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INDUSTRIAL MARKETINGINDUSTRIAL MARKETING
Business to Business MarketingOr
Organizational Marketing
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Organizations Include
Commercial enterprises Govt. enterprises Institutional customers
Cooperative societies
Importance is to create Value for the buying
organization, with focus on products andservices- Marketing Perspective
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INDUSTRIAL MARKETING
Characteristics of Industrial Marketing: Markets are relatively concentrated and
channels of distribution are shorter
Buyers are well informed and are highlyorganized Buyers are sopisticated in purchasing
techniques Multiple influencers contribute different points
of view to purchase decision
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Examples
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Industrial Marketing Defined:
It consists of all activities involved in the marketing ofproducts and services to the organizations that use
products and services in the production of consumer or
industrial goods and services and to facilitate the
operation of their enterprises.
Human Activity directed towards satisfying the wants
and needs of the organizations through: Product or Service Exchange Information Exchange Financial Exchange
Social Exchange
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Industrial vs Consumer Marketing
Industrial Markets Consumer Markets
MarketStructure
Geographically concentratedRelatively fewer buyersOligopolistic competition
Geographically dispersedMass MarketsMonopolistic competition
Products Technical complexityCustomizedService delivery and availabilityimportant
StandardizedService delivery and availabinot so important
BuyingBehaviourFunctional InvolvementRational motives predominateTechnical expertiseInterpersonal relationships
Family involvementSocial/psychological motivespredominatesLess technical expertiseNonpersonal relationships
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Industrial vs Consumer Marketing
Industrial Markets Consumer Markets
Decision Making Distinct Observablestages
Unobservable mentalStages
ServiceCharacteristics
Service availability andtimely delivery is veryimportant
Service availability and timdelivery is somewhatimportant
Channels Shorter and Direct Indirect and Multiplelinkages
Promotion Emphasis on personalselling
Emphasis on advertising
Price Competitive bidding,negotiation on complexpurchasesList price on standarditems
List price
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Channel Distribution-B2B
Sales ForceManufacturer'sRepresentative
Manufacturer
Distributor/Dealer Distributor/Dealer
Customers
Distributor/Dealer
CustomersCustomers
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Channel Distribution-B2C
Company'sSales Force
Manufacturer'sRepresentative/
Agents
Manufacturer
Retailer
Wholesaler/Stockist
Consumer
Retailer
Consumer Consumer
Wholesaler/Stockist
RetailerRetailer
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Economics of Demand
1. Derived Demand means the demand is derived (or caused by, orlinked to) demand for a consumer item.
The Demand is derived from the expectations of theactions of ultimate consumers.
Example1: demand for lithium is derived from thedemand for lithium batteries, which is in turn derivedfrom the demand for cell phones
Example 2: The demand for wool does not exist in and of
itself. wool is demanded to spin yarn because yarn isdemanded to weave cloth because cloth is demandedto make coats .
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Example-3
A company manufacturing and marketing
precision steel tubes to bicycle, a
manufacturer is doing business marketing.
Industrial marketer of the precision steel tube
company must understand the needs of
bicycle manufacturers such as Hero Cycle
and Atlas Cycle.
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Industrial Demand Contd..
Joint Demand
It occurs when one product requires the existence of
other to be useful.
Example 1: Production of Bread requires flour, yeast,
eggs, salt, sugar and preservatives.
If for some reason any of these ingredients are not
obtained, the purchase of other ingredients are
discontinued.
Example 2:Why are printers sold very cheaply and ink
cartridges for printers very expensive?
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Industrial Demand Contd..
Cross Elasticity of Demand
The responsiveness of the sales of one product to aprice change in another, has a marketing impact.
Example: The Quantity of steel demanded is related to
the price of the close substitute, aluminum.
The degree to which resources are substitutable forone another is an important issue in industrial
MarketingLarger the number of substitutes, greater the crosselasticity of demand
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Resellers Market
A market in which customers buy products
in order to resell them as wholesalers or
retailers.
Resellers may restrict their purchases to oneproduct or brand or offer a variety of
products and brands.
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A big reseller can be treated as a
Industrial Buyer-Characteristics
Purchase : Not for consumption, but for business.
Market characteristics : Very few of them and theyare big in size and have centralized purchasing.
Product characteristics : Specific private labels.Attributes such as availability and maintenance play alead role in product success or failure.
Buyer characteristics : Technical evaluation / rationalprocess rather than social or psychological criteria.
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Channel Characteristics- Direct service by themanufacturer.
Price characteristics : Very hard on negotiation, ifthey get better price, it straight goes to profits-grossprofit.
Promotional characteristics: personal selling have agreat emphasis-pull strategy
Economics of demand :when whole sale and retailstocks of consumer goods are relatively high in theface of declining consumer demand ,resellers naturallyreduce their purchase from manufacturers.
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Industrial Marketing Concept
Key task is to identify the needs of the target
market and adapt the organizations product
and service to satisfy the needs more
effectively than the competitors. Key emphasis on the formation of a
partnership between buyer and seller-
Relationship Marketing.
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A Need to Understand Industrial
Markets-An Effective
Marketing plan
Types of Industrial Customers
Commercial EnterpriseGovt. Agencies
Institutional Customers
Co-Operative Societies
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Commercial Enterprise
Industrial Dealers & Distributors Essentially theirobjective is to trade on the items.
OEM These consumers use the products ascomponent of their own output.. ( Maruti as a user ofheadlights )other e.g.; steel, cement, batteries,generators, plastic, chemicals, etc
Users ( consumers ) They are the final consumersof the product. Example: Lubricants, coal, paper, handtools, management consulting services etc.
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Government Agencies
Standard procurement processesRegistration, Tender,
Public accountability everything by rule
books as far as documentation.Examples: Dept. of Defense buying trucks from GM,Dept. of Revenue buying computers, Paper industry
buying paper, and legal services
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Institutional Customers
Tisco giving its workers, watches as Diwali gifts.
XIM-B purchasing air-conditioners for faculty offices.
DSP cooperative buying suitcases for their members.
Characteristics : Normally one time deals, largeorders, less of technical evaluation, non specialist
buyers.
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Classification of Industrial Products
and Services
Based on how products or services enter the
production process, and their relative costs.
Materials and Parts-Goods that enter the productdirectly
Capital Items-goods that affect the cost structure of
the firm
Supplies and Services-goods that facilitate the firms
operation.
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Materials and Parts
Marketing Implications: Most components are standardized and purchased
in large quantities.
Some components are custom made-emphasis on
direct selling. Trade advertising and personal contact.
While for Component parts, sellers must strive to
create product differentiation or sell on price basis.
Consumer advertising-an important part of marketingstrategy
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Capitals Items
They are treated as a depreciating expense.Marketing Implications Strategy depend on product
classification(installation or accessory.
Due to extensive interaction with various depts.
Direct selling is utilized.
Negotiations take considerable time on factors
like price, delivery period, installation time returnon investment, credit facilities(payment terms)
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Supplies and Services
Marketing Implications: Direct Marketing-though not cost effective for
suppliers, often limit to major resellers and large
users
Purchasing agents dominate
Key success lies in the suppliers reputation for
dependability
Advertising-include catalogues and trade journals
Word of mouth reputation-consultative in nature
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Purchasing Orientations
Business buyers choose one of the threePurchasing Orientations:
Buying Orientation Procurement Orientation
Supply Chain Management Orientation
O
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Buying Orientation
The purchasing firm has a short term focus- they
follow: Lowest price usually selects the lowest price supplier
Quality and availability are the factors considered
Negotiation style used is I win-you lose
Gain Power-Tactics used-Commoditization and multisourcing
Commoditization- buyers argue that there is no differencebetween various suppliers. Product is a commodity and
price is only negotiable.
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Risk- Buyers avoid risk To reduce penalization for making a mistake
Follow standard purchase procedure
Depend on suppliers who have proved their
performance earlier.
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Procurement Orientation
The purchasing firm has a strategic, longterm focus and is proactive
Buyers seek both quality improvement and
cost reduction It adopts- a collaborative relationship with major suppliers
Working closely with other functional areas
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Collaborative Relationship with Major Suppliers
Strive for quality improvements and cost reduction Integrative negotiation-assumed that resources can
be expanded to the benefit of both buyer and
supplier
Working closely with other functional areas
Buyers are involved in describing the specifications
of the product and ensuring quality.
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Case let
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Case let
In the late 90s the marketing head of the precision tube manufacturer
discussed with this regional managers the draft marketing plan for thecurrent year.
After evaluating various market segments, they decided to focus their
marketing efforts on 2 out of 6 segments. These were bicycle and
automobile. However, within 2 months of finalization of the marketing
plan, the branch manager reported recessionary trends in the bicycle
market segment as the main reason for the decline is sales in aparticular region. The marketing head rushed to talk to major bicycle
manufacturer such as Hero cycles, Avon cycles and Atlas cycles. The
recessionary trends had been noticed in the domestic and export
markets of bicycle industry for the past 6 months, but the particular
branch was not aware of the changes taking place in the economicenvironment and the needs of the bicycle market.
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Case Analysis
The branch manager had not communicated with thecustomers marketing, production and finance dept.
Interacting with only purchase dept, the branch manager
and his sales persons could not understand the changes
taking place in the customers needs and environmentalconditions, resulting in drop in sales in bicycle segment.
Streamlining the competitor information help marketing
manager to take effective decision on pricing, product
development, or improvement, sales force and target
markets
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Competitors
Understanding competition is as important asunderstanding customers.
Effective in building strategy and achieving the
organizational objectives.
Competitors information influence the decisions on
the various elements of marketing strategy like
target market segments, pricing, product mix and
distribution.
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Macro Environmental Factors
Economic- Monitoring the changes in the economic
environment important in both domestic and
international market.
Some factors that need to be monitored are:
Business cycle Interest rates
Currency rates
Fiscal policies
Industrial production Investment
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Illustration
During the recessionary period in the Indian
economy, the demand for the capital goods,
steel and aluminum fell much more than
other goods such as computer software,paper, chemical and pharmaceutical. Hence
the marketers need to be aware of the
impact of the demand recession in their
market segments.
T h l i l T h l i l d l t h
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Technological-Technological developments have
major impact on the industries like
telecommunication, computers and
semiconductors, and even with the start of newindustries may affect the existing industries
To respond effectively to the technological
changes, there should be a good rapport among
marketing, R&D and production.
Government, Political and Legal-with
globalization, the marketers have to understand
the policies and rules of their Govt. and thosearound the world.
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The major functions of the Govt. are to protect
the consumers, companies and the society
from unfair practices and guide them towards growth, andthey are through political and legal.
The industry heads have an association with
Confederation of Indian Industries(CII) and Federation
of Indian Chamber of Commerce and Industries(FICCI)and can influence the governmental actions by
discussion with the concerned ministry.
Political environment includes the stability of the govt. and
their policies towards business and international trade
restrictions.
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Indian govt. has enacted Monopolies and Restrictive
Trade Practices(MRTP) to protect companies from
unfair business practices.
Public- Public groups like press, institutional
investors, shareholders, banks public interest
groups and general public
Press is capable of publishing news that can help orhinder the reputation and business of an industry
Ex: Satyam faced a negative publicity when the
companys senior executive were arrested for
committing a fraud and inflating profits.
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Ex: When an industrial accident occurred at Union
Carbide in Bhopal due to the leakage of the deadly
methyl isocyanate, the company had to wind up itsoperations in India and compensate to the victims of
the gas tragedy.
Cultural and Social- If an industrial firm decides to
have a joint venture with a foreign company anddecides to set up a factory abroad, they need to
study the social and cultural aspects of those
countries to have a better compatibility.
Strategies for managing
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g g g
Industrial environmentImportant factors towards the success of the industrial firms
Collecting information about the customers and competitors
Analyzing the trade and govt. publications
Carrying out marketing research and economic forecast
These factors help the firms to
Understand change in the customer needs and demands Monitor competitors actions and strategies
Identify technological innovations
Identify the changes taking place in the govt. political and legal
factors
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Independent Strategies
These are independent efforts of the organizationto use its strengths and weakness to their
maximum benefit.
To overcome the competitor strategy of pricing.
To meet the public concern of the ecological
environment.
To take care of the political and legal regulations
To design an effective marketing plan
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Cooperative Strategies
An industrial firm co operates with otherfirms, industries, groups in the environment
to protect the industries from unfair means Ex: Industry associations like CII and FICCI
Strategic Planning
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Strategic Planning This plan is carried out by identifying the long term products and
markets, based on the forecasts of the external environment.
Backward Integration- The firm seeks the ownership or
control on its systems. Ex: A co. may set up an manufacturing
unit of its raw material, where earlier it used to buy from its
suppliers.
Forward Integration- The firm seeks the ownership or controlof its distribution system. Ex: A co. sets up a warehouse facility
in place of its agents.
Horizontal Integration- The firm seeks the ownership or
control of some of its competitors Ex: A co. acquires
management control on some of its competing firms.