BUSINESS MARKETING

(MKTM4061)
Credit hrs: 3/5ECTS
2022/23, YEAR IV SEM. 1

CHAPTER 1: INTRODUCTION TO BUSNESS MARKETING

1. An Overview of Business Marketing
Marketing delivers a standard of living. In the case of business marketing, this standard is
delivered to business organizations, public agencies, and not-for-profit organizations of all kinds,
large or small. Figure 1.1 is a simplified view of the buying and selling activities of the three
major participants in industrial or business markets: private profit making organizations at all
kinds and sizes; public institutions (government agencies) at all levels; and not-for-profit
institutions.
Figure 1.1 a simplified View of Buyers and Sellers in Business Marketing
Three Major Categories
Sellers Buyers
Private profit making Private profit making
organizations organizations

Government agencies Government agencies

Not for profit organizations Not for profit organizations

1.1Definition of Business Marketing

A business marketer or an industrial marketer is an individual or an organization that sells
goods and services to other businesspeople, businesses, institutions, or organizations. The
business marketer may also be called a business-to-business marketer or seller.
A business buyer is an industrial or business purchaser who buys for reasons other than self-
gratification or self consumption. Typically, they purchase or rental is made for one of three
reasons:
1. To incorporate the product or service into the products or services that the organization
produces (for example, AMCE purchases laminated safety glass for auto windshields);

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 2. To facilitate the operation of the organization (for example, East Africa Bottling purchases
automobiles for distribution and its salespeople): or
3. To resell the product or service (for example, a retail store like Bambis purchases packaged
food products to resell immediately, without any modifications, to consumers).
Business marketing is the marketing of products and services to organizations rather than to
households or ultimate consumers. The purchase is made, not for self-gratification, but rather to
achieve organizational objectives. Business marketing is also called business-to-business
marketing, industrial marketing, commercial marketing, institutional marketing, government
marketing or organizational marketing.
Business marketing consists of individuals and organizations that acquire goods and services
used to produce other products and services that are sold, rented, or supplied to others. This
market includes buyers from many types industries: manufacturing, construction, transportation,
communication, banking, finance, insurance agriculture, and mining. It also encompasses a
range of organizations that do not have profit as a primary goal. Government agencies- federal,
state, municipal, etc is considered business markets. So too are such institutions as hospitals,
churches, prisons, schools, colleges, and universities. Even the Red Cross can be classified as
part of the business market.

1.2 Classification of Business Products

Some products can be identified clearly as industrial products: forklift trucks, bulldozers, pallets,
injection molding machines, and jet engines are industrial or business products. Still other
products with little or no adaptation may be considered either business or consumer products,
depending on the circumstances in which they are purchased and used. For example, identical
computers may be found in word processing applications in the office and in the home.
The traditional method of classifying business products is based on how the goods are used.
This system consists of the seven categories
1. Capital Equipment and Investments
Capital equipment and investments require significant financial expenditure. Thus, marketers
may have to extend credit to the buyer, assist the buyer in securing funds or loans, or offer the
buyer leasing agreements. The high cost of capital expenditures also means that the buying
organization's top executives will be involved in the purchase decision. Capital equipment
items are always installed in a fixed location.

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Capital equipment and investments can be sub-categorized into:
i) Land, Buildings, and Other Companies.
ii) Single-Purpose Equipment: - Typically, single-purpose equipment is custom made for
only one company or industry. For example, a conveyor system is custom-designed to
traverse a certain factory configuration at a specific speed and varying a stated maximum
load. Customized equipment requires much interaction and negotiation between the
technical sales and service people of the seller and the engineering staff of the client.
iii) Multipurpose Equipment: such as boilers, compressors and hoists, is used by most
manufacturing industries. Such equipment has a horizontal market that is, a market
extending across many industries. The product life cycle tends to be quite long, resulting in
lower risk of obsolescence and longer replacement periods.
2. Accessory Equipment
Accessory equipment includes such readily movable items as spot-welders, hand-held drills,
and forklift trucks in industrial settings, and personal computers and furniture in office settings.
Accessory equipment and machines are standardized, and their marketing involves routine
selling and negotiation. Their relatively lower cost permits most to be considered current expense
items that is; their cost can be charged as an expense in the purchase period rather than having to
be deducted in portions over several years of operation, as is the case for capital equipment
purchases. Thus accessory equipment does not require high-level executive approval prior to
purchase. High demand and extensive horizontal markets for accessory equipment permit the
use of distributors.
3. Component Parts
Component parts are manufactured items, subassemblies, or completely assembled units that are
incorporated into the buyer’s final product. There are two types of components:
i. Standardized components conform to industry accepted dimensions and performance
specifications. Batteries, tires and headlights are examples of standardized components in
the vehicle market.
ii. Custom components, on the other hand, can involve elaborate specifications. Forgings,
castings, automotive windshields, and timing motors are examples of custom components
designed to the exact specifications of the buyer.
Because many components wear out with use and need replacement, components have the
potential for significant replacement sales. Also, the manufacturer using the components to build

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a product may buy substantial volumes of components and be a very important customer for the
component supplier.
4. Process Materials
Process materials are manufacturing materials that tend to lose their identity and may even be
indistinguishable in the final product. Examples of process materials are sheet metals, textiles,
cement, chemicals, electrical and electronic circuit wiring, and additives. The replacement
market for process materials is not substantial. The business marketer may have to provide some
technical assistance to customers, finds price competition keen because competing suppliers are
readily available, and must provide reliable delivery because the customer's production is
dependent on availability of materials.
5. Maintenance, Repair, and Operating (MRO) Supplies
Maintenance, repair, and operating (MRO) supplies are used to facilitate operation of the
organization but do not become part of the final product in the way that component parts and
process materials do. Maintenance and repair items include cleaning agents and tools, paints,
and light bulbs.
Operating supplies include such items as lubricants and coolants for factory machinery,
heating fuels, gasoline for company vehicles, and office supplies, such as envelopes and
printer, fax and reproduction papers.
These items are characterized as having extensive horizontal markets and are relatively low cost,
current-expense items. They are usually purchased routinely, in small quantities and do not
require high-executive approval. The MRO supplier's marketing efforts are similar to those
associated with consumer products, and typically the channel of distribution for MRO goods is
relatively long and indirect.
6. Raw Materials
Raw materials such as agricultural products or natural gas may enter the production process with
little or no alteration. They may be marketed as either OEM or user products. Because of
volatility of supply and sometimes extreme price fluctuations, raw materials markets may exhibit
vertical integration.
7. Business Services
Business services are the fastest-growing segment in industrialized nations. Business services
may be technical, such as computer repair contracts, or non technical, such as janitorial
service. Non technical services usually can be sold across horizontal markets. Typically, the
reliability of delivery of the service is important. Business services are often purchased from

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sources outside of the organization because they can be performed more quickly, more reliably,
or more inexpensively by specialists who make the service their full-time activity.
Table 1.1:Classification of Industrial Products
Type Characteristics Examples
Capital  Often referred to as “installations” Machinery, machine
Equipment  Exhibits inelastic demand tools, robots
 Usually involves direct distribution
 Requires close cooperation between buyers & sellers
Accessory  Used to facilitate production, administrative, or Office equipment,
Equipment marketing activities personal computers, desk
 Exhibit elastic demand top printers, hand tools,
 Distribution channels often longer fire extinguishers
 Standardized and less costly than capital equipment.
Process  Generally bought per specifications Chemicals, plastics,
Materials  Prepared by the customer (user) Cement
 Cannot be regrouped in the finished product
 Considerable emphasis on price and service in the
sales process.
MRO supplies  Facilitate the production operation Paint, cleaning supplies,
 Short life and less expensive filters, pens, greases,
 Usually standardized specifications lubricating oil.
 Longer channels of distribution
Component parts  Become part of other product Timing devices, switches,
 Identified and distinguished easily spark plugs
 Consistent quality required
 Delivery schedule critical
Raw Materials  Basic lifeblood of industry Farm products, lumber,
 Become part of manufactured product iron ore, etc.
 Exhibit inelastic demand
 Usually bought in large quantities
 Large of short channel of distribution
Business  Support organizational operations Banking, insurance,
Services  Spectacular growth financial, advertising,
 Specialized providers marketing research,
 Cost effective consulting, etc.

1.3 TYPES OF INDUSTRIAL CUSTOMERS

Industrial customers are normally classified into four groups: (i) Commercial Enterprises, (ii)
Governmental Agencies, (iii) Institutions and (iv) Co-operative Societies. These are as shown as
follows in the Figure 1.2
1.3.1 Commercial Enterprises
These are private sector, profit seeking organizations consisting of Industrial Distributors
and Dealers, Original Equipment Manufacturers (OEM’s) and Users.

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 Industrial Distributors and Dealers: They purchase industrial goods and resell them
in the same form to other industrial customers such as commercial enterprises,
government and institutional customers.
 Original Equipment Manufacturers (OEM’s): These industrial customers purchase
industrial goods to incorporate them in the products that they produce.
 Users: When a commercial enterprise purchases industrial products or services to
support its manufacturing process or to facilitate business operations it is classified as a
User.
1.3.2 Government Customers
The largest purchasers of industrial products (in India) are Central and State Government
Departments such as Railways, Defense, Telephones, State Transport Undertakings, State
Electricity Boards and Director General of Supplies and Disposal (DGS & D). These
government units purchase almost all kinds of industrial products and services and they
represent a huge market.
1.3.3 Institutional Customers
Public and private institutions such as Hospitals, Schools, Colleges, Universities and
Prisons are classified as Institutional Customers.
1.3.4 Cooperative Societies
An association of persons forms a Cooperative Society. It can be manufacturing units like
Cooperative sugar mills or non-manufacturing organizations like Cooperative banks or
Cooperative housing societies.

1.4 Components of Industrial markets

1. Commercial market:- Individuals and firms that acquire products to support, directly or
indirectly, production of other goods and services
2. Trade industries:- Retailers and wholesalers that purchase products for resale to others
• Resellers:- Retailers and wholesalers
3. Government: e.g. Federal, State, Local, Foreign governments,…
4. Public and private institutions

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 Figure 1.2: Industrial customers

1.5 Business Market versus Consumer Market

The industrial markets are geographically concentrated;
the customers are relatively fewer;
the distribution channels are short;
the buyers (or customers) are well informed;
the buying organizations are highly organized and use sophisticated purchasing
techniques;
the purchasing decisions are based on observable stages in industrial marketing.
Industrial marketing is more a responsibility of general management in comparison to consumer
marketing. Sometimes, it is difficult to separate industrial marketing strategy from the corporate
(company) strategy.
But in case of consumer marketing, many times the changes in marketing strategy are carried out
within the marketing department, through changes in advertising, sales promotion, and
packaging strategies.
However, the changes in industrial marketing strategy generally have company-wide
implications.

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Table 1.2: Differences between Industrial Marketing and Consumer Marketing
No. Bases Industrial Markets Consumer Markets
1. Market characteristics Geographically concentrated, Geographically disbursed,
Relatively fewer buyers Mass markets
2. Product characteristics Technical complexity, Customized Standardized
3. Service Characteristics Service, timely delivery and Service, delivery, & availability
availability very important somewhat important
4. Buyer behavior Involvement of various functional Involvement of family members
areas in both buyer and supplier firms Purchase decisions are mostly
Purchase decisions are mainly made on made on physiological/social/
rational/performance basis psychological needs
Technical expertise Less technical expertise
Stable interpersonal relationship Non-personal relationship
between buyers and sellers
5. Decision-making Observable stages Unobservable
Distinct Mental stages
6. Channel Characteristics. Shorter, More direct Indirect
Fewer intermediaries/middlemen Multiple layers of intermediaries
7. Promotional Characteristics Emphasis on personal selling Emphasis on advertising
8. Price Characteristics Competitive bidding and negotiated List prices or maximum retail
prices price (MRP)
List prices for standard products

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