MARKETING OF INDUSTRIAL GOODS

Industrial Goods
The Demand for Industrial Goods The Industrial Customer Purchasing System Marketing Intelligence

Marketing Strategy
Marketing Control

Industrial Goods

Meaning Characteristics

The Industrial Marketing System

Participants

Channels
The Relationships: Contract of Sale Franchise Agreements, Loyalty Confidence Reciprocity

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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An Overview of Industrial Marketing

Industrial goods, also known as business goods, include goods used for business pruposes and consumer goods which are bought for organisational consumption or which are in the distribution channel involving middlemen.

Industrial Marketing includes the following

1. Marketing of industrial goods
2. Marketing of consumer goods to:

Marketing middleman Organisations for in-house consumption Organisations for giving away as gifts/compliments Organisations for charitable distribution

Consumer goods & Business goods

The major factors of differences between consumer goods & business goods are:

Market characteristics Customer characteristics Demand characteristics

Product characteristics

Customer Characteristics
The salient features of the business buyer characterisitics vis-a-vis consumer buyer charcteristics are the following:

Number of Customer
Order size & frequency

Decision making
Buying motives Contractual penalties

Reciprocity
Buyer-Seller relationship Vendor loyalty Bargaining power Product/Service mix

Product Life Cycle

Product Specification

Equipment Compatibility
Consistency of Quality Service

Systems selling
Branding Product line Degree of Fabrication Packaging & Labelling Market structure

Market Characteristics

Market size
Horizontal & Vertical Markets

Marketing mix characteristics

Geographic concentration

Product & demand characteristics

So whats different about B2B?

Marketing Concept Marketing Mix Market Segmentation Product Life Cycle All apply in both B2C and B2B.

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So whats different about B2B?

The technical characteristics of the product are important.
These products directly affect the operations and economic health of the customer.

The customer is an organization rather than an individual consumer, or family.

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Five Major Differences Between B2B and B2C

Products/Services being marketed Nature of demand How the customer buys Communication process Economic/Financial factors

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Products/Services
More complex Functional vs. Symbolic Attributes Large unit dollar value/Large quantities Custom/Tailored Various Stages from raw material to finished goods. Foundation, Entering, Facilitating Goods

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Raw Material Extraction

Material Processing

Manufacturing Parts/Subassembly
Assembly Facilitators

Distribution

Wholesale/Retail Trade

Firms in
Production Chain 16

Final Consumers

Nature of Demand
Derived Joint/Shared Concentrated Inelastic

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How Customer Buys

Group Process Formal Lengthy Loyal Decisions based on risk and opportunity

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Communication
Personal selling more important than mass paid advertising Support sales with other promotional activities: advertising in trade journals, catalogs, trade shows, direct mail, WWW. Message focused on technical, factual, and descriptive content. Multiple audience members.
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Economic/Financial Factors
Competition oligopolistic Power/Dependency relationships Reciprocity:Doing business with companies that do business with them. Economic variables: interest rates, inflation, business cycle

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Difference between Consumer & Business Marketing

Personal consumption
Direct demand Buyers are individuals & households Impulse buying No. of buyers are large

Production of other goods & services

Derived demand Buyers are firms & other organisations

Impulse buying is almost absent

No. of business buyers are relatively small.

Decision making process Decision making process is informal & simple tends to be complex & formal Technical specifications are less important
Order size is very small Service aspects are generally less important Sales promotion is very common

Technical specifications are important

Order size is very large

Service aspects are generally very important.

Sales promotion is not Distribution channels are common generally lengthy Distribution channels are direct or short & the no. Of resellers small

Branding plays a great role

Conformity to product specifications & reputation of the manufacturer are more important
Packaging hardly has a promotional role

Packaging also plays a promotional role Consumers are dispersed geographically

Business buyers in many cases are geographicallyconcentr ated. Demand for consumer goods is price elastic Price sensitivity of demand is low.

AREAS / CHARCTERISTICS IND MARKETS Market GEO Concentrated Few Buyers

Products Service Buyer Behavior

Channel

Technically Complex Customized Very Important Various Functional specialists involved Mainly Rational buying decisions. Interpersonal relationship between buyers and sellers. More direct Multi Channel Importance to personal selling Competitive bidding / Negotiated prices
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CONSUMER MATKETS GEO Disbursed Large no. Of Buyers (Mass Markets Non Technical Standardized Somewhat important Family members involved Physiological / Psychological Social need based buying decisions Non Personal Relationship. Indirect Few Channels with many layers Importance to Advertising. MRP

Promotional Pricing

IM/2-2/10
(A) What are the types/classifications of Industrial/Business customers? IN E M D R S / T R E IA IE
M D M N (D TR U ID LE E IS IB TO S R ) C M E C L O M R IA E T R R E N E P IS S O M E S U E S S R

G V R M N O E N E T C S U TO E S M R IN U T IA / D S R L B S E S U IN S C S U TO E S M R IN T U S IT TIO A N L C S U TO E S M R

P B U LIC S C O E T R U IT (B E N S H L) G V . U D R A IN S O T N E T K G (R ILW Y , D FE C U ITS A A S E N E N ) P B U LIC IN T U S IT TIO S N (G V . H S IT LS O T O P A ) P IV TE IN T U R A S IT TIO S N (S H O , C LLE E ) C O LS O G S

M N F C R G A U A TU IN U IT (S G R M N S U A , ILK ) C -O E A O P R TIV E S C T S O IE IE N N A U C U IN O -M N FA T R G U IT (B N S H U IN ) N S A K , O S G

FIG. TYPES OF INDUSTRIAL / BUSINESS CUSTOMERS

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(B) How are Industrial Products / Services Classified? Classification into 3 Groups shown below.
R W A E IA S( O O E C U EO ) A M T R L IR N R , R D IL MT R L A E IA S & AT P RS ( NE P O U T E TR R DC D E TY IR C L ) M N F CU E M T R L A U A T R D AE I S A ( T E ,F E O ) SE L UL I L C M O E TP R S B A IN S T R S O P N N A T ( E R G, Y E ) S B S E B IE ( X A S P E M .) U A S M L S E H U T IP IN . C IN U T IA D SR L P OU T / R D CS S R IC S EV E C P A IT M A IT L E S ( SD U E IN P O U TO / R D CI N O E A IO S P R T N) S P L S/ U P IE S R IC S EV E ( O UP R T S P OT O E A IO S P R T N) L H E P ( O P T R , H N T OS IG T Q T C M U E S A D O L ) H A YE P ( A H E , T R IN S E V Q T M C IN S U B E ) P A T U D GF C O IE , OF E ) L N /B IL I ( A T R S F IC S N S P L S( U R A T , E E T IC LI E S U P IE L B IC N S L C R A T M ) S R IC S( E A , C U IE ) E V E L GL OR R

F . C A S IC T N/ T P SO IN U T IA P O U T / S R IC S IG L S IF A IO YE F D SR L R D CS E V E
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IM/2-4/10

(C) Marketing Implications for different types of products & customers?

For Materials & Parts, Direct selling is done to large OEMs (Original Equipment Manufacturers) and users, but indirect selling through industrial distributors / dealers becomes cost effective for smaller volume OEMs and users. ii. For Capital items, Direct selling through company sales force is common, with extensive interactions on technical & commercial factors. iii. For Supplies Industrial distributors / dealers are mostly used but for marketing of services, word-of-mouth plays an important marketing role, with quality & price of service as key factors.
i.

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IM/2-5/10

(D) Purchasing Orientations of Business Buyers

Business buyers/ Industrial customers follow one of the three purchasing orientations: (i) Buying, (ii) Procurement, or (iii) Supply chain Management. (i) Buying Orientation : The firm with buying orientation follows the practice of (a) selecting lowest price supplier, (b) gaining power over suppliers and (c) avoiding risk of buying from new suppliers. It has a Short-term focus. (ii) Procurement Orientation : The purchasing firm with procurement orientation has a long-term focus. It achieves the objectives of quality improvement and cost reductions by following the practices of (a) collaborative relationship with major suppliers and (b) working closely with other functional areas in the company. (iii) Supply chain Management Orientation : Here, the firm focuses on improving the value chain from raw materials to end users. This is achieved by (a) delivering superior value to end users, (b) outsourcing non-core activities, (c) and supporting collaborative relationships with major suppliers.

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IM/2-6/10 (E) Purchasing Practices of Different Types of Industrial / Business Customers

(i) Purchasing in commercial enterprises Involve Technical & Commercial depts. Major Tasks / Procedure: identifying, negotiating, selecting suppliers, building relationship. Purchasing to improve operational efficiency & contribute to firms competitive advantage. (ii) Purchasing in Govt. units DGS&D agency finalizes rate contracts for standard products for Govt. units. Main Tasks / Procedure : Registration of the firm & its Products, Tender Advertisements, no negotiation in Open tenders, negotiations done in closed / limited tenders. Orders Finalised on lowest bidders (suppliers offering Lowest prices / Landed Costs)

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IM/2-7/10
(iii) Purchasing in Institutions If the Institute is a Govt. Hospital Purchasing practices of Govt. units Followed Similarly a private School / College follows practices of commercial enterprises However, better to study each major institution. (iv) Purchasing in cooperative societies Similar to Institutional purchase.

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CLASSIFICATION
There are different bases of classification of industrial goods:

On the basis of how the goods are used are classified as:

1. Capital Equipment & Investments 2. Manufactured Materials & Component parts. 3. MRO Supplies

4. Process Materials
5. Business Services 6. Raw Materials

On the basis of the nature of the output & its use,

Basic industries
Capital goods industries Intermediate goods Consumer goods industries

THE INDUSTRIAL MARKETING SYSTEM

Industrial buyers
Sellers Marketing intermediaries

Industrial Customers

Commercial Organisations

Non Commercial Organisations