Industrial & Rural Marketing

Section A

Industrial Marketing:
Industrial marketing, also known as business-to-business (B2B) marketing, refers to
the marketing activities and strategies aimed at promoting products and services
from one business to another. Unlike consumer marketing, which targets individual
consumers, industrial marketing focuses on selling goods and services to other
businesses, organizations, or government entities.
Industrial and Consumer Product:

Industrial Goods

Industrial goods are based on the demand for the consumer goods they help to
produce. Industrial goods are classified as either production goods or support
goods. Production goods are used in the production of a final consumer good or
product, while support goods help in the production process of consumer goods
such as machinery and equipment.

Unlike consumer goods, which are purchased by the general public, there are very
specific buyers of industrial goods. They include component part buyers such as
car manufacturers, those who purchase and install machinery, and distributors or
anyone else who buys for resale.

Characteristics of industrial goods include:

 Rational buying power: The decision and drive to buy industrial goods is
rational compared to consumer goods, which are primarily purchased
because of an emotional need.
 Complex product lines: Industrial goods are usually complex in nature
because they can be highly technical. Those who use them must be highly
skilled.
 Higher purchase value: Industrial goods typically come with a higher price
tag because of their complex nature and limited target market.
 High level of investment: Those who need to will often invest a lot of money
to purchase industrial goods.

Companies involved in the industrial goods sector represent a variety of industries

including (but not limited to) machinery, construction, defense, aerospace, and
housing.
Consumer Goods

Consumer goods are tangible commodities produced and purchased to satisfy the
wants of a buyer. That's why these goods are also referred to as final goods or end
products. They are goods that consumers can typically find stocked on store
shelves. As such, they can be purchased for use at home, school, or work or for
recreational or personal use. Consumer goods are divided into three different types:
Durable goods, non-durable goods, or consumer services.

Durable goods have a significant lifespan of three or more years. The consumption
of a durable good is spread out over the entire life of the good, which causes
demand for maintenance and upkeep. Bicycles, furniture, and cars are examples of
durable goods.

Non-durable goods are purchased for immediate consumption or use. These goods
generally have a lifespan of fewer than three years. Food, beverages, and clothing
are examples of non-durable goods.

Consumer services are also intangible products or services produced and

consumed at the same time. Haircuts and car washes are typical examples of
consumer services.

Fast-moving consumer goods make up one of the largest consumer goods groups.

Because of consumer buying patterns, consumer goods are typically classified into
four different categories including convenience, shopping, specialty, and unsought
goods.

 Convenience goods: These products are ready to be purchased. Milk is one

example of a convenience good.
 Shopping goods: These goods require more planning and thought during
the purchasing process by consumers. This category includes products like
electronics and furniture.
 Specialty goods: This category, which includes jewelry, is composed of
goods that are deemed to be luxuries.
 Unsought goods: Unsought goods require a niche market and are typically
purchased by only a few members in the market, such as life insurance.

Basis of classification:

Consumer Products (convenience products, shopping products, specialty products,

unsought products).
Industrial Products (capital goods, raw materials, component parts, major equipment,
accessory equipment, operating supplies, and services).
Difference between Industrial and Consumer Marketing:
Comparative Analysis: Industrial Marketing vs Consumer Marketing

Criteria Industrial Marketing Consumer Marketing

Products are complex Products are simple and

and highly specialized easy-to-use that can be
Type of Products
that require expert straightforwardly mass-
knowledge. marketed.

Professional and
trained business
End-users who purchase
owners who use the
the product or avail the
product of your
Target Audience services for final
industrial company as
consumption and
a factor of production,
gratification.
i.e. as an input in their
production process.

To create awareness of
To influence the availability of a
institutional buyers product or service by a
Motives of Sellers throughout their particular brand and
complete industrial generate demand by
buying process. highlighting the salient
features

Dynamic advertising that

induces the impulsive
Developing and
buying behavior of the
nurturing partnerships
customers and makes
that focus on building
Strategic Focus them loyal to the brand.
long-term relations with
Customers may or may
business partners by
not be the long-term
gaining their trust.
users of the
products/services.
Digital Content
marketing (posting
blogs, white papers, Various online and
case studies on offline advertising and
informational marketing tools including
Marketing Strategies
websites), print, television, and
personalized several online or social
presentations to media platforms.
clients, distributing
product samples, etc.

Encompasses all the

Encompasses only
operational
highlighting the
competencies and
benefits/utilities that
Marketing Elements processes employed
customers will derive by
by the company in
using the
delivering value to their
product/service.
customers.

Narrow and constricted

Wide and extensive as
as industrial marketers
consumer marketers
deal with the limited
market the
Market Reach magnitude of
products/services to
businesses requiring
potential mass
products/services of
customers.
their clients.

Concept of Derived Demand:

What Is Derived Demand?

Derived demand, in economics, is the demand for a good or service that results
from the demand for a different, or related, good or service. It is a demand for some
physical or intangible thing where a market exists for both related goods and
services in question. Derived demand can have a significant impact on the derived
product's market price.

KEY TAKEAWAYS

 Derived demand is an economic term that refers to the demand for a good or
service that results from the demand for a different, or related, good or
service.
 Derived demand is related solely to the demand placed on a product or
service for its ability to acquire or produce another good or service.
 The demand that is derived from the demand for another product can be an
excellent investing strategy when used to anticipate the potential market for
goods outside of the original product desired.
 The pick-and-shovel investment strategy guides investors to invest in the
technology needed to produce a good or service that is realizing an increase
in demand.
 Certain raw or processed materials, widely used to produce various products,
may not see a shift in demand when the demand for a final product changes.

Understanding Derived Demand

Derived demand is related solely to the demand placed on a good or service for its
ability to acquire or produce another good or service. Derived demand can be
spurred by what is required to complete the production of a particular good,
including capital, land, labor, and necessary raw materials. In these instances, the
demand for raw materials is directly tied to the demand for products that require the
raw material for their production.

The demand that is derived from the demand for another product can be an
excellent investing strategy when used to anticipate the potential market for goods
outside of the desired original product. In addition, if activity in one sector increases,
then any sector responsible for the first sector’s success may also see gains.

Components of Derived Demand

Derived demand can be broken down into three main elements: raw materials,
processed materials, and labor. These three components create what economists
call the chain of derived demand.

Raw Materials

Raw or “unprocessed” materials are the elemental products used in the production of
goods. For example, crude oil is a raw material in the production of petroleum
products, such as gasoline. The level of derived demand for a certain raw material is
directly related to and dependent on the level of demand for the final good to be
produced. For example, when the demand for new homes is high, the demand for
harvested lumber will be high. Raw materials, like wheat and corn or often
called commodities.

Processed Materials

Processed materials are goods that have been refined or otherwise assembled from
raw materials. Paper, glass, gasoline, milled lumber, and peanut oil are some
examples of processed materials.

Labor

The production of goods and the provision of services requires workers—labor. The
level of demand for labor depends solely on the level of demand for goods and
services. Since there is no demand for a workforce without a demand for the goods it
produces or the services they provide, labor is a component of derived demand.

Classification of Industrial Consumers:

Industrial consumers can be classified into various categories based on different

criteria. Here are some common classifications of industrial consumers:
 Industry Type: Industrial consumers can be classified based on the industry
they belong to. This could include manufacturing, construction, mining,
agriculture, healthcare, energy, transportation, and more. Each industry has
its specific needs, challenges, and purchasing behaviors.
 Size of the Organization: Industrial consumers can vary in size from small
businesses to large multinational corporations. Small and medium-sized
enterprises (SMEs) may have different purchasing processes and
requirements compared to larger corporations.
 Geographic Location: Industrial consumers can be classified based on their
geographic location, such as local, regional, national, or international
customers. Geographic location can influence factors such as shipping costs,
distribution logistics, and market demand.
 Purchasing Behavior: Industrial consumers can be categorized based on their
purchasing behavior, such as regular customers, occasional buyers, bulk
purchasers, or strategic partners. Understanding their buying patterns and
preferences is essential for effective marketing and sales strategies.
 Product/Service Requirements: Industrial consumers may have different
requirements for products or services. They can be classified based on the
type of products they purchase, such as raw materials, components,
machinery, equipment, or specialized services.
 Budget and Spending Power: Industrial consumers can be segmented based
on their budget and spending power. This could include high-volume buyers
with significant purchasing budgets, as well as budget-conscious customers
who prioritize cost-effectiveness.
 Decision-Making Authority: Industrial consumers can be classified based on
their decision-making authority within the organization. This includes key
decision-makers, influencers, technical experts, procurement managers, and
end-users. Understanding the decision-making hierarchy is essential for
targeting the right stakeholders in the sales process.
 Industry Regulation and Compliance: Industrial consumers operating in
regulated industries, such as healthcare, pharmaceuticals, or aerospace, may
have specific regulatory compliance requirements. Classification based on
regulatory compliance needs can help tailor products and services to meet
industry standards.
 Technology Adoption: Industrial consumers can be categorized based on their
level of technology adoption and innovation readiness. Some organizations
may be early adopters of new technologies, while others may be more
conservative in their approach.
Criteria Industrial Goods Consumer Goods

Businesses sell to other companies for Businesses sell to end consumers for final
Parties
further manufacturing or processing. consumption.

Type of B2B (Business to Business)G2B B2C (Business to Consumer)C2C

Commerce (Government to Business) (Consumer to Consumer)

Raw materials/Equipment/
Type of Good Finished good/Semi-finished good
machinery/Accessories

The price range varies but rarely exceeds

Price Highly capital-intensive.
industrial commodity prices.

Non-durable goods occupy the maximum

High durability (can be used for up to
Durability share. Durable goods (computers,
10-20 years).
refrigerators) are sold too.

Purchase
Less (once in 10 years). High (once a month/ once in 2 to 3 years).
Frequency

Target Market Smaller market Larger/ multi-market

Demand Type Derived, relatively inelastic demand Direct, elastic demand

Fashion, fads, constant change in customer

Trends Technological innovations
preferences

Buying
Various departments included Individual or family-level
decision

Non-technical except for certain household

Nature Highly technical
appliances

Maintenance Constant maintenance and repair Occasional maintenance for durable goods.

Distribution
Shorter Longer
Channel

Examples include trucks, fuel, Examples include Snacks, apparel, mobile

Examples
centrifuges, cement, etc. phones, cars, etc.
Industrial Goods:
Industrial goods are those items sold for business purposes to companies involved in
manufacturing, construction, extraction, power generation, etc. Typically, these
goods are high-investment ones and have higher durability. Thus, they are also
referred to as capital goods or business goods.
Classification

This classification encompasses goods directly utilized in production or as

accessories. Now, let us explore the broader categorization.

1. Raw materials – These goods are directly consumed in production. They can be
catalysts that enhance a process or materials that can be turned into finished
products. Raw materials are mostly found under the current assets in a balance
sheet—for example, minerals, iron ore, oil, cement, natural gas, etc. Water is a raw
material often used in manufacturing but not bought or sold, so it is not an
appropriate example.
2. Capital goods – Capital goods are heavy machinery or large equipment that help
convert raw material into a finished product. They can also be used in packaging,
labeling, etc. As the term suggests, these are capital-intensive. Capital goods usually
come under the fixed assets in a balance sheet and are subject to depreciation.
Examples include cranes, forklifts, scutching machines, motor graders, and other
appliances. Used capital goods are often imported.
3. Tools and equipment – This refers to the smaller accessories used in processing
and manufacturing. They might require higher investments, too, but not as much as
capital goods. Further, they need not always occupy a position on the balance sheet.
For instance, computers come under fixed assets and are subject to depreciation.
But screws, pallets, hammers, etc., will not come under the balance sheet. Other
examples include conveyor belts, printers, telephones, etc.
4. Supplies – Supplies are those industrial goods that can be used for maintenance
and day-to-day operations. One of the best examples of supplies is stationery items
like pens, ink, papers, etc. These can also be sold as consumer goods, but the
difference is that businesses buy in large quantities and require these purchases
regularly, thus making them industrial. In business accounting, they are
considered expenses.
5. Services – Industrial goods and services, like appliance installation, machinery
repair, maintenance, etc., are primarily offered together. Some standalone services
include accounting, consulting, legal services, advertising, etc.
Key Characteristics of Organisational Buying Process:
The organizational buying process, also known as business-to-business (B2B)
buying process, involves several key characteristics that distinguish it from consumer
buying behavior. Understanding these characteristics is crucial for marketers and
sales professionals to effectively engage with business customers. Here are the key
characteristics of the organizational buying process:
 Complexity: Organizational buying decisions tend to be more complex than
consumer purchases. This complexity arises from multiple decision-makers,
varying interests, and the involvement of different departments within the
buying organization. The purchase decision often requires thorough
evaluation, negotiation, and consensus-building among stakeholders.
 Interdependence: Organizational buying decisions are often interdependent,
meaning they can impact other parts of the buying organization. For example,
a decision to purchase new equipment may require coordination between
production, finance, and procurement departments to ensure alignment with
organizational goals and resource allocation.
 Rationality: Organizational buying decisions are typically rational and
objective rather than emotional. Businesses prioritize factors such as cost-
effectiveness, quality, reliability, performance, and return on investment (ROI)
when evaluating purchase options. Marketers need to provide factual
information and demonstrate the value proposition of their products or
services to appeal to organizational buyers.
 Longer Decision-Making Process: The organizational buying process tends to
be longer and more deliberative compared to consumer purchases. This is
due to the need for extensive research, analysis, and evaluation of
alternatives, as well as the involvement of multiple stakeholders. Marketers
must be patient and persistent in nurturing relationships and guiding buyers
through each stage of the decision-making process.
 Professional Purchasing: Organizational buying often involves professional
purchasing agents or procurement specialists who are responsible for
sourcing, negotiating, and managing supplier relationships on behalf of the
organization. These professionals possess expertise in supplier evaluation,
contract negotiation, and supply chain management.
 Supplier Relationships: Building strong relationships with suppliers is essential
in organizational buying. Businesses often prefer to work with trusted
suppliers who can provide reliable products, superior customer service, and
value-added solutions. Maintaining open communication, delivering on
promises, and addressing customer concerns are critical for fostering long-
term relationships.
 Customization and Flexibility: Organizational buyers may require customized
solutions tailored to their specific needs and preferences. Suppliers must
demonstrate flexibility and willingness to adapt their products or services to
meet customer requirements. Customization can involve product features,
pricing structures, delivery schedules, and after-sales support.
 Risk Management: Organizational buyers are risk-averse and seek to
minimize uncertainty in their purchasing decisions. Suppliers need to address
concerns related to product quality, reliability, financial stability, and supply
chain resilience. Offering warranties, guarantees, and risk-sharing
arrangements can help alleviate buyer apprehensions and build trust.

Industrial Buying Process:

The industrial buying process, also known as the B2B buying process in industrial
markets, involves several stages that organizations go through when making
purchasing decisions for goods and services. Here are the typical stages of the
industrial buying process:
 Recognition of Need: The buying process begins when an organization
identifies a need or problem that requires a solution. This need can arise from
various factors such as changes in demand, technological advancements,
equipment failures, or new project requirements.
 Identification of Requirements: Once the need is recognized, the organization
defines its requirements and specifications for the desired product or service.
This involves determining the technical specifications, performance criteria,
quality standards, and other features necessary to meet the organization's
objectives.
 Search for Suppliers: After defining requirements, the organization conducts a
search for potential suppliers who can meet its needs. This may involve
researching suppliers online, soliciting recommendations from industry peers,
attending trade shows and exhibitions, or issuing requests for proposals
(RFPs) to qualified vendors.
 Evaluation of Alternatives: The organization evaluates the offerings of
different suppliers to identify the best-fit solution. This evaluation process
typically involves comparing factors such as product quality, pricing, delivery
lead times, technical support, warranties, and overall value proposition.
 Negotiation and Selection: Once the organization has shortlisted potential
suppliers, negotiations take place to finalize the terms and conditions of the
purchase agreement. Negotiation topics may include pricing, payment terms,
delivery schedules, customization options, and contractual obligations. After
negotiations, the organization selects the preferred supplier(s) and awards the
contract.
 Purchase Decision: With the supplier(s) selected, the organization makes the
final purchase decision. This may involve obtaining approvals from relevant
stakeholders, signing contracts, issuing purchase orders, and arranging
payment terms.
 Implementation and Delivery: After the purchase decision is made, the
organization works with the selected supplier(s) to implement the solution and
fulfill the order. This may involve coordinating delivery logistics, installation,
training, and any other necessary steps to integrate the purchased goods or
services into the organization's operations.
 Post-Purchase Evaluation: Following implementation, the organization
evaluates the performance and satisfaction with the purchased solution. This
assessment helps determine whether the supplier(s) met expectations in
terms of quality, reliability, support, and overall value. Positive experiences
may lead to repeat business and ongoing supplier relationships.

Buying Situation Analysis:

Buying Situation Analysis, also known as Situational Analysis or Needs Analysis in
the context of industrial buying, refers to the systematic process of understanding the
specific circumstances, requirements, and challenges faced by a business or
organization when considering a purchase. This analysis is critical for suppliers or
marketers aiming to offer tailored solutions that address the buyer's unique needs
effectively. The analysis typically involves several key steps:
 Identifying Stakeholders: Understanding the key stakeholders involved in the
buying decision is crucial. This may include various departments within the
organization, such as procurement, engineering, operations, finance, and
senior management. Each stakeholder may have different priorities, concerns,
and decision-making criteria.
 Understanding Needs and Objectives: Conducting thorough research to
understand the buyer's needs, objectives, and desired outcomes is essential.
This involves gathering information about the buyer's business goals,
operational challenges, performance requirements, and any specific pain
points they are looking to address through the purchase.
 Assessing Current Situation: Analyzing the buyer's current situation helps
identify existing processes, systems, and resources in place. This includes
evaluating the effectiveness of current solutions, identifying gaps or
inefficiencies, and understanding any constraints or limitations that may
impact the buying decision.
 Identifying Decision Criteria: Determining the factors and criteria that influence
the buying decision is critical. This may include factors such as product
performance, quality, reliability, price, delivery lead times, technical support,
after-sales service, and supplier reputation. Understanding the relative
importance of each criterion helps suppliers tailor their offerings accordingly.
 Evaluating Alternatives: Assessing alternative solutions available in the
market allows the buyer to compare different options and make an informed
decision. This may involve evaluating competing products, services, suppliers,
and technologies based on their features, benefits, costs, and suitability for
the buyer's specific requirements.
 Analyzing Risks and Constraints: Identifying potential risks, challenges, and
constraints associated with the purchase decision is essential. This includes
assessing factors such as financial risks, technical complexity, implementation
challenges, supplier reliability, and market volatility. Developing risk mitigation
strategies helps minimize uncertainties and ensures a smooth procurement
process.
 Understanding Decision-Making Process: Mapping out the decision-making
process and timeline helps suppliers align their sales and marketing efforts
accordingly. This involves identifying key decision-makers, influencers, and
stakeholders involved at each stage of the buying process. Understanding the
internal approval process, budget cycles, and procurement procedures helps
suppliers navigate the sales process more effectively.
 Gathering Feedback and Insights: Engaging in open communication with the
buyer and soliciting feedback throughout the analysis process helps suppliers
gain valuable insights into the buyer's preferences, concerns, and decision-
making criteria. This enables suppliers to refine their offerings and tailor their
approach to better meet the buyer's needs.
 SWOT & Porter’s Model

Buying Motivation of Organisational Buyers:

The buying motivations of organizational buyers, also known as B2B buyers, are
influenced by various factors that differ from those of individual consumers.
Understanding these motivations is crucial for suppliers and marketers to effectively
meet the needs of business customers. Here are some key buying motivations of
organizational buyers:
 Profit Maximization: Many organizational buyers are motivated by the desire
to maximize profits or minimize costs. They seek solutions that offer the best
value proposition in terms of cost-effectiveness, efficiency, and return on
investment (ROI). Suppliers who can demonstrate how their products or
services contribute to cost savings or revenue generation are more likely to
appeal to these buyers.
 Operational Efficiency: Organizational buyers often seek solutions that
enhance operational efficiency, productivity, and performance. They look for
products or services that streamline processes, improve workflow, reduce
downtime, and optimize resource utilization. Suppliers who offer innovative
solutions that address these efficiency needs are highly valued by
organizational buyers.
 Risk Reduction: Organizational buyers are motivated to minimize risks
associated with their purchasing decisions. This includes risks related to
product quality, reliability, delivery delays, supply chain disruptions, and
vendor reliability. Suppliers who can mitigate these risks through robust
quality control measures, reliable delivery mechanisms, and strong customer
support are preferred by organizational buyers.
 Strategic Alignment: Organizational buyers seek solutions that align with their
strategic goals, objectives, and long-term vision. They look for suppliers who
understand their industry, market trends, and competitive landscape, and can
offer strategic insights and customized solutions that support their business
objectives. Suppliers who can demonstrate alignment with the buyer's
strategic priorities are more likely to win their business.
 Innovation and Differentiation: Organizational buyers are motivated by
innovation and differentiation. They seek suppliers who offer unique products,
technologies, or solutions that provide a competitive advantage in the
marketplace. Suppliers who invest in research and development, and
continuously innovate to meet evolving customer needs, are attractive to
organizational buyers looking to stay ahead of the competition.
 Relationship and Trust: Building strong relationships and trust is a key buying
motivation for organizational buyers. They prefer to work with suppliers who
demonstrate reliability, integrity, and a commitment to long-term partnership.
Suppliers who provide excellent customer service, responsive communication,
and personalized support are more likely to earn the trust and loyalty of
organizational buyers.
 Compliance and Sustainability: Organizational buyers are increasingly
motivated by considerations of corporate social responsibility (CSR),
sustainability, and ethical sourcing practices. They prefer to partner with
suppliers who demonstrate environmental stewardship, ethical business
practices, and compliance with industry regulations and standards. Suppliers
who can offer sustainable and socially responsible solutions are increasingly
valued by organizational buyers.

Purchase Evaluation of Potential Suppliers:

The purchase evaluation process of potential suppliers is a critical step for
organizational buyers in selecting the most suitable vendors to fulfil their needs. This
process involves assessing various factors to ensure that the chosen supplier can
meet the organization's requirements effectively. Here are the key aspects typically
considered during the purchase evaluation of potential suppliers:
 Product or Service Quality: Organizational buyers evaluate the quality of the
products or services offered by potential suppliers. This includes assessing
factors such as performance, reliability, durability, and consistency. Buyers
may request product samples, conduct product testing, or seek references to
verify the quality of the supplier's offerings.
 Price and Cost Structure: Pricing is a crucial consideration for organizational
buyers. Buyers compare the prices offered by different suppliers to ensure
competitiveness and value for money. However, price alone may not be the
sole determinant, as buyers also consider factors such as total cost of
ownership, payment terms, volume discounts, and potential cost savings from
efficiencies or innovations offered by the supplier.
 Delivery and Lead Times: Timely delivery is essential for organizational
buyers to maintain operational efficiency and meet customer demands.
Buyers evaluate the supplier's ability to fulfill orders promptly and reliably,
including assessing lead times, shipping options, and delivery reliability.
Suppliers with efficient logistics and distribution capabilities are preferred by
buyers.
 Technical Support and Expertise: Organizational buyers often require
technical support and expertise from suppliers, especially for complex
products or services. Buyers assess the supplier's technical knowledge,
expertise, and ability to provide pre-sales and post-sales support, including
installation, training, troubleshooting, and ongoing maintenance. Suppliers
who demonstrate strong technical capabilities and responsive support are
favored by buyers.
 Supplier Reliability and Reputation: Organizational buyers value reliability and
reputation when evaluating potential suppliers. They assess the supplier's
track record, reputation in the industry, and references from existing
customers to gauge reliability, trustworthiness, and credibility. Suppliers with a
proven track record of delivering high-quality products, meeting commitments,
and resolving issues promptly are preferred by buyers.
 Financial Stability and Risk Management: Buyers assess the financial stability
and risk profile of potential suppliers to mitigate the risk of supply chain
disruptions or business failures. They evaluate factors such as the supplier's
financial health, creditworthiness, insurance coverage, and risk management
practices to ensure continuity of supply and minimize exposure to financial
risks.
 Compliance and Ethical Standards: Organizational buyers increasingly
consider suppliers' compliance with regulatory requirements, industry
standards, and ethical business practices. They evaluate the supplier's
adherence to quality standards, environmental regulations, labor practices,
and corporate social responsibility (CSR) initiatives. Suppliers who
demonstrate commitment to compliance, sustainability, and ethical conduct
are preferred partners for buyers.
 Communication and Relationship Management: Effective communication and
relationship management are essential for successful supplier partnerships.
Buyers assess the supplier's communication skills, responsiveness, and
willingness to collaborate and address buyer's needs. Suppliers who prioritize
open communication, transparency, and proactive relationship management
are more likely to establish strong partnerships with buyers.
Environmental Influences on Organisational Buying:
 Economic Conditions: Economic factors such as GDP growth, inflation,
interest rates, and exchange rates influence organizational buying decisions.
During economic downturns, businesses may prioritize cost reduction, seek
lower-priced alternatives, or delay non-essential purchases. Conversely,
during periods of economic expansion, businesses may invest in new
equipment, technologies, or expansion initiatives, leading to increased
demand for goods and services.
 Industry Trends and Market Conditions: Organizational buying is influenced
by industry-specific trends, market dynamics, and competitive forces.
Changes in market demand, emerging technologies, regulatory
developments, and competitive pressures can impact buying decisions.
Businesses may adjust their purchasing strategies in response to shifts in
market conditions, changing customer preferences, or new market entrants.
 Technological Advances: Technological advancements and innovations can
significantly influence organizational buying behavior. Businesses may adopt
new technologies to improve efficiency, enhance productivity, or gain a
competitive edge. The adoption of technologies such as artificial intelligence,
automation, Internet of Things (IoT), and cloud computing can drive demand
for related products and services, leading to changes in purchasing patterns.
 Social and Cultural Factors: Social and cultural trends shape organizational
buying decisions, particularly in industries closely tied to consumer
preferences and societal values. Businesses may respond to changing social
attitudes, demographic shifts, or cultural norms by adjusting their product
offerings, marketing strategies, or supply chain practices. For example,
increasing consumer demand for environmentally sustainable products may
prompt businesses to seek suppliers with green credentials.
 Government Regulations and Policies: Government regulations, policies, and
legislation have a significant impact on organizational buying behavior,
particularly in regulated industries such as healthcare, finance, and energy.
Changes in regulatory requirements, industry standards, environmental
regulations, or trade policies can influence purchasing decisions. Businesses
may need to comply with regulatory mandates, safety standards, or
environmental regulations when selecting suppliers and making purchasing
decisions.
 Supplier Relationships and Supply Chain Dynamics: The relationships
between buyers and suppliers, as well as supply chain dynamics, can
influence organizational buying behavior. Businesses may prioritize long-term
partnerships, collaboration, and supplier diversity initiatives to enhance supply
chain resilience, mitigate risks, and ensure continuity of supply. Supplier
performance, reliability, and responsiveness also play a crucial role in shaping
buying decisions.
 Globalization and Market Dynamics: Globalization has transformed
organizational buying by expanding market opportunities, increasing
competition, and creating complex supply chain networks. Businesses may
source products and services from global suppliers to access cost
efficiencies, specialized expertise, or new markets. Global market trends,
geopolitical events, and trade policies can impact supply chain dynamics and
influence buying decisions.

Section B

Segmentation, Targeting and Positioning:

Segmentation, targeting, and positioning (STP) are essential concepts in industrial
marketing for identifying and effectively engaging with specific customer segments.
Here's a detailed overview of each component:
Segmentation:
Segmentation involves dividing the industrial market into distinct groups of
customers with similar characteristics and needs. Industrial markets are typically
segmented based on various criteria, including:
 Demographic Segmentation: Characteristics such as industry type, company
size, location, and organizational structure.
 Geographic Segmentation: Geographic factors such as region, country, or
proximity to suppliers.
 Behavioral Segmentation: Purchase behavior, buying motives, usage
patterns, loyalty, and level of technology adoption.
 Psychographic Segmentation: Attitudes, values, beliefs, and organizational
culture.
 Needs-Based Segmentation: Specific needs, preferences, challenges, or pain
points within the industry.
Segmentation helps businesses identify and prioritize target customer groups,
allowing them to tailor their marketing strategies and offerings to meet the unique
needs of each segment effectively.
Targeting:
Targeting involves selecting one or more segments from the segmented industrial
market to focus on and allocate resources towards. The goal is to identify segments
that offer the best fit for the company's capabilities, products, and value proposition.
When targeting industrial market segments, businesses consider factors such as:
 Segment Size and Growth Potential: The size and growth potential of the
segment, as well as its attractiveness in terms of revenue and profitability.
 Compatibility with Company Objectives: Alignment with the company's
strategic objectives, capabilities, and resources.
 Competitive Dynamics: The level of competition within the segment and the
company's ability to differentiate itself effectively.
 Accessibility and Reach: The accessibility of the segment in terms of
distribution channels, communication channels, and sales opportunities.
 Segment Profitability: The potential for long-term profitability and return on
investment from serving the segment.
By targeting specific segments within the industrial market, businesses can focus
their efforts on understanding and meeting the unique needs of these customers,
leading to more effective marketing and sales strategies.
Positioning:
Positioning involves creating a distinct and desirable image or perception of the
company, products, or brands in the minds of target customers within the selected
segments. It involves defining and communicating the unique value proposition and
competitive advantage that sets the company apart from competitors. Positioning in
the industrial market is influenced by factors such as:
 Product Differentiation: Highlighting unique features, performance attributes,
and benefits that differentiate the company's products or services from
competitors.
 Quality and Reliability: Emphasizing quality, reliability, and consistency in
product performance and service delivery.
 Customer Service and Support: Demonstrating a commitment to customer
satisfaction, responsiveness, and after-sales support.
 Industry Expertise: Leveraging industry knowledge, technical expertise, and
experience to position the company as a trusted partner and solution provider.
 Value Proposition: Communicating the value proposition in terms of cost-
effectiveness, efficiency gains, productivity improvements, and overall
business impact.
New Industrial Product Development:
Industrial product development is the process by which the product ideas are
generated, assessed, directed and converted into products. There are seven stages
in the process of industrial product development.

1. Idea Generation: The Industrial marketer should be consciously search for new
product idea and to their sources both inside and outside the company. Internally
the new product ideas may come from sales staff that is close to customers, R&D
experts, from top management. An external source of ideas includes channel
members such as distributors or customers. An industrial marketer can get good
ideas by using techniques like brainstorming and attribute listing. In attribute listing
technique, important attributes of existing products are listed. Ideas are invited from
a group of employees to search for an improved product by modifying each
attribute. An industrial firm should encourage the employees to present innovative
and creative ideas by offering recognition or rewards to the employees submitting
the best ideas.
2. Idea Screening: In order to select the product ideas which are likely to succeed,
screening of new product ideas will be undertaken. Specified criterion and
procedure should be set for screening new product ideas. Major considerations in
the screening of a new product idea includes expected profit potential, the
competitive situation, the general adoptability of the company to the new product
and the volume of investment that would be necessary for the implementation of the
new product idea. Marketing consideration includes the size of the market,
marketing methods etc. It is also necessary to judge the technical viability of the
product idea. Production considerations such as facilities required, cost of
production, and availability of materials are also to be considered apart from several
legal considerations.
3. Concept Development & Testing: After the screening of the new product idea it
should be developed into a product concept. A product concept is a detailed version
of the product idea that is expressed in a meaningful terms. It is the usual practice to
develop different versions of product concept and each product concept is assessed
by getting response from the customers. The product concept that has the strongest
reaction from the customers is selected.
 Concept Testing: The new product concepts are tested in a prospective customer
organization. The concept can be presented by developing physical product or three
dimensional models. The physical presentation of the product will increase the
reliability of the concept testing. The three dimensional model techniques create
computer generated three dimensional plastic proto-types which takes very short
time to get ready. The decision makers in the prospective customer organization are
contacted and interviewed with various questions on their experience of using such
products. The answers so obtained will enable the company to decide on the
strengths of the new product.
4. Business Analysis: In the business analysis, an estimated projection of the sales,
costs and profitability of the proposed new product will be developed. It is an
elaborate analysis which is expressed in terms of investment required for the
installation of the plant and equipment, investment in working capital, market
potential, sales forecast, customer and competitive analysis, cost of product
development, cost of manufacturing and marketing the product; likely price levels,
profitability and return on investment etc. People who have proposed the new
product idea should not be assigned with the task of business analysis because of
excessive optimism or vested interest by such persons. People with reasonably fair
experience and skills in strategic planning, marketing, finance, and engineering
could be given the task of business analysis. The new product concept will more on
to the next stage, i.e. product development, only if the projected sales and profits
fulfill the company’s long term objectives or goals.
5. Product Development: Product development is a process of creating desired
product by the technicians. The R&D department develops one or more prototypes
of the product concepts. The ability to produce the product with in the estimated cost
will be confirmed or negated by the development of the prototype.
6. Market Testing:Market testing is done by using different methods. The method to
be adopted for testing depends on the cost and size of the product, the degree of
confidentiality to be maintained during market testing and the preparedness to
introduce the product with in a short period. Commonly used market testing methods
are:
1. Alpha and Beta Testing: When a product is tested internally with in
the organization which as characteristic of high price with new
technologies such testing is called Alpha testing. The product testing is
conducted to assess the operating cost and performance standards. If
the results of Alpha testing is satisfactory the company will go for the
next stage of Beta testing at the potential users’ organization. It is the
duty of the marketing team to identify the user firms who would allow
confidential testing of the new product at their factories. The
performance of the product in the users firm, any problems confronted
when the product is under use should be checked and addressed
properly with the marketing and technical team, also they should
interact with the user firm’s technical team.
2. Trade Shows: One commonly used method of market testing is
introduction of the new product at trade shows where usually large
number of prospective customers is exposed to the new product. The
reactions of the customers, their purchase intentions can be assessed
in such trade shows; also the orders placed by the potential customers
will be taken care. The limitation of testing the new product in trade
shows is that it also gets exposed to the competitors. The company
will have very short span of time to introduce the product.
3. Dealer Show Rooms: The distributors or dealers show rooms or
display rooms can be considered as best spots for product testing, if
the new industrial product is sold through such channel. The
customer’s attitudes, preference and actual sales can be recorded
under this method as this method uses the normal selling situation.
The company should ready to execute the orders with in the
reasonable time.
4. Test Marketing: In normal marketing situations the test marketing
method is used to test the product in a limited geographical area. This
method is used by many industrial marketers through their sales force.
Along with sales training required material such as price list, product
catalogue etc., are given to the sales personnel. When the product is
launched on full scale basis, the market information received from test
marketing will help the company in taking effective decisions. After
market testing, the company management takes a decision to go
ahead with the next stage i.e. commercialization.
7. Commercialization: An industrial product is launched when it is introduced to a
target market. The commercialization process involves execution of the various
activities developed in an action plan as a part of the marketing plan. The activities
such as customer service, maintaining adequate stocks at the company warehouses
and or with dealers/distributors, introductory advertisement, price lists, product
catalogues, training of sales force etc. would be taken up at this stage.
Sophisticated network techniques such as PERT and CPM can be used by
industrial marketers to ensure proper coordination and timely completion of all the
activities concerning the launching of new industrial product.

Managing Business Marketing Channels:

Designing a Marketing Channel System
Designing a marketing channel system entails factors such as analysing customer
needs, establishing channel objectives, identifying major channel alternatives, and
evaluating major channel alternatives.

Analysing Customers’ Desired Service Output Levels: The marketer must recognize
the service output levels which its target customers want. Channels produce five
service outputs:

1. Lot size: The number of units the channel allows a particular customer to buy at
one time.
2. Waiting and delivery time: The average time consumers of that channel wait for
receipt of the goods. Customers generally prefer fast delivery channels.
3. Spatial convenience: The extent to which the marketing channel facilitate for
customers to obtain the product.
4. Product variety: The variety provided by the channel. Usually, consumers prefer a
greater collection, which enhances the chance of finding what they need.
5. Service backup: The add-on services such as credit, delivery, installation, repairs
provided by the channel.

Providing greater service outputs denotes increased channel costs and higher prices
for consumers. The triumph of discount resellers (online and offline) designates that
many consumers will accept lower outputs if they can save money.

Establishing Objectives and Constraints

Another factor in designing a marketing channel system is that marketers must

declare their channel objectives in terms of targeted service output levels. In
competitive conditions, channel institutions should coordinate their functional tasks to
reduce total channel costs and still offer desired levels of service outputs. Generally,
planners can recognize several market segments that want different service levels.
Successful planning needs to determine which market segments to serve and the
best channels for each. Channel objectives differ with product characteristics.
Channel design is also affected by numerous environmental factors as competitors’
channels, monetary conditions, and legal regulations and limitations.

Identify Major Channel Alternatives

Other decisive factor in developing market channel is to recognize alternatives.

Companies may select array of channels to approach customers, each of which has
distinctive strengths as well as limitations. Each channel alternative is explained by
(i) the types of available intermediaries (ii) the number of intermediaries needed; and
(iii) the terms and responsibilities of each channel member. Types of Intermediaries
entails a firm needs to discover the types of intermediaries available to run its
channel work. Some intermediary merchants such as wholesalers and retailers buy,
take title to, and resell the products. Agents such as brokers, manufacturers’
representatives, and sales agents chase customers and may bargain on the
producer’s behalf but do not take title to the merchandise. Facilitators, including
transportation companies, independent warehouses, banks, and advertising
agencies, help in the distribution process but neither take title to goods nor negotiate
purchases or sales.
Companies should recognize pioneering marketing channels. Number of
Intermediaries indicates that to choose intermediaries to use, companies can adopt
one of three strategies: exclusive, selective, or intensive distribution. Exclusive
distribution means severely limiting the number of intermediaries. Selective
distribution depends on more than a few but less than all of the intermediaries willing
to carry a particular product. In intensive distribution, the producer places the goods
or services in as many outlets as possible. This strategy is usually used for items
such as snack foods, newspapers, and gum. Terms and Responsibilities of Channel
Members signify that each channel member must be treated courteously and given
the opportunity to be lucrative. The main constituents in the “trade-relations mix” are
price policy, conditions of sale, territorial rights, and specific services to be performed
by each party. Price policy assists the producer to ascertain a price list and schedule
of discounts and allowances that intermediaries see as equitable and sufficient.

Evaluating the Major Alternatives

The Company must assess each alternative against suitable economic, control, and
adaptive criteria. The firm should verify whether its own sales force or a sales
agency will create more sales and it estimates the costs of selling different quantities
through each channel.

Managing Marketing Channel

In order to maximize profit, companies must manage their marketing channel

effectively. Management of marketing channel refers to the process of analysing,
planning, organizing and controlling its marketing channel. In marketing channel two
different activities occur. One is the establishment of physical distribution system and
other is management of marketing objectives. Management of marketing channel
involves all functions of marketing mix which include product, price, physical
distribution, program and people. The physical distribution system and channel
structure is established through which products flow in the marketing channel.

To Mange marketing channel, firms must adopt motivational strategies such as

paying higher slotting allowances, offering higher trade discount, providing strong
promotional and advertising support, training channel member sales people, giving
high level logistic support. Management professional stated that after a firm has
selected a channel system, it must select, train, motivate, and evaluate individual
intermediaries for each channel. It must also modify channel design and
arrangements over time.

Selecting Channel Members: For successful management, Companies must have

to choose talented channel members cautiously because for customers, the
channels are the company. Producers should decide what features distinguish the
better intermediaries and scrutinize the number of years in business, other lines
carried, growth and profit record, financial strength, cooperativeness, and service
reputation of potential channel members. If the intermediaries are sales agents,
producers should assess the number and character of other lines carried and the
size and quality of the sales force. If the intermediaries want exclusive distribution,
the manufacturer should assess locations, future growth potential, and type of
customers.
Training and Motivating Channel Members: It is a major responsibility of a
company to examine its intermediaries in the same way it views its customers. It
needs to establish intermediaries’ needs and build a channel positioning such that its
channel offering is tailored to provide superior value to these intermediaries. To
enhance intermediaries’ performance, the company should offer training, market
research, and other capability-building programs. The company must also continually
strengthen that its intermediaries are to jointly gratify the needs of end users.
Producers differ greatly in channel power, the ability to change channel members’
behaviour therefore the members take corrective actions. Often, gaining
intermediaries’ collaboration is a major challenge. Sometimes, Producers try to forge
a long-term affiliation with channel members. The manufacturer must talk clearly
what it expects from its distributors in the way of market coverage and other channel
issues and may ascertain a compensation plan for adhering to these policies.
Motivating channel members takes numerous forms in order to gratify the
requirements at each level in channel. Profitability is major Motivational force for
whole seller for product selection. When profit motivation is satisfied, whole seller will
look for marketing programs offered by producers to sell products to retailers. Whole
seller checks the credit option and terms of payment when assessing the profit
option for business when dealing with particular supplier. Retailers are mainly
concerned with maintenance of product supply and availability. It is observed in
market that when customers cannot get product in one retail shop, they immediately
search for it in another retailers. But retailers do not want to lose customers. Another
interest of retailers is profitability of the product.

Evaluate Channel Members: To successfully manage market channel, producers

must assess intermediaries’ performance at regular intervals against such standards
as sales-quota attainment, average inventory levels, customer delivery time,
treatment of damaged and lost goods, and cooperation in promotional and training
programs. A producer will occasionally determine that it is paying particular
intermediaries too much for what they are actually doing. Producers should establish
functional discounts in which they pay specific amounts for the intermediary’s
performance of each agreed-upon service. People who are not performing must be
given extra training or counselling.

Modifying Channel Arrangements: Channel arrangements must be reassessed

regularly and altered when distribution does not work as planned, consumer buying
patterns change, the market develops, new competition occurs, inventive distribution
channels appear, and the product moves into later stages in the product life cycle.
No marketing channel remains successful over the entire product life cycle. Early
purchaser might be willing to pay for high-cost value-added channels, but later
buyers will change to lower-cost channels. In highly competitive markets with low
entry barriers, the best channel structure will transform over time. The company may
add or drop individual channel members, add or drop particular market channels, or
develop a new way to sell merchandise. The process of adding or dropping an
individual channel member needs an incremental analysis to decide profitability of
company. Additionally, marketers adopt data mining to analyse customer shopping
data as input for channel decisions. The most complicated decision is whether to
modify the overall channel scheme. Channels can become old-fashioned when gap
occurs between the existing distribution system and the ideal system to gratify
customer’s needs and wants.
Certainly, here are the key points for managing business marketing channels:
 Channel Selection: Choose the most appropriate distribution channels based
on factors such as target market characteristics, product type, industry norms,
and company resources.
 Channel Partnerships: Establish and maintain strong relationships with
channel partners, including distributors, wholesalers, retailers, and agents, to
ensure effective distribution and market reach.
 Channel Integration: Coordinate and integrate various marketing channels,
including direct sales, online sales, third-party distribution, and reseller
networks, to create a seamless and consistent customer experience.
 Channel Communication: Provide clear communication and support to
channel partners regarding product information, marketing materials, sales
training, and promotional campaigns to ensure alignment with company
objectives.
 Channel Performance Evaluation: Monitor and evaluate the performance of
marketing channels based on key metrics such as sales volume, market
coverage, customer satisfaction, and profitability to identify areas for
improvement and optimization.
 Channel Conflict Management: Address and resolve conflicts that may arise
between different channels or channel partners, such as price disputes,
territory overlaps, or competing interests, to maintain channel harmony and
effectiveness.
 Channel Expansion: Continuously explore opportunities to expand and
diversify distribution channels, including entering new markets, partnering with
additional channel partners, or exploring alternative distribution methods, to
maximize market penetration and revenue growth.
 Technology Integration: Leverage technology solutions such as customer
relationship management (CRM) systems, sales automation tools, and e-
commerce platforms to streamline channel management processes, enhance
communication, and improve efficiency.
 Channel Incentives: Provide incentives, rewards, and support programs to
motivate channel partners and incentivize desired behaviors such as sales
performance, product promotion, and customer service excellence.
 Legal and Regulatory Compliance: Ensure compliance with relevant laws,
regulations, and industry standards governing channel management activities,
including contracts, agreements, intellectual property rights, and distribution
practices, to mitigate legal risks and maintain ethical business practices.

Industrial Pricing Process:

Industrial Pricing Objectives

The objectives of industrial pricing should be derived from the firm’s marketing and
corporate objectives. Some of the pricing objectives which industrial firms can
pursue are discussed below.

1. Survival: Survival is one of the short term objectives for many industrial companies.
Due to intense competition and other reasons the firm may be unable to sell its
products. For the survival of the firm it reduces the prices to convert the inventory
into sales. The survival is more important than prices. The prices are fixed in such a
way that they cover variable cost and a part of fixed cost so that the company
continues in business. Survival is only a short term pricing objective and in the long
run the firm must increase its prices to cover total cost and end up with some profits.
2. Maximum short term sales: To maximize the sales revenue in the short run is the
pricing objective for some firms. The belief behind such an objective is that by
maximizing sales revenue in the short run the firms will have growth in terms of
market share and also have profit maximization.
3. Maximum short term profits: Setting prices with the objective of maximization of
profit in the short run may be pricing objective of some of the marketing firms. These
firms estimate the market demand and costs at alternative prices and select the
price that maximizes the present profits. Estimating demand and cost is very
difficult. This objective emphasizes on short term profit maximization rather than
long term performance and customer relationships. The competitors reactions and
legal implications are not considered by the companies adopting this objective.
4. Market penetration: Based on the assumption that the market is price sensitive
and that the low prices will increase sales; the prices of products are fixed as low as
possible by some firms with the objective of maximizing sales volume and market
share of its products. The other assumptions underlying are low prices will
discourage entry of potential competitors and highest volume will reduce the
production and distribution cost and leads to higher profits in the long run.
5. Maximum market skimming: In the initial stages of the product life cycle high
prices are fixed by some firms when they introduce new and innovative products.
The new product is initially aimed at those market segments where demand is least
sensitive to price. The firm skims maximum revenue and profits by adopting the
skimming objective of pricing. The prices are lowered as the time passes and sales
slow down to attract new customers from price sensitive market segments. To
maximize sales revenue and profits is the objective in market skimming. The
assumption made in this strategy is that different prices can be charged to different
segments of customers at different times. There is also a possibility that the
competitors will be attracted because of high profits resulting from high prices in this
strategy.
6. Product-quality Leadership: By producing superior quality products and charging
little higher prices than the competitors price the industrial marketing firm may have
an objective to be product quality leader in the market. This pricing objective results
in higher profits.
7. Other pricing objectives: The other pricing objectives such as to meet or prevent
the competition, to stabilize the market, to avoid government intervention etc. may
be considered as objectives of pricing by many industrial marketers.

Industrial Pricing Process:

The industrial pricing process involves determining the appropriate prices for goods
or services offered by industrial companies. This process is crucial for maximizing
profits, maintaining competitiveness, and ensuring sustainable growth. Here's an
overview of the typical steps involved in the industrial pricing process:
 Market Analysis: Understand the market dynamics, including demand,
competition, and customer preferences. Analyze industry trends, market size,
growth potential, and any regulatory factors that may influence pricing
decisions.
 Cost Analysis: Calculate the cost of producing goods or delivering services,
including raw materials, labor, overhead, and other expenses. Understanding
costs is essential for setting a baseline price that ensures profitability.
 Value Proposition: Identify the unique value proposition offered by your
products or services compared to competitors. This involves understanding
the perceived value by customers and how much they are willing to pay for
the benefits they receive.
 Pricing Strategy Development: Based on market and cost analysis, develop a
pricing strategy that aligns with business objectives. Common strategies
include cost-plus pricing, value-based pricing, competitive pricing, and
dynamic pricing.
 Segmentation and Targeting: Segment the market based on different criteria
such as customer demographics, behavior, and needs. Target specific market
segments with tailored pricing strategies to maximize revenue and profitability.
 Price Setting: Determine the specific prices for individual products or services
within each market segment. Consider factors such as pricing elasticity,
demand sensitivity, and the perceived value of offerings.
 Price Optimization: Continuously monitor market conditions, competitor
pricing strategies, and customer feedback to optimize prices over time. This
may involve adjusting prices in response to changes in costs, demand, or
competitive dynamics.
 Price Communication: Clearly communicate pricing information to customers
through various channels such as websites, sales presentations, and
marketing materials. Transparency and consistency in pricing help build trust
and credibility with customers.
 Performance Monitoring and Analysis: Regularly track key performance
indicators (KPIs) related to pricing, such as sales volume, revenue, profit
margins, and market share. Analyze pricing data to identify opportunities for
improvement and refine pricing strategies accordingly.
 Adjustment and Adaptation: Be prepared to adapt pricing strategies in
response to changes in market conditions, competitive landscape, or
customer preferences. Flexibility and agility are essential for maintaining
competitiveness in dynamic industrial markets.