order of subgoals such that the planner can achieve
them in that order, without having to undo any of the previously achieved subgoals. For
example, in the blocks world, if the goal is to build a tower (e.g., A on B, which in turn is on
C, which in turn is on the Table), then the subgoals are serializable bottom to top: if we first
achieve C on Table, we will never have to undo it while we are achieving the other subgoals.
A planner that uses the bottom-to-top trick can solve any problem in the blocks world
domain without backtracking (although it might not always find the shortest plan).
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
118
As a more complex example, for the Remote Agent planner which commanded NASA’s
Deep Space One spacecraft, it was determined that the propositions involved in commanding
a spacecraft are serializable. This is perhaps not too surprising, because a spacecraft is
designed by its engineers to be as easy as possible to control (subject to other constraints).
Taking advantage of the serialized ordering of goals, the Remote Agent planner was able to
eliminate most of the search. This meant that it was fast enough to control the spacecraft in
real time, something previously considered impossible.
408 Section 11. Planning
There is more than one way to control combinatorial explosions. We saw in Section 5 that
there are many techniques for controlling backtracking in constraint satisfaction problems
(CSPs), such as dependency-directed backtracking. All of these techniques can be applied to
planning. For example, extracting a solution from a planning graph can be formulated as a
Boolean CSP whose variables state whether a given action should occur at a given time. The
CSP can be solved using any of the algorithms in Section 5, such as min-conflicts. A closely
related method, used in the BLACKBOX system, is to convert the planning graph into a CNF
expression and then extract a plan by using a SAT solver. This approach seems to work
better than SATPLAN, presumably because the planning graph has already eliminated many
of the impossible states and actions from the problem. It also works better than
GRAPHPLAN, presumably because a satisfiability search such as WALKSAT has much
greater flexibility than the strict backtracking search that GRAPHPLAN uses.
There is no doubt that planner such as GRAPHPLAN, SATPLAN, and BLACKBOX have
moved the field of planning forward, both by raising the level of performance of planning
systems and by clarifying the representational and combinatorial issues involved. These
methods are, however, inherently propositional and thus are limited in the domains they can
express. (For example, logistics problems with a few dozen objects and locations can require
gigabytes of storage for the corresponding CNF expressions.) It seems likely that first-order
representations and algorithms will be required if further progress is to occur, although
structures such as planning graphs will continue to be useful as a source of heuristics.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
119
Summary
In this section, we defined the problem of planning in deterministic, fully observable
environments.
We described the principal representations used for planning problems and several
algorithmic approaches for solving them. The points to remember are:
_ Planning systems are problem-solving algorithms that operate on explicit propositional
(or first-order) representations of states and actions. These representations make possible
the derivation of effective heuristics and the development of powerful and flexible
algorithms for solving problems.
_ The STRIPS language describes actions in terms of their preconditions and effects and
describes the initial and goal states as conjunctions of positive literals. The ADL language
relaxes some of these constraints, allowing disjunction, negation, and quantifiers.
_ State-space search can operate in the forward direction (progression) or the backward
direction (regression). Effective heuristics can be derived by making a subgoal
independence assumption and by various relaxations of the planning problem.
_ Partial-order planning (POP) algorithms explore the space of plans without committing to a
totally ordered sequence of actions. They work back from the goal, adding actions to the plan
to achieve each subgoal. They are particularly effective on problems amenable to a divideand-conquer approach.
Section 11.7. Summary 409
_ A planning graph can be constructed incrementally, starting from the initial state. Each
layer contains a superset of all the literals or actions that could occur at that time step and
encodes mutual exclusion, or mutex, relations among literals or actions that cannot cooccur.
Planning graphs yield useful heuristics for state-space and partial-order planners and can be
used directly in the GRAPHPLAN algorithm.
_ The GRAPHPLAN algorithm processes the planning graph, using a backward search to
extract a plan. It allows for some partial ordering among actions.
_ The SATPLAN algorithm translates a planning problem into propositional axioms and
applies a satisfiability algorithm to find a model that corresponds to a valid plan. Several
different propositional representations have been developed, with varying degrees of
compactness and efficiency.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
120
_ Each of the major approaches to planning has its adherents, and there is as yet no consensus
on which is best. Competition and cross-fertilization among the approaches have resulted in
significant gains in efficiency for planning systems.
 Bibliographical and Historical Notes
AI planning arose from investigations into state-space search, theorem proving, and control
theory and from the practical needs of robotics, scheduling, and other domains. STRIPS
(Fikes and Nilsson, 1971), the first major planning system, illustrates the interaction of these
influences.
STRIPS was designed as the planning component of the software for the Shakey robot
project at SRI. Its overall control structure was modeled on that of GPS, the General Problem
Solver (Newell and Simon, 1961), a state-space search system that used means–ends
analysis.
STRIPS used a version of the QA3 theorem proving system (Green, 1969b) as a subroutine
for establishing the truth of preconditions for actions. Lifschitz (1986) offers precise
definitions and an analysis of the STRIPS language. Bylander (1992) shows simple STRIPS
planning to be PSPACE-complete. Fikes and Nilsson (1993) give a historical retrospective
on the STRIPS project and a survey of its relationship to more recent planning efforts.
The action representation used by STRIPS has been far more influential than its algorithmic
approach. Almost all planning systems since then have used one variant or another of the
STRIPS language. Unfortunately, the proliferation of variants has made comparisons
needlessly difficult. With time came a better understanding of the limitations and tradeoffs
among formalisms. The Action Description Language, or ADL, (Pednault, 1986) relaxed
some of the restrictions in the STRIPS language and made it possible to encode more
realistic problems.
Nebel (2000) explores schemes for compiling ADL into STRIPS. The Problem Domain
Description Language or PDDL (Ghallab et al., 1998) was introduced as a computerparsable, standardized syntax for representing STRIPS, ADL, and other languages. PDDL
has been used as the standard language for the planning competitions at the AIPS conference,
beginning in 1998.
Planners in the early 1970s generally worked with totally ordered action sequences.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
121
Problem decomposition was achieved by computing a subplan for each subgoal and then 410
Section 11. Planning
Linear Planning stringing the subplans together in some order. This approach, called linear
planning by Sacerdoti (1975), was soon discovered to be incomplete. It cannot solve some
very simple problems, such as the Sussman anomaly (see Exercise 11.11), found by Allen
Brown during experimentation with the HACKER system (Sussman, 1975). A complete
planner must allow INTERLEAVING for interleaving of actions from different subplans
within a single sequence. The notion of serializable subgoals (Korf, 1987) corresponds
exactly to the set of problems for which noninterleaved planners are complete.
One solution to the interleaving problem was goal regression planning, a technique in which
steps in a totally ordered plan are reordered so as to avoid conflict between subgoals.
This was introduced by Waldinger (1975) and also used by Warren’s (1974) WARPLAN.
War Plan is also notable in that it was the first planner to be written in a logic programming
language (Prolog) and is one of the best examples of the remarkable economy that can
sometimes be gained by using logic programming: WARPLAN is only 100 lines of code, a
small fraction of the size of comparable planners of the time. INTERPLAN (Tate, 1975a,
1975b) also allowed arbitrary interleaving of plan steps to overcome the Sussman anomaly
and related problems.
The ideas underlying partial-order planning include the detection of conflicts (Tate, 1975a)
and the protection of achieved conditions from interference (Sussman, 1975). The
construction of partially ordered plans (then called task networks) was pioneered by the
Noah planner (Sacerdoti, 1975, 1977) and by Tate’s (1975b, 1977) NONLIN system.7
Partial-order planning dominated the next 20 years of research, yet for much of that time, the
field was not widely understood. TWEAK (Chapman, 1987) was a logical reconstruction and
simplification of planning work of this time; his formulation was clear enough to allow
proofs of completeness and intractability (NP-hardness and undecidability) of various
formulations of the planning problem. Chapman’s work led to what was arguably the first
simple and readable description of a complete partial-order planner (McAllester and
Rosenblitt, 1991). An implementation of McAllester and Rosenblitt’s algorithm called SNLP
(Soderland and Weld, 1991) was widely distributed and allowed many researchers to
understand and experiment with partial-order planning for the first time. The POP algorithm
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
122
described in this section is based on SNLP. Weld’s group also developed UCPOP (Penberthy
andWeld, 1992), the first planner for problems expressed in ADL. UCPOP incorporated the
number-of-unsatisfied-goals heuristic. It ran somewhat faster than SNLP, but was seldom
able to find plans with more than a dozen or so steps. Although improved heuristics were
developed for UCPOP (Joslin and Pollack, 1994; Gerevini and Schubert, 1996), partial-order
planning fell into disrepute in the 1990s as faster methods emerged. Nguyen and
Kambhampati (2001) suggest that rehabilitation is merited: with accurate heuristics derived
from a planning graph, their REPOP planner scales up much better than GRAPHPLAN and
are competitive with the fastest state-space planners.
Avrim Blum and Merrick Furst (1995, 1997) revitalized the field of planning with their
GRAPHPLAN system, which was orders of magnitude faster than the partial-order planners
of 7 Some confusion exists over terminology. Many authors use the term nonlinear to mean
partially ordered. This is slightly different from Sacerdoti’s original usage referring to
interleaved plans.
Section 11.7. Summary 411
The time, Other graph planning systems, such as IPP (Koehler et al., 1997), STAN (Fox and
Long, 1998) and SGP (Weld et al., 1998), soon followed. A data structure closely resembling
the planning graph had been developed slightly earlier by Ghallab and Laruelle (1994),
whose IXTET partial-order planner used it to derive accurate heuristics to guide searches.
Nguyen et al. (2001) give a very thorough analysis of heuristics derived from planning
graphs. Our discussion of planning graphs is based partly on this work and on lecture notes
by Subbarao Kambhampati. As mentioned in the section, a planning graph can be used in
many different ways to guide the search for a solution. The winner of the 2002 AIPS
planning competition, LPG (Gerevini and Serina, 2002), searched planning graphs using a
local search technique inspired by WALKSAT.
Planning as satisfiability and the SATPLAN algorithm were proposed by Kautz and Selman
(1992), who were inspired by the surprising success of greedy local search for satisfiability
problems. (See Section 7.) Kautz et al. (1996) also investigated various forms of
propositional representations for STRIPS axioms, finding that the most compact forms did
not necessarily lead to the fastest solution times. A systematic analysis was carried out by
Ernst et al. (1997), who also developed an automatic “compiler” for generating propositional
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
123
representations from PDDL problems. The BLACKBOX planner, which combines ideas
from GRAPHPLAN and SATPLAN, was developed by Kautz and Selman (1998).
The resurgence of interest in state-space planning was pioneered by Drew McDermott’s
UNPOP program (1996), which was the first to suggest a distance heuristic based on a
relaxed problem with delete lists ignored. The name UNPOP was a reaction to the
overwhelming concentration on partial-order planning at the time; McDermott suspected that
other approaches were not getting the attention they deserved. Bonet and Geffner’s Heuristic
Search Planner (HSP) and its later derivatives (Bonet and Geffner, 1999) were the first to
make state-space search practical for large planning problems. The most successful statespace searcher to date is Hoffmann’s (2000) FASTFORWARD or FF, winner of the AIPS
2000 planning competition.
FF uses a simplified planning graph heuristic with a very fast search algorithm that combines
forward and local search in a novel way.
Most recently, there has been interest in the representation of plans as binary decision
Binary Decision diagrams, a compact description of finite automata widely studied in the
hardware verifi-DIAGRAMS cation community (Clarke and Grumberg, 1987; McMillan,
1993). There are techniques for proving properties of binary decision diagrams, including the
property of being a solution to aplanning problem. Cimatti et al. (1998) present a planner
based on this approach. Other representations have also been used; for example, Vossen et al.
(2001) survey the use of integer programming for planning.
The jury is still out, but there are now some interesting comparisons of the various
approaches to planning. Helmert (2001) analyzes several classes of planning problems, and
shows that constraint-based approaches, such as GRAPHPLAN and SATPLAN are best for
NPhard domains, while search-based approaches do better in domains where feasible
solutions can be found without backtracking. GRAPHPLAN and SATPLAN have trouble in
domains with many objects, because that means they must create many actions. In some
cases the problem can be delayed or avoided by generating the propositionalized actions
dynamically, only as needed, rather than instantiating them all before the search begins.
412 Section 11. Planning
Weld (1994, 1999) provides two excellent surveys of modern planning algorithms. It is
interesting to see the change in the five years between the two surveys: the first concentrates
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
124
on partial-order planning, and the second introduces GRAPHPLAN and SATPLAN.
Readings in Planning (Allen et al., 1990) is a comprehensive anthology of many of the best
earlier articles in the field, including several good surveys. Yang (1997) provides a booklength overview of partial-order planning techniques.
Planning research has been central to AI since its inception, and papers on planning are a
staple of mainstream AI journals and conferences. There are also specialized conferences
such as the International Conference on AI Planning Systems (AIPS), the International
Workshop on Planning and Scheduling for Space, and the European Conference on Planning.
Self Check Exercises
1 Describe the differences and similarities between problem solving and planning.
2 Given the axioms from Figure 11.2, what are all the applicable concrete instances of
Fly(p; from; to) in the state described by
At (P1; JFK) ^ At (P2; SFO) ^ Plane(P1) ^ Plane(P2)
^ Airport(JFK) ^ Airport(SFO) ?
3 Let us consider how we might translate a set of STRIPS schemata into the successor state
axioms of situation calculus. (See Section 10.)
_ Consider the schema for Fly(p; from; to). Write a logical definition for the predicate
Fly Precond(p; from; to; s), which is true if the preconditions for Fly(p; from; to) are
satisfied in situation s.
_ Next, assuming that Fly(p; from; to) is the only action schema available to the agent, write
down a successor-state axiom for At (p; x; s) that captures the same information as the
action schema.
_ Now suppose there is an additional method of travel: Teleport(p; from; to). It has the
additional precondition: Warped(p) and the additional effect Warped(p). Explain how the
situation calculus knowledge base must be modified.
_ Finally, develop a general and precisely specified procedure for carrying out the translation
from a set of STRIPS schemata to a set of successor-state axioms.
4. The monkey-and-bananas problem is faced by a monkey in a laboratory with some
bananas hanging out of reach from the ceiling. A box is available that will enable the monkey
to reach the bananas if he climbs on it. Initially, the monkey is at A, the bananas at B, and the
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
125
box at C. The monkey and box have height Low, but if the monkey climbs onto the box he
will have height High, the same as the bananas. The actions available to the monkey include
Go from one place to another, Push an object from one place to another, ClimbUp onto or
Section 11.7. Summary 413
Climb Down from an object, and Grasp or Ungrasp an object. Grasping results in holding the
object if the monkey and object are in the same place at the same height.
a. Write down the initial state description.
b. Write down STRIPS-style definitions of the six actions.
c. Suppose the monkey wants to fool the scientists, who are off to tea, by grabbing the
bananas, but leaving the box in its original place. Write this as a general goal (i.e., not
assuming that the box is necessarily at C) in the language of situation calculus. Can this
goal be solved by a STRIPS-style system?
d. Your axiom for pushing is probably incorrect, because if the object is too heavy, its
position will remain the same when the Push operator is applied. Is this an example of the
ramification problem or the qualification problem? Fix your problem description to account
for heavy objects.
5. Explain why the process for generating predecessors in backward search does not need to
add the literals that are negative effects of the action.
6. Explain why dropping negative effects from every action schema in a STRIPS problem
results in a relaxed problem.
7. Examine the definition of bidirectional search in Section 3.
a. Would bidirectional state-space search be a good idea for planning?
b. What about bidirectional search in the space of partial-order plans?
c. Devise a version of partial-order planning in which an action can be added to a plan if
its preconditions can be achieved by the effects of actions already in the plan. Explain how
to deal with conflicts and ordering constraints. Is the algorithm essentially identical to
forward state-space search?
d. Consider a partial-order planner that combines the method in part (c) with the standard
method of adding actions to achieve open conditions. Would the resulting algorithm be the
same as part (b)?
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
126
8. Construct levels 0, 1, and 2 of the planning graph for the problem in Figure 11.2.
9. Prove the following assertions about planning graphs:
A literal that does not appear in the final level of the graph cannot be achieved.
The level cost of a literal in a serial graph is no greater than the actual cost of an optimal
plan for achieving it.
10. We contrasted forward and backward state-space search planners with partial-order
planners, saying that the latter is a plan-space searcher. Explain how forward and
backward state-space search can also be considered plan-space searchers, and say what
the plan refinement operators are.
The problem was considered anomalous because the noninterleaved planners of the early
1970s could not solve it. Write a definition o f the problem in STRIPS notation and solve it,
either by hand or with a planning program. A noninterleaved planner is a planner that, when
give two subgoals G1 and G2, produces either a plan for G1 concatenated with a plan for G2,
or vice-versa. Explain why a noninterleaved planner cannot solve this problem.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
127
SECTION TWELVE
PRODUCT POSITIONING
12.1 Product Position by Russell Tronstad
Product position refers to what the consumer thinks of your product (e.g. lowest price, best
service, freshest produce, “certified residue free,” easy access, etc.) when they are making a
purchase decision. A concept often related to product position but different is niche
marketing. Large retailers like Wal- Mart, Best, and Target have taken a product position of
low prices, but none of these are niche marketers. A niche market refers to a small segment
of the total market that is being ignored by others. Two items are involved with developing a
market niche; 1) identifying the wants of a small group of consumers that are being ignored
by others, and 2) taking a product position that meets the wants of these consumers. In a
broad sense, direct farm marketing to consumers could be referred to as niche marketing
since so little produce is sold directly to consumers. But to be a niche marketer of direct farm
products you really need to be unique from other competitors. Growing ethnic vegetables
could be an example of niche marketing, provided that no other local grower is selling ethnic
vegetables.
If someone is already selling ethnic vegetables, organic ethnic vegetables might be a niche
market. But as you can see, the market potential eventually becomes so small that an
economically viable operation is not possible. Should I look for a market niche or take a
product position of low prices and large volume sales? Answers to these questions will vary
depending on the goals of your firm, local competition, and resources available so that no
generalized answer can be given. But the importance of some quality issues, food safety,
rural appeal of consumers, and location considerations are given below as an aide for
selecting a product position and possibly identifying a niche market. Quality Issues Figure 1
shows the importance of some quality characteristics as identified by the Packer’s 1992 Fresh
Trends Profile Study. Items of appearance/condition, taste/flavor, and freshness/ripeness
were indicated as extremely or very important items to at least 96% of all respondents. This
result suggests that special care should be taken to ensure that you can adequately meet these
top three quality items for your consumer when marketing produce. Even though you may
Copyright © 2009 Rift Valley University College
Adama
128
Industrial Marketing
have taken a market position for always having the “lowest price,” minimum standards for
appearance/condition, taste/flavor, and freshness/ripeness should be set. The next most
important items identified were price, certified safe (pesticide residue testing), and nutritional
value. About 65% to 70% of all respondents indicated sthat price, residue testing, and
nutritional value were extremely or very important quality characteristics to them. It is
interesting to note that only 22% of the respondents indicated that organically grown was
extremely or very important to them but 68% indicated that “certified safe” was important.
Brand name ranked The one who aims at nothing generally hits nothing. Market Analysis
and Pricing 1995 8 Oranges Grapes Strawberries Peaches Apples Bananas
0 20 30 40 50 60 70
10
12.2 Market Analysis and Pricing
The lowest with only 10% of the survey participants indicating this as an extremely or very
important characteristic. How consumers relate buying in one produce outlet to buying in
another may not be thesame as brand name acceptance though.The decision of which store to
shop in isgenerally different than what produceitems to buy. Thus, the reputation
andcustomer satisfaction attained at your business probably has more of a residual effect
than that demonstrated for brand name.If you want to be known as having the “freshest
produce,” try to find varietiesthat mature at slightly different times. Forexample, you don’t
want to have all your blackberries come ripe in one week (see article entitled," Geyers’
Specialty is Marketing Small Fruits"). The 1993 Produce Services Source book gives a
post harvest life for blackberries at 2-3 days. Know what the post harvest life of your produce
is along with proper storing temperatures and relative humidity. Produce products with a
short post harvest life (e.g., sweet corn, 4-6 days; strawberries, 5-10 days; and raspberries 2-3
days) can be a great opportunity for local growers in meeting freshness requirements
demanded by consumers.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
129
It may be tempting to put two week old sweet corn on display since it looks good, but a bad
experience can do more harm to future sales than the current sale. Recognize that spoilage
and waste will be greater for highly perishable products and don’t advertise or display as
“freshest produce” if you know it isn’t. Food Safety How important of a concern is food
safety? The Packer’s 1992 survey addressed this issue. Years of 1990 through 1992 were
compared and these results are shown in Figure 2. In 1990, 21% indicated that “certified
safe” residue testing was extremely important and this percentage increased to 32% by 1992.
In looking at education demographics, the concern for residue testing decreased with higher
education levels. An extremely important rating was given by 86% of high school Brand
name (of the grower or marketers) Prepackaged Growing region/state/country of origin
Organically grown Calorie content Displayed loose In-season
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
130
SECTION THIRTEEN
PRICING DECISSIONS
We seek optimal inventory levels and prices of multiple products in a given assortment in a
newsvendor model (single period, stochastic demand) under price-based substitution, but not
stockout-based substitution. We address a demand model involving multiplicative
uncertainty, motivated by market share models often used in marketing. The pricing problem
that arises is known not to be well behaved in the sense that, in its deterministic version, the
objective function is not jointly quasi-concave in prices. However, we find that the objective
function is still reasonably well behaved in the sense that there is a unique solution to the first
order conditions and this solution is optimal for our problem.
13.1 Introduction
More often than not, consumers make purchasing decisions that require them to choose from
an assortment of substitutable products, e.g., choosing a °avor and container size when
buying ice cream or choosing from di®erent accessory packages when buying an automobile.
Of course, the prices of the products in°uence customer choice. Hence, the prices of products
in an assortment in°uence not only the size of overall demand, but also how the demand will
be allocated among the products, thereby driving the inventory decisions. Therefore, ideally,
inventory and pricing decisions should be made jointly for the entire assortment. In this
paper, we consider such a pricing and inventory problem for an assortment of substitutable
products. In particular, we consider the price-dependent newsvendor problem for an
assortment, where a single firm faces single-period, stochastic demands for multiple products
that compete on price and must set the inventory levels and prices for those products at the
beginning of the period. The pioneers of research on joint inventory and pricing decisions for
a single product were Whitin (1955), Mills (1959), and Karlin and Carr (1962). Petruzzi and
Dada (1999) review and extend the research stream on the single-product price-dependent
newsvendor problem and our paper builds on theirs by adding customer choice among
multiple substitutable products. In a recent review of the literature on coordination of
production and pricing decisions, Yano and Gilbert (2003) state that an \important practical
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
131
consideration that has not received much attention is the e®ect of pricing on customer
substitution within a set of similar products." Indeed, even in our simple single-period setting
for an assortment, we do not know the kinds of demand models that lead to tractable
problems. In this paper, we aim to fill some of this gap in the literature.
The research on pricing decisions for an assortment has remained primarily within the
domain of marketing and economics. The usual assumption made in this research is that
demand is deter- ministic or that production is to order, and, therefore, there are no inventory
decisions to make. For example, Anderson and de Palma (1992), Besanko, Jain and Gupta
(1998) and Aydin and Ryan (2000) show that if the demands for competing products are
given by the multinomial logit (MNL) demand model, then the profit of the firm is
maximized when the firm uses the same profit margin for all products. Starting with van
Ryzin and Mahajan (1999), who consider the assortment planning problem in the presence of
inventory considerations (for the case of fixed retail prices), the MNL model has found
frequent use within the operations management literature, as a way of incorporating
consumer choice into operational models. See, for example, Cachon, Terwiesch and Xu
(2005), Cachon and Kok (2007), Aydin and Hausman (2005) and Hopp and Xu (2005a). Our
demand model covers the MNL-type demand model as a special case. Under our demand
model, the demand for any given product depends on the attractiveness of each and every
product in the assortment, and each product's attractiveness is a function of its own price (in
addition to what we loosely call `the quality of the product'); hence, the demand for any
given product depends on the prices of all products in the assortment.
This demand model is motivated by market share models, such as MNL and multiple
competitive interactions (MCI) models (e.g., Urban, 1969), that have been tested empirically
and used extensively in the marketing literature. We establish that the price-dependent
newsvendor problem for an assortment is well behaved under our demand model. Hanson
and Martin (1996) consider the special case of our problem where demand is deterministic,
and they construct an example in which the profit function is not jointly quasi-concave in
prices, which suggests that finding the optimal prices may require sophisticated search
techniques. In our setting, where demand is stochastic, the profit function is not jointly quasiCopyright © 2009 Rift Valley University College
Adama
Industrial Marketing
132
concave in prices and inventory levels either. Nevertheless, we show that, assuming that
unmet demands become lost sales, our problem is well-behaved in the sense that there is a
unique vector of prices and inventory levels that satisfy the first-order conditions and this
vector is optimal for our problem. Hence, simple search techniques should be su±cient to find
the optimal solution.
In related research, Mahajan and van Ryzin (2001) and Netessine and Rudi (2003) address
setting the inventory levels for a given assortment, allowing stockout-based substitution. We
add selection of prices, but drop stockout-based substitution. In addition, there has been some
work on the decentralized, competitive, version of the problem we consider, where
independent firms select the inventory and price of one product each. Bernstein and
Federgruen (2005) consider the decentralized problem under price-based, but not stockoutbased substitution. Zhao and Atkins (2005) add stockout-based substitution, which is
independent of prices, to the same problem, under additive uncertainty. Hopp and Xu
(2005b) use an approximation to model both price and stockout- based substitution in order
to analyze inventory, pricing and assortment decisions in centralized and decentralized
problems. Zhu and Thonemann (2002) consider a multi-period inventory and pricing problem
for two products whereas we consider a single-period problem for an arbitrary number of
products. They assume that the expected demand for each product is linear in prices. In
addition, they assume that all unmet demand in a period is backlogged and the expected
holding and shortage cost does not depend on the retail prices. In our single-period setting
where we assume all unmet demands become lost sales, any induced holding and shortage
cost function would depend on the retail prices. A closely-related work is by Maddah and
Bish (2004) who also consider the price-dependent newsvendor problem for an assortment.
In addition to inventory and pricing decisions, they address the question of assortment
selection.
Their demand model is based on a normal approximation of Poisson arrivals of customers,
each of whom chooses one of the products in the assortment in accordance with the MNL
model. In order to alleviate some of the technical di±culties associated with the inventory and
pricing problem, they work with an approximation to the expected profit of the firm, and
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
133
obtain several insights into the assortment planning problem. We consider the assortment to
be fixed and do not approximate the objective function.
In the next section, we describe the inventory and pricing problem for an assortment, and we
discuss the demand model in detail. Section 3 characterizes the optimal solution and builds
certain comparative statics. Finally, we conclude in Section 4 with a discussion of future
research directions.
13.2 Inventory and Pricing Problem
In our price-dependent newsvendor problem for an assortment, the firm orders and prices the
products at the beginning of the period (selling season), and the stochastic demand for a
product is a function of the prices of all products. Unmet demands become lost sales, and
leftover inventory has no value. Our model is more suitable for fashion and seasonal items
than it is for grocery staples where multiple replenishments and price adjustments take place
over a long period of time. We also assume no stockout-based substitution: once a product
runs out of stock, customers who prefer that product do not switch to another product, but
simply buy nothing. This is admittedly a restrictive assumption since we would expect to see
some demand for the out-of-stock product to spill over to the ones that are still in stock.
However, we believe that it is useful to characterize the problem and its solution for the
simpler case addressed in this paper before introducing stockout-based substitution as well as
price-based substitution.
Logit and MCI demand functions- In addition, we o®er a third form for vi(pi) that satisfies
our assumptions, which is a plausible way of modeling a consumer population with multiple
customer segments. (See Appendix B in the online supplement for a proof that the following
models satisfy assumptions
(B3) through (B5).)
(D1) Logit Demand
vi(pi) = exp(®i ¡ pi); ®i > 0; i = 1; : : : ; n
This demand function is based on the MNL consumer choice model used extensively in
market-ing. (See, for example, Guadagni and Little, 1983.) Under the MNL model, the
stochastic surplus of a customer for product i is given by ®i ¡ pi + »i, where ®i can be
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
134
interpreted as the customer's expected utility for product i and »i is a Gumbel error term with
shape parameter one. Then, with vi(pi) as defined by (D1), qi(p) gives the probability that a
consumer-surplus-maximizing individual will choose product i (out of all n products), which
we treat as the expected demand for product i.
For a detailed discussion of the use of consumer choice models in inventory management and
their limitations, see van Ryzin and Mahajan (1999).
(D2) MCI Demand
vi(pi) = ®ip¡fii
i ; ®i > 0; fii > 1; i = 1; : : : ; n
Here, ®i can be loosely interpreted as the quality of product i and fii as a measure of the
consumer population's price sensitivity for product i. The MCI demand function has been
used extensively in the marketing literature to model market shares. See, for example, Urban
(1969) who o®ers MCI demand as a model of market shares in dealing with product line
decisions. Nakanishi and Cooper (1974) discuss parameter estimation for MCI demand and
provide empirical support.
The form of vi(pi) given by (D3) is a plausible way of incorporating customer segments into
the demand model. Suppose there are m customer segments, and a customer belongs to
segment k with probability fik. Furthermore, assume that the attractiveness of product i for a
customer in segment k is given by exp(®ik ¡ pi). Then, vi(pi) as defined by (D3) yields the
expected attractiveness of product i. In the next section, we provide structural results on the
joint inventory and pricing problem, assuming that (B1) through (B5) hold.
In general, the difficulty in dealing with inventory and pricing problems for multiple products
is that neither the profit function, ¦(p; y) in (2), nor the induced profit function, ¦(p) in (4), is
separately concave in the pi's, let alone jointly concave. In order to obtain structural results
on the maximization problem in (4), the standard approach would be to write y¤i (p) in terms
of the inverse of © and substitute the resulting expression in ¦(p) in (4).
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
135
Profit Function
Another point of interest is how the optimal prices respond to changes in unit procurement
costs and product quality. Here, we loosely define quality as a product attribute that
customers prefer more of. Note that, in the logit and MCI demand models given by (D1) and
(D2), the parameter ®i can be interpreted as the quality of product i. It is intuitively clear that
when either cj or ®j increases, the price of product j, pj , will increase as well, in one case as
a reaction to the 10 cost increase, and, in the other case, to take advantage of the increased
quality of the product. How other products' prices will respond to these changes is not so
obvious. One can show that, under assumptions (B1) through (B5), if the unit cost of one
product increases, the optimal prices of all other products will decrease. Furthermore, under
an additional non-restrictive, technical assumption on how the attractiveness function vi(pi)
depends on quality ®i, one can show that, if the quality of one product increases, then the
optimal prices of all products will increase.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
136
Conclusion
In this paper, we investigated a price-dependent newsvendor problem for an assortment. We
worked with profit expressions written in terms of the inverse demand functions. This
approach alleviates some of the technical challenges posed by price-dependent demand
distributions. Under a demand model that follows from an attractive explanation of consumer
choice behavior, we showed that the inventory and pricing problem is well-behaved (i.e.,
optimized at the unique vector of prices and inventory levels that correspond to the stationary
point.) One line of analysis for future research is to extend the results to other demand
models. For example, one might want to check if Proposition 2 holds under di®erent forms
of qi(p), the expected demand for product i as a function of price vector p. We should note
here that Proposition 2 does not hold under some commonly used alternative forms for qi(p).
Consider, for example, the CobbDouglas demand (i.e., qi(p) = ®ip¡fii
i ¦j6=ip°ij
j ; fii; °ij > 0; i; j = 1; : : : ; n). Under Cobb-Douglas
demand, one can construct numerical examples that show the profit function is not even
separately quasi-concave in prices; i.e., Proposition 2(a) does not hold. Alternatively, one
could check if Proposition 2 continues to hold under additive randomness. If one assumes
that the expected demand is given by the logit demand function and the additive random
shock has zero mean, then one can show that Proposition 2 continues to hold. However, this
introduces a new problem to the model: When the price of a product is set high, its expected
demand will be low, resulting in a non-negligible probability of negative demand due to the
zero-mean additive shock.
Another line of future research would be to compare the optimal prices under deterministic
and stochastic demand scenarios (with identical expected demand functions). Previous
research addressed this question in detail for the single-period inventory and pricing problem
for a single product. See Petruzzi and Dada (1999) for a review. For example, Karlin and
Carr (1962) showed that in the single product case with multiplicative uncertainty, the firm's
optimal price under stochastic demand exceeds that for deterministic demand. In our model
with multiple products, 1The proofs are available from the authors upon request.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
137
One can construct numerical examples to show that no such ordering exists. Nevertheless, it
would be interesting to further analyze the e®ect of demand variability on prices. While we
model price-based substitution, we do not allow stockout-based substitution. Under stockoutbased substitution, even when prices are fixed, the optimal stock levels are no longer
independent from one another. (See, for example, Netessine and Rudi, 2003.) Therefore,
even when the prices of the products are fixed, the optimal stock levels are hard to
characterize, which makes the joint inventory and pricing problem all the more di±cult. It
would be interesting to determine whether there are reasonable conditions under which the
result of Proposition 2 continues to hold even when stockout-based substitution is allowed.
Another simplifying assumption we made was to ignore external competition faced by a firm
selling an assortment. In a more general setting, there would be multiple retailers each of
whom sells an assortment. Such a model could be used to address not only price competition,
but also competition on the depth of assortment. Throughout the paper, we assumed that the
retail prices were uniform for the entire duration of the selling season. Of course, in most
retail settings, the retail price will change over time. Also, for many retail situations, a model
where the retailer can place multiple orders over time would be more realistic. It would be
therefore interesting to consider the inventory and pricing problem that arises with dynamic
pricing and multiple ordering opportunities.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
138
SECTION FORTEEN
INDUSTRIAL MARKETING COMMUNICATIONS
14.1 Definition
Marketing Communications (or MarCom or Integrated Marketing Communications)
are messages and related media used to communicate with a market. Those who practice
advertising, branding, direct marketing, graphic design, marketing, packaging, promotion,
publicity, sponsorship, public relations, sales, sales promotion and online marketing are
termed marketing communicators, marketing communication managers, or more briefly as
marcom managers.
Traditionally, marketing communication practitioners focus on the creation and execution of
printed marketing collateral; however, academic and professional research developed the
practice to use strategic elements of branding and marketing in order to ensure consistency of
message delivery throughout an organization - the same "look & feel". Many trends in
business can be attributed to marketing communication; for example: the transition from
customer service to customer relations, and the transition from human resources to human
solutions. In branding, opportunities to contact stakeholders are called brand touchpoints (or
points of contact.) Marketing communication is concerned with the general behavior of an
organization and the perceptions of the organization that are promoted to stakeholders and
prospect clients through these touch points.
Marketing communications is focused on product/produce/service as opposed to corporate
communications where the focus of communications work is the company/enterprise itself.
Marketing
communications
is
primarily
concerned
with
demand
generation,
product/produce/service positioning while corporate communications deal with issue
management, mergers and acquisitions, litigation etc.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
139
Marketing communications are intended to both inform and persuade a target audience, with
a view to influencing the behaviour of that group. The behaviour of interest to agribusinesses
can range from encouraging farmers to adopt improved husbandry practices or to grow a
particular crop (or variety of crop), to encouraging industrial or consumer buyers to try a
product or service. As has been said on other occasions, each element of the marketing mix
must be designed so as to further the overall marketing strategy, and this includes marketing
communications.
 Section Objectives
This section is designed to help the reader:

Appreciate the broad range of objectives of marketing communications.

Recognise the elements of the promotional mix and understand their respective roles
in the communication process.

Understand the steps in involved in setting marketing communication objectives.

Develop a conceptual framework for making decisions about marketing
communications programmes.

Become familiar with the approaches most commonly used in setting budgets for
marketing communications.

Become aware of the principal methods used in evaluating the effectiveness of
marketing communications.
 Structure of the Section
The section opens with a brief description of the main forms which marketing
communications take. A framework for developing marketing communication strategies is
presented and much of the remainder of the section is structured around this framework. The
framework depicts the marketing communications programme as a sub-component of the
overall marketing strategy. It shows the sequence of decisions to be made in designing a
promotional programme along with the factors which will impinge upon those decisions and
the shape of the promotional programme which will eventually emerge. The section also
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
140
features a fairly detailed discussion of the relative roles of each element of the promotional
mix in the overall communication process. This is followed by a review of the main
approaches used in setting communications budgets. The section concludes with a brief
overview of the techniques used to check the effectiveness of the market communications
programme.
14.2 The Nature of Marketing Communications
Not everyone believes that promotion is necessary. Both Marx and Lenin viewed advertising
as a pernicious activity characteristic of bourgeois capitalism. Marx denounced advertising as
“parasitic” whilst Lenin thought it irrelevant to socialism where centralised planning would
ensure that exactly the right amount of product would be made available to meet consumer
needs. It is hardly surprising, therefore, that advertising (excluding that taking the form of
propaganda) has for a long time been restricted, controlled, and sometimes banned, in many
of the nations which adopted communist and socialist political systems, including a good
number of developing countries. Even after market liberalisation and political reform within
these countries there often remains uncertainty over the need for advertising and other forms
of promotion, and a suspicion that it adds nothing but costs to the marketing process. (The
same scepticism exists among some members of society in capitalist countries).
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
141

Case 10.1 China's communist consumers get the message
Not all centrally planned economies have rejected advertising. During
China's Cultural Revolution (1966– 1977) commercial advertising agencies
were either closed down or turned to producing government propaganda, but
these re-emerged around 1979. In that year a Communist Party newspaper
ran an editorial supporting advertising as, “…a means of promoting trade,
earning foreign exchange, and opening the eyes of the masses”. A large
number of Chinese advertising agencies began to operate in the months
immediately following the appearance of this editorial. By the mid-1980s
China had 680 advertising agencies which were placing advertisements on
167 radio stations, 104 television stations and in 3,415 magazines and 1,300
newspapers. In 1986, the advertising industry generated $228 million in
revenues and employed 81,130 people. Its growth has been of staggering
proportions.
In more recent years, China has implemented its own forms of market
liberlisation, and as private enterprise has begun to develop so has its use of
advertising. Foreign commercial enterprises can also now have access to
China's huge markets and they too make extensive use of advertising within
the country. However, even during the post-Cultural Revolution era, when
most enterprises were state-owned, advertising was seen to have a role in
support of the goals of Chinese Socialism. In particular advertising was being
used to help:
• encourage the consumption of “approved” goods and to discourage the
consumption of others;
• achieve state policy production goals;
• sell obsolete, sub-standard or unwanted products; and
• improve communications between the government departments responsible
for production and distributors and consumers.
Thus, although at one time overt promotional activity was prohibited in
China, it has since become ideologically acceptable with advertising now
being used to redirect demand and so effect the economic plans of Chinese
socialism1.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
142
In fact, without effective marketing communications the consumer remain unaware of
products and services they need, who might supply them and the benefits which both product
and suppliers can offer. Moreover, it is impossible to develop effective and efficient
marketing systems without first establishing channels of communication. Even the best
products do not sell themselves.
Marketing communications serve five key objectives:

the provision of information

the stimulation of demand

differentiating the product or service

underlining the product's value,

regulating sales.
Marketing communications takes four forms - advertising, sales promotion, personal selling
and publicity. These must be formulated within a co-ordinated marketing communications
plan. If there is more than one target market then there will need to be more than one
communications programme. Like all other elements of the marketing mix, it must be tuned
to the characteristics and needs of the target market.
Advertising: Advertising is the most visible element of the communications mix because it
makes use of the mass media, i.e. newspapers, television, radio, magazines, bus hoardings
and billboards. Mass consumption and geographically dispersed markets make advertising
particularly appropriate for products that rely on sending the same promotional message to
large audiences. Many of the objectives of advertising are only realised in the longer term
and therefore it is largely a strategic marketing tool.
The objectives of advertising are broader than that of directly stimulating sales volumes.
African Distillers, for example, contribute to a series of television advertisements, shown
around the time of public holidays in Zimbabwe. These warn people of the dangers and
irresponsibility of driving when intoxicated. This involvement serves to enhance African
Distillers' image as a socially responsible and caring organisation. The objective of this kind
of advertising is to create a positive attitude towards the company on the part of its publics,
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
143
e.g. government, pressure groups, shareholders, suppliers, agents and the general public.
Some of these publics will never consume the company's products and this kind of
advertising campaign is not intended to encourage them to do so.
Sales Promotion: Sales promotion employs short-term incentives, such as free gifts, moneyoff coupons, product samples etc., and its effects also tend to be short-term. Therefore, sales
promotion is a tactical marketing instrument. Sales promotions may be targetted either at
consumers or members of the channel of distribution, or both.
Public relations: Public relations are an organisation's communications with its various
publics. These publics include customers, suppliers, stockholders (shareholders, financial
institutions and others with money invested in the business), employees, the government and
the general public. In the past, organisations thought in terms of publicity rather than public
relations. The distinction between advertising and publicity was based on whether or not
payment was made to convey information via the mass media. Advertising requires payment
by the sponsor of the message or information whilst publicity is information which the media
decides to broadcast because it is considered newsworthy and therefore no payment is
received by the media from a sponsor. It is more common these days to speak of public
relations than of publicity. Public relations are much more focused in its purposes.
The objectives of public relations tend to be broader than those of other components of
promotional strategy. It is concerned with the prestige and image of the organisation as a
whole among groups whose attitudes and behaviour can impact upon the performance and
aims of the organisation. To the extent that public relations is ever used in product
promotion, it constitutes an indirect approach to promoting an organizations products and/or
services.
Personal selling: This can be described as an interpersonal influence process involving an
agribusiness' promotional presentation conducted on a person-to-person basis with the
prospective buyer. It is used in both consumer and industrial marketing and is the dominant
form of marketing communication in the case of the latter.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
144
Developing an appropriate communications programme
Marketing strategy is derived from an organisation's corporate strategy. The marketing
strategy then has to be translated into a strategic plan, or set of strategic plans if the
organisation intends to exploit opportunities in more than one target market. Strategic plans
are very broad statements of principles which the organisation believes will lead it to achieve
its marketing objectives within a chosen target market. These principles become operational
when they are expressed in the form of a marketing plan consisting of a detailed blueprint for
each element of the marketing mix product, distribution, pricing and marketing
communications.
The framework in figure 10.1 shows the connection between marketing communications and
the marketing strategy. It also highlights the main stages involved in developing a marketing
communications programme. The remainder of this section is devoted to explaining these
stages.
Figure 10.1 Developing a marketing communications programme
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
145
Once the overall marketing strategy has been determined and the marketing plan has been
outlined, it is necessary to develop a set of operational communication objectives. It is only
when this is done that an appropriate marketing communications mix can be designed. There
are, however, a number of intervening factors to be considered before the communications
mix is finalised. These include the nature of both the product and the market, the stage at
which the product lies in its life cycle and the relative value of the product in terms of its
price to potential purchasers. Having decided upon the communications mix, the promotional
message can be determined and the medium or media best suited to delivering this message
can be chosen. At this point, the budgetary implications of the decisions made so far have to
be considered. If the cost of the communications programme exceeds the resources available
to the organisation, then there may have to be an adjustment in the communications mix. In
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
146
some instances, the organisation may conclude that it can adjust the communications mix to
reduce the cost to an affordable level but that the revised communications package is unlikely
to achieve the original objectives. Faced with this situation, the organisation may resort to
revising its marketing communications objectives. Once the budget has been set the
programme can be implemented. The effectiveness of the programme has to be measured
against its objectives and, if necessary, adjustments or wholesale revisions of the programme
will be made.
14.3 Setting marketing communication objectives
The question arises as to how operational communication objectives can be developed, given
that these cannot be usefully defined in terms of sales volumes. A three step approach is
proposed and this takes into account the longer term outcomes of marketing communications.
The three steps are:
1. Identify the target segment
2. Determine the behavioural change to be brought about
3. Decide what needs to be done to bring about the change in behaviour.
 Identifying the target segment
The identification of the target audience is obtained from the marketing strategy and
marketing plan. There may, however, need to be a refinement of the target group for a
particular promotional campaign. Returning to our earlier example of the problem of
persuading farmers in the arid areas of Botswana to grow sorghum, it may be that the target
group is defined as, “Those farmers operating small holdings of 5 hectares or less, in arid
areas, who grew sorghum as a food crop in the past but stopped doing so completely to take
up the growing of cash crops”. There is a direct relationship between the degree of precision
with which the target group is defined and the clarity with which communication objectives
can be stated. Moreover, if the target group is defined with precision this greatly assists in
deciding upon both the content of the promotional message and the medium chosen to carry
it.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
147
 Intended behavioural changes
There should be a clear understanding of what behavioural changes the communications
programme is intended to bring about. Is it: To increase usage among existing customers? To
convert non-users to users? To establish new uses for an existing products? To reduce the
amount of brand switching and encourage more users to be brand loyal? To enable customers
to make better, more effective, more efficient or less wasteful use of the product and thereby
increase its value to them? It is possible to measure the extent to which changes in behaviour
have occurred, but marketing communication objectives can only become operational when
the intended behavioural changes are stated with precision and without ambiguity.
 Deciding what needs to be done
The third step in developing operation objectives for marketing communications is to specify
the required course of action. To increase the number of uses of a product might only require
an awareness campaign, to improve the way in which a product is used (e.g. farmer's
application of plant growth chemicals) would probably involve an educational campaign, to
create a liking of the product a programme aimed at attitudinal change would be necessary,
and the conversion of non-users of the product to users is likely to focus upon creating a
conviction about its benefits and attributes.
14.4 Factors influencing the communications mix
There are at least 5 major influences on what makes a given mix of promotional techniques
appropriate. These are: the nature of the market, the nature of the product, the stage in the
product life cycle, price and the funds available for promotional activities.
Nature of the market: An organisation's target audience greatly influences the form of
communication to be used. Where a market is comprised of relatively few buyers, in
reasonable proximity to one another, then personal selling may prove efficient as well as
effective. Conversely, large and dispersed markets are perhaps unsuitable for personal selling
because the costs per contact will be high. The customer type also has an impact. A target
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
148
market made up of industrial purchasers, wholesalers or retailers is more likely to be served
by organisations which employ personal selling than is a market of consumers.
Another important consideration is the state of the prospective customer's knowledge and
preferences with respect to the product or service. In some cases, the task will be to make
potential customers aware of a product which is entirely new to them, whilst in others, the
aim will be to attract them away from a competing product. The two tasks are quite different
in nature and may require the use of differing forms of communication. (See also the topic of
the hierarchy of effects which is explored a little later in this section).
Nature of the product: Highly standardised products, with minimal servicing requirements,
are less likely to depend upon personal selling than are custom designed products that are
technically complex and/or require frequent servicing. Standardised, high sales volume
products, especially consumer products, will probably rely more on advertising through the
mass media. Where the product is targetted at a narrow market segment or where those who
can use the product effectively are few in number then personal selling will prove the more
cost effective method of communications. For instance, in areas such as Pakistan and Sri
Lanka, field sizes are too small for four wheeled tractors to work effectively. However, there
may be a relatively small number of farmers who have larger fields and who can use such a
tractor both effectively and efficiently. In these circumstances, a more direct approach to the
target group of farmers would be advisable.
Stage in the product life cycle: The promotional mix must be matched to a product's stage
in the product life cycle. During the introductory stage, heavy emphasis is placed upon
personal selling to convey the attributes and benefits of the product. Intermediaries are
personally contacted to engender awareness, interest and, if possible, commitment to the
product. Trade shows and demonstrations are also frequently used to inform and educate
prospective dealers/retailers and, sometimes, consumers. Advertising at this stage is chiefly
informative, and sales promotion techniques, such as product samples and money-off
coupons, are designed to achieve the goals of getting potential customers to try the product.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
149
As a product graduates into the growth and maturity stages, advertising places greater
emphasis upon persuasion, with the ultimate objective of encouraging the target market to
become purchasers of the product. Personal selling efforts continue to be directed at
marketing intermediaries in an attempt to expand distribution. As more competitors enter the
market, advertising begins to stress product differences to establish brand loyalty. Reminder
advertisements begin to appear in the maturity and early decline stages.
Thus, we see that as a product progresses through the product life cycle, both the marketing
objectives, and the promotional mix used to achieve them, may well change.
Price: The fourth factor impinging upon the promotional mix is that of price. Advertising
and/or sales promotion are the dominant promotional tools for low unit value products due to
the high per contact costs in personal selling. Higher value products can justify, and usually
require, personal selling.
Promotional budget: A real barrier to implementing any promotional strategy is the size of
the promotional budget. Mass media advertising tends to be expensive although the message
can reach large numbers of people and hence the cost per contact is relatively low. For many
new or smaller firms the costs are prohibitive and they are forced to seek less efficient but
cheaper methods. Ideally, a promotional strategy should first be developed and then costed
rather than designing a promotional strategy around a preset budget.
The table below summarises the main influences upon the selection of the elements of the
communications mix.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
150
Table 10.1 Choosing between personal selling and mass media
Personal Selling
Mass Media
Market
Number of buyers Few
Many
Geographic
Concentrated
Dispersed
Type of market
Industrial
Consumer
Custom
Standardised
High
Low
Product
Product
complexity
Service
level
required
Life cycle stage
Introductory to early Maturity to early stage of
growth
decline
High unit value
Low value
Pricing
Budget
14.5 The marketing communications mix
The next set of decisions is to determine the role of each element of the promotional mix.
Depending upon the situation, it is likely that more emphasis will be given to certain forms of
promotion than to others. Table 10.2 provides a brief overview of the main advantages and
disadvantages of each element of the promotional mix.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
151
Table 10.2 The main promotional methods
Form
Promotion
of
Advantages
Disadvantages
Costs more than all other
Personal selling
Permits
flexible
presentation forms per contact.
and gains immediate response.
Difficult to attract good
sales personnel.
Sales promotion
Gains attention and has instant
effect.
Easy for others to imitate
Considerable waste.
Appropriate for reaching mass Hard to demonstrate
Advertising
audiences.
Allows
product.
direct
appeal
and Hard to close sale.
control over the message.
Difficult to measure
results.
Not as easily controlled as
Public relations
Has a high degree of
other forms.
believability when done well.
Difficult to demonstrate or
measure results.
 Advertisg
Advertising is characterised as a form of communication which its sponsor pays to have
transmitted via mass media such as television, radio, cinema screens, newspapers, magazines
and direct mail. It is intended to both inform and persuade. Lancaster and Massingham2
describe advertising as being:
“…concerned with the identification and presentation of desirable and believable benefits to
the target audience in the most cost effective way.”
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
152
Table 10.3 Some of the aims of marketing communications
Consumer
Communications
Trade Communications
Increase
promotional programmes
frequency of Announce special trade
use
To remind of products or
brands
offers
improve the corporate
image
To inform its publics as to
its values, policies and
purposes
To avoid stockpiling
To communicate its
business performance
To explain mergers and
To present special offers To build loyalty
acquisitions to its publics
To educate on product To educate on product
usage
Communicationsa
To establish, maintain or
Correct misconceptions Inform about
about a product/service
Corporate
usage
To explain fundamental
changes in the organisation's
mission
a In some respects the aims of corporate communications would seem more a responsibility
of public relations rather than advertising. However, reference here is made to the use of
medium for which the organisation has paid. Public relations does not pay to make use of the
mass media.
Harper3 believes that the same volume of advertising can have a greater effect in a
developing country than it would have in a developed country because of the relatively low
amount of advertising in LDCs and the low levels of competition between advertisers for the
attention of audiences.
The aims of advertising are many. Table 10.3 lists some of the aims which advertising may
be directed towards achieving.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
153
Theory suggests that there is a lag between advertising activity and its effect on sales.
Changes to consumer attitudes take time, as does creating customer awareness or creating an
understanding of a product or product attributes. Thus, whilst advertising can undoubtedly
have an immediate impact, the total effects of advertising are only realised in the longer term.
Figure 10.2 reveals some of the longer term outcomes of advertising.
Figure 10.2 Longer term outcomes of promotion
Since the effects of advertising are only evident in the longer term it should be treated as a
strategic rather than tactical tool of the marketing communications mix. Advertising does not
have the immediate impact of creating a customer. Instead, it has a hierarchy of effects as
depicted in figure 10.3. Lavidge and Steiner's4 hierarchy of effects model describes
communication as a process rather than a simple outcome in the form of a sale.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
154
Figure 10.3 The hierarchy of effects model2
Awareness: Consider the task facing a government which is attempting to persuade farmers
in a frequently drought-stricken area to switch some of their production from maize to more
drought-resistant sorghum. The initial step is for advertising to create an awareness of both
the economic and technical benefits of sorghum which would accrue to farmers within
drought-stricken areas. There may also be an awareness task to be accomplished with respect
to new sorghum varieties whose higher yields help compensate for the superior economic
rewards of growing maize in a good season. Levels of awareness can be measured and
thereby used as a measure of the effectiveness of advertising. For example, prior to beginning
a planned advertising campaign a target such as the following might be set:
‘Within 3 months of the campaign running, we expect at least 30 percent of farmers in region
X to be aware of the new sorghum variety and to be able to recall the 3 main technical
benefits that are claimed for the variety in the campaign.’
Subsequent research among the region's farmers would permit management to determine
whether the advertising had accomplished this target or not.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
155
Knowledge: The next step is to instill, in farmers, a given level of knowledge about, for
instance, how to choose economically viable sorghum varieties and the best husbandry
practices to maximise yields; and economic results, the technical and commercial benefits of
the new variety and how these are achieved. It is unlikely that advertising alone can
communicate this type of information. The technical nature of the information would suggest
that farmers would wish to put questions to sales personnel and/or extension agents in order
to obtain further explanation.
Whatever combination of marketing communications is used, quantitative targets can again
be set and the performance of the programme can be evaluated against them. It is particularly
important that post-campaign research establishes the level of understanding among the
target group. It should never be assumed that just because a message is received it is also
understood.
Once an awareness and understanding has been built up among the target audience the
marketer can then focus on establishing a liking or positive attitude towards the crop. This
might be done, for instance, by promoting the virtues of the new variety, e.g. droughtresistant, high-yielding and palatable.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
156
Case
10.2
Promoting
Herbicide
And
Insecticide
Usage
In
Nigeria
The Ilorin Agricultural Development Project (IADP), in Western Nigeria, operated
some 52 farm service centres and was concerned about the low level of agrochemical
usage by farmers within the project area. A survey carried out by the IADP suggested the
need for a marketing communications programme. In the case of insecticides and
herbicides, there was a need to create higher levels of awareness. The task, with respect
to fertilizers, was rather different. Awareness levels were fairly high but usage rates were
low. The survey revealed many serious misconceptions about the use of fertilizers and so
there was a need for an educational programme that would improve farmers' knowledge
of fertilizers.
Farmers' awareness levels of insecticides and herbicides was 10 and 5 percent
respectively. Usage rates were 4 percent for insecticides and 1 percent for herbicides.
The survey further revealed that those who were aware of these agrochemicals tended to
be the larger farmers. Even then the extent of their awareness was fairly limited with
awareness of insecticide being limited to seed dressing.
In the case of fertilizer, the survey concluded that the awareness level was far higher, at
65 percent of farmers in the project area. However, the lack of understanding of
fertilizers became apparent during personal interviews when many farmers expressed
some strange fears and beliefs about the effects of their application on yams. It was
widely held among these farmers that yams grown using fertilizer were unpalatable,
unsuitable for pounding, could not be used in yam setts and had poor storage
characteristics.
This case reinforces the point that advertising rarely results in an immediate sale. The
farmers within the IADP area are unlikely to be converted to the use of these
agrochemicals by a single advertising campaign, no matter how cleverly designed it may
be. It is more likely that any conversions from non-users to users will take place over a
considerable period of time. Considerable efforts will have to be made to improve both
awareness and knowledge of agrochemicals, among these farmers, before any attempt is
made to induce them to try the product.5
Preference: Even though the campaign may create a positive predisposition towards the
product or service, the product may not be preferred to the alternatives. In the case of the
hypothetical new sorghum variety, the target audience may like what it hears about the
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
157
variety but this may not yet be preferred to existing varieties or to planting maize. Preference
can be created by promoting the comparative advantages of the new product or service over
its alternatives. In Botswana6, the government was successful in promoting the production of
sorghum by using the extension service to stress the versatility of the crop in use and,
therefore, marketing opportunities. Sorghum can be made into soft porridge (motogo) or stiff
porridge (papa or bogobe). It can also be used to produce three fermented products:
traditional beer, “mageu”, a non-alcoholic drink, and “ting”, a fermented porridge. Whilst the
versatility of the crop might create a preference for planting sorghum over maize in arid
areas, additional benefits would have to exist in order to create a preference for this variety
over other types of sorghum. Perhaps the new variety yields a particularly sour taste much
favoured among drinkers of traditional beer in Botswana and/or is impregnated with
queleatox to protect it from the main pest attacking sorghum, the quelea bird. To create
preference the promotional message must convey benefits which alternatives do not possess.
Conviction: It is possible that whilst the target audience has developed a preference for a
product or service their conviction about that product or service is not yet strong enough to
actually cause them to adopt it. Here, the role of communication is to convince the target
audience that the claimed benefits of the product or service are both real and sufficiently
great to warrant a change in their behaviour. For example, prospective growers of the new
sorghum variety will want to see the benefits for themselves through field trails and
demonstration plots, and will perhaps want to converse with farmers who have already grown
the new variety. This hypothetical example indicates that the medium of communication (e.g.
printed media or demonstrations) and sources of information (e.g. extension personnel or
other farmers) may change from stage to stage.
Adoption: The final step is for the target audience to adopt the crop, husbandry practice,
product or service. The original hierarchy of effects model had purchase as its final step but
here the term adoption is preferred because it emphasises that the ultimate objective of
promotion is to encourage a long term change in behaviour and not a one-off trial or
purchase. To facilitate the initial purchase or trail of the product or service the promotional
campaign might centre around a low introductory price or enable potential customers to try it
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
158
on a limited basis. Prospective growers of the new sorghum variety could be offered seed at a
discounted price or the seed might be specially packed in small sample sachets so that it
could be sown on a trial plot of land. Target rates of adoption, over a specified time, should
be set. However, as will be explained a little later in this section, direct comparisons between
the number of adopters and promotional activity would not be meaningful since there are
many other intervening variable. If targets are not being met, then what can be done is to
reassess promotional efforts. In particular, research needs to be carried out to determine
answers to the following questions:

Is the unique selling proposition (USP) understood and valued? (e.g. growers may not
understand how queleatox works and will therefore have difficulty accepting its
benefits or may believe that other pests such as grasshoppers and locusts are more of
a threat to the crop).

Was the right communication medium used? (e.g. newspapers, magazines and leaflets
may have been used where word-of-mouth communication through sales personnel or
extension agents might be more effective in communicating the complexities of
sorghum growing and/or marketing. In many instances the mass media is effective in
creating awareness, interest and communicating information but personal
communication is required to effect trial and adoption).

Did the message reach the intended audience? (e.g. it might be established that the
majority of prospective sorghum growers listen to a given radio station but the
message is not transmitted at peak listening times for this group).

Was the source of information acceptable? (e.g. farmers may suspect that the
government is motivated by a desire to curtail over-production of maize rather than to
reduce the risks of small-holders farming in arid areas whereas the same message
might be more readily accepted if the source were an independent research station.
Put another way, the key questions are:
Message - Is the right message being communicated?
Media - Is the right medium or media being employed?
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
159
Target - Is the target being reached by the communication?
Source - Is the source of the information credible with the target audience?
There is a great deal of empirical evidence to support the notion that there are distinct stages
in the communication process and also that the effects of this process occur over time.
Studies by Beal and Rogers7 into the adoption of herbicides and new livestock feed
formulations by farmers showed not only the distinct steps in the communication process
described here as the hierarchy-of-effects, but also that lapses of several years between
awareness and adoption can occurb. Similar evidence has been provided by Singh and
Pareek8 from their studies of farmers in India.
In summary, what needs to be recognised is that it is unlikely that all of the steps in the
communication process can be accomplished by a single advertisement or advertising
campaign. The first two steps, for instance, ‘creating awareness’ and ‘developing
knowledge’, differ in that the first merely requires that the audience be informed by reaching
them whilst the second demands that they be educated. The two tasks are quite different and
are, invariably, achieved in different ways. Similarly, the subsequent tasks of creating, a
positive predisposition, preference (or loyalty) and adoption of the idea, product or service
are different in nature and are most likely to differ in method. Rogers9 suggests that:
“Mass media channels are relatively more important at the knowledge stage and interpersonal
channels are relatively more important at the persuasion stage…”.
It should also be recognised that since promotion has a number of intermediary goals its
performance cannot be measured simply in terms of sales volumes.
Given that many of the outcomes of advertising are realised only in the longer term, there is
little value in attempting to set advertising objectives in terms of immediate sales because
there is little prospect of being able to directly associate a given rise (or fall) in sales with a
particular promotional campaign or component of a particular campaign. This being the case,
promotional objectives based on sales effects do not meet Aaker and Myers' requirement that
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
160
advertising objectives be operational because they do not provide decision makers with
useful criteria on which to base future decisions.
Transforming non-buyers into buyers is seldom achieved in a single direct step. Instead,
advertising seeks to take prospective customer through a series of distinct steps as depicted in
figure 10.2. Whereas it is not possible to measure the impact of promotional activities in
terms of sales effects, targets can be set for each of the intermediate goals which comprise
the hierarchy of effects model depicted below. Research can be conducted subsequently to
determine the extent to which these goals have been achieved.
Aaker and Myers10 say that:
“Advertising objectives, like organisational objectives, should be operational. They should be
effective criteria for decision making and should provide standards with which results can be
compared. Furthermore, they should be effective communication tools, providing a line
between strategic and tactical decisions.c”
It might be thought that the primary objective set for advertising would relate either to
immediate sales or to market share targets, but in practice such objectives are seldom, if ever,
operational.
The reasons are three fold:

Advertising is only one of many factors influencing sales

The effects of advertising are often long term and

The effects of advertising are usually indirect.
Figure 10.4 shows some of the many factors which affect sales levels and make it difficult to
isolate the effects of advertising. There is a dichotomy of factors, these being the endogenous
factors operating from within the individual, such as his/her attitudes, opinions etc., and those
external or exogenous to the individual, including the elements of the marketing mix, the
general economic climate and cultural influences.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
161
b An extensive review of this empirical evidence may be found in E.M. Rogers, Diffusion of
Innovations, The Free Press, 3rd edition, 1983.
c An extensive review of this empirical evidence may be found in E.M. Rogers, Diffusion of
Innovations, The Free Press 3rd edition, 1983.
Figure 10.4 Some of the factors influencing sales
 Sales promotion
In contrast to advertising, sales promotion is more tactical than strategic. It is usually applied
to create an immediate impact, but one which is unlikely to be sustained in the longer term.
Thus, marketers tend to use promotion to address short term problems such as reducing the
cash burden of overstocked products, stimulating demand during what is traditionally the low
season, selling off stocks which are becoming obsolete or are likely to spoil if they remain in
storage. Sales promotions may be targetted at consumers, industrial buyers (e.g. crop
processors or food manufacturers), channel intermediaries (e.g. traders, wholesalers or
retailers) or the organisation's own sales force.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
162
Table 10.4 Types of consumer sales promotion
Sales Promotions Targetted On Customers
Type of promotion
Discount
coupons
Examples
or Discounts on the full price encourage product trial, e.g. $5 off
money-off packs
the regular price that will apply to a new pesticide.
Products offered free or at a discount act as an incentive to buy
Premiums
a related product, e.g. farmers buying 25 litres or more of a new
pesticide get a 5 litre pack of herbicide free.
Lotteries,
games
competitions
or
Intended to create interest and excitement among customers,
e.g. farmers may be offered the opportunity to win a knapsack
or tractor mounted agrochemical sprayer.
Free samples encourage product trial, e.g. farmers could be
Samples
given a small pack of pesticide and invited to apply it to a small
plot and compare results either with a plot to which no
pesticide has been applied or against a competing brand.
These specially designed display units and literature are
intended to create impulse (i.e. unplanned) purchases. They are
Point-of-sale
located close to the place where the customer pays for the
merchandising
goods or service, e.g. the packs of pesticide could be arranged
on an attractive rack displaying the manufacturer's name and
situated, close to the checkout in a farmers service centre.
Customers are given stamps in ratio to the value of their
purchases. Each stamp has a value attached to it although it
Trading stamps
cannot be redeemed for cash. These stamps can be accumulated
and then traded in as whole or partial payment for goods and
services. Trading stamps are mainly used by distributive outlets
to encourage customer loyalty.
Table 10.4 gives examples of typical forms which sales promotion takes. Many of these forms are equally
applicable in consumer and industrial markets. Sales promotions may be targetted on intermediaries as well, or
instead of, consumers. Many types of promotion are used in both sectors. Sometimes, however, their objectives
are slightly different. Table 10.5 describes the main forms of trade promotions and their various purposes.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
163
Table 10.5 Types of trade sales promotions
Sales Promotions Targetted On Trade Channels
Type of promotion
Examples
These temporary price reductions are intended to be passed on, in
Trade allowances
whole or in part, to the end customer. Thus, intermediaries can
elect to have a higher margin per unit or higher volume sales.
An agricultural merchant may be offered 24 packs of pesticide for
Bonus purchases
the price of 20. Such bonuses are not intended to be passed on to
customers but are an incentive for the merchant to increase the
order size.
These are directed at the sales and/or service personnel of
intermediaries and if sponsored by a manufacturer/grower are
Competitions
intended as an incentive to place particular emphasis on selling
that supplier's products or services., e.g. a salesman achieving total
orders in excess of 1,000 litres of pesticide might win a cash prize.
Cash incentives
Cash bonuses paid to a middleman's sales personnel can help push
the product through the channel of distribution.
Suppliers and middlemen sometimes share the cost of an
Cooperative advertising/promotions
advertising campaign or promotion, e.g. An agricultural merchant
wishing to run a local campaign may obtain assistance from one or
other of his/her main suppliers.
An industry's trade association may organise fairs and exhibitions
Trade shows and exhibitions
which offer its members the opportunity to communicate with a
well
defined
target
audience.
Both
manufacturers
and
intermediaries may participate in these events.
 Public relations
Publicity and public relations are not one and the same thing. Organisations often seek
publicity, i.e. to disseminate newsworthy items of information about itself, its
products/services or about its personnel through the media but does not pay to do so as in the
case of advertising. Instead, the organisation hopes that the item is sufficiently newsworthy
to appear in an editorial feature, in a newspaper or magazine, or that a radio and/or television
station will want to interview an official of the organisation about the item.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
164
Publicity can be a highly effective communication tool, since ‘news’ is often perceived by
the target group to have greater authenticity and credibility than ‘advertising’. Moreover, it
can penetrate the defences of individuals who intentionally ignore advertising and the
overtures of sales personnel. The main disadvantage of publicity is that the organisation has
relatively little control over it.
By contrast, the organisation can exert a large degree of control over the results of public
relations so long as there are specific objectives in regard to each of the publics at which the
communications are to be directed. Public relations may be defined as:
“…the deliberate, planned and sustained effort to establish and maintain mutual
understanding between an organisation and its public.”11
The ‘public’ referred to in this definition is any group having an actual or potential interest
in, or impact upon, an organisation's prospects of achieving its goals. Such publics would be:
The community: An organisation needs to be accepted by the local community. To this end,
a community relations programme should be established. Such a programme should devise
ways for the organisation to become involved in community activities. A public relations
programme can give an organisation a ‘personality’ and, hopefully, one which the local
community likes.
Consumers: Public relations should be used to nurture a positive image of the organisation
and its products and services, a belief in its intrinsic fairness in dealings with customers and
the perception that the organisation values loyal customers.
Other channel members: Wherever the organisation is placed within the marketing channel
(as a grower, processor, wholesaler, retailer etc.) it should take cognisance of the need to
develop and maintain positive relations with its partners within the marketing system. The
public relations programme should make them feel like partners, e.g. by making them privy
to privileged information about the organisation's products, promotional programmes,
marketing plans, future developments and/or policies.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
165
Opinion leaders: Pressure groups and trade associations are examples of groups which can
influence both public and government opinion and therefore should be a target for the
organisation's public relations activities Where there is potential conflict between the
interests of these groups and those of the organisation it is vital that there remains a dialogue
between them so that factual information, rather than rumours, is communicated. In many
cases, an effective public relations programme can help avoid conflicts from arising. It can
do so by projecting a corporate image of a caring, responsible and responsive organisation.
For its part, the organisation must seek to understand the position taken by pressure groups
on particular issues.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
166
Case 10.3 Sowing The Seeds Of Success By Communicating With
The Market
“Up until a few years ago, the Seed Co-op was production driven”, admitted the Marketing
Manager of The Seed Company of Zimbabwe Limited. He was referring to a situation where the
member growers decided how much of each crop they wanted to grow and then asked the Seed
Co-op to sell what they were willing to produce. The Marketing Manager went on to say that the
situation had changed and members had become, “…very much market-led.” He meant that
members had come to understand the need to produce according to customer needs. The Seed
Co-op made itself aware of customer needs through marketing communications.
Zimbabwe's Seed Co-op formerly enjoyed a monopoly and did not see the need to advertise.
This changed with the introduction of market reforms that opened the seed supply business to
competition. The Seed Co-op set its communication objectives as:
• To make groups, in addition to farmers, understand the role which the Seed Co-op played in
the country's agriculture. These groups were to include: government, financial institutions and
manufacturers.
• To create awareness that the Seed Co-op sold more than maize seed,
• To communicate the importance of certified seed, and
• To make potential customers aware of newly introduced seed varieties.
The seed Co-op's campaign was extensive, and costly. It covered:
• Rural radio advertising,
• Rural bus panels,
• Posters with calendars; these showed the various agro-regions of the country and their
recommended crops,
• Press advertising in both commercial and peasant farmer publications;
• Rural cinema;
• Sponsorship of televised weather reports, and
• Television advertising.
A post-evaluation of the impact of the advertising campaign was undertaken and the Seed Coop pronounced itself satisfied by the high level of recall of its promotional theme, “War Against
Hunger”.
The Seed Co-op employed both sales and extension personnel but the two were seen to have
distinct roles. In the words of Mr. de Woronin, “A different personality and approach is needed
for selling, as opposed to extension work, which we at Seed Co-op have learnt the hard way.
Extension people cannot necessarily sell, and vice versa.”
Public relations also figured strongly in the Seed Co-op of Zimbabwe's marketing
communications programme. The organisation became very active in both national and
provincial trade fairs and in local field days, in a bid to establish sound working relations with
farmers.12
Government: The lobbying of politicians is a sensitive issue but in most countries around
the world it is accepted as a reality. Public relations programmes should be designed to create
a two-way flow of communications between industry and government (or between a trade
association, such as a farmers' union, and government). That is, the organisation should be
creating a positive predisposition towards it whilst it should be receiving advance
information, from government, on matters such as proposed legislative changes that could
impact upon its activities.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
167
Financial institutions: Bankers, finance brokers, investment analysts and other lending
institutions are an important public for all commercial organisations. They need to have
confidence in the financial stability and prospects for growth since directly or indirectly they
will affect the organisation's access to debt capital. Public relations programmes targetted at
this group are therefore very important.
Media: Sound press relations can give an organisation access to the ‘news’ channel of
communication through which it can disseminate positive information to all of its publics.
Through its public relations programme, the press should be given a ready response to all
reasonable requests for information within the limits of commercial confidentiality, that the
organisation is candid about its intentions and actions.
Employees: Organisations must recognise the need to ‘market’ themselves to their own
employees as much as to other publics. Internal public relations often suffers from neglect.
The loyalty and commitment of employees to the organisation and its goals cannot be taken
for granted. An internal public relations programme can also help build an understanding
between the organisation and its personnel as well as helping develop an enduring trust
between them.
The methods employed by public relations professionals include:

Open days

Sponsorship

In-house publications

Community projects

Press releases

Video films

Training courses,

Annual reports.
Public relations has perhaps a different but complementary role to that of other forms of
communication. It will be most effective, and controllable, when it has specific objectives,
with respect to specific publics, and when it is coordinated with the forms of marketing
communication.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
168
 Personal selling
Personal selling complements both advertising and sales promotion. Many organisations
have a sales force comprised of a number of representatives who have face-to-face contact
with the customer. The division of responsibilities between sales representatives may be
based on geographical areas or on product groups. For instance, an agrochemical company
could divide the market into geographic regions and assign a representative to each district.
He or she would have responsibility for selling all of the company's products to the assigned
area. Alternatively, the same agrochemical company could organise its sales force so that
representatives handle either animal health products or crop protection products. This would
make sense if, within a country, farming tended to be specialised into arable and livestock,
whereas it would perhaps be less appropriate if mixed farming were the norm and two
representatives, from the same firm, were calling on the same farmer.
Reid13 defines personal selling as:
“…the process of analysing potential customers' needs and wants and assisting them in
discovering how such needs and wants can best be satisfied by the purchase of a specific
product, service or idea.”
Given the importance of personal selling within the marketing mix and the fact that the sales
force is likely to be the most expensive element of the company's promotional mix, the
organisation must be clear on the objectives of its sales representatives. Sales representatives
have at least 7 key tasks:
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
169
Prospecting
Sales representatives find and develop business with new customers.
Sales representatives communicate information about the organisation's
Communicating
philosophy, produce/products and/or services and communicate needs.
preferences and problems which customers have and the organisation can
meet or resolve.
Sales representatives should be trained in the art of selling approaching,
Selling
presenting, countering objections, closing sales and nurturing a longterm customer relationship.
Sales representatives provide various services to customers, such as
Servicing
helping resolve their problems with his/her own organisation, rendering
technical assistance, arranging financing and expediting delivery.
Sales representatives carry out market research and intelligence work and
Information gathering
complete visit reports. Representatives are able to collect information on
competitor activity as well as the future needs of customers.
The activities of sales representatives should complement other elements
Complementing
advertising
of the promotional mix. The sales approach has to be consistent with the
selling propositions conveyed through advertising and sales promotion.
Where possible, customer visits should be timed to coordinate with the
other promotional mix components.
Sales representatives are able to evaluate the value of various customers
Allocating
to
the
organisation and
advise
on
the
allocation of
scarce
produce/products at times of shortage.
Thus, we observe that whilst selling is of fundamental importance, the sales representative
has a number of other vital objectives, but at core he/she is part the organisation's
promotional effort and is an important contributor to marketing communications.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
170
Case 10.4 Knowledge Of The Market For Onions In The Yemen
In the Yemen Arab Republic onions were supplied from a region of the country where
yields were low, quality poor and supply seasonal. Farmers in Al Bayda, in the southeast of
Yemen, discovered that they enjoyed certain advantages in onion production. Ideal
agronomic conditions resulted in very high yields, they could produce year-round and the
quality was good. Many farmers in Al Bayda took up onion growing and began to transport
them over considerable distances to urban markets.
Whilst Al Bayda farmers had a comparative advantage in onion production they had yet to
determine how they could fully exploit this advantage in the market. Since all growers
belonged to the same tribe, their chief was able, as an opinion leader and encouraged by a
change agency, to convince the growers to cooperate in production, transport and
marketing. Coordinated production ensured a continuous flow of produce to market, eightton trucks rather than one-ton trucks went to market and transport costs per unit fell to 40
percent of their previous leve. I Produce was sold direct rather than through wholesalers
and growers' returns improved by 40 percent.
The Al Bayda farmers also registered themselves as a cooperative in the neighbouring
People's Democratic Republic of Yemen. Whenever they learned by radio that prices were
higher there, they were able to redirect supplies to that market.
A key factor in this success story was the extent to which Al Bayda farmers kept
themselves informed of market conditions through an extensive information network. This
included using radio, the telephone and messengers to ensure that supplies were directed to
where prices and demand said they were most needed.14
In practice, companies will be more specific about how they expect their sales representatives
to spend their time. For example, sales personnel may be told what proportion of their time to
devote to existing products and customers and how much to spend on prospecting for new
business or developing markets for new products. Left to decide for themselves, sales people
are likely to devote much of their time to exisitng customers where they know what kind of
reception awaits them and to products they are familiar with and which have an established
market (especially where sales commission is paid). The sales manager who permits this
pattern to emerge is clearly unaware of the concept of product life cycles and the dangers of
relying entirely upon today's customers and today's products.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
171
One would expect to observe a difference in the objectives set for the sales force in a market
oriented versus a selling/production oriented organisation. In the case of the latter, the accent
is wholly upon sales volume and the sales force has no role to play in marketing strategy or
issues relating to profitability. A contrasting view should be in evidence where selling is
perceived by management to be the central activity within the promotional element of the
marketing mix. The market oriented company trains its sales force to produce customer
satisfaction and company profit. This involves developing the analytical marketing skills of
sales personnel.
 Training the sales force
Organisations which send their newly hired sales representatives immediately into the field
are almost invariably disappointed by the results. It is true that training programmes can be
expensive. Trainers have to be hired, materials purchased and, perhaps, facilities have to be
rented. Moreover, the organisations are paying people who are not yet selling. There are also
opportunity costs. Experienced sales representatives have to be withdrawn from the field for
on-going training, and sales opportunities may be foregone. However, training, and retraining, is necessary if the sales force is to be effective. The sales manager's task is to ensure
that training costs are outweighed by the value added to the company's business by having a
better equipped sales force.
Not all sales personnel sell: many could better be described as order takers. This is not
necessarily a problem as long as this is the purpose for which the “sales force” was intended.
Many consumer food products are presold through extensive advertising in the mass media.
In these circumstances, the sales person's role is largely confined to taking orders from
middlemen who are already motivated to stock the product because of the demand created (or
maintained) by the mass media. However, it becomes a problem when an organisation
requires its sales force to take a more proactive role and aggressively sell its products and
services. Despite stories to the contrary, there are very few ‘born salesmen’. The great
majority of sales personnel need to be trained to become active sellers as opposed to being
passive order takers.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
172
Sales force training programmes have several goals, including:
The first part of most sales training programmes is devoted to
Sales
representatives
need
to describing the company's history and objectives, the organisation and
understand and identify with the lines of authority, the chief officers, the company's financial structure
company.
and facilities, and the chief products and sales volume, as well as the
current and prospective customer base.
Sales representatives need product Sales trainees are shown how the products are produced and how they
knowledge.
Sales
function in various uses and in different environments.
representatives
need
to
understand customers' needs, buying
motives, and buying habits.
They need to learn about the organisation's and competitors' strategies
and policies.
Sales representatives need to know Sales representatives require training in the principles of salesmanship.
how
to
make
effective
sales In addition, the company outlines the major sales arguments for each
presentations.
product, and some provide a sales script.
Sales representatives need to understand
field procedures and responsibilities.
Sales representatives need to understand
their
role
in
marketing
gathering.
intelligence
Sales representatives learn how to divide their time between existing and
prospective customers; how to prepare reports, organise their schedules and
select efficient routes.
Some individuals are quicker than others to realise that they have a role in market
intelligence gathering. Indeed, representatives repeatedly fail to report
information collected in the course of their work because they do not appreciate
that it constitutes marketing intelligence. Hence, the need for training in this area.
Training programmes have to be evaluated against the performance (and/or improved
performance) of the sales force. Quantitative evidence might include increased sales turnover
and sales volumes, larger average order sizes, increases in new accounts, a decline in
customer complaints and returns, lower levels of absenteeism, etc.
14.6 Change Agents
Sales representatives are agents of change. They seek to change customer behaviour in many
different ways: from mechanical weeding to herbicides, from bulk transportation of
vegetables to prepacking, from broadcasting of seed to the use of precision drills, from
employing manual labour to electro-mechanical grain elevators, from open to refrigerated
lorries, from purchasing 10 kg bags of maize meal to buying 25 kg sacks, and so on.
However, sales representatives are not the only agents of change seeking to communicate
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
173
with producers, processors, traders, retailers, consumers, and other participants in agricultural
and food marketing systems, in an attempt to alter their beliefs, opinions and behaviour in
some way. Agricultural extension agents, agricultural marketing extension agents, health
workers, farmers' unions, cooperatives, trade associations, professional bodies, consumer
associations and NGOs of various types are some of the other change agents whose activities
are often found to impinge upon the agricultural and food marketing systems. For example,
where change agents are successful in persuading farmers to adopt improved husbandry
practices or technological innovations which lead to higher levels of production and/or crop
quality, this is likely to have an impact in the marketplace. Similarly, if change agents
persuaded Southern African consumers to eat yellow maize (often considered food for
livestock) in the place of the traditionally preferred white maize, then this would have an
impact on the relative prices of the two grains and upon future levels of plantings and supply
of white and yellow maize.
The figure overleaf depicts the role of change agents in the context of agricultural and food
marketing systems. It shows the role of change agents, whether they be commercial sales
representatives or other types of change agent, is that of linkage between the promoters of
change and those who are expected to adopt and implement those changes. Figure 10.5 also
gives examples of the types of clients whose beliefs, attitudes, opinions and behaviour
change agents might seek to alter.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
174
Figure 10.5 Change agents and their role in the context of agricultural and food
marketing systems
As figure 10.5 suggests, the change agent forms the link between the change agency and the
target client group(s). He/she is a conduit through which information flows, in both
directions, between the change agency and the client group. The change agent interprets and
transmits the message of change from the change agency to the clients. The change agent is
equally responsible for interpreting and transmitting information on the needs and problems
of the clients to the change agency, also their reactions to proposed changes, obstacles,
difficulties, and the identity of important opinion leaders within the client system.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
175
Case 10.5 Communicating The Benefits Of Hybrid Maize
Hybrid maize seed was first developed and introduced in lowa
State, USA. Promotion of the seed began in 1928 and involved the
state extension service and sales representatives from seed companies.
Hybrid maize seed yielded about 20 percent more per hectare than the
open-pollinated varieties that it replaced. It had higher drought
resistance and lent itself to harvesting by mechanical pickers. The
chief disadvantage of the new seed was that it lost its vigour after the
first generation and therefore farmers had to buy hybrid seed each
year whereas they previously used a large amount of farm-saved seed.
Thus, adopting the hybrid seed involved the farmer in making a
fundamental
behavioural
change.
Researchers studying the adoption of the hybrid seed discovered
that despite its clear advantages, most farmers moved only slowly
from awareness-knowledge through to adoption. Farmers questioned
in the study took up to 9 years after learning about the new seed
before adopting it. The average respondent took 3–4 years between
planting a small trial plot of hybrid maize seed and eventually using it
exclusively.
The researchers found that the various communication channels
played different roles at each stage of the adoption process. Farmers
reported that, in most instance, information on the hybrid seed first
came to them via sales representatives. However, neighbouring
farmers played a more significant role in persuading them to plant a
trial plot of the hybrid seed.15
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
176
The objectives of change agents have a particular sequence, this is also represented in Figure
10.6, and may be explained as follows:
1. Develops the need for change.
A change agent's initial objective is often to help clients see
the need for change. For example, an extension officer
might have to demonstrate how the lack of coordination
between farmers in their production and lack of cooperation
in the marketing of their produce prevents them from
gaining access to distant markets and obtaining reasonable
prices.
Before they will accept his/her advice, the client group
needs to feel that the change agent has empathy with their
situation. A frequent obstacle to rapport is where the
2. Establish a rapport with the client
change agent comes from a different culture, does not speak
group.
the language (or dialect), comes from a different socioeconomic class or intimidates the client group through
ostentatious show of a superior education.
Returning to the earlier example, the change agent will
3. Diagnoses of the client groups' have determined, through diagnoses, why the existing
problems.
marketing system is not working and what the alternative
solutions might be.
Having explored various alternative course of action, the
change agent must motivate the clients to adopt one or
4. Encourages an intention to change other solution. This might involve sending trial shipments
among the client group
of produce to market, for example, to demonstrate that
graded produce, carefully packed, earns higher returns for
farmers.
5. Translates intent into action.
The change agent induces client-centred change. He/she
will work through local leaders and opinion leaders so that
the proposed change is adopted by the clients rather than
always being seen as a solution imposed by the change
agency. He/she may, for instance, encourage opinion
leaders to call for farmers meetings to discuss how local
production might be coordinated and which marketing
functions should be based on cooperative activity.
Change agents will seek to reinforce the new behaviour by
continual feedback on improvements and benefits. This
6. Firmly roots adoption and minimises might take the form of reports on reductions in produce
the likelihood of its abandonment.
losses due to improved handling and packaging, higher
prices than pre-change prices, increases in sales volumes,
etc.
Eventually, the change agent should make him/herself
redundant. The client group should become self-reliant
rather than continuing to rely upon the change agent. This
might be evidenced, for example, if farmers not only
7. Makes the change self-perpetuating.
continued to coordinate their existing production and
cooperate in the marketing of their produce but also began
to look for better methods and new areas of cooperation in
production and marketing.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
177
Whilst sales representatives and other types of change agent are similar in many ways, they
are not the same. Sales representatives are essentially profit oriented, as they must be, and
this governs their selection of priorities and their behaviour. Other types of change agent are
usually, if not always, motivated by social goals. Even when their efforts are directed at
improving the economic performance of a client group, this is normally a means to an end
and not the end itself. That ‘end’ is usually the economic and social development of the client
group.
14.7 Developing the message
In most instances, the attention of the target audience can only be held for a relatively short
time. That is, the potential customer will spend only a matter of seconds, or at most minutes,
reading an advertisement in the printed media, will spare a limited time conversing with sales
personnel or extension agents and will quickly lose interest in broadcast messages when
these are perceived to be too long. Thus marketers must be selective in the points of
information they seek to communicate. Whilst a product or service could have a large set of
selling points, these will have to be narrowed down to a select few. Moreover, the single
most important selling point will be the one to be included in the principal slogan or
headline. This is sometimes termed the unique selling proposition (USP). A USP should only
be decided upon after customer research has determined meaningful and important messages
(e.g. there is little to be gained from promoting the nutritional superiority of hammer milled
whole grain over roller milled refined grain when consumers believe the latter is superior in
taste, colour and texture).
 Selecting the media
The media plan has to be developed in concert with the overall marketing communications
strategy. The hierarchy of effects model, described earlier in this section, stressed the
multiple stages through which the target customer must be brought and that different media
might be more successful at some stages than others. Therefore, it is likely that a mix of
media will have to be used within a single marketing communications programme.
Criteria for selecting communications media include:
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
178

level of exposure

level of impact

nature of the target audience

cost and cost effectiveness.
 Message exposure
Marketers are interested in the potential number of message exposures that a given medium
offers. The total level of exposure is a function of reach and frequency. Reach is the number
of people exposed to the message. For example, to the extent that a higher percentage of rural
populations, in developing countries, have access to radio as opposed to television, radio will
have the greater reach for this target audience. Frequency is the average number of times an
individual is exposed to the message. If the target audience were say farmers, who tend to
read a newspaper 2 – 3 times per week but listen to the farming news, on radio, 7 days per
week, then radio is likely to achieve the higher frequency rating.
Invariably, there is a trade-off between reach and frequency. Communications budgets will
stretch only so far and so more spent on one will reduce the amount that can be spent on the
other.
Impact of the promotional message: It can be argued that the impact of a promotion has
more to do with the message than the medium. Nonetheless, the medium is an influencing
factor on the levels of awareness, comprehension, believability and retention. Radio, being a
purely audio medium, will be limited in its impact on farmers' levels of understanding of the
operation of a piece of agricultural equipment that is new to them. Visual communication
would be important in this case. In the same way, the retention of information is generally
higher for audio-visual communications than it is when the information is presented only in
audio form.
The target audience: Media have to be selected according to their ability to reach the target
audience. This involves analysing the demographic structure of the market socio-economic
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
179
groups, age groups, language, ethnic groups, etc. Thereafter, marketers can seek to identify
media that reach the target group(s).
Cost and cost effectiveness: Some forms of media may prove too expensive for a particular
communications budget and although these may have great potential in reaching the target
audience, they will be unavailable. Even when this is not the case, it is incumbent upon the
marketer to identify the most cost effective media.
The cost-per-thousand method (CPM) is one of the most commonly used in measuring the
cost effectiveness of promotional media. For example, if it costs $100,000 to send a mobile
cinema around the rural areas for 6 months, to demonstrate the advantages of applying
herbicide, and if it is estimated that some 50,000 farmers will see the cine/video film, then
the cost per thousand is:
The same calculation can be undertaken for alternative media which are also under
consideration. However, when making comparisons of this kind, care has to be taken to allow
for the precision of a medium in hitting the target, something which the CPM approach does
not do. For instance, in some African countries fish trading has traditionally been carried out
by people of Asian origin. If these were the target group for a given promotion then an Asian
language newspaper might give pinpoint accuracy in reaching them but would score badly on
a CPM rating since they are a minority of the population.
 Establishing the promotional budget
Deciding upon the amount to be spent on promotion is one of the most challenging tasks
marketing managers have to face. There are simply no scientific solutions to the problem.
Since no one has ever established a mathematical relationship between promotional
expenditures and their effects, either in terms of sales volumes or revenues, there is no
universally accepted formula for setting the promotional budget. Instead, a number of
pragmatic approaches have been established over the years. The main budget setting methods
Copyright © 2009 Rift Valley University College
Adama
180
Industrial Marketing
are percentage-of-sales, fixed-sum-per-unit, competitive parity, residual-sum and objectiveand-task.
Percentage-of-sales: The method involves setting the budget as a percentage of either last
year's sales or forecasted sales for next year. Thus, brands or products which are performing
well get additional promotional support. The popularity of this approach is probably due to
its simplicity. However, it suffers from several weaknesses, for example high sales volumes
do not necessarily reflect high profitability, there is little support for marketing managers
wanting to turn ‘problem’ products into ‘rising stars’ and when budgets are set according to
forecasted sales there is motivation to inflate sales estimates. Another problem with this
approach is that using percentages of sales leads to sales determining the promotional mix. In
figure 10.1, it was suggested that the reverse was the correct relationship, i.e. the promotional
mix should determine sales.
Fixed-sum-per-unit: Some organisations elect to set a specified amount for each unit sold or
produced. Thus, for example, a poultry producers might determine the promotional budget by
using a figure of $1.50 per gross of eggs sold and 25 cents per broiler sold (or produced).
Competitive parity: This approach is simply one of keeping pace with immediate
competitors. The organisation will try to work out approximate expenditure levels by two or
three close competitors and will then seek to match those expenditures. It represents a
reactive or defensive approach to promotional budget setting. Apart from the difficulties of
arriving at reasonably accurate estimates of expenditure by the competition, the method
suffers from incorporating the mistakes of competitors who may be spending too much or too
little. Alternatively, the amount spent by the competition might be right for them but not for
others who have different resource levels and marketing opportunities or problems. The
method also discourages organisations from taking a more aggressive marketing stance by
seeking to gain a competitive advantage.
Residual-sum: This is a euphemistic term for allotting what the organisation perceives itself
to be able to afford after all other budgets have been set. The danger is that in years of good
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
181
business there may be over-budgeting whilst in times of low sales, when demand most needs
to be stimulated, the amount available for promotion falls.
Objective-and-task: An organisation employing the objective-task approach will first
specify its communication objectives and will then estimate how much it will cost to achieve
those objectives. This is the approach to promotional budget setting recommended in this
text. It has the benefit of encouraging marketing managers to set specific communication
goals. When these are not attained the communications mix can be reevaluated and modified.
It may be that whilst the communication objectives are valid, the particular organisation
cannot supply the resources to meet them. In these circumstances some sort of compromise
between expenditure and goals will be necessary.
Perhaps the fundamental weakness of this budgeting method is the implied assumption of
cause-and-effect. That is, there is an assumption of a direct relationship between promotion
and marketing performance but as has already been said, other elements of the marketing mix
will impact upon sales, as will many uncontrollable exogenous factors.
Whichever approach to setting the promotional budget is chosen it should be recognised that
it has been established on a less than optimal basis.
14.8 Monitoring the effectiveness of marketing communications
The last step in the development of a marketing communications programme is to evaluate
the effectiveness of the programme. The evaluation has two components: communications
effects and market performance.
14.8.1 Communications effects
Research into communications effects involves the evaluation of a single advertisement.
Research in this area focuses upon measuring variables such as attention levels, message
comprehension, message retention and intention to purchase. This type of research is often
termed copy research. Both broadcast and printed promotional material can be evaluated.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
182
Whilst the techniques employed differ in their detail they essential involve exposing a sample
of people drawn from the intended target group and exposing them to the proposed
advertisements or promotions. For example, a printed advertisement can be inserted in a
dummy magazine and given to the sample. After a suitable period of time these people are
asked to recall the advertisements seen and to report as much of the detail of the content of
the ads selling propositions, images, applications, etc. In the same way, an audience can be
recruited to watch television programmes with trial advertisements inserted at the beginning
of the programme(s) and/or in the commercial intervals and/or at the end of the programmes.
They too can be questioned about the content of the advertisements and the impressions that
they made upon the audience.
14.8.2 Market Performance
To a limited extent and in certain situations, the effects of promotion on sales can be
measured. The effects of special offers and coupons can be measured by redemption rates.
Two approaches which are widely pursued in industrialised countries are as follows:
The organisation selects two geographical areas which are
similar in terms of socio-economic groups, levels of
disposable income etc. and launches a promotional
campaign in one area but not the other. After a period of
Field experiments.
time, sales in the two areas are compared. The assumption
is that the only difference between the two areas is the
absence or presence of the promotional campaign and so
differences in sales are explained by the promotional
campaign.
Promotional expenditures and sales data can be compared
using mathematical or econometric models to first describe
Analysis of historical market the relationship between sales and promotion. Where these
data.
can be successfully described there is the prospect of
developing other models capable of predicting sales, given
a certain level of promotional effort.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
183
The first of these approaches requires the application of very strict controls and careful
matching of the areas or markets to be compared. The second approach requires good quality
data. That is, the data must be detailed, precise, free from error and must extend over a
considerable period of time.
Summary
The establishment of effective communication channels between sellers and buyers is a
prerequisite of success in agricultural marketing. Marketing communications serve to both
inform and persuade. More specifically, through the promotional mix advertising, sales
promotion, personal selling and public relations organisations can provide information to
other market participants, stimulate demand, differentiate products and services, underline a
product's value and regulate sales.
Marketing communication objectives are derived from the marketing plan and must be
consistent with the other elements of the marketing mix. These objectives must be
operational and require identification of a target market, a specification of any desired
changes in that target group's behaviour and a set of performance targets.
The communications mix to be employed will be greatly influenced by the nature of the
market and the product, the stage of the product's life cycle, the product's price level and the
size of the promotional budget available.
Advertising is a strategic marketing tool. Its effects tend to occur over a relatively long time
horizon and there is usually a lag between an advertising campaign and evidence that its
desired effects are actually taking place. Advertising rarely, if ever, immediately creates a
customer. The buying/adoption process is normally fairly lengthy and involves several stages
known as the hierarchy-of-effects. Advertising plays a greater role at some of these stages
than at others and so it is usually used in conjunction with other promotional tools such as
sales promotion and/or personal selling.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
184
In contrast to advertising, sales promotion is a tactical marketing tool and is typically
employed as a quick acting solution to immediate marketing problems. Sales promotions can
be targetted on end-users or upon any other group of market participants.
Personal selling involves face-to-face contact between a representative of the trading
organisation and the customer. The more expensive and technically complex the product, and
the fewer the number of buyers, the more likely it is that emphasis will be given to personal
selling.
Public relations are broader in purpose than other elements of the communications mix.
Rarely are public relations efforts directed at selling products or services. Rather, the role of
public relations is to establish and maintain good relations between an organisation and its
various publics.
When developing promotional messages, marketers have to select selling propositions which
are unique to the product or service and are meaningful to the target audience. Given that the
attention of the target audience can only be held for relatively short time spans, marketers
have to be highly selective and limit the amount of information which they attempt to
transmit.
The selection of the media to be used should take into account the amount of exposure that a
particular medium will give to a message, the potential of the medium to reach the target
audience and the relative cost effectiveness of alternative media.
There are agents of change other than sales personnel whose activities can impinge upon the
marketing system. Examples include agricultural and marketing extension officers, aid
workers and training personnel. These change agents are often representing non-commercial
organisations such as government departments, NGOs or development agencies. The success
or failure of these change agents can have a significant impact on the effectiveness and/or
efficiency of particular market participants and upon the marketing system as a whole.
Change agents seek to demonstrate the need for change to a target group and having
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
185
encouraged that change then try to ensure the change becomes permanent and selfperpetuating.
There are no theoretical models to assist marketing managers in setting optimal promotional
budgets and there is no universally accepted formula for setting the promotional budget.
There are, however, five widely used approaches, these being: percentage-of-sales, fixedsum-per-unit, competitive parity, residual-sum and objective-and-task.
The final step in the development of a marketing communication programme is to evaluate
its communications effects and impact on market performance. Trial promotions can be
tested by exposure to a sample audience and measurements taken of attention levels, message
comprehension, message retention and intention to purchase. The impact of promotions on
market performance can be measured either through field experiment or through
mathematical modelling.
Key Terms
Advertising
Exogenous factors
Personal selling
Change agents
Hierarchy of effects
Public relations
Communications mix
Mass media
Sales promotion
Endogenous factors
Objective-and-task method
Unique selling proposition
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
186
Self Check Exercises
From your knowledge of the material presented in section 10, give brief answers to the
following questions.
1. Briefly list “the intervening factors to be considered before the communications mix
is finalised.”
2. What are the steps that are suggested be followed when seeking to develop
operational communication objectives?
3. Name the six stages of the hierarchy of effects model.
4. According to Rogers, at what stage(s) of the communications process are
interpersonal sources likely to be most effective?
5. Briefly explain the term, endogenous variables.
6. Who are an organisation's publics?
7. What is the main weakness of the objective-and-task approach to setting marketing
communication budgets?
8. What are the implications for marketing communications of a marketing programme
involving more than one target market?
9. What criteria might be used to judge the appropriateness of a particular promotional
medium in a given situation?
10. What are ‘change agents’ and what purposes do they serve?
11. What sort of evidence might be used in assessing the effectiveness of a sales training
programme?
12. List at least five methods used in public relations.
13. What are the five key objectives of marketing communications?
14. Name the two methods of evaluating the impact of marketing communications on
market performance described in this text.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
187
Integrated Marketing Communications
Integrated Marketing Communications is a term used to describe a holistic approach to
marketing communication. It aims to ensure consistency of message and the complementary
use of media. The concept includes online and offline marketing channels. Online marketing
channels include any e-marketing campaigns or programs, from search engine optimization
(SEO), pay-per-click, affiliate, email, banner to latest web related channels for webinar, blog,
micro-blogging, RSS, podcast, and Internet TV. Offline marketing channels are traditional
print (newspaper, magazine), mail order, public relations, industry relations, billboard, radio,
and television. A company develops its integrated marketing communication programme
using all the elements of the marketing mix (product, price, place, and promotion).
Integrated marketing communication is integration of all marketing tools, approaches, and
resources within a company which maximizes impact on consumer mind and which results
into maximum profit at minimum cost. Generally marketing starts from "Marketing Mix".
Promotion is one element of Marketing Mix. Promotional activities include Advertising(by
using different medium), sales promotion (sales and trades promotion), and personal selling
activities. It also includes internet marketing, sponsorship marketing, direct marketing,
database marketing and public relations. And integration of all these promotional tools along
with other components of marketing mix to gain edge over competitor is called Integrated
Marketing Communication.
 Reasons for the Growing Importance of Integrated Market
Communication/IMC
Several shifts in the advertising and media industry have caused Integrated Market
Communication/IMC to develop into a primary strategy for marketers:
1. From media advertising to multiple forms of communication.
2. From mass media to more specialized (niche) media, which are centered around
specific target audiences.
3. From a manufacturer-dominated market to a retailer-dominated, consumer-controlled
market.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
188
4. From general-focus advertising and marketing to data-based marketing.
5. From low agency accountability to greater agency accountability, particularly in
advertising.
6. From traditional compensation to performance-based compensation (increased sales
or benefits to the company).
7. From limited Internet access to 24/7 Internet availability and access to goods and
services.
 Selecting the Most Effective Communications Elements
The goal of selecting the elements of proposed integrated marketing communications is to
create a campaign that is effective and consistent across media platforms. Some marketers
may want only ads with the greatest breadth of appeal: the executions that, when combined,
provide the greatest number of attention-getting, branded, and motivational moments. Others
may only want ads with the greatest depth of appeal: the ads with the greatest number of
attention-getting, branded, and motivational points within each.
Although integrated marketing communications is more than just an advertising campaign,
the bulk of marketing dollars is spent on the creation and distribution of advertisements.
Hence, the bulk of the research budget is also spent on these elements of the campaign. Once
the key marketing pieces have been tested, the researched elements can then be applied to
other contact points: letterhead, packaging, logistics, customer service training, and more, to
complete the Integrated Market Communication/IMC cycle.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
189
SECTION FIFTEEN
Promotional Tools in Industrial Markets
 Sales Promotion Methods & Ideas
Promotion
Promotion is tool with which public will be informed about the availability of a
particular product or service and the uses of such product. Production decides the
increase in demand for a product, promotion will make the prospective buyers to
know about the want, satisfying characteristics of the product, its price and place of
availability. This term includes advertisement, personal selling sales promotion and
other selling tools which are increasing the sales volume.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
190
SECTION SIXTEEN
Developing Marketing for Industrial Products
The Advisor Project: A Study of Industrial Marketing Budgets
Gary L. Lilien, Massachusetts Institute of Technology
John D. C. Little, Massachusetts Institute of Technology
Companies that sell to industrial and business markets must determine how much to spend
for various elements in the marketing mix. No systematic quantitative guidance is currently
available to aid managers facing these decisions. ADVISOR, a joint project of M.I.T. and the
Association of National Advertisers, addresses this need in the case of advertising budgets.
Data on sixty-six diversified products from twelve companies have been analyzed to
determine key product and market factors that affect advertising expenditures and media
allocation decisions.
New forms of guidelines have been developed to aid industrial product managers in setting
and allocating advertising budgets by providing information on industry norms, using as
input about a half dozen standard product-market factors.
16.1 Introduction
Decisions about marketing budgets for industrial products are usually made in a seat-of-thepants fashion. In contrast to consumer marketing, little study has been done on the
determinants and impact of different types of industrial marketing. Few guidelines are
available to aid product managers in determining the appropriate size and mix of their
marketing efforts. The ADVISOR project (ADVertising Industrial products: Study of
Operating Relationships) addresses this very need. The ultimate aim of the project is to
develop models and relationships that specify the best marketing mix for a given type of
product. Current results include new forms of easy-to-use
guidelines based on advertising levels and mixes used by major companies facing similar
marketing situations. From a few standard product and market characteristics, the A L) V IS
OR model specifies the typical size and range of marketing budgets. Further analysis
provides similar information on advertising mix.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
191
16.2 Current Approaches to Industrial Marketing Decisions
The current state of knowledge on industrial marketing is typified by the following exchange,
which occurred during an interview of a product manager in a large manufacturing company.
We asked him, "How much do you spend on advertising your top-of-the-line filter pumps?"
He responded, "5% of sales." "Why 5%?" we asked. "Because 5% is what we have been
spending and I'd have to explain 4% or 6% to my management."
A review of current budgeting methods (Lilien et al. [3]) indicates that there are at least three
techniques for allocating communications expenditures: guidelines met hod, task method,
and explicit modeling and experimentation.
Guidelines Method- In this method, a rule of thumb is applied against a sales forecast to
develop a dollar budget. Such rules include suggestions like "use a constant percentage of
sales" or "match the competition." However, they fail to provide an explicit, objective
rationale for the specific rule that is chosen (e.g., they do not specify how to select an
appropriate percentage of sales). Tusk Method. This is also called the Objectives Method. It
uses marketing objectives to establish communications goals and, thereby, to set budget
priorities. The task method explicitly includes issues like position in the product life cycle,
state of the marketing environment, and corporate objectives. But these intermediate
variables are often difficult to translate into specific dollar amounts or to relate directly to
final measures of effectiveness.
Explicit Madeling and Experimentation
This approach relates marketing actions to profit or other objectives via theory and direct
measurement. It is generally expensive, and results are often difficult to obtain or apply only
to a particular set of products. Each of these methods has deficiencies in quantitative
accuracy, ease of use, or other areas. But the study of the process and effects of industrial
advertising has simply not progressed to the point where it can offer definitive guidance to
industrial advertisers faced with specific expenditure decisions.
16.3 The Advisor Project
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
192
The objective of the ADVISOR project is to provide guidance for setting industrial
advertising budgets. (The term "advertising" should be interpreted as marketing
communications, including print media, direct mail, trade shows, catalogs, and various forms
of sales promotion.) To achieve this objective the ADVISOR project seeks to relate
commirnications budgets to product and market characteristics by an empirical st~idy of
current practice. It does not attempt to relate advertising budgets to sales or profits; that is for
future work. It does attempt to describe how people budget now, and how they are influenced
in this by product and market characteristics. The information is used to provide budgeting
guidelines for particular product and market configurations. An empirical study of current
practice is used for two reasons. First, as discussed above, there is no quantitative literature in
this area. Key factors have not been identified, and the data have yet to be gathered and
mined in any careful way. Second, studies have indicated that management decision makers,
while not making "optimal" decisions, are on the average good decision makers (Bowman
[I]; Kunreuther 121). Thus, a study that uncovers current industry norms is of value to
management, because these norms can provide reasonable guidelines. Stated succinctly,
survival of the fittest operates in product management, as well as in nature. Guidelines on
industry behavior could conceivably be obtained by examining actual budgets for a group of
similar products available in the marketplace (assuming such data were available).
Conceptually, this would be a table-lookup approach. It is not the method used in the
ADVISOR project. ADVISOR analyzes a diversity of situations to determine the budgetary
impact of a set of standard product-market characteristics. The analysis specifies the relative
contribution of each type of characteristic, and can be used for product and market
configurations that were nut explicitly included in the original data. In short, it attempts to
find determinants of budgeting decisions, not simply to catalog such decisions. The diversity
of products studied is necessary for ensuring the general validity of results, and the analysis
is not limited to a particular set of products or market conditions.
16.4 The Data Base
The Advisor data base consisted of information from the period 1972-73 on sixty-six
products from the twelve companies listed in Table 1. The sixty-six products studied were
widely diversified. For example, the list includes machinery, chemicals, raw materials,
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
193
fabricated materials and component parts. For each product, forty-six questions were asked
generating a total of 190 separate data items.
16.5 Product-Market-Customer Factors and Budgeting
The list of factors in Table 2 was assembled as follows: a review of advertising literature
yielded a starting list of variables, such as stage in the product life cycle, product uniqueness,
and frequency of purchase. This initial set of factors was augmented by a series of
unstructured interviews with product and advertising managers at several of the participating
companies.
The interview formats were basically similar: the manager was asked to think of a product
with a "high" ad budget and to describe its market and competitive situation. Then he was
asked to consider a product with a "low" advertising budget and repeat the process. This
procedure, repeated with ten to fifteen product managers in five companies, isolated a set of
factors that formed the basis for a questionnaire requesting about 190 separate pieces of
information in forty-six questions.
Each participating company was asked to complete as many questionnaires as possible (one
for each product); we were successful in obtaining data on sixty-six products. Companies
were given considerable flexibility in the definition of a product; the definition chosen was to
be one that had operational meaning in the organization's financial and planning processes.
Nonnumeric answers or answers with some tolerance (say, r 10 percent) were acceptable,
since the goal was to relate advertising budgets to perceived product-market environmental
factors. In many cases, the product managers made general distinctions, like "high" versus
"low," in evaluating a particular factor, as typified in the following description of a product
with a relatively large advertising budget: "Well the product is early in its life cycle. We have
a large number of potential customers and a small market share and need to get ourselves
known. Our product is relatively unique so we have something to say to the market.
Therefore, we have a relatively high budget."
The specific quantitative values (say, 12,800 customers) associated with these High-Low or
Large-Small breaks were never mentioned by the respondent. This suggests that many factors
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
194
can be adequately described in a dichotomous High-Low or High-Medium-Low form,
without recourse to the absolute magnitude of the values (where there were no logical
breakpoints, sample medians from the data were used to categorize responses). This decision
process also suggests that the output norms or guidelines generated by this study should be
presented in a similar fashion (e.g., as relative values or a range of values, rather than a single
number). The above discussion reveals a conceptual framework for the budgeting process, In
this framework, the decision maker has a checklist of product-market factors that are relevant
to the budget decision (e.g., stage in life cycle, plant capacity, and number of customers). The
values for the factors are known roughly (High versus Low. for example), and each is
considered separately, increasing or decreasing the final budget score. The result is not a
specific budget number, but a relative budget size, e.g., a "low" budget, in comparison to
industry norms. The role of the ADVISOR project is to make this process more logical and
accurate.
Analysis of the forty-six potential variables over the complete data base established the
preeminence of six factors in describing the impact of product-market-customer
characteristics on advertising and marketing budgets. These factors are: stage in life cycle;
frequency of purchase; product quality, uniqueness, and identification with the company;
market share; concentration of sales; and growth rate of customers. The general impact of
each of these factors on budgetary variables is given in Table 4. An explanation of the
information in Table 4 and a description of each factor are given below.
Stage in Life Cycle- Each product was classified into one of four stages: introduction, growth,
maturity, and decline. Most managers had no difficulty classifying their products (although it
is remarkable how few thought their products were in the declining stage). Looking at Table
4, life cycle turned out to have a very strong negative impact on the budgeting ratios. In the
MIS ratio entry, the minus sign indicates that as the life cycle of a product progresses, the
value of the MIS ratio decreases (since the product becomes established). The A/M ratio is
not especially affected, but on net, the A/S ratio is both strongly and negatively affected.
Thus, early in the life cycle of a product, the Advertising Sales ratio tends to be high; later, it
tedds to be low.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
195
Frequency of Purchase-Questionnaire data were converted into an average number of
purchases per year. A product was rated as high if the frequency was greater than 5 purchases
per year, and as low if less than or equal to 5. Frequency does not have an appreciable
influence on the MIS ratio, but it does influence the AIM ratio. The more often the product is
purchased, the greater AiM. This is sensible; if people are purchasing frequently, it may well
be worthwhile to send more messages to them.
Sales
Product Quality, Uniqueness, and Identification with Company-
Since these factors
appeared to be related, a composite index was constructed from several questions in the data
set. A high score on this variable would imply that the product had a substantial edge in
quality over its competition, was unique or clearly distinguishable, and had a strong
association with the company name. This composite factor had little effect on M/S, but a
significant effect on A/M. If your product has quality, uniqueness, and a strong attachment to
the company name, then you have a story to tell, and you use advertising to do it. A larger
proportion of the marketing budget goes into advertising and, therefore, AIS is larger as well.
Market Share, This factor is self-explanatory; a high share was greater than 18 percent; low
was less than or equal to 18 percent. The higher the market share, the less is M/S. (Of course,
the absolute marketing budget may be substantial if you are the market leader. But the MIS
ratio tends to decrease with market share.) The A/M ratio is not strongly affected by market
share, but there is, as one might expect, a net effect on AIS. Again, the higher the market
share, the lower the Advertising/Sales ratio. This is an important finding and indicates that
industrial product managers behave as if there were economies of scale in marketing that
permit decreased expenditures (in a percentage sense) at high shares.
Concentration of Sales
The specific definition of this factor is the percent of product sales purchased by the three
largest customers. High was anything greater than 24 percent; low was less than or equal to
24 percent. As sales concentration increases, the MIS ratio goes down. (There is only so
much you can do with a few customers, so you will tend to have a smaller marketing budget.)
But increasing sales concentration also increases the AIM ratio, so the net effect on the A/S
ratio is small.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
196
Grolvth af Crrstomers- This factor is the percentage increase in the number of customers in
1973, as compared with 1972. Again, this is broken into high (over a 1 percent increase) and
low categories. Customer growth has a positive effect on the MIS ratio and, interestingly,
also on the A/M ratio. Obviously, the effect on AIS is also positive.
In summary, the factors of stage in life cycle, concentration of sales, and market share
primarily affect the Mauke iing/Sales ratio. Purchase frequency, and product quality,
uniqueness, and identification primarily affect the AdvrrtisinglMorketil.~g ratio. The growth
rate in number of customers affects both ratios slightly. (Note that most factors affect either
MIS or AIM, but not both, confirming our decision to split the AIS ratio into two parts .)
Putting these effects together generates budget norms. The project has developed an explicit
model and method for determining these budget norms and ranges. To test the validity of the
relationships, sample data were broken into three groups of equal size (High, Medium, and
Low) using observed AiS ratios. Model equations were used to predict (given values for the
six key factors) what the AIS ratio would be. The two-step procedure (using AIM and M/S
equations) did slightly better than the single equation (for direct AIS estimation) in grouping
products correctly 56 percent of the time.
A random classification would have been correct 33 percent of the time. Thus, the project
has developed an algorithm that does a reasonable job of specifying industry norms for a
product, given values for only the six product-market factors described above. One of the
most interesting and surprising of the results is the set of factors which did not show up as
significant. Neither a product category effect (chemical vs. machinery, say) nor a companyspecific effect was found to be significant in the analysis. This made sense. However,
conventional wisdom suggests that some of the following ought to be important:
- Product margin
- Plant utilization
-User perception of price
-Industry profitability
- Number of competitors
- Number of decision makers in company
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
197
- Directness of distribution channels
16.6 Guidelines for Allocating the Advertising Budget
The results of the previous section provide guidelines to aid in the development of an overall
advertising budget, A similar analysis can be done on how industry has chosen to allocate
those budget dollars among various media. Four advertising categories were used:
1. Space: trade, technical press, and house journals
2. Direct mail: leaflets, brochures, catalogs, and other direct mail pieces
3. Shows: trade shows and industrial flms
4. Promotion: sales promotion
The conceptual model of decision making that is implied here is similar to the one described
in the previous section. The decision maker is viewed as having a checklist of factors (dollar
sales, number of customers, etc.) known only roughly (High-Low); he considers each factor
separately, adding or subtracting each from a fmal budget score.
16.6.1 Allocation of the Advertising Budget
Four factors were found to be most important: dollar value of sales, stage of life cycle,
concentration of sales, and number of customers. The impact of these factors on the various
advertising media is briefly described below. Two of the factors, sales concentration and
number of customers, are intimately related, and were not jointly used in any one analysis.
Sales Volum- Sales volume is negatively related to direct mail advertising, perhaps owing to
saturation effects. The relationship for shows and promotion is positive, possibly indicating
that as sales volume goes up, newer forms of communications are sought. The relationship
with space media is very weak and slightly negative; larger sales reduce the fraction of space
advertising. None of the factors had a strong effect on space. Our interpretation is that space
advertising is a rather constant fraction of advertising budgets (about 41 percent in our
sample), and is not greatly affected by product and market characteristics. But with a larger
sales volume, more money is available for other forms of advertising. Thus, a slight negative
relationship emerges for space.
Stage in Life Cycle- Products late in the life cycle spend proportionally more on direct mail
advertising. (Customers are likely to be better known, and few new customers are sought.)
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
198
There is little effect on shows. On promotion, the effect tends to be negative; i.e., early in the
cycle, greater effort is made in sales promotion. Later on, effort is transferred,
percentagewise at least, to other forms of advertising.
Concentrarion of Sales- Sales concentration is negatively related to shows; if you have few
customers, trade shows are a poor way to reach them. In contrast, a lot of effort will be put
into sales promotion and, as expected, the relationship between sales concentration and
promotion is positive.
Number of Customers- If you have many customers, you are less likely to use direct mail
advertising, since other forms of communication may be more efficient. The factor does not
appear in the analyses of the other advertising media since its complementary factor
(concentration of sales) was felt to be more appropriate. As before, the ADVISOR project did
more than perform the rudimentary analysis given above. A predictive procedure and model
was developed. To test the relationships discovered, sample data on actual advertising
allocations were divided into High, Medium, and Low categories. Product factors were then
used to attempt to predict the actual allocations, The fraction of cases that were properly
classified ranged from 55 percent to 74 percent, compared with an expected random
classification accuracy (given three groups) of 33 percent. Thus, given data on the factors
listed in Table 5, the ADVISOR model can generate reasonable guidance on industry norms
for the manager who wishes to allocate his advertising budget across various media.
16.6.2 An Example of Use
The results of the ADVISOR project can be used in a variety of ways to audit and support
budget decisions. A review of the data base showed that 58 percent of the product budgets
were within guideline limits. The remaining 42 percent outside of the guidelines suggest the
need for deeper analysis. An interactive computer program was developed for the project
participants. The program allows operation of the model in the user's office via a remote
terminal. The program asks the user relevant questions from a reduced form of the project
questionnaire (Exhibit I). The program translates these values into high or low rankings,
depending on the breakpoints developed from the data base. These rankings then go into the
model, which produces budgeting and allocation guidelines (not just a fixed number, but also
the range of most common values).
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
199
The product manager is the mediator in this process. He gathers the input, puts it into
ADVISOR, and gets back the guidelines. He then makes his recommendations as he sees fit,
considering all the information at his disposal. ADVISOR does not tell him what he should
do, only what the typical industry response would be, as represented by the ADVISOR
sample.
16.6.3 Future Work
The ADVISOR study breaks new ground in providing empirical support for industrial
marketing decision making. There is no claim that these results are a "final" answer. The data
base was small, as was the number of companies. In addition, no study of practice can
develop results which can unambiguously be adopted for use - users must be convinced that
industry's collective wisdom is valid for their particular problem. Thus, a follow-up study has
several alternatives for further work in this area. One is to extend the data base to test and
improve the models developed. Many of the results would be more definitive if confirmed on
a larger sample. A larger data base would also allow testing for several factors that are
currently not significant (see the section on Factors and Budgeting). The exclusion of these
factors could be caused by one of several reasons:
1. They are actually significant, but are not strong enough to show up in this limited
sample.
2. Their effects are accounted for by combinations of other factors.
3. Decision makers do not in fact consider these factors.
16.7 Types of Direct Markets for Special Forest Products
There are many kinds of direct markets that you can access. Access to them will be based on
your willingness to spend the time and develop the skills necessary to make your efforts
successful. Why the growth of direct marketing opportunities?
1. Increase in populations.
2. The demand for safer high quality products.
3. The desire of the buyer to come face to face with the producer.
4. Customers asking for more information about how the products are produced.
5. Customers wishing help on getting the best out of the products they buy.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
200
6. Public has less access to the land that produces there commodities.
7. Life styles value the experiences of harvesting your own products.
8. Forest land owners looking for new sources of yearly cash.
9. Forest land owners looking at the total forest not just the trees.
10. Access to inexpensive insurance protection for land owners hosting the public.
11. Ease of promotion through internet, radio, weekly newspapers local access TV.
Some of the most successful direct marketing efforts are “In The Forest” harvesting
programs. In The Forest harvesting is patterned after the choose and cut Christmas trees and
U-pick fresh fruit and berries approach. You market the benefits of having controlled access
to a forest where the customer has free choice of products. This form of direct marketing is
most successful when you target the public that wants to know exactly what they are getting.
Products most suited to this form of marketing are: mushrooms, vegetables, fruit, nuts,
berries, root crops, herbs, flowers, medicinals and floral greenery. Target customers are:
personal use, home canneries, organic, societies like mycological, culinary or native plant.
Requirements: Controlled access to your land, time, within one hour of a population center,
knowledge of plants, ability to work with diverse customers needs, insurance, picking
supplies, restrooms.
C Farmers Markets - often they are looking for new ideas that give them longer season or
more diverse products. Space is often limited and you will need to join an association. Road
side marketing - This where you or you and a few other NIP landowners develop a retail site
that focuses on fresh and local processed produce and crafts. Wild product can be
supplemented with nursery grown or greenhouse grown.
C Place of Business Sales - To develop this program will take more effort on your part and
often encounter more government regulations. In place of business sales you go directly to
where the customers work. In the company parking lot you set up a mini-farmers market
stand or you use your specially designed truck to give the feeling of a roadside market stand.
The advantage is that you have large numbers of people in one place. The major
disadvantage is you need the company’s approval.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
201
C Freeway Rest Area or Park and Rides – You use a similar approach as with the place of
business sales. Here you will need to convince the transportation people that your presence
will help with security, promote more use, and give users access to local produced products.
Some state transportation organizations are looking for partners to help manage rest areas.
C Pubic Campgrounds and RV Parks - This is similar to mini-farmers market stand. Here
you provide users with fresh and processed local products. You will need a permit or license
to sell at these locations. Some state and Federal campsites are looking for local individuals
or groups to take over the campgrounds to help them cut the cost of keeping them open.
C Festivals, Garden Shows, Trade Events – Here you sell products to the participants. This
could be similar to the mobile mini-farmers markets or could be a booth selling finished
products. Most home and garden shows are looking for unique vendors of plants and plant
products. Sales of flowering shrub cuttings at spring garden shows would be great.
C County or state fairs - This is just another location where you can display your product in
front of large numbers of people. Local fairs will often permit groups of producers (forestry
associations) to display products and do public education. Some permit sales but ask for a fee.
Products most suited to forest markets include family processed; jams, juices, floral greenery,
woody plant craft supplies, flowers, fruit leathers, trail mixes, potpourri, wild bird seed mixes,
Medicinals, bread mixes, pet health supplies, fresh; mushrooms, berries, vegetables, fruit,
medicinals, herbs, spices, plant materials, landscape plants, Christmas greenery, flowers and
wood working supplies.
Target Customers - individuals for personal use, small-scale crafters, and small restaurants
special medical professionals will often use or direct their clients to direct forest markets.
They include natualpathic, homopathic, nutritionist, allergist, aromotherpy and chiropractic.
Requirements - market site (your own or community), permission from highway authority to
set up roadside operations, food handling permits, access to certified food processing, cool
storage, packaging materials, advertising, business permits, knowledge of plants, knowledge
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
202
of after harvest care of plants, Time, ability to work with difficult and interesting customers,
display equipment, transportation source (truck), business skills. If you go into a cooperative
effort with other NIPF landowners then all partners need the skill to work together to develop
contracts, guidelines, agreements, permits, work schedules, task assignments and business
plans.
Forest Direct Wholesale
With this form of direct marketing you will be selling raw materials or partially finished
products. Direct Wholesale can take the form of a delivery route to business.
Products - mushrooms, vegetables, fruits, berries, floral greenery, preserved craft materials,
medicinals, herbs, and seeds.
Target Customers - Small groceries, specialty food stores, ethnic grocery stores, bakeries,
restaurants, florist, coffee shops, deli.
Requirements - delivery vehicle, consistent supply, high quality, cool storage, time, business
license and good people skills to make the first contacts and get agreements. With all the
direct marketing programs you will receive more financial returns than with wholesale
commodity marketing. To gain these higher returns you will be dedicating more time and
need additional skills besides the ones necessary to manage the forest sustainably. Not
everyone is suited for these kinds of marketing efforts. That is why I expect to see many
groups formed that can take advantage of the skill of each of the members. It is quite possible
that existing associations (such as those for farm forestry or Christmas trees) will take the
lead but most likely it will be someone with an idea and the willpower to organize and
develop these direct markets for the benefit of many.
Questions To Answer When Doing A Personal Marketing Survey
C What form do customers want their supplies in - fresh, dried, preserved, canned, bulk,
specialty wrapped.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
203
C Purchasing schedule for products - time of the year, month, week or day that is best for
them.
C Approximate volume customers will need - one pound a day or 1000 pound a month.
C How do customers take deliveries - at the shop, from a company regional warehouse,
broker.
C How do customers pay for product - cash upon delivery, once a month, from a regional
office,
credit card.
C Special needs - quality, size, color, quantity, shape, % active ingredients.
C Special packaging needs - must have their label, bar code, in recycled containers, water
tight containers.
C Labeling requirements - language needs, color, contact information, ingredients,
nutritional.
C Legal arrangements - Contracts, permits, consignment orders, purchase order.
C Who manages displays - Store, provider (you)
C Penalties or deductions - poor quality, late delivery,
C How do they want to try new products - in the store display, at your site, product sent to
regional office.
C Do farmers markets and craft show have membership fees.
C Must your products be inspected - by whom, where, when, cost.
Local Resources to Assist in Developing a Direct Marketing Program
C The Chamber of Commerce - they hold monthly meetings and produce a newsletter.
This puts them in a position of hearing people discuss market needs and potentials. Always
looking for new members.
C County Extension Offices - They are windows to the Land-grant university research
system.
Ask them for population statistics. These statistics often will show income levels, age,
education, race and other significant facts. This will help you get an idea of who might be
your customers.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
204
C Community Economic Development Centers - Often geared to larger business but I
would ask them what information they had on new business and marketing trends.
C Community Colleges - They will have specialized classes for the person wishing to start a
new business. This is where you can get the actual skills necessary to write a business plan,
organize a home business or develop a marketing plan.
C Libraries - They are not just books. If you need computer access they often have free time
in half hour blocks. This is a great way to find out what is happening in the regional and
world markets.
C You computer -use it to do searches on specify topics like; herbs, medicinal, crafts,
florals, etc.
C Associations - Farmers market, restaurant, retail merchant, Christmas tree, Direct Market,
Craft, Cooking, ethnic. They often have newsletters and staff that can give you assistance.
You want to have them help you gain access to their members.
C Local government regulators – Health department will issue permits and inspect you if
you produce food products. Business licenses may be needed if you wish to do direct sales
out of your home or vendors license to sell directly to other business.
Working with a Harvester
For those land owners who do not want to harvest the SFP produced in their forest, working with
commercial harvesters is a way to take advantage of some the SFP potentials on their lands.
What are the benefits, problems and rules for working with a harvester?
Benefits
C Lands can be producing additional products between timber harvests.
C You generate some income ($4-$12 per acre per year) with little effort.
C You can get forest improvement activities performed by harvester instead of them paying
you cash. Pruning, thinning, planting, fertilizing, trash removal, road ditch maintenance.
C You have someone watching out for your property protection if you do not live there.
Security, vandalism, fire control.
C You gain knowledge of other values and products that your forest can produce.
Problems
C The major problem occurs when the landowner and the harvester do not make clear what their needs are.
C No contract or poorly understood contract.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
205
C Misunderstandings about what and how much will be harvested.
C Unclear payment schedules.
C Access is limited by harvesters activity.
C Harvest is limited by owner’s forestry practices.
C Damage to non-target plants or natural resources.
C Stewardship Contracts not fulfilled. Harvester does not do pruning, thinning, fertilizing.
Rules for success
C Get references of people that the harvesters have worked for in the past or places they have
sold product to.
C Develop a complete lease that is reviewed by a lawyer and consulting forester or public
forester.
C Clearly defines the property boundaries. Both on the ground and on a photo or map
C Clearly defines the harvest areas. Both on the ground and on a photo or map.
C Clearly designate harvest times. August through April for floral products in Pacific
Northwest.
C Ask for a sample harvest site to be developed. Have the harvester pick the site as they would to see
if this fits your needs.
C Determine payments. A good rule of thumb is the landowner can only expect 10% of what
the harvester is getting. (e.g., harvester get .42 per pound for salal. They harvest 50 pounds
per acre per year. The land owner can expect 4 cents a pound for 50 pounds or $2.00/acre/yr).
C Determine how volume will be certified. Slip from buyer showing poundage sold is best.
Weigh scale is good for large volumes.
C Start with a 2-year lease with the option to increase after review.
C Develop a stewardship plan for your forest that includes SFP.
C Use stewardship plan to obtain work instead of cash from harvesters. This promotes longterm
commitment on the part of both parties and develops trust.
C Set penalty for damage to non-target plants, roads, fences, equipment etc.
C Harvesters need to have an insurance policy to protect you. Most small ones will not have
this ability. You will need to determine if you want this protection.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
206
C Determine if you will have one harvester taking all products or many harvesters taking
specific products. Some harvest programs are not compatible.
C Define forest sanitation requirements. Use of porta toilets, trenches.
C Define fire safety rules and equipment needs.
C Define personal safety requirements. Hard hats, gloves.
C Can the harvester sub-lease the property to other harvesters.
The basic contract should included
C name, address, phone number, social security number, drivers license , business license of
harvesters
C name, address, phone number , social security number, drives licenses, business license ofowners.
C legal property description. Range, township, property name - farm name
C products to be harvested - salal, evergreen huckleberry, sword fern, do not just say floral products
C amounts to be harvested - pounds per acre or some other unit of measure.
C duration of lease - start and stop dates
C means of payment - cash or work performed
C penalties for non performance
C restrictions
C equipment
C insurance
C records kept - who sold to could be placed here, weight slips.
This may seem like a lot of effort for simple SFP harvesting operations. The fact of the
matter is that SFP may seem small time now but as the demands for new and more products
develop so will the need to be more business-like in our contacts. As more and more federal
and public lands are closed to harvesters, the value of the NIPF will increase. The NIPF lands
offer harvesters security and long-term contracts for higher quality products than is offered
on larger commercial and public timber lands.
Copyright © 2009 Rift Valley University College
Adama
Industrial Marketing
207