Industrial Marketing

Strategy: Concepts and Issues

Industry
Industry is a type of organization which produces mainly unfinished or those kinds of goods which
are destined to be soled primarily for the purpose of further treatment.

In a better understanding way Industry is that business organization which primarily produces goods
and services which are again used for creating other products.

Industrial Marketing
Industrial marketing is also referred to as business ‘business marketing’ or ‘organizational marketing’
.Industrial marketing is the marketing of industrial products to business organizations. Business
organizations include manufacturing companies, government undertakings, private sector
organizations, educational institutions, hospital, distributers and sellers. Business organizations buy
products to satisfy many objectives like production of other goods and services, making profit,
reducing costs and so on. In contrast consumer marketing is the marketing of products and services
to individuals, families and households. The consumers buy products and services for their own
consumption.

The companies that sell steel, machine tools, computer, courier services, and other goods and
services to business firms needs to understand buyers’ needs, resources, policies, and buying
procedures. The important point in business organization is to create value (benefits) for buying
organizations (customers) with products and services that focus on buying organizational needs and
objectives. For example, a company manufacturing and marketing precision steel tubes to bicycle
manufacturer is doing business marketing. Industrial marketer of precision steel tube company must
understand the needs of bicycle manufacturers such as Hero Cycles and Atlas Cycles, in terms of
their quality requirements, applications of tubes, availability or delivery on daily or weekly basis, and
so on. Similarly, a small propitiatory firm, giving technical advice (or services) to paint manufacturer
is also doing business marketing.

CHARACTERISTICS OF INDUSTRIAL
MARKET
  Derived demand
 Small numbers of buyers
 Large volume purchases
 Geographical concentration
 Greater demand in elasticity
 Direct buying
 Professional buying
 Complex negotiation
 Reciprocal buying
 Greater use of leasing

THE NATURE AND SCOPE OF

INDUSTRIAL MARKETING
Industrial marketing is the marketing of goods and services to industrial and institutional customers.
These include manufacturing firms, governments, public utilities, educational institutions, hospitals,
wholesalers and retailers, and other formal organizations. Consumer marketing, in contrast, is
concerned with marketing to individuals, families, and households purchasing goods and services for
their own consumption. The distinguishing feature of industrial and institutional customers is that
they use purchased goods and services in their own production of goods and services. Purchased
products, such as raw materials, components, and subassemblies, may become part of the
customer’s final product or may be added to physical facilities, in the form of construction and
equipment. In other cases the purchases may be supplies used in operations, repair, and
maintenance activities, including such products as fuel, office supplies, and building materials.
Resellers, such as retailers, distributors, and wholesalers, purchase products for resale but add value
to those products in the form of the services they provide, such as availability, credit, and customer
information.
In a real sense, industrial marketing keeps the economy functioning by providing the products and
services required by factories, offices, government agencies, hospitals, universities, and other
providers of goods and services. It has been estimated that industrial marketing transactions equal in
dollar value at least twice the value of consumer purchases. This can be understood by considering
the long and complex chain of industrial market transactions preceding the manufacture and sale of
a consumer product, such as a shirt or a can of soup, a chain that begins with raw materials from
farm, forest, mine, or ocean and almost certainly crosses national borders at several points. Given
that all manufacturers depend upon other manufacturers for goods and services, the chain is
virtually endless.
These flows are demonstrated in the model of the marketing system shown below…
THE NATURE OF INDUSTRIAL
GOODS AND SERVICES
Industrial goods and services can be categorized in a variety of ways. A typical scheme involves
construction, heavy equipment, light equipment, components and subassemblies, raw materials,
processed materials, maintenance, repair, and operating supplies, and services.

Construction
Includes the design and fabrication of buildings and other structures, such as drilling rigs, chemical
processing plants, towers, and cranes.

Heavy equipment
Involves large machinery, such as machine tools, turbines, supercomputers, locomotives, presses,
tugs and barges, and earth-moving equipment. Heavy equipment often denotes “one of a kind”
items designed specifically for the needs of a particular user. Construction and heavy equipment
almost always are shown on the customer’s balance sheet as plant and equipment, fixed assets to be
depreciated over a period of years. The purchase of plant and major equipment items is typically
financed by borrowing money for a period of time roughly equivalent to the expected life of the
asset. Thus, purchases of plant and equipment items have very significant financial dimensions for
the customers.

Light equipment
Consists of smaller pieces of equipment with typically lower purchase prices and, often, shorter
lifetimes than heavy equipment. Examples of light equipment include power- operated hand tools,
fork-lift trucks, small motors, and dies and jigs. Light equipment purchases may be financed as a
current expense with the full purchase price taken as an operating expense in the year purchased, or
they may be depreciated over a period of a few years. These products are often available in standard
sizes and configurations from several competing suppliers.

Components and subassemblies

These are fabricated items that become part of the customer’s finished product. Small motors,
semiconductors and capacitors, integrated circuits, fasteners, instruments and gauges, and glass are
examples of components and subassemblies. These are the “parts” of a piece of equipment and may
number in the thousands for a finished product. For many equipment manufacturers, the sale of
replacement parts is an important source of revenue and profit, not uncommonly producing half of
their annual sales volume and more than half of their profits.
For a portion of the manufacturer’s requirement for components and subassemblies, there is a
choice to be made between manufacturing the item internally or purchasing it from a vendor. It is
usually in the buyer’s best interest to encourage competition among two or more potential vendors
in order to have the possibility of alternative sources of supply and to obtain competitive pricing.
However, recent years have seen a tendency toward sole source” procurements, especially in
situations where the vendor’s and the customer’s operations their skills, but also in terms of their
attitudes toward their jobs and other personal characteristics. Thus, people play a central role in
services marketing and are the major source of differentiation among service suppliers. The persons
who actually deliver the service may also be responsible for selling it. Equally important as the
people are the systems that manage these people, including systems for training, supervision, and
control, all of which must be assessed carefully by an astute purchaser.
THE INDUSTRIAL BUYING PROCESS
PROBLEM RECOGNITION

SPECIFYING THE NEED

PRODUCT SPECIFICATIONS

SEARCHING OF POTENTIAL SUPPLIER

PROPOSAL SPLICITATION

SELECTING THE VENDOR

ORDER-ROUTINE SPECIFICATION
 INDUSTRIAL
CUSTOMERS
Industrial marketing is distinguished from consumer marketing more by the nature of the customer
than by the nature of the product. Industrial markets are made up of organizations that buy many of
the same products consumed by individuals and families, such as paper products, automobiles,
trucks, tools, and common carrier transportation services.

Industrial customers consist of manufacturing and processing firms (the latter including food,
chemical, and petroleum processors) and distributors, who purchase and resell to other industrial
and institutional users. A special kind of manufacturer is the so- called OEM, or Original Equipment
Manufacturer, who makes equipment incorporating the components of other manufacturers.

Institutional customers include health care and educational institutions, as well as agencies of
government, such as prisons.

Governmental customers include many agencies at municipal, county, state, regional and national
levels. The Federal Government of the United States is the single largest purchaser of goods and
services in the world, most notably through its purchases of military equipment and supplies, and of
goods and services related to space exploration. For convenience, we will usually use the term
industrial marketing to apply to all three types of customers—industrial, institutional, and
governmental.

TYPES OF INDUSTRIAL
CUSTOMERS
Industrial customers are generally classified into four groups,

Commercial enterprises

Government customers

Institutional customers

Cooperative societies
Commercial Enterprises
Commercial enterprises are private sector, profit-seeking organizations, consisting of (I) industrial
distributors, or dealers, (ii) original equipment manufacturers (OEMs), and (iii) users. They include
manufacturing firms (e.g. Telco, Bajaj Auto) and non- manufacturing firms (e.g. Lintas advertising
firm, MODE marketing research firm). Sometimes these classifications overlap, but they are useful to
the industrial marketer because they indicate how the products and services are used by buying
organizations.

Industrial Distributors and Dealers

They purchase industrial goods and resell them in the same form to other industrial customers such
as commercial enterprises, governmental and institutional customers. They are intermediaries or
middlemen of an industrial marketer.
Original Equipment Manufacturers (OEMs)

These industrial customers purchase industrial goods to incorporate them into the products they
produce. For instance, a tire manufacturer (say, MRF), who sells tires 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

When a commercial enterprise (i.e. industrial customer) purchases industrial products or services to
support its manufacturing process or to facilitate the business operations, we classify it as a user.
The products which support manufacturing process arc drilling machines press, winding machines,
and so on, whereas the products which facilitate the operations of business are computers, fax
machines, telephones, and others.

Overlapping of Categories Sometimes 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 are incorporated into cars and hence, it
can be also referred to as an OEM.

Government Customers

The largest purchases of industrial products in India 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, universities, and prisons, arc
classified 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
This category is unique and was a pan of the cooperative movement in India. An association of
persons forms a cooperative society. It can be manufacturing units (e.g. cooperative sugar mills) or
non-manufacturing organizations (e.g. cooperative banks, cooperative housing societies).
 CLASSIFICATION OF
INDUSTRIAL PRODUCTS AND
SERVICES
These goods are divided into five subcategories.

1) Raw Materials

2) Fabricated Parts and Materials

3) Installations

4) Accessory Equipment

5) Industrial Supplies

1) Raw Materials - Raw materials are products that are purchased in their raw state
for the purpose of processing them into consumer or industrial goods. Examples
are iron ore, wheat, and leather. Some (e.g., wheat) may be converted directly into
another consumer product (cereal). Others (e.g., timber) may be converted into an
intermediate product (lumber) to be resold for use in another industry
(construction).

2) Fabricated Parts and Materials - Fabricated parts are items that are purchased to
be placed in the final product without further processing. Fabricated materials, on
the other hand, require additional processing before being placed in the end
product. Many industries, including the auto industry, rely heavily on fabricated
parts. Automakers use such fabricated parts as batteries, sun roofs, windshields,
and spark plugs. They also use several fabricated materials, including steel and
upholstery fabric. As a matter of fact, many industries actually buy more fabricated
items than raw materials.

3) Installations - Installations are major capital items that are typically used directly in
the production of goods. Some installations, such as, heavy equipment, and
machine tools, are designed and built for specialized situations. Other installations,
such as large commercial ovens, and computerized axial tomography (CAT) scan
machines, are built to a standard design but can be modified to meet individual
 requirements. The purchase of installations requires extensive research and careful
decision making on the part of the buyer.

4) Accessory Equipment - Goods that fall into the subcategory of accessory equipment
are capital items that are less expensive and have shorter lives than installations.
Examples include hand tools, computers, desk calculators, and forklifts. While
some types of accessory equipment, such as hand tools, are involved directly in the
production process, most are only indirectly involved.).

5) Industrial Supplies - Industrial supplies are frequently purchased expense items.

They contribute indirectly to the production of final products or to the
administration of the production process. Supplies include computer paper, light
bulbs, lubrication oil, cleaning supplies, and office supplies.Buyers of industrial
supplies do not spend a great deal of time on their purchasing decisions unless they
are ordering large quantities. It is not always clear whether a product is a
consumer good or an industrial good. The key to differentiating them is to identify
the use the buyer intends to make of the good. Some items, such as flour and pick-
up trucks, can fall into either classification, depending on how they are used. Flour
purchased by a supermarket for resale would be classified as a consumer good, but
flour purchased by a bakery to make pastries would be classified as an industrial
good. A pickup truck bought for personal use is a consumer good; if purchased to
transport lawnmowers for a lawn service, it is an industrial good.