Business Marketing

08MBAMM311
MBA 3 sem marketing elective
Dimension of Industrial
Marketing
Module 1
Nature of industrial Marketing,
IM Vs CM, Economics of Industrial Demand – The
Resellers Market,
The IM concept, Understanding IM, Types of IM,
Classifying IP, Orgn. Procurement Characteristics,
The IM envt. Govt. Rule.
 Nature of Industrial Marketing
 The basic tenets of CM are equally applicable
to I Market, the composition of IM is different
as the forces affect I demand.
 The IM has been the backbone of the high
standard of living
 It is dynamic and challenging
 It provides more employment oportunities.
 Why study IM
The study of IM has become important due
to the following problems:
 A failure to provide proper guidance and
stimulation for R and D of new product.
 ; ; to exploit market for new product
 Inability to define new method of promotion
 A failure to innovate in disbn.
 Increase competition
 Lack of modern approach to solve problems
 Industrial vs Consumer Marketing
management
 In IM, markets are relatively concentrated and
channels of disbn are shorter, buyers are well
informed, highly organised, and sophisticated in
purchasing techniques, and multiple influencers
contribute different points of view to purchasing
decisions as against CM.
 IM is more a responsibility of general management.
 In CM changes in marketing strategy are often
carried out completely within the marketing dept.
whereas the changes in IM strategy tend to have
companywide implications.
 Definition of IM
IM consists of all activities involved in the
marketing of products and services to
organisations (i.e., commercial
enterprises, profit and not for profit orgns.
Govt. agencies, and resellers) that use
products and services in the production of
consumers or industrial goods and
services,and to facilitate the operation of
their enterprises.
Marketing perspective definition
IM is human activity directed towards
satisfying wants and needs of
organizations through the exchange
process.
 Exchange transaction in IM
Exchange transaction in IM consists of:
1. Product or service exchange
2. Information Exchange
3. Financial Exchange
4. Social Exchange
 Comparing and Contrasting
Industrial Vs Consumer Marketing
The difference exist in:
1. Market Characteristic
2. Product characteristic
3. Buyer Characteristic – a. Stable
Relationship, Buyer b. Seller Interfaces.
4. Channel characteristic
5. Promotion characteristic
6. Price characteristic.
 1. Market characteristic
 Size of the market
 The geographic concentration
 The competitive nature of the markets
Economics of Industrial Demand
 Derived Demand
 It is the single most important force in the
marketing of industrial goods and services.
 We shall now clarify this statement with an
example.
 The garment industry, which makes readymade
garments, will have a constant requirement for
buttons, zips, labels etc. Since the garment
industry will sell the garments to the consumers
as per their taste and choice the demand for the
finishing items like buttons and all will always be
there for continuous production. They may vary
in size shape or color but the demand will
always be there as long as we have the
garments with us.
 Joint Demand

Joint demand is commonplace in industrial

marketing. It is when one product requires
the existence of other product to be
useful. While exceptions may be found
most products require several component
parts or ingredients.
 Cross Elasticity of Demand

It is the responsiveness of the sales of one

product to a price change of other.
The example of this kind of demand
estimate we can say in industrial market is
steel and aluminum. The quantity of steel
in demand is closely related to its close
substitute aluminum.
 The Reseller’s Market
Industrial marketing will also exist in resellers market
also.

By the term resellers market we mean the buyers who

buy The materials but do not consume it for some
final product but again sell the product further ahead
to some other final goods manufacturer.

We can also term the resellers as merchandisers.

Examples of this kind of resellers/merchandisers are

like the people who market dyes & chemicals,
industrial chemicals and machine accessories etc.
 Similarities and differences in
Reseller’s Market and IM
 Market Characteristics
 Product characteristics
 Buyer characteristics
 Channel Characteristic
 Promotional Characteristic
 Price characteristic
 Economics of demand
 The Industrial Marketing concept
 The marketing concept holds that the key task
of the organization is to define the needs of a
target market and adapt the orgn’s pdt. Or
service to satisfy those needs more effectively
than its competitors.
 This concept is applicable in both CM & IM,
More effective in CM as Industrial orgns tend
to be technically oriented.
 Understanding Industrial
Markets
 The industrial market is composed of
commercial enterprises, governmental
organizations, and institutions whose purchasing
decisions vary with the type of industrial good or
service under consideration.
 Effective marketing programs thus depend upon
a thorough understanding of how marketing
strategy should differ with the type of rganization
being targeted and the products being sold.
The diversity of IM and Products
purchased
 Organizational customers
One way to understand the diversity of industrial
customers and the products they purchase is to
begin by examining the various types of
customers.
Industrial cus-tomers are normally classified
into three groups:
(1) commercial enterprises,
(2) governmental agencies, and
(3) ) institutions.
 (1) Commercial Enterprises

 Commercial enterprises, such as IBM, General Motors,

Computer Land, and Raven Company, purchase
industrial
goods and/or services for purposes other than selling
directly to ultimate consumers.
Thus_ it is more logical to look at commercial enterprises
as consisting of
1) industrial distributors or dealers,
2) original equipment manufacturers (OEMs), and
3) (3) users.
These categories; which at times tend to overlap, are
useful to the industrial marketer because they point
out how products and services are used by buying
firms.
 (2) govt. Agencies
 The largest purchasers of industrial goods in the
United States are the various fed-eral, state, and
local governments-spending nearly a trillion
dollars annually for products and services.
When a particular product or service is needed,
government buyers may negotiate directly with
vendors or carefully develop detailed specifications
and invite qualified suppliers (through the media)
to submit a price bid in writing.
 (3) Institutions

Public and private institutions such as churches,

hospitals, colleges, sanitariums, and prisons are
another important classification of industrial
customers.

Some of these institutions follow rigid rules and

purchasing procedures while others follow far more
casual procedures.

The important difference with this type of industrial

customer is that effective marketing
rests on the industrial marketer’s ability to recognize the
way in which each institution purchases its goods or
services.
 Classifying Industrial Products
The following are the three broad classifications of IP:
(1) materials and parts, goods that enter the product
directly – Raw materials, Mfd. materials and
components parts.
(2) Capital items, goods that affect the cost structure
of the firm – Installations, Accessories
(3) Supplies and services, goods that facilitate the
firm’s operation – Supplies and services.
 Unique Characteristics of Organizational
Procurement

Selling in the industrial market is complicated by a broad

spectrum of customers. Commercial enterprises
(including resellers), governmental organizations, and
institutions give buying responsibility to individuals who
are quite knowledgeable in their particular markets.
These individuals are often more realistic in assessing the
competitive value of a vendor’s product than is the
vendor. Thus, they normally identify, evaluate, and select
suppliers, domestic or foreign, who provide the greatest
value.
The foundation for formulating successful industrial
marketing strategy lies in knowing how the buying
function is administered in a diversity of markets and
situations.
 Purchasing in Commercial
Enterprises
How goods and services are purchased by commercial
enterprises depends on the nature of the business,
the size of the firm, and the volume, variety, and
technical complexity of the products purchased:
 Multiple Influencers
 Technical Sophistication
 Value Analysis: Value analysis involves
systematized techniques for reducing costs and
improving the performance value of materials,
components, and manufacturing processes
 Value analysis, as developed by General Electric,
involves a step by-step procedure:
 Value analysis Process
1. Selection: A product that is ripe for improvement is selected
for value analysis.
2. Information gathering. The team coordinator collects drawings,
costs, scrap rates, usage forecasts, and operations sheets before
the team first meets. Team members are asked to send in
whatever information they have.
3. Function definition. The team meets and defines each function of
the product. Next the team determines the present cost of each
function. This reveals which functions represent major
4. Generation of alternatives. Team members suggest ideas for new
and different ways to accomplish the functions. This is known as
brainstorming. All ideas are recorded and later culled to a list of
manageable size. expenditure
5. Evaluation of Alternatives. Alternatives are
evaluated on various factors, including
feasibility and cost. This further reduces the
list to one or two good ideas.
6. Presentation. The final alternatives are
refined and presented to a management
committee as value analysis change
proposals
7. Implementation. The approved value analysis
change proposal is translated into an
analysis change order and implemented
 Purchasing in Government Units

As stated earlier, the largest purchaser of goods and

services in the United States is government. To
compete in this market, industrial marketers must
develop a thorough understanding of the
complexities involved in selling to the government.
This will provide an idea of just how specialized and
complex governmental purchasing really is.
 Widely Dispersed Markets
 Complicated procurement laws
 Understanding Govt. Contracts
 Institutional Purchasing

Purchasing in the institutional market, as previously

discussed, involves practices lying somewhere
between commercial enterprises and government.
For instance, a multicampus state university with
centralized buying for all its campuses may
purchase products much like a government
customer; while another multicampus university
with decentralized purchasing authority may
purchase products in the same manner as
commercial customers.
Institutional buyers are a mixture of government and
private organizations
 Purchasing in the Reseller’s
Market
Buyers in the reseller’s market select vendors
by evaluating them primarily on the expected
contribution toward increased sales
volume and profits.
Thus, buyers in the reseller’s market are not
only interested in the products of potential
suppliers but in their marketing policies as
well (e.g., their choice among intensive,
selective. or exclusive distribution, and their
attitude toward cooperative advertising and
the provision of point-of purchase displays).
 The Industrial Marketing
Environment
 Industrial buyers and sellers operate in a
dynamic environment, one constantly
posting new opportunities and threats.
 How well buyers and sellers understand
the envt. Within which they operate, and
how well they communicate with one
another, foretells their capabilities of
profiting from or being damaged by the
envt’s many surprises and shocks.
 The Industrial Marketing
Environment
 The envt. Within which industrial firms
operate is depicted in the figure:

Buyer-seller
Interface

Public

Macro environment

Government
 Levels/ types of IM Envt.
 Due to the several interfaces that exist
between firms that interact directly with
one another, we refer to the first level as
the Interface level.
 The next two levels we refer as the poublic
and the macro environment.
 All the three discernible levels of a firm’s
envt. Exist within a purview of a final envt.
entity., Government.
 1. Interface level.

 The Interface level.

 involves those key participants who immediately
interface with an industrial firm(Buyer or seller) in
facilitating production, disbn., and purchase of a
firm’s goods and services.
 It is the firm’s interface with industrial distributors
and dealers, manufacturer’s representatives and
company’s own sales force.
 The Industrial firm may view itself as IM, a
competitor, an input supplier, a distributor or an
industrial buyer.
Participant in the interface level
 Input supplier
 Distributors
 Facilitators
 Competitors
 2. Public
Public are the distinct groups that have an actual or potential
interest or impact on each firm’s ability to achive its
respective goals.
The sphere of activity of the various participants in the
interface level of the industrial marketing envt. greatly
influenced by the multiple publics.They are:
1. Financial publics
2. Independent press
3. Public Interest groups
4. General public
5. Internal Public
 3.Macro environment
 The dynamic forces of the macroenvt. have a major
impact on both the publics and interface level of the
industrial envt.
 The primary problem with the macro envt is that it keeps
changing
 The various Macro envt factors are:
1. Economics
2. Ecology
3. Physical envt.
4. Culture
5. Technology
6. Demographic Influence
 4. Government’s influence on
the IM envt.
 Govt. charged with administering and
controlling nations and their subdivisions,
transcends the IM envt.
 In performing its multifaceted functions,
govt enables and facilitates, but also
hampers and disallows, industrial actions.
 In the interface envt, govt laws,
regulations, and activities affect all
participants.
Govt activities influencing the IM
envt.
Primary functions of govt. are to:
1. Protect Cos. from each other
2. Protect consumers from unfair business
practices
3. Protect the larger interests of society against
unrestrained business behavior
4. Ameliorate income inequality in society
5. Provide economic stabilization through control
of unemployment and inflation.
 These function involves:
1. Regulations agencies
2. Laws/politics
3. Program funding
4. Research funding
5. Import/export regulation
6. Levying taxes
7. Providing social programs
8. Controlling interest rates.
 Govtal factors influencing IM
 Anticipating govtal actions
 Influencing govtal actions
 Political & Legal influences
 Govt Agencies and Legislators
 Strategies for Managing envt.
Marketers have various strategies available to use in
influencing their respective envts. Once threats or
opportunities are identified
Through envtal monitoring, three types of envtal mgmt.
Strategies are open to the firm they are:
1. Independent strategies: these are efforts by the
company to reduce envt. Uncertainty through the
use of its own resources and ingenuity, such as the
use of more aggressive pricing strategies in
retaliation against competitors or a corporate advg
campaign to enhance public image.
2. Cooperative strategies: It involves cooperation,
implicit or explicit, with other groups, firms, or
industries in the envt., such as joint venturing with
foreign or domestic competitors, or including ecologist,
women or bankers on the board of directors.
3. Strategic Maneuvering: it involves strategies that are
designed to alter or change the firm’s relationship with
respect to its interface envt.Such as Eastman Kodak’s
entry into the telecommunication market.
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