CHAPTER 2
UNDERSTANDING
INDUSTRIAL MARKETS
AND
ENVIRONMENT
INDUSTRIAL MARKETING: Chapter 2 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.
INDUSTRIAL MARKETING: Chapter 2 2
(A) What are the types/classifications of
Industrial/Business customers?
INTERMEDIARIES /
MIDDLEMEN (DISTRIBUTORS)
COMMERCIAL OEMS
ENTERPRISES
USERS
PUBLIC SECTOR
UNITS (BHEL)
GOVERNMENT
CUSTOMERS GOVT. UNDERTAKINGS
(RAILWAYS, DEFENCE UNITS)
INDUSTRIAL /
BUSINESS
CUSTOMERS PUBLIC INSTITUTIONS
(GOVT. HOSPITALS)
INSTITUTIONAL
CUSTOMERS
PRIVATE INSTITUTIONS
(SCHOOLS, COLLEGES)
MANUFACTURING
UNITS (SUGAR, MILK)
CO-OPERATIVE
SOCIETIES
NON-MANUFACTURING
UNITS (BANKS, HOUSING)
FIG. TYPES OF INDUSTRIAL / BUSINESS CUSTOMERS
INDUSTRIAL MARKETING: Chapter 2 3
(B) How are Industrial Products / Services Classified?
Classification into 3 Groups shown below.
RAW MATERIALS (IRON ORE, CRUDE OIL)
MATERIALS MANUFACTURED MATERIALS
& PARTS (STEEL, FUEL OIL)
(ENTER PRODUCT
COMPONENT PARTS (BEARINGS, TYRES)
DIRECTLY)
SUB ASSEMBLIES (EXHAUST PIPE IN M.C.)
INDUSTRIAL CAPITAL ITEMS LIGHT EQPT (COMPUTERS, HAND TOOLS)
PRODUCTS / (USED IN
HEAVY EQPT (MACHINES, TURBINES)
SERVICES PRODUCTION /
OPERATIONS) PLANT/BUILDING (FACTORIES, OFFICES)
SUPPLIES / SUPPLIES (LUBRICANTS, ELECTRICAL ITEMS)
SERVICES
(TO SUPPORT
OPERATIONS) SERVICES (LEGAL, COURIER)
FIG. CLASSIFICATION / TYPES OF INDUSTRIAL PRODUCTS / SERVICES
INDUSTRIAL MARKETING: Chapter 2 4
(C) Marketing Implications for different types of
products & customers?
For Materials & Parts, Direct selling is done to large
OEMs (Original Equipment Manufacturers) and
users, but indirect selling through industrial
distributors / dealers becomes cost effective for
smaller volume OEMs and users.
For Capital items, Direct selling through company
sales force is common, with extensive interactions
on technical & commercial factors.
For Supplies Industrial distributors / dealers are
mostly used but for marketing of services, word-of-
mouth plays an important marketing role, with
quality & price of service as key factors.
INDUSTRIAL MARKETING: Chapter 2 5
(D) Purchasing Orientations of Business Buyers
Business buyers/ Industrial customers follow one of the three purchasing
orientations:
(i) Buying, (ii) Procurement, or (iii) Supply chain Management
(i) Buying Orientation: The firm with buying orientation follows the
practice of (a) selecting lowest price supplier, (b) gaining power over
suppliers and (c) avoiding risk of buying from new suppliers. It has a
Short-term focus.
(ii) Procurement Orientation: The purchasing firm with procurement
orientation has a long-term focus. It achieves the objectives of
quality improvement and cost reductions by following the practices
of (a) collaborative relationship with major suppliers and (b)
working closely with other functional areas in the company.
(iii) Supply chain Management Orientation: Here, the firm focuses on
improving the value chain from raw materials to end users. This is
achieved by (a) delivering superior value to end users, (b) outsourcing
non-core activities, (c) and supporting collaborative relationships with
major suppliers.
INDUSTRIAL MARKETING: Chapter 2 6
(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
firm’s 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)
INDUSTRIAL MARKETING: Chapter 2 7
(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.
INDUSTRIAL MARKETING: Chapter 2 8
(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 R & D & PRODUCTION FACILITIES
INTERNAL
(S&W ANALYSIS) H R & FINANCIAL RESOURCES
MARKETING EFFECTIVENESS
MICRO CUSTOMERS & COMPETITORS
(AFFECTS A
PARTICULAR
FIRM) SUPPLIERS
EXTERNAL
(O&T ANALYSIS) ECONOMIC
MACRO TECHNOLOGICAL
(AFFECTS
GOVT., POLITICAL, LEGAL
ALL FIRMS)
CULTURAL & SOCIAL
PUBLIC - PRESS, SHARE
HOLDERS, INVESTORS &
PUBLIC INTEREST GROUPS
INDUSTRIAL MARKETING: Chapter 2 9
(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
INDUSTRIAL MARKETING: Chapter 2 10
SUMMARY OF CHAPTER - 2
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.
INDUSTRIAL MARKETING: Chapter 2 11
INDUSTRIAL MARKETING: Chapter 2 12