Description
"It explains nature of industrial markets
Classification of industrial customers, industrial distributors/dealers, Original equipment manufacturer (OEM), classification of industrial goods, essential qualities of industrial marketer, value analysis"
?
The industrial market is composed of commercial enterprises, governmental organizations , and institutions whose purchasing decisions vary with the type of industrial good or service under consideration
?
?
?
The industrial market is characterized by tremendous diversity both in customers served and products sold General Motors, for instance purchase $ 500 worth of electronic fuel injectors, micro electronic sensors and electronic noses for each subcompact car it produces Universities purchase $ 50 UPS to protect their investment in IBM computers
?
?
Computer Land, the largest U.S. computer chain, sells maintenance agreements to its corporate customers to keep their computers operating. Component parts, spare parts, accessory equipment and services are only a small example of the type of products purchased by the variety of customers in the industrial market.
?
Knowing how this vast array of industrial customer purchase and use products and what criteria are important in their purchasing decision is an important aspect of industrial marketing srategy
? ?
?
Commercial enterprises Governmental agencies Institutions
?
?
Commercial enterprises such as IBM, General Motors and Reliance Industries, purchase industrial goods / services for purposes other than selling directly to ultimate customers. Since they purchase products for different uses, it is important from the marketing point of view to understand their purchasing needs and develop a suitable marketing strategy to meet those needs.
?
Commercial enterprises consist of
1. Industrial distributors or dealers 2. Original equipment manufacturer ( OEM) 3. Users
?
?
When a commercial enterprise purchases industrial goods and resells them in basically the same form to commercial, government and institutional markets, they are classified as industrial distributors or dealers ---acting in a similar capacity to wholesalers or retailers. They take title of the goods and thus act as intermediaries of industrial marketer
?
?
?
When enterprises such as Xerox, Dell or Ford purchase industrial goods to incorporate into products that they produce, we term them as original equipment manufacturer ( OEM). For example, the electronic engine controls producer, who sells parts to Ford , would view Ford as OEM With this type of customer ( Ford), the product of the industrial marketer (Motorola) becomes a part of the customer’s product.
?
When a commercial enterprise , Greaves, Crompton, Larsen & Toubro, purchases industrial products / services to support its manufacturing process or facilitate the operation of its business, then it is classified as user.
?
?
Products used to produce output consist of items e.g. lathes, drilling machines, grinding wheels, where as products that facilitate the operation of a business might consist of computers, typewriters etc. Unlike products purchased by OEMs, these products purchased by users are not incorporated into the final product
?
?
A manufacturer of forklifts can be a user purchasing metal – cutting machine tools to support the manufacturing process or An OEM , purchasing gear drives and transmission to incorporate into the forklifts being manufactured.
?
?
The OEM purchasers will be concerned with the impact that products have on the quality and dependability of the end products they produce. Since the user buys products for use in the production process or to facilitate the operation of their businesses, their concern will center on prompt, predictable delivery and maintenance service
?
An industrial distributor or dealer will be more concerned with how products match the needs of their customers.
All commercial customers, however agree on one point viz.
?
Their purchases are expected to enhance the profit – making capability of the firm
?
?
The largest purchasers of industrial goods in the country are Central, State and Local governments --- spending crores of Rupees annually for products and services. These government units purchase virtually any kind of goods – from small Allen keys to large missiles --- and represent a huge market
?
?
Due to large volume purchasing, the procurement administration and practices are highly specialized and quite often confusing. When a particular product or service is needed, government buyers may negotiate directly with vendors or carefully develop detailed specifications and invite qualified suppliers ( through media ) to submit a price bid in writing, usually awarding the bid to the lowest, qualified supplier
?
?
?
Public and private institutions such as hospitals, colleges, sanatoriums, and prisons are another classification of industrial customers Some of these institutions follow rigid rules and purchasing procedures while others follow more casual procedures. With this type of industrial customer the efficient industrial marketer should have the ability to recognize the way each one of them purchases its goods / services
?
?
The most useful method of classification analyzes how products or services enter the production process or affect the cost structure of the firm This enables the marketer to view their offerings from the customer’s perspective and adapt or adjust marketing strategy to maximize potential customer benefits based on the product’s intended use
1.
2. 3.
Materials and parts, goods that enter the product directly Capital items, goods that affect the cost structure of the firm Supplies and services, goods, that facilitate the firms’ operation
MATERIALS & PARTS • Raw materials
CAPITAL ITEMS • Installations
SUPPLIES & SERVICES • Supplies
• Manufactured materials and parts
• Accessory equipment
• Business services
Goods that enter the product directly consist of raw materials , manufactured material and component parts. The costs of these items are treated by the purchasing firm as expenses that are assigned to the manufacturing process
Raw materials such as agricultural products or natural gas normally enter the production process with little or no alternation They may be marketed as either OEM or user products e.g. When Baker’s Basket purchases gas to fire its ovens used to produce all those delicious cakes, it is a “ user “ customer When it purchases fruits for toppings , it is an OEM
These include all types of raw materials that are subjected to some amount of processing before entering the manufacturing process e.g.
?
?
?
Latex can be processed into giant tyres Copper formed into wire, aluminum into extended shapes, or plastic into moulded parts Leather or chemicals, however require considerably more processing before reaching the shoe or drug manufacturer, but will undergo a series of further changes before becoming part of the finished product.
?
?
?
Component parts such as switches, motors and customized gears, however, can be installed directly into products with little or no additional changes When these parts are sold to customers who use them in their production processes, they are marketed as OEM goods Component parts are also sold to distributors who resell them into the replacement or after sales service market
MARKETING IMPLICATIONS Most component parts and materials are standardized & are normally purchased in large quantities on a contractual basis by OEMs When component parts are custom made, considerable interaction is necessary between engineering departments of both buyer and seller This necessitates direct selling & not through industrial distributors
?
?
?
?
When selling standard parts to the smaller OEM or user, it is more cost effective to market through industrial distributor Engineers and production people in buying firms usually develop product specifications used in the purchase and often limit the choice of suppliers Marketers must communicate their product information to these influencers through trade advertising and personal contact
?
Because of standardization, the basic appeals focus on product quality and
performance, delivery dependability, price and supportive service
?
Where component parts such as tyres, batteries are sold in the replacement market, sellers must strive to create product differentiation or be willing to sell primarily on a price basis
?
?
These are used in the production process and wear out over a period of time, and thus, are treated as a depreciation expense by the buying firm This category consists of installations &
accessory equipment
INSTALLATIONS Installations are major , long term investment items such as factories, office buildings fixed equipment such as generators, lathes, furnaces, computers and custom made equipment used by companies to manufacture custom- made parts
?
ACCESSORIES Light equipment and tools ( portable power drills, typewriters etc ) which are generally less expensive and not considered part of the fixed plant, are classified as accessory equipment Accessories are more apt to have wide usage throughout the buying organization as compared to capital equipment for example
?
?
?
?
a firm may have one mainframe computer, within and controlled by the data processing department , but hundreds of computer terminals bought specifically for accounting , engineering, production , personnel and marketing Purchasers of installations and accessory equipment are normally user customers These can be purchased outright or leased by the industrial user
?
?
When capital equipment is leased, the cost is treated for tax purposes as an expense by the purchaser and not as a depreciable item There is a growing trend in the capital goods market for leasing, which gives an opportunity for a company to penetrate markets hitherto unexplored
MARKETING IMPLICATIONS Direct manufacturer – to- user distribution is normally utilized when marketing major installations involving extensive interaction , negotiations etc. Buying motives center on factors e.g. impact
?
on costs, return on investment, or a desire for industry leadership
For standardized installations & accessories, use of industrial intermediaries is quite common
?
?
Supplies and services support the operations of the purchasing firm Since they do not become part of the finished product or support the production process, and are therefore, treated as operating expense items for the periods in which they are consumed
SUPPLIES Supplies such as soda, cleaning compounds , typing paper, and paper clips are required by all organizations to maintain their day- today operations These items are generally standardized, marketed to a broad cross section of industrial users, and are more or less same as the supplies of consumer purchase
?
SERVICES Services are categorized as operating,
?
maintenance and repair
An accounting firm facilitating the functioning of an organization by doing individualized work for that firm would illustrate a primary operating service An online database which enables the day-today functioning firms, but is not prepared for a specific firm’s original use, would exemplify a secondary operating service
?
Maintenance & repair services would be
exemplified by a farmer returning his tractor to John Deere retailer for preventive maintenance or repair
MARKETING IMPLICATIONS Marketing strategy differs because most supplies are marketed to many organizations in almost all industries A wide variety of intermediaries is required to reach this broad and diversified market Purchase of supplies is dominated by purchasing agents, who choose & evaluate alternative suppliers based on criteria such as
?
dependability of delivery, convenience, price and breadth of assortment
?
?
?
Commercial enterprises, governmental organizations, and institutions give buying responsibility to individuals who are quite knowledgeable in their particular markets They are quite realistic in assessing the competitive value of a vendor’s product & normally identify , evaluate & select suppliers, who provide the greatest value. It is important to know the buying function, prior to formulating successful industrial marketing strategy.
Purchase of goods / services depends on factors e.g. ? Nature of business ? Size of the firm ? Volume , variety and technical complexity of the products purchased.
?
? ?
? ? ?
Multiple influencers multiple influencers in commercial purchasing can include
roduction people Engineers ( Design, Quality control, maintenance ) Cost accountants Middle and upper management Purchasing agents
Technical specifications Purchase managers make greater use of the firm’s internal engineering capability to evaluate competitive products. Commonly used techniques are :? Material requirement planning (MRP) ? Supplier rating system ? Economic order quantity (EOQ) ? Value analysis ( or value engineering)
?
? ?
?
Purchase managers are more knowledgeable of price trends , expert in the art of negotiations and also tend to be specialists capable of developing detailed knowledge with respect to manufacturing processing and design specifications of those products and materials for which they are responsible
?
? ?
Knowledge of the buyer’s needs, Products that can fulfill those needs, and Capabilities of existing and potential competition is essential Industrial marketer can develop a more realistic perception of customer needs by understanding a process called value analysis
DEFINITION An intensive appraisal of all the elements of the design, manufacture , or construction , procurement, inspection , installation , and maintenance of an item and its components, including the applicable specifications and operational requirements in order to achieve the necessary performance, maintainability, and reliability of the item at minimum cost
?
Value analysis involves systematized techniques for reducing costs and improving performance value of materials, components, and manufacturing process.
?
?
?
?
SELECTION ( selection of a product that is ripe for improvement) Information gathering ( drawings, costs, scrap rates, usage forecasts, and operation sheets) Function definition (essential functions and present cost of each) Generation of alternatives (use brainstorming to collect ideas)
?
?
?
Evaluation of alternatives ( based on feasibility and cost ) Presentation (refining of final alternatives and presentation to management committee ) Implementation (translate the approved value analysis into change order and implement)
?
Widely dispersed markets
? Both central and state governments have several functional areas ? They also have several agencies e.g. defense, transportation, postal service, public works, hospitals etc. and the purchase is done at central, state and municipal levels ? There are more than 70,000 buying centers at different levels, and large number of influencers in the purchasing process , who specify, legislate, evaluate and use goods/ services purchased.
?
?
?
?
Complicated procurement laws Government purchasing, regardless of the level, is also based on legal requirements, that establish the guidelines for contractual arrangements Government contracts invariable contain provisions that have nothing to do with the product / service under consideration Their concern is more on social goals
?
?
They may require the contractor to give preference to small scale industries, to employ a certain proportion of minorities, or pay a minimum wage The procurement regulations may also include provisions such as
? Product inspection requirements ? Payment methods ? Actions to be taken as a result of default and disputes & ? Other provisions related to supplier’s performance
In a nutshell selling to government is
?
?
?
Very involved Highly complex Time consuming
1.
2.
3.
4.
Why are government agencies & institutions classified as industrial organization ? What difference must be considered in developing a marketing strategy for an OEM firm versus a user firm How does government purchasing differ from purchasing by commercial organization ? “Marketing to industrial firms is enhanced through the understanding of value analysis “ Comment
THANK YOU
doc_612295798.pptx
"It explains nature of industrial markets
Classification of industrial customers, industrial distributors/dealers, Original equipment manufacturer (OEM), classification of industrial goods, essential qualities of industrial marketer, value analysis"
?
The industrial market is composed of commercial enterprises, governmental organizations , and institutions whose purchasing decisions vary with the type of industrial good or service under consideration
?
?
?
The industrial market is characterized by tremendous diversity both in customers served and products sold General Motors, for instance purchase $ 500 worth of electronic fuel injectors, micro electronic sensors and electronic noses for each subcompact car it produces Universities purchase $ 50 UPS to protect their investment in IBM computers
?
?
Computer Land, the largest U.S. computer chain, sells maintenance agreements to its corporate customers to keep their computers operating. Component parts, spare parts, accessory equipment and services are only a small example of the type of products purchased by the variety of customers in the industrial market.
?
Knowing how this vast array of industrial customer purchase and use products and what criteria are important in their purchasing decision is an important aspect of industrial marketing srategy
? ?
?
Commercial enterprises Governmental agencies Institutions
?
?
Commercial enterprises such as IBM, General Motors and Reliance Industries, purchase industrial goods / services for purposes other than selling directly to ultimate customers. Since they purchase products for different uses, it is important from the marketing point of view to understand their purchasing needs and develop a suitable marketing strategy to meet those needs.
?
Commercial enterprises consist of
1. Industrial distributors or dealers 2. Original equipment manufacturer ( OEM) 3. Users
?
?
When a commercial enterprise purchases industrial goods and resells them in basically the same form to commercial, government and institutional markets, they are classified as industrial distributors or dealers ---acting in a similar capacity to wholesalers or retailers. They take title of the goods and thus act as intermediaries of industrial marketer
?
?
?
When enterprises such as Xerox, Dell or Ford purchase industrial goods to incorporate into products that they produce, we term them as original equipment manufacturer ( OEM). For example, the electronic engine controls producer, who sells parts to Ford , would view Ford as OEM With this type of customer ( Ford), the product of the industrial marketer (Motorola) becomes a part of the customer’s product.
?
When a commercial enterprise , Greaves, Crompton, Larsen & Toubro, purchases industrial products / services to support its manufacturing process or facilitate the operation of its business, then it is classified as user.
?
?
Products used to produce output consist of items e.g. lathes, drilling machines, grinding wheels, where as products that facilitate the operation of a business might consist of computers, typewriters etc. Unlike products purchased by OEMs, these products purchased by users are not incorporated into the final product
?
?
A manufacturer of forklifts can be a user purchasing metal – cutting machine tools to support the manufacturing process or An OEM , purchasing gear drives and transmission to incorporate into the forklifts being manufactured.
?
?
The OEM purchasers will be concerned with the impact that products have on the quality and dependability of the end products they produce. Since the user buys products for use in the production process or to facilitate the operation of their businesses, their concern will center on prompt, predictable delivery and maintenance service
?
An industrial distributor or dealer will be more concerned with how products match the needs of their customers.
All commercial customers, however agree on one point viz.
?
Their purchases are expected to enhance the profit – making capability of the firm
?
?
The largest purchasers of industrial goods in the country are Central, State and Local governments --- spending crores of Rupees annually for products and services. These government units purchase virtually any kind of goods – from small Allen keys to large missiles --- and represent a huge market
?
?
Due to large volume purchasing, the procurement administration and practices are highly specialized and quite often confusing. When a particular product or service is needed, government buyers may negotiate directly with vendors or carefully develop detailed specifications and invite qualified suppliers ( through media ) to submit a price bid in writing, usually awarding the bid to the lowest, qualified supplier
?
?
?
Public and private institutions such as hospitals, colleges, sanatoriums, and prisons are another classification of industrial customers Some of these institutions follow rigid rules and purchasing procedures while others follow more casual procedures. With this type of industrial customer the efficient industrial marketer should have the ability to recognize the way each one of them purchases its goods / services
?
?
The most useful method of classification analyzes how products or services enter the production process or affect the cost structure of the firm This enables the marketer to view their offerings from the customer’s perspective and adapt or adjust marketing strategy to maximize potential customer benefits based on the product’s intended use
1.
2. 3.
Materials and parts, goods that enter the product directly Capital items, goods that affect the cost structure of the firm Supplies and services, goods, that facilitate the firms’ operation
MATERIALS & PARTS • Raw materials
CAPITAL ITEMS • Installations
SUPPLIES & SERVICES • Supplies
• Manufactured materials and parts
• Accessory equipment
• Business services
Goods that enter the product directly consist of raw materials , manufactured material and component parts. The costs of these items are treated by the purchasing firm as expenses that are assigned to the manufacturing process
Raw materials such as agricultural products or natural gas normally enter the production process with little or no alternation They may be marketed as either OEM or user products e.g. When Baker’s Basket purchases gas to fire its ovens used to produce all those delicious cakes, it is a “ user “ customer When it purchases fruits for toppings , it is an OEM
These include all types of raw materials that are subjected to some amount of processing before entering the manufacturing process e.g.
?
?
?
Latex can be processed into giant tyres Copper formed into wire, aluminum into extended shapes, or plastic into moulded parts Leather or chemicals, however require considerably more processing before reaching the shoe or drug manufacturer, but will undergo a series of further changes before becoming part of the finished product.
?
?
?
Component parts such as switches, motors and customized gears, however, can be installed directly into products with little or no additional changes When these parts are sold to customers who use them in their production processes, they are marketed as OEM goods Component parts are also sold to distributors who resell them into the replacement or after sales service market
MARKETING IMPLICATIONS Most component parts and materials are standardized & are normally purchased in large quantities on a contractual basis by OEMs When component parts are custom made, considerable interaction is necessary between engineering departments of both buyer and seller This necessitates direct selling & not through industrial distributors
?
?
?
?
When selling standard parts to the smaller OEM or user, it is more cost effective to market through industrial distributor Engineers and production people in buying firms usually develop product specifications used in the purchase and often limit the choice of suppliers Marketers must communicate their product information to these influencers through trade advertising and personal contact
?
Because of standardization, the basic appeals focus on product quality and
performance, delivery dependability, price and supportive service
?
Where component parts such as tyres, batteries are sold in the replacement market, sellers must strive to create product differentiation or be willing to sell primarily on a price basis
?
?
These are used in the production process and wear out over a period of time, and thus, are treated as a depreciation expense by the buying firm This category consists of installations &
accessory equipment
INSTALLATIONS Installations are major , long term investment items such as factories, office buildings fixed equipment such as generators, lathes, furnaces, computers and custom made equipment used by companies to manufacture custom- made parts
?
ACCESSORIES Light equipment and tools ( portable power drills, typewriters etc ) which are generally less expensive and not considered part of the fixed plant, are classified as accessory equipment Accessories are more apt to have wide usage throughout the buying organization as compared to capital equipment for example
?
?
?
?
a firm may have one mainframe computer, within and controlled by the data processing department , but hundreds of computer terminals bought specifically for accounting , engineering, production , personnel and marketing Purchasers of installations and accessory equipment are normally user customers These can be purchased outright or leased by the industrial user
?
?
When capital equipment is leased, the cost is treated for tax purposes as an expense by the purchaser and not as a depreciable item There is a growing trend in the capital goods market for leasing, which gives an opportunity for a company to penetrate markets hitherto unexplored
MARKETING IMPLICATIONS Direct manufacturer – to- user distribution is normally utilized when marketing major installations involving extensive interaction , negotiations etc. Buying motives center on factors e.g. impact
?
on costs, return on investment, or a desire for industry leadership
For standardized installations & accessories, use of industrial intermediaries is quite common
?
?
Supplies and services support the operations of the purchasing firm Since they do not become part of the finished product or support the production process, and are therefore, treated as operating expense items for the periods in which they are consumed
SUPPLIES Supplies such as soda, cleaning compounds , typing paper, and paper clips are required by all organizations to maintain their day- today operations These items are generally standardized, marketed to a broad cross section of industrial users, and are more or less same as the supplies of consumer purchase
?
SERVICES Services are categorized as operating,
?
maintenance and repair
An accounting firm facilitating the functioning of an organization by doing individualized work for that firm would illustrate a primary operating service An online database which enables the day-today functioning firms, but is not prepared for a specific firm’s original use, would exemplify a secondary operating service
?
Maintenance & repair services would be
exemplified by a farmer returning his tractor to John Deere retailer for preventive maintenance or repair
MARKETING IMPLICATIONS Marketing strategy differs because most supplies are marketed to many organizations in almost all industries A wide variety of intermediaries is required to reach this broad and diversified market Purchase of supplies is dominated by purchasing agents, who choose & evaluate alternative suppliers based on criteria such as
?
dependability of delivery, convenience, price and breadth of assortment
?
?
?
Commercial enterprises, governmental organizations, and institutions give buying responsibility to individuals who are quite knowledgeable in their particular markets They are quite realistic in assessing the competitive value of a vendor’s product & normally identify , evaluate & select suppliers, who provide the greatest value. It is important to know the buying function, prior to formulating successful industrial marketing strategy.
Purchase of goods / services depends on factors e.g. ? Nature of business ? Size of the firm ? Volume , variety and technical complexity of the products purchased.
?
? ?
? ? ?
Multiple influencers multiple influencers in commercial purchasing can include
roduction people Engineers ( Design, Quality control, maintenance ) Cost accountants Middle and upper management Purchasing agentsTechnical specifications Purchase managers make greater use of the firm’s internal engineering capability to evaluate competitive products. Commonly used techniques are :? Material requirement planning (MRP) ? Supplier rating system ? Economic order quantity (EOQ) ? Value analysis ( or value engineering)
?
? ?
?
Purchase managers are more knowledgeable of price trends , expert in the art of negotiations and also tend to be specialists capable of developing detailed knowledge with respect to manufacturing processing and design specifications of those products and materials for which they are responsible
?
? ?
Knowledge of the buyer’s needs, Products that can fulfill those needs, and Capabilities of existing and potential competition is essential Industrial marketer can develop a more realistic perception of customer needs by understanding a process called value analysis
DEFINITION An intensive appraisal of all the elements of the design, manufacture , or construction , procurement, inspection , installation , and maintenance of an item and its components, including the applicable specifications and operational requirements in order to achieve the necessary performance, maintainability, and reliability of the item at minimum cost
?
Value analysis involves systematized techniques for reducing costs and improving performance value of materials, components, and manufacturing process.
?
?
?
?
SELECTION ( selection of a product that is ripe for improvement) Information gathering ( drawings, costs, scrap rates, usage forecasts, and operation sheets) Function definition (essential functions and present cost of each) Generation of alternatives (use brainstorming to collect ideas)
?
?
?
Evaluation of alternatives ( based on feasibility and cost ) Presentation (refining of final alternatives and presentation to management committee ) Implementation (translate the approved value analysis into change order and implement)
?
Widely dispersed markets
? Both central and state governments have several functional areas ? They also have several agencies e.g. defense, transportation, postal service, public works, hospitals etc. and the purchase is done at central, state and municipal levels ? There are more than 70,000 buying centers at different levels, and large number of influencers in the purchasing process , who specify, legislate, evaluate and use goods/ services purchased.
?
?
?
?
Complicated procurement laws Government purchasing, regardless of the level, is also based on legal requirements, that establish the guidelines for contractual arrangements Government contracts invariable contain provisions that have nothing to do with the product / service under consideration Their concern is more on social goals
?
?
They may require the contractor to give preference to small scale industries, to employ a certain proportion of minorities, or pay a minimum wage The procurement regulations may also include provisions such as
? Product inspection requirements ? Payment methods ? Actions to be taken as a result of default and disputes & ? Other provisions related to supplier’s performance
In a nutshell selling to government is
?
?
?
Very involved Highly complex Time consuming
1.
2.
3.
4.
Why are government agencies & institutions classified as industrial organization ? What difference must be considered in developing a marketing strategy for an OEM firm versus a user firm How does government purchasing differ from purchasing by commercial organization ? “Marketing to industrial firms is enhanced through the understanding of value analysis “ Comment
THANK YOU
doc_612295798.pptx