INDUSTRIAL

MARKETING
 M
A
R
K Industrial
B2B
E
Consumer T
(B2C)
I
N
G
 The word "industrial" means
machinery run by power to produce
goods and services. But "industrial
marketing" is not confined to these
types of business activities.
 Defining IM……
• Industrial marketing is the marketing
of goods and services from one
business to another.
• Industrial goods are those which are
used in Industry for producing a
different end product from one or
more raw materials.
 The main features of the B2B
selling process are...
• Marketing is one-to-one in nature. It is relatively
easy for the seller to identify a prospective
customers and to build a face-to-face relationship.
• Highly professional and Trained people in
Buying processes are involved.
• In many cases two or three decision makers
have to be considered in purchasing industrial
products.
• High value considered purchase.
• Purchase decision is typically made by a group of
people ("buying team") not one person.
• Often the buying/selling process is complex
and includes many stages (for example; request for
expression of interest, request for tender, selection
process, awarding of tender, contract negotiations,
and signing of final contract).
• Selling activities involve long processes of
prospecting, qualifying, wooing, making
representations, preparing tenders, developing
strategies and contract negotiations.
• Difference between IM (B2B) and CM
(B2C)
• Lets first see few examples that can
differentiate the two.
 Examples
• An organization is seeking to build a new
warehouse building. After carefully
documenting their requirements, it obtains
three proposals from suitable construction
firms and after a long process of evaluation
and negotiation it places an order with the
organization that it believes has offered the
best value for money.
• A family is at home on a Sunday
night and watching television. An
advertisement appears that
advertises home delivered pizza. The
family decides to order a pizza.
• Walking down a supermarket aisle, a
single man aged in his early 30's
sees a hair care product that claims
to reduce dandruff. He pick's the
product and adds it to his shopping
cart.
• An organization has significant need for legal
services and obtains submissions from two law
firms. Analysis of the proposals and subsequent
discussions determines that there is no price
advantage to placing all of the work with one firm
and the decision is made to split the work between
the two firms based on an evaluation of each firm's
capabilities.
• A pensioner visits her local shopping
mall. She purchases a number of
items including her favorite brand of
tea. She has bought the same brand
of tea for the last 18 years.
• A sales representative makes an appointment with
a small organization that employs 22 people. He
demonstrates a photocopier/fax/printer to the
office administrator. After discussing the proposal
with the business owner it is decided to sign a
contract to obtain the machine on a fully
maintained rental and consumables basis with an
upgrade after 2 years.
 How are purchasing
decisions made?
• Industrial buying is characterized
by rational decision making.
• Industrial buyer behaviour is more
often based on measurable
performance characteristics of the
offering and less on non measurable
perceived characteristics such as style
fashion or peer acceptance.
 Who makes purchasing
decisions & how?
• In industry buyers are often forced to
go through a formal buying process
controlled by their companies which
may involve professional purchasing
staff, specifying engineers, approved
suppliers, quality department
approval etc.
 In industrial buying, there are often a
number of people who exert some degree of
influence on
• (a) whether the company buys or not
• (b) what it buys
• (c) from whom it buys.

Research has indicated that there are, on

average, six people in the prospect
company who influence the buying decision
to some degree.
ON AVERAGE, THE SALESMAN TALKS TO NO
MORE THAN TWO OF THEM!!!
 DMU
• DECISION MAKING UNIT ("DMU influences the
purchase decision.
• Example:- capital equipment’s purchase.

DMU may have :-Managing Director (or Board),

Chief Engineer Production, Works Manager,
Financial Accountant, Cost Accountant and Buyer

It is not always easy to find out who constitutes

the DMU, perhaps because of vested interests
etc.
 Each individual will be primarily interested in
different aspects of the proposed purchase. It
will have some implications for the seller:-

(a) what should be our sales strategy?

(b) what type of information we give them.

(c)which selling methods we should use for

each DMU member.
 What support is available
to the decision makers?
• Industrial buying groups often include
technically and commercially aware
individuals and companies try to make
the process as rational as they can by
installing various procedures.
• Industrial customers often have a high
level of technical knowledge about the
products they are buying.
 What is the influence of
groups in purchasing?
• Because buying groups and procedures
are characteristic of industrial markets it is
likely a reasonable information search will
have been carried out to identify
alternatives.
• It is also likely that post purchase blame or
credit can be shared wider than one
individual which may reduce risk implied in
decision making.
 Maximum value of
transactions
• Maximum value of transactions is
Unlimited.
• Industrial contracts often run into the
millions in the case of high value plant
and equipment or infrastructure, while
at the lower end individual
transactions can be tiny in respect of
consumable items such as pencils.
• While in consumer market, the
most expensive purchase
individual consumers make is
their house, followed by their
car. Neither of these are very
often undertaken when
compared to more consumable
items which may be bought daily
weekly or monthly.
 Barriers to supplier entry
• Buying groups mentioned above
may provide some resistance to
change in industry. These groups
may act like an informal barrier to
competitive entry.
 Switching costs
• Industrial markets often feature high
switching costs.
• This is the cost to the organization of
changing suppliers. Often drawings,
specifications, test results and approvals
will all be affected and buyers may need to
seek the permission or approval of their
customers to change a component in an
item they are selling on.
 Switching costs in CM
• Switching costs in consumer markets are lower
than in industrial situations.
• For an individual consumer to switch from one
brand of toothpaste to another (which might
affect the integrity of their teeth) is likely to be
much less painful than for a company to switch
from one supplier of adhesive to another (which
might affect the integrity of their aircraft wings!).
 Difference between CM and IM
Factor Industrial Consumer
Mass Normally focussed on Often suitable and used
Advertising technical media. Not including TV, Radio and
normally TV. mass circulation print
advertising.
Direct Mail Often very suitable Sometimes not viable
due to small due to high numbers &
numbers low value.
Face to face Often very suitable Rarely suitable for
selling by for company individual items to end
specialists. specialists users, except in retailing
by retailers own staff.
Factor Industrial Consumer
Hospitality Very suitable Not often used for end
because of high consumers.
business value per
decision maker
Discounting Often to reward Discount sales are often
volume customers. used for sales
promotion.
Loyalty Rarely suitable Often suitable, decision
schemes because split maker and person
between buyer making payment are
(individual) and often the same person.
payer (company) Loyalty schemes often
creates ethical act like simple loyalty
problems. discount.
 Factor Industrial Consumer

Specialist Often used for high Mainly suitable for higher

exhibitions and lower value value items unless selling
and or items. consumer wares to retail
trade buyers.
shows.

Opinion Sometimes but total Often used because of

polling. market population is difficulty of addressing
invariably much whole population
smaller.

Focus Not needed, can Often used to infer views

groups. address the whole and preferences of a
population. population.
 Factor Industrial Consumer

Pilot schemes Rarer than in Often used for

consumer markets example test
because of smaller areas for new
market size. product trials.

Point of sale Not often used Extensive use.

displays and except where
communicati distribution involves
ons trade counters and
on some small qty
packaging.
 Viable routes to market
Factor industrial Consumer
Direct sales Often used in Used where needed to
force industry to sell sell to resellers more
direct to buyers than to actual
and specifying consumers.
engineers.
Wholesalers Sometimes used. Often used in chain
before retailers
especially in export
markets.
CommissionedOften used. Sometimes used.
Agents
Multi-level Rarely used. Used for some
marketing specialties.
Distributors Often used. Sometimes used.
 Inference
• The key difference between industrial and
consumer markets is the much greater
number of buyers in consumer or end
markets.
• Consumers are also more involved in mass
communication such as print, television
and radio advertising than their industrial
counterparts.
• Consumer marketing features
informal purchasing procedures.
There are usually fewer individuals
involved in consumer decisions.
• In industrial marketing there us
formal buying procedure and more
people tae involved in the buying
process.
• Motives for buying are rational in
industrial marketing while in
consumer market these are
emotional mainly.
• As there is a much smaller group
of possible buyers in industry,
marketing and selling can often
be carried out face to face by
individuals doing both marketing
and selling tasks while the same
can’t be applied in consumer
market due to large size of the
market.
 Industrial Demand
"Industrial Demand" is an expression of the needs of an
industrial company for products or services that are either

a) for the company's own use, e.g., catering equipment,

effluent treatment equipment, cleaning services etc.

b) for use in the company's manufacturing processes,

e.g., a lathe, lubricants, processing equipment and products.

c) for incorporating into the finished products

manufactured by the company, e.g., components, raw materials
etc.
• While consumer demand is the
expression of the needs of
ultimate consumers - normally
the general public - for products
such as cars, refrigerators,
cosmetics etc.
 Nature of Industrial Demand

• It is a derived demand.
• Ultimately the supply of virtually all "industrial"
products and services is dependent upon
consumer demand. That is, it is derived from
Consumer demand. So it follows that demand for a
company's products will be affected by the
demand for some ultimate consumer product or
service - no matter how far removed the company
might be from the consumer market.
• As we move further back in the "chain" from
the consumer, the number of companies in a
particular industry reduces.

• Steel manufacturer
steel processor companies
consumer goods producing company
consumer

• Similarly, there are relatively few oil extracting

companies, but many companies further down
the "chain" that produce goods derived from oil
products.
 Why to study consumer
demand?
• Just because of the reason that
sales forecasts must be largely based
on customers' assessments of
demand, rather than wholly upon the
suppliers' assessments.
Price manipulation and industrial
demand
Price manipulation, and other gimmick, are
not likely to have much effect on the total
demand for industrial products.
If there is little consumer demand, there will
be a low level of industrial demand that cannot
readily be stimulated by price – cutting.
Moreover there are relatively few suppliers in
the industrial markets, any attempt at a "price
war" is likely to attract price retaliation. The
net effect will then be to reduce profits all
round.
 Competitive tendering
• This is a process where a
purchasing organization
undertakes to procure goods and
services from suitable suppliers.
• The purchasing organization will
seek to obtain a number of bids
from competing suppliers and
choose the best offering.
 The key requirement in any
competitive tender is to ensure
that...
• The business case for the purchase has been
completed and approved.
• The purchasing organization's objectives for the
purchase are clearly defined.
• The procurement process is agreed upon and it
conforms with fiscal guidelines and organizational
policies.
• The selection criteria have been established.
• A budget has been estimated and the financial
resources are available.
• A buying team (or committee) has been
assembled.
• A specification has been written.
• A preliminary scan of the market
place has determined that enough
potential suppliers are available to
make the process viable.
• It has been clearly established that a
competitive tendering process is the
best method for meeting the
objectives of this purchasing project.
 Bidding process
• Suppliers who are seeking to win a
competitive tender go through a
bidding process.
• This would consist of evaluating the
specification (issued by the
purchasing organization), designing a
suitable proposal, and working out a
price.
• There is an old saying in industrial
marketing; "if the first time you
have heard about a tender is
when you are invited to submit,
then you have already lost it."
• A basic requirement for being
successful in competitive tendering; it
is important to develop a strong
relationship with a prospective
customer organization well before
they have started the formal part of
their procurement process.
 Non-tender purchasing
• Not all industrial sales involve competitive tendering.
Tender processes are time consuming and expensive.
• Government agencies are particularly likely to utilize
elaborate competitive tendering processes due to the
expectation that they should be seen at all times to
be responsibly and accountably spending public
monies.
• Private companies are able to avoid the complexity of
a fully transparent tender process.
 From cannon fodder to
preferred tenderer
• The term "cannon fodder" derives from the
World Wars and refers to the massing of
undertrained and recently recruited troops
sent to the fronts to face the enemy.
• It was noted that such troops invariably had a
short survival rate but provided the tactical
advantage of distracting the enemy while
professional soldiers came around from the
side or from behind the enemy.
• In adopting the term to Industrial Marketing
it means those bids being submitted that
have no chance of winning but are involved
to make up the numbers.
• The reader might be wondering why
anybody would go to all of the work of
submitting a tender when they had no
chance of winning; for the same reason that
troops were sent in to battle to die; they
thought they had a real chance.
 Developing a sales
strategy/solution
selling/technical selling
• The important point about solution
selling is that you should not sell the
solution before you understand the
customer's requirements; otherwise
you are likely to sell them an ill-
suited solution to meet their
requirements.
• Sales force management has a critical
function in industrial selling.
• Typical industrial organizations are highly
dependent on the ability of its sales people
to build relationships with customers.
• During periods of high demand (economic
boom) the sales force often become mere
order takers and struggle to respond to
customer requests for quotations and
information. However, when economic
downturn hits it becomes critical to direct
the sales force out selling.
• The marketing function is able to
support this through tactics like
account-based marketing –
understanding the requirements of a
specific target organization and
building a marketing program around
these.
• As research shows, sales success is
heavily weighted towards suppliers
who can understand their audience
before selling to them.
 Sales tunnel/funnel
• A Sales tunnel is the way that both direct sales
persons and SFA systems visualize the sales
process of a company.
• In any step of the sales process prospects drop
out of it, and from the large number of initially
interested persons on the narrow end of orders
only a fraction of the initially interested people
remain and actually place an order.
• The structure may start at various process steps
(e.g. a sales lead, or later, a sales offer) to a
closed/finished contract or Deal Transaction.
 Sales funnel layers
• New Opportunity
• Initial Communication
• Fact Finding
• Develop Solution
• Propose Solution
• Solution Evaluation
• Negotiation
• Sales Order
• Account Maintenance
 Hit rate
• Hit rate indicates whether the sales
organization is busy with promising sales
leads or it is spending too much effort on
projects that are eventually lost to the
competition or that are abandoned by the
prospect.
• Hit rate is a metric or measure of business
performance traditionally associated with
sales.
 Calculation
• ∑sales won/∑sales won+∑ sales
lost +∑sales abandoned
• Accurate calculation requires clear
definition of :-
• when a sales opportunity is firm
enough to be included in the metric
• firm disposition of the opportunity
(i.e. the deal has reached a point
where it is considered won, lost or
abandoned).
• The hit rate may be measured for the
whole sales force or by sales region,
sales person or product group.
• It may be used to benchmark the
different sales periods and to
benchmark the effectiveness of the
own sales force with other companies
of the same sector.
 Types of industrial goods
• Installations
• Equipments
• Semi- maufactured goods
• Component parts
• Supplies
• Raw material
 Installations
• These are the major items of production.
• Usually regarded as a fixed part of the
plant.
• These are purchased after careful planning
and technical advice.
• Examples:- electric generators, diesel
engines, steam boilers, printing presses,
paper making machines, ceramic oven etc.
 Equipments
• These are not as vital as
installations.
• Usually not regarded as a fixed part
of the plant.
• Examples:- portable electric drills,
vacuum sweepers in hotel, press
feeders in print shops, display
fixtures in retail etc.
 Semi-manufactured goods
• These goods are the finished good of one
industry but subjected to additional changes in
the manufacturing process of another.
• Such items pass through several production
stages in different factories before they reach
the final consumer market.
• Examples:- leather, copper, lead, yarns,
textiles sold to garment manufacturers,
lumber by furniture manufacturer, cement to a
constructor etc.
 Component parts
• A class of manufactured articles that
can be installed as a part of larger
product without further processing.
• Examples:- small motors in electric
appliances, radio and TV set tubes,
castings, assembled valves,
automobile tyres and tubes,
hydraulic brakes and carburetors.
 Supplies
• Items which are essential to business
operations and are consumed in a
short span of time.
• Examples:- lubricants, light bulb
papers, office supplies, test tubes for
chemists, screw drivers etc.
 Raw material
• Produce of the farm or mines which are
further processed in production process
before consumption.
• It is limited to only raw material and it does
not include semi-processed items.
• Examples:- cotton, wool, grains, tobacco,
coffee, milk, fruits, products of mine, forest
and commercial fishing.
 Distribution channel in IM
• Direct Marketing (through branch
houses and branch offices and sales
representatives)
• Industrial distributors
• Manufacturer's agent
 Branch houses/offices
• Branch house owned by the manufacturer is
primarily a warehouse located strategically.
• Branch office owned by manufacture and
used as a sales office.
• It carries no inventory.
• From the branch office company’s sales
representatives operate in different
territories.
• Branch offices are more strategically located
than branch houses.
 Industrial distributors
• Technically the middlemen/resellers.
• Normally local and independently
owned.
• Take title of the goods.
• They stock goods.
 Manufacturer’s agent
• Independent middlemen.
• Different from distributor.
• Doesn’t take title of the goods.
• Works on commission.
 Industrial pricing
• Importance of this particular is
beyond doubts.
• This is the only one aspect of
marketing mix that is the source
revenue generation.
• Both internal and external factors
affect pricing.
• Price is what customers are willing to
pay for products and services.
• How much a customer is willing to
pay depends on the value he
perceives in the product or service
offer.
 Basis for price
determination
What it costs to produce a service?

What customers are willing to pay?

The price that competitors are charging.

The constraints on pricing imposed

by government/regulatory bodies.
 Strategy
PRICING

Methods
Penetration
Objectives Cost based Skimming
(cost plus, Mixed
Survival
Profit Variable, Promotional
Maximization marginal) Differential
Prestige Value based
Social Competitor
consideration based
 Bidding
• Bid means to quote a price for a
product or service.
• Kinds of bids:-
• Closed bid
• Auction or open bid
• Negotiated tender system (govt
sector)
 Bidding Strategies
• Quick kill (final offer first):- giving the final
offer first so that recipient accepts the offer as
it is without further negotiation.

• Hold back (giving an offer that is attractive to

the company but still has the margin for
negotiation)

• The correct strategy is determined by state of

domination/subordination or uncertainty.