B2B MODULE 1

MEANING AND SCOPE

Industrial goods and services are those goods and services which are used in the production of goods
and services. They include capital goods,raw materials,Intermediaries.

Industrial marketing consist of all the process of marketing of products and services to organizations
that use the product or services in the production of industrial or consumer goods and service to
facilitate the operation of their enterprise.

The process of discovering industrial customer wants,needs, expectations to industrial product and
service specifications through effective promotion ,channeling ,pricing and after sales services to
convince more customers.

Consumer goods pass the several steps in industry marketing process before it reaches the customer
hands.In sum business markets are the markets for products and services from local to international
bought by business,govt bodies and institutions for consumption,incorporation,resale,use.

The industrial marketing involves :

 Marketing of industrial goods

 Marketing of consumer goods.

CLASSIFICATION OF INDUSTRIAL GOODS

(consumer goods ) HOW PEOPLE BUY :

 Convenience goods
 Shopping goods
 Speciality goods
 Unsought goods

(business goods )HOW THEY ARE USED

 Capital equipment and investments/ foundation goods- These are long lasting goods for
developing and managing finished goods.Top executives take decisions .
1. Installations- consist of building and heavy equipment
2. Equipments – portable factory equipments and tools,
quality ,price ,features ,services are main considerations. Equipments are of single
purpose equipments (exclusive operations)and multi purpose equipments(versatile
machines,different operations).
 Manufactured materials and component parts – these are materials and parts which have
undergone some process before entering into manufacturing process of product.
1. Raw materials –farm products (wheat,cotton), natural products (fish ,crude oil )
2. Manufactured materials and parts – component material
( iron ,yarn,cement ),component parts ( simple motors, tyres)
 MRO Supplies and business services
1. Maintenance ,repair ,operating supplies become imp in operation but not part of
final product ( paint,nails,writing paper,lubricants)
2. MR business services like repair of photocopying machines and business advisory
service like legal,consulting and advertising.
ON BASIS OF USE

 Basic goods industries – essential inputs

 Capital goods industries – provide machinery,equipment,tools
 Intermediate goods industries – already gone manufacturing process but is an input for
other
 Consumer goods industries – outputs
Consumer durable amd non durable goods

INDUSTRIAL CUSTOMERS

There are number of business buyers and the purpose of buying and buying behavior are different.

INDUSTRIA
L MARKET
Marketing of Marketing of Consumer
Industrial Goods Goods to
Non
Business Business
Enterprises Organisatio Organisation
n buying for Organisation
s
in house buying for in
Business house
Consume consumptio
Resellers n or consumption
rs or Charitable
business
1. Business organizations : from one man company to giant organizations
 On basis of types of ownership
Promotion Distribution
a. Public sector – decision making by govt
b. Private sector
c. Joint sector
d. Cooperative sector
 Purpose of purchase
a) Manufactures
b) Resellers
c) Consumer
2. Non business organizations
 Not commercial in nature
a) Governmental
b) Non governmental
COMPONENTS OF INDUSTRIAL MARKET

 Industrial sector- ¼ GDP in india.

a) Manufacturing – largest sector
b) Mining and quarying
c) Electricity,gas ,water supply
 Agricultural sector- 1/5 th GDP, development of infrastructure in agri sector
 Service sector- largest sector,fastest growing sector
a) Service booth
b) Maintenance and repair
c) Rental
d) Hotels ,restaurant
e) Transport
f) Trade
g) Finance and insurance
h) Health service

COMPARISON BETWEEN INDUSTRIAL AND CONSUMER MARKETS

WHAT MAKES INDUSTRIAL MARKETS DIFFERENT

 Differences in product and demand characteristics – high cost ,strict standards,derived

demand ,reverse price elasticity of demand
 Customer characteristics
a) Number of customers – small for industrial ,close relationship,direct channel
b) Order size and frequency –huge size less frequent
c) Decision making –Decision making unit is large
d) Buying motives –guided by rational and economic motives and not emotional as that
of consumer goods.
e) Contractual penalities –commercial use so cost and consequence of poor
performance high.
f) Reciprocity –counter trade is high
g) Buyer seller relationship –good buyer seller relationship
h) Vendor loyalty –switching cost , so high vendor loyalty
i) Bargaining power –high due to monopoly power
 Product/service mix
a) Product life cycle –low cycle due to dynamicity,rapid changes
b) Product specifications- high technical skills,capabilities so high specification
c) Equipment compatibility-
d) Consistent of quality –high imp
e) Service – more requirement,delivery,insatallation,training,MRO
f) System selling –
g) Branding – not important
h) Product line-no scope for line extension
i) Degree of fabrication –industrial products are mainly raw materials and unfinished
goods
j) Packaging and labeling –for protective purpose
  Market characteristics
a) Market structure –few sellers and buyers,oligopolistic so collusive strategy
b) Market size-large
c) Horizontal and vertical market –vertical narrow
 Marketing mix characteristics
a) Product –high tech products no high touch (emotional like cosmetics)
b) Pricing – based on competitive bidding,negotiation possible.guarantees
c) Channels-shorter and complex,physical distribution is imp
d) Promotion-less
e) Geographic concentration

DERIVED DEMAND FOR INDUSTRIAL GOODS

For consumer goods its direct demand.When demand for a product is derived frm other then its
derived demand.

GARMENTS=FABRIC=YARN=COTTON

MARKETING IMPLICATIONS

Demand for industrial product is directly proportional demand of final consumer product .so they
market the firms product and this is called telescopic marketing strategy.This strategy was rewarding
when the company have dominant share in the market,when product is patented one,when market
penetration level is too low.

JOINT DEMAND

Ceteris parabus , a supplier who can supply a set of goods rather than a single one.

Head lamp +tail lamp = from single supplier

PRICE INTENSITIVITY

Industrial goods are price inelastic,changes in the price donot change overall demand.ex change in
price of battery doent change in price of automobile

PRICE SENSITIVITY

Demand of industrial goods are inelastic ,but for products are elastic.if tyre price
decrease,automobile company choose that tyre instead of costly.

REVERSE ELASTICITY

Price fall demand fall, price rise,demand rise. this is because when price fall industrial buyer expect
further fall so he reduces purchase.similarly when price rise

CROSS ELASTICITY

Demand for product depends on price of substitutes

 INDUSTRIAL BUYING AND BUYER BEHAVIOUR
WEBSTER AND WIND MODEL
FACTORS AFFECTING BUSINESS BUYING DECISIONS

ENVIRONMENTAL FACTORS

 Physical Environment
o Geographical spread of Production facilities and suppliers
o Impact of cost and Logistics
o Physical Proximity of suppliers for Inventory Management.
 Economic Environment
Demand for business product may be affected by economic factors such as boom,
recession etc, economic policies like industrial policy, monetary policy, fiscal policy etc

 Technological Environment-Technological factors such as current technologies in an industry

and the anticipated technology changes affect buying decisions.

 Legal Political Environment-Changes in taxes, duty,subsidy structure affect the business

 Cultural Environment-Factors like traditions, beliefs, atitudes may affect business decisions

ORGANIZATIONAL VARIABLES

 Goals and tasks

 Eg :highlight High quality Image,Company preferring high growth may prefer

supplier who can meet growing needs.A firm which wants to market in a foreign
market may choose component supplier who has reputed name in that market.
  Structure-In some org purchases are decentralized /centralized

 Actors-The Philosophy, motivation, atitude,perception of the persons in organization

involved in DMU affect buying decisions

BUYING CENTRE FACTORS

 The buying centre or DMU consists of all people in the organization who involved,
consciously in the buying process.

 Buying centre is an informal cross departmental decision unit in which the primary
objective is the acquisition, impartation, and processing of relevant purchase related
information.Buying centre resources are the inputs the centre has for decision
making such as information and expertise.

 Initiator-The person who recognizes and points out that the organization has a
problem that needs a solution.Initiator may be insider (operator, Technician etc or
outsider(Supplier, Personnel, Consultant)

 Influencer-Many buying decisions are influenced by different actors such as

technicians/engineers, Finance/accounting personnel, operators/users etc

 Decider-Deciders are those who have formal authority to make buying

decisions,Organization structure, task relationships, authority etc are some factors
affecting.

 Buyer -In the number of cases the actual buyers are different from that of deciders.

 User -The purchasing process many a time is triggered by the user of the product
who reports the need for the product.Users may influence straight rebuy or
modified rebuy

 Gate Keeper--Gate Keeper are buying centre members who control the flow of
information.

 Roles in buying process-Purchasing, Marketing, Finance, General Management, R &

D Engineering , Productions/Operations

STRUCTURAL DIMENSIONS

 Vertical Involvement-Number of levels in the organization communication with or exerting

influence upon ,members of buying centre. it depends on the size, structure of the
organization and nature of purchase.

 Lateral Involvement-It involves the number of departments and divisions which maybe at
any level in the organization communication with or exerting influence upon members of the
buying centre.

 Integrative Complexity: Amount of integration among members.

 Task Differentiation :Counts the number of people involved in buying decision process

 Centrality of Purchasing Manager: The amount of communication the purchase manager

sends and receives
SHETH MODEL
Three set of factors that determine the purchase decision process. They are

 Expectations of the Individual decision participants

 Determinats of the size of the buying centre

 Approcahes to conflict resolution.

Expectations of the Individual decision participants - People involved in the buying decision making
process develop certain expectations about the ability of suppliers and brands to meet firms
objectives

FACTORS THAT DETERMINE THE EXPECTATION SOF INDIVIDUALS INVOLVED

 Background of individual
 Active info search
 Available info source
 Information distortion
 Dissatisfaction with past purchase

FACTORS THAT DETERMINE THE NUMBER OF INDIVIDUALS INVOLVED

 Product factors- time pressure,perceived risk,type of purchase

 Company factors – orientation,size,degree of centralization

APPROACHES TO CONFLICT RESOLUTION AMONG THOSE INVOLVED

 Problem solving
 Persuation
 Bargaining
 Politicking

HOWARD-SHETH MODEL
A more comprehensive model of buyer behaviour attempts to depict rational brand choice
behaviour by buyers under conditions of incomplete information and limited abilities.

 Extensive Problem Solving: In the beginning the buyer often has little information
about brands and the market situation and therefore needs and seeks more
information to form choice criteria
 Limited Problem Solving: In this buyer has good amount of information and the
choice criteria are well defined but still not very sure as to which brand will best suit
him.
 Routinized Response behaviour: This is where the choice criteria are well defined
and choice is clearly identified.

Input variables:They are the stimuli in the environment

 Significative Stimuli: The actual Elements of brands that the buyer confronts, such
as quality, price ,distinctiveness, availability and services.
  Symbolic Stimuli are the elements presented by the marketers in symbolic form such
as in advertisements.
 Social Stimuli: they are generated by the social environment including family and
groups

Output variables : They are buyers Observable responses to stimulus inputs.

 Attention: the magnitude of the buyers information intake

 Comprehension: the buyers store of information about the brand.

 Atittude: the buyer’s evaluation of a particular brand’s potential to satisfy his or her motives.

 Intention: the buyers forecast of which brand he or she will buy.

 Purchase Behaviour: the actual purchase act.

The model include 3 perceptual constructs

1.Senstivity to Information-The degree to which the buyer regulates the stimulus

information flow

2.Perceptual Bias-The distorting or altering information

3.Search for information-active seeking of information about brands their

characterstics

Six buyers Learning Constructs

 Motive-General or Specific Goals of the purchase

 Brand Potential of the evoked set: the buyers perception of the abilities of brands in
the short list satisfy the purchase objectives .

 Decision Mediators: the buyers mental rules for matching and ranking purchase
alternatives according to the purchase motives.

 Predisposition: the already formed preference/attitude towards brands in the

evoked set

 Inhibitors: Environmental forces such as price and time pressure which restrain
purchase of a preferred brand

 Satisfaction: the extent to the product bought satisfies the buyer expectations

BUYING OBJECTIVES
Economic Objectives

 Quality

 Price

 Reliability of supply

 Service
  Reciprocity

Non Economic Objectives

 Prestige

 Career security

 Personal relationship

 Political factors

 Social factors

 Vested Interests

THE BUYGRID MODEL

Business buying consists of different buy situations and different buy phases.

BUYCLASSES :

 New Tasks -The first-time buyer seeks a wide variety of information to explore alternative
purchasing solutions to his organisational problem. The greater the cost or perceived risks
related to the purchase, the greater the need for information and the larger the number of
participants in the buying centre.

Marketing implications : Every buying situations implies that the in-suppliers and out
suppliers should be alert and dynamic.should be alert from the early phase of buyimg
process.Insupplier must supply the company useful information or technical advise

 Modified Rebuy -The buyer wants to replace a product the organisation uses. The decision
making may involve plans to modify the product specifications, prices, terms or suppliers as
when managers of the company believe that such a change will enhance quality or reduce
cost. In such circumstances, the buying centre proved to require fewer participants and
allow for a quicker decision process than in a new task buy class.

 Straight Rebuy -The buyer routinely reorders a product with no modifications. The buyer
retains the supplier as long as the level of satisfaction with the delivery, quality and price is
maintained. New suppliers are considered only when these conditions change. The challenge
for the new supplier is to offer better conditions or draw the buyer's attention to greater
benefits than in the current offering.

Marketing Implications: In supplier must always try to keep improving his offerings and to
initiate changes and reinforce the relationships with the customer.

BUYPHASES :

 PROBLEM RECOGNITION. The buying process begins when someone in the company
recognizes a problem or need that can be met by acquinng a good or service The recognition
ct:iri be triggered by interna or external stimuli

 GENERAL NEED DESCRIPTION Once a problem has been recognized, the buyer has to
determine the needed item's general characteristics and the required quantity For standard
items. this is not a very involved process. For complex items, the buyer wilt work with others
 —engineers, users, and so on—to define the needed characteristics These may include
reliability, durability price, or other attributes In this stage: business marketers can assist
buyers by describing how their products would meet such needs.

 PRODUCT SPECIFICATION: With a general need description in hand, the buying organization
can develop the item's technical specifications. Often, the company will assign a product
value analysis (PVA) engineering team to the project. Product value analysis is an approach
to cost reduction in which components are carefully studied to determine if they can be
redesigned or standardized or made by cheaper methods of production

 SUPPLIER SEARCH The buyer now tries to identify the most appropriate suppliers. by
examining trade directories, doing a computer search, phoning other firms for
recommendations scanning trade advertisements and attending trade shows. However,
these days the most likely place to look is on the Internet.

 PROPOSAL SOLICITATION In this stage. the buyer is ready to invite qualified suppliers to
submit proposals When the item is complex or expensive the buyer will require a detailed
written proposal from each qualified supplier After evaluating the proposals, the buyer will
invite a few suppliers to make formal presentations Business marketers must thus be skilled
in researching ,writing and presenting proposals

 SUPPLIER SELECTION: Before selecting a supplier the buying center will specify desired
suppler attributes (such as product reliability and service reliability) and indicate their
relative invariance. It will then rate each supplier on these attributes to identify the most
attractive one At this point. the buyer may attempt to negotiate with preferred suppliers for
better prices and terms before making the final selection

 Selection of an order routine-Buyer negotiates the final order listing the technical
specifications required, quantity required,delivery schedule and so on

 Performance review

BUSINESS BUYING PROCESS COMPLEXITY

 Purchase policy rules

 Professional buying

 group decision making

 buy situation

 policies and regulations

 nagotiations and contracts

 time lags
4Cs of Negotiation

 Common Interests

 Conflicting Interests

 Compromise

 Criteria

STAGES OF NEGOTIATION

 Preparation

 Non Task sounding

 Task related information exchange

 Persuasion

 Agreement

VENDOR ANALYSIS AND SELECTION

 Technical Capability

 Production Capability

 Cost Factors

 Service Factors

 Financial Capability

 Management Capabilities

 Vendor Performance Rating