Industrial / B2B Marketing

Why study B2B Marketing

• 50% - 80% of all jobs and associated economic activities in many
industrialized nations are associated with B2B
• 2/3 of global output is of B2B and 1/3 is of B2C

1960 1980 2000

Industrial B2B Organizational
Marketing Marketing Marketing
School of Thoughts in B2B
• American
• European
Types of Exchange
• Product Exchange:
The features of a product or service involved have a significant impact on the
industrial exchange process. The ease of exchange depends upon the ability of the
seller to identify the buyer’s needs and the product‘s potential to satisfy those
needs. If the exchange is good in terms of price, quality, quantity, and after sale
services then it will give a positive symbol for the customer loyalty in terms of
product/service loyalty.
• Information Exchange:
The information consists of technical, economic, and organizational questions:
pre and post sale maintenance and servicing must be exchanged to the participants
of business organizations. Products and services must be planned and designed to
serve customers efficiently. To achieve it, buyers and sellers tend to work together,
exchanging product specific information over long periods of time.
• Financial Exchange
The granting of credit or the need to exchange money from one
currency to another at the time of dealing with foreign buyers/customers
are included in this exchange.

• Societal Exchange
Societal exchange is important to reduce uncertainty between buyer
and seller, avoiding short-term difficulties, and maintaining the long-
term exchange relationship to one another. A number of aspects of an
agreement between buyers and sellers in the industrial market are based
on arbitration and mutual trust, not fully formalized or based on legal
criteria until the end of the transaction period.
DEMAND IN INDUSTRIAL MARKET
• Derived Demand
• Stimulating industrial demand
• Joint Demand
• Fluctuating Demand
• Inelastic demand
• Cross-Elasticity of Demand
• Animal hides are purchased because consumers want to buy shoes, purses and other
leather goods.
• The demand for steel and cement does not exists in itself. It is demand for the
constructed houses which are purchased in turn by customers. The boom in apartments
and flats in the mid 90’s led to the surge in demand for those products. Thus a forecast of
the real estate scenario in general and construction industry in particular has to be
monitored, to understand the demand for steel and cement.
• In case of capital goods such as equipment and machinery that are used to produce other
goods the purchases are made not only for the cement requirements but also in
anticipation of profits from the future usage. Thus if the businessman foresee or feel that
there may be a recession in near future, their purchases will be drastically curtailed.
• During the process of recession or reduced consumer demand, industrial firms reduce
their inventories or reduce production or both. On the other hand during the period of
prosperity there is an increased production and sales of consumer goods, which results in
an increased demand for industrial goods. This may be the right time for price increases
or building stock as ready availability and shorter delivery period becomes very
important.
1. Derived demand
The demand for Industrial goods is ultimately derived from the
demand of consumer goods. If the demand for the consumer goods
slackens so will the demand for all Industrial goods entering to their
production. For this reason the industries must closely monitor the
buying pattern of ultimate consumers.
An industrial marketing firm must be in close touch with customers,
purchase, finance, quality standards etc. so as to get information on
changes in customers demand.
2. Stimulating industrial demand
One way which industrial marketers attempt to increase sales is by
stimulating increases in demand of ultimate consumers.
By directing advertising to ultimate consumers, industrialists can often
increase consumer demand for final products, which in turn, increases
their industrial sales. Industrial advertising to ultimate consumers is
also a method of increasing goodwill and achieving a favorable
position with an industrialists immediate customers.
3. Joint Demand:
• Joint demand occurs when one product requires the existence of others
to be careful while exceptions may be found. Most products require
several components, parts or ingredients.
• Industrial customers often prefer to buy from one supplier rather than
purchase individual products from different suppliers. The individual
products required do not have individual demand, but are demanded
only if the “other” products are available in the supplier line.
4. Fluctuating Demand:
• The demand for business goods and services tends to be more volatile
than the demand for consumer goods and services. This is especially
true of the demand for new plant and equipment. A given percentage
increase in consumer demand can lead to much larger percentage
increase in the demand for plant and equipment necessary to produce
the additional output.
• Economists refer to this effect as the acceleration effect. Sometimes a
rise of only 10% in consumer demand can cause as much as 200%
Industrial demand for products in the next period. This sales volatility
has led many business marketers to diversify their products and markets
to achieve more balanced sales over the business cycle.
5: Inelastic demand
• The total demand for many Industrial goods and services is inelastic
that is not much affected by price changes.
• Demand is especially inelastic in the short run because producers
cannot make quick changes in their production methods. Demand is
also inelastic for Industrial products that represent a small per cent of
the total cost of the item.
The demand for aluminum is related to the prices of wood and steel for the doors and
window frames, as they are close substitutes. Apart from other advantages of
aluminum doors and windows, the cost comparison with steel and wooden door and
window frames play an important role in the purchase decisions in the construction of
houses, commercial offices, factories, hotels, hospitals, and so on.

Aluminum extrusion companies regularly collect the information on cost of steel and
wood, and advertise the advantages of use of aluminum in terms of negligible
maintenance cost, elegant looks, environment, friendly in comparison to wood, and so
on. Whenever there is a change in the price of aluminum due to changes in excise duty
or other input costs, there is an impact on the sales of doors and windows made out of
wood or steel. The reverse is applicable for changes in the prices of steel or wood.

Thus, the marketing persons working in the aluminum extrusion companies should
recognize that the demand that exists for their products is subject to “Cross Elasticity”.
Cross-Elasticity of Demand
• Cross-elasticity of demand is the reaction of the sales of one product to
a price change in another product.
• 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.
•If the cross-elasticity of substitute products is high, it indicates that
these products compete in the same market. An industrial marketer must
know how the demand for his products is likely to be affected by the
changes in the prices of substitute products.

•Because of the unique characteristics of derived demand, the industrial

marketing persons would anticipate any increase or decrease in the
demand for their products, based on the changes in the demand for their
customers' products. They must know that existence of cross-elasticity
of demand for their products so as to recognise both direct and indirect
competition.
It ought to be clear after going through this lesson that industrial
marketing is more multifarious than consumer marketing and the
marketing success depends on understanding the intricacies involved
in it. Industrial marketing strategy has company-wide implications and
is, therefore, more of a general management function, affecting the
various departments or functions in an organisation.
 Differences between
Industrial and Consumer
Marketing
Sr. Bases Industrial Markets Consumer Markets
No.

1 Market Geographically concentrated, Relatively Geographically disbursed, Mass markets

characteristics fewer buyers

2 Product Technical complexity, Customised Standardised

characteristics

3 Service Service, timely delivery and availability Service, delivery, and availability somewhat
Characteristics very important important

4 Buyer behavior Involvement of various functional areas
in both buyer and supplier firms,
Purchase decisions are mainly made on
rational/performance basis, Technical
expertise, Stable interpersonal
relationship between buyers and sellers
Involvement of family members Purchase
decisions are mostly made on
physiological/social/ psychological needs,
Less technical expertise,
Non-personal relationship
Sr. Bases Industrial Markets Consumer Markets
No.

5 Decision Observable stages, Unobservable, Mental stages

making Distinct

6 Channel Shorter, Indirect, Multiple layers of intermediaries

Characteristics More direct,
Fewer intermediaries/middlemen

7 Promotional Emphasis on personal selling Emphasis on advertising

Characteristics

8 Price Competitive bidding and negotiated List prices or maximum retail price
Characteristics prices, List prices for standard (MRP)
products
Types of Industrial Product
• Major equipment
• Accessory equipment
• Raw and processed materials
• Component parts and sub-assemblies
• Operating supplies
Major Equipment
• This category includes industrial equipment and machines such as boilers, furnaces, cranes, lathes, printing
presses and sawmills. Some of these items are highly specialized and are built in order to meet the needs of
buyers; others are more or less standardized and are used by a number of different industries. Rolling mills
and sinter cooling fans for steelworks are examples of large and highly specialized industrial products.
Normally such specialized equipment is custom built and sold in a restricted market. On the other hand,
items such as lathes, drills, or small printing presses are standardized and less often built to special order.

• In this category we are concerned with equipment whose unit purchase prices are so large that expenditure
on them will probably be charged to a capital account, the cost therefore becoming part of the buying
firm's capital structure.

• In evaluating this type of equipment, buyers will consider such properties as productivity, versatility,
durability, economy of operation and maintenance, and time and labor-saving features. Because the
equipment is of high value and of great significance to the buyer, its acquisition will be subject to
participation by various executives in the buying firm, e.g. production manager (assessment of proposed
equipment's ability to lower unit costs and 'fit' with the production system), accountant (financial
implications), and design and engineering representatives. Buying will be expert and rationally motivated
with the end product frequently user-specified. Because buyers seek the most effective communications
with sellers to enable speedy negotiation of particular needs, direct buying is favored.
• In some industries such as oil this direct buying may be carried out on behalf of the ultimate user
by specialist consultant/contracting firms. In the case of chemical plant, the NIESR survey of 6000
plants erected in the 1960s showed that while some of the largest chemical firms still preferred to
design, engineer, procure and construct their own new plants with their own 'captive' design-
engineering organizations, the majority of plants are now engineered and built by process plant
contractors. Such contractors, where they are used, therefore operate partly as 'buyers', though in
fact they come between the 'ultimate' buyer and sellers.

• As far as marketers are concerned, selling is largely direct because of the small numbers of users,
the concentration of the market, the large unit of sale, and the need to provide various types of
service (e.g. installation advice and the supply and training of operators). Creation of demand is
difficult for the seller as the equipment will only be required in connection with new plant, for
expansion or replacement. This calls, among other things, for favorable business conditions which
in turn depend upon conditions in the user's markets. Among advertising objectives might be
keeping the selling firm's name before all buying influences against the time when the user feels he
must invest again, or stressing cost-benefit features of a product with a view to hastening the
replacement of outmoded manufacturing methods. In this market, the possibilities of various
financial services such as leasing or hire purchase need investigation by sellers.
 Accessory Equipment
• This equipment is used to facilitate rather than to perform the basic operations of a
plant. Typically it is less specialized and of smaller unit value than installations of
major machinery and equipment. It consists of items such as cutting tools, fork-lift
trucks, chain hoists, small motors, jacks, and various office machines and
equipment, e.g. adding and calculating machines. These products are typically built
for stock rather than custom built. They are somewhat standardized in design and
identical items can be sold to various customer types.
• As far as buyers are concerned, this equipment usually costs less than major items,
represents smaller capital outlays, and is purchased more frequently. The
purchasing officer or junior level buying staff may be able to deal satisfactorily
with such acquisitions, probably in liaison with foremen, office managers, or other
relevant company personnel.
Accessory equipment is frequently sold through manufacturers' agents
or independent distributors, in other words the nature of the product
calls for less intimacy of relation between seller and buyer. However,
some types of accessory equipment are complex and of high unit value
(e.g. mechanized information systems). In such cases the manufacturer
may use his own sales force or work partly in collaboration with
technically capable independent distributors. Because of the greater
standardization of many items in this category, advertising can be
conducted on a much broader scale in trade, business and financial
periodicals.
 Raw and Processed Materials
Raw and partly manufactured materials are goods that enter into the completed product which
must be subjected to further manufacture before sale to the final consumer. Such materials
include a diverse range of items from newly mined ore to completely fabricated materials for
use in assembled products. Two broad classifications suggest themselves:
1. Products of the mine, forest or farm such as timber, ores and cotton which have yet to go
through a manufacturing process.
2. Commodities that have been subjected to one or more manufacturing process but which are
still in relatively crude form. Included in this category are pig iron, thread, linseed oil and
tin.

One would also include here materials that have gone through a more elaborate manufacturing
process but have still to enter the end product, e.g. cloth, structural steel, and plate glass.
• A major concern of the buyer is quality. Broadly this means suitability for the product to
be made, but purchasers will examine such factors as physical and chemical properties,
workability and uniformity of dimension. This will be done to ensure uniform results in
standard processing, and to permit the use of mass production methods with minimum
readjustment of machinery. The buyer will also consider characteristics such as
appearance, finish and desirable bulk or weight with an eye to the salability of his firm's
end product.

• In addition to quality, the purchaser is concerned with price delivered to the plant, and
with dependability of the seller. Raw materials are usually bought in large quantities,
often in advance of production requirements. As they are a basic element of total costs,
buyers are vitally interested in market prices and often buy on a price basis. Prices may
fluctuate widely. To ensure adequate supplies, buying firms will frequently buy futures,
or buy goods for storage, or integrate their operations to produce their own supply of raw
materials.
• Various kinds of agents, especially brokers, are an important element in
the system for marketing raw materials. This is the case where the firm
or industry has not integrated its raw material extraction activity with
refinement of the product and ultimate sale to the end consumer (e.g. the
oil companies).
• Where the material or materials have gone through perhaps quite
elaborate processing to yield an end product, e.g. structural steels, the
product may be sold either directly by the producer or indirectly. In the
case of many steel products, independent stockholders are able to
compete successfully with the mills. They can offset a possible price
disadvantage by offering a number of compensating benefits, especially
that of assuming the stock-holding function on behalf of the user.
Component Parts and Sub-assemblies
• Fabricated parts which perform a specific function and do not require further modification to be
installed as part of the final product are classified as components. A feature of modern,
progressive assembly industry is the emphasis placed upon buying-in a wide variety of parts and
components and assembling these to give the end product. Thus the truck manufacturer might
find himself buying, among other things, batteries, tyres, wheels, axles, springs, bumpers and
many other parts from specialized makers of such products, to be incorporated in the final truck.

• The purchaser will frequently prepare his own specification of the product, although many
products, as in the case of tyres in the automotive industry, are standardized according to the
specification of the parts producer. The purchaser will want regularity of delivery and so may
place a contract for a year's supply, or part thereof. The procedure might be to place the annual
contract, then 'call off' at regular intervals, perhaps two-monthly, as the need arises. The
purchaser also seeks uniformity of quality, and while this may push him towards a single
supplier, other considerations, notably the need for continuity of supply, may induce him to use
multiple sources. Where the supplier can offer consistency of quality and delivery much will be
done to satisfy a major motive of the user, namely the desire to economies on stocks.
Many component parts are sold directly to original equipment
manufacturers, for example tail pipes and exhaust systems bought by
manufacturers to become part of the original equipment of a car or lorry.
But as these parts wear out they may be replaced by garages, service
stations, and company-owned repair units. This illustrates the existence
of a second major market segment for components - the replacement
market. The problems and methods of approach to this market are those
of reaching the various intermediaries, e.g. retailers, garages, repair
shops, who may be present. In both instances advertising can be used by
the supplier to stress quality and service, and in some instances
advertising can be carried to the final consumer, e.g. car accessory
manufacturers.
Operating Supplies
• Operating and maintenance supplies are materials consumed in the operation of a business
and which do not enter into the final product. Lubricants, drills, cleaning solvents and
abrasives are examples of production supplies. Clerical or administrative supplies include,
ink, pencils, paper clips, and carbon paper. In buying, the purchasing officer is concerned
with such attributes as utility, ease of application or use, efficiency, economy of use and
durability.
• Because the typical operating supply is used by many firms in numerous industries it needs
to be marketed on a widespread basis. Thus its method of marketing resembles that used in
the sale of consumer products.
• The standardized nature of these end products minimizes the need for direct contact
between seller and buyer. Because the unit purchase is small, and the product requires
distribution over a wide area, the use of direct sales forces is difficult to substantiate on
economic grounds. The pressure is therefore towards indirect marketing methods through
middlemen.
Systems Selling
• In some instances, products and services are sold in 'families' as part
of a total system; hence the phrase 'systems selling'.
• Broadly this means that the seller offers a combination of hardware
products and soft-ware (including problem solution and service),
which together form an integrated system able to carry out a total
function or set of functions in the buying organization.
Market Characteristics
• Size of the Market
• Geographical Concentration
• Competitive Nature
 Size of the Market
Compared to the great number of households that constitute the mass market for
consumer goods and services, in the case of industrial markets, it is common to
find less than 20 companies to represent the total market for an industrial product
or service. In fact, only three or four customers may comprise the major portion of
a total market.
For example, for a consumer product like toothpaste or soap, a mass market,
consisting of all the households in India, exist. Further, in industrial arena,
oligopsonistic buying organizations (very large firms) tend to dominate many
markets such as, large power transformers or high-tension switchgears, there are
limited numbers of customers-mainly State Electricity Boards, large private and
public sector organizations. While there are relatively few industrial customers,
they are larger in size, purchase larger quantities, and engage in this volume
purchasing on a repeat basis.
One example of an oligopsony in the world economy is cocoa, where
three firms (Cargill, Archer Daniels Midland, and Barry Callebaut) buy
the vast majority of world cocoa bean production, mostly from small
farmers in third-world countries. Likewise, American tobacco growers
face an oligopsony of cigarette makers, where three companies
(Altria, Brown & Williamson, and Lorillard Tobacco Company) buy
almost 90% of all tobacco grown in the US and other countries
 Geographical Concentration
Industrial customers also tend to be concentrated in specific areas of the
India such as Andaman Nikobar, the Leh Hills. Such concentration occurs
mainly because of natural resources and manufacturing processes.
For example, the geographic location of natural resources explains the
concentration patterns of most energy-producing firms. Only a handful of
counties in California, Oklahoma,. Texas, and Louisiana produce the bulk
of US gas and oil. Manufacturers whose production processes add weight
to their products tend to locate near customers, while those whose
processes subtract weight tend to locate near sources of input.
Manufacturers of computers and other advanced electronic products
present an interesting case of plant location. They tend to concentrate in
areas that have advanced teaching and research facilities and desirable
living locales such as the Silicon Valley in Banglore. Such locations are
chosen to facilitate the attraction of intelligent, educated employees,
who seek both intellectual challenges and physical pleasures.
Competitive Nature
• An additional difference between the two markets is the nature of oligopsonistic buying. In the
industrial arena, oligopsonistic buying organizations, organizations that are very large firms,
tend to dominate many markets. For instance, the small number of large automobile producers
in the United States purchase 60 percent of all synthetic rubber, 60 percent of all lead, and 72
percent of all plate glass produced in the United States. These oligopsonists’ reactions to
changes in one another's buying practices affect industrial marketing strategy decisions.
• Due to the fact that technological or cost-effective advantages override geographical
considerations, industrial organizations are more directly involved in international purchasing.
Therefore, the major finished goods exports of industrialized nations tend to be industrial rather
than consumer goods manufacturers. Industrial demand as well as industrial supply, therefore,
is more apt to cross international boundaries than are demand and supply in the consumer
market. However, because of increasing improvements in foreign technology and marketing
skills, subsidized by government policies, worldwide competition makes it more difficult for
Indian suppliers of industrial goods to compete not only in foreign markets, but domestically as
well. Industrial marketers, then, are more subject to world political, economic, and competitive
changes than are their consumer counterparts.
Assignment
• Product Characteristics
• Buyer Behaviour
• Channel Characteristics
• Promotional Characteristics
• Price Characteristics
Types of Industrial Customers
(i) Commercial Enterprises,
(ii) Governmental Agencies,
(iii) Institutions
(iv) Co-operative Societies
 Industrial Distributor Intermediaries
Commercial
Enterprises Original Equipment Exide for battery products
Manufacturer
TVS-Suzuki is user for HMT
Users machine tools

Public Sector Units Maruti Udyog Limited

Industrial Government
Customers Customers Government Undertaking Indian Railways, State Electricity
Board, defense units

Public Institutions Government Hospital

Institutional
Costomers

Private Institutions School, Colleges

Maharashtra Sugar
Manufacturing Units
Cooperative Society
Cooperative
Customers Non-manufacturing Cooperative banks, Housing
Units cooperative societies
Commercial Enterprises
Commercial enterprises are private sector, profit-seeking organisations 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. However, since they purchase products
for different uses, it is more useful from a marketing point of view to define them in such a way
as to understand their purchasing needs at the time of examination of the varieties of products
they purchase and how marketing strategy can be developed to meet their needs.

Thus, it is more logical to look at commercial enterprises:

(i) industrial distributors or dealers,
(ii) original equipment manufacturers (OEMs), and
(iii) users.

As and when, these categories tend to overlap; are useful to the industrial marketer because they
point out the ways of uses of products and services in buying firms.
Industrial Distributors and Dealers
Industrial distributors and dealers take title to goods; thus, they are the
industrial marketer‘s intermediaries; acting in a similar capacity to
wholesalers or even retailers. the intermediaries not only serve the
consumer market but also they serve other business enterprises,
government agencies, or private and public institutions. They purchase
industrial goods and resell them in the same form to other industrial
customers.
Original Equipment Manufacturers (OEMs)
These industrial customers purchase industrial goods to incorporate
OEMs into the products they produce. For instance, a tyre manufacturer
(say, MRF), who sells tyres to a truck manufacturer (say, TELCO),
would consider the truck manufacturer as an OEM. Thus, the product of
the industrial marketer (MRF) becomes a part of the customer‘s
(TELCO‘S) product.
Users
An industrial customer, who purchases industrial products or services, to
support its manufacturing process or to facilitate the business operations is
referred as a user. For example, drilling machines, press, winding machines,
and so on are the products which support manufacturing process, whereas the
products which facilitate the operations of business like computers, fax
machines, telephones, and others.
In addition to above, sometimes there may be overlapping of categories means
a manufacturer can be a user or an OEM. For example, a car manufacturer
buys a drilling machine to support the manufacturing operation and is referred
to as a user. The same car manufacturer also buys batteries which is
incorporated into cars and hence, it can be also referred to as an OEM.
Government Customers
In India, the largest purchasers of industrial products are Central and
State Government departments, undertakings, and agencies, such as
railways, department of telecommunication, defense, Director General
of Supplies and Disposal (DGS&D), state transport undertakings, state
electricity boards, and so on. These Government units purchase almost
all kind of industrial products and services and they represent a huge
market.
Institutions
Public and private institutions such as hospitals, schools, colleges, and
universities are termed as institutional customers. Some of these
institutions have rigid purchasing rules and others have more flexible
rules. An industrial marketing person needs to understand the
purchasing practice of each institute so as to be effective in marketing
the products or services.
Cooperative Societies
An association of persons forms a cooperative society. It can be
manufacturing units (e.g. Cooperative Sugar Mills) or non-
manufacturing organisations (e.g. Cooperative Banks, Cooperative
Housing Societies). They are also the industrial customers
BUYING SITUATION TYPES
• New purchase (or New task)
• Change in supplier
• Repeat purchase
DECISION MAKING UNIT
• Initiators
• Buyers
• Users
• Influencers
• Deciders
• Gatekeepers
Webster and Wind Model of
Organisational Buying