Definition of Industrial Marketing

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Definition of Industrial Marketing

Industrial marketing consist of all activities involved in the marketing of products & services

to organisation (commercial enterprise, profit & non profit institutions, government

agencies & resellers) that use products & services in the production of consumer or

industrial goods & services, & to facilitate the operation of their enterprise.

In simple IM is one where manufacture is selling its products to another business either in

the form of raw materials, component parts or selling its service for consumption, use,

resale or for value addition

Process of exchange in the IM

1.product or service exchange

2.Information exchange

3.Financial Exchange

4.Social exchange

Contrasting Industrial & consumer marketing

1. The structure of the market

2.product usage

3.the nature of buying behaviour involved

4.The channels of distribution

5.promotional variables

6.Pricing strategies

Characterstics IM

1. Market Characteristics

2. Product Characteristics

3. Service Characteristics

4. Buyer behaviour

5. Decision-making

6. Channel Characteristics.

7. Promotional Characteristics

8. Price Characteristics

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Economics of Industrial Demand

Derived Demand

Industrial customer purchase goods & services for use in the producing other goods & services

Joint Demand

It occurs when products require existence of other products.

Cross elasticity of demand

It is the response in the sales of one product to a price change in another.

Fluctuating Demand

The industrial marketer must monitor the changing preferences of the consumers & demand

patterns

Resellers Market

Resellers like industrial firm do not purchase goods & services for personal consumption but

do so facilitate the operations of their businesses.

TYPES OF INDUSTRIAL CUSTOMERS

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Purchasing in commercial enterprise

The purchase of goods & services by commercial enterprise depends on the nature o the

business,the size of the firm & technical complexity of the products purchased.

Activity chart for a typical purchasing process in a commercial enterprise

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Types & Analysis of Environment

Strategies for managing industrial environment

A continuous monitoring of the external environment will spin out new opportunities &

threats which need to be identified

Three strategies are available for managing external environment

1.independent strategies

2.cooperative strategies

Strategic planning

The nature of Industrial Buying

The main objective of purchase /materials management is defined as buying right items in

the right quantity,at the right price,for delivery at the right time & Place.

Purchasing objectives

AIR & 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 A PARTICULAR FIRM)

ENVIRONMENT

LOW-COST, SKILLED MANPOWER

H R & FINANCIAL RESOURCES MARKETING EFFECTIVENESS

CUSTOMERS & COMPETITORS

SUPPLIERS

ECONOMIC TECHNOLOGICAL

GOVT., POLITICAL, LEGAL CULTURAL & SOCIAL PUBLIC - PRESS, SHARE HOLDERS, INVESTORS & PUBLIC INTEREST

EXTERNAL (O&T ANALYSIS) MAC

RO (AFFECTS ALL FIRMS)

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1.Delivery/Availability

2.Product Quality

Product may satisfy Indian standard or British standard specifications but may fail on shop

floor

Consistency in product quality to reduce cost of inspection

Interruptions in production process due to rejections

Loss of time due to arranging of rejected materials

3.Lowest price

4.services

Prompt & accurate information from suppliers

Application or technical assistance

Spare parts availability

Repairs & maintenance capability

Training if required

5.Supplier relationship

Personal objectives

1.higher status

2.job security

3.salary increments

4.promotions

5.social considerations

Phases in buying decision

1. Recognition of problem or need

2. Determination of the application or characteristics & quantity of the needed product

3. Development of specifications or description of needed product

4. Search for & qualifications of potential suppliers

5. Obtaining & analyzing supplier proposals

6. Evaluation of proposals & selection of suppliers

7. Selection of an order routine

8. Performance feedback & post purchase evaluation

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Types of purchase or buying situations

1.new purchase or new task

2.change in supplier or modified rebuy

3.repeat purchase or straight rebuy

Purchasing Practices of Different Types of Industrial / Business Customers

1. Purchasing in commercial enterprises

2. Purchasing in Govt. units

3. Purchasing in Institutions

4. Purchasing in cooperative societies

The buy grid frame work

DECISION MAKING UNIT

The roles of buying center members are as follows/Buying centre roles

1. Initiators

2. Buyers

3. Users

4. Influencers

5. Deciders

6. Gatekeepers

KEY MEMBERS IN BUYING ORGANISATION/Identifying key members of buying

centre

1. Top Management

2. Technical Persons

3. Purchasers

4. Accounts/Finance Persons

5. Marketing People

Models of organisation behavior

1.The webster & wind model

2.The sheth model.

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The webster & wind model

The sheth model.

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Industrial market segmentation

Market segmentation is the process of dividing a market into groups of

customers who have similar requirements for a product or service

offering.

Segmenting & Targeting Frame work

1. Conduct marketing research to collect data on buying firms & competition

2. Identify macro segments based on analysis of data

3. Select those macro segments which satisfy company objectives & resources

4. Evaluate each selected macro segment

-> if yes select the target macro segments based on specific criteria

-> if no identify within each macro segment meaningful micro segments

5. Select the target micro segments based on earlier specified criteria

6. Profile the target segments based on buying Organisation & DMU characteristics

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PROCEDURE USED IN MARKET SEGMENTATION

The procedure has 3 steps .

1. Conduct marketing research to collect data / information on existing and potential buyers,

and competitors.

2. Carry out data analysis by using statistical techniques of factor and cluster analysis in order

to identify different segments.

3. Profile each segment by its characteristics like application (or/use), location, volume of

requirements, etc.

Benefits & limitations of market segmentation

Benefits

1.to compare marketing opportunities of different market segments

2.if resources are available with the organisation it develop separate programs for different

segments

3.the budgeted allocation of resources can be done effectively to various segments

Limitations

1. Increase in marketing expense such as inventory carrying cost,& advertisement cost.

2. Difficulty in segmenting due to the existence of great differences in buying practices,

customer characterstics, & product applications

Criteria used for selection of segmentation variables

Measurable – can the size,growth & buyer characterstics of the segment be measured.

Differentiable – the segments should be distinguishable & should respond differently to

separate marketing plans or strategies

Substantial -The segments should be large enough in terms of sales potential & profits

VARIABLES (BASES) USED IN SEGMENTING INDUSTRIAL (BUSINESS) MARKETS

Industrial market segmentation is done first based on “Macro Variables” , and then

subdivided into “Micro Variables”, if necessary.

Macro Variables. These segmentation variables are identified based on

industry/organizational characteristics like.

(i) Type of industry / Type of customer.

(ii) Company size / Usage rate.

(iii) Customer location / Geographical area. (iv) End-use / Application / Benefits of a product.

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Micro Variables. Macro segments are further subdivided into micro – segments’, if needed.

Micro Variables are based on purchasing decisions like

(a) Customer interaction needs,

(b) Organizational capabilities,

(c) Purchasing policies,

(d) Purchasing criteria,

(e) Personal characteristics.

Sequential Segmentation Process. Often, business marketers use more than one variable to

subdivide the market.

Target marketing

After segmenting the market into various segments the company should then evaluate the

various segments

Evaluation of market segments can be done by using the following factors

1.size & growth

2.profitability analysis

3.competitive analysis

4.company objectives & resources

Target market strategies

1.concentrated marketing

2.differentiated marketing

3.undifferentiated marketing

Niche marketing: A niche is a more narrowly defined customer group that seeks products

or services tailored specially to the individual needs & preferences.

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Positioning

Is defined as the distinct place a product occupies in the target customers relative to competing

products.

Procedure for developing a positioning strategy

1.product variables – for standard industrial products the product quality or performance can be

used for differentaiation

2.service variables – offering superior pre sales service is important as industrial products are

technical products it is the easy way of positioning considering service variable.

3.personal variable – by recruiting capable employees & training them who can differentiate

with the competitors

4.Image Variables – image is the way buyer perceives a company. this can be achieved by the

company by adopting various promotional tools

Characterstics of market oriented organisation

1. Shared values

2. Organisation

3. Strategy

4. Stake holders

The role of Marketing in strategic planning

Hierarchy of strategies

1.corporate strategy

2.business level strategy

3.functional strategy

Strategic planning at corporate level

1.Developing corporate mission & objectives

Defining SBU

3.allocation of resources to SBU

Developing corporate strategies to fill the strategic planning gap

Developing corporate strategies

The strategic planning gap can be filled by three alternative strategies

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A.intensive growth strategy

B.market penetration stratgey

C.market development strategy

Business unit strategic planning

CHANGES IN PRODUCT STRATEGY

Business marketers must understand that a product strategy is dynamic and flexible.

It changes due to changes in

(i) Customer needs.

(ii) Technology.

(iii) Government Policies / Laws.

(iv) Product Life – Cycle.

A General Model of Product Life – Cycle (PLC)

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CLASSIFICATION OF NEW PRODUCTS

(i) Products that are new to the world & innovative.

(ii) Products that are new to the company, but not new to the world.

(iii) Improvements / Revision to the existing products.

(iv) Addition to the existing products.

(v) Repositioning existing products to new market segments

(vi) Products with substantial cost reductions without reduction in

performance.

NEW PRODUCT DEVELOPMENT PROCESS

It consists of 7 Stages :

(i) Idea generation, (ii) Idea Screening, (iii) Concept development and testing, (iv) Business

analysis, (v) Product development,

(vi) Market testing, & (vii) Commercialization.

PRODUCT STRATEGIES FOR EXISTING PRODUCTS

Business marketers should take the following steps :

1. Evaluate the performance of existing products by using “product evaluation matrix”.

2. Examine the relative strengths and weaknesses of the company’s products by using “

perceptual mapping” technique.

3. Decide the product strategies, based on above analysis.

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HOW ARE PRICES SET?

Price is the only element in the marketing mix that produces revenue.

In small companies, prices are often set by top management rather than by marketing or

salespeople.

In large Top management sets the general pricing objective and policies and often approves the

prices proposed by lower levels of management.

The most common mistakes what organisations do when pricing are

1. price is not revised often enough to capitalize on market changes

2.price is not varied enough for different market segments, and purchase occasions.

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PRICE DETERMINANTS OR FACTORS INFLUENCING PRICING DECISIONS

(i) Pricing objectives, (ii) customer analysis, (iii) cost analysis, (iv) competitive analysis, (v) Govt.

policies.

SETTING THE PRICE

The firm has to consider many factors in setting its pricing policy.

1. Selecting the pricing objective

2. Determining demand

3. Estimating costs

4. Analyzing competitors' prices and offers

5. Selecting a pricing method

6. Selecting the final price.

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SELECTING THE PRICING OBJECTIVE

The company first has to decide what it wants to accomplish with the particular product.

For example, if a recreational-vehicle company wants to produce a luxurious truck camper

for affluent customers, this implies charging a high price.

FACTORS AFFECTING PRICE SENSITIVITY

1. Unique-Value Effect. Buyers are less price sensitive when the product is more unique.

2. Substitute-Awareness Effect:- Buyers are less price sensitive they are less aware of

substitutes.

3. Difficult-Comparison Effect:- Buyers are less price sensitive with they cannot easily

compare the quality of substitutes.

4. Total-Expenditure Effect.:- Buyers are less price sensitive the lower the expenditure is to

their income.

End-Benefit Effect:- Buyers are less price sensitive the lower the expenditure is to the total

cost of the end product.

SELECTING A PRICING METHOD

Markup pricing,

Target-return pricing,

Perceived-value pricing,

Value pricing,

Going-rate pricing, and

Sealed-bid pricing.

Markup Pricing. The most elementary pricing method is to add a standard markup to the

product's cost.

Target-Return Pricing. The firm determines the price that would yield its target rate of

return on investment (ROI).

Perceived-Value Pricing. Companies are basing their price on the product's perceived value.

Value Pricing. several companies have adopted value pricing by which they charge a low

price for a high-quality offering.

GOING-RATE PRICING. In going-rate pricing, the firm bases its price largely on competitors’

prices with less attention paid to its own cost or demand.

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SEALED-BID PRICING. The firm bases its price on expectations of how competitors will price

rather than on a rigid relation to the firm's costs or demand.

Channel Design Process

Analyzing Customer Needs

Establish Channel Objectives

Consider Channel Constraints & List Channel Tasks

Identify Channel Alternatives

Evaluate Channel Alternatives

Select the Channel Member

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