b2b markets

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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)

Understanding Industrialmarkets

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Industrial Market Vs Consumer MarketMarket Structure - Example

Industrial Market ( Rutile forPaints)

Major 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.


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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.


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Industrial Market Vs Consumer MarketBuyer 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 MarketProducts

Industrial Market

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

Customer Markets

* Standardized.

*. Service, delivery and availability is somewhat important.


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Industrial Market Vs Consumer MarketProducts - 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.

Customer for Samsonite softLuggage

* Standardized product range to select from.

*. Service, delivery and availability is somewhat important, can wait for a Specific color / size.


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Industrial Market Vs Consumer MarketDecision making

Industrial Market

* Distinct observable stages

* Multiple influencers and decision makers.

Consumer Market

* Unobservable mental stages, not very clear pattern.


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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

Industrial Markets

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

Consumer Markets

* Indirect and multiple linkages


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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 MarketPromotion

Industrial Markets

* Emphasis on personal selling or one to one dealing.

Example : Selling fridgeswith decals. You go and dealwith Coke or Pepsi H.O.

Consumer Markets

* Emphasis on mass market promotion.

Example : You plan an adv.campaign to highlight decalsand generate customer flow.


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Industrial Market Vs Consumer MarketPricing

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 MarketPricing - Example

Industrial (CSD purchase Of Rum )

* Competitive bidding & selection on basis of L1.

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

Consumer Markets for Rum

* Normally MRP & MOP

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


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A big reseller can be treated as a Industrial Buyer

Example: Shoppers Stop / Ebony / Kids Kemp for anapparel 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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A big reseller can be treated as a Industrial Buyer

Example: Shoppers Stop / Ebony / Kids Kemp for anapparel 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

Commercial Enterprise

1. Industrial Dealers & Distributors – Essentially their objectiveis to trade on the items. ( relatively narrow scope ).

2. OEM – 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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Government agency

1. Standard procurement processes – Registration, Tender, L1 etc.

2. Public accountability – everything by rule books as far as documentation.


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Institutions ( Private & Public Sector )

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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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.

Organizational Customer

Based on Type of products purchased


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Capital Items

1. Installations ( buildings, computers, machinery etc.)2. Accessories ( PC, Office furniture)

Characteristics: Normally major installations, because ofextensive interaction required and long negotiation time required,the manufacturers deal directly with the customer & accessories are

sold by industrial. distributors.




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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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Example : Procurement of Injection Moulding Machine

1. R & D : Designs the moulds which are to be used.2. Production : Output levels, installation needs.3. HRD : Manpower implications, skills to be imparted. 4. Quality Assurance : Responsible for output consistency.5. Maintenance : Ease of operation, availability of spares,

AMC etc.6. Finance : Long & short term financial implication.7. Purchase department : Price, payment terms, delivery

terms.

Characteristics of Organizational Procurement

Multiple Influences


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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 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.


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 impactcost 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


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Industrial Marketing EnvironmentBuyer seller interface

LabourCapitalR.M.ComponentsEquipment

Mafg.

Dist. /Dlrs.

Compt.

Manufacturer’ repDist / DlrsTransportersWarehousing firmsMktg. Research firmsBankers & insurers

Suppliers Buyers Facilitators Market segments

Govt.

Commercial

Enterprises

IndustrialDistributors


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Industrial Marketing EnvironmentPublics

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 EnvironmentMacro Environment

1. Economics - Increased demand for oil led to increase in pricesof oil in the world markets. Changes the cost base of mostoil 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 environmentso 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.


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3. Physical environmental Influences – Steel plants need ironore, water & lime stone deposits for setting up. MP, Bihar andOrissa have the concentration of steel plants..

4. Politico / Cultural influences – Hire and fire policy of west Vsmilitant trade unionism & job protection in India.

5. Technological influences – Typewriters manufacturers had to shift market focus, change products etc after PC’s and wordprocessors became common.


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6. Government influences –

Anticipating governments action: WTO treaty signingand 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 exciseduty (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 StrategiesIndependent Strategies

1. Competitive aggression

a. Create Product differentiator (Bonding power of cementGujrat Ambuja Cement – compressive strength)

b. Aggressive pricing (coal based power plants Vs Gas based power plants)

c. Comparative advertising - Dhabol Power Corporationcame up with the very good adv telling the good theplant has brought about in the area, water supply, school, employment, plus electricity generation cost(compared with other plants etc.)


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2. Competitive pacification

a. Improved competitive relations - (Auto companies do notfight on discount to trade @4%, theydo not spoil the trade, focus on end users ).

b. Industry promotion – Doodh, Egg & LPG campaign. ( Increase the pie rather than fightfor the same pie).

c. Price Umbrella’s – The transporter’s union finalizing ratesfor each destination ex- Mohali.


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3. Building Public Opinion

a. Corporate Image advertising – ISO 9000 Accreditation.

b. Voluntary environmental control – ISO 14000 AccreditationMaking green products & advertising it.

c. Commitment to interest groups – Archies cards giving part of institutional revenue to fund the NGO’s.This help them charge higher & get business.


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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 maynot be funded directly ).


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Environment Management StrategiesCo-operative strategies

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

b. Co-optation : Absorption of relevant Publics on boardof directors. IIMC & XLRI directorsin the board of directors of XIM.

c. Coalition : Industry association ( Specially used tolobby with the government )FMA decision to have max 7 years warranteeon fans.


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Environment Management StrategiesStrategic Maneuvering

a. Domain Selection : Focusing on areas of strong competitive advantage. Cray Supercomputers

ICI Worldwide Light chemicalswith high margins.

b. Diversification : Reliance into telecom sector. May be the idea is to be part of a high growthindustry which has good future potential.
