INDUSTRIAL MARKETING

Consumer (B2C)

M A R K E T I N G

Industrial B2B

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.

. • Industrial goods are those which are used in Industry for producing a different end product from one or more raw materials.Defining IM…… • Industrial marketing is the marketing of goods and services from one business to another.

.. • 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.The main features of the B2B selling process are. • 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.

request for tender. . selection process. making representations. preparing tenders. contract negotiations. awarding of tender. qualifying. developing strategies and contract negotiations. request for expression of interest. and signing of final contract). • Often the buying/selling process is complex and includes many stages (for example. wooing.• Purchase decision is typically made by a group of people ("buying team") not one person. • Selling activities involve long processes of prospecting.

• 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. The family decides to order a pizza. An advertisement appears that advertises home delivered pizza. .

• Walking down a supermarket aisle. He pick's the product and adds it to his shopping cart. a single man aged in his early 30's sees a hair care product that claims to reduce dandruff. .

. 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.• An organization has significant need for legal services and obtains submissions from two law firms.

She has bought the same brand of tea for the last 18 years. She purchases a number of items including her favorite brand of tea. .• A pensioner visits her local shopping mall.

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.• A sales representative makes an appointment with a small organization that employs 22 people. .

• 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.How are purchasing decisions made? • Industrial buying is characterized by rational decision making. .

approved suppliers. quality department approval etc.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.

Research has indicated that there are. on average. 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. THE SALESMAN TALKS TO NO MORE THAN TWO OF THEM!!! .In industrial buying. ON AVERAGE. six people in the prospect company who influence the buying decision to some degree.

Works Manager. . Chief Engineer Production. perhaps because of vested interests etc.DMU • DECISION MAKING UNIT ("DMU influences the purchase decision. DMU may have :-Managing Director (or Board). Financial Accountant. • Example:capital equipment’s purchase. Cost Accountant and Buyer It is not always easy to find out who constitutes the DMU.

. (c)which selling methods we should use for each DMU member.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.

.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.

. • 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.Maximum value of transactions • Maximum value of transactions is Unlimited.

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. . the most expensive purchase individual consumers make is their house.• While in consumer market.

These groups may act like an informal barrier to competitive entry.Barriers to supplier entry • Buying groups mentioned above may provide some resistance to change in industry. .

. Often drawings. • This is the cost to the organization of changing suppliers.Switching costs • Industrial markets often feature high switching costs. 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. specifications.

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!).

except in retailing by retailers own staff. Direct Mail Often very suitable due to Sometimes not viable due to small numbers high numbers & low value. Often very suitable for company specialists Rarely suitable for individual items to end users. Consumer Often suitable and used including TV. . Face to face selling by specialists. Radio and mass circulation print advertising.Difference between CM and IM Factor Mass Advertising Industrial Normally focussed on technical media. Not normally TV.

Loyalty schemes often act like simple loyalty discount. . Often suitable. Discounting Loyalty schemes Rarely suitable because split between buyer (individual) and payer (company) creates ethical problems. used for sales promotion. decision maker and person making payment are often the same person.Factor Industrial Consumer Hospitality Very suitable because of Not often used for end high business value per consumers. decision maker Often to reward volume Discount sales are often customers.

Opinion polling. Mainly suitable for higher value items unless selling consumer wares to retail buyers. Focus groups.Factor Industrial Consumer Specialist Often used for high and exhibitions lower value items. Sometimes but total Often used because of difficulty market population is of addressing whole population invariably much smaller. preferences of a population. and or trade shows. . Not needed. can address Often used to infer views and the whole population.

Extensive use. Point of sale Not often used except displays and where distribution communications involves trade counters and on some small qty packaging.Factor Industrial Consumer Pilot schemes Rarer than in consumer markets because of smaller market size. . Often used for example test areas for new product trials.

Used for some specialties. . engineers. Sometimes used. Often used in chain before retailers especially in export markets. Wholesalers Sometimes used. Sometimes used. Commissioned Agents Multi-level marketing Often used.Viable routes to market Factor industrial Consumer Direct sales force Often used in industry Used where needed to sell to sell direct to buyers to resellers more than to and specifying actual consumers. Rarely used. Distributors Often used.

• Consumers are also more involved in mass communication such as print. television and radio advertising than their industrial counterparts.Inference • The key difference between industrial and consumer markets is the much greater number of buyers in consumer or end markets. .

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. .• Consumer marketing features informal purchasing procedures.

. 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.• As there is a much smaller group of possible buyers in industry.

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. • Steel manufacturer processor companies goods producing company steel consumer consumer • Similarly. the number of companies in a particular industry reduces. 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.

. and other gimmick. The net effect will then be to reduce profits all round.Price manipulation and industrial demand Price manipulation. there will be a low level of industrial demand that cannot readily be stimulated by price – cutting. any attempt at a "price war" is likely to attract price retaliation. If there is little consumer demand. are not likely to have much effect on the total demand for industrial products. Moreover there are relatively few suppliers in the industrial markets.

• The purchasing organization will seek to obtain a number of bids from competing suppliers and choose the best offering.Competitive tendering • This is a process where a purchasing organization undertakes to procure goods and services from suitable suppliers. .

• The selection criteria have been established. • A budget has been estimated and the financial resources are available.The key requirement in any competitive tender is to ensure that.. • The procurement process is agreed upon and it conforms with fiscal guidelines and organizational policies. • A buying team (or committee) has been assembled.. • The purchasing organization's objectives for the purchase are clearly defined. • The business case for the purchase has been completed and approved. .

• It has been clearly established that a competitive tendering process is the best method for meeting the objectives of this purchasing project. .• 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.

and working out a price. . • This would consist of evaluating the specification (issued by the purchasing organization). designing a suitable proposal.Bidding process • Suppliers who are seeking to win a competitive tender go through a bidding process.

" • 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. .• There is an old saying in industrial marketing. then you have already lost it. "if the first time you have heard about a tender is when you are invited to submit.

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.Non-tender purchasing • Not all industrial sales involve competitive tendering. • Private companies are able to avoid the complexity of a fully transparent tender process.

. • 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.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.

• 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.• 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. for the same reason that troops were sent in to battle to die. they thought they had a real chance. .

. otherwise you are likely to sell them an illsuited solution to meet their requirements.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.

. However.• Sales force management has a critical function in industrial selling. when economic downturn hits it becomes critical to direct the sales force out selling. • 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. • Typical industrial organizations are highly dependent on the ability of its sales people to build relationships with customers.

. sales success is heavily weighted towards suppliers who can understand their audience before selling to them. • As research shows.• 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.

or later. 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. • In any step of the sales process prospects drop out of it. a sales lead. a sales offer) to a closed/finished contract or Deal Transaction.g. • The structure may start at various process steps (e.Sales tunnel/funnel • A Sales tunnel is the way that both direct sales persons and SFA systems visualize the sales process of a company. .

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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 .

the deal has reached a point where it is considered won.e. lost or 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.

. • 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. sales person or product group.• The hit rate may be measured for the whole sales force or by sales region.

Types of industrial goods • • • • • • Installations Equipments Semi.maufactured goods Component parts Supplies Raw material .

ceramic oven etc.electric generators. diesel engines. steam boilers. • Examples:. . • Usually regarded as a fixed part of the plant. printing presses. • These are purchased after careful planning and technical advice.Installations • These are the major items of production. paper making machines.

Equipments • These are not as vital as installations. • Usually not regarded as a fixed part of the plant. press feeders in print shops. . display fixtures in retail etc. vacuum sweepers in hotel. • Examples:.portable electric drills.

Semi-manufactured goods • These goods are the finished good of one industry but subjected to additional changes in the manufacturing process of another. lumber by furniture manufacturer.leather. • Such items pass through several production stages in different factories before they reach the final consumer market. cement to a constructor etc. • Examples:. . textiles sold to garment manufacturers. yarns. copper. lead.

small motors in electric appliances. assembled valves. hydraulic brakes and carburetors. • Examples:.Component parts • A class of manufactured articles that can be installed as a part of larger product without further processing. castings. . automobile tyres and tubes. radio and TV set tubes.

test tubes for chemists. • Examples:. light bulb papers.lubricants. .Supplies • Items which are essential to business operations and are consumed in a short span of time. office supplies. screw drivers etc.

forest and commercial fishing. coffee. • It is limited to only raw material and it does not include semi-processed items.Raw material • Produce of the farm or mines which are further processed in production process before consumption. milk.cotton. . tobacco. fruits. products of mine. grains. wool. • Examples:.

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. • From the branch office company’s sales representatives operate in different territories. • Branch offices are more strategically located than branch houses. • It carries no inventory. .

Normally local and independently owned. . They stock goods.Industrial distributors • • • • Technically the middlemen/resellers. Take title of the goods.

Works on commission. . Different from distributor.Manufacturer’s agent • • • • Independent middlemen. Doesn’t take title of the goods.

Industrial pricing • Importance of this particular is beyond doubts. . • Both internal and external factors affect pricing. • This is the only one aspect of marketing mix that is the source revenue generation.

• 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.

Variable.Strategy PRICING Methods Objectives Survival Profit Maximization Prestige Social consideration Cost based (cost plus. marginal) Value based Competitor based Penetration Skimming Mixed Promotional Differential .

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.