1 Industrial Market Vs Consumer Market Market Structure Industrial Market Geographically conc. Fewer buyers (relatively) Big buyers ( small number of large buyers) Consumer Markets Geographically dispers Mass markets Free Market (large number of buyer Understanding Industrial markets
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Industrial Market Vs Consumer Market Market Structure
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Industrial Market Vs Consumer MarketMarket Structure
Industrial Market
Geographically conc.Fewer buyers (relatively)Big buyers( small number of large buyers)
Consumer Markets
Geographically dispersedMass marketsFree Market(large number of buyers)
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Industrial Market Vs Consumer MarketMarket Structure - Example
Industrial Market ( Rutile forPaints)
Major ten cities.Fewer buyers (example 500)Oligopolistic buyers with cloutTo access international market(Asian, Nerolac, ICI etc.)
Consumer Markets (paints)
Even in small villagesMass markets ( 1 billion )Small customersnormally competition is within the country.
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Industrial Market Vs Consumer MarketBuyer Behavior
Industrial Market
*Evaluated for functionalityrational/task motive to buying.*Purchasers are experts & focusis more on performance/service.*Higher interaction with thesupplier. * Formal processes.
Consumer Market
*Social / psychological factors are important.*Family involvement & focusmore on product per se.*Nor personal relationshipwith the supplier.* Less of formal processes.
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Industrial Market Vs Consumer MarketBuyer Behavior - Example
Industrial Buyer for AC
*Evaluated for functionality( evaluation by tech committee)*Purchase through tendering Process & brand less important.*Discuss technical details, price negotiation etc.*Formal processes of documentation etc.
Customer for AC
•Should look good & matchthe décor.*Want to buy LG only(because neighbor has)*Go to a shop, select, negotiate pay & forget.* Less of formal processes.
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Industrial Market Vs Consumer MarketProducts
Industrial Market
* Technical complexity and customized.* Service, delivery and availability is very important.
Customer Markets
* Standardized.
*. Service, delivery and availability is somewhat important.
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Industrial Market Vs Consumer MarketProducts - Example
Samsonite Outsourcing soft luggage
* Each component is as per Samsonite specification.
* Service, delivery and availability is very important as it affects supply chain of the company.
Customer for Samsonite softLuggage
* Standardized product range to select from.
*. Service, delivery and availability is somewhat important, can wait for a Specific color / size.
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Industrial Market Vs Consumer MarketDecision making
Industrial Market
* Distinct observable stages
* Multiple influencers and decision makers.
Consumer Market
* Unobservable mental stages, not very clear pattern.
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Industrial Market Vs Consumer MarketDecision making - Example
Industrial Buyer – Soaps for Workers canteen
* Need identification, selection, procurement etc.* O.K. from the workers union, agreement by contractor, purchase departments negotiation & placing order.
Customer
* Low involvement buying and impulse purchase (the exact choice criteria difficult to identify) & varies from situation to situation.
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Industrial Market Vs Consumer MarketDistribution channel characteristics
Industrial Markets
* Shorter, more direct & fewer linkages between seller and buyers.
Consumer Markets
* Indirect and multiple linkages
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Industrial Market Vs Consumer MarketDistribution channel characteristics -Example
Hotel buying Cold Drinks
* Supplied directly by the distributor, may even be serviced by company employee or a regular basis.
Customer for Cold drinks
* Normal distribution style of distributor to retailer to customer. Virtually no interaction with company.
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Industrial Market Vs Consumer MarketPromotion
Industrial Markets
* Emphasis on personal selling or one to one dealing.
Example : Selling fridgeswith decals. You go and dealwith Coke or Pepsi H.O.
Consumer Markets
* Emphasis on mass market promotion.
Example : You plan an adv.campaign to highlight decalsand generate customer flow.
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Industrial Market Vs Consumer MarketPricing
Industrial Markets
* Competitive bidding & multistage negotiation.
* Sharing of cost data & budgeting of acceptable profits in many cases.
Consumer Markets
* Normally MRP & MOP
* Concept of list price & its implementation.
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Industrial Market Vs Consumer MarketPricing - Example
Industrial (CSD purchase Of Rum )
* Competitive bidding & selection on basis of L1.
* Sharing of production and overhead cost data with CSD and price based on cost + margin.
Consumer Markets for Rum
* Normally MRP & MOP
* Concept of list price & its implementation in the trade.
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A big reseller can be treated as a Industrial Buyer
Channel characteristics : Direct service by the manufacturer.
Price characteristics : Very hard on negotiation, if they get better price, it straight goes to profits.
Economics of demand : Based on actual consumer off-take of the products and hence derived. If one design clicks, it is stocked more in anticipation.
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Organizational Customer Type of purchasing organization
Commercial Enterprise
1. Industrial Dealers & Distributors – Essentially their objectiveis to trade on the items. ( relatively narrow scope ).
2. OEM – These consumers use the products as component of their own output. The stakes are high as their final output
depends on your product. ( Maruti as a user of headlights ). In emergency, they can make the vehicle & fit headlights later.
3. Users ( consumers ) – They are the final consumers of the product and their total operation depends on you. Example:Eastern Coal Fields for Tisco. No coal => No Steel.
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Organizational Customer Type of purchasing organization
Government agency
1. Standard procurement processes – Registration, Tender, L1 etc.
2. Public accountability – everything by rule books as far as documentation.
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Organizational Customer Type of purchasing organization
Institutions ( Private & Public Sector )
1. Tisco giving its workers, watches as Diwali gifts.
2. XIM-B purchasing air-conditioners for faculty offices.
3. DSP cooperative buying suitcases for their members.
Characteristics : Normally one time deals, large orders, less of technical evaluation, non – specialist buyers.
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Materials and parts
1. Raw materials ( natural gas, HDPE etc.)2. Manufactured materials ( copper wire, steel sheets )3. Component parts ( switches, motors or customized gears )
Characteristics : Normally large custom made orders are sold By the manufacturers & standard products by industrial.
Characteristics: Normally major installations, because ofextensive interaction required and long negotiation time required,the manufacturers deal directly with the customer & accessories are
Characteristics : Normally industrial distributors are used & services are provided by the individual contractors ).
Organizational Customer
Based on Type of products purchased
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Example : Procurement of Injection Moulding Machine
1. R & D : Designs the moulds which are to be used.2. Production : Output levels, installation needs.3. HRD : Manpower implications, skills to be imparted. 4. Quality Assurance : Responsible for output consistency.5. Maintenance : Ease of operation, availability of spares,
AMC etc.6. Finance : Long & short term financial implication.7. Purchase department : Price, payment terms, delivery
terms.
Characteristics of Organizational Procurement
Multiple Influences
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Example : Procurement of Rutile for paints
1. Material Planning : Exact forecasting of demand, factoring of international prices Vs domestic prices, foreign exchange implication, inventory carrying cost etc.
2. Supplier rating : Based on the the quality reports, delivery records , price factor, payment terms etc. the suppliers are rated and
3. Economic order quantity : The quantity to order, frequency of ordering etc. are planned so as to optimize the profitability of the organization.
Characteristics of Organizational Procurement
Technical sophistication
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Example : Procurement of Rutile for paints
4. Value Analysis : The option of using a lesser quantity ofcostly Rutile for getting the same output level by change of formulation is explored.
In absence of the raw materials, whether any alternative can be used is worked out. How the option of airlifting impactcost etc. is worked out before decision making.
Characteristics of Organizational Procurement
Technical sophistication
Concept of optimization w.r.t constraints
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1. Large number of buying center : Government departments are everywhere. A lot of them purchase locally.
2. Political interference : 3. Specified govt. contracts :
2. Independent press – Impact on reputation of company( Dhabol power corporation )
3. Public interest groups – Environmentalists( Euro II , CNG vehicles, Narmada
bachao)
4. General publics – MacDonald's coating French fries with beef tallow Business serves the society
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Industrial Marketing EnvironmentMacro Environment
1. Economics - Increased demand for oil led to increase in pricesof oil in the world markets. Changes the cost base of mostoil based companies. Also changed the demand pattern of automobile ( petrol to diesel ).
Government policies like subsidizing diesel at the cost of petrol.
2. Ecological influences - The concern for the environmentso emission norms are stringent & industry has to adjust.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.
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Industrial Marketing EnvironmentMacro Environment
3. Physical environmental Influences – Steel plants need ironore, water & lime stone deposits for setting up. MP, Bihar andOrissa have the concentration of steel plants..
4. Politico / Cultural influences – Hire and fire policy of west Vsmilitant trade unionism & job protection in India.
5. Technological influences – Typewriters manufacturers had to shift market focus, change products etc after PC’s and wordprocessors became common.
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Industrial Marketing EnvironmentMacro Environment
6. Government influences –
Anticipating governments action: WTO treaty signingand IMF loans linkages for govt. The govt. needs the loan so it is likely to sign the treaty.
Influencing Govt. actions: Lobby for reduction in exciseduty (to create level playing field).
Lifting of Liquor ban in A.P. ( a lot of lobbying ).
a. Create Product differentiator (Bonding power of cementGujrat Ambuja Cement – compressive strength)
b. Aggressive pricing (coal based power plants Vs Gas based power plants)
c. Comparative advertising - Dhabol Power Corporationcame up with the very good adv telling the good theplant has brought about in the area, water supply, school, employment, plus electricity generation cost(compared with other plants etc.)