industrial marketing environment unit 2
TRANSCRIPT
-
8/3/2019 Industrial Marketing Environment Unit 2
1/40
Unit II
UNDERSTANDING INDUSTRIAL
MARKETS AND ENVIRONMENT
(Industrial Marketing Environment, Types of
Customers, Types of buying situations, Segmentation)
-
8/3/2019 Industrial Marketing Environment Unit 2
2/40
LEARNING OBJECTIVES
Know types of environment and strategies to manage external
environment
Understand the types of industrial customers as well as
industrial goods and services.
Know the marketing implications for different types of
customers and products.
Understand the purchasing orientations and practices of
industrial customers.
-
8/3/2019 Industrial Marketing Environment Unit 2
3/40
Industrial Marketing Environment
Environment refers to the aspects of surroundings. Therefore marketing
Environment may be defined as a set of conditionsSocial, Legal
,Economical ,Political or Institutional that are uncontrollable in nature and
affects the functioning of organization or its particular department
Market is ever-changing, complex and Global in scope
Environment has two components:
1. Internal Environment
2. External Environment
-
8/3/2019 Industrial Marketing Environment Unit 2
4/40
4
Industrial Marketing Environment
BuyerSeller
Interface
Publics
Macro Environment
Govt. influences
UnderstandingIndustrialmarkets
-
8/3/2019 Industrial Marketing Environment Unit 2
5/40
Types of EnvironmentAIR & WATER POLLUTION
SOLID WASTE DISPOSAL
CONSERVING NATURAL RESOURCES
WATER, POWER, TRANSPORTATION
COMPANY LOCATION, IMAGE / REPUTATION
R & D & PRODUCTION FACILITIES
ECOLOGICAL
PHYSICAL
INTERNAL(S&W ANALYSIS)
MICRO(AFFECTS APARTICULARFIRM)
ENVIRONMENT
LOW-COST, SKILLED MANPOWER
H R & FINANCIAL RESOURCES
MARKETING EFFECTIVENESS
CUSTOMERS & COMPETITORS
SUPPLIERS
ECONOMIC
TECHNOLOGICAL
GOVT., POLITICAL, LEGAL
CULTURAL & SOCIAL
PUBLIC - PRESS, SHAREHOLDERS, INVESTORS &PUBLIC INTEREST GROUPS
EXTERNAL(O&T ANALYSIS)
MACRO(AFFECTSALL FIRMS)
-
8/3/2019 Industrial Marketing Environment Unit 2
6/40
Physical and Ecological Environment
Ecological Environment
Causes a problem
Due to industrial untreated waste
Use of pesticide and chemicals
Remedies Government regulation ,emission norms are stringent & industry has to adjust.
Industries response to the welfare activities
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.
Physical Environment
Steel plants need iron ore, water & lime stone deposits for setting up. MP, Bihar
and Orissa have the concentration of steel plants.Labour intensive Industry in Ludhiana & Punjab for low cost labour
-
8/3/2019 Industrial Marketing Environment Unit 2
7/40
Internal & External Environment
Internal Environment
The purpose of carrying out internal environment analysis is to
define periodically the specific strength and weaknesses of the
company. It involves all the factors of the firm including
marketing, finance, R&D, manufacturing, organisation structure
and human resources .
External Environment
Macro and micro external factors changing continuously. This
changes spin out new opportunities and threat.
-
8/3/2019 Industrial Marketing Environment Unit 2
8/40
Industrial Marketing Environment Micro Environment
1. Customer/ Competitor :
An industrial marketer need to gather information on competitors strategy,
objective , strength and weaknesses and reaction pattern
The competitive environment is characterised by market structure
The type of market structure determines the strength of competition
2. Suppliers:
The servival and success of both supplies and buyes depend on their
1. Interdependent relationship
2. Commitment to quality and service
3. Knowledge of external environmental factor
Any interruption in the flow of inputs affect the entire industrial chain
-
8/3/2019 Industrial Marketing Environment Unit 2
9/40
9
Industrial Marketing Environment Macro Environment
1. Economics :
Features of the economic environment that are relevant to the marketers
include inflation , debt , shortage, and unemployment
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
Change in economic condition do not affect all the sectors of market
Ex.Change in interest rate affect more to auto industry than textile or other
-
8/3/2019 Industrial Marketing Environment Unit 2
10/40
Industrial Marketing Environment Macro Environment
2. Government / Political / Cultural/ legal influences
increase in global competition , industrial marketer needs to understand the action
of government increases
Hire and fire policy of west Vs militant trade unionism & job protection in India
Political Environment includes the stability of govt. , their policies towards the
business & international trade restrictions
3. Technological influences : Typewriters manufacturers had to shift market focus,change products etc after PCs and word processors became common
According to recent technological forecast CAD & CAM(computer aided design
& manufacturing )& robotic will affect future marketing
-
8/3/2019 Industrial Marketing Environment Unit 2
11/40
11
Industrial Marketing Environment Macro Environment
4. Public:
It consists of various group who help or hinder an industrial organisations effort
to serve markets. Some of these group are press, institutional investors
shareholders banks public interest group and general public
5. Cultural and social :
The impact is more than in consumer market than industrial markets.
Industrial firm decide to have joint ventures with foreign companies or decide
to set up factories abroad, there is a need to study the cultural and social aspects
of the societies in those countries to ensure the compatibility
-
8/3/2019 Industrial Marketing Environment Unit 2
12/40
Classification Of Industrial Customers
Industrial customers are classified according to following
concepts
Classification is done depending upon purchase procedure
adopted by the customers
Type of firm and its objective of existence is also considered
for classification
Purpose of purchase
-
8/3/2019 Industrial Marketing Environment Unit 2
13/40
Classification of Industrial Customers
INTERMEDIARIES /MIDDLEMEN (DISTRIBUTORS)
OEMS
USERS
PUBLIC SECTORUNITS (BHEL)
GOVT. UNDERTAKINGS(RAILWAYS, DEFENCE UNITS)
PUBLIC INSTITUTIONS(GOVT. HOSPITALS)
PRIVATE INSTITUTIONS(SCHOOLS, COLLEGES)
MANUFACTURINGUNITS (SUGAR, MILK)
NON-MANUFACTURINGUNITS (BANKS, HOUSING)
COMMERCIALENTERPRISES
GOVERNMENTCUSTOMERS
INSTITUTIONAL
CUSTOMERS
CO-OPERATIVESOCIETIES
INDUSTRIAL /BUSINESSCUSTOMERS
-
8/3/2019 Industrial Marketing Environment Unit 2
14/40
1. Commercial Enterprises
Commercial enterprises are private sector, profit-seeking organisations such as
IBM, General Motors,etc.
Purchase industrial goods and/or services for purposes other than selling directly
to ultimate consumers.
They purchase products for different uses, it is more useful from a marketingpoint of view to define them in such a way as to understand their purchasing
needs at the time of examination of the varieties of products they purchase and
how marketing strategy can be developed to meet their needs.
It is more logical to look at commercial enterprises: (i) industrial distributors or dealers,
(ii) original equipment manufacturers (OEMs), and
(iii) users.
-
8/3/2019 Industrial Marketing Environment Unit 2
15/40
Purchasing Practices Adopted by Commercial Enterprises
Technical & Commercial dept are involved
Main intention is to improve operational efficiency & contribute to firms
competitive advantage
Purchasing procedure comprises identifying and selecting competent
vendor
In many cases buyer is required to provide know-how to improve its own
products efficiency and quality.
Many large firms provide facilities or ask them to secure sit near to their
future project sites for timely supply.
TATA Motor has set up vendor base near to their Sanand Facility for
Key-vendors and shifted all vendors from Singur to Sanand
-
8/3/2019 Industrial Marketing Environment Unit 2
16/40
A. Industrial Distributors and Dealers Industrial distributors and dealers take title to goods;
They are the industrial marketers intermediaries;
Acting as wholesalers or even retailers
The intermediaries not only serve the consumer market but also they serve
other business enterprises, government agencies, or private and public
institutions.
They purchase industrial goods and resell them in the same form to other
industrial customers
-
8/3/2019 Industrial Marketing Environment Unit 2
17/40
B. Original Equipment Manufacturers (OEMs)
These industrial customers purchase industrial goods to incorporate OEMs
into the products they produce. For instance, a tyre manufacturer (say,
MRF), who
sells tyres 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 customers (TELCOS) product.
-
8/3/2019 Industrial Marketing Environment Unit 2
18/40
C. Users An industrial customer, who purchases industrial products or services, to support
its manufacturing process or to facilitate the business operations is referred as a
user. For example, drilling machines, press, winding machines, and so on are
the products which support manufacturing process, whereas the products which
facilitate the operations of business like computers, fax machines, telephones,
and others.
There may be overlapping of categories means a manufacturer can be a user or
an OEM. For example, a car manufacturer buys a drilling machine to support themanufacturing operation and is referred to as a user. The same car manufacturer
also buys batteries which is incorporated into cars and hence, it can be also
referred to as an OEM.
-
8/3/2019 Industrial Marketing Environment Unit 2
19/40
2.Government Customers
In India, the largest purchasers of industrial products 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 transportundertakings, state electricity boards, and so on.
These Government units purchase almost all kind of industrial
products and services and they represent a huge market.
-
8/3/2019 Industrial Marketing Environment Unit 2
20/40
Government Customer cont
Government department follows rate list and vendor list as approved by
DGS&D frequently purchased items.
Some department have their own approved vendor list and rates for supply.
All divisions belonging to that firm follow those rate list.
Main Tasks / Procedure : Registration of the firm & its Products, Tender
Advertisements, no negotiation in Open tenders, negotiations done in
closed / limited tenders. Preparations of comparative statements.
Orders Finalized on lowest bidders (suppliers offering Lowest prices /
Landed Costs
-
8/3/2019 Industrial Marketing Environment Unit 2
21/40
3. Institutions
Public and private institutions such as hospitals, schools, colleges, and
universities are termed 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.
-
8/3/2019 Industrial Marketing Environment Unit 2
22/40
4. Cooperative Societies
An association of persons forms a cooperative society. It can be
manufacturing units (e.g. Cooperative Sugar Mills) or non-manufacturing
organisations (e.g. Cooperative Banks, Cooperative Housing Societies).
They are also the industrial customers.
If the Institute is a Govt. Hospital Purchasing practices of Govt. units
Followed Similarly a private School / College follows practices of
commercial enterprises
However, better to study each major institution
-
8/3/2019 Industrial Marketing Environment Unit 2
23/40
Classification of Products & Services
RAW MATERIALS (IRON ORE, CRUDE OIL)
MANUFACTURED MATERIALS
(STEEL, FUEL OIL)
COMPONENT PARTS (BEARINGS, TYRES)
LIGHT EQPT (COMPUTERS, HAND TOOLS)
PLANT/BUILDING (FACTORIES, OFFICES)
SUPPLIES (LUBRICANTS, ELECTRICAL ITEMS)
SERVICES (LEGAL, COURIER)
MATERIALS& PARTS
(ENTER PRODUCT
DIRECTLY)
CAPITAL ITEMS(USED IN
PRODUCTION /
OPERATIONS)
SUPPLIES /
SERVICES(TO SUPPORT
OPERATIONS)
INDUSTRIAL
PRODUCTS /SERVICES
SUB ASSEMBLIES (EXHAUST PIPE IN M.C.)
HEAVY EQPT (MACHINES, TURBINES)
-
8/3/2019 Industrial Marketing Environment Unit 2
24/40
Buying Situation Types New purchase (or New task),
Change in supplier, and
Repeat purchase;
-
8/3/2019 Industrial Marketing Environment Unit 2
25/40
New Purchase
The industrial buyers buy the item for the first time in this situation. The
need for a new purchase may be due to internal or external factors. For
example, when a firm decides to diversify into new purchase situations the
buyers have limited knowledge and lack of previous experience. Therefore,
they have to obtain a variety of information about the product, the
suppliers, the prices and so on. The risks are more, decisions may take
longer time, and more people are involved in decision making in the new
purchase decisions.
-
8/3/2019 Industrial Marketing Environment Unit 2
26/40
Change in Supplier This situation occurs when the organisation is not satisfied with the
performance of the existing suppliers, or the need arises for cost reduction or
quality improvement. The change in supplier may also be necessary if
technical people in the buying organization ask for changes in the product
specification, or marketing department asks for redesigning the product to
gain some competitive advantage. As a result, search for information about
alternative sources of supply becomes necessary. Even though, certain
attributes or factors can be used to evaluate the suppliers. There may be
uncertainty regarding the supplier who can best meet the needs of the buying
firm. Therefore, the modified rebuy situation occurs mostly when the buying
firms are not satisfied with the performance of the existing suppliers
-
8/3/2019 Industrial Marketing Environment Unit 2
27/40
Repeat Purchase
If the buying organization requires certain products or services
continuously and products/services had been purchased in the past then the
situation of repeat purchase occurs. In such a situation, the buying
organisation reorders/places repeat orders with the suppliers who are
currently supplying such items. This means that the product, the price, the
delivery period, and the payment terms remain the same in the reorder, as
per the original purchase order. This is a routine decision with low risk and
less information needs, taken by a junior executive in the purchase
department. Generally, the buying firms do not change the existing
suppliers if their performance is satisfactory.
-
8/3/2019 Industrial Marketing Environment Unit 2
28/40
Industrial market segmentation
Industrial market segmentation is a scheme for categorizing industrial
and business customers to guide strategic and tactical decision-making,
especially in sales and marketing. While government agencies and industry
associations use standardized segmentation schemes for statistical surveys,
most businesses create their own segmentation scheme to meet their
particular needs.
While similar to consumer market segmentation, segmenting industrial
markets is different and more challenging because of greater complexity in
buying processes, buying criteria, and the complexity of industrial products
and services themselves. Further complications include role of financing,
contracting, and complementary products/services.
-
8/3/2019 Industrial Marketing Environment Unit 2
29/40
Importance of Market Segmentation
The goal for every industrial market segmentation scheme is to identify the
most significant differences among current and potential customers that
will influence their purchase decisions or buying behavior, while keeping
the scheme as simple as possible
This will allow the industrial marketer to differentiate their prices,
programs, or solutions for maximum competitive advantage
-
8/3/2019 Industrial Marketing Environment Unit 2
30/40
Two-Stage Market Segmentation(Wind & Cardozo Model)
Yoram Wind and Richard Cardozo (1974) suggested industrial market
segmentation based on broad two-step classifications of
1. macro-segmentation and
2. micro-segmentation
This model is one the most common methods applied in industrial markets
today. It is sometimes extended into more complex models to include
multi-step and three- and four-dimensional models.
-
8/3/2019 Industrial Marketing Environment Unit 2
31/40
Macro-segmentation
Macro-segmentation centres on the characteristics of the buying
organisation [as whole companies or institutions], thus dividing the market
by:
1. Company / organization size
2. Geographic location
3. SIC code (standard industry classification),
4. Purchasing situation
5. Decision-making stage.
6. Benefit segmentation
7. Type of institution
-
8/3/2019 Industrial Marketing Environment Unit 2
32/40
Macro-segmentation
Company / organization size: one of the most practical and easily identifiable
criteria, it can also be good rough indicator of the potential business for a company
Geographic location is equally as feasible as company size. It tells a company a lot
about culture and communication requirements.
SIC code (standard industry classification), which originated in the US, can be a
good indicator for application-based segmentation. However it is based only on
relatively standard and basic industries and product or service
Ex. classifications such as sheet metal production, springs manufacturing,
construction machinery, legal services, cinemas etc.
Different technologies or have innovative products are classified under the other
category
-
8/3/2019 Industrial Marketing Environment Unit 2
33/40
Macro-segmentation
Purchasing situation, i.e. new task, modified re-buy or straight re-buy.
This is another relatively theoretical and unused criteria in real life. As a
result of increased competition and globalisation in most established
industries, companies tend to find focus in a small number of markets, get
to know the market well and establish long-term relationship with
customers.
Decision-making stage. This criterion can only apply to newcomers. In
cases of long-term relationship, which is usually the objective of most
industrial businesses, the qualified supplier is normally aware of the
purchase requirement, i.e. they always get into the bidding process right at
the beginning
-
8/3/2019 Industrial Marketing Environment Unit 2
34/40
Macro-segmentation
Benefit segmentation: The products economic value to the customer
which is one of the more helpful criteria in some industries
It recognises that customers buy the same products for different reasons,
and place different values on particular product features
For example, the access control industry markets the same products for
two different value sets: Banks, factories and airports install them for
security reasons, i.e. to protect their assets against. However, sports
stadiums, concert arenas and the London Underground installs similar
equipment in order to generate revenue and/or cut costs by eliminating
manual ticket-handling.
-
8/3/2019 Industrial Marketing Environment Unit 2
35/40
Macro-segmentation Type of institution, e.g. banks would require designer furniture for their
customers while government departments would suffice with functional
and durable sets.
Hospitals would require higher hygiene criteria while buying office
equipment than utilities
And airport terminals would need different degrees of access control and
security monitoring than shopping centres
-
8/3/2019 Industrial Marketing Environment Unit 2
36/40
Micro-segmentation
Buying decision criteria
Purchasing strategy,
Structure of the decision-making unit
Perceived importance of the product to the customers business
Attitudes towards the supplier
-
8/3/2019 Industrial Marketing Environment Unit 2
37/40
Micro-segmentation Buying decision criteria :product quality, delivery, technical support, price,
supply continuity
Purchasing strategy, which falls into two categories
First, there are companies who contact familiar suppliers (some have vendor
lists) and place the order with the first supplier that fulfils the buying criteria.
These tend to include more OEMs than public sector buyers.
Second, organisations that consider a larger number of familiar and unfamiliar
suppliers, solicit bids, examine all proposals and place the order with the best
offer
-
8/3/2019 Industrial Marketing Environment Unit 2
38/40
Micro-segmentation
Structure of the decision-making unit can be one of the most effective
criteria. If this is the case, the supplier can develop a suitable relationship with
the person / people that has / have real decision-making power. For example,
the medical equipment market can be segmented on the basis of the type ofinstitution and the responsibilities of the decision makers
Perceived importance of the product to the customers business
automotive transmission, or peripheral equipment, e.g. manufacturing tool
Attitudes towards the supplier: Personal characteristics of buyers (age,
education, job title and decision style) play a major role in forming the
customers purchasing attitude as whole.
-
8/3/2019 Industrial Marketing Environment Unit 2
39/40
Nested Approach to Segmentation(Bonoma & Shapiro Model)
They proposed the use of the following five general segmentation criteria
which they arranged in a nested hierarchy:
1. Demographics: industry, company size, customer location
2. Operating variables: company technology, product/brand use status,
customer capabilities
3. Purchasing approaches: purchasing function, power structure, buyer-
seller relationships, purchasing policies, purchasing criteria
4. Situational factors: urgency of order, product application, size of order
5. Buyers personal characteristics: character, approach
-
8/3/2019 Industrial Marketing Environment Unit 2
40/40
Case Study
Since the mid-1980s, Sona Steering Systems (later renamed as Sona Koyo
Steering Systems Ltd) has been a competitive player in the Indian auto
component industry. The firm has made remarkable progress in competitiveness
through numerous initiatives over the past two decades. Starting as a single-
source supplier of simple mechanical steering systems, the firm has
systematically improved competitiveness, evolving into a capable Deming Prize-
winning firm with capabilities across the industry value system. By November2005, the firm had many customers and, for some of them, had