Comparison Between Industrial & Consumer Markets/Marketing z The objective of this chapter is to help understand: 1. 2. 3. 4. Factors that make industrial marketing different from consumer marketing Need for a specialized study of industrial marketing Distinguishing features of industrial goods/markets Major differences between consumer & industrial marketing Need for special branch of study called Business Marketing 1. 2. 3. While basic tasks of marketing management apply in both the cases, unique forces combine to pose special challenges for the industrial marketing manager. Industrial marketing creates its own set of conditions for marketing decisions. Major factors affect shaping marketing strategy for Business Marketing Factors affecting strategy changes Market characteristics 2. Customer characteristics 3. Demand characteristics 4. Product characteristics Strategic differences are in the areas of : 1. 1. 2. Marketing mix variables Facilitating variables – (like Marketing research) What makes Industrial Marketing Different? Differences in Marketing Characteristics Differences in Customer Characteristics Differences in Facilitating Variables (Marketing Research etc.) Differences in Product & Demand Characteristics Differences in Marketing Mix Strategy (Product Price, Place, Promotion) Product & Demand Characteristics 1. 2. 3. 4. 5. Industrial product demand characteristics vary substantially from consumer products Some product & demand characteristics are unique to the industrial market Demand for industrial products is derived demand Also subject to reverse price elasticity of demand No direct one-to-one relationship of demand for end product and industrial product producing end product Customer Characteristics 1. 2. 3. Number of customers is relatively small needing often direct & short channels Order size is very large in quantity or value but frequency of purchase is very low Quantity & frequency of order of several items are affected by economic order quantity i.e. which minimises ordering & inventory costs Customer Characteristics 4. 5. 6. Decision making may involve – except for straight re-buy – long process and several people. Decision making unit (DMU) in industrial buying situation is often larger than in consumer buying Business buying decisions are entirely or predominantly guided by rational, economic motives, however sometimes non-economic motives also play a part Customer Characteristics 7. 8. 9. 10. As business goods are bought for commercial use or for the benefit of large community, cost & consequences of non-performance would be very high Business marketer hence has to be extremely careful of product, services & delivery Business buyers are interested in reciprocity which reinforces the business relationship Close & strong buyer-seller relationship is the prime characteristic of many business situations Customer Characteristics 11. 12. 13. Many businesses demand certain skills, other capabilities & commitment on the part of business marketers Business buyers are interested in enduring relationship and this tends to create vendor loyalty Bargaining power of many industrial buyers, because of their dominant position, is very high and mighty. Sometimes they assume near monopoly by collusion and depress the market. Consumer goods buyers can hardly assume such power. Product Characteristics 1. 2. 3. 4. Product/service mix is an area with the greatest number of differences between business & consumer markets Product life cycle of the industrial products is shorter than consumer goods due to technological changes Shorter PLC points to the need for strategies for rapid market penetration with need for R & D facilities Payback period is an important criteria in project evaluation Product Characteristics 5. 6. 7. Product specifications plays an important role in the industrial products. Need to have specifications at manufacturing stage, including specifications of material used in the production Very often industrial products are customised as per buyer’s technical requirements Technical demand clearly shows need of high technical skills & other capabilities for industrial marketer Product Characteristics 8. 9. 10. 11. Service requirements for industrial goods include delivery, installation, operator training, maintenance and after-sales service The service requirements for the same product can also vary from customer to customer depending upon availability of inhouse maintenance facilities System selling has great appeal in industrial marketing and covers complete package of product design, installation, and service Branding does not play the same role in industrial marketing as it plays in consumer marketing. However reputation of the supplier is definitely important Market Characteristics 1. 2. 3. Business markets tend to be more oligopolistic (few sellers) and consumer markets more monopolistic (characterized by product differentiation and many sellers and buyers) Marketing implication of oligopostic competition is that the strategies of one firm is closely watched and responded by other firms Aggregate size of business markets is often several times larger than that of consumer markets Market Characteristics 4. 5. 6. Markets for industrial products are also classified as vertical & horizontal markets Market is vertical when it is very narrow, confined to a segment of the industry e.g. special purpose equipment On the other hand, if the products are sold to very broad & diverse spectrum of industries, the market is termed as horizontal market e.g. multipurpose equipment & MRO supplies 1. 2. 3. Marketing Mix Characteristics Several marketing mix elements differ between business marketing & consumer marketing These marketing mix elements – popularly known as 4 Ps comprising 1. Product- technical specifications, user friendly features etc. 2. Price- competitive bidding, tendering & negotiations 3. Promotion-direct marketing with sales staff, consultants etc. 4. Place (Distribution)- physical distribution of goods is of prime importance The Industrial Marketing Manager’s prime task is to evaluate all these variables and optimise them to achieve the company’s marketing objectives Summary There are substantial differences between industrial and consumer markets and, consequently, between industrial marketing and consumer marketing. The major factors which affect the shaping of marketing strategy differ so substantially between business goods and consumer goods that there is need for specialisation in business marketing. The major factors of differences between consumer goods and Industrial goods are: 1. 2. 3. 1. 2. 3. 4. Market characteristics; Customer characteristics; Demand characteristics; Product characteristics.