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Industrial Marketing
Industrial marketing is a primarily B2B sale which means business to business. It mostly involves the supply and purchase of raw materials for the manufacture of goods or service. Industrial marketing is best done with the help of sales representatives as the needs vary from client to client which should be serviced in a customized way.
Industrial marketing is kind of less complicated as it is easy to identify the client and set up an appointment with them. Highly professional and trained people are involved in the purchase of industrial goods. In order to sell to them, the marketing is done in the form of technical selling where the sales representative makes an appointment with the prospective buyer, understands their needs and proposes a solution by which they could offer their service and closes the deal.
Most of the industrial goods purchase generally involves tendering process which is rampant in government and few private institutions of India. The tender process calls for multiple suppliers and the best bid with low price and satisfying all the necessary requirements of the contract is awarded the task to supply industrial goods.
CHARACTERISTICS: INDUSTRIAL AND CONSUMER MARKETING The basics of marketing management: deciding the target markets; finding out the needs and wants of the target markets, developing products and services to meet the requirements of those markets, and evolving marketing programs or strategies to reach and satisfy target customers in a better and faster way than competitors apply to both consumer and industrial marketing. The industrial markets are geographically concentrated; the customers are relatively fewer; the distribution channels are short; the buyers (or customers) are well informed; the buying organizations are highly organized and use. Sophisticated purchasing techniques; the purchasing decisions are based on observable stages in industrial marketing. Industrial marketing is more a responsibility of general management in comparison to consumer marketing. Sometimes, it is difficult to separate industrial marketing strategy from the corporate (company) strategy. But in case of consumer marketing, many times the changes in marketing strategy are carried out within the marketing department, through changes in advertising, sales promotion, and packaging strategies. However, the changes in industrial marketing strategy generally have company- wide implications.
Sr.Bases Industrial Markets Consumer Markets
No.
Geographically Geographically
Market concentrated,
1. disbursed,
characteristics Relatively fewer buyers
Mass markets
Product Technical complexity,
2. Customised Standardised
characteristics
Service, timely delivery
Service and availability very Service, delivery, and
3. important availability somewhat
Characteristics
important
Involvement of various Involvement of family
functional areas in both
buyer
members
and supplier firms, Purchase decisions are
Purchase decisions are mostly made on
mainly made on physiological/social/
4. Buyer
behavior
rational/performance basis, psychological needs,
Technical expertise,
Stable interpersonal Less technical expertise,
relationship between buyers
and sellers Non-personal
relationship
5. Decision- Observable stages, Unobservable,
making Distinct Mental stages
Shorter, Indirect,
Channel More direct,
6. Multiple layers of
Characterist
ics.
Fewer
intermediaries
intermediaries/middlemen
7. Promotional Emphasis on personal selling Emphasis on advertising
Characterist
ics
Competitive bidding and
8. Price negotiated prices, List prices or maximum
Characterist
ics
List prices for standard retail price (MRP)
products
Market Characteristics Basically, the significant differences exist between industrial and consumer market characteristics that affect the nature of industrial marketing. These differences are: size of market; geographic concentration; and competitive nature of the markets. Size of the Market: Compared to the great number of households that constitute the mass market for consumer goods and services, In the case of industrial markets, it is common to find less than 20 companies to represent the total market for an industrial product or service. In fact, only three or four customers may comprise the major portion of a total market. For example, for a consumer product like toothpaste or soap, a mass market, consisting of all the households in India, exist. Further, in industrial arena, oligopolistic buying organizations (very large firms) tend to dominate many markets such as, large power transformers or high-tension switchgears, there are limited numbers of customers-mainly State Electricity Boards, large private and public sector organizations. While there are relatively few industrial customers, they are larger in size, purchase larger quantities, and engage in this volume purchasing on a repeat basis. Geographical Concentration: Industrial customers also tend to be concentrated in specific areas of the India such as Andaman Nikobar, the Leh Hills. Such concentration occurs mainly because of natural resources and manufacturing processes. For example, the geographic location of natural resources explains the concentration patterns of most energy-
Channel Characteristics Inventory or stock control is very much important factor in the business organizations therefore the distribution channels are needed more direct from the manufacturer to the customer in industrial marketing. There are a few channel alternatives, which are feasible in the industrial market than the consumer market as shown in Figure
Often, the manufacturers use their own sales/marketing personnel to sell the products directly to major customers. But, in case of selling to small-scale customers or geographically scattered markets, many manufacturers use either distributors/ dealers, or agents/representatives, which also helps in minimizing the cost of marketing. In case of consumer marketing, the channel of distribution is longer with multiple levels of intermediaries/middlemen, since the household consumers are geographically dispersed all over the country. Promotional Characteristics In consumer marketing, the emphasis is given on advertising whereas, in industrial (or business) marketing, the importance is given to the personal selling through the company‘s sales force. As a result, a much larger expenditure budget is provided for advertising in consumer marketing in comparison to industrial marketing. Advertising is used to lay a foundation for the sales call rather than serve as the primary communication tool. Sales people act more as consultants and technical problem solvers, utilizing in-depth product knowledge and technical understanding of the buyer’s needs, whereas industrial advertising normally stresses more factual and technical data. Some industrial advertisers use television to reach potential consumers, the primary means of reaching the market is through business magazines, traditional trade journals, and direct mail. Sales promotion activities tend to center on trade shows, trade fairs, catalogs and conducting technical seminars. Price Characteristics The products are sold through the intermediaries/middlemen to the consumers based on the ―Price List of the manufacturer or the maximum retail price (MRP) for the packaged products in consumer marketing. Sometimes, the retailer reduces the price by passing on to the consumer a part of his discount due to different degrees of intensity of the competition. In industrial marketing, price is less critical factors for purchase decisions. Competitive bidding and price negotiations are very common in industrial marketing and financing arrangements are often considered part of pricing package. When there are no price negotiations in certain Government tenders, the competitive bidding (i.e. quoting a competitive price against a tender enquiry) becomes very important, as only the lowest bidders are considered for placement of orders. Almost private sector and some Government organizations, price negotiations are held to decide the prices and the volume of orders to be placed on various supplier firms. The payment and other commercial terms are also negotiated at the time of price negotiation. Dealer discounts, and volume discounts on the price list of standard industrial products are widely used in industrial marketing.
TYPES OF INDUSTRIAL CUSTOMERS
Industrial customers are normally classified into four groups: (i) Commercial Enterprises, (ii) Governmental Agencies, (iii) Institutions, and (iv) Co-operative Societies. These are as shown as follows in the Figure 2.1. Commercial Enterprises Commercial enterprises are private sector, profit-seeking organizations 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 at the time of examination of the varieties of products they purchase and how marketing strategy can be developed to meet their needs.
Thus, it is more logical to look at commercial enterprises: (i) industrial distributors or dealers, (ii) original equipment manufacturers (OEMs), and (iii) users. As and when, these categories tend to overlap; are useful to the industrial marketer because they point out the ways of uses of products and services in buying firms. Industrial Distributors and 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. 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. 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 customer‘s (TELCO‘S) product. 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. In addition to above, sometimes 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 the manufacturing 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. 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 transport undertakings, state electricity boards, and so on. These Government units purchase almost all kind of industrial products and services and they represent a huge market. 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.
Industrial buyers and sellers operate in a dynamic environment. One constantly poising new opportunities and threats. The industrial marketing environment could be divided into three levels namely the interface level, the public’s level and the macro environment level. The Interface Level This involves those key participants who immediately interface with an industrial firm (buyer or seller) in facilitating production, distribution and purchase of firm’s goods and services. Supply inputs are transformed by a company and its competitors into outputs with added value that move on to the end markets, the move being made through the firms interface with industrial distributors and dealers, manufacturers’ representatives and the company’s own sales people. That move is made possible by a firms interface with facilitating institutions such as banking, transportation, and research and advertising firms. Participants in the interface level include:
- Input supplier – Input goods such as the raw materials, labor and capital are supplied by organizations to industrial firms for use in producing output goods and services. The survival and success of a firm depend on the knowledge and relationship with its input suppliers. Interruptions in the flow of inputs cause repercussions in the entire industry affecting not only production and marketing plans but also the production and marketing plans of the suppliers.
- Distributors – Most organizational buyers buy from five or more industrial distributors. Industrial distributors, contact potential buyers, negotiate orders, provide buffer inventories, credit and technical advice to potential buyers. They are particularly important when joint demand is present because they bring together the heterogeneous inputs needed for the production of end products.
- Facilitators – Advertising agencies and public relations firms provide the necessary communication flow between the sellers and buyers through the formulation of meaningful information and media strategies. The use of advertising in reaching potential buyers and the multitude of buying influencers is vital in the overall communication strategy. Transportation and warehouse companies facilitate the free flow of goods that must be delivered in usable condition to industrial customers and distributors when and where they are required. When goods are not delivered on time and in usable solutions, buyers can be forced to shut down production lines. Resources as they move from the supply inputs to end users must be financed and insured.
- Competitors – Competitors actions whether domestic or foreign, ultimately influence the company’s choice of target markets, distributors, product mix, and in fact its entire marketing
strategy. The Publics Level Publics are distinct groups that have actual or potential interest or impact in each firm’s ability to achieve its respective goals. Publics have the ability to help or hinder a firms effort to serve is markets.
- Financial publics – Financial institutions such as investments firms and stock brokerage firms and individual stakeholders invest in an organization on its ability to return profits. When they become unhappy with the management or dissatisfied with a company’s social policies, they sell their shares.
- Independent press – Industrial organizations must be accurately sensitive to the role that the mass media play and how they can affect the achievement of the marketing objectives. The independent press is capable of publishing news that can boost or destroy the reputation of a firm as well as the sales potential of a product.
- Public interest groups – Industrial marketing decisions are increasingly affected by public interest groups. Clearly, these various public interest groups limit the freedom of the suppliers and buyers in the industrial market. While some organizations respond by fighting, others accept these groups as another variable to be considered in developing strategic planning, working through public affairs departments to determine their interests and to express favourably the company’s goals and activities in the press. The impact of these groups however is felt by all participants in the interface level.
- General public — Although the general public does not react in an organized way towards a firm or an industry, as interest groups do, when sizeable portion of a population shifts attitude towards a firm or industry, there is definite impact.
- Internal public – The board of directors and managers as well as blue and white colour workers are important emissaries between an organization and other participants in the interface and public levels. Corporate policy must give consideration to employees and others who are held responsible for the overall operation of the firm. Employee morale is an important factor in all business decisions. And when morale is low, organizational efforts suffer. A firms employees spend more than two thirds of their time off the job, interacting with their families and the community, so employees attitudes do influence the public. Macro Environment This level of the organization is made up of components that have less specific and less immediate implications for managing the organization effectively. 1. Economic component Economic conditions greatly influence an organizations ability and willingness to buy and sell. Thus emerging changes in the economic environment both at home and abroad, must be closely monitored. It includes the following factors;
- GNP
- Inflation rates
- Balance of payment position
- Debts and spending
- Taxation rates
- Interest rates
- Consumer’s income
- Corporate profits 2. Social component This describes the characteristics of the society where an organization exists. It includes factors such as;
- Literacy levels
- Values of people
- Educational levels
- Geographical distribution
- Customs and believes 3. Legal component This consists of legislation’s that have been passed. It describes the rules or the laws that all the company members must follow. They include all laws affecting the organization e.g.
- Consumer health policy
- Energy policies and conservation Acts
- Employment Acts, etc. 4. Political component Comprise those elements related to the government affairs. This includes;
- Type of government
- Government attributes towards certain issues
- Lobbying efforts from interest groups
- Progress towards passing of laws affecting certain industries, etc. 5. Technological component Given the rate of technological change in industries such as telecommunications, computers, and semiconductors, large buying firms are developing forecasting techniques to enable them to estimate time periods in which major technology developments might occur. Marketers must also monitor technological change if they hope to adapt marketing strategy with sufficient speed and accuracy to make the more scientific breakthroughs. This includes;
- New procedures
- Approaches to new plan of goods and services
marketer identifies a problem in the buying organization and suggests how the problem could be solved, there will be a better possibility of it being selected as a supplier. Determination of the Characteristics and Quantity of Needed Product If the problem is recognized within or outside the buying organization, then the buying firm will try to answer questions such as: What type of products or services to be considered? What quantity of the product needed? and so on. For technical products, the technical departments (R&D, industrial engineering, production, or quality control) will suggest general solutions of the needed product. For non-technical goods or services, either the user department or purchase department may suggest products or services, based on experience and also the quantity required to solve the problem. Nevertheless, if the required information is not available internally within the buying organization, the same can be obtained from the outside sources. Development of Specification of Needed Product Stage 2 and 3 are closely related. After the general solution to the problem is determined in the second phase, the buying organization, in the third stage, develops a precise statement of the specifications or characteristics of the product or service needed. During this stage the purchase department takes the help of their technical personnel, or if required, outside sources such as suppliers or consultants. Industrial marketers have a great opportunity to get involved at this stage by helping the buyer organization to develop product specifications and characteristics. It would give a definite advantage by ensuring that the needed product includes his or her company‘s product characteristics and specifications. Search the Qualified Potential Suppliers In this stage, the buying organization searches for acceptable suppliers or vendors. Firstly, they have to obtain information about all available suppliers and secondly, they have to decide the qualifying suppliers. The search for potential suppliers is based on the various sources of information like trade journals, sales calls, work-of-mouth, catalogues, trade-shows, industrial directories. The qualifications of acceptable supplies may depend on the type of buying organization such as government undertaking, private sector commercial organization, or institutions, and the buying situation, and the decision-making members. Furthermore, the factors like quality of product or service, reliability in delivery, and service are considered in qualifications of suppliers. Obtaining and Analyzing Supplier Proposals If the qualified suppliers are decided then the buying organization obtains the proposals by sending enquiries to the qualified suppliers. A supplier‘s proposal can be in the form of a formal offer, quotation, or a formal bid, submitted by the supplier to the buying organization. It must include the product specification, price, delivery period, payment terms, taxes and duties applicable, transportation cost (or freight), cost of transit insurance, and any other relevant cost or free service provided. For purchases of routine products or services, the stages 4 and 5 may occur simultaneously, as the buyer may contact the qualified suppliers to get the latest information on prices and delivery periods. For technically complex products and services, a lot of time is spent in analyzing proposals in terms of comparisons on products, services, deliveries, and the landed costs: includes the price after discount plus excise duty, sales tax, freight, and insurance. Evaluation of Proposals and Selection of Suppliers The industrial buyers evaluate the proposals of competing suppliers and selects one or more suppliers. Further negotiations may continue with selected suppliers on prices, payment terms, deliveries, and so on. The decision makers in the buying organization may evaluate each supplier on a set of agreed-upon attributes or factors. Each supplier is evaluated on each attribute by giving a weightage to each attribute proportionately or on rating scale basis. The supplier(s) who get the highest total score receives the business or the order from the buying organization. If a buying firm faces a make-or-buy decision, the supplier‘s proposals are compared with the cost of producing the needed item within the buying organization. If it is decided to make the item within the buying organization, the buying process is stopped at this stage. Routine Order Selection In this stage the procedure of exchange of goods and services between a buyer and a seller is worked out. The activities include placement of orders (i.e. purchase orders) with the selected suppliers, the quantity to be purchased from each supplier, frequency of order placement by buyers and delivery schedules to be adhered to by the supplier, schedule, and the payment terms to be adhered to by the buyer. The user department would not be satisfied until the supplier delivers the required item as per delivery schedule, and with acceptable quality.
Performance Feedback and post-purchase Evaluation In this final phase a formal or informal review regarding the performance of each supplier (or vendor) takes place. The user department gives a feedback on whether the purchased item solved the problem or not. If not, the members of the decision-making unit review their earlier decision and decide to give a chance to the previously rejected supplier. The industrial vendor should recognize that marketing effort is no over after the order is received. He or she must check the feedback and evaluation process in the customer (buyer) organization. In particular, the industrial marketer must monitor the user satisfaction levels or complaints so that immediate corrective action can be taken before a major damage. In fact, a quick response to customers complaints can result in good buyer-seller relationship. The type of products, the phase of the buying-decision making process of customer firms, and the purchasing situations also influence the marketing strategy of industrial seller.
DECISION MAKING UNIT
It is essential to understand the roles of buying-center members or decision-making units (DMUs) before identifying the individuals and groups involved in the buying-decision process. It is helpful to the industrial marketers to develop an effective promotion strategy. The roles of buying center members are as follows: Initiators The initiators might be any individuals in the buying firm. Often, the users of a product/service play the role of the initiators. Buyers The major roles of buyers are obtaining quotations (or offers) from suppliers, supplier evaluation and selection, negotiation, processing purchase orders, speed up deliveries, and implementing purchasing policies of the organization. Generally, they are the purchase (or material) officers and executives. Users The user is those individuals who use the product or service that is to be purchased. Generally, users play the role of the initiators. The influence of the users in purchasing decisions may vary from minor to major. They may define the specifications of the needed product. They may be shop floor workers, maintenance engineers, or R&D engineers. Influencers Those individuals who influence the buying decision are known as influencers. Generally, technical people such as designers, quality control engineers have a substantial influence on purchase decisions. Sometimes, individuals outside the organization, who are experts or consultants, play the role of influencers by drawing specifications of products or services. Deciders The deciders make the actual buying decisions. They may be one or more individuals involved in the buying decision. It is very significant to identify the deciders, although at times it may be difficult task. Generally, for routine purchases the buyer (or purchase executive) may be the decider. But, for high-value and technically complex products, senior executives are the deciders. Gatekeepers The gatekeepers are those individuals who control (or filter) the flow of the information regarding products and services to the members of the buying center. Sometimes, the gatekeepers may control sales people‘s meetings with the members of the buying center. Gatekeepers are often the assistants or junior persons attached to purchase (or materials) manager.
KEY MEMBERS IN BUYING ORGANISATION The following discussion clarifies different key members or DMUs in industrial buying decisions: Top Management For purchases of high value capital equipment, the top management in most firms got involved in the supplier selection, as it may have a major impact on the firm‘s operations. The top management in an industrial organization consists of managing director, director, presidents, and vice-president of general manager. They are generally involved in purchase policy decisions such as diversification into a new product/project, approval of purchase or materials department annual budgets and objectives, and deciding the guidelines for purchase decisions. Technical Persons
The environmental variables include physical, technological, economic, political, legal, labor unions, cultural, customer demands, and competition and supplier information. For example, in a recessionary economic condition, industrial firms minimize the quantity of items purchased. The environmental factors influence the buying decisions of individual organizations. The organizational variables include objectives, goals, organization structure, purchasing policies and procedures, degree of centralization in purchasing, and evaluation and reward system. These variables particularly influence the composition and functioning of the buying center, and also, the degree of centralization or decentralization in the purchasing function in the buying organization. The functioning of buying center is influenced by the organizational variables the environmental variables, and the individual variables. The output of the group decision-making process of the buying center includes solutions to the buying problems of the organization and also the satisfaction of personal goals of individual members of the buying center. The strengths of the model, developed in 1972, are that it is comprehensive, generally applicable, analytical, and that it identifies many key variables, which could be considered while developing marketing strategies by industrial marketers. However, the model is weak in explaining the specific influence of the key variables. The Sheth Model In 1973, Professor Jagdish N Sheth developed the Sheth model. This model highlights the decision-making by two or more individuals jointly, and the psychological aspects of the decision-making individuals in the industrial buying behavior. It includes three components and situational factors, which determine the choice of a supplier or a brand in the buying decision making process in an organization. The differences among the individual buyers expectations (Component 1) are caused by the factors: background of individuals; information sources; active search; perceptual distortion; and satisfaction with past purchases. The background of individuals depends upon their education, role in the organization, and life style. The factor perceptual distortion means the extent to which each individual participant modifies information to make it consistent with his existing beliefs and previous experiences. It is difficult to measure perceptual distortion, although techniques such as factor analysis and perceptual mapping are available for this purpose. In Component (2), there are six variables, which determine whether the buying decisions are autonomous or joint. According to the Sheth Model, larger the size of the organization and higher the degree of decentralization, more will be possibilities of joint-decision making.
The methods used for conflict resolution in joint-decision making process are indicated by the Component (3) in the model. Problem-solving and persuasion methods are used when there is an agreement about the organizational objectives. If there is no such agreement, bargaining takes place. Conflict about the style of decision-making is resolved by politicking. Situation factors can be varied like economic conditions, labor disputes, mergers and acquisitions. The model does not explain their influence on the buying process.
Marketing Research and Decision Making Marketing research plays two key roles in the marketing system. First, as part of the marketing intelligence feedback process, marketing research provides decision makers with data on the effectiveness of the current marketing mix and offers insights into necessary changes. Second, marketing research is the primary tool for exploring new opportunities in the marketplace. Segmentation research and new product research help identify the most lucrative opportunities for a firm. Marketing Research Defined Marketing research is the planning, collection, and analysis of data relevant to marketing decision making and the communication of the results of this analysis to management. Importance of Marketing Research to Management Marketing research can be viewed as playing three functional roles: descriptive, diagnostic, and predictive. Its descriptive function includes gathering and presenting statements of fact. What is the historic sales trend in the industry? What are consumers’ attitudes and beliefs toward a product? Opening a pack of bacon is a messy job. Bacon lovers have to reach into the package, and if they only pull out a few slices, there’s no easy way to store the remainder. Oscar Mayer marketing researchers hear plenty from consumers about what they disliked about its former bacon packaging. So marketers figured the best solution would be a packaging innovation that eliminated the chore of placing the opened pack in a resalable plastic bag or wrapping it in plastic or foil. This unwanted task was done so that the last piece of bacon would be as fresh as the first. The second role of research is the diagnostic function , wherein data and/or actions are explained. For example, what was the impact on sales when the Oscar Mayer package design was changed? How can product/service offerings be altered to better serve customers and potential customers? Since kids eat over 5 billion ounces of ketchup each year, Heinz decided that the heavy users (kids) should have a lot to say (via marketing research) about how to make ketchup fun. Heinz listened and watched children using ketchup, which resulted in a new bottle design, name selection, and color. The true ketchup connoisseurs helped create Heinz EZ Squirt green ketchup! More than 10 million bottle were sold in the first seven months! This was followed up a year later with “Funky purple” ketchup. The final role of research is the predictive function. How can the firm best take advantage of opportunities as they arise in the ever-changing marketplace? Kraft Foods noticed that consumers were flocking to “low-carb” diets. The company used marketing research to determine if this was a fad or long-term trend. Determining that “low carb” was more than a fad, it entered into an alliance with Arthur Agatston, the creator of The South Beach Diet. The result was certain Kraft products being labeled “South Beach Diet Recommended.” Further marketing research led to a broad
from Maruti Udyog Ltd. when it started marketing all cars in C&D segment with built-in (or fit-in) stereo. Now Nippon is a market leader and has a dominant market share and is looking to expand its range in India. There are four steps in marketing research process: i. Defining the problem and research objectives. ii. Developing research plan iii. Implementing the research plan and iv. Interpreting and reporting the findings.
1. Defining the Problem and Research Objectives: This forms the first activity of any research process. This sounds very simple but many research problems go wrong because people do not clearly decide what information they need from the research they commission. Before any external research starts one should make sure that the information does not already exist. For example, many organisations collect extensive data in different areas of the company and other parts of the company may not be aware of. Often research agencies and the Government publish useful information. Trade or other business associations may also have information. 2. Developing a Research Plan: Specific information needs must be determined according to the stated research objectives. Information collected can be either secondary or primary data. Secondary data is data that already exists e.g., journals, magazines and reports. Primary data is data collected for your specific purpose e.g., by distributing questionnaires. Researchers would normally exhaust secondary data sources before commencing with primary data collection. In certain situations, secondary data may be sufficient to meet the researcher’s information needs. There are several issues to be considered in primary data collection: research approaches, contact methods, sampling plan and research instruments. All these decisions together constitute a research plan. 3. Implementing the Research Plan: If an external agency is asked to conduct the research, it needs to be ensured that the agency is provided with a proper brief, showing in detail the information required. The organisation must also make sure that the research agency is aware of all the information that it already has so that there is no wastage of money finding things that are already known. 4. Analysing, Interpretation and Reporting of Findings: Interpretation should be conducted not only by the researcher but also the marketing manager. Today, computer software made quantitative analysis very easy and faster as they are capable of storing and analysing large amounts of data. For example, multidimensional data are easily captured and analysed using cross tabulations and provided to the manager in a readable format. Information has no value unless it assists managers in better decision-making. Traditionally companies have relied on centralised MIS (Marketing Information System) to provide managers with routine information. They also have direct and quick access to data and information and are able to tailor it to meet their own needs.
Collecting the data Two types of data, Primary, Secondary inside or outside the organization. Secondary data collection Internal database data (MIS). Accounting data, government data, magazines, survey of buying power, syndicated data services, Marketing Research Corporation of America. PRO Inexpensive, quick to obtain, multiple sources available, obtain info. that cannot be obtained through primary research, independent therefore credible. CON maybe incomplete, dated, obsolete, methodology maybe unknown, all findings may not be public, reliability may be unproven. SOURCES: internal = budgets, sales figures, profit and loss statement, all research reports.
External = government, must consider dates, census of population/manufacturing/retail trade, regular publications, IE Wall Street Journal, Business Week, Commercial research houses: for a fee as a subscriber IE AC Nielsen. Primary data collection
Information "collected specifically for the purpose of the investigation at hand" , Dictionary of Marketing Terms. When a thorough analysis of secondary research provides insufficient information for a marketing decision to be made. PRO Fits the precise purpose of the organization, information is current, methodology is controlled and known, available to firm and secret from competitors, no conflicting data from different sources, reliability can be determined, only way to fill a gap. CON Time consuming, costly, some information cannot be collected.
Industrial Market Segmentation: As difficult as segmenting consumer markets is, it is much simpler and easier than segmenting industrial markets. Often the same industrial products have multiple applications; likewise, several different products can be used in the same application. Customers differ greatly, and it is hard to discern which differences are important and which are trivial for developing a marketing strategy. In fact, industrial segmentation can assist companies in several areas:
- Analysis of the market—better understanding of the total marketplace, including how and why customers buy.
- Selection of key markets—rational choice of market segments that best fit the company’s capabilities.
- Management of marketing—the development of strategies, plans, and programs to profitably meet the needs of different market segments and to give the company a distinct competitive advantage. The five general segmentation criteria (in pic), which we have arranged as a nested hierarchy—like a set of boxes that fit one into the other. Moving from the outer nest toward the inner, these criteria are: demographics, operating variables, customer purchasing approaches, situational factors, and personal characteristics of the buyers.
Demographics The outermost nest contains the most general segmentation criteria, demographics. These variables give abroad description of the company and relate to general customer needs and usage patterns. They can be determined without visiting the customer and include industry, company size, and customer location. The Industry. Knowledge of the industry affords a broad understanding of customer needs and perceptions of purchase situations. Some companies, such as those selling paper, office equipment, business-oriented computers, and financial services, market to a wide range of industries. For these, industry is an important basis for market segmentation. Hospitals, for example, share some computer needs and yet differ markedly as a customer group from retail stores.
Current customers are a different segment from prospective customers using a similar product purchased elsewhere. Current customers are familiar with a company’s product and service, and company managers know something about customer needs and purchasing approaches. Some companies’ marketing approaches focus on increasing sales volume from existing custom-ers, either by customer growth or by gaining a larger share of the customer’s business, rather than on additional sales volume from new customers. In these cases, industrial sales managers often follow a two-step process: first they seek to gain an initial order on trial, and then they seek to increase the share of the customer’s purchases. Banks are often more committed to raising the share of major customers’ business than to generating new accounts. Customer Capabilities. Marketers might find companies with known operating, technical, or financial strengths and weaknesses to be an attractive market. For example, accompany operating with tight materials inventories would greatly appreciate a supplier with are liable delivery record. And customers unable to perform quality-control tests on incoming materials might be willing to pay for supplier quality checks. Some raw materials suppliers might choose to develop a thriving business among less sophisticated companies, for which lower-than-usual average discounts well compensate added services. Technically weak customers in the chemical industry have traditionally depended on suppliers for formulation assistance and technical support. Some suppliers have been astute in identifying customers needing such support and in providing it in a highly effective manner. Technical strength can also differentiate customers. Digital Equipment Corporation for many years specialized in selling its minicomputers to customers able to develop their own software, and Prime Computer sold computer systems to business users who did not need the intensive support and “hand holding” offered by IBM and other manufacturers. Both companies used segmentation for market selection. Purchasing Approaches One of the most neglected but valuable methods of segmenting an industrial market involves consumers’ purchasing approaches and company philosophy. The factors in this middle segmentation nest include the formal organization of the purchasing function, the power structures, the nature of buyer-seller relationships, the general purchasing policies, and the purchasing criteria. Purchasing Function Organization. The organization of the purchasing function to some extent determines the size and operation of a company’s purchasing unit. A centralized approach may merge individual purchasing units into a single group, and vendors with decentralized manufacturing operations may find it difficult to meet centralized buying patterns. 1 To meet these different needs, some suppliers handle sales to centralized purchasers through so-called national account programs and those to companies with a decentralized approach through field-oriented sales forces. Power Structures. These also vary widely among customers. The impact of influential organizational units varies and often affects purchasing approaches. The powerful financial analysis units at General Motors and Ford may, for example, have made these companies unusually price-oriented in their purchasing decisions. Or a company may have a powerful engineering department that strongly influences purchases; a supplier with strong technical skills would suit such a customer. A vendor might find it useful to adapt its marketing program to customer strengths, using one approach for customers with strong engineering operations and another for customers lacking these. Buyer-Seller Relationships. A supplier probably has stronger ties with some customers than with others. The link may be clearly stated. A lawyer, commercial banker, or investment banker, for example, might define as an unattractive market segment all companies having as a board member the representative of a competitor.
General Purchasing Policies. A financially strong company that offers a lease program might want to identify prospective customers who prefer to lease capital equipment or who have meticulous asset management. When AT&T could lease but not sell equipment, this was an important segmentation criterion for it. Customers may prefer to do business with long-established companies or with small independent companies, or may have particularly potent affirmative action purchasing programs. Or they may prefer to buy systems rather than individual components.
A prospective customer’s approach to the purchasing process is important. Some purchasers require an agreement based on supplier cost, particularly the auto companies. Other purchasers negotiate from a market-based price, and some use bids. Bidding is an important method for obtaining government and quasi-government business, but because it emphasizes price, bidding tends to favour suppliers that, perhaps because of a cost advantage, prefer to compete on price. Some vendors might view purchasers who choose suppliers via bidding as desirable, while others might avoid them. Purchasing Criteria. The power structure, the nature of buyer-seller relationships, and general purchasing policies all affect purchasing criteria. Benefit segmentation in the consumer goods market is the process of segmenting a market in terms of the reasons why customers buy. It is, in fact, the most insightful form of consumer goods segmentation because it deals directly with customer needs. In the industrial market, consideration of the criteria used to make purchases and the application for these purchases, which we consider later, approximate the benefit segmentation approach.
Situational Factors Up to this point we have focused on the grouping of customer companies. Now we consider the role of the purchase situation, even single-line entries on the order form. Situational factors resemble operating variables but are temporary and require a more detailed knowledge of the customer. They include the urgency of order fulfillment, product application, and the size of order. Urgency of Order Fulfilment. It is worthwhile to differentiate between products to be used in routine replacement or for building a new plant and those for emergency replacement of existing parts. Some companies have found a degree of urgency useful for market selection and for developing a focused marketing-manufacturing approach leading to a “hot-order shop”—a factory that can supply small, urgent orders quickly. A supplier of large-size, heavy-duty stainless steel pipe fittings, for example, defined its primary market as fast-order replacements. A chemical plant or paper mill needing to replace a fitting quickly is often willing to pay a premium price for a vendor’s application engineering, for flexible manufacturing capacity, and for installation skills that would be unnecessary with routine replacement parts. Product Application. The requirements for a 5-horsepower motor used in intermittent service in a refinery will differ from those of a 5- horsepower motor in continuous use. Requirements for an intermittent-service motor will vary depending on whether its reliability is critical to the operation or safety of the refinery. Product application can have a major impact on the purchase process and purchase criteria and thus on the choice of vendor. Size of Order. Market selection can begin with the individual line entries on the order form. A company with highly automated equipment might segment the market so that it can concentrate only on items with large unit volumes. A non- automated company, on the other hand, might want only small-quantity, short-run items. Ideal for these vendors would be an order that is split up into long-run and short-run items. In many industries, such as paper and pipe fittings, distributors break up orders in this way. Marketers can differentiate individual orders in terms of product uses as well as users. The distinction is important; users may seek different suppliers for the same product under different circumstances. The pipe-fittings manufacturer that focused on urgent orders is a good example of a marketing approach based on these differences. Situational factors can greatly affect purchasing approaches. General Motors, for example, makes a distinction between product purchases—that is, raw materials or components for a product being produced—and no product purchases. Urgency of order fulfilment is so powerful that it can change both the purchase process and the criteria used. An urgent replacement is generally purchased on the basis of availability, not price. The interaction between situational factors and purchasing approaches is an example of the permeability of segmentation nests. Factors in one nest affect those in other nests. Industry criteria, for instance, an outer-nest demographic description, influence but do not determine application, a middle-nest situational criterion. The nests are a useful mental construct but not a clean framework of independent units because in the complex reality of industrial markets, criteria are interrelated. The nesting approach cannot be applied in a cookbook fashion but requires, instead, careful, intelligent judgment.
