INDUSTRIAL MARKETING

Business to Business Marketing Or Organizational Marketing

Organizations Include

Commercial enterprises Govt. enterprises Institutional customers Cooperative societies Importance is to create Value for the buying organization, with focus on products and services- Marketing Perspective

INDUSTRIAL MARKETING
Characteristics of Industrial Marketing: Markets are relatively concentrated and channels of distribution are shorter Buyers are well informed and are highly organized Buyers are sopisticated in purchasing techniques Multiple influencers contribute different points of view to purchase decision

Examples

Industrial Marketing Defined:

It consists of all activities involved in the marketing of products 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

Industrial vs Consumer Marketing

Industrial Markets Market Structure
Geographically concentrated Relatively fewer buyers Oligopolistic competition

Consumer Markets
Geographically dispersed Mass Markets Monopolistic competition

Products

Technical complexity Customized Service delivery and availability important Functional Involvement Rational motives predominate Technical expertise Interpersonal relationships

Standardized Service delivery and availability not so important

Buying Behaviour

Family involvement Social/psychological motives predominates Less technical expertise Nonpersonal relationships

Industrial vs Consumer Marketing

Industrial Markets Decision Making Service Characteristics Channels Promotion Price
Distinct Observable stages Service availability and timely delivery is very important Shorter and Direct Emphasis on personal selling Competitive bidding, negotiation on complex purchases List price on standard items

Consumer Markets
Unobservable mental Stages Service availability and timely delivery is somewhat important Indirect and Multiple linkages Emphasis on advertising List price

Channel Distribution-B2B
Manufacturer

Sales Force

Manufacturer's Representative

Distributor/Dealer Distributor/Dealer

Distributor/Dealer

Customers Customers

Customers

Channel Distribution-B2C
Manufacturer Company's Sales Force Wholesaler/ Stockist Manufacturer's Representative/ Agents Wholesaler/ Stockist

Retailer

Retailer

Retailer

Consumer

Consumer

Consumer

Economics of Demand

means the demand is derived (or caused by, or linked to) demand for a consumer item. The Demand is derived from the expectations of the actions of ultimate consumers. Example1: demand for lithium is derived from the demand for lithium batteries, which is in turn derived from 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 is demanded to weave cloth because cloth is demanded to make coats .

1. Derived Demand

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.

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?

Industrial Demand Contd..

Cross Elasticity of Demand The responsiveness of the sales of one product to a price 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 for one another is an important issue in industrial Marketing Larger the number of substitutes, greater the cross elasticity of demand

Resellers Market

A market in which customers buy products in order to resell them as wholesalers or retailers. Resellers may restrict their purchases to one product or brand or offer a variety of products and brands.

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 they are big in size and have centralized purchasing. Product characteristics : Specific private labels. Attributes such as availability and maintenance play a lead role in product success or failure. Buyer characteristics : Technical evaluation / rational process rather than social or psychological criteria.

Channel Characteristics- Direct service by the manufacturer. Price characteristics : Very hard on negotiation, if they get better price, it straight goes to profits-gross profit. Promotional characteristics: personal selling have a great emphasis-pull strategy Economics of demand :when whole sale and retail stocks of consumer goods are relatively high in the face of declining consumer demand ,resellers naturally reduce their purchase from manufacturers.

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 sellerRelationship Marketing.

A Need to Understand Industrial Markets-An Effective Marketing plan

Types of Industrial Customers Commercial Enterprise Govt. Agencies Institutional Customers Co-Operative Societies

Commercial Enterprise

Industrial Dealers & Distributors Essentially their objective is to trade on the items. OEM These consumers use the products as component of their own output.. ( Maruti as a user of headlights )other e.g.; steel, cement, batteries, generators, plastic, chemicals, etc Users ( consumers ) They are the final consumers of the product. Example: Lubricants, coal, paper, hand tools, management consulting services etc.

Government Agencies

Standard procurement processes Registration, 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

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, large orders, less of technical evaluation, non specialist buyers.

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 product directly Capital Items-goods that affect the cost structure of the firm Supplies and Services-goods that facilitate the firms operation.

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 marketing strategy

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 return on investment, credit facilities(payment terms)

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

Purchasing Orientations

Business buyers choose one of the three Purchasing Orientations:

Buying Orientation Procurement Orientation Supply Chain Management Orientation

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 multi

Gain Power-Tactics used-Commoditization and

sourcing Commoditization- buyers argue that there is no difference between various suppliers. Product is a commodity and price is only negotiable.

Risk- Buyers avoid risk

To reduce penalization for making a mistake Follow standard purchase procedure Depend on suppliers who have proved their performance earlier.

Procurement Orientation

The purchasing firm has a strategic, long term 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

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 Buyers are involved in describing the specifications of the product and ensuring quality.

Working closely with other functional areas

Case let
In the late 90s the marketing head of the precision tube manufacturer discussed with this regional managers the draft marketing plan for the current 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 a particular 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 economic environment and the needs of the bicycle market.

Case Analysis

The branch manager had not communicated with the customers 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 environmental conditions, 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

Competitors

Understanding competition is as important as understanding 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.

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

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.

Technological-Technological developments have major impact on the industries like telecommunication, computers and semiconductors, and even with the start of new industries 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 those around the world.

The major functions of the Govt. are to protect the consumers, companies and the society from unfair practices and guide them towards growth, and they 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.

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 or hinder 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.

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 its operations 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 and decides 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 Industrial environment

Important 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

Independent Strategies

These are independent efforts of the organization to 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

Cooperative Strategies

An industrial firm co operates with other firms, industries, groups in the environment to protect the industries from unfair means

Ex: Industry associations like CII and FICCI

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 control of 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.