09-12-2020

Session Objectives
❑ Industrial V/s Consumer markets
❑ Process of exchange
❑ Demand characteristics
❑ Classification of Industrial consumer
❑ Classification of Industrial products
❑ Industrial Marketing environment

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Industrial Marketing

• “B2B Marketing” or “Industrial Marketing”

are used interchangeably
• 50% of all business school graduates join
firms that directly compete in the business
market
• Because of interest in high-tech markets and
the size of industrial markets, increased
attention is being paid to business marketing
management

Industrial Marketing is Huge

1. Industrial marketers serve the largest
markets of all.
2. Dollar volume of the Industrial market greatly
exceeds the consumer market.
3. A single customer can account for enormous
levels of purchasing activity. (For example,
GM’s 1,350 business buyers each purchase
more than $50 million annually.)

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(A) What is Industrial (Business) marketing?

▪ It is marketing of products / Services to business firms.
▪ In contrast consumer marketing is marketing products/
services to individuals & households.

(B) What is the difference between industrial marketing, B2B

marketing, Business marketing & Organizational Marketing?
No Difference!

(C) What are the differences between Industrial & Consumer

Marketing?
▪ Basic tasks of marketing are same difference Exists in the
characteristics (which we will discuss).

B2C and B2B

The Consumer Market (B2C) and the Business Market (B2B) at
Dell, Inc.

B2C B2B

Customers: Individuals & Businesses Institutions Government

Households Global Healthcare Federal
Large corporations Education State
Small & Medium Local
sized businesses

Selected PCs PCs

Products: Printers Enterprise Storage
Consumer Servers
Electronics Complex Service Offerings
Simple Service
Agreements

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Business Markets
• Are markets for products and services from
local to international
Bought by:
• Businesses
• Government bodies
• Institutions
For:
• Incorporation
• Consumption
• Use
• Resale

Characteristics of Business Market Customers

Characteristic Example

•Business market customers are comprised •Among Dell’s customers are Boeing,
of commercial enterprises, institutions, and Arizona State University, and numerous
governments. state and local government units.

•An individual may buy one unit of a software

•A single purchase by a business customer is package upgrade from Microsoft while
far larger than that of an individual consumer. Citigroup purchases 10,000.

•New home purchases stimulate the demand for

•The demand for industrial products is derived carpeting, appliances, cabinets, lumber, and a
from the ultimate demand for consumer products. wealth of other products.
•IBM’s relationship with some key customers
•Relationships between business marketers spans decades.
tend to be close and enduring.
•A cross-functional team at Procter & Gamble
(P&G) evaluates alternative laptop PCs and
•Buying decisions by business customers often selects Hewlett-Packard.
involve multiple buying influences rather than a
single decision maker. •Job titles include marketing manager, product
manager, sales manager, account manager.
•While serving different types of customers,
business marketers and consumer-goods
marketers share the same job titles.

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Customer Value in Business Markets

• Value or Customer Value is the economic,

technical, service, and social benefits received
by a customer firm in exchange for the price
paid for a product or service offering.

Value = Benefits divided by costs, or Benefits

less costs
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Business vs. Consumer Marketing

(Contd.)
• Differences:
– Characteristics of business markets contrast with those of
consumer markets.
Characteristics Business Markets Consumer Markets
Geographically
Geographically dispersed
concentrated
Market
Mass Markets/Many
Fewer buyers
buyers
Technically complex No technical complexity
Product
Mainly customized Standardized
Service Very important Somewhat important
Functional involvement Family involvement
Social / psychological
Buyer Behaviour Mainly rational motives
motives
Technical expertise Less technical expertise
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Interpersonal relationships Non-personal relationship

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Business vs. Consumer Marketing

(Contd.)
• Differences (Contd.):
Characteristics Business Markets Consumer Markets
More direct Indirect
Channel
Fewer channel levels Multiple channel levels
Importance to person
Promotion Importance to advertising
selling
Competitive/ negotiated
List prices
prices
Price
List prices for standard Maximum retail price
product (MRP)

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Features of Industrial Markets

➢ Markets are relatively Concentrated

➢ Channels of distribution – shorter

➢ Buyers are well informed

➢ Highly organised

➢ Sophisticated in purchasing

➢ Multiple influencers, leading to diverse point of view

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Global Market Perspective

Marketers must have a global perspective:

• They need to look beyond Country borders

• The demand for industrial products in countries such as
Germany, Japan, and Korea is growing more rapidly than
in the U.S.
• Enormous growth in developing countries such as Brazil,
China, Russia, and India offer huge opportunities for both
large and small businesses

Industrial and Consumer Marketing Differs In:

1. Nature of market
2. Market demand
3. Buyer behavior
4. Buyer-seller relationship
5. Environmental influences
6. Market strategy
• Due to these differences, business marketers need to
understand how demand for industrial products and
services differs from consumer demand.

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Industrial Market
Demand Characteristics

❑ Derived demand
❑ Joint demand
❑ Cross- elasticity
❑ Fluctuating demand
❑ Stimulating demand

Derived Demand
• The demand for Industrial products is called
derived demand because the demand for
industrial products is derived from the ultimate
demand for consumer products.

• Demand for “Precision steel tubes”

• Marketing implication : industrial marketers

must carefully monitor fluctuating trends and
patterns in consumer markets.

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Joint Demand
❑ Joint demand is common in the industrial market
because it occurs when one industrial product is
useful if other product also exists.
❑ For example, a pump-set cannot be used for pumping
water, if the electric motor or diesel engine is not
available.
❑ The DOT requires a kit of 12 items for joining
underground cable.

Elasticity of demand
❑ Simply, elasticity is the change in demand from a change in
price.
❑ The demand for most of the industrial goods can be
inelastic (i.e. insensitive to changes in prices) for a
particular industry, but at the same time, highly elastic (i.e.
sensitive to changes in prices) for individual suppliers.
❑ This is because, the total industry demand comes from the
united needs of all the customers rather than price, and
hence it is relatively inelastic.
❑ Though, between the various suppliers, a slight change in
the price by one firm may create a major change in the
quantity and thereby, be highly elastic for anyone firm.

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Elasticity of Demand

Inelastic Demand

• Inelastic demand is demand without regard

to price. An increase or decrease in the
product price will not significantly affect the
demand for the product.

• Example: Price for gasoline

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Cross elasticity
❑ Cross-elasticity of demand is the reaction of the sales of
one product to a price change in another product. This
concern present in both consumer and industrial
marketing, but it is more imperative in industrial marketing
as it can have a dramatic impact on the marketing
strategy of an industrial firm.
❑ For example, the demand for aluminium is related to the
prices of wood and steel for the doors and window
frames, as they are close substitutes.

Fluctuating Demand
Because demand is derived, an increase or decrease in consumer
demand can create a fluctuating demand for many industrial
products.

Example:
• An increase in mortgage rates can quickly stifle new home sales.
This slows down the need for new household products.
Businesses react by decreasing their inventory of materials or
putting off buying new machinery.
• This action explains why the demand for many industrial
products tends to fluctuate more than the demand for consumer
products.
• A decrease in interest rates has the opposite influence.

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Stimulating Demand
• Sometimes, industrial marketers need to stimulate demand for
consumer goods which either incorporate their products or are used to
make consumer products.

• Advertising directed towards consumer.

• Pharmaceutical manufacturers advertise on television by presenting

various ailments followed by offering their products as solution to the
ultimate consumer. (“Ask your doctor if XYZ is right for you!”)

• Sometimes manufacturers offer deep price discounts that influence

members of the supply chain to lower their prices, in the hope of
influencing the ultimate consumer to buy their product.

The Reseller’s market

➢ Conventionally, wholesalers and retailers are considered element of
consumer marketing mix

➢ However, their behaviour is similar to industrial marketing

➢ Everything that is purchased is purchased to make profit

➢ Resellers also represent a sizeable and important buying group.

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B2B Markets

❑ Market Characteristics: Buying through centralized Headquarters. Strong

bargaining power. Ex- Walmart, McDonalds

❑ Product Characteristics; Many large sellers are technically oriented in

purchasing procedures and set detailed specifications that govern the
production of goods that are purchased under the buyer’s private brand

❑ Buyer characteristics: Not have the technical background of purchasers in the

industrial market, they tend to compare technical features of product.
Decisions are based on Rationale.

❑ Promotional characteristics: more emphasis on personal selling

❑ Price Characteristics: More concerned with the price of goods than are
industrial buyers

The Reseller’s market

Economics of Demand: Resellers can be of special importance due to

1. Can effect demand through promotions
2. Obtain feedback about customers desires and preferences
3. Joint demand can be fulfilled

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(A) What are the types/classifications of

Industrial/Business customers?
INTERMEDIARIES /
MIDDLEMEN (DISTRIBUTORS)
Commercial
COMMERCIAL OEMS
ENTERPRISES
Enterprises
USERS

PUBLIC SECTOR
UNITS (BHEL)
Government
Enterprises GOVT. UNDERTAKINGS
(RAILWAYS, DEFENCE UNITS)
Industrial
Customers PUBLIC INSTITUTIONS
(GOVT. HOSPITALS)
Institutional
INSTITUTIONAL
CUSTOMERS
Customers PRIVATE INSTITUTIONS
(SCHOOLS, COLLEGES)

MANUFACTURING
Co-operative UNITS (SUGAR, MILK)
CO-OPERATIVE
Societies
SOCIETIES
NON-MANUFACTURING
UNITS (BANKS, HOUSING)

TYPES OF INDUSTRIAL / BUSINESS CUSTOMERS

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OEMs
Original Equipment Manufacturers
Individuals and organizations that buy business
goods and incorporate them into the products
that they produce for eventual sale to other
producers or to consumers.

Xerox, Ford

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Users

• Users purchase industrial products or services

to produce other goods or services that are, in
turn, sold in the business or consumer markets.

• Drilling machines, Winding machines.

• Example: Toyota buys machines to produce

cars that are sold to consumers and businesses.
Toyota is a user.

Governments

• Municipal, State and Federal Government

• Generally use the bidding approach to

purchase goods and services

• Purchase up to 1/3 Gross Domestic

Product (GDP)

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Institutions

• This is the nonprofit segment of the market that does not

seek to achieve normal business goals such as ROI, %share
of market or profit

• Market includes universities, hospitals, schools, churches

and civic clubs

What Are Industrial Products?

• Used to manufacture
other products
• Become part of another product Key is the
• Aid in the normal operations of product’s
an organization intended
use
• Are acquired for resale
without change in form
• A product purchased for personal use
is considered a consumer good

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Consumer Product or Business Product?

• The intended use determines whether or not

a product is a consumer product or a business
product
– If Mr. Clean is used by the ultimate consumer to clean
his/her house, it is a consumer product.

– If Mr. Clean is being used to clean a hospital or a

university, it is a business product.

Some consumer products become

industrial products

• J.M. Smucker Company sells their jellies and jams to

ultimate consumers as household food products but
also markets them as fillings and yogurt additives for
other company’s products.

• Many companies successfully sell to both consumer

and business markets.

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How are Industrial Products / Services Classified?

Classification into 3 Groups shown below.

RAW MATERIALS (IRON ORE, CRUDE OIL)

MATERIALS MANUFACTURED MATERIALS
& PARTS (STEEL,CHEMICALS)
(ENTER PRODUCT
COMPONENT PARTS (BEARINGS, TYRES)
DIRECTLY)
SUB ASSEMBLIES (EXHAUST PIPE IN M.C.)

INDUSTRIAL CAPITAL ITEMS LIGHT EQPT (COMPUTERS, HAND TOOLS)

PRODUCTS / (USED IN
HEAVY EQPT (MACHINES, TURBINES)
SERVICES PRODUCTION /
OPERATIONS) PLANT/BUILDING (FACTORIES, OFFICES)

SUPPLIES / SUPPLIES (LUBRICANTS, FASTNERS, PAINTS)

SERVICES
(TO SUPPORT
OPERATIONS) SERVICES (LEGAL, AUDITING, COURIER)

CLASSIFICATION / TYPES OF INDUSTRIAL PRODUCTS / SERVICES

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(C) Marketing Implications for different types of

products & customers?
 For Materials & Parts, Direct selling is done to large
OEMs (Original Equipment Manufacturers) and users,
but indirect selling through industrial distributors /
dealers becomes cost effective for smaller volume
OEMs and users.

 For Capital items, Direct selling through company sales

force is common, with extensive interactions on
technical & commercial factors.

 For Supplies Industrial distributors / dealers are mostly

used but for marketing of services, word-of-mouth
plays an important marketing role, with quality & price
of service as key factors.

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(D) Purchasing Orientations of Business Buyers

Buying Orientation: The firm with buying orientation follows the practice
of (a) selecting lowest price supplier, (b) gaining power over suppliers
and (c) avoiding risk of buying from new suppliers. It has a Short-term
focus.

Procurement Orientation: The purchasing firm with procurement

orientation has a long-term focus. It achieves the objectives of quality
improvement and cost reductions by following the practices of (a)
collaborative relationship with major suppliers and (b) working closely
with other functional areas in the company.

Supply chain Management Orientation: Here, the firm focuses on

improving the value chain from raw materials to end users. This is
achieved by (a) delivering superior value to end users, (b) outsourcing
non-core activities, (c) and supporting collaborative relationships with
major suppliers.

(E) Purchasing Practices of Different Types of

Industrial / Business Customers

(i) Purchasing in commercial enterprises

– Major Tasks / Procedure: identifying, negotiating, selecting suppliers,
building relationship.
– Purchasing to improve operational efficiency & contribute to firm’s
competitive advantage.
– Involve Technical & Commercial depts.
(ii) Purchasing in Govt. units
– Govt agency finalizes rate contracts for standard products for Govt.
units.
– Main Tasks / Procedure : Registration of the firm & its Products, Tender
Advertisements, no negotiation in “ Open” tenders, negotiations done in
closed / limited tenders.
– Orders Finalised on lowest bidders (suppliers offering Lowest prices /
Landed Costs)

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(iii) Purchasing in Institutions

– If the Institute is a Govt. Hospital Purchasing practices of
Govt. units Followed
– Similarly a private School / College follows practices of
commercial enterprises
– However, better to study each major institution.

(iv) Purchasing in cooperative societies

– Similar to Institutional purchase.

Types of Environment

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The Industrial Marketing

Environment

Buyer-
Seller
Interface

Publics

Macro-environment

Government

The Interface level

Consists of :

❑ Input suppliers

❑ Distributors

❑ Facilitators

❑ Competitors

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Publics
❑ Financial Publics

❑ Independent Press

❑ Public Interest Groups

❑ General Public

❑ Internal Publics

The Macro-environment
❑ Economic Influences

❑ Ecological influences

❑ Physical environment influences

❑ Cultural influences

❑ Technological influences

❑ Demographic influences

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Government’s influence

❑ Anticipating Government actions

❑ Influencing government Actions

❑ Political & Legal Influences

❑ Government Agencies & Legislators

Managing External Environment

• First, continuously collect and monitor relevant

information on external environment

• Identify changes in opportunities and threats

• Manage proactively, using strategies:

– Independent
– Cooperative
– Strategic planning

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Strategies for managing

The Industrial Marketing environment
Independent Competitive • Product differentiation
Strategies Aggression • Aggressive Pricing
• Comparative advertising

Competitive • Improved competitive relationships

Pacification • Industry promotion
• Price umbrellas

Publics • Corporate image advertising

• Voluntary environmental control
• Commitment to interest groups

Strategies for managing

The Industrial Marketing environment
Independent Political / legal • Direct lobbying
strategies • Advertising
• Education of regulators

Resource supplies • Resolution of irregular demand

Implicit • Price leadership

cooperation • Technological leadership

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Strategies for managing

The Industrial Marketing environment
Cooperative strategies Contracting Vertical/ horizontal market systems

Co-optation Absorption of publics on board of directors

Coalition • Industry associations

• Chamber of commerce association

Strategic maneuvering Domain • Discovery of markets with limited competition &

selection regulations
• Entry into high growth markets

Diversification • Vertical integration

• Geographic expansion

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THE NATURE OF
BUSINESS
MARKETING
Chapter
1

Chapter Questions
• What is business marketing?

• What is customer value in business markets?

• What are the differences between business
and consumer marketing?
• How planning is done in business marketing?

• What are the concepts of industrial demand?

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What is Business Marketing?

• Business marketing is marketing of products and

services to business customers, such as private-
sector and government organizations, institutions
like hospital, hotels, and educational.

• Business customers buy products and services to

produce other goods and services, make profits,
reduce costs, and so on.
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Business vs. Consumer Marketing

• Similarity is in basic tasks, viz.:

– Deciding target markets.

– Finding target customers’ needs/wants.

– Developing products/services to meet requirements
of target markets.
– Evolving and implementing marketing plan to
satisfy target customers better than competitors.

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Planning in Business Marketing

• Compared to consumer marketing, planning in
business marketing requires:
– Closer relationship to corporate strategy, involving
capital investment and company wide implications.

– More functional interdependence, or other

functions’ support including cross-functional
teams.

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Concepts in Industrial Demand

• Derived Demand
– Demand for business goods is derived from the
demand for consumer goods.

• Fluctuating/Volatile demand/Acceleration
effect
– Demand for business goods/services is more
fluctuating or volatile than the demand for
consumer goods/services.
– This is called acceleration effect by economists.

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Concepts in Industrial Demand (Contd.)

• Joint Demand
– It occurs when one industrial product is useful or
needed if other product also exists.

• Cross – Elasticity of Demand

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

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Concepts in Industrial Demand (Contd.)

• Reverse-Elasticity of Demand
– In this, a price increase can cause an increase in
demand and a price decrease would be followed by
a decrease in demand.
– These short-term reactions are opposite from what
we would normally expect from business buyers.

• Bull - Whip Effect

– It shows large fluctuations in orders as a
manufacturer moves up the supply chain from its
dealers / industrial distributors to the manufacturer
to its suppliers. 58

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THE NATURE OF
BUSINESS
MARKETING
Chapter
1

Chapter Questions
• Who are the business customers?
• How are industrial products classified?
• What are the marketing implications for different types
of customers and products?
• What are the business customers’ purchasing
orientations and practices, including e-procurement?
• What are the different types of environment?
• How to manage external environment?

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Classification of Industrial
Products and Services
• Materials & Parts(These enter final product)
– Raw materials
– Manufactured materials
– Component parts
– Subassemblies
• Capital Items (These are used in production process)
– Heavy and Light equipment
– Plant and buildings
• Supplies & Services (These support operations)
– Operating and maintenance supplies
– Wide range of Services 61

Marketing Channels for Different

Customers and Product Types
Product Type Customer Type Marketing Channel
Materials & Parts Large OEMS Company’s sales force
(Standard ) Users & small OEMS Distributors/dealers
Materials & Parts
All types of Customers Company’s sales force
(Customized )
Heavy capital equipment All types of Customers Company’s sales force/agents
Light equipment or Large volume buyers Company’s sales force/agents
accessories Medium/small buyers Distributors/dealers
Plant and building All types of Customers Company’s executives/agents
Operating & maintenance Large volume buyers Company’s sales force/agents
Supplies Medium/small buyers Distributors/dealers.
Large customers Company’s sales force
Wide range of services
Medium/small customers Distributors/Franchisees

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Purchasing Orientations of
Business Customers
• Buying orientation
– Lowest price suppliers
– Gain power over suppliers
– Avoid risk
• Procurement orientation
– Collaborative relationship with major suppliers
– Work closely with other departments internally
– Achieve company objectives
• Supply chain management orientation
– Collaborative relationship with major suppliers
– Deliver superior value to customers
– Outsource non-core activities 63

Purchasing Practice of Business

Customers in Commercial
Enterprises

• Involvement of various departments

• Major tasks performed:

– Identify, negotiate, Select suppliers
– Ensure purchase objectives and efficiency achieved
– Good relationship with suppliers
– Establish procedure and documentation
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E - Procurement
• Objective: To seek best value from better and fewer
online suppliers.
• Advantages: Reduce material & administrative costs ;
minimize purchasing cycle time ; improved ability to
identify new suppliers on global scale.
• E-markets: offer online auctions, catalogues, bulletin
boards to participants
• Forward/English auction: One seller offers an item to
many buyers. Sales goes to highest bidder.
• Reverse/Dutch auction: One buyer invites many
suppliers to bid. Lowest bidder gets the order.
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Purchasing in Government
Organizations

• Established Purchase Procedure

• Purchasing through Competitive Bidding/ Tenders

– Closed/sealed tenders
– Open/limited tenders

• Other Government contracts

• DGS & D contracts

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Purchasing in Institutions and

Cooperative Societies

• Government institutes follow government process

• Often private sector institutes follow commercial

enterprise’s buying process

• Better to study each major customer’s purchase

process

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