Industrial Market vs Consumer Market
Industrial Market Vs Consumer Market Market Structure Understanding Industrial markets Industrial Market Geographically conc. Fewer buyers (relatively) Big buyers ( small number of large buyers) Consumer Markets Geographically dispersed Mass markets Free Market (large number of buyers) 1 Industrial Market Vs Consumer Market Market Structure – Example Understanding Industrial markets Industrial Market ( Rutile for Paints) Major ten cities. Fewer buyers (example 500) Oligopolistic buyers with clout To access international market (Asian, Nerolac, ICI etc. )
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Consumer Markets (paints) Even in small villages Mass markets ( 1 billion ) Small customers normally competition is within the country. 2 Industrial Market Vs Consumer Market Buyer Behavior Understanding Industrial markets Industrial Market *Evaluated for functionality rational/task motive to buying. *Purchasers are experts & focus is more on performance/service. *Higher interaction with the supplier. * Formal processes. Consumer Market *Social / psychological factors are important. *Family involvement & focus more on product per se. *Nor personal relationship with the supplier. Less of formal processes. 3 Industrial Market Vs Consumer Market Buyer Behavior – Example Understanding Industrial markets Industrial Buyer for AC *Evaluated for functionality ( evaluation by tech committee) *Purchase through tendering Process & brand less important. *Discuss technical details, price negotiation etc. *Formal processes of documentation etc. Customer for AC •Should look good & match the decor. *Want to buy LG only (because neighbor has) *Go to a shop, select, negotiate pay & forget. * Less of formal processes. 4 Industrial Market Vs Consumer Market Products
Understanding Industrial markets Industrial Market * Technical complexity and customized. * Service, delivery and availability is very important. Customer Markets * Standardized. *. Service, delivery and availability is somewhat important. 5 Industrial Market Vs Consumer Market Products – Example Samsonite Outsourcing soft luggage * Each component is as per Samsonite specification. * Service, delivery and availability is very important as it affects supply chain of the company. Understanding Industrial markets Customer for Samsonite soft Luggage * Standardized product range to select rom. *. Service, delivery and availability is somewhat important, can wait for a Specific color / size. 6 Industrial Market Vs Consumer Market Decision making Understanding Industrial markets Industrial Market * Distinct observable stages * Multiple influencers and decision makers. Consumer Market * Unobservable mental stages, not very clear pattern. 7 Industrial Market Vs Consumer Market Decision making – Example Understanding Industrial markets Industrial Buyer – Soaps for Workers canteen * Need identification, selection, procurement etc. * O. K. rom the workers union, agreement by contractor, purchase departments negotiation & placing order. Customer * Low involvement buying and impulse purchase (the exact choice criteria difficult to identify) & varies from situation to situation. 8 Industrial Market Vs Consumer Market Distribution channel characteristics Understanding Industrial markets Industrial Markets * Shorter, more direct & fewer linkages between seller and buyers. Consumer Markets * Indirect and multiple linkages 9 Understanding Industrial Market Vs Consumer Market Industrial Distribution channel characteristics -Example markets
Hotel buying Cold Drinks * Supplied directly by the distributor, may even be serviced by company employee or a regular basis. Customer for Cold drinks * Normal distribution style of distributor to retailer to customer. Virtually no interaction with company. 10 Industrial Market Vs Consumer Market Promotion Understanding Industrial markets Industrial Markets * Emphasis on personal selling or one to one dealing. Example : Selling fridges with decals. You go and deal with Coke or Pepsi H. O. Consumer Markets * Emphasis on mass market promotion. Example : You plan an adv. ampaign to highlight decals and generate customer flow. 11 Industrial Market Vs Consumer Market Pricing Understanding Industrial markets Industrial Markets * Competitive bidding & multistage negotiation. * Sharing of cost data & budgeting of acceptable profits in many cases. Consumer Markets * Normally MRP & MOP * Concept of list price & its implementation. 12 Industrial Market Vs Consumer Market Pricing – Example Understanding Industrial markets Industrial (CSD purchase Of Rum ) * Competitive bidding & selection on basis of L1. * Sharing of production and overhead cost data with CSD and price based on cost + margin.
Consumer Markets for Rum * Normally MRP & MOP * Concept of list price & its implementation in the trade. 13 Understanding A big reseller can be treated as a Industrial Industrial Buyer markets Example: Shoppers Stop / Ebony / Kids Kemp for an apparel manufacturer. Purchase : Not for consumption but for business. Market characteristics : Very few of them and they are big in size and have centralized purchasing. Product characteristics : Specific private labels. Buyer characteristics : Technical evaluation / rational process / multiple buying influencers. 14
Understanding A big reseller can be treated as a Industrial Industrial Buyer markets Example: Shoppers Stop / Ebony / Kids Kemp for an apparel manufacturer. Channel characteristics : Direct service by the manufacturer. Price characteristics : Very hard on negotiation, if they get better price, it straight goes to profits. Economics of demand : Based on actual consumer off-take of the products and hence derived. If one design clicks, it is stocked more in anticipation. 15 Organizational Customer Type of purchasing organization Commercial Enterprise Understanding Industrial markets 1.
Industrial Dealers & Distributors – Essentially their objective is to trade on the items. ( relatively narrow scope ). 2. OEM – These consumers use the products as component of their own output. The stakes are high as their final output depends on your product. ( Maruti as a user of headlights ). In emergency, they can make the vehicle & fit headlights later. 3. Users ( consumers ) – They are the final consumers of the product and their total operation depends on you. Example: Eastern Coal Fields for Tisco. No coal => No Steel. 16 Organizational Customer Type of purchasing organization Government agency
Understanding Industrial markets 1. Standard procurement processes – Registration, Tender, L1 etc. 2. Public accountability – everything by rule books as far as documentation. 17 Organizational Customer Type of purchasing organization Institutions ( Private & Public Sector ) 1. Tisco giving its workers, watches as Diwali gifts. Understanding Industrial markets 2. XIM-B purchasing air-conditioners for faculty offices. 3. DSP cooperative buying suitcases for their members. Characteristics : Normally one time deals, large orders, less of technical evaluation, non – specialist buyers. 8 Organizational Customer Based on Type of products purchased Materials and parts Understanding Industrial markets 1. Raw materials ( natural gas, HDPE etc. ) 2. Manufactured materials ( copper wire, steel sheets ) 3. Component parts ( switches, motors or customized gears ) Characteristics : Normally large custom made orders are sold By the manufacturers & standard products by industrial. distributors. 19 Organizational Customer Based on Type of products purchased Capital Items Understanding Industrial markets 1. Installations ( buildings, computers, machinery etc. ) 2.
Accessories ( PC, Office furniture) Characteristics: Normally major installations, because of extensive interaction required and long negotiation time required, the manufacturers deal directly with the customer & accessories are sold by industrial. distributors. 20 Organizational Customer Based on Type of products purchased Supplies and services 1. Supplies ( soaps, stationery etc. ) 2. Services ( maintenance, canteen etc. ) Understanding Industrial markets Characteristics : Normally industrial distributors are used & services are provided by the individual contractors ). 21 Characteristics of Organizational Procurement Multiple Influences
Understanding Industrial markets Example : Procurement of Injection Moulding Machine 1. 2. 3. 4. 5. R & D : Designs the moulds which are to be used. Production : Output levels, installation needs. HRD : Manpower implications, skills to be imparted. Quality Assurance : Responsible for output consistency. Maintenance : Ease of operation, availability of spares, AMC etc. 6. Finance : Long & short term financial implication. 7. Purchase department : Price, payment terms, delivery terms. 22 Characteristics of Organizational Procurement Technical sophistication Example : Procurement of Rutile for paints
Understanding Industrial markets 1. Material Planning : Exact forecasting of demand, factoring of international prices Vs domestic prices, foreign exchange implication, inventory carrying cost etc. 2. Supplier rating : Based on the the quality reports, delivery records , price factor, payment terms etc. the suppliers are rated and 3. Economic order quantity : The quantity to order, frequency of ordering etc. are planned so as to optimize the profitability of the organization. 23 Characteristics of Organizational Procurement Technical sophistication Example : Procurement of Rutile for paints
Understanding Industrial markets 4. Value Analysis : The option of using a lesser quantity of costly Rutile for getting the same output level by change of formulation is explored. In absence of the raw materials, whether any alternative can be used is worked out. How the option of airlifting impact cost etc. is worked out before decision making. Concept of optimization w. r. t constraints 24 Characteristics of Organizational Procurement Government purchases Understanding Industrial markets 1. Large number of buying center : Government departments are everywhere. A lot of them purchase locally. . Political interference : 3. Specified govt. contracts : a) Rate contracts b) DRDO / ISRO Dev. Job cost + effort cost c) 131 Orders Skills required are specialized 25 Industrial Marketing Environment Understanding Industrial markets Buyer Seller Interface Publics Macro Environment Govt. influences 26 Industrial Marketing Environment Buyer seller interface Understanding Industrial markets Govt. Mafg. Dist. / Dlrs. Labour Capital R. M. Components Equipment Manufacturer’ rep Dist / Dlrs Transporters Warehousing firms Mktg. Research firms Compt. Bankers & insurers
Commercial Enterprises Industrial Distributors Market segments Suppliers Buyers Facilitators 27 Industrial Marketing Environment Publics Understanding Industrial markets 1. Financial publics – FI / Stockbrokers / Individual Stock Holder ( Stock prices, confidence in company ) 2. Independent press – Impact on reputation of company ( Dhabol power corporation ) 3. Public interest groups – Environmentalists ( Euro II , CNG vehicles, Narmada bachao) 4. General publics – MacDonald’s coating French fries with beef tallow Business serves the society 28 Industrial Marketing Environment Macro Environment
Understanding Industrial markets 1. Economics – 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. 2. Ecological influences – The concern for the environment so emission norms are stringent & industry has to adjust. 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. 9 Industrial Marketing Environment Macro Environment Understanding Industrial markets 3. Physical environmental Influences – Steel plants need iron ore, water & lime stone deposits for setting up. MP, Bihar and Orissa have the concentration of steel plants. . 4. Politico / Cultural influences – Hire and fire policy of west Vs militant trade unionism & job protection in India. 5. Technological influences – Typewriters manufacturers had to shift market focus, change products etc after PC’s and word processors became common. 30 Industrial Marketing Environment Macro Environment 6.
Government influences – Understanding Industrial markets Anticipating governments action: WTO treaty signing and IMF loans linkages for govt. The govt. needs the loan so it is likely to sign the treaty. Influencing Govt. actions: Lobby for reduction in excise duty (to create level playing field). Lifting of Liquor ban in A. P. ( a lot of lobbying ). CNG buses for Delhi …. 31 Environment Management Strategies Independent Strategies 1. Competitive aggression Understanding Industrial markets a. Create Product differentiator (Bonding power of cement Gujrat Ambuja Cement – compressive strength) b.
Aggressive pricing (coal based power plants Vs Gas based power plants) c. Comparative advertising – Dhabol Power Corporation came up with the very good adv telling the good the plant has brought about in the area, water supply, school, employment, plus electricity generation cost (compared with other plants etc. ) 32 Environment Management Strategies Independent Strategies 2. Competitive pacification Understanding Industrial markets a. Improved competitive relations – (Auto companies do not fight on discount to trade @4%, they do not spoil the trade, focus on end users ). b.
Industry promotion – Doodh, Egg & LPG campaign. ( Increase the pie rather than fight for the same pie). c. Price Umbrella’s – The transporter’s union finalizing rates for each destination ex- Mohali. 33 Environment Management Strategies Independent Strategies Understanding Industrial markets 3. Building Public Opinion a. Corporate Image advertising – ISO 9000 Accreditation. b. Voluntary environmental control – ISO 14000 Accreditation Making green products & advertising it. c. Commitment to interest groups – Archies cards giving part of institutional revenue to fund the NGO’s.
This help them charge higher & get business. 34 Environment Management Strategies Independent Strategies 4. Political / Legal Understanding Industrial markets a. Directly lobbying with the govt. & law enforcers. Steel Industries lobbying for more development work, reduction in excise etc. b. Issue advertising through the direct paid media or even influencing the media to highlight the issue ( may or may not be funded directly ). 35 Environment Management Strategies Co-operative strategies Understanding Industrial markets a. Contracting : Allwyn is part of Electrolux, but supplies refrigerators to LG. b.
Co-optation : Absorption of relevant Publics on board of directors. IIMC & XLRI directors in the board of directors of XIM. c. Coalition : Industry association ( Specially used to lobby with the government ) FMA decision to have max 7 years warrantee on fans. 36 Environment Management Strategies Strategic Maneuvering Understanding Industrial markets a. Domain Selection : Focusing on areas of strong competitive advantage. Cray ? Supercomputers ICI Worldwide ? Light chemicals with high margins. b. Diversification : Reliance into telecom sector. May be the idea is to be part of a high growth industry which has good future potential. 37