Industrial Marketing

The industrial market (also called the producer market or business market) is the set of all individuals and organizations that
acquire goods and services that enter into the production of other products or services that are sold, rented, or supplied to
others. The major types of industries making up the industrial market (business market) are agriculture, forestry, and
fisheries; mining; manufacturing; construction and transporta-tion; communication and public utilities; banking, finance,
and insurance; and services.

DEFINING INDUTRIAL MARKETING

Industrial marketing consists of all activities involved in the marketing of products and services to organizations which may
be commercial, profit or non profit institutions, government agencies or resellers that use products or services in the
produc-tion of consumer or industrial good and service, and to facilitate the operations of the enterprise.
Reeder, Brierty & Reeder, gives this definition in Industrial Marketing.
There can be four different types of exchanges in industrial marketing
1.Product exchange:
Supply of raw materials to the organization to process the finished goods for the end user or consumer.
Examples can be many. Supply of soap/ detergent powder to the manufacturers of soaps or detergents. To HLL there
must be suppliers of the raw materials of soap/ detergent raw materials to give the end product s like Rin Detergent Bar
or Surf Excel.
2. Information Exchange:
When one organization gives the technical knowledge, economic consultancy, or giving replies to organizational
questions to another organization it is termed as information exchange.
To site an example we say that the installation of sophisticated software’s in an organization and operating system of that
software can be termed as information exchange.
3. Financial Exchange:
Grant of credit facilities to an organization is financial exchange.
Exchange of currency from one organization to another country.
Example of this we can say the functioning of Industrial Development Bank of India (IDBI), which grants loans to
industries.
4. Social Exchange:
Social exchange is important in areas of reducing uncertainty between buyer and seller, avoiding short-term difficulties
and thus maintaining a better relation over a long period of time.

We repeat our statement again that though consumer marketing and industrial marketing have the same tenets but
significant differences do exist. Those can be: -
a. Market Size
b. The Geographic Concentration
c. The Competitive Nature of the Market.
Industrial Versus Consumer Marketing Management
While the basic tasks of marketing management apply in both the consumer and industrial markets, unique forces combine
to pose special challenges for the indus-trial marketing manager. In the industrial market, markets are relatively concen-
trated and channels of distribution are shorter; buyers are well informed, highly organized, and sophisticated in purchasing
techniques; and multiple influencers con-tribute different points of view to

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purchasing decisions. Thus, industrial marketing creates its own set of conditions for marketing decisions.
As in the consumer market, industrial marketers must define their target mar-kets, determine the needs of those markets,
design products and services to fill those needs, and develop programs to reach and satisfy those markets. However, in com-
parison to consumer marketing, industrial marketing is more a responsibility of gen-eral management. In fact, many
industrial executives have difficulty in separating marketing from corporate strategy and policy.
In consumer marketing, changes in marketing strategy are often carried out completely within the marketing department
through changes in advertising, promo-tion, and packaging. However, as Figure 1-1 indicates, changes in industrial market-
ing strategy tend to have company wide implications. Such implications may involve departures from traditional engineer-ing
and manufacturing techniques or major shifts in developmental emphasis. As. in the case of Caterpillar, this may require
capital commitments for new plants and equipment. (To revamp one 40-year old facility will take Caterpillar five years and
$200 million)? Although marketing may identify the need for such departures from tradition, decisions on such departures
are often the responsibility of general management, which must provide the follow-through in all functional areas.

INDUSTRIAL VERSUS CONSUMER MARKETING

Market Geographically Geographically

Structure Concentrated. Dispersed.
Oligopolistic Monopolistic
Competition competition.
Products Technical Complexity
Customized Standardized.
Service somewhat
Service very important important.
Buyer Behavior Functional Involvement Family Involvement.
Interpersonal No personal
Relationship Relationship.
Decision Distinct observable Unobservable mental
Making stages. stages.
Indirect & multiple
Channels Shorter & Direct linkages.
Emphasis on Personal Emphasis on
Promotion Selling Advertising
Price Competitive Biddings List Prices
and Negotiating.

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 INDUSTRIAL MARKETING LANDSCAPE

Industrialized nations have many advantages over the less developed countries. They possess the necessary capital, the
requisite financial institutions, the technical expertise, the business skills and connections, the research facilities, and
abundant management talent at every level of production. The industrial progress of the industrialized nations will continue
to be above that of the developing countries.
The recent rapid growth of industrialized nations has, in some cases, been excessive. Too much manufacturing capacity in
some fields of production has forced companies to sell their surplus products on world markets at prices lower than normal.
This will retard the development of local industries because consum-ers will prefer to buy cheaper imported products than
locally manufactured products.
Indian Scenario
The Nineties have ushered up liberalization, globalization, Dunkel Draft, fluctuating sensitive stock indices, stock scams,
political changes, fall of Berlin Wall, stronger green movements, hi-tech wars, collapse of Soviet Union, coalition
government and so on. The internal organizational environments are also changing with the increase in employees
‘knowledge level”, the real time information processing, flattening of organizational pyramids, and corporate emphasis on
quality.
Industrial marketing is characterized by its rational buying policy of the discerning buyers, long manufacturing cycle, high
value of purchase of relatively few customers, durability and service requirements of industrial products. Every Indian
company is trying to take maximum advantage of the opportunities created by the liberalized economic policies and is going
in for diversifi-cation collaboration, product improvement and strengthening the market set up. Government’s liberal
licensing policy, has allowed access to foreign technology and even liberalized imports so that the required industrial growth
can be achieved at optimum cost and quality. In other words, the industrial revolution that is silently taking place will change
our base from ‘production-oriented economy’ to ‘market-oriented economy.
Industrial Development In India
Historically, the industrial development in India has proceeded in three stages. In the first stage the secondary industry was
concerned with the processing of primary products, i.e. milling grain, extracting oil, tanning leather, spinning, and vegetable
fibers, preparing timber and smelting ore. The second stage, it comprised of transformation of materials, i.e. making bread
and confectionery, footwear, metal goods, clothe, furniture and

paper. The third stage consisted of manufacture of machine and other capital equipment in order to facilitate the future
process of production. Thus the industrial development in India is generally marked, by low capital intensity and imbalance
between consumer goods and capital goods industries.
The Engineering industry is an engine of growth. Its contribu-tion to the Indian economy has been immense, as it employs
about three million persons. The products cover a wide range of items and the units are situated predominantly in western
India. The industry has made phenomenal progress over the last five decades and it accounts for over 30 percent of the
total industrial output. The rapid growth of this industry has been helped by the assimilation of technology and spate of
collabo-rations.

Upgrading of both the technical and the commercial fronts has been an on going process and already many companies
have achieved ISO 9000 certification. Many Industries such as the forging, the foundry, the railway, the automobile and
building machines, are modernizing their old machinery so as to meet the stringent needs of the export market.
For instance the forging industry, which played a crucial role in the industrial progress of India over the last four decades
and has been catering to the needs of the automobile industry is now producing world-class forging; serving as import
substi-tutes to priority sectors like power generation, petro chemicals, railways and defiance. Its growth rate has been
phenomenal over the years and it is now set for a massive globalization drive.

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Current Market Scene
The current trends in the Indian industrial market scene can be broadly classified as under:
1. Shift from the seller’s market to buyer’s market in most of the products, basically due to increased production. In some
areas, production capacities are in excess of the demand i.e. tractors, tyres and more recently commercial vehicles.
2. Since production is more than demand, there is an increased need for extending the application-engineering concept.
Over dependence on anyone particular market segment led thereby to the application engineering concepts, helping to
identify new application areas for the same product.
Some examples are:
(a) Escorts, manufacturer of tractors is now, moving to manufacture motorcycles of Indian and Japanese origin as well
as diversifying into other areas such as shock observers, railway coupling equipments, railway shock damping
mechanisms and floating dry docks and so on.
(b) Sundaram Clayton, manufacturer of automobile ancillaries like air brake system, is moving into manufacturing
mopeds, railway signal equipments and so on.

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 CLASSIFICATION OF INDUSTRIAL CUSTOMERS
Organizational Customers
One way to understand the diversity of industrial customers and the products they purchase is to begin by examining the
various types of customers. Industrial cus-tomers are normally classified into three groups:
(1) commercial enterprises, (2) gov-ernmental agencies, and (3) institutions.
Commercial Enterprises
Commercial enterprises, such as IBM, General Motors, Computer Land, and Raven Company, purchase industrial goods
and/or services for purposes other than selling directly to ultimate consumers. However, since they purchase products for
different uses, it is more useful from a marketing point of view to define them in such a way as to understand their
purchasing needs and, when we have examined the variety of products they purchase, how marketing strategy can be
devel-oped to meet their needs. Thus_ it is more logical to look at commercial enterprises as consisting of
• Industrial distributors or dealers
• Original equipment manufacturers (OEMs)
• Users. These categories; which at times tend to overlap, are useful to the industrial marketer because they point out
how products and services are used by buying firms.

Industrial Distributors and Dealers

When a commercial enterprise, such as Com-puter Land, or VWR, purchases industrial goods and resells them in basically
the same form to commercial, government, and institutional markets, we classify them as industrial distributors or dealers.
Industrial distributors and dealers take title to goods; thus, they are the industrial marketer’s intermediaries-acting in a similar
capacity to wholesalers or even retailers. For instance, while living in California, your author’s often-patronized industrial
plumbing, lumber, and electronic supply houses to purchase, at wholesale prices, products needed for home remodeling
pur-poses. However, as Figure 2-1 indicates, while a few may also serve the consumer market, they generally serve other
business enterprises, government agencies, or pri-vate and public institutions. Because of their importance in the industrial
channel to both large and small manufacturers and because they are growing in number and sophistication, we shall discuss
them further in Chapter Eleven.

Original Equipment Manufacturers

When enterprises such as Hyster, Xerox, or Ford purchase industrial goods to incorporate into products that they produce,
we classify them as original equipment manufacturers (OEMs). That is, the electronic engine controls producer who sells
partst_ Ford would view Ford as an OEM. The important point, however, is that with this type of customer (Ford), the
product of the industrial marketer (in this case, Motorola) becomes a part of the customer’s product.
User
On the other hand, when a commercial enterprise, be it Hyster, Montgomery Ward, or VWR, purchases industrial products
or services to support its manufactur-ing process or facilitate the operation of its business, we classify it as a user. Prod-ucts
used to produce output consist of items such as lathes, drilling machines, and grinding wheels, whereas products that
facilitate the operation of a business might consist of computers, typewriters, and adding machines. In contrast to the
products purchased by OEMs, products purchased by users are not incorporated into the final product.
Overlap of Categories
It should be obvious that the preceding classifications cen-ter on how products and services serve the customer. A
manufac-turer of forklifts can be a user, purchasing metal-cutting machine tools to support the manufacturing process, or an
OEM, purchasing gear drives and transmissions to incorporate into the forklifts being manufactured.
The important point is that OEM purchasers will be concerned with the impact that products have on the quality and
depend-ability of the end products they produce. Since users buy products for use in the production process or to facilitate
the operations of their businesses, their concerns will center on prompt, predictable delivery and maintenance service. And
industrial distribu-tors or dealers will be more concerned with how products match the needs of their customers. On one
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point, however, all commercial customers agree: their purchases are expected to enhance the profit-making capability of the
firm.

Governmental Agencies
The largest purchasers of industrial goods in the United States are the various fed-eral, state, and local governments-
spending nearly a trillion dollars annually for products and services. These government units purchase virtually every kind of
good-from $2900 Allen wrenches to multimillion-dollar ICBM missiles-and repre-sent a huge market, accounting for
approximately thirty-seven percent of our total gross national product. The result of this volume purchasing is that
procurement adminis-tration and practices are highly specialized and very often confusing.

When a particular product or service is needed, government buyers may negotiate directly with vendors or carefully develop
detailed specifications and invite qualified suppli-ers (through the media) to submit a price bid in writing, usually awarding
the bid to the lowest, qualified supplier. In the case of the $2900 Allen wrench, in accord-ance with customary contract
specifica-tions at the time, overhead and direct engi-neering man-hours were allocated across all items in the “kit.”

Thus, for the limited production run of the single Allen wrench, direct engineering costs came to $1,034.64; engineering
overhead came to $503; $507 was necessary for fringe bene-fits; $149 for general and administrative costs and $388.79 was
billed for profits, plus some other costs.

The total price-though thoroughly documented and neces-sary in view of cost allocations, various actions necessary to
comply with contract specifications and many visits, discussions, and inspections by government offi-cials-appeared to be an
unrealis-tic $2,917.45 per wrench.2 Since effective market-ing strategy for reaching government customers lies in the
marketer’s under-standing of these complex purchasing procedures, we will discuss government purchasing in more detail
when we introduce the unique characteristics of organizational procure-ment later in this chapter.
Institutions
Public and private institutions such as churches, hospitals, colleges, sanitariums, and prisons are another important
classification of industrial customers. Some of these institu-tions follow rigid rules and purchasing procedures while others
follow far more casual procedures. The important difference with this type of industrial customer is that effective marketing
rests on the industrial marketer’s ability to rec-ognize the way in which each institution purchases its goods or services.
Classifying Industrial Products
As further indicated by wide arrays of goods and services are required by industrial organizations. Although solutions to
industrial customers’ problems, go far beyond a preliminary identification of which products belong under which classifica-
tion, classifying industrial goods gives the industrial marketer a better indication of the scope of the market, who is involved
in the purchasing process, and what marketing factors affect the buying decision.
Whereas there are various methods for classifying industrial goods, the most useful method analyzes how products or
services enter the production process or affect the cost structure of the firm.4 This enables marketers to view their
offerings from the customer’s perspective and adapt or adjust marketing strategy to maximize potential customer benefits
based on the product’s intended use.
Given this perspective, the following three broad classifications are useful:
(1) materials and parts, goods that enter the product directly;
(2) capital items, goods that affect the cost structure of the firm;
(3) supplies and services, goods that facilitate the firm’s operation.
MATERIALS AND PARTS
Goods that enter the product directly consist of raw materials, manufactured mate-rials, and component parts. The
purchasing firm treats the costs of these items as expenses that are assigned to the manufacturing process
Raw Materials

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Raw materials such as agricultural products or natural gas nor-mally enter the production process with little or no
alteration. They may be mar-keted as either OEM or user products. For instance, when Sara Lee purchases gas to fire the
massive ovens used to produce all those delicious cakes in the freezer sections of the grocery stores, it ‘is a “user”
customer. When it purchases fruits for further processing to fill those delicious delicacies, it is an OEM.

Electrical and Electronic Products

This industrial sector covers the manufacturing and marketing of electrical and electronic products or in providing
computer services. Marketing here refers to wholesaling and related service functions.
Household Appliances and Electrical Products
This subsector consists of groupings of companies primarily engaged in the manufacturing and marketing of household
appliances and electrical industrial machinery and equipment. The manufacturing and marketing of electronic household
appliances are covered here.
Household Appliances
Companies primarily engaged in manufacturing and marketing household electrical and electronic appliances.
Household Appliances Wholesaling
Companies primarily engaged in wholesaling small electrical household appliances, major household appliances (electric and
non-electric), and home entertainment appliances.
Household Appliances Manufacturing
Companies primarily engaged in manufacturing and marketing small electrical household appliances, major household
appliances (electric and non-electric), and home entertainment appliances.
Electrical Industrial Products Manufacturing
Companies primarily engaged in manufacturing electrical transformers, electrical switchgear and protective equipment and
electrical industrial products not elsewhere classified. The manufacturing of electronic industrial control equipment is
covered in 3618 - Other Electronic Equipment Manufacturing. The Manufacturing of motor vehicle generators is covered
in 3021 - Motor Vehicle Parts and Accessories Manufacturing; and cast iron pole line hardware is covered in 2012 - Iron
Foundries.
Other Electrical Products Manufacturing
Companies primarily engaged in manufacturing electric wire and cable and electrical products not elsewhere classified.
Communication and Energy Wire and Cable Manufactur-ing
Companies primarily engaged in manufacturing electric wire and cable both insulated or armoured and non-insulated.
Other Electrical Products Manufacturing n.e.c.
Companies primarily engaged in manufacturing electrical lighting fixtures, electric lamps and shades, light bulbs and tubes,
batteries and other electrical products not elsewhere classified. The manufacturing of power fuses is covered in 3521
Electrical Industrial Products Manufacturing.
Electrical Machinery, Equipment and Supplies Wholesal-ing
Companies primarily engaged in wholesaling electrical wiring supplies, electrical construction materials, new and used
electrical generating and transmission equipment and supplies and electrical equipment and supplies not elsewhere
classified. The

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INDUSTRIAL BUYING BEHAVIOUR IN INDIAN CONTEXT
Industrial Buying Behavior in Indian Context
1. Recognition of a need
2. Confirmation of the need
3. Agreement on specifications
4. Recommendations as to supplier
5. Purchase authorization and
6. Placing of the order
Industrial Purchase
The elements of industrial purchase are usage for the purchased item, reasons for purchase, and the purchase complexity.
Necessity to the Purchased Item
The purchased industrial goods may be used for incorporation in production output, for utilization during the production
process (but not incorporated in the output), providing a production facility, either in manufacture, service or resale, use in
maintenance operations, and for use in development and/or engineering works. The criteria used in the purchasing decision
process by various people involved will vary according to the usages for which the items are purchased.
Reason for Purchase
There are a variety of reasons for industrial purchase. For Production Output-existing production needs, production
needs for modified/established product, and production needs for a new product. For improving Production Facility-
replacement of old equipments, capacity expansion, de-bottlenecking or change in production process.

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Purchase Complexity
If products could be classified on the basis of problems inherent in their adoption, such a classification might be both
predictive of the relative importance of product/supplier attributes and buyer’s preferences with regard to vendors.
(a) Routine-Order Products No significant usage problems because of familiarity.
(b) Procedural-Problem Products Problems may arise unless the personal are taught how to use them
(c) Performance-Problem Products Concerns with the technical outcome of using the products.
(d) Political-Problem Products Problems arise when large capital outlays are involved and more frequently when the
products are inputs to several departments whose needs may not be competitive.
If the supplying company finds that most of its customers experience problems (b), (c) and (d) mentioned above, then there
is a high degree of purchase complexity. A procedural-problem products in one firm may give rise to performance and
political- problems elsewhere.
Perpetual Factors
Where products and services are more and more objectively identical, the buying decisions are increasingly influenced by
subjective or perceptual factors. It is, therefore, not surprising to discover that behavioral variables such as working
relationship with the suppliers have been shown to be twice as important to the industrial buyer as the price. When it comes
down to the final choice of one vendor over another, the key variables are the buyers’ attitudes and image of suppliers’
quality, salesmen, delivery, service, etc. Most of the vendor selection studies centered on the traditional variables of price,
quality, delivery and service. The human role in this selection process was largely
ignored. The industrial buyer has been recognized as an important element because more than the traditional set of vendor
selection variables influ-ences his purchase decisions. Each buyer views the buying process with a unique perceptual bias
reflecting his own psychological map and the specific characteristics of the particular purchase under consideration.
Vendor Performance
Most of the theoretical approaches have actual performance data as their basis. This approach has considerable appeal in
that industrial firms prefer to select vendors with whom they have some experience. In situations where no experience is
available for the selected supplier, the buying firm may place a low risk order such as a small quantity until actual
performance data is generated. Selected performance data such as quality, price and delivery are combined in some manner
to produce a composite score, which becomes the basis for action. There are four approaches.
Total Cost Approach
Ideally a finite cost should be affixed to every action relating to the product purchase. This would include much
more than the simple sum of the purchase price and delivery charges. This method has great theoretical appeal but little
utility.
Cost of Quality
This plan considers the c ost of quality assurance for the purchased items. One cost is to prevent purchasing from
improper sources. Another cost is to detect lots of unacceptable quality. Other costs are for inspection of
manufactured goods and rejected production.
Categorical Plan
Buyers keep continuous notes on their dealings with the vendor. Then, at a group meeting, these cumulative records
on each supplier are perused for the purpose of assigning a rank to each vendor. Effective results depend heavily upon the
compe- tence of the individuals using it. The advantage of this procedure includes minimum amount of data collection and
simple analytical technique.
Weighted Plan
The Weighted Plan explicitly recognizes that the relative importance of variables such as price, quality, and service
vary with purchase situation. Weights are established for each of the factors deemed significant. Then, these weights are
multiplied by the respective performance data of a firm. The overall performance rating for that vendor is the sum of the
products of weights time’s factors.

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CONCEPTUALIZATION OF BUYING BEHAVIOUR STAGES IN BUYING

Stages in Buying
No two companies follow the same purchasing procedure. The industrial purchasing process might be broken down into
eight distinct stages for the purpose of analysis. Though, they are sequential &B segmental, they may also occur
concurrently. Table 3.1 shows the buy-grid analytic framework for industrial buying situation
Buy-grid analytic framework for industrial buying situation

1. Anticipation or Recognition of a problem (need)

Recognition of a problem triggers the purchasing process .The firm’s product become out modded, equipment break down,
or existing materials are unsatisfactory. A marketer can precipitate the need for a product by demonstrating opportunities
for improving the organization’s performance, there by achieving a greater probability of success in securing the account .It
is important to not that purchasing managers and design engineers actively encourage early supplier involvement, specially
when confronting unfamiliar technology.
2. Determination of Characteristics and the Quantity of Needed Item
These decisions are generally made within the user department, where the needs invariably emerge. For example, members
of the production department determine the characteristics needed in a high-speed packaging system. For technical
products, the user department prepares performance specifications. The development of performance s specifications has a
critical impact on the final choice of a product and a Supplier. The decisions made in the early stages of the process
inevitably limit and shape the decision-making in the later stages of the process. The industrial salesperson is a vital source
of information to organizational buyers throughout the purchasing process.

Description of the Characteristics of the Item and the Quantity Needed

This involves a detailed and precise description of the needed item, a description that can be readily communicated to
others. This can ‘be a critical stage for the marketer because key buying influences emerge here. Recognizing these buying
influences and their relative roles and importance can give the marketer a distinct advantage. A marketer who triggers the
initial need has the benefit of a close working relationship with key organiza-tional members throughout these formative
stages in the procurement process.

4. Search for and Qualification of Potential Sources

Once the organization has defined the accurate that will satisfy its requirements, the search turns to sources of supply, in
order to determine which of the many possible suppliers can be considered as potential vendors. The intensity of evaluation
varies by organization and by the particular buying situation. The organization invests more time and energy in the evalua-
tion process when the proposed product or service has a strong bearing on organizational performance.
5. Acquisitions and Analysis of Proposals
For more complex goods such as machine tools, many months may be consumed in the exchange of proposals and counter
proposals. This stage emerges as a distinct component of the buying process only when the information needs of the buying
organization are high. Here, the process of acquiring and analyzing proposals may involve different organizational members.
6. Evaluation of Proposals and Selection of Suppliers
Alternative proposals are analyzed. One or more of the offers is accepted, and the others are rejected. Negotiations
concerning the terms of the transaction may continue with the selected suppliers.

7. Selection of an Order Routine

The user department will not view its problem as resolved until the specified product is available for its use. Concerning the
order routine, a purchase order is forwarded to the vendor, status reports are forwarded to the user department, and
inventory levels are planned. Thus procurement procedures (the size and frequency of orders) are established for the item.
8. Performance Feedbacks and Evaluation

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This is the final stage in the procurement process. Feedback may flow through formal or- Informal channels. Feedback,
critical of the chosen supplier and supportive of rejected alternatives, can lead members of the decision-making unit to re-
examine their position. If the product fails to, meet the needs of the user department, vendors screened earlier in the
procurement process maybe given further consideration. To retain a new account, the marketer must ensure that the needs
of the buying organization.

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