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Understanding

Industrial Market Vs Consumer Market Industrial


Market Structure markets

Industrial Market Consumer Markets

Geographically conc. Geographically dispersed


Fewer buyers (relatively) Mass markets
Big buyers Free Market
( small number of large buyers) (large number of buyers)

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Understanding
Industrial Market Vs Consumer Market Industrial
Market Structure - Example markets

Industrial Market ( Rutile for Consumer Markets


Paints) (paints)

Major ten cities. Even in small villages


Fewer buyers (example 500) Mass markets ( 1 billion )
Oligopolistic buyers with clout Small customers
To access international market normally competition is
(Asian, Nerolac, ICI etc.) within the country.

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Understanding
Industrial Market Vs Consumer Market Industrial
Buyer Behavior markets

Industrial Market Consumer Market

*Evaluated for functionality *Social / psychological


rational/task motive to buying. factors are important.
*Purchasers are experts & focus *Family involvement & focus
is more on performance/service. more on product per se.
*Higher interaction with the *Nor personal relationship
supplier. with the supplier.
* Formal processes. * Less of formal processes.

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Understanding
Industrial Market Vs Consumer Market Industrial
Buyer Behavior - Example markets

Industrial Buyer for AC Customer for AC

*Evaluated for functionality •Should look good & match


( evaluation by tech committee) the décor.
*Purchase through tendering *Want to buy LG only
Process & brand less important. (because neighbor has)
*Discuss technical details, *Go to a shop, select, negotiate
price negotiation etc. pay & forget.
*Formal processes of * Less of formal processes.
documentation etc.
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Understanding
Industrial Market Vs Consumer Market Industrial
Products markets

Customer Markets
Industrial Market
* Standardized.
* Technical complexity and
customized.
*. Service, delivery and
* Service, delivery and
availability is somewhat
availability is very
important.
important.

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Understanding
Industrial Market Vs Consumer Market Industrial
Products - Example markets

Samsonite Outsourcing Customer for Samsonite soft


soft luggage Luggage

* Each component is as per * Standardized product range


Samsonite specification. to select from.

* Service, delivery and *. Service, delivery and


availability is very availability is somewhat
important as it affects supply important, can wait for a
chain of the company. Specific color / size.

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Understanding
Industrial Market Vs Consumer Market Industrial
Decision making markets

Industrial Market Consumer Market

* Distinct observable stages * Unobservable mental


stages, not very clear
* Multiple influencers and pattern.
decision makers.

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Understanding
Industrial Market Vs Consumer Market Industrial
Decision making - Example markets

Industrial Buyer – Soaps for


Workers canteen Customer

* Need identification, selection, * Low involvement buying


procurement etc. and impulse purchase
* O.K. from the workers union, (the exact choice criteria
agreement by contractor, difficult to identify) & varies
purchase departments from situation to situation.
negotiation & placing order.

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Understanding
Industrial Market Vs Consumer Market Industrial
Distribution channel characteristics markets

Industrial Markets Consumer Markets

* Shorter, more direct & * Indirect and multiple


fewer linkages between seller linkages
and buyers.

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Understanding
Industrial Market Vs Consumer Market Industrial
Distribution channel characteristics -Example markets

Customer for Cold drinks


Hotel buying Cold Drinks
* Normal distribution style
* Supplied directly by the
of distributor to retailer to
distributor, may even be
customer. Virtually no
serviced by company
interaction with company.
employee or a regular basis.

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Understanding
Industrial Market Vs Consumer Market Industrial
Promotion markets

Industrial Markets Consumer Markets

* Emphasis on personal selling * Emphasis on mass market


or one to one dealing. promotion.

Example : Selling fridges Example : You plan an adv.


with decals. You go and deal campaign to highlight decals
with Coke or Pepsi H.O. and generate customer flow.

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Understanding
Industrial Market Vs Consumer Market Industrial
Pricing markets

Industrial Markets Consumer Markets

* Competitive bidding & * Normally MRP & MOP


multistage negotiation.
* Concept of list price & its
* Sharing of cost data & implementation.
budgeting of acceptable
profits in many cases.

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Understanding
Industrial Market Vs Consumer Market Industrial
Pricing - Example markets

Industrial (CSD purchase


Of Rum ) Consumer Markets for Rum

* Competitive bidding & * Normally MRP & MOP


selection on basis of L1.
* Concept of list price & its
* Sharing of production and implementation in the trade.
overhead cost data with CSD
and price based on cost +
margin.
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Understanding
A big reseller can be treated as a Industrial Industrial
Buyer
markets
Example: Shoppers Stop / Ebony / Kids Kemp for an
apparel manufacturer.

Purchase : Not for consumption but for business.

Market characteristics : Very few of them and they are big in


size and have centralized purchasing.

Product characteristics : Specific private labels.

Buyer characteristics : Technical evaluation / rational process /


multiple buying influencers.

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Understanding
A big reseller can be treated as a Industrial Industrial
Buyer
markets
Example: Shoppers Stop / Ebony / Kids Kemp for an
apparel manufacturer.

Channel characteristics : Direct service by the manufacturer.

Price characteristics : Very hard on negotiation, if they get


better price, it straight goes to profits.

Economics of demand : Based on actual consumer off-take


of the products and hence derived.
If one design clicks, it is stocked
more in anticipation.

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Understanding
Organizational Customer Industrial
Type of purchasing organization markets
Commercial Enterprise

1. Industrial Dealers & Distributors – Essentially their objective


is to trade on the items. ( relatively narrow scope ).

2. OEM – These consumers use the products as component of


their own output. The stakes are high as their final output
depends on your product. ( Maruti as a user of headlights ).
In emergency, they can make the vehicle & fit headlights later.

3. Users ( consumers ) – They are the final consumers of the


product and their total operation depends on you. Example:
Eastern Coal Fields for Tisco. No coal => No Steel.
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Understanding
Organizational Customer Industrial
Type of purchasing organization markets

Government agency

1. Standard procurement processes – Registration,


Tender, L1 etc.

2. Public accountability – everything by rule books as far as


documentation.

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Understanding
Organizational Customer Industrial
Type of purchasing organization markets

Institutions ( Private & Public Sector )

1. Tisco giving its workers, watches as Diwali gifts.

2. XIM-B purchasing air-conditioners for faculty offices.

3. DSP cooperative buying suitcases for their members.

Characteristics : Normally one time deals, large orders,


less of technical evaluation, non – specialist buyers.

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Organizational Customer Understanding
Industrial
Based on Type of products purchased markets

Materials and parts

1. Raw materials ( natural gas, HDPE etc.)


2. Manufactured materials ( copper wire, steel sheets )
3. Component parts ( switches, motors or customized gears )

Characteristics : Normally large custom made orders are sold


By the manufacturers & standard products by industrial.
distributors.

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Organizational Customer Understanding
Industrial
Based on Type of products purchased markets

Capital Items

1. Installations ( buildings, computers, machinery etc.)


2. Accessories ( PC, Office furniture)

Characteristics: Normally major installations, because of


extensive interaction required and long negotiation time required,
the manufacturers deal directly with the customer & accessories are
sold by industrial. distributors.

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Organizational Customer Understanding
Industrial
Based on Type of products purchased markets

Supplies and services

1. Supplies ( soaps, stationery etc.)


2. Services ( maintenance, canteen etc.)

Characteristics : Normally industrial distributors are used &


services are provided by the individual contractors ).

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Characteristics of Organizational Understanding
Procurement Industrial
markets
Multiple Influences

Example : Procurement of Injection Moulding Machine

1. R & D : Designs the moulds which are to be used.


2. Production : Output levels, installation needs.
3. HRD : Manpower implications, skills to be imparted.
4. Quality Assurance : Responsible for output consistency.
5. Maintenance : Ease of operation, availability of spares,
AMC etc.
6. Finance : Long & short term financial implication.
7. Purchase department : Price, payment terms, delivery
terms.
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Characteristics of Organizational Understanding
Procurement Industrial
markets
Technical sophistication

Example : Procurement of Rutile for paints

1. Material Planning : Exact forecasting of demand,


factoring of international prices Vs domestic prices, foreign
exchange implication, inventory carrying cost etc.
2. Supplier rating : Based on the the quality reports, delivery
records , price factor, payment terms etc. the suppliers are
rated and
3. Economic order quantity : The quantity to order,
frequency of ordering etc. are planned so as to optimize the
profitability of the organization.
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Characteristics of Organizational Understanding
Procurement Industrial
markets
Technical sophistication

Example : Procurement of Rutile for paints

4. Value Analysis : The option of using a lesser quantity of


costly Rutile for getting the same output level by change of
formulation is explored.

In absence of the raw materials, whether any alternative can


be used is worked out. How the option of airlifting impact
cost etc. is worked out before decision making.

Concept of optimization w.r.t constraints


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Characteristics of Organizational Understanding
Procurement Industrial
markets
Government purchases

1. Large number of buying center : Government


departments are everywhere. A lot of them purchase
locally.
2. Political interference :
3. Specified govt. contracts :
a) Rate contracts
b) DRDO / ISRO Dev. Job cost + effort cost
c) 131 Orders

Skills required are specialized


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Industrial Marketing Environment Understanding
Industrial
markets

Buyer
Seller
Interface

Publics

Macro Environment

Govt. influences
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Industrial Marketing Environment Understanding
Buyer seller interface Industrial
markets

Mafg. Govt.

Dist. / Manufacturer’ rep


Dlrs. Dist / Dlrs
Commercial
Transporters
Labour Warehousing firms Enterprises
Capital Mktg. Research firms
R.M. Compt. Bankers & insurers
Industrial
Components Distributors
Equipment

Suppliers Buyers Facilitators Market 27


segments
Industrial Marketing Environment Understanding
Publics Industrial
markets

1. Financial publics – FI / Stockbrokers / Individual Stock


Holder
( Stock prices, confidence in company )

2. Independent press – Impact on reputation of company


( Dhabol power corporation )

3. Public interest groups – Environmentalists


( Euro II , CNG vehicles, Narmada bachao)

4. General publics – MacDonald's coating French fries with beef


tallow
Business serves the society
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Industrial Marketing Environment Understanding
Macro Environment Industrial
markets

1. Economics - Increased demand for oil led to increase in prices


of oil in the world markets. Changes the cost base of most
oil based companies. Also changed the demand pattern of
automobile ( petrol to diesel ).

Government policies like subsidizing diesel at the cost of petrol.

2. Ecological influences - The concern for the environment


so emission norms are stringent & industry has to adjust.
Bhopal gas tragedy, changes in the law to use MIC as an
intermediary.
“Right to Know”  Companies have to furnish details of the
hazardous products made & used by them. 29
Industrial Marketing Environment Understanding
Macro Environment Industrial
markets

3. Physical environmental Influences – Steel plants need iron


ore, water & lime stone deposits for setting up. MP, Bihar and
Orissa have the concentration of steel plants.
.
4. Politico / Cultural influences – Hire and fire policy of west Vs
militant trade unionism & job protection in India.

5. Technological influences – Typewriters manufacturers had


to shift market focus, change products etc after PC’s and word
processors became common.

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Industrial Marketing Environment Understanding
Macro Environment Industrial
markets

6. Government influences –

Anticipating governments action: WTO treaty signing


and IMF loans linkages for govt. The govt. needs the
loan so it is likely to sign the treaty.

Influencing Govt. actions: Lobby for reduction in excise


duty (to create level playing field).

Lifting of Liquor ban in A.P. ( a lot of lobbying ).

CNG buses for Delhi ….


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Environment Management Strategies Understanding
Independent Strategies Industrial
markets

1. Competitive aggression

a. Create Product differentiator (Bonding power of cement


Gujrat Ambuja Cement – compressive strength)

b. Aggressive pricing (coal based power plants Vs Gas based


power plants)

c. Comparative advertising - Dhabol Power Corporation


came up with the very good adv telling the good the
plant has brought about in the area, water supply,
school, employment, plus electricity generation cost
(compared with other plants etc.) 32
Environment Management Strategies Understanding
Independent Strategies Industrial
markets

2. Competitive pacification

a. Improved competitive relations - (Auto companies do not


fight on discount to trade @4%, they
do not spoil the trade, focus on end users ).

b. Industry promotion – Doodh, Egg & LPG campaign.


( Increase the pie rather than fight
for the same pie).

c. Price Umbrella’s – The transporter’s union finalizing rates


for each destination ex- Mohali.
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Environment Management Strategies Understanding
Independent Strategies Industrial
markets

3. Building Public Opinion

a. Corporate Image advertising – ISO 9000 Accreditation.

b. Voluntary environmental control – ISO 14000 Accreditation


Making green products & advertising it.

c. Commitment to interest groups – Archies cards giving part


of institutional revenue to fund the NGO’s.
This help them charge higher & get business.

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Environment Management Strategies Understanding
Independent Strategies Industrial
markets

4. Political / Legal

a. Directly lobbying with the govt. & law enforcers.

Steel Industries lobbying for more development work,


reduction in excise etc.

b. Issue advertising through the direct paid media or even


influencing the media to highlight the issue ( may or may
not be funded directly ).

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Environment Management Strategies Understanding
Co-operative strategies Industrial
markets

a. Contracting : Allwyn is part of Electrolux, but supplies


refrigerators to LG.

b. Co-optation : Absorption of relevant Publics on board


of directors. IIMC & XLRI directors
in the board of directors of XIM.

c. Coalition : Industry association ( Specially used to


lobby with the government )
FMA decision to have max 7 years warrantee
on fans.
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Environment Management Strategies Understanding
Strategic Maneuvering Industrial
markets

a. Domain Selection : Focusing on areas of strong competitive


advantage. Cray  Supercomputers
ICI Worldwide  Light chemicals
with high margins.

b. Diversification : Reliance into telecom sector. May be the


idea is to be part of a high growth
industry which has good future
potential.

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