Industrial Marketing Environment Unit 2

8/3/2019 Industrial Marketing Environment Unit 2

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Unit II

UNDERSTANDING INDUSTRIAL

MARKETS AND ENVIRONMENT

(Industrial Marketing Environment, Types of

Customers, Types of buying situations, Segmentation)


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LEARNING OBJECTIVES

Know types of environment and strategies to manage external

environment

Understand the types of industrial customers as well as

industrial goods and services.

Know the marketing implications for different types of

customers and products.

Understand the purchasing orientations and practices of

industrial customers.


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Industrial Marketing Environment

Environment refers to the aspects of surroundings. Therefore marketing

Environment may be defined as a set of conditionsSocial, Legal

,Economical ,Political or Institutional that are uncontrollable in nature and

affects the functioning of organization or its particular department

Market is ever-changing, complex and Global in scope

Environment has two components:

1. Internal Environment

2. External Environment


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4

Industrial Marketing Environment

BuyerSeller

Interface

Publics

Macro Environment

Govt. influences

UnderstandingIndustrialmarkets


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Types of EnvironmentAIR & WATER POLLUTION

SOLID WASTE DISPOSAL

CONSERVING NATURAL RESOURCES

WATER, POWER, TRANSPORTATION

COMPANY LOCATION, IMAGE / REPUTATION

R & D & PRODUCTION FACILITIES

ECOLOGICAL

PHYSICAL

INTERNAL(S&W ANALYSIS)

MICRO(AFFECTS APARTICULARFIRM)

ENVIRONMENT

LOW-COST, SKILLED MANPOWER

H R & FINANCIAL RESOURCES

MARKETING EFFECTIVENESS

CUSTOMERS & COMPETITORS

SUPPLIERS

ECONOMIC

TECHNOLOGICAL

GOVT., POLITICAL, LEGAL

CULTURAL & SOCIAL

PUBLIC - PRESS, SHAREHOLDERS, INVESTORS &PUBLIC INTEREST GROUPS

EXTERNAL(O&T ANALYSIS)

MACRO(AFFECTSALL FIRMS)


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Physical and Ecological Environment

Ecological Environment

Causes a problem

Due to industrial untreated waste

Use of pesticide and chemicals

Remedies Government regulation ,emission norms are stringent & industry has to adjust.

Industries response to the welfare activities

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.

Physical Environment

Steel plants need iron ore, water & lime stone deposits for setting up. MP, Bihar

and Orissa have the concentration of steel plants.Labour intensive Industry in Ludhiana & Punjab for low cost labour


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Internal & External Environment

Internal Environment

The purpose of carrying out internal environment analysis is to

define periodically the specific strength and weaknesses of the

company. It involves all the factors of the firm including

marketing, finance, R&D, manufacturing, organisation structure

and human resources .

External Environment

Macro and micro external factors changing continuously. This

changes spin out new opportunities and threat.


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Industrial Marketing Environment Micro Environment

1. Customer/ Competitor :

An industrial marketer need to gather information on competitors strategy,

objective , strength and weaknesses and reaction pattern

The competitive environment is characterised by market structure

The type of market structure determines the strength of competition

2. Suppliers:

The servival and success of both supplies and buyes depend on their

1. Interdependent relationship

2. Commitment to quality and service

3. Knowledge of external environmental factor

Any interruption in the flow of inputs affect the entire industrial chain


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Industrial Marketing Environment Macro Environment

1. Economics :

Features of the economic environment that are relevant to the marketers

include inflation , debt , shortage, and unemployment

Increased demand for oil led to increase in prices of oil in the world markets

Changes the cost base of most oil based companies & also changed the

demand pattern of automobile ( petrol to diesel ).

Government policies like subsidizing diesel at the cost of petrol

Change in economic condition do not affect all the sectors of market

Ex.Change in interest rate affect more to auto industry than textile or other


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2. Government / Political / Cultural/ legal influences

increase in global competition , industrial marketer needs to understand the action

of government increases

Hire and fire policy of west Vs militant trade unionism & job protection in India

Political Environment includes the stability of govt. , their policies towards the

business & international trade restrictions

3. Technological influences : Typewriters manufacturers had to shift market focus,change products etc after PCs and word processors became common

According to recent technological forecast CAD & CAM(computer aided design

& manufacturing )& robotic will affect future marketing


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4. Public:

It consists of various group who help or hinder an industrial organisations effort

to serve markets. Some of these group are press, institutional investors

shareholders banks public interest group and general public

5. Cultural and social :

The impact is more than in consumer market than industrial markets.

Industrial firm decide to have joint ventures with foreign companies or decide

to set up factories abroad, there is a need to study the cultural and social aspects

of the societies in those countries to ensure the compatibility


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Classification Of Industrial Customers

Industrial customers are classified according to following

concepts

Classification is done depending upon purchase procedure

adopted by the customers

Type of firm and its objective of existence is also considered

for classification

Purpose of purchase


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Classification of Industrial Customers

INTERMEDIARIES /MIDDLEMEN (DISTRIBUTORS)

OEMS

USERS

PUBLIC SECTORUNITS (BHEL)

GOVT. UNDERTAKINGS(RAILWAYS, DEFENCE UNITS)

PUBLIC INSTITUTIONS(GOVT. HOSPITALS)

PRIVATE INSTITUTIONS(SCHOOLS, COLLEGES)

MANUFACTURINGUNITS (SUGAR, MILK)

NON-MANUFACTURINGUNITS (BANKS, HOUSING)

COMMERCIALENTERPRISES

GOVERNMENTCUSTOMERS

INSTITUTIONAL

CUSTOMERS

CO-OPERATIVESOCIETIES

INDUSTRIAL /BUSINESSCUSTOMERS


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1. Commercial Enterprises

Commercial enterprises are private sector, profit-seeking organisations such as

IBM, General Motors,etc.

Purchase industrial goods and/or services for purposes other than selling directly

to ultimate consumers.

They purchase products for different uses, it is more useful from a marketingpoint of view to define them in such a way as to understand their purchasing

needs at the time of examination of the varieties of products they purchase and

how marketing strategy can be developed to meet their needs.

It is more logical to look at commercial enterprises: (i) industrial distributors or dealers,

(ii) original equipment manufacturers (OEMs), and

(iii) users.


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Purchasing Practices Adopted by Commercial Enterprises

Technical & Commercial dept are involved

Main intention is to improve operational efficiency & contribute to firms

competitive advantage

Purchasing procedure comprises identifying and selecting competent

vendor

In many cases buyer is required to provide know-how to improve its own

products efficiency and quality.

Many large firms provide facilities or ask them to secure sit near to their

future project sites for timely supply.

TATA Motor has set up vendor base near to their Sanand Facility for

Key-vendors and shifted all vendors from Singur to Sanand


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A. Industrial Distributors and Dealers Industrial distributors and dealers take title to goods;

They are the industrial marketers intermediaries;

Acting as wholesalers or even retailers

The intermediaries not only serve the consumer market but also they serve

other business enterprises, government agencies, or private and public

institutions.

They purchase industrial goods and resell them in the same form to other

industrial customers


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B. Original Equipment Manufacturers (OEMs)

These industrial customers purchase industrial goods to incorporate OEMs

into the products they produce. For instance, a tyre manufacturer (say,

MRF), who

sells tyres to a truck manufacturer (say, TELCO), would consider the truck

manufacturer as an OEM. Thus, the product of the industrial marketer

(MRF)

becomes a part of the customers (TELCOS) product.


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C. Users An industrial customer, who purchases industrial products or services, to support

its manufacturing process or to facilitate the business operations is referred as a

user. For example, drilling machines, press, winding machines, and so on are

the products which support manufacturing process, whereas the products which

facilitate the operations of business like computers, fax machines, telephones,

and others.

There may be overlapping of categories means a manufacturer can be a user or

an OEM. For example, a car manufacturer buys a drilling machine to support themanufacturing operation and is referred to as a user. The same car manufacturer

also buys batteries which is incorporated into cars and hence, it can be also

referred to as an OEM.


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2.Government Customers

In India, the largest purchasers of industrial products are Central

and State Government departments, undertakings, and agencies,

such as railways, department of telecommunication, defense,

Director General of Supplies and Disposal (DGS&D), state transportundertakings, state electricity boards, and so on.

These Government units purchase almost all kind of industrial

products and services and they represent a huge market.


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Government Customer cont

Government department follows rate list and vendor list as approved by

DGS&D frequently purchased items.

Some department have their own approved vendor list and rates for supply.

All divisions belonging to that firm follow those rate list.

Main Tasks / Procedure : Registration of the firm & its Products, Tender

Advertisements, no negotiation in Open tenders, negotiations done in

closed / limited tenders. Preparations of comparative statements.

Orders Finalized on lowest bidders (suppliers offering Lowest prices /

Landed Costs


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3. Institutions

Public and private institutions such as hospitals, schools, colleges, and

universities are termed as institutional customers.

Some of these institutions have rigid purchasing rules and others have more

flexible rules.

An industrial marketing person needs to understand the purchasing

practice of each institute so as to be effective in marketing the products or

services.


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4. Cooperative Societies

An association of persons forms a cooperative society. It can be

manufacturing units (e.g. Cooperative Sugar Mills) or non-manufacturing

organisations (e.g. Cooperative Banks, Cooperative Housing Societies).

They are also the industrial customers.

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


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Classification of Products & Services

RAW MATERIALS (IRON ORE, CRUDE OIL)

MANUFACTURED MATERIALS

(STEEL, FUEL OIL)

COMPONENT PARTS (BEARINGS, TYRES)

LIGHT EQPT (COMPUTERS, HAND TOOLS)

PLANT/BUILDING (FACTORIES, OFFICES)

SUPPLIES (LUBRICANTS, ELECTRICAL ITEMS)

SERVICES (LEGAL, COURIER)

MATERIALS& PARTS

(ENTER PRODUCT

DIRECTLY)

CAPITAL ITEMS(USED IN

PRODUCTION /

OPERATIONS)

SUPPLIES /

SERVICES(TO SUPPORT

OPERATIONS)

INDUSTRIAL

PRODUCTS /SERVICES

SUB ASSEMBLIES (EXHAUST PIPE IN M.C.)

HEAVY EQPT (MACHINES, TURBINES)


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Buying Situation Types New purchase (or New task),

Change in supplier, and

Repeat purchase;


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New Purchase

The industrial buyers buy the item for the first time in this situation. The

need for a new purchase may be due to internal or external factors. For

example, when a firm decides to diversify into new purchase situations the

buyers have limited knowledge and lack of previous experience. Therefore,

they have to obtain a variety of information about the product, the

suppliers, the prices and so on. The risks are more, decisions may take

longer time, and more people are involved in decision making in the new

purchase decisions.


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Change in Supplier This situation occurs when the organisation is not satisfied with the

performance of the existing suppliers, or the need arises for cost reduction or

quality improvement. The change in supplier may also be necessary if

technical people in the buying organization ask for changes in the product

specification, or marketing department asks for redesigning the product to

gain some competitive advantage. As a result, search for information about

alternative sources of supply becomes necessary. Even though, certain

attributes or factors can be used to evaluate the suppliers. There may be

uncertainty regarding the supplier who can best meet the needs of the buying

firm. Therefore, the modified rebuy situation occurs mostly when the buying

firms are not satisfied with the performance of the existing suppliers


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Repeat Purchase

If the buying organization requires certain products or services

continuously and products/services had been purchased in the past then the

situation of repeat purchase occurs. In such a situation, the buying

organisation reorders/places repeat orders with the suppliers who are

currently supplying such items. This means that the product, the price, the

delivery period, and the payment terms remain the same in the reorder, as

per the original purchase order. This is a routine decision with low risk and

less information needs, taken by a junior executive in the purchase

department. Generally, the buying firms do not change the existing

suppliers if their performance is satisfactory.


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Industrial market segmentation

Industrial market segmentation is a scheme for categorizing industrial

and business customers to guide strategic and tactical decision-making,

especially in sales and marketing. While government agencies and industry

associations use standardized segmentation schemes for statistical surveys,

most businesses create their own segmentation scheme to meet their

particular needs.

While similar to consumer market segmentation, segmenting industrial

markets is different and more challenging because of greater complexity in

buying processes, buying criteria, and the complexity of industrial products

and services themselves. Further complications include role of financing,

contracting, and complementary products/services.


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Importance of Market Segmentation

The goal for every industrial market segmentation scheme is to identify the

most significant differences among current and potential customers that

will influence their purchase decisions or buying behavior, while keeping

the scheme as simple as possible

This will allow the industrial marketer to differentiate their prices,

programs, or solutions for maximum competitive advantage


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Two-Stage Market Segmentation(Wind & Cardozo Model)

Yoram Wind and Richard Cardozo (1974) suggested industrial market

segmentation based on broad two-step classifications of

1. macro-segmentation and

2. micro-segmentation

This model is one the most common methods applied in industrial markets

today. It is sometimes extended into more complex models to include

multi-step and three- and four-dimensional models.


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Macro-segmentation

Macro-segmentation centres on the characteristics of the buying

organisation [as whole companies or institutions], thus dividing the market

by:

1. Company / organization size

2. Geographic location

3. SIC code (standard industry classification),

4. Purchasing situation

5. Decision-making stage.

6. Benefit segmentation

7. Type of institution


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Macro-segmentation

Company / organization size: one of the most practical and easily identifiable

criteria, it can also be good rough indicator of the potential business for a company

Geographic location is equally as feasible as company size. It tells a company a lot

about culture and communication requirements.

SIC code (standard industry classification), which originated in the US, can be a

good indicator for application-based segmentation. However it is based only on

relatively standard and basic industries and product or service

Ex. classifications such as sheet metal production, springs manufacturing,

construction machinery, legal services, cinemas etc.

Different technologies or have innovative products are classified under the other

category


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Macro-segmentation

Purchasing situation, i.e. new task, modified re-buy or straight re-buy.

This is another relatively theoretical and unused criteria in real life. As a

result of increased competition and globalisation in most established

industries, companies tend to find focus in a small number of markets, get

to know the market well and establish long-term relationship with

customers.

Decision-making stage. This criterion can only apply to newcomers. In

cases of long-term relationship, which is usually the objective of most

industrial businesses, the qualified supplier is normally aware of the

purchase requirement, i.e. they always get into the bidding process right at

the beginning


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Macro-segmentation

Benefit segmentation: The products economic value to the customer

which is one of the more helpful criteria in some industries

It recognises that customers buy the same products for different reasons,

and place different values on particular product features

For example, the access control industry markets the same products for

two different value sets: Banks, factories and airports install them for

security reasons, i.e. to protect their assets against. However, sports

stadiums, concert arenas and the London Underground installs similar

equipment in order to generate revenue and/or cut costs by eliminating

manual ticket-handling.


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Macro-segmentation Type of institution, e.g. banks would require designer furniture for their

customers while government departments would suffice with functional

and durable sets.

Hospitals would require higher hygiene criteria while buying office

equipment than utilities

And airport terminals would need different degrees of access control and

security monitoring than shopping centres


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Micro-segmentation

Buying decision criteria

Purchasing strategy,

Structure of the decision-making unit

Perceived importance of the product to the customers business

Attitudes towards the supplier


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Micro-segmentation Buying decision criteria :product quality, delivery, technical support, price,

supply continuity

Purchasing strategy, which falls into two categories

First, there are companies who contact familiar suppliers (some have vendor

lists) and place the order with the first supplier that fulfils the buying criteria.

These tend to include more OEMs than public sector buyers.

Second, organisations that consider a larger number of familiar and unfamiliar

suppliers, solicit bids, examine all proposals and place the order with the best

offer


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Micro-segmentation

Structure of the decision-making unit can be one of the most effective

criteria. If this is the case, the supplier can develop a suitable relationship with

the person / people that has / have real decision-making power. For example,

the medical equipment market can be segmented on the basis of the type ofinstitution and the responsibilities of the decision makers

Perceived importance of the product to the customers business

automotive transmission, or peripheral equipment, e.g. manufacturing tool

Attitudes towards the supplier: Personal characteristics of buyers (age,

education, job title and decision style) play a major role in forming the

customers purchasing attitude as whole.


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Nested Approach to Segmentation(Bonoma & Shapiro Model)

They proposed the use of the following five general segmentation criteria

which they arranged in a nested hierarchy:

1. Demographics: industry, company size, customer location

2. Operating variables: company technology, product/brand use status,

customer capabilities

3. Purchasing approaches: purchasing function, power structure, buyer-

seller relationships, purchasing policies, purchasing criteria

4. Situational factors: urgency of order, product application, size of order

5. Buyers personal characteristics: character, approach


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Case Study

Since the mid-1980s, Sona Steering Systems (later renamed as Sona Koyo

Steering Systems Ltd) has been a competitive player in the Indian auto

component industry. The firm has made remarkable progress in competitiveness

through numerous initiatives over the past two decades. Starting as a single-

source supplier of simple mechanical steering systems, the firm has

systematically improved competitiveness, evolving into a capable Deming Prize-

winning firm with capabilities across the industry value system. By November2005, the firm had many customers and, for some of them, had

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Industrial Marketing Environment Unit 2