Product, Industrial, and Services Marketing (PISM) MMM V

Prof M.R.Koshti Session 6 45 slides**

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Last 2 session in brief

1. 2. 3.

1. 2. 3.

Financial management of service industry Pricing a service product - Cost, Competition, Objective Strategic or tactical Price based segmentation. Confusion based pricing Yield management and its strategic levers (Kimes and Chase) Strategic management of service industry Ansoff Grid Alternate growth strategies- Organic, In-organic, Versioning strategy Strategy for market leaders, challengers, followers, niche marketers Case study A healing holiday**
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Todays topics
Industrial Marketing
1. The nature of

industrial marketing 2. Value analysis 3. Segmentation 4. Industrial demand**

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Definition
Industrial marketing consists of all activities involved in marketing goods and services to organizations, non-profit institutions, and government that use goods and services, in production of consumer / industrial goods, services and to facilitate the operation of their enterprises (Industrial marketing committee review board, 1954) Industrial marketing, also called business marketing, or business to business marketing (B2B), does not include all forms of business marketing. E.g. a manufacturer selling consumer goods to wholesalers or retailers typically is not seen as an industrial marketing activity **

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Industrial products (goods and services)

Installations / major equipments / Capital

equipment Very expensive large machines or other equipment like blast furnace, drilling machine, cranes, etc Accessories or minor equipment Less expensive small machines like lathes, small motors, computers, photocopiers Raw materials The basic inputs to production, natural state products like iron ore, bauxite, agriculture products like sugar cane and fruits**
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Industrial products (goods and services).

Processed material They become part of

the finished product after some processing like steel bars, leather, plywood, wires etc. Component parts They directly become part of the finished product e.g. batteries, compressors, motors**

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Industrial products (goods and services).

Operating supplies Items that are

necessary for production and administrative operations e.g. paints, soaps, oils, greases, lubricants, stationary, floppies, CDs Services These are the support services like construction, transport, warehousing, consultancy, advertising etc.**

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Industrial vs consumer marketing

Industrial marketing, like consumer marketing

has to define target market, understand buyer behavior through information system and research, develop marketing mix and offer it effectively. However industrial marketing has certain characteristics that contrast sharply with consumer marketing (?)**

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1 (of 11). Market size

Industrial market Consumer market

Very large value-wise

Small number of large

Very large volume wise

Large number of small

consumers

consumers**

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2 (of 11). Structure

Industrial market Consumer market

Geographically

Geographically

concentrated

dispersed**

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3 (of 11). Demand

Industrial market Consumer market

Derived demand,

Mostly autonomous and

fluctuating demand, price inelastic, cross elasticity and reverse elasticity OEM & Replacement

price elastic**

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4 (of 11). Nature of products

Industrial market Consumer market

Technically complex

Technically less

complex, standard**

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5 (of 11). Buying motive

Industrial market Consumer market

Rational / task based

Socio-psychological,
Emotional**

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6 (of 11). Buyer members

Industrial market Consumer market

Multiple, technically

Household family

knowledgeable

members, with less technical expertise**

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7 (of 11). Buying factors

Industrial market Consumer market

Quality, service, price in

Price, quality, service**

that order

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8 (of 11). Price

Industrial market Consumer market

Negotiation are

Standard price (MRP),

invariable

standard discounts**

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9 (of 11). Promotion

Industrial market Consumer market

Emphasis on personal

Emphasis on

selling, close suppliercustomer relationship

advertising**

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10 (of 11).Reciprocation
Industrial market Consumer market

Possible

Not possible**

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11(of 11). Distribution channel

Industrial market Consumer market

Mostly direct

Mostly indirect with

multiple levels, except for direct sellers like Amway**

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Value analysis

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Value analysis by the manufacturers

The objective of value analysis is to reduce cost while

maintaining product reliability It involves analyzing a product item by the a) functions it performs, b) value of the function, and alternate methods of performing the same function and thereby reduce the product cost It uses creative techniques like brainstorming among members of various departments such as production, quality control, industrial engineering, marketing, purchase, etc. The group uses some of the following questions during the brainstorming session**
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Questions.list not exhaustive

Can the weight or thickness of the item be

reduced? Does the item have more capacity than required? Is unnecessary machining performed on the item? If the item is non-standard, can a standard item be used?**

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Why do producers buy?

Increasing profits Increasing sales Producing a quality product Improving the operations efficiency (resulting in cost reduction) Helpfulness of salesperson Service Payment Trade in allowances Delivery Buying a product at a lower price As a salesperson / marketer one should determine each buyers important buying needs One can then develop a sales presentation emphasizing the products features, advantages, and benefits and how they can fulfill the needs One of the best and most used methods of presenting the products benefits to the buyer is value analysis**
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Value analysis- a powerful tool for seller

A value analysis determines the best product

for the money It recognizes that a high priced product may sometimes be better value than a lower priced product. Many firms routinely do a value analysis before they decide whether or not to purchase the product**

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Questions for carrying out value analysis

How do your product features, advantages, and benefits

compare to the product currently being used? Can your product do the same job as your buyers present product at a lower price? Does the buyers current equipment perform better than what is required? (Over-perform. Is the equipment too good for present needs, increasing the cost unnecessarily?) Will a higher priced , better performing product be more economical in the long run? You are therefore required to analyze buyers present operation carefully before suggesting how your product might improve efficiency, enhance the quality or quantity of the product produced, or save money**

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Types of value analysis

1. Compare product cost to true value

2. Unit cost
3. Return on investment**

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Compare product cost to true value

Product price (cost) should never be

discussed before you have the opportunity to compare them to the value of the product. A purchase involves more than initial cost (?) It represents an investment You must demonstrate that what you will sell is a good investment**

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Example
Photocopiers Initial cost Type of paper Copy speed Warm up time Cost of each copy Monthly cost (assuming 10000 copies) Product C Rs 75000 Plain 12 per minute Instant Rs 2 Rs 20,000 Product X Rs 90000 Plain 15 per minute Instant Rs 1.5 Rs 15,000

Conclusion The difference in purchase price is Rs 15000. Product X saves Rs 5000 each month on copy costs. This savings pays for the price difference in 3 months. In 18 months the savings will pay for the price of machine X**.

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Unit costs (break price down in ridiculously small units)

Another method of presenting a products true value

to the buyer is to break the products total cost in to several smaller units If you are selling a computer system that costs Rs 50,000 per month, and it processes 1 lac transactions each month, then one can say that the cost per transaction is only 50 paise. World book / childcraft Rs 10,000/365x5= Rs 5 per day SCN Sports club 21000/365x10=Rs 5.75 per day (Swimming fees for a day Rs 50)**
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Return on investment
Return on investment refers to additional sum of

money expected from an investment over and above the investment Example You are selling a computer system that involves Rs 50,000 per month investment. Benefit to the buyer is measured in hours saved by employees, plus the resulting salary saving. If the value of hours saved comes to Rs 60,000 pm then the return on investment will be 10,000/50,000 i.e. 20%**

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Segmentation

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Concept
A market segment can be defined as a homogeneous

group of present or potential customers who share a similar set of preferences or wants and respond similarly to suppliers marketing stimuli Segmentation in industrial markets may take two extremes. At one extreme, the marketer can approach the entire market as a whole and not use segmentation at all. At other extreme, every customer could be treated as a distinct segment, with specific programs tailored to its needs**
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Customer preferences

Segmentation

Type of market

Marketing strategy

Homogeneous

Zero

Mass market

Undifferentiated

Diffused

Substantial

Segment market Niche, local or individual market

Differentiated

Clustered

Selective

Concentrated / customization**

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Bases for segmenting industrial markets

Macro variables

Micro variables**

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Macro variables
Geographic Locations of the offices, location of the plants, 1. 2. 3. 1. 2. 3.

domestic or international, distant or close to the supplier Demographic Company size (sales, employees, annual purchase, average order size) Technology Advanced or basic User status light or heavy consumer Economic Business cycle Recession or prosperity Industry growth Rapid or slow growth, the growth stage of the industry take off or decline Competitive force Degree of competition (intense or moderate), nature of competition (oligopoly or monopoly), customer loyalty (weak or strong)**
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Micro variables of segmentation

Base - Organizational
Variable Purchasing situation Classification New task, modified re-buy, or straight re-buy Product life cycle stages (introduction, growth, maturity, decline) Is the dependence less or more

Customer experience stage

Customer interaction needs (dependence on supplier expertise) Product innovativeness / organizational capabilities

Innovators or followers / strong or weak**

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Micro variables of segmentation

Purchase situation
Variables Inventory requirements Purchase importance Classification Material resource planning (MRP) or Just in time (JIT) High or low degree of perceived risk

Purchasing policies

Decentralized, centralized, local, global, leasing vs outright, credit requirements Quality, service, price, or supplier reputation / Dominated by whom Engineering or Production** 37 of 45

Purchasing criteria / Buying centre power structure

Micro variables of segmentation

Personal characteristics
Variables Buyer-seller characteristics Attitude towards risk exposure Decision making style

Classification
Similar or different Risk taker or avoider Collaboration, compromise, information gathering or intuitive Leader or follower Adventurous or conservative Price oriented, solution oriented, 38 strategic value (marketer wanted of 45 as business partner)**

Cognitive style Life style and image

Orientation in buying

Micro variables of segmentation

Supplier customer relationship
Variables Buying approach Classification Progrmmed buyers they buy on routine basis, Transaction buyers -they see product as important to their operations, Relationship buyers They maintain relation with vendor to get discounts and service, bargain hunters they bargain hard to get discounts

Loyalty
Reciprocity Dependence

Switchers or loyal
Present or absent Single or multiple source buying**
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Industrial demand

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Industrial demand is derived demand

Engine manufact urers 10L

Wheel manufactur ers 50 lac

5 car manufact urers

Consum ers require 10 lac cars in a year

Door manufacturers 40 lac

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Demand characteristics
Derived demand Industrial customers buy goods and services

for use in producing other goods and services. Ultimately whatever is finally produced is sold to the consumers. Hence demand for industrial goods and services is derived from the demand for consumer goods and services by the end consumers. Because of the same reason the industrial demand will fluctuate according to the consumer demand (Fluctuating Demand). Total demand for an industrial product is in-elastic ( In the previous diagram the car industry, which includes 5 manufacturers, will need to buy 10 lac engines, irrespective of engines price if they want to satisfy the consumer demand of 10 lac cars) Reverse elasticity The demand for industrial products increase even when price is rising. It happens when customers fear that there will be a further rise, and hence they want to buy and stock the material.**
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Joint demand
Joint demand exists when one industrial

product is useful only if other product also exists. E.g. There will be demand for UPSs if there is a demand for computers**.

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Cross elasticity of demand

Cross elasticity of demand is the

responsiveness of the sales of one product to a price change in the substitute product. Unlike normal elasticity, it is positive. Aluminium, steel, and wood are the materials used for window frames If the price of steel increases, it will reduce the demand for steel, but at the same time will increase demand for wood and Aluminium whose prices have not changed.**
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OEM and replacement demand (market)

Consumers require 5 lac two wheelers

Bajaj Auto MRF Tyres OEM Hero Honda

Replacement demand

OEM Original Equipment Manufacturer

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