INDUSTRIAL MARKETING
How to connect to the Business World
Prologue
Marketing in the 21st Century
It is gradually understood that marketing is the most critical component in the running of an organization. The inputs are critical throughout the entire strategic planning process and effective implementation for short turn survival and long term sustenance through the building up of sustainable competitive advantage. Marketing also contributes to the survival during severe downturns and subsequent decrease in financial resources, increase number and type of competitors and a more diversified consumer base; disaster and other dynamic environmental factors.
Relationship Marketing:
Marketing in the contemporary context can be viewed as a value adding process directed towards relationship marketing. Following chart represents a critical set of relationships across the boundaries to be involved in such a process:
Supplier Relationships / Internal RelationshipsProducer Relationships / Customer Relationships / Community Relationships
Distributor Relationships / Facilitator Relationships
The process involves all the activities where marketing is involved. Marketers need to be innovative and flexible to make these mutually beneficial.
Importance of relationship becomes even more compelling in view of the highly volatile and uncertain global environment. The nature and strength of such relationships and the overall management of marketing process are significantly affected by changes as the technological shifts, enhanced information availability and the transfer capabilities.
Change in relationship between Marketing and other business functions:
The distinct functional boundaries are becoming irrelevant.Organsations are developing more flexible structures to deal with the rapid changes in the operating environments. This is needed to take care of the issues inherent in the relationships and alliances. The focus now shifts to people and social processes that bind the actors together more than the products and firms as units of analysis.
In the current scenario, marketing is integral to the cross functional network working in partnership. Marketing may even have the role of a prime driver in the network.
Relationship between various functions includes an expanded role for the customers of the organization. In the past one relied largely on customer surveys to determine marketing strategies, customers are now providing important inputs into the decisions of other functional areas an s well. Trend towards customer orientation invariably results in involving the customers in the design process of the new products and even more in the process of product modification.
Changes in the Organisational Structures:
As a consequence of the pressures on margins and continuous volatility in the markets, organizational structures are flatter and the time horizons extremely compressed. Middle management, the bearer of all bad news is gradually getting extinct. This means authority much earlier than in the past. This also involves working in cross functional teams which keep on evolving over time. This workload gets added to the normal responsibility for bottom line performance! The transformation for marketing implies shift from transaction orientation and profit maximization to the management of strategic partnerships. Marketing decisions are made within the framework of matrix or cross functional organizations.
Focus on Customer Satisfaction
Customer satisfaction is becoming the focal point of all long term plans. It therefore is necessary to know who the customers are, why do they buy and what gives them the satisfaction.
Shifting demographics, economic concerns and advances in technology contribute to the change in the role of marketing to the end customers.
Organisational buying has been considerably affected by the economic and political conditions right across the world. Bottom line profitability, intensity of service at all stages of buying and assured quality has become the norms of buying. Purchasing processes have also gone through major changes as a result of the impact of technology and the net.
Customer’s wants and needs are being considered right at the time of designing and delivery, both of goods and services. One very definitive role is that of point of sale scanning to capture and utilize customer based information. RFID applications could add another dimension to the process.
Changing markets and market conditions require shorter response time. As a result designers and customers are getting more thoroughly involved in the design and manufacturing process to meet more complex and sophisticated market demands.
Value added marketing- the right combination of quality service and value- is the key to market success. Customers perceive high value at a reasonable price; not necessarily the lowest price. Quality goes beyond the obvious and encompasses total experience during the life time of usage
Advances in technology have added value to the goods and services. For example, banks are using high tech CRM initiatives, integrating technology with the human touch to improve the service to the customer.
Quality and value are often defined in terms of service quality. Poor service leads to dissatisfaction resulting in the customer shifting suppliers and brands. Service evaluation depends upon the factors which the customer considers important and is likely to shift with the customer segments.
Importance of internal Marketing:
Comprehensive internal marketing motivates employees to focus on the end customer because after all, service is everybody’s business. The pay off comes in terms of more satisfied customers as well as employees.; added value for the brand and better bottom line. When the workforce understands the needs of the customer it is likely to serve them well to have a higher level of retention. Employees are motivated when they feel that they are listened to and feel that their views are considered. This also results in higher employee retention!
Building markets for the Long term:
Relationship with customers has become a primary concern of the marketers. One is shifting from the mass marketing strategies. Relationship, being preferred, implies treating each customer as a unique segment to maximize the share. Hot topics like the “markets of one” just indicate the 9importance of such an approach. New technologies make it possible to begin outside the company by knowing more about the wants and the needs of the key customer and then working backwards to develop the strategies for the organization and the brand.
The range of marketing relationship extends from a single transaction to vertical integration as shown in the illustration below. Such alliances are improvement to improve the competitive pulsation. Marketing is involved the formation and management of strategic alliances because of their involvement with the customers, resellers or even competitors for the development of new products, technology and markets.
Changes in the environment: Marketing Organisation Ecocycle:
Adoption of natural eco cycle with the addition of human ability to take conscious rational action can be considered as organisation ecocycle. This is shown below:
One can briefly look at the phases of the marketing eco cycle shown in the illustration below:
Entrepreneurial Phase: Spontaneous behaviour and learning gets promoted as organizational culture. Planning tends to be short term in the absence of considered long term planning.
This is followed by the stage of strategic growth when all the weaknesses of the earlier phase are eliminated. Systems and structures get formalized. However, with the success come increased competition and more demanding customer
This leads to the marketing organizations losing the competitive edge, scarcity of resources and environmental threats. Monopoly like situation could result in stronger reactions! Constraints, including being the prisoners of success in the past, inhibit innovation and result in an inability to adapt fast enough.
Organisations now find themselves vulnerable. Crisis can even threaten the existence. This calls for flattening hierarchies, throwing the code books etc.
The catharsis resulting from such a situations forces the organizations to move back the early stages of renewal curve of the cycle. Confusion and uncertainty prevail as managers try to salvage the operations by adapting and innovating. Additional constraints may be generated internally or externally through changes in the corporate culture, mergers and acquisitions, shortage of resources etc.
Difference between rising again and failures depends on the leadership.Organisations survive because of leadership and shared values.
Constant change in the environment affects the life of marketing organization. Many innovative opportunities have emerged from crisis both internal and external. Wars have led to the emergence of new technologies and modes of communication; even the importance to the concept of management!
Changes are inevitable. It is up to the organizations to cease the initiative. Proactive action can resulting creative destruction while laid back approach would lead to destruction.
Business Changes and Environmental Factors:
We give below a summary of many such changes:
Environmental Factors / Marketers have to adopt to the macro environmentGlobalisation / Indian companies expanding the world on both sides, as a source and also as a sourcer
IT and Computer / Alliances among the tech oriented
Redesigned Organisation Structures / Flatter Organisations, greater responsibilities, 24, 7 working
Information age / On line real time availability and sharing of the data
Security, Ethics and CSR / Impact on world trade and relationships between businesses and the governments
CHAPTER - I
INTRODUCTION TO INDUSTRIAL MARKETING
Marketing is an extremely exciting field. Dealing with consumer makes it quite glamorous. Focus on the end customer takes most of the attention. This results in the process involved in the way the product is brought to the end customer is normally not getting sufficient attention. A close analysis of this process can be very instructive. One can consider almost any product for this exercise.
We can consider the case of a cell phone. Cell phone has, at a sub assembly level about 15 components. Each of these components is in its turn manufactured and processed by their own manufacturers. Thus even at the simplistic level, we would have 15 transactions taking place between vendor and assembler of the cell phone. After the assembly, the product goes to the distribution channel. This normally would have at least three intermediate stages before it is available to the customer. The entire analysis of marketing concentrates on the end customer cost. As you have seen above, there are a minimum of 18 transactions before the product is offered to the customer. This is the amount of effort that goes in for bringing the product to the customer.
Now all the 18 transactions would fall into the category of industrial marketing. The total value involved is quite large. We can look to the magnitude of industrial purchases a little differently. General Electrical purchase of products and services is more than the Gross National Product of more than half of the countries in the world.
Industrial Marketing
Industrial Marketing is marketing products or services to other companies, government bodies, institutions (such as hospitals), and other organizations. McDonald’s and other companies buy products, such as salt, and services to use in the production of their product. With the exception of the purchase you make from the Mcdonald counter, all the buying and selling in the process involves business marketing or industrial marketing.
It is important to keep in mind the extent of this activity. Purchases by organizations such as companies, government agencies, and institutions account for more than half of the economic activity of any country.
Industrial marketing is unique. The channels of distribution are shorter and more direct. This leads to much more emphasis on personal selling and negotiation. Complex buying processes involved in organizational buying call for totally different and unique promotional strategies. Relationships are also different between buyer and seller when both are organizations. This a different ball game compared to a normal situation than the one when one of the two parties is an individual consumer.
Buyer-Seller Relationships
In industrial or business marketing, situations where strong personal and business relationships grow between buyer and seller are not as rare. The strategic importance of many purchases is too great for companies to always shop around when making a purchase; they need to make absolutely sure that the product fits their needs and that it will be available when needed at the right cost. Therefore, many companies enter into long-term contracts, build relationships that enable buyers and sellers to plan jointly, and work to secure the future for both companies.
Transactional MarketingPurpose of marketing is to make sale.
Sale is result and the measure of success
Business is defined by its products and
the manufacturing facilities. Brand, the consequent image are critical.
Price is determined by competitive market forces; price is an input.
Quality is largely related to the technicalities.
Can be considered as an outcome of the solutions.
Communications are aimed at aggregates of customers.
Valued is created by the products and prices.
Stress is to make the next sale; find the next customer.
Satisfaction is measurable by surveys.
Market share can be used to estimate the customer satisfaction.
Role of internal interface is not significant as internal marketing is not important. / Relationship Marketing
Purpose of marketing is to create a customer.
Sale is beginning of relationship; profit is measure of success
Business is defined by its customer relationships. Value is added through technology, knowledge, informational and social ties.
Price is determined by negotiation and co-operation between the two parties leading to
joint decision making; Price is an outcome.
Quality is largely functional. Perception of the customer is a sum of the multiple interactions.
Communications are targeted and tailored to individuals.
Marketer is valued for its present and future problem-solving capability.
Effort is to satisfy the customer by delivering superior value.
Market satisfaction can be measured directly by managing the comparatively smaller customer base.
Satisfaction is achieved by managing the internal interface. This makes the role of internal marketing very critical.
Types of Business Relationships
We can start looking at the nature of relationships involved in the context of marketing. Transactions are always important as they form the base of moving forward. On one side are the products which are elementary and do not need any great effort for shopping. There is not much more than the core product. Image of the company or the brand of its products can keep the customer attached to the seller or the products, perhaps by supplementing the promotions. Replacements are easily possible and therefore the competition can always walk in. Someone offering better price or better terms can always make an entry; price sensitivity is critical in case of transactional marketing. There are transactional relationships, situations where buyers and sellers interact with only selfish consideration, without thought of the possibility of future interaction.
Think of relationships as falling somewhere along a continuum. At one end is the purely transactional relationship. At the other end of the business relationship continuum is the partnership, which many writers liken to a marriage.
Someone approaching the relationship approach has to create more value to the customer than what can be provided by the core product alone. They would have developed more specific relationships. This is possible through technological inputs. This may be supplemented by knowledge or information related ties or even social ties. The effort is to go towards developing a partnership.
As we have seen in the table above, a partnership is a relationship characterized by mutual commitment, high trust, and common goals. Achieving partnership status is a marketing objective for many marketing organizations. Partnership status offers much greater opportunities to develop new business. This helps the seller party a chance to gain direct access to valuable information amongst many other benefits.
Issues of Quality: hard and soft dimensions
Transaction marketing does not involve any contacts outside the product per se. Benefits looked for by the customer are embedded in the product itself. Brand image is the only additional benefits that are available to the customer. Customer interface is much broader in case of the relationship marketing. The seller uses the opportunities to provide its customers with added value. With this, the perception of the interactions by the customers gains a lot more importance. It becomes necessary to manage the quality of the interactions. This becomes a lever for gaining customer attention and hence gains in importance. This naturally makes it necessary to carefully control both the hard and soft issues involved in the interactions.
It is normal for the hard quality of interactions to be carefully planned for and also taken care of. But the mode of delivery is equally important to help gain the full benefits. Even small slips could impact negatively on the carefully crafted technical support programmes. We all have the experience of being told how important our call is and still being kept on the hold for 10 minutes. This it self can be quite disconcerting. But worse cases can be cited. Excellent service being offered by rude staff for example takes the sheen away from the entire effort.
Corporate relationships
Corporate relationships can also safeguard the exchange mechanism by ownership or vertical integration. This happens only in an extreme situation but is a distinct possibility. A publisher assures itself of sustained access to printing services by having its own printing press. A medical equipment manufacturer may acquire a wholesaler to provide the selling and distribution services it requires. In these examples, the trading relationship shifts to an employment relationship. Employees work within a set of explicit rules and under an authority structure that is different from what is applicable between two organizations.