Strategic Planning in the Industrial Market

While the basic principles of marketing planning apply in both markets, many organizations have found that what works well in the consumer market fails to do so in the industrial market. Two significant differences between these markets appear to account for this phenomenon. First, unlike the consumer market where products are normally’ marketed through one or two channels, most industrial marketers face diverse markets that must be reached through a multiplicity of channels-each requiring a different marketing approach. A producer of communication equipment, for instance, may market to such diverse segments as the commercial, institutional, and governmental market, each of which will require a unique marketing plan. Second, in contrast to consumer marketing, successful industrial marketing strategy depends more on other functional areas. Where the elements of planning in consumer marketing can often be contained within specific areas of marketing, such as advertising, selling, and product management, planning in the industrial market is largely dependent on, or constrained by, the activities of other functional areas-for example, engineering, manufacturing, and technical services. When marketing emphasizes tailor-made products and fast deliveries, for instance, manufacturing must be prepared to follow through with product output. Planning, then, in the industrial marketing arena requires a higher degree of integrated effort across functional areas and a closer relationship with overall corporate strategy than in the consumer market.

Functional Isolation

While planning in the industrial market is as sophisticated as it is in the consumer arena, too often industrial firms concentrate planning efforts in the marketing department, failing to recognize the inter-dependency between marketing and other functional areas.… Read the rest

Importance of Services in Industrial Marketing

Business services include maintenance and repair support and advisory support. Like supplies services are considered as expense items. The explosive growth of the internet has increased the demand for a range of electronic commerce services such as delivering technical support, customer training and management development programmes.

The rapid growth of business services in industrial marketing is governed by four important factors which are explained below.

  1. Innovations: The innovations in the field of science and technology have contributed for increasing demand in the area of business services. Advancement in computer security systems, computer enabled services, environmental control systems for office and factory buildings are examples for the effect of innovations on business services.
  2. Out Sourcing: It is a common phenomenon that the present day organizations are getting the services done from outside services provide. In an area where the company is not expertised such as management information functions, HR, Payrolls, Warehousing etc, the trend is towards going for outsourcing these activities. As a result more and more small and large service providers have entered the business services sector, therefore resulting in the wide opening up of business service sector.
  3. E-Business: The internet is creating new business opportunities and directing the organizations to do the business in different forms and ways. Services like supply chain management, customer service and support are done through internet apart from other usual ITES.
  4. Growth of Manufacturing Sector: Despite the decline in the number of manufacturing employees, manufacturing out put is continued to growing. With this growth the demand for services like information processing, advertising etc, are in an increasing trend.
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Industrial Product Development

Industrial product is defined as a complex set of economic, technical, legal, and personal relationship between the buyer and the seller. A product is a combination of basic, enhanced, and augmented properties. Basic properties are included in the generic product, with fundamental benefits sought by customers. Generic products are made differentiable by adding tangible enhanced properties such as product features, styling and quality. The augmented properties include intangible benefits such as technical assistance, available of spare parts, maintenance and repair services, warranties, training, timely delivery, and attractive commercial terms. The product package as expected by the prospective customers should be well understood by the industrial marketer.

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.
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Long-Term Industrial Product Strategies

Industrial marketing firms have to adopt the following three important steps for developing long term product strategies for existing individual products and products lines.

  1. Assessing the performance of all the existing products or product lines by using product evaluation matrix.
  2. Examining the relative strengths and weakness of the firm’s products in comparison to competitors’ products by using perceptual mapping technique.
  3. Deciding the product strategies for the existing products based on the above analysis.
Product Evaluation Matrix

Yoran Wind & Henry Claycamp have developed a technique called product evaluation matrix to be used to assess the product performance. Performance parameters of a product such as industrial sales, company sales, market share and profitability are combined in the matrix. Industry sales are represented on vertical axis and are grouped as growth, stable or decline. Company sales are assessed on horizontal axis and are grouped as growth, stable or decline. In the same manner profitability is classified as below target and above target and market share as dominant, average or marginal. These classification need to be defined by the marketing manager depending on the situation prevailing in the industry. For example, if the market share is less than 10 percent, it is evaluated as marginal, market share between 10 and 30 percent is considered as average, and more than 30 percent as dominant. Let us apply the same classification of market share to a company having two products. Product P has a dominant market share of 50 percent. The average growth of company sales in the past three years is 40 percent.… Read the rest

Product Life Cycle and Industrial Pricing

Pricing strategies vary as the industrial product moves through its life cycle. The industrial pricing strategy is a key factor in each of the four cells of product life cycle.

  • Introductory Stage Pricing Strategy: There are two pricing strategies available for a new product which is in the introductory stage of its life cycle. These are: (a) Penetration Strategy, and (b) Skimming Strategy. An industrial marketer must analyze the price from the angle of the buyers. How soon the firm should try ton recover the investment on the new product is another important factor to be considered by the industrial marketer.
    1. Penetration Strategy: When the price elasticity of demand is high or the buyers are highly price sensitive, strong threat exists from potential competitors and opportunity exists to reduce the unit cost of production and distribution with increase in volumes the penetration strategy is effective. The firm can draw on experience curve effect and can also achieve the economies of scale. This would give the company a strategic advantage of cost leadership over the competitors. The firm can adopt the pricing objective of long term profit through large market share instead of short term profit objectives.
    2. Skimming Strategy: For distinctly new product meant for a market segment that is not sensitive to the initial high price the skimming strategy can be adopted. The greatest advantage of this strategy is that it focuses on recovering the investment at an early stage by generating more profits. The price will be reduced at the latter stages to reach other market segments that are more sensitivity to price.
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Cost-Benefit Analysis in Industrial Pricing

To formulate an appropriate industrial pricing strategy it is very essential to have an analysis of the costs and benefits of the industrial product from the customer’s point of view.

The benefits can be grouped into soft and hard benefits. Soft benefits includes those benefits which are very difficult to assess, such as customer training, warranty period, customer services, company reputation etc. Hard benefits are the physical attributes of the products such as production rate of machine, rejection rate of component and price/performance ratio.

The costs for an industrial customer mean price plus other expenses that are incurred in purchasing and using the product. For example, the cost of a new oil refinery machine purchased by oil mill includes price, freight, installation, energy usage, repair and maintenance. The cost of production stoppage due to failure of machine may also be included while calculating the machine cost though it is difficult to estimate such cost accurately. The life cycle costing concept can be used by the industrial buyer at the time of purchasing the capital items and estimate the total cost of the product over its life span. Life cycle costing takes into consideration the price, freight, transit insurance, maintenance’s, energy, material and labor costs over the useful life of the product.

The industrial marketer should evaluate the possible cost/benefit trade-off decisions made by the industrial buyer. If the quantum of discount offered by industrial marketer as an incentive for purchase of large stock can be considered by the industrial buyer if the quantum of discount is more then the cost of carrying the inventory.… Read the rest