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INDUSTRIAL MARKETINGINDUSTRIAL MARKETING

Business to Business MarketingOr

Organizational Marketing

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Organizations Include

Commercial enterprises Govt. enterprises Institutional customers

Cooperative societies

Importance is to create Value for the buying

organization, with focus on products andservices- Marketing Perspective

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INDUSTRIAL MARKETING

Characteristics of Industrial Marketing: Markets are relatively concentrated and

channels of distribution are shorter

Buyers are well informed and are highlyorganized Buyers are sopisticated in purchasing

techniques Multiple influencers contribute different points

of view to purchase decision

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Examples

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Industrial Marketing Defined:

It consists of all activities involved in the marketing ofproducts and services to the organizations that use

products and services in the production of consumer or

industrial goods and services and to facilitate the

operation of their enterprises.

Human Activity directed towards satisfying the wants

and needs of the organizations through: Product or Service Exchange Information Exchange Financial Exchange

Social Exchange

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Industrial vs Consumer Marketing

Industrial Markets Consumer Markets

MarketStructure

Geographically concentratedRelatively fewer buyersOligopolistic competition

Geographically dispersedMass MarketsMonopolistic competition

Products Technical complexityCustomizedService delivery and availabilityimportant

StandardizedService delivery and availabinot so important

BuyingBehaviourFunctional InvolvementRational motives predominateTechnical expertiseInterpersonal relationships

Family involvementSocial/psychological motivespredominatesLess technical expertiseNonpersonal relationships

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Industrial vs Consumer Marketing

Industrial Markets Consumer Markets

Decision Making Distinct Observablestages

Unobservable mentalStages

ServiceCharacteristics

Service availability andtimely delivery is veryimportant

Service availability and timdelivery is somewhatimportant

Channels Shorter and Direct Indirect and Multiplelinkages

Promotion Emphasis on personalselling

Emphasis on advertising

Price Competitive bidding,negotiation on complexpurchasesList price on standarditems

List price

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Channel Distribution-B2B

Sales ForceManufacturer'sRepresentative

Manufacturer

Distributor/Dealer Distributor/Dealer

Customers

Distributor/Dealer

CustomersCustomers

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Channel Distribution-B2C

Company'sSales Force

Manufacturer'sRepresentative/

Agents

Manufacturer

Retailer

Wholesaler/Stockist

Consumer

Retailer

Consumer Consumer

Wholesaler/Stockist

RetailerRetailer

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Economics of Demand

1. Derived Demand means the demand is derived (or caused by, orlinked to) demand for a consumer item.

The Demand is derived from the expectations of theactions of ultimate consumers.

Example1: demand for lithium is derived from thedemand for lithium batteries, which is in turn derivedfrom the demand for cell phones

Example 2: The demand for wool does not exist in and of

itself. wool is demanded to spin yarn because yarn isdemanded to weave cloth because cloth is demandedto make coats .

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Example-3

A company manufacturing and marketing

precision steel tubes to bicycle, a

manufacturer is doing business marketing.

Industrial marketer of the precision steel tube

company must understand the needs of

bicycle manufacturers such as Hero Cycle

and Atlas Cycle.

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Industrial Demand Contd..

Joint Demand

It occurs when one product requires the existence of

other to be useful.

Example 1: Production of Bread requires flour, yeast,

eggs, salt, sugar and preservatives.

If for some reason any of these ingredients are not

obtained, the purchase of other ingredients are

discontinued.

Example 2:Why are printers sold very cheaply and ink

cartridges for printers very expensive?

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Industrial Demand Contd..

Cross Elasticity of Demand

The responsiveness of the sales of one product to aprice change in another, has a marketing impact.

Example: The Quantity of steel demanded is related to

the price of the close substitute, aluminum.

The degree to which resources are substitutable forone another is an important issue in industrial

MarketingLarger the number of substitutes, greater the crosselasticity of demand

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Resellers Market

A market in which customers buy products

in order to resell them as wholesalers or

retailers.

Resellers may restrict their purchases to oneproduct or brand or offer a variety of

products and brands.

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A big reseller can be treated as a

Industrial Buyer-Characteristics

Purchase : Not for consumption, but for business.

Market characteristics : Very few of them and theyare big in size and have centralized purchasing.

Product characteristics : Specific private labels.Attributes such as availability and maintenance play alead role in product success or failure.

Buyer characteristics : Technical evaluation / rationalprocess rather than social or psychological criteria.

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Channel Characteristics- Direct service by themanufacturer.

Price characteristics : Very hard on negotiation, ifthey get better price, it straight goes to profits-grossprofit.

Promotional characteristics: personal selling have agreat emphasis-pull strategy

Economics of demand :when whole sale and retailstocks of consumer goods are relatively high in theface of declining consumer demand ,resellers naturallyreduce their purchase from manufacturers.

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Industrial Marketing Concept

Key task is to identify the needs of the target

market and adapt the organizations product

and service to satisfy the needs more

effectively than the competitors. Key emphasis on the formation of a

partnership between buyer and seller-

Relationship Marketing.

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A Need to Understand Industrial

Markets-An Effective

Marketing plan

Types of Industrial Customers

Commercial EnterpriseGovt. Agencies

Institutional Customers

Co-Operative Societies

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Commercial Enterprise

Industrial Dealers & Distributors Essentially theirobjective is to trade on the items.

OEM These consumers use the products ascomponent of their own output.. ( Maruti as a user ofheadlights )other e.g.; steel, cement, batteries,generators, plastic, chemicals, etc

Users ( consumers ) They are the final consumersof the product. Example: Lubricants, coal, paper, handtools, management consulting services etc.

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Government Agencies

Standard procurement processesRegistration, Tender,

Public accountability everything by rule

books as far as documentation.Examples: Dept. of Defense buying trucks from GM,Dept. of Revenue buying computers, Paper industry

buying paper, and legal services

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Institutional Customers

Tisco giving its workers, watches as Diwali gifts.

XIM-B purchasing air-conditioners for faculty offices.

DSP cooperative buying suitcases for their members.

Characteristics : Normally one time deals, largeorders, less of technical evaluation, non specialist

buyers.

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Classification of Industrial Products

and Services

Based on how products or services enter the

production process, and their relative costs.

Materials and Parts-Goods that enter the productdirectly

Capital Items-goods that affect the cost structure of

the firm

Supplies and Services-goods that facilitate the firms

operation.

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Materials and Parts

Marketing Implications: Most components are standardized and purchased

in large quantities.

Some components are custom made-emphasis on

direct selling. Trade advertising and personal contact.

While for Component parts, sellers must strive to

create product differentiation or sell on price basis.

Consumer advertising-an important part of marketingstrategy

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Capitals Items

They are treated as a depreciating expense.Marketing Implications Strategy depend on product

classification(installation or accessory.

Due to extensive interaction with various depts.

Direct selling is utilized.

Negotiations take considerable time on factors

like price, delivery period, installation time returnon investment, credit facilities(payment terms)

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Supplies and Services

Marketing Implications: Direct Marketing-though not cost effective for

suppliers, often limit to major resellers and large

users

Purchasing agents dominate

Key success lies in the suppliers reputation for

dependability

Advertising-include catalogues and trade journals

Word of mouth reputation-consultative in nature

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Purchasing Orientations

Business buyers choose one of the threePurchasing Orientations:

Buying Orientation Procurement Orientation

Supply Chain Management Orientation

O

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Buying Orientation

The purchasing firm has a short term focus- they

follow: Lowest price usually selects the lowest price supplier

Quality and availability are the factors considered

Negotiation style used is I win-you lose

Gain Power-Tactics used-Commoditization and multisourcing

Commoditization- buyers argue that there is no differencebetween various suppliers. Product is a commodity and

price is only negotiable.

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Risk- Buyers avoid risk To reduce penalization for making a mistake

Follow standard purchase procedure

Depend on suppliers who have proved their

performance earlier.

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Procurement Orientation

The purchasing firm has a strategic, longterm focus and is proactive

Buyers seek both quality improvement and

cost reduction It adopts- a collaborative relationship with major suppliers

Working closely with other functional areas

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Collaborative Relationship with Major Suppliers

Strive for quality improvements and cost reduction Integrative negotiation-assumed that resources can

be expanded to the benefit of both buyer and

supplier

Working closely with other functional areas

Buyers are involved in describing the specifications

of the product and ensuring quality.

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Case let

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Case let

In the late 90s the marketing head of the precision tube manufacturer

discussed with this regional managers the draft marketing plan for thecurrent year.

After evaluating various market segments, they decided to focus their

marketing efforts on 2 out of 6 segments. These were bicycle and

automobile. However, within 2 months of finalization of the marketing

plan, the branch manager reported recessionary trends in the bicycle

market segment as the main reason for the decline is sales in aparticular region. The marketing head rushed to talk to major bicycle

manufacturer such as Hero cycles, Avon cycles and Atlas cycles. The

recessionary trends had been noticed in the domestic and export

markets of bicycle industry for the past 6 months, but the particular

branch was not aware of the changes taking place in the economicenvironment and the needs of the bicycle market.

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Case Analysis

The branch manager had not communicated with thecustomers marketing, production and finance dept.

Interacting with only purchase dept, the branch manager

and his sales persons could not understand the changes

taking place in the customers needs and environmentalconditions, resulting in drop in sales in bicycle segment.

Streamlining the competitor information help marketing

manager to take effective decision on pricing, product

development, or improvement, sales force and target

markets

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Competitors

Understanding competition is as important asunderstanding customers.

Effective in building strategy and achieving the

organizational objectives.

Competitors information influence the decisions on

the various elements of marketing strategy like

target market segments, pricing, product mix and

distribution.

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Macro Environmental Factors

Economic- Monitoring the changes in the economic

environment important in both domestic and

international market.

Some factors that need to be monitored are:

Business cycle Interest rates

Currency rates

Fiscal policies

Industrial production Investment

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Illustration

During the recessionary period in the Indian

economy, the demand for the capital goods,

steel and aluminum fell much more than

other goods such as computer software,paper, chemical and pharmaceutical. Hence

the marketers need to be aware of the

impact of the demand recession in their

market segments.

T h l i l T h l i l d l t h

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Technological-Technological developments have

major impact on the industries like

telecommunication, computers and

semiconductors, and even with the start of newindustries may affect the existing industries

To respond effectively to the technological

changes, there should be a good rapport among

marketing, R&D and production.

Government, Political and Legal-with

globalization, the marketers have to understand

the policies and rules of their Govt. and thosearound the world.

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The major functions of the Govt. are to protect

the consumers, companies and the society

from unfair practices and guide them towards growth, andthey are through political and legal.

The industry heads have an association with

Confederation of Indian Industries(CII) and Federation

of Indian Chamber of Commerce and Industries(FICCI)and can influence the governmental actions by

discussion with the concerned ministry.

Political environment includes the stability of the govt. and

their policies towards business and international trade

restrictions.

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Indian govt. has enacted Monopolies and Restrictive

Trade Practices(MRTP) to protect companies from

unfair business practices.

Public- Public groups like press, institutional

investors, shareholders, banks public interest

groups and general public

Press is capable of publishing news that can help orhinder the reputation and business of an industry

Ex: Satyam faced a negative publicity when the

companys senior executive were arrested for

committing a fraud and inflating profits.

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Ex: When an industrial accident occurred at Union

Carbide in Bhopal due to the leakage of the deadly

methyl isocyanate, the company had to wind up itsoperations in India and compensate to the victims of

the gas tragedy.

Cultural and Social- If an industrial firm decides to

have a joint venture with a foreign company anddecides to set up a factory abroad, they need to

study the social and cultural aspects of those

countries to have a better compatibility.

Strategies for managing

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g g g

Industrial environmentImportant factors towards the success of the industrial firms

Collecting information about the customers and competitors

Analyzing the trade and govt. publications

Carrying out marketing research and economic forecast

These factors help the firms to

Understand change in the customer needs and demands Monitor competitors actions and strategies

Identify technological innovations

Identify the changes taking place in the govt. political and legal

factors

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Independent Strategies

These are independent efforts of the organizationto use its strengths and weakness to their

maximum benefit.

To overcome the competitor strategy of pricing.

To meet the public concern of the ecological

environment.

To take care of the political and legal regulations

To design an effective marketing plan

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Cooperative Strategies

An industrial firm co operates with otherfirms, industries, groups in the environment

to protect the industries from unfair means Ex: Industry associations like CII and FICCI

Strategic Planning

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Strategic Planning This plan is carried out by identifying the long term products and

markets, based on the forecasts of the external environment.

Backward Integration- The firm seeks the ownership or

control on its systems. Ex: A co. may set up an manufacturing

unit of its raw material, where earlier it used to buy from its

suppliers.

Forward Integration- The firm seeks the ownership or controlof its distribution system. Ex: A co. sets up a warehouse facility

in place of its agents.

Horizontal Integration- The firm seeks the ownership or

control of some of its competitors Ex: A co. acquires

management control on some of its competing firms.