CHAPTER 2

UNDERSTANDING INDUSTRIAL MARKETS

AND
ENVIRONMENT
1

 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. Know types of environment and strategies to manage external environment.
2

(A) What are the types/classifications of Industrial/Business customers?

INTERMEDIARIES / MIDDLEMEN (DISTRIBUTORS)

COMMERCIAL ENTERPRISES

OEMS USERS PUBLIC SECTOR UNITS GOVT. UNDERTAKINGS (RAILWAYS, DEFENCE UNITS) PUBLIC INSTITUTIONS (GOVT. HOSPITALS) PRIVATE INSTITUTIONS (SCHOOLS, COLLEGES)

GOVERNMENT CUSTOMERS INDUSTRIAL / BUSINESS CUSTOMERS INSTITUTIONAL CUSTOMERS

MANUFACTURING UNITS (SUGAR, MILK)

CO-OPERATIVE SOCIETIES

NON-MANUFACTURING UNITS (BANKS, HOUSING)

FIG. TYPES OF INDUSTRIAL / BUSINESS CUSTOMERS

3

(B) How are Industrial Products / Services Classified? Classification into 3 Groups shown below.
RAW MATERIALS (IRON ORE, CRUDE OIL) MATERIALS & PARTS (ENTER PRODUCT DIRECTLY) MANUFACTURED MATERIALS (STEEL, FUEL OIL) COMPONENT PARTS (BEARINGS, TYRES) SUB ASSEMBLIES (EXHAUST PIPE IN M.C.) INDUSTRIAL PRODUCTS / SERVICES CAPITAL ITEMS (USED IN PRODUCTION / OPERATIONS) SUPPLIES / SERVICES (TO SUPPORT OPERATIONS) LIGHT EQPT (COMPUTERS, HAND TOOLS) HEAVY EQPT (MACHINES, TURBINES) PLANT/BUILDING (FACTORIES, OFFICES) SUPPLIES (LUBRICANTS, ELECTRICAL ITEMS) SERVICES (LEGAL, COURIER)

FIG. CLASSIFICATION / TYPES OF INDUSTRIAL PRODUCTS / SERVICES

5

(C) Marketing Implications for different types of products & customers?

For Materials & Parts,
Direct selling to large OEMs (Original Equipment Manufacturers) and users, Indirect selling through industrial distributors / dealers for smaller volume OEMs and users.

For Capital items,

Direct selling through company sales force with extensive interactions on technical & commercial factors.

For Supplies
Through Industrial distributors / dealers

For Services,
Word-of-mouth plays an important marketing role, with quality & price of service as key factors.
6

(D) Purchasing Orientations of Business Buyers

(i) Buying Orientation: Short-term focus

(a) selecting lowest price supplier, (b) gaining power over suppliers and (c) avoiding risk of buying from new suppliers.
Objectives of quality improvement and cost reductions by (a) collaborative relationship with major suppliers and (b) working closely with other functional areas in the company.

(ii) Procurement Orientation: Long-term focus

(iii) Supply chain Management Orientation: Focus on improving the value chain from raw materials to end users.
(a) delivering superior value to end users, (b) outsourcing non-core activities, (c) and supporting collaborative relationships with major suppliers.

Supply Chain Management

(E) Purchasing Practices of Different Types of Industrial / Business Customers

(i) Purchasing in commercial enterprises

Major Tasks / Procedure: identifying, negotiating, selecting suppliers, building relationship. Purchasing to improve operational efficiency & contribute to firms competitive advantage. Involve Technical & Commercial depts.

(ii) Purchasing in Govt. units

DGS&D agency finalizes rate contracts for standard products for Govt. units. Main Tasks / Procedure : Registration of the firm & its Products, Tender Advertisements, no negotiation in Open tenders, negotiations done in closed / limited tenders. Orders finalised on lowest bidders (suppliers offering Lowest prices / Landed Costs)
9

 (iii) Purchasing in Institutions

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.

(iv) Purchasing in cooperative societies

Similar to Institutional purchase.
10

(E) Types & Analysis of Environment

AIR & WATER POLLUTION
ECOLOGICAL SOLID WASTE DISPOSAL CONSERVING NATURAL RESOURCES WATER, POWER, TRANSPORTATION PHYSICAL LOW-COST, SKILLED MANPOWER COMPANY LOCATION, IMAGE / REPUTATION ENVIRONMENT INTERNAL (S&W ANALYSIS) R & D & PRODUCTION FACILITIES H R & FINANCIAL RESOURCES MARKETING EFFECTIVENESS MICRO (AFFECTS A PARTICULAR FIRM) EXTERNAL (O&T ANALYSIS) MACRO (AFFECTS ALL FIRMS) CUSTOMERS & COMPETITORS SUPPLIERS ECONOMIC TECHNOLOGICAL GOVT., POLITICAL, LEGAL CULTURAL & SOCIAL PUBLIC - PRESS, SHARE HOLDERS, INVESTORS & PUBLIC INTEREST GROUPS 11

(F) Strategies for Managing Changing External Environment

(i) Independent Strategies. (ii) Cooperative Strategies. (iii) Strategic Planning.
It aims at keeping the firm consistently successful in changing marketing environment by market oriented strategic management.

12

What we learnt in this chapter

Types /Classifications of Industrial/ Business Customers are
(i) Commercial Enterprises, (ii) Government (iii) Institutional, (iv) Cooperative societies.

Industrial Products/Services are classified into

(i) Materials & Parts, (ii) Capital Items, (iii) Suppliers & Services.

Marketing strategies differ for different product & Customer types. Industrial / business Buyers follow one of the three purchasing orientations :
buying, procurement, or supply chain management.

Purchasing practices vary for different types of customers. It is important to understand it for each major customer. Types of environment are Ecological, Physical, Internal, & External, Strategies used for managing changing external marketing environment are :
(i) Independent, (ii) Cooperative, (iii) Strategic Planning.
13