BUSINESS MARKETING 04/01 /2023

CHAPTER ONE

2. INTRODUCTION TO BUSINESS/INDUSTRIAL MARKETING

This chapter should enable students understand and explain:

 Definition of business/industrial marketing

 Classification of business/industrial products o Industrial customers
 Components/systems of Industrial markets
 Business Market Versus Consumer Market
1.1. Definition and concepts of business/industrial marketing

Industrial marketing is the marketing of products and services to organizations rather than to
households or ultimate consumers. The purchase is made, not for self-gratification, but rather to
achieve organizational objectives. Industrial marketing is also called:

 Business marketing
 Business-to-business-marketing
 Commercial marketing
 Institutional marketing
 Government marketing, or
 Organizational marketing

A business marketing transaction takes place whenever a good or service is sold for any use other
than personal consumption. Business/Industrial marketing then is the buying behavior of
organizations that buy goods and services for use in the production of other products and services
that are sold, rented, or supplied to others.

Industrial marketing is a human activity directed towards satisfying need and wants of professional
buyers and other individuals influencing purchases in commercial, institutional and governmental
organizations through the process of exchange.
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1.2. Classification of industrial products and their marketing implications

1) Capital equipment and investment (foundation goods): they include:

a) Major/heavy equipment (installations): these are used in the production process (aid
production) and wear out over time. They can be purchased or leased by user customers (e.g.,
metal cutting machines, metal forming machines, cranes, generators, etc.).

Major equipment is of two categories namely Single Purpose Machines (SPMs) and
Multipurpose Machines (MPMs).

Multipurpose machines, also known as general purpose machines, are versatile machines which
can be used for different operations and, therefore, they have a horizontal market, i.e., a market
extending across many industries. Examples include milling machines, boilers, compressors, etc.

Single purpose machines are made specifically for performing exclusive operations in only one
company or industry (vertical market). SPMs are often meant for mass production. Examples
include piston turning lathe, gear generator etc.

Marketing implications

 They exhibit inelastic demand. Requires close cooperation between buyers and sellers.
Negotiations often take many months and may involve top executives in both buying and
selling firms.
 Usually involve direct distribution.
 Personal selling becomes the primary promotional effort.
 Requires significant financial expenditure. Thus, marketers may have to extend
 Credit to buyers
 Assist the buyer in securing funds or loans, or
 Offer the buyer leasing agreements

b) Light equipment/accessories: used to facilitate production, administrative or marketing

activities such as readily movable/hand-held items as spot-welders, drills, personal computers,
typewriters, calculators, fire extinguisher, office furniture, forklift trucks, printers etc. Their
transition values/life are considerably lower than heavy equipment. They are generally less
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expensive and not considered part of the fixed plant. They may be leased or purchased outright by
the industrial customer.

Marketing implications

 They exhibit elastic demand. They are standardized and less costly than capital equipment.
 In the marketing of less costly and more standardized accessory equipment’s, it is
necessary to use industrial intermediary (longer distribution channel), advertising in trade
journals to reach final users, the development of missionary salespersons who provide
selling support to intermediaries.
 Involves routine selling and negotiation. Hence, does not require high-level executive
approval prior to purchase.
 High demand and extensive horizontal market for accessory equipment permit the use of
distributors.

c) Investments/ land, building, and companies acquired/: these are the real estate property of a
company. It includes the firm’s offices, plants (factories), warehouses, housing, parking lots, and
so on.

Marketing implications:

Generally, all require close cooperation between buyers and sellers.

2) Component parts (entering goods): these are manufactured items, subassemblies or

completely assembled units that are incorporated into (inclusion into) the buyer’s final product.
Examples: automobile tires, dash board instruments, motors, batteries, etc. They are identified and
distinguished in the final product easily.

Component parts are of two types:

a) Standardized components: conform to industry accepted dimensions and performance

specifications. They include batteries, tires, and headlights in the vehicle market. Such products
can be held in inventory by distributors and sold ‘’offthe shelf ‘’.

b) Custom (customized or adapted) components: such as automobile windshields are designed to

the exact specifications of the buyer.
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The purchaser that uses component parts in some larger, final product is called an Original
Equipment Manufacturer (OEM). Thus in the automotive business, Toyota is OEM, and the
component parts purchased by Toyota (like tires, door handles etc.) are referred to as OEM parts.
The manufacturers that sell components to Toyota are called OEM part suppliers.

Marketing implications

 In the case of a custom made item, very close interaction between the
engineering/production departments of both the manufacturer and the buyer would be
beneficial. Standardized items are normally bought through the purchasing department of
the buying firm on the basis of the product specifications developed by the engineering and
production.
 Many component parts have two market segments – the original equipment manufacturer
(OEM) segment and the replacement market or the aftermarket. Some components such as
vehicle batteries, tires, headlights, fan belts, and air and oil filters are subject to degradation
or wear and present a sizable market, called the aftermarket or replacement market. Many
component manufacturers compete for a share of the after-market. For any component say,
auto tires one of these competitors is the OEM parts supplier. The rest are called will-fit
component suppliers (similar brand suppliers). The aftermarket is quite lucrative/profitable
market.
 Business marketers in the aftermarket all use a pull strategy in advertising their components
that is, they promote their products to final OEM product owners, who in turn place a
demand for these products on the suppliers, thus ‘’pulling’’ the product down through the
marketing channel.

3) Process/manufactured/ materials (entering goods): these are used in the manufacture of a

product may be distinguishable in the final product, like sheet metals, electric and electronic circuit
wiring, etc., or indistinguishable in the final product like additives, certain ingredients used in
pharmaceutical and food products etc. Examples include chemicals, plastics, cement, sheet metals,
textiles, electrical and electronic circuit wiring, and additives.

Marketing implications
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 Since process materials are standardized products, price, quality, and availability are the
primary purchase considerations.
 Process materials are also normally bought routinely by the purchasing department of a
firm. Most process materials are demanded across a wide spectrum of industries by a very
large number of customers and hence, a wide variety of channels is common.
 Process materials lose, by and large, their identity in the final product and for very few of
them there is a replacement market. Therefore, advertising them to the buyers of the final
product may not be meaningful.

4) Maintenance, Repair, and Operating (MRO) supplies (consumable supplies/facilitating

goods): MRO supplies get used up in facilitating the operation of the enterprise but do not become
part of the finished product. Examples include cleaning compounds, paint, brooms, lubricating oil
and light bulbs (maintenance supplies), bearing, gears and filters (repair supplies), office supplies
such as pen, ink, paper, pencil, envelope, etc. (operating supplies). They are usually purchased
routinely, in small quantities and do not require high-executive approval. Hence, they are
convenient products of businesses/business market.

Marketing implications

 They are generally standardized, marketed to broad section of industrial users (bought by
a wide variety of customers/horizontal markets).
 In selling supplies, a wide variety of intermediaries may be required to reach this broad
and large multiplicity of customers/markets.
 Organizations prefer to purchase them from suppliers who are reliable, capable of
supplying all the items in a category and are good to deal with.
 Agents play an important role in the distribution of many of these items. Longer channels
of distribution/indirect is required.
 Advertising through catalog and trade journals are the primary means to reach most users.

5) Raw materials (entering goods): these are the basic products (life blood of the industry) that
enter the production process with little or no alterations. They are products generated by the
extractive industries. In many cases, the quality of raw materials affects the quality and cost of the
output. Raw materials may be primary products or manufactured products. Many primary products
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also undergo some processing before they are supplied as raw materials to the industry. For
example, coconut is converted into copra before supplied to the oil mill. Many food processing
units use wheat flour, and not raw wheat, as the raw material. Examples include farm products,
lumber, ir on ore, etc.

Marketing implications

 They may be marketed as either OEM or user products. For examples when large bakery
purchases natural gas to fire the ovens which are used to produce cakes, it is a user customer
but when the same firm purchases fruits for processing juice, it is an OEM.
 They exhibit inelastic demand. Because of volatility of supply and sometimes extreme
price fluctuation, it may exhibit vertical integration/vertical market.
 They are usually bought in large quantities and large of short channel of distribution used.
For many raw materials, the customers are very diverse and very large in number and
hence, a variety of channels may have to be used. Large customers, however, may have to
be marketed directly, even when the sale is by indirect channels.
 As raw materials account for a large chunk of the cost of production and as the price, and
quality of the raw material and the reliability of supply are very important, multiple buying
influences are involved at least in the initial stages of the procurement cycle, in the case of
large organizations.

6) Business/industrial services (facilitating goods): business services cover a broad spectrum

like technical service of maintaining equipment, non-technical services of maintaining the
premises like janitorial services and commercial services like banking, insurance, research,
consultancy, etc. Services support organizational operations.

Marketing implications

 They are purchased under long term contractual agreement/blanket agreement.

Non-technical services usually can be sold across horizontal markets.

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2.3. Industrial customers

Industrial customers are all customers other than the ultimate customers. It is important to
understand the characteristics of these different types of business buyers because these
characteristics have marketing implications. The buying process, quantity of purchase, purchase
timing, buying channels, responses to different marketing stimuli, etc., may vary between the
different categories of buyers. They would also represent different market segments calling for
different marketing strategies. Industrial customers are classified into three groups, which, at
times, may overlap: commercial enterprises (Original Equipment Manufacturers-OEM, User
customers, and channel members/industrial distributors), government organizations, and
institutional customers.

A) Original Equipment Manufacturers (OEM): these are buyers that buy products and sometimes
services to incorporate into (to make an integral part of) the products, which can be sold either in
industrial market or consumer market. Example, a tire producer such as Firestone, Goodyear, or
Michelin that sells tires to Ford Motor Company would consider Ford as an OEM.

B) User-customers: these are buyers who buy products to support a manufacturing

facility/facilitate the operation of the business. The purchases do not become part of the finished
product; they only help to produce it. Example, manufacturing companies purchasing bending
machines that they use in the production process (support or assist the production processes).
Products used to produce output and purchased by user customers include: drilling, smoothing,
punching, bending, forming machines, grinding wheels, lathes, axe, computers, type writers, and
adding machines.

C) Industrial distributors: they buy products from the manufacturers or other distributors and
then, in turn, sell/resell these same products to commercial (OEM, other distributors or to user
customers), governmental, or institutional markets/buyers. Types of intermediaries include: o
Merchant intermediaries: wholesale industrial distributors who buy and own the goods they
handle.

Agent intermediaries: do not buy or own the goods they sell.

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Commission merchant: generally, handle commodities that are valuable to distant suppliers
because of their wealth of local market information.

Manufacturer’s agents: act as the sales force for several manufacturers who cannot afford their
own sales force (they carry related but not competing products).

Brokers: they bring buyers and sellers together through their knowledge of market availability
and requirements (they carry/hold competing brands. They most of the time engaged in food
market).

D) Governmental organizations: governmental agencies/organizations are the largest purchasers

of goods and services in any country. Government purchasing is also based on contractual
arrangements. These contracts/agreements often contain provisions that have little to do with the
product under consideration. Rather, they are more concerned with broader social goals. All
government contracts must meet general contract provisions that are set forth by law. Government
purchasers basically classified into:

 Local governments: these are the lowest administrative units of the government. They
include municipalities, districts, peasant associations, and kebeles.
 State governments: these are regional governments. They make major expenditures in
various projects for many individual goods and services.
 Federal governments: these are central governments and they are the larger buyers of goods
and services.

Institutional customers: they are a mixture of government and private organizations. They also
constitute of non-business or not-for-profit organizations. This potential lucrative market includes:
colleges and universities, museums, hospitals, labor unions, charitable organizations, religious
houses, schools, and non-profit foundations.

2.4. Components/systems of Industrial markets

The basic components of the industrial marketing system are:

1. Producers of industrial products and services. Producers include manufacturing plants,

processing plants, assembly plants, and service organization etc.
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2. Suppliers to those producers. These are resource suppliers and they provide inputs such as raw
materials and component parts, labor and capitals are supplied by other organizations to industrial
firms for use in producing outputs.

3. Customers for industrial products. Customers include commercial organizations (OEMs and
users), institutions, and government organizations.

4. Channel components between buyers and sellers. They include manufacturer’s sales
branch/sales office, industrial distributors, and manufacturer’s representatives.

5. Environmental and facilitating forces that affect the relationship among the above parties.
Environmental forces include economic, political, technological, competitive, and international.
Facilitating forces include advertising agencies, transportation firms, financial institutions,
marketing research firms, consulting firms etc.

Note: flow of goods and services takes place among resource suppliers, producers and customers.
Flow of information also takes place among resource suppliers, producers and customers.

2.5. Basic differences between industrial and consumer marketing

‘Why there is need for a special branch of study called Business/Industrial Marketing?’ is a
question sometimes asked. The answer is that the major factors which affect the shaping of
marketing strategy differ so substantially between business goods and consumer goods that there
is need for specialization in business marketing. The question, then, is: what are these factors which
necessitate a change in the strategy for marketing business goods vis-à-vis consumer goods?

Overall, the marketing of goods and services between organizations is not the same as consumer
goods marketing and, because there are a number of fundamentally different characteristics,
diverse marketing strategies and operations need to be implemented to meet the needs of business
customers.

However, many products and services are targeted at both consumers and organizations. Products
such as office furniture, software and cellular phones can be sold into consumer and business
markets. Business marketing is distinguished from consumer marketing by two main ideas: first,
the intended customer, which is an organization; second, the intended use of the product to support
organizational objectives. As a result, different marketing programs are required to reach and
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influence organizational buyers as opposed to consumers. In order better to understand business

marketing it is useful to compare and contrast it with consumer marking. The following table sets
out the main differences. Although there are many differences, there are also many similarities.
Indeed, it is possible to identify an increasing number of areas where the two markets converge.

In the business sector, organizations buy a range of products and services either to make new
products or to enable the production or added value process to operate successfully. Defined
processes and procedures are used to buy products and services, and the decisions attached to
securing the necessary materials very often involve a large number of people. However, central to
an understanding of organizational purchasing is the decision making unit and the complexities
associated with a variety of people and processes. There are pivotal implications for suppliers in
terms of timescales and the communication mix and messages necessary to reduce the levels of
risk inherent in these buying situations.

The major factors of differences between consumer goods and business goods then as follows:
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