ISM Unit 1 Industrial Marketing

By Indrani Sengupta Lecturer, School of Management Sciences

Industrial Marketing
The industrial market ( also known as the Producer market & the Business market ) is the market consisting of individuals & organisations who acquire goods & services to be used in the production of further product or services for sale or rental to others. Industrial Marketing is thus defined as The process of marketing goods , which are used in producing consumer goods or industrial goods , or business or personal services. Or which facilitate the operation of a business enterprise.

Corporate Mission & Objective Assess Market Opportunities Commercial Market Govt. Market Institutional Market
Analysis of Buying Behavior Select Target Market Evaluate alt. market segments

Monitor Environmen tal influences (Economic, Political , Technologic al)

Plan & Acquire Marketing Info.

Strategy Development

Marketing Objectives
Formulate the Business marketing mix
Functional areas coordination

Prod/ Service

Channel

Pricing

Personal Selling

Advert.

Sales Prom.

Marketing Program Response of Target Market Segments Framework of Industrial Marketing Management

Evaluation & Control

Industrial Goods
These goods are purchased by a large no & variety of concerns operating in diverse fields.

These includes : the manufacturing industries , the mines, the construction industry, htels , restaurants , theatres.
Thse products are bought for the propose of value addition & therefore the consumers are guided essentially by a profit motive.

Products, Services and Customers

Industrial products are consumed as they are or with modifications to produce the final product. Industrial products are grouped into raw materials, processed materials, major equipment, accessory equipment, components and sub-assemblies, maintenance repair and operating (MRO) supplies, and services.
Some companies provide services to other manufacturing and service organizations.

Products, Services and Customers

Modern day industrial marketers have embarked upon a new form of marketing called systems marketing.
Industrial markets are quite different from the consumer market and exhibit a different kind of purchasing behavior. Some industrial customers purchase products for using them in producing the final product and they are called manufacturers. Industrial customers can be broadly classified into three categories - commercial enterprises, institutions, and government

Industrial Demand Characteristics

The behavior of the industrial market demand is dependent on the nature of demand in the consumer markets; thus industrial demand is derived in nature .

Joint demand, this occurs when the demand for a product depend upon its use in conjunction with another product/s , fluctuating demand, and stimulation of demand are some of the characteristics of industrial demand. Industrial demand is sensitive to the price of the product, and to the price of complementary products and substitutes. End consumers, business conditions, and price are the important factors that influence industrial

Buying Decision
The procurement function has both task-oriented objectives and non-task objectives, and is usually governed by a clearly articulated purchase policy.
The buying decision process starts with identifying the buying needs, followed by identifying the product characteristics. At this point, the buyer takes a 'make or buy decision'. If the decision is to buy, then the buying process continues with the search for vendors followed by qualifying them. The vendors are then requested to send in their proposals and quotations relating to the purchase requirement. If a particular vendor's quotations are up to the buyer's expectations, then the contract is awarded to the vendors.

Payment and delivery terms are finalized and an order routine is mutually

Buying Situation or Buy Phases

The vendors are also regularly monitored for their performance. A firm purchases goods under three situations. In a new task, the firm buys a totally new product or an existing product for the first time. This involves extensive information and supplier search. The second situation is straight re-buy. Here the firm purchases the same material from the same supplier without any alterations in the contract. And the last situation is modified re-buy. It involves modifications in the form of change in supplier, change in terms of the contract, etc.

Buying Centre
A buying center involves people from across the departments of the firm to make the buying decisions for the firm. The buying center is influenced by the individual and group factors. Hence the decisions taken by the buying center will bear these influences.
Value analysis is used in the firm to assess the value of the product to be purchased and consequently to take 'make or buy' decisions. It helps the firm to reduce unnecessary costs in the purchase of the product or materials. Vendor evaluation helps in choosing the right vendor. There are different factors that influence organizational buying behavior such as

Buying Centre
Also known as the DMU ( Decision Making Unit ) is involved in the major task , in facing the industrial marketer in identifying the individuals who are in any way involved in the industrial purchasing decision process. A DMU may consist of only one person , but it is normally a group of individuals who share a common goal or goals which the decision will hopefully help them to achieve , & who share the risks arising from the decision. In Industrial Marketing these decisions makers are referred to as the Buying Centers.

Buying Centre Roles

Primary Roles
Deciders - Those organizational members who have formal or informal authority who actually make the buying decision. Influencers - Technical people like Design Engineers, Quality Control Inspectors etc

Secondary Roles
Users - Those organizational members who use the products & services. Buyers - Who have the formal authority in the selection of the suppliers & in the purchasing decision, might include high level officers. Gate Keepers Who control the flow of information into the buying

Buying Motives
A product/ service buying motive is that influences the customer to make a buying decision to purchase one product/service over a competitors product/service. These motives can be triggered by marketing stimuli that create a product/service position. These improves the sales prospects with increased satisfaction to the customers. Buyers of highly priced & complex industrial products/services tend to rely on rational buying motives. Some of the buying motives are : 1. Brand Preference 2. Quality Preference 3. Price Preference 4. Engineering Preference Few other buying motives are : Emotional buying motive, rational buying motive, patronage buying motive, physical buying motive & psychological buying motive.

Buying Motives of Industrial Customer

Several environmental forces affect the behavior of components in the industrial marketing system , such as
1. Economic Changes ( Inflation , Recession , Shortage of Materials) 2. Technological Changes 3. Ecological Constraints ( Govt pressures , Cleaner air & water ) 4. Changing political climate , competition & international pressures 5. Social & Cultural Changes.

Buying Decision Process

No two companies follow the same purchasing procedure. The industrial buying process might be broken down into 8 distinct stages for the purpose of analysis.
1. Recognition of a Need or Problem & a general solution.
2. Determination of characteristics & quantity needed 3. Description of characteristics & quantity of needed item. 4. Search for potential sources of suppliers. 5. Acquisition & Analysis of Proposals. 6. Evaluation of Proposals & Selection of Suppliers. 7. Selection of an order routine. 8. Performance feedback & evaluation.

Buy Grid Model

--- denotes most critical phases of buy phases
Stages in Buying 1. Recognition of a Need or Problem & a general solution. 2. Determination of characteristics & quantity needed. 3. Description of characteristics & quantity of needed item. 4. Search for potential sources of suppliers. 5. Acquisition & Analysis of Proposals. 6. Evaluation of Proposals & Selection of Suppliers. 7. Selection of an order routine. 8. Performance feedback & evaluation. New Task Modified Rebuy Straight Rebuy

Industrial Vs Consumer Markets

Market Structure
Geographically Concentrated Relatively Fewer Buyers Oligopolistic Competition Geographically Dispersed Mass Markets Monopolistic Competition

Products

Technical Complexity Customized , Service , delivery & availability very imp.

Standardized Service , delivery & availability somewhat important

Buyer Behavior

Technical Expertise, Stable Relations, Functional Involvement , Task Motives predominates

Less Technical Expertise, Non Personal Relationships, Family Involvement , Social Motives predominates

Industrial Vs Consumer Markets

Channels
Shorter , More direct , Fewer Linkages Indirect , Multiple Linkages

Promotion

Emphasis on Personal Selling

Emphasis on Advertising

Price

Competitive bidding , negotiating on complex purchases

List Prices

Distribution Channel

Manufacturer Manufacturer

Company Sales Force

Representative Agency

Company Sales Force

Representative Agency

Distributor/ Dealer

Wholesaler/ Stockist

Wholesaler/ Stockist

Retailer Customer Customer Customer Customer

Retailer

Retailer

Retailer

Customer

Customer

Customer

IM

CM

Factors Influencing Industrial Buying

Industrial marketing environment

Industrial buyers & sellers operate in a dynamic environment , one constantly posing new opportunities & threats .

Chipmakers overestimate demands , build productive capacity & then sales fall short of expectation , begin an all out drive to reduce unsold inventories.

Industrial marketing environment

The environment within which industrial firms operate , due to many several interfaces that exist between the firms that interact directly with one another , the first level is known as the interface level. The next two are publics & the macro environment.
Buyer seller Interface Publics Macro Environment Government

Industrial marketing environment

The Interface Level
The level involves those key participants who immediately interface with an industrial firm ( buyer or Seller ) in facilitating production, distribution, & purchase of a firms goods & services. Participants in the Interface Level :-The Input suppliers( Raw Materials, component parts , labor, & capital) , Distributors /Dealers, Facilitator Manufacturers representatives, distributors/dealers, advertising firms, banks & insurance companies , transportation firms. Market Segments Govt., Commercial enterprises , Institutions, OEMs , Users Competitors

1. 2. 3.

4. 5.

Industrial marketing environment Publics

Publics are distinct groups that have an actual or potential interest or impact on each firms ability to achieve its respective goals. These have the ability to help or hinder a firms efforts to serve its markets. Financial Publics Investment Houses , stock Brokerage Firms, & Individual Stockholders. Independent Press- Mass Media Public Interest Groups These seek towards the protection & expand the rights of women , sr. citizen, thus these limits the freedom of suppliers & buyers in the industrial market. General PublicInternal Publics- The BOD & managers , employee morale.

1.
2. 3.

4. 5.

Industrial marketing environment

The Macro Environment
The dynamic forces of the macro environment have a major impact on both the public & interface levels of the industrial environment. While any participant in the interface level can adjust its marketing or operating strategy to counter act the actions , or attempt to influence or adjust to the actions of the publics, forces in the macro environment are usually beyond an individual firms ability to influence or control.

Economics

Ecology

Physical Environment

Culture

Technology

Industrial marketing environment

The Macro Environment
The main reason is that the micro environment keeps changing & it does so at an accelerating rate. 1. Economic Influences: Because of the derived nature of industrial demand, changes in economic variables affect the consumers discretionary purchasing power have an impact on the industrial producer. As consumers discretionary income change, prominent shifts in the demand for different categories of durable goods occur. 2. Ecological Influences Industrial organizations face public reaction & govt. intervention when industrial activities pose potential danger to the earths resources. All are concerned with the environmental damage to the earths water, land , air & people.

Industrial marketing environment

3. Physical Environmental Influences: The ability to produce & market goods & services at a profit necessitates a favorable combination of the inputs needed. Certain advantages stem from the natural endowments of an environment such as raw materials, water & power, adequately skilled management, low-cost labor & transportation facilities. 4. Cultural Influences Cultures, habits, norms , & traditions greatly influence the structure & function of an organization as well as the interpersonal relationships of organizational members. 5. Technological Influence Technological development & changes in the industrial market strongly affect both buyers & sellers. Buyers have the concern towards profitability & market acceptance will be favored by changes in suppliers' product design & manufacturing process. Suppliers are concerned towards the customers that how they will

Government Influence over the IM

Government charged with administering & controlling nations & their subdivisions , transcends the industrial marketing environment. As the world competition increases , the industrial manager gives greater attention to the actions of government. In the interface environment, government laws, regulations & activities affect all participants. Some of the govt. actions include effective changes in interest rates & taxes, specifying product safety standards, sponsoring research & development etc.

Government Influence over the IM

Primary Functions These functions involve

Protect companies from each other. Protect consumers from unfair trade practices. Protect the larger interest of society against unrestrained business behavior. Ameliorate income equality in society. Provide economic stabilization through control

Regulating Agencies. Laws/ Politics. Program Funding. Research Funding. Import/ Export Regulation. Levying Taxes.

Types of Industrial Customer

Comm. Enter.

Users

Lubricants, Coal, Brooms & Management Consultancy Services Steel, Cement, Motors, Batteries , Farm Products

Industrial Customers

OEMs

Govt. Agency

Airplanes, Guns, Paint & Legal Services

Profit/ Non Profit

Surgical Appliances

END OF UNIT 1