Nature, Scope and Challenges of Industrial Marketing - Overview

• Industrial markets present different types of challenges and opportunities as compared to consumer markets

• Industrial Markets are markets for products and services, local to international, bought by businesses, government bodies and institutions for incorporation ( ingredient material or components), for consumption( process material, consulting services), for use( installations or equipment)or for resale.

Nature, Scope and Challenges of Industrial Marketing - Overview

• Industrial markets consist of all organisations that purchase goods and services to use in the creation of their own goods and services

• Industrial marketing is the process of matching and combining the capabilities of the supplier with the desired outcomes of the customer to create value for the “customers customer” and hence for both organisations

Characteristics of Industrial Market Customers

• Industrial Market customers comprise commercial enterprises, institutions and governments – HCL Computers customers can be Air India, Delhi University and State Governments

• A single purchase by an industrial customer may be far larger than individual customers – An individual may purchase one unit of Microsoft software or an upgrade but Citibank may buy 1000

Characteristics of Industrial Market Customers

• The demand for industrial products is derived from the ultimate demand for consumer products – Increase in demand for housing will stimulate demand for wood for making furniture and numerous other related products

• Relationships between industrial marketers tend to be close and enduring - HCL Computers relationship with some key customers spans decades

Characteristics of Industrial Market Customers

• Buying decisions by industrial customers often involve multiple buying influences rather than a single decision maker – a cross functional team from an industrial buyer, say textile producer will evaluate various textile machinery companies before buying from any particular company. Purchasing, engineering, material mgt and other division members may be involved in this purchase

Contrast between Industrial and Consumer Marketing

Market StructureIndustrial Markets:• Geographically concentrated – Auto component

manufacturers in Pune, Gurgaon etc • Relatively Fewer Buyers • Oligopolistic Competition

Consumer Markets:• Geographically Dispersed – Demand for buying cars is

dispersed• Mass Markets, Many Buyers• Monopolistic Competition

Contrast between Industrial and Consumer Marketing

ProductsIndustrial Markets:• Can be technically complex – Axles for railway wagons• Customised to user preference• Service, delivery and availability very important• Purchased for other than personal use – Ministry of Railways

purchases for the Indian Railways

Consumer Markets:• Standardised – rail travel • Service, delivery and availability only somewhat important• Purchased for personal use

Contrast between Industrial and Consumer Marketing

Buyer BehaviourIndustrial Markets:• Professionally Trained Personnel – Purchase of

sterile pumps by a biotech or pharma plant will involve quality control department, purchase etc

• Functional Involvement at many levels – Departmental heads will decide jointly

• Task Motives predominate

Contrast between Industrial and Consumer Marketing

Buyer BehaviourConsumer Markets:• Individual Purchasing – an OTC product will be

choice of consumer. Aspirins etc are sold by many pharma companies

• Family involvement, influence – a family may decide whether to purchase generic or branded drugs

• Social/ psychological motives predominate

Contrast between Industrial and Consumer Marketing

Buyer –Seller Relationship Industrial Markets:• Technical Expertise an asset – engineers are hired by

companies selling railway equipment• Interpersonal relationships between buyers and

sellers• Significant information exchange – a pharma

company will explain in detail the specs of a tableting machine

• Stable, long term relationships encourages loyalty

Contrast between Industrial and Consumer Marketing

• Buyer –Seller Relationship Consumer Markets:• Less technical expertise – expensive consumer

durables like home theatres may be purchased on simple technical specs

• Nonpersonal relationships• Less exchange of information – OTC products are

purchased on simple advertising and drugs on doctors prescriotion

• Changing short term relationship

Contrast between Industrial and Consumer Marketing

Channels Industrial Markets:• Shorter, more direct – Automotive component

manufacturers will sell directly to car manufacturers

Consumer Markets:• Indirect, multiple linkages – car owners buy

auto parts through a distribution channel

Contrast between Industrial and Consumer Marketing

Promotion Industrial Markets:• Emphasis on direct selling – Sale of packaging

material to companies making toiletries and allied products will involve a large amount of personal interphase

Consumer Markets:• Emphasis on advertising – Soap like Lux may be

purchased on advertising appeal of film stars

Contrast between Industrial and Consumer Marketing

Price Industrial Markets:• Competitive bidding or the result of a complex purchase

process – purchase of a nuclear power plant or fighter planes may involve a complex purchase process involving many ministries and the final price would be various rounds of competitive bidding

Consumer Markets:• List or predetermined prices – In some developed

countries power can be bought from various sources at different prices

Industrial Demand

Derived Demand – Demand in Industrial markets is derived from consumer demand.

Nylon →Spin Yarn→ Weave Fabric→Clothes Changes in consumer demand will effect the

Industrial market. Inventory problems can occur if final demand is over or under what was forecasted.

Industrial Demand

• A small percentage change in consumer markets leads to much greater changes in industrial markets.

• There can be dramatic shifts in the demand curve. In recession the demand for capital goods will fall and in recovery the sales will be stimulated. There are swings in demand.

• Small changes in consumer buying attitudes are closely watched

Cross-Elasticity of Demand

• It is the responsiveness of sale of one product to a price change in another

• This has a significant bearing on marketing strategy• In the construction industry, sales of steel will be

effected by the price of a close substitute Aluminium

• The larger the number of substitute resources available, the greater the cross-elasticity of demand for a particular resource

Industrial Customers

1.Commercial Enterprises• Users• Original Equipment manufacturers• Dealers and Distributors 2. Government Organisations 3. Institutions

Commercial Enterprises

• Users purchase industrial products or services to produce other goods or services that are sold in business or consumer markets. Machine tools is an example of such a purchase. Products purchased by users are not incorporated into final product, hence different from OEM’s as explained below.

• Original Equipment Manufacturers ( OEM’s)- Enterprises like Maruti, Xerox purchase industrial goods to be incorporated into products that they produce, classification is OEM. They are generally the large volume users of goods and services

Commercial Enterprises

Dealers and Distributors – They are commercial enterprises that purchase industrial goods for resale( in basically the same form) to users and OEM’s. They accumulate, store and sell a large assortment of goods to industrial users. They ensure that their customers have timely access to the goods. They play an important strategic role

Overlap of Categories

• These three categories are not exclusive. The classification is based on the intended purchase the product serves to the customer

• User will purchase a capital item for the manufacturing process but is an OEM when purchases products like radios to be installed in the car

• Purchases are expected to enhance profit making ability and understanding of buying criteria of various categories is required

Government Organisations / Institutions

• Government and its agencies can be the large purchasers of industrial goods

• The high volume purchasing can have procurement and administrative requirements that may require a large amount of effort to ensure compliance.

• Focus should be on the value expectation and the factors that influence the buying decision

• Public and private Institutions are also important customers and their procedural requirements should be carefully understood. Some of them may be subject to public scrutiny and may follow detailed procedures

Classifying Goods for Industrial Markets

• Entering Goods- They become part of the finished product and are raw materials, Manufactured Materials and Parts

• Raw materials are processed only to the level required for economical handling and transportation. McDonald uses potatoes as raw material

• Manufactured materials like component material are subject to some amount of processing before entering manufacturing

Classifying Goods for Industrial Markets

Marketing Requirements:• The marketing strategy is related to the goods sub

classification• Standardised parts and materials are purchased in

large quantities by OEM’s on contractual basis• Custom made parts will require a large amount of

interaction with purchase and engineering department

• Industrial distributors can be used when selling to smaller OEM’s or users

Classifying Goods for Industrial Markets

Foundation Goods – Installations and Accessory Equipment

• Installations are the major long term investment items such as buildings and fixed equipment, Their demand is shaped by the economic climate

• Accessory Equipment is generally less expensive and short lived ( light equipment and tools) as compared to Installations

• Personal selling is important and negotiations may be prolonged for installations. Accessories can also be sold through industrial intermediaries

Classifying Goods for Industrial Markets

• Facilitating Goods – they are the supplies and services that support organisational operations

• They do not enter the production process or become part of the finished products. They are items like cleaning compounds or repair services

• Direct marketing can be used for large users but intermediaries can be used for this broad and diverse market

Industrial Market Environment

• The interface level involve key participants who interface with industrial buyers or sellers with regard to facilitating production , distribution and purchase of a firms goods and services

• Input suppliers, distributors, facilitators are part of the interface. Competitors actions also play an important role on the marketing strategy of companies

• On account of interdependence, industrial firms form long term buyer-seller interface.

Industrial Market Environment - Publics

• Financial Publics• Independent Press• Public Interest Groups• General Publics• Internal Publics These publics have interests because of economic

or societal effects of activity in the market or because they provide financing and companies must be sensitive to them

Industrial Market Environment - Macroenvironment

• Demographic • Economic• Sociocultural• Natural• Technological• Competitive Classifications are important for marketers to

frame the issues, threats and opportunities and it should be an ongoing process.

Influence of Government

• Government laws and regulations play an important role and affect all the participants

• Matters like funding, interest rates and taxes, standards, research and environmental issues are of great importance to the activities of companies

• International trade regulations are also part of Government interface

• Companies generally act through associations and bodies with regard to general matters but must take suitable action regarding their own priorities

Overview

• The current industrial environment which is rapidly changing requires development and implementation of suitable strategies

• Market research, technological innovations, assessing political and regulatory developments and evaluating social change are some measures

• Independent, Cooperative and Strategic manoeuvring strategies can be utilised

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