Industrial Markets Special Characteristics (11 Aug 10)

•UNIT - II

INDUSTRIAL MARKETS :-* Special Characteristics of Industrial

Markets, *Importance of Selling For an industrial

Marketer, *Business Buying Behaviour

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Industrial Marketing

• Also called: Business-to-Business (B2B) and Organizational Marketing.

• Definition: the creation and management of mutually beneficial relationships between organizational suppliers and organizational customers.

• Customer can be private firm, public agency, or nonprofit organization.

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The Marketing Concept

• Creating value for customers with goods and services that address organizational needs and objectives.

• Industrial Products are defined as those Products & Services which form inputs to final composite Products & Services {American Marketing Association 1960 }

Industrial Marketing Management

• The Industrial Marketing Management deals with 3 product classes-----

• Standard Industrial Products & Services (e.g. nuts & Bolts)

• Fabricated Industrial Products & Services (e.g. tiers & tubes)

• Capital Plant Equipment ( Machinery & Infrastructure, technology )

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Marketing Concept

• Three major components:– All company activities should begin with, and be

based on, the recognition of a fundamental customer need.

– A customer orientation should be integrated throughout the functional areas of the firm: production, engineering, finance, R&D.

– Customer satisfaction is viewed as the means to long-term profitability goals.

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Marketing Mission Statement

• State in terms of meeting customer needs, not in terms of products or technologies.

• Marketing Myopia (Levitt 1960 HBR)

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Marketing Activities

• Identify customer needs• Research customer behavior• Divide market into manageable segments• Develop new products/services• Establish/negotiate prices• Deliver, install, service products• Ensure adequate and timely supply of

products at correct place• Allocate resources across product lines• Communicate with customers• Evaluate/control marketing programs

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Marketing Mix

• Limited number of variables under Marketing’s control to create position that is attractive to the target market segment.

• Four Ps– Product– Price– Promotion– Place (Distribution)

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Raw Material Extraction

Material Processing

Manufacturing Parts/Subassembly

Assembly

Distribution

Wholesale/Retail Trade

Final Consumers

Facilitators

Firms in Production Chain

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How Customer Buys

• Group Process

• Formal

• Lengthy

• Loyal

• Decisions based on risk and opportunity

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Industrial Market Vs Consumer MarketBuyer Behavior

Industrial Market

*Evaluated for functionalityrational/task motive to buying.*Purchasers are experts & focusis more on performance/service.*Higher interaction with thesupplier. * Formal processes.

Consumer Market

*Social / psychological factors are important.*Family involvement & focusmore on product per se.*Nor personal relationshipwith the supplier.* Less of formal processes.

Understanding Industrialmarkets

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Industrial Market Vs Consumer Market

Buyer Behavior - Example

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 & matchthe décor.*Want to buy LG only(because neighbor has)*Go to a shop, select, negotiate pay & forget.* Less of formal processes.


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Industrial Market Vs Consumer MarketDecision making - Example

Industrial Buyer – Soaps for Workers canteen

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

Customer

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


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Industrial Market Vs Consumer MarketDistribution channel characteristics -

Example

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 MarketMarket Structure

Industrial Market

Geographically conc.Fewer buyers (relatively)Big buyers( small number of large buyers)

Consumer Markets

Geographically dispersedMass marketsFree Market(large number of buyers)


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Industrial Market Vs Consumer MarketMarket Structure - Example

Industrial Market ( Rutile forPaints) Rutile is a mineral composed primarily of titanium dioxideMajor ten cities.Fewer buyers (example 500)Oligopolistic buyers with cloutTo access international market(Asian, Nerolac, ICI etc.)

Consumer Markets (paints)

Even in small villagesMass markets ( 1 billion )

Small customersnormally competition is

within the country.


http://en.wikipedia.org/wiki/Mineral

http://en.wikipedia.org/wiki/Titanium_dioxide

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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 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.

Characteristics of Organizational Procurement

Technical sophistication


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Example : Procurement of Rutile for paints

4. Value Analysis : The option of using a lesser quantity ofcostly 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.


Technical sophistication

Concept of optimization w.r.t constraints


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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 contractsb) DRDO / ISRO Dev. Job cost + effort costc) 131 Orders


Government purchases

Skills required are specialized


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Industrial Marketing Environment

BuyerSellerInterface

Publics

Macro Environment

Govt. influences


Industrial Markets Special Characteristics (11 Aug 10)

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