Business MarketingBusiness Marketing08MBAMM31108MBAMM311

MBA 3 sem marketing electiveMBA 3 sem marketing elective

Dimension of Industrial Dimension of Industrial MarketingMarketingModule 1Module 1

Nature of industrial Marketing,Nature of industrial Marketing,IM Vs CM, Economics of Industrial Demand – The IM Vs CM, Economics of Industrial Demand – The Resellers Market,Resellers Market,The IM concept, Understanding IM, Types of IM, The IM concept, Understanding IM, Types of IM, Classifying IP, Orgn. Procurement Characteristics, Classifying IP, Orgn. Procurement Characteristics, The IM envt. Govt. Rule.The IM envt. Govt. Rule.

Nature of Industrial MarketingNature of Industrial Marketing

The basic tenets of CM are equally The basic tenets of CM are equally applicable to I Market, the composition of applicable to I Market, the composition of IM is different as the forces affect I IM is different as the forces affect I demand. demand.

The IM has been the backbone of the high The IM has been the backbone of the high standard of livingstandard of living

It is dynamic and challengingIt is dynamic and challenging It provides more employment oportunities.It provides more employment oportunities.

Why study IM Why study IM

The study of IM has become important dueThe study of IM has become important due to the following problems:to the following problems: A failure to provide proper guidance and A failure to provide proper guidance and

stimulation for R and D of new product.stimulation for R and D of new product. ; ; to exploit market for new product; ; to exploit market for new product Inability to define new method of promotionInability to define new method of promotion A failure to innovate in disbn.A failure to innovate in disbn. Increase competitionIncrease competition Lack of modern approach to solve problemsLack of modern approach to solve problems

Industrial vs Consumer Marketing Industrial vs Consumer Marketing managementmanagement

In IM, markets are relatively concentrated and In IM, markets are relatively concentrated and channels of disbn are shorter, buyers are well channels of disbn are shorter, buyers are well informed, highly organised, and sophisticated in informed, highly organised, and sophisticated in purchasing techniques, and multiple influencers purchasing techniques, and multiple influencers contribute different points of view to purchasing contribute different points of view to purchasing decisions as against CM.decisions as against CM.

IM is more a responsibility of general IM is more a responsibility of general management.management.

In CM changes in marketing strategy are often In CM changes in marketing strategy are often carried out completely within the marketing dept. carried out completely within the marketing dept. whereas the changes in IM strategy tend to have whereas the changes in IM strategy tend to have companywide implications.companywide implications.

Definition of IMDefinition of IM

IM consists of all activities involved in the IM consists of all activities involved in the marketing of products and services to marketing of products and services to organisations (i.e., commercial organisations (i.e., commercial enterprises, profit and not for profit orgns. enterprises, profit and not for profit orgns. Govt. agencies, and resellers) that use Govt. agencies, and resellers) that use products and services in the production of products and services in the production of consumers or industrial goods and consumers or industrial goods and services,and to facilitate the operation of services,and to facilitate the operation of their enterprises.their enterprises.

Marketing perspective definitionMarketing perspective definition

IM is human activity directed towards IM is human activity directed towards satisfying wants and needs of satisfying wants and needs of organizations through the exchange organizations through the exchange process.process.

Exchange transaction in IMExchange transaction in IM

Exchange transaction in IM consists of:Exchange transaction in IM consists of:

1.1. Product or service exchangeProduct or service exchange

2.2. Information ExchangeInformation Exchange

3.3. Financial ExchangeFinancial Exchange

4.4. Social ExchangeSocial Exchange

Comparing and Contrasting Comparing and Contrasting Industrial Vs Consumer MarketingIndustrial Vs Consumer Marketing

The difference exist in:The difference exist in:1.1. Market CharacteristicMarket Characteristic2.2. Product characteristicProduct characteristic3.3. Buyer Characteristic – a. Stable Buyer Characteristic – a. Stable

Relationship, Buyer b. Seller Interfaces.Relationship, Buyer b. Seller Interfaces.4.4. Channel characteristicChannel characteristic5.5. Promotion characteristicPromotion characteristic6.6. Price characteristic.Price characteristic.

1. Market characteristic1. Market characteristic

Size of the marketSize of the market The geographic concentrationThe geographic concentration The competitive nature of the marketsThe competitive nature of the markets

Economics of Industrial DemandEconomics of Industrial Demand

Derived DemandDerived Demand It is the single most important force in the It is the single most important force in the

marketing of industrial goods and services.marketing of industrial goods and services. We shall now clarify this statement with an We shall now clarify this statement with an

example. example. The garment industry, which makes readymade The garment industry, which makes readymade

garments, will have a constant requirement for garments, will have a constant requirement for buttons, zips, labels etc. Since the garment buttons, zips, labels etc. Since the garment industry will sell the garments to the consumers industry will sell the garments to the consumers as per their taste and choice the demand for the as per their taste and choice the demand for the finishing items like buttons and all will always be finishing items like buttons and all will always be there for continuous production. They may vary there for continuous production. They may vary in size shape or color but the demand will in size shape or color but the demand will always be there as long as we have the always be there as long as we have the garments with us.garments with us.

Joint DemandJoint Demand

Joint demand is commonplace in industrial Joint demand is commonplace in industrial marketing. It is when one product requires marketing. It is when one product requires the existence of other product to be useful. the existence of other product to be useful. While exceptions may be found most While exceptions may be found most products require several component parts products require several component parts or ingredients.or ingredients.

Cross Elasticity of DemandCross Elasticity of Demand

It is the responsiveness of the sales of one It is the responsiveness of the sales of one product to a price change of other.product to a price change of other.

The example of this kind of demand The example of this kind of demand estimate we can say in industrial market is estimate we can say in industrial market is steel and aluminum. The quantity of steel steel and aluminum. The quantity of steel in demand is closely related to its closein demand is closely related to its close

substitute aluminum.substitute aluminum.

The Reseller’s MarketThe Reseller’s Market

Industrial marketing will also exist in resellers market Industrial marketing will also exist in resellers market also. also.

By the term By the term resellers market we meanresellers market we mean the buyers who the buyers who buy The materials but do not consume it for some buy The materials but do not consume it for some final product but again sell the product further ahead final product but again sell the product further ahead to some other final goods manufacturer. to some other final goods manufacturer.

We can also term the resellers as merchandisers.We can also term the resellers as merchandisers.

Examples of this kind of resellers/merchandisers are Examples of this kind of resellers/merchandisers are like the people who market dyes & chemicals, like the people who market dyes & chemicals, industrial chemicals and machine accessories etc.industrial chemicals and machine accessories etc.

Similarities and differences in Similarities and differences in Reseller’s Market and IMReseller’s Market and IM

Market CharacteristicsMarket Characteristics Product characteristicsProduct characteristics Buyer characteristicsBuyer characteristics Channel CharacteristicChannel Characteristic Promotional CharacteristicPromotional Characteristic Price characteristicPrice characteristic Economics of demandEconomics of demand

The Industrial Marketing conceptThe Industrial Marketing concept

The marketing concept holds that the key The marketing concept holds that the key task of the organization is to define the task of the organization is to define the needs of a target market and adapt the needs of a target market and adapt the orgn’s pdt. Or service to satisfy those orgn’s pdt. Or service to satisfy those needs more effectively than its needs more effectively than its competitors.competitors.

This concept is applicable in both CM & This concept is applicable in both CM & IM, More effective in CM as Industrial IM, More effective in CM as Industrial orgns tend to be technically oriented.orgns tend to be technically oriented.

Understanding Industrial Understanding Industrial MarketsMarkets

The industrial market is composed of The industrial market is composed of commercial enterprises, governmental commercial enterprises, governmental organizations, and institutions whose purchasing organizations, and institutions whose purchasing decisions vary with the type of industrial good or decisions vary with the type of industrial good or service under consideration. service under consideration.

Effective marketing programs thus depend upon Effective marketing programs thus depend upon a thorough understanding of how marketing a thorough understanding of how marketing strategy should differ with the type of rganization strategy should differ with the type of rganization being targeted and the products being sold. being targeted and the products being sold.

The diversity of IM and Products The diversity of IM and Products purchasedpurchased

Organizational customersOrganizational customers

One way to understand the diversity of industrial One way to understand the diversity of industrial customers and the products they purchase is to customers and the products they purchase is to begin by examining the various types of begin by examining the various types of customers. customers.

Industrial cus-tomers are normally classified Industrial cus-tomers are normally classified

into three groups: into three groups:

(1)(1) commercial enterprises, commercial enterprises,

(2)(2) governmental agencies, and governmental agencies, and

(3)(3) ) institutions.) institutions.

(1) Commercial Enterprises(1) Commercial Enterprises

Commercial enterprises, such as IBM, General Commercial enterprises, such as IBM, General Motors, Computer Land, and Raven Company, Motors, Computer Land, and Raven Company, purchase industrialpurchase industrial

goods and/or services for purposes other than selling goods and/or services for purposes other than selling directly to ultimate consumers.directly to ultimate consumers.

Thus_ it is more logical to look at commercial Thus_ it is more logical to look at commercial enterprises as consisting of enterprises as consisting of

1)1) industrial distributors or dealers, industrial distributors or dealers, 2)2) original equipment manufacturers (OEMs), and original equipment manufacturers (OEMs), and 3)3) (3) users. (3) users. These categories; which at times tend to overlap, are These categories; which at times tend to overlap, are

useful to the industrial marketer because they point useful to the industrial marketer because they point out how products and services are used by buying out how products and services are used by buying firms. firms.

(2) govt. Agencies(2) govt. Agencies

The largest purchasers of industrial goods in the The largest purchasers of industrial goods in the United States are the various fed-eral, state, and United States are the various fed-eral, state, and local governments-spending nearly a trillion local governments-spending nearly a trillion dollars annually for products and services. dollars annually for products and services.

When a particular product or service is needed,When a particular product or service is needed,

government buyers may negotiate directly with government buyers may negotiate directly with

vendors or carefully develop detailed specifications vendors or carefully develop detailed specifications and invite qualified suppliers (through the media) and invite qualified suppliers (through the media) to submit a price bid in writing.to submit a price bid in writing.

(3) (3) InstitutionsInstitutions

Public and private institutions such as churches, Public and private institutions such as churches, hospitals, colleges, sanitariums, and prisons are hospitals, colleges, sanitariums, and prisons are another important classification of industrial another important classification of industrial customers. customers.

Some of these institutions follow rigid rules and Some of these institutions follow rigid rules and purchasing procedures while others follow far more purchasing procedures while others follow far more casual procedures. casual procedures.

The important difference with this type of industrial The important difference with this type of industrial customer is that effective marketingcustomer is that effective marketing

rests on the industrial marketer’s ability to recognize the rests on the industrial marketer’s ability to recognize the way in which each institution purchases its goods or way in which each institution purchases its goods or services.services.

Classifying Industrial ProductsClassifying Industrial Products

The following are the three broad classifications of IP:The following are the three broad classifications of IP:

(1)(1) materials and parts, goods that enter the product materials and parts, goods that enter the product directly – Raw materials, Mfd. materials and directly – Raw materials, Mfd. materials and components parts.components parts.

(2)(2) Capital items, goods that affect the cost structure Capital items, goods that affect the cost structure of the firm – Installations, Accessoriesof the firm – Installations, Accessories

(3)(3) Supplies and services, goods that facilitate the Supplies and services, goods that facilitate the firm’s operation – Supplies and services.firm’s operation – Supplies and services.

Unique Characteristics of OrganizationalUnique Characteristics of OrganizationalProcurementProcurement

Selling in the industrial market is complicated by a broad Selling in the industrial market is complicated by a broad spectrum of customers. Commercial enterprises spectrum of customers. Commercial enterprises (including resellers), governmental organizations, and (including resellers), governmental organizations, and institutions give buying responsibility to individuals institutions give buying responsibility to individuals who are quite knowledgeable in their particular who are quite knowledgeable in their particular markets. markets.

These individuals are often more realistic in assessing These individuals are often more realistic in assessing the competitive value of a vendor’s product than is the the competitive value of a vendor’s product than is the vendor. Thus, they normally identify, evaluate, and vendor. Thus, they normally identify, evaluate, and select suppliers, domestic or foreign, who provide the select suppliers, domestic or foreign, who provide the greatest value. greatest value.

The foundation for formulating successful industrialThe foundation for formulating successful industrialmarketing strategy lies in knowing how the buyingmarketing strategy lies in knowing how the buyingfunction is administered in a diversity of markets and function is administered in a diversity of markets and

situations.situations.

Purchasing in Commercial Purchasing in Commercial EnterprisesEnterprises

How goods and services are purchased How goods and services are purchased by by commercial commercial enterprises depends on the nature of the business, enterprises depends on the nature of the business, the size of the firm, and the volume, variety, and the size of the firm, and the volume, variety, and technical complexity of the products purchased:technical complexity of the products purchased:

Multiple Influencers Multiple Influencers Technical Sophistication Technical Sophistication Value Analysis: Value analysis involves Value Analysis: Value analysis involves

systematized techniques for reducing costs and systematized techniques for reducing costs and improving the performance value of materials, improving the performance value of materials, components, and manufacturing processes components, and manufacturing processes

Value analysis, as developed by General Electric, Value analysis, as developed by General Electric, involves a step by-step procedure:involves a step by-step procedure:

Value analysis ProcessValue analysis Process

1. 1. Selection: A product that is ripe for improvement is selectedSelection: A product that is ripe for improvement is selectedfor value analysis.for value analysis.2. Information gathering. The team coordinator collects 2. Information gathering. The team coordinator collects

drawings, costs, scrap rates, usage forecasts, and drawings, costs, scrap rates, usage forecasts, and operations sheets before the team first meets. Team operations sheets before the team first meets. Team members are asked to send in whatever information they members are asked to send in whatever information they have.have.

3. Function definition. The team meets and defines each 3. Function definition. The team meets and defines each function of the product. Next the team determines the function of the product. Next the team determines the present cost of each function. This reveals which functions present cost of each function. This reveals which functions represent majorrepresent major

4. Generation of alternatives. Team members suggest ideas 4. Generation of alternatives. Team members suggest ideas for new and different ways to accomplish the functions. for new and different ways to accomplish the functions. This is known as brainstorming. All ideas are recorded and This is known as brainstorming. All ideas are recorded and later culled to a list of manageable size. expenditurelater culled to a list of manageable size. expenditure

5. 5. Evaluation of Alternatives. Alternatives are Evaluation of Alternatives. Alternatives are evaluated on various factors, including evaluated on various factors, including feasibility and cost. This further reduces the feasibility and cost. This further reduces the list to one or two good ideas.list to one or two good ideas.

6. Presentation. The final alternatives are 6. Presentation. The final alternatives are refined and presented to a management refined and presented to a management committee as value analysis change committee as value analysis change proposalsproposals

7. Implementation. The approved value 7. Implementation. The approved value analysis change proposal is translated into analysis change proposal is translated into an analysis change order and implementedan analysis change order and implemented

Purchasing in Government UnitsPurchasing in Government Units

As stated earlier, the largest purchaser of goods As stated earlier, the largest purchaser of goods and and

services in the United States is government. To services in the United States is government. To compete in this market, industrial marketers compete in this market, industrial marketers

must develop a thorough understanding of the must develop a thorough understanding of the complexities involved in selling to the complexities involved in selling to the government.government.

This will provide an idea of just how specialized This will provide an idea of just how specialized and complex governmental purchasing really is.and complex governmental purchasing really is.

Widely Dispersed MarketsWidely Dispersed Markets Complicated procurement lawsComplicated procurement laws Understanding Govt. ContractsUnderstanding Govt. Contracts

Institutional PurchasingInstitutional Purchasing

Purchasing in the institutional market, as previously Purchasing in the institutional market, as previously discussed, involves practices lying somewhere discussed, involves practices lying somewhere between commercial enterprises and government. between commercial enterprises and government.

For instance, a multicampus state university with For instance, a multicampus state university with centralized buying for all its campuses may centralized buying for all its campuses may purchase products much like a government purchase products much like a government customer; while another multicampus university customer; while another multicampus university with decentralized purchasing authority may with decentralized purchasing authority may purchase products in the same manner aspurchase products in the same manner as

commercial customers. commercial customers. Institutional buyers are a mixture of government and Institutional buyers are a mixture of government and

private organizations private organizations

Purchasing in the Reseller’s Purchasing in the Reseller’s MarketMarket

Buyers in the reseller’s market select vendors Buyers in the reseller’s market select vendors by evaluating them primarily on the expected by evaluating them primarily on the expected contribution toward increased sales contribution toward increased sales

volume and profits. volume and profits. Thus, buyers in the reseller’s market are notThus, buyers in the reseller’s market are notonly interested in the products of potential only interested in the products of potential

suppliers but in their marketing policies as suppliers but in their marketing policies as well (e.g., their choice among intensive, well (e.g., their choice among intensive, selective. or exclusive distribution, and their selective. or exclusive distribution, and their attitude toward cooperative advertising and attitude toward cooperative advertising and the provision of point-of purchase displays).the provision of point-of purchase displays).

The Industrial Marketing The Industrial Marketing EnvironmentEnvironment

Industrial buyers and sellers operate in a Industrial buyers and sellers operate in a dynamic environment, one constantly dynamic environment, one constantly posting new opportunities and threats.posting new opportunities and threats.

How well buyers and sellers understand How well buyers and sellers understand the envt. Within which they operate, and the envt. Within which they operate, and how well they communicate with one how well they communicate with one another, foretells their capabilities of another, foretells their capabilities of profiting from or being damaged by the profiting from or being damaged by the envt’s many surprises and shocks. envt’s many surprises and shocks.

The Industrial Marketing The Industrial Marketing EnvironmentEnvironment

The envt. Within which industrial firms The envt. Within which industrial firms operate is depicted in the figure: operate is depicted in the figure:

Government

Macro environment

Public

Buyer-sellerInterface

Levels/ types of IM Envt.Levels/ types of IM Envt.

Due to the several interfaces that exist Due to the several interfaces that exist between firms that interact directly with between firms that interact directly with one another, we refer to the first level as one another, we refer to the first level as the the Interface level.Interface level.

The next two levels we refer as theThe next two levels we refer as the poublic poublic and theand the macro environment. macro environment.

All the three discernible levels of a firm’s All the three discernible levels of a firm’s envt. Exist within a purview of a final envt. envt. Exist within a purview of a final envt. entity.,entity., Government. Government.

1. Interface level.1. Interface level.

The The Interface level.Interface level. involves those key participants who immediately involves those key participants who immediately

interface with an industrial firm(Buyer or seller) interface with an industrial firm(Buyer or seller) in facilitating production, disbn., and purchase of in facilitating production, disbn., and purchase of a firm’s goods and services.a firm’s goods and services.

It is the firm’s interface with industrial distributors It is the firm’s interface with industrial distributors and dealers, manufacturer’s representatives and and dealers, manufacturer’s representatives and company’s own sales force.company’s own sales force.

The Industrial firm may view itself as The Industrial firm may view itself as IMIM, a , a competitorcompetitor, an , an input supplierinput supplier, a , a distributordistributor or an or an industrial buyer.industrial buyer.

Participant in the interface levelParticipant in the interface level

Input supplierInput supplier DistributorsDistributors FacilitatorsFacilitators CompetitorsCompetitors

2. Public2. Public

Public are the distinct groups that have an actual or Public are the distinct groups that have an actual or potential interest or impact on each firm’s ability to potential interest or impact on each firm’s ability to achive its respective goals.achive its respective goals.

The sphere of activity of the various participants in the The sphere of activity of the various participants in the interface level of the industrial marketing envt. interface level of the industrial marketing envt. greatly influenced by the multiple publics.They are:greatly influenced by the multiple publics.They are:

1.1. Financial publicsFinancial publics2.2. Independent pressIndependent press3.3. Public Interest groupsPublic Interest groups4.4. General publicGeneral public5.5. Internal PublicInternal Public

3.Macro environment3.Macro environment

The dynamic forces of the macroenvt. have a major The dynamic forces of the macroenvt. have a major impact on both the publics and interface level of the impact on both the publics and interface level of the industrial envt.industrial envt.

The primary problem with the macro envt is that it keeps The primary problem with the macro envt is that it keeps changingchanging

The various Macro envt factors are:The various Macro envt factors are:1.1. EconomicsEconomics2.2. EcologyEcology3.3. Physical envt.Physical envt.4.4. CultureCulture5.5. TechnologyTechnology6.6. Demographic InfluenceDemographic Influence

4. Government’s influence on 4. Government’s influence on the IM envt.the IM envt.

Govt. charged with administering and Govt. charged with administering and controlling nations and their subdivisions, controlling nations and their subdivisions, transcends the IM envt. transcends the IM envt.

In performing its multifaceted functions, In performing its multifaceted functions, govt enables and facilitates, but also govt enables and facilitates, but also hampers and disallows, industrial actions.hampers and disallows, industrial actions.

In the interface envt, govt laws, In the interface envt, govt laws, regulations, and activities affect all regulations, and activities affect all participants. participants.

Govt activities influencing the IM Govt activities influencing the IM envt.envt.

Primary functions of govt. are to:Primary functions of govt. are to:

1.1. Protect Cos. from each otherProtect Cos. from each other

2.2. Protect consumers from unfair business Protect consumers from unfair business practicespractices

3.3. Protect the larger interests of society against Protect the larger interests of society against unrestrained business behaviorunrestrained business behavior

4.4. Ameliorate income inequality in societyAmeliorate income inequality in society

5.5. Provide economic stabilization through control Provide economic stabilization through control of unemployment and inflation.of unemployment and inflation.

These function involves:These function involves:

1.1. Regulations agenciesRegulations agencies2.2. Laws/politicsLaws/politics3.3. Program fundingProgram funding4.4. Research fundingResearch funding5.5. Import/export regulationImport/export regulation6.6. Levying taxesLevying taxes7.7. Providing social programsProviding social programs8.8. Controlling interest rates.Controlling interest rates.

Govtal factors influencing IMGovtal factors influencing IM

Anticipating govtal actionsAnticipating govtal actions Influencing govtal actionsInfluencing govtal actions Political & Legal influencesPolitical & Legal influences Govt Agencies and LegislatorsGovt Agencies and Legislators

Strategies for Managing envt.Strategies for Managing envt.

Marketers have various strategies available to use Marketers have various strategies available to use in influencing their respective envts. Once in influencing their respective envts. Once threats or opportunities are identifiedthreats or opportunities are identified

Through envtal monitoring, Through envtal monitoring, three types of envtal three types of envtal mgmt. Strategies are open to the firm they are:mgmt. Strategies are open to the firm they are:

1.1. Independent strategiesIndependent strategies: these are efforts by the : these are efforts by the company to reduce envt. Uncertainty through company to reduce envt. Uncertainty through the use of its own resources and ingenuity, such the use of its own resources and ingenuity, such as the use of more aggressive pricing strategies as the use of more aggressive pricing strategies in retaliation against competitors or a corporate in retaliation against competitors or a corporate advg campaign to enhance public image.advg campaign to enhance public image.

2. 2. Cooperative strategies: Cooperative strategies: It involves cooperation, It involves cooperation, implicit or explicit, with other groups, firms, or implicit or explicit, with other groups, firms, or industries in the envt., such as joint venturing with industries in the envt., such as joint venturing with foreign or domestic competitors, or including foreign or domestic competitors, or including ecologist, women or bankers on the board of ecologist, women or bankers on the board of directors. directors.

3.3. Strategic Maneuvering: Strategic Maneuvering: it involves strategies that it involves strategies that are designed to alter or change the firm’s are designed to alter or change the firm’s relationship with respect to its interface envt.Such as relationship with respect to its interface envt.Such as Eastman Kodak’s entry into the telecommunication Eastman Kodak’s entry into the telecommunication market.market.

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