UNDERSTANDING INDUSTRIAL MARKETING

Submitted by MOHITE GOKHALE CHETAN KANOJIA ANKIT VEDA ASHISH GHANGHORIYA

Various Classes of Consumer and Industrial Goods and Services

Goods and Services
Consumer Goods Consumer Services Industrial Goods Industrial Services
Convenience Goods Shopping Goods Specialty Services Convenience Services

Production Goods
materials nuts, bolts

Support Services
accessory equipment tools, computers installations

eg. Mac's Milk

eg. clothing

eg. banking

eg. fast foods

raw material grain, steel

component parts

eg. newspaper

eg. groceries

eg. travel

eg. circuit board

eg. buildings

eg. wiring harness

Industrial Market Vs Consumer Market Market Structure

Understanding Industrial markets

Industrial Market

Consumer Markets

Geographically concentrated Fewer buyers (relatively) Big buyers ( small number of large buyers)

Geographically dispersed Mass markets Free Market (large number of buyers)

Industrial Market Vs Consumer Market Buyer Behavior

Understanding Industrial markets

Industrial Market *Evaluated for functionality rational/task motive to buying. *Purchasers are experts & focus is more on performance/service. *Higher interaction with the supplier. * Formal processes.

Consumer Market *Social / psychological factors are important. *Family involvement & focus more on product per se. *Nor personal relationship with the supplier. * Less of formal processes.

Industrial Market Vs Consumer Market Buyer Behavior - Example

Understanding Industrial markets

Industrial Buyer for AC *Evaluated for functionality ( evaluation by tech committee) *Purchase through tendering Process & brand less important. *Discuss technical details, price negotiation etc. *Formal processes of documentation etc.

Customer for AC Should look good & match the dcor. *Want to buy LG only (because neighbor has) *Go to a shop, select, negotiate pay & forget. * Less of formal processes.

Industrial Market Vs Consumer Market Products

Understanding Industrial markets

Industrial Market

Customer Markets * Standardized. *. Service, delivery and availability is somewhat important.

* Technical complexity and customized. * Service, delivery and availability is very important.

Industrial Market Vs Consumer Market Products - Example

Samsonite Outsourcing soft luggage * Each component is as per Samsonite specification. * Service, delivery and availability is very important as it affects supply chain of the company.

Understanding Industrial markets

Customer for Samsonite soft Luggage * Standardized product range to select from. *. Service, delivery and availability is somewhat important, can wait for a Specific color / size.

Industrial Market Vs Consumer Market Decision making

Understanding Industrial markets

Industrial Market

Consumer Market

* Distinct observable stages

* Multiple influencers and decision makers.

* Unobservable mental stages, not very clear pattern.

Industrial Market Vs Consumer Market Decision making - Example

Understanding Industrial markets

Industrial Buyer Soaps for Workers canteen

Customer

* Need identification, selection, procurement etc. * O.K. from the workers union, agreement by contractor, purchase departments negotiation & placing order.

* Low involvement buying and impulse purchase (the exact choice criteria difficult to identify) & varies from situation to situation.

Industrial Market Vs Consumer Market Distribution channel characteristics

Understanding Industrial markets

Industrial Markets * Shorter, more direct & fewer linkages between seller and buyers.

Consumer Markets * Indirect and multiple linkages

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Understanding Industrial Market Vs Consumer Market Industrial Distribution channel characteristics -Example markets

Hotel buying Cold Drinks * Supplied directly by the distributor, may even be serviced by company employee or a regular basis.

Customer for Cold drinks * Normal distribution style of distributor to retailer to customer. Virtually no interaction with company.

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Industrial Market Vs Consumer Market Promotion

Understanding Industrial markets

Industrial Markets * Emphasis on personal selling or one to one dealing. Example : Selling fridges with new technology. You go and deal with Coke or Pepsi H.O.

Consumer Markets * Emphasis on mass market promotion. Example : You plan an adv. campaign to highlight decals and generate customer flow.

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Industrial Market Vs Consumer Market Pricing

Understanding Industrial markets

Industrial Markets * Competitive bidding & multistage negotiation. * Sharing of cost data & budgeting of acceptable profits in many cases.

Consumer Markets * Normally MRP & MOP * Concept of list price & its implementation.

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Industrial Market Vs Consumer Market Pricing - Example

Understanding Industrial markets

Industrial (CSD purchase Of Rum )

Consumer Markets for Rum

* Competitive bidding & selection on basis of L1.

* Sharing of production and overhead cost data with CSD and price based on cost + margin.

* Normally MRP & MOP

* Concept of list price & its implementation in the trade.

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Understanding A big reseller can be treated as a Industrial Buyer Industrial markets Example: Shoppers Stop / Ebony / Kids Kemp for an apparel manufacturer. 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.

Buyer characteristics : Technical evaluation / rational process / multiple buying influencers.
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Understanding A big reseller can be treated as a Industrial Buyer Industrial markets Example: Shoppers Stop / Ebony / Kids Kemp for an apparel manufacturer. Channel characteristics : Direct service by the manufacturer. Price characteristics : Very hard on negotiation, if they get better price, it straight goes to profits.

Economics of demand : Based on actual consumer off-take of the products and hence derived. If one design clicks, it is stocked more in anticipation.
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Organizational Customer Type of purchasing organization

Understanding Industrial markets

Commercial Enterprise 1. Industrial Dealers & Distributors Essentially their objective

is to trade on the items. ( relatively narrow scope ).

2. OEM (An original equipment manufacturer, or OEM, manufactures

products or components that are purchased by a company and retailed under that purchasing company's brand name). These consumers use the products as component of their own output. The stakes are high as their final output depends on your product. ( Maruti as a user of headlights ). In emergency, they can make the vehicle & fit headlights later.

3.Users ( consumers ) They are the final consumers of the product and their total operation depends on you. Example: Eastern Coal Fields for Tisco. No coal => No Steel.

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Organizational Customer Type of purchasing organization Government agency

Understanding Industrial markets

1. Standard procurement processes Registration, Tender, L1 etc. 2. Public accountability everything by rule books as far as documentation.

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Organizational Customer Type of purchasing organization Institutions ( Private & Public Sector )

Understanding Industrial markets

1. Tisco giving its workers, watches as Diwali gifts. 2. XIM-B purchasing air-conditioners for faculty offices. 3. DSP cooperative buying suitcases for their members. Characteristics : Normally one time deals, large orders, less of technical evaluation, non specialist buyers.

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Organizational Customer Based on Type of products purchased

Understanding Industrial markets

Materials and parts

1. Raw materials ( natural gas, HDPE etc.) 2. Manufactured materials ( copper wire, steel sheets ) 3. Component parts ( switches, motors or customized gears ) Characteristics : Normally large custom made orders are sold By the manufacturers & standard products by industrial. distributors.

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Organizational Customer Based on Type of products purchased

Understanding Industrial markets

Capital Items
1. Installations ( buildings, computers, machinery etc.) 2. Accessories ( PC, Office furniture) Characteristics: Normally major installations, because of extensive interaction required and long negotiation time required, the manufacturers deal directly with the customer & accessories are sold by industrial. distributors.

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Organizational Customer Based on Type of products purchased

Understanding Industrial markets

Supplies and services

1. Supplies ( soaps, stationery etc.) 2. Services ( maintenance, canteen etc.) Characteristics : Normally industrial distributors are used & services are provided by the individual contractors ).

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Characteristics of Organizational Procurement Multiple Influences

Understanding Industrial markets

Example : Procurement of Injection Moulding Machine

1. 2. 3. 4. 5. R & D : Designs the moulds which are to be used. Production : Output levels, installation needs. HRD : Manpower implications, skills to be imparted. Quality Assurance : Responsible for output consistency. Maintenance : Ease of operation, availability of spares, AMC etc. 6. Finance : Long & short term financial implication. 7. Purchase department : Price, payment terms, delivery terms.
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Characteristics of Organizational Procurement Technical sophistication

Understanding Industrial markets

Example : Procurement of Rutile for paints

1. Material Planning : Exact forecasting of demand, factoring of international prices Vs domestic prices, foreign exchange implication, inventory carrying cost etc. 2. Supplier rating : Based on the the quality reports, delivery records , price factor, payment terms etc. the suppliers are rated and 3. Economic order quantity : The quantity to order, frequency of ordering etc. are planned so as to optimize the profitability of the organization.
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Characteristics of Organizational Procurement Technical sophistication

Understanding Industrial markets

Example : Procurement of Rutile for paints

4. Value Analysis : The option of using a lesser quantity of costly Rutile for getting the same output level by change of formulation is explored. In absence of the raw materials, whether any alternative can be used is worked out. How the option of airlifting impact cost etc. is worked out before decision making.

Concept of optimization w.r.t constraints

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Characteristics of Organizational Procurement Government purchases

Understanding Industrial markets

1. Large number of buying center : Government departments are everywhere. A lot of them purchase locally. 2. Political interference : 3. Specified govt. contracts : a) Rate contracts b) DRDO / ISRO Dev. Job cost + effort cost c) 131 Orders

Skills required are specialized

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Industrial Marketing Environment

Understanding Industrial markets

Buyer Seller Interface Publics Macro Environment Govt. influences

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Industrial Marketing Environment Buyer seller interface

Understanding Industrial markets Govt.

Mafg.

Dist. / Dlrs.
Labour Capital R.M. Components Equipment

Manufacturer rep Dist / Dlrs Transporters Warehousing firms Mktg. Research firms Compt. Bankers & insurers

Commercial Enterprises Industrial Distributors Market segments

Suppliers Buyers

Facilitators

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Industrial Marketing Environment Publics

Understanding Industrial markets

1. Financial publics FI / Stockbrokers / Individual Stock Holder ( Stock prices, confidence in company ) 2. Independent press Impact on reputation of company ( Dhabol power corporation ) 3. Public interest groups Environmentalists ( Euro II , CNG vehicles, Narmada bachao)

4. General publics MacDonald's coating French fries with beef tallow

Business serves the society
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Industrial Marketing Environment Macro Environment

Understanding Industrial markets

1. Economics - Increased demand for oil led to increase in prices of oil in the world markets. Changes the cost base of most oil based companies. Also changed the demand pattern of automobile ( petrol to diesel ).

Government policies like subsidizing diesel at the cost of petrol.

2. Ecological influences - The concern for the environment so emission norms are stringent & industry has to adjust. Bhopal gas tragedy, changes in the law to use MIC as an intermediary. Right to Know Companies have to furnish details of the hazardous products made & used by them. 30

Industrial Marketing Environment Macro Environment

Understanding Industrial markets

3. Physical environmental Influences Steel plants need iron ore, water & lime stone deposits for setting up. MP, Bihar and Orissa have the concentration of steel plants. . 4. Politico / Cultural influences Hire and fire policy of west Vs militant trade unionism & job protection in India. 5. Technological influences Typewriters manufacturers had to shift market focus, change products etc after PCs and word processors became common.

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Industrial Marketing Environment Macro Environment 6. Government influences

Understanding Industrial markets

Anticipating governments action: WTO treaty signing and IMF loans linkages for govt. The govt. needs the loan so it is likely to sign the treaty. Influencing Govt. actions: Lobby for reduction in excise duty (to create level playing field).

Lifting of Liquor ban in A.P. ( a lot of lobbying ).

CNG buses for Delhi .
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Environment Management Strategies Independent Strategies

Understanding Industrial markets

1. Competitive aggression a. Create Product differentiator (Bonding power of cement Gujrat Ambuja Cement compressive strength)

b. Aggressive pricing (coal based power plants Vs Gas based power plants)
c. Comparative advertising - Dhabol Power Corporation came up with the very good adv telling the good the plant has brought about in the area, water supply, school, employment, plus electricity generation cost (compared with other plants etc.) 33

Environment Management Strategies Independent Strategies

Understanding Industrial markets

2. Competitive pacification a. Improved competitive relations - (Auto companies do not fight on discount to trade @4%, they do not spoil the trade, focus on end users ). b. Industry promotion Doodh, Egg & LPG campaign. ( Increase the pie rather than fight for the same pie). c. Price Umbrellas The transporters union finalizing rates for each destination ex- Mohali.
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Environment Management Strategies Independent Strategies

Understanding Industrial markets

3. Building Public Opinion a. Corporate Image advertising ISO 9000 Accreditation. b. Voluntary environmental control ISO 14000 Accreditation Making green products & advertising it. c. Commitment to interest groups Archies cards giving part of institutional revenue to fund the NGOs. This help them charge higher & get business.

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Environment Management Strategies Independent Strategies

Understanding Industrial markets

4. Political / Legal a. Directly lobbying with the govt. & law enforcers. Steel Industries lobbying for more development work, reduction in excise etc. b. Issue advertising through the direct paid media or even influencing the media to highlight the issue ( may or may not be funded directly ).

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Environment Management Strategies Co-operative strategies

Understanding Industrial markets

a. Contracting : Allwyn is part of Electrolux, but supplies refrigerators to LG.

b. Co-optation : Absorption of relevant Publics on board of directors. IIMC & XLRI directors in the board of directors of XIM. c. Coalition : Industry association ( Specially used to lobby with the government ) FMA decision to have max 7 years warrantee on fans.
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Environment Management Strategies Strategic Maneuvering

Understanding Industrial markets

a. Domain Selection : Focusing on areas of strong competitive advantage. Cray Supercomputers ICI Worldwide Light chemicals with high margins.
b. Diversification : Reliance into telecom sector. May be the idea is to be part of a high growth industry which has good future potential.

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THANKS