Linköping University

MBA ProMa
Industrial Marketing is different
Lecture 2- Spring 2009

Hossein Dadfar
Professor of Industrial/International Marketing

prof. Hossein Dadfar

What is Industrial Marketing

The scope of Industrial Marketing
• Marketing of goods and services to industrial and
institutional customers (business to business marketing)..
•The institutional customers use purchased goods and and
services in their own production of goods and services.
Consumer marketing, in contrast, is marketing of goods
and services to individuals, families and households
purchasing goods and services for their own consumption

prof. Hossein Dadfar

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The Nature Of Industrial Markets

„ Industrial/ B-to-B marketing involves the

process of providing goods and services to
industrial market intermediaries , as
opposed to ultimate (final) consumers.
„ Industrial goods are differentiated from
final consumer goods based on their
ultimate use.

prof. Hossein Dadfar

Types of Industrial Goods

„ Raw Materials – These are products destined to become part of another
product, subject to further processing.

„ Fabricated Materials – In contrast to raw materials, these have already been

processed but may require further processing.

„ Installations – Major equipment with long lives such as buildings and major
equipment.

„ Accessory Equipment – Such equipment is used to aid and implement

production and includes office machines as well as machine tools.

„ Operating Supplies – Materials used in producing goods & services.

(Are similar to convenience goods in that they are consumable)

prof. Hossein Dadfar

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 The nature of Industrial goods
and services
• They are often more complex than consumer goods and services
• They can be categorized as:
• Construction
• Heavy equipment
• Light equipment
• Components and subassemblies
• Integrated system, e.g., production line, power generator
• Raw material
• Processed material
• Maintenance, Repair and Operating (MRO) supplies and services
prof. Hossein Dadfar

Consumer or Organisational Products

Why was the product Purchased ?

¾ For use in the operation of a

¾ For personal or
business or organisation.
household use
¾ To manufacture other products
¾ For resale to others

CONSUMER
ORGANISATIONAL
PRODUCT PRODUCT

prof. Hossein Dadfar

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 Some Examples of
Organisational Buying
¾ Paper cups by McDonald's
¾ Computer chips by Toshiba
¾ Concrete by Local Authorities
¾ Oil by Electricity Generators
¾ Fertiliser by Farmers
¾ Accountancy services by Ltd.. Companies

prof. Hossein Dadfar

Nature of Industrial Customers

• Industrial customers: consisting of manufacturing and processing firms

• Institutional customers: consisting of institutions such as hospitals,
educational institutes.
• Governmental customers: agencies, municipalities at different levels.
• Industrial customers tend to be relatively few
• They buy higher volume (comparing to individual customer)
• Decision making is more complex
• Formal purchasing procedures/routines
• Many actors involved in purchasing process
•The buying decision making may takes long time
• Less emotional and more rational
prof. Hossein Dadfar

4
How industrial Marketing Differs from
Consumer Marketing

• Differences in basic assumptions.

• Different theories
•Aiming for improved profit and performance
• Different customer’s needs
• High degree of buyer-seller interdependence
• Long lasting buyer-seller relationship
• Very often special design for special customers
• System solution/project
prof. Hossein Dadfar

How Industrial Marketing differs...

• Higher functional dependence, particularly manufacturing

and R & D, much closer relations with overall corporate
strategy.
•More customer-oriented
• Technical product complexity, different sales techniques
and different salesmanship.

prof. Hossein Dadfar

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Central to Industrial Marketing is
relationship

BUYER-SUPPLIER
RELATIONSHIPS

prof. Hossein Dadfar

Key Concepts
„ A Transformation in Relationships
„ Three Types of Buyer-Supplier Relationships
– Transactional Relationships
– Collaborative and Alliance Relationships
– Collaborative Relationships
– Supply Alliances
– Which Relationship is Appropriate?
„ The Supplier's Perspective
„ Developing and Managing Collaborative and Alliance
Relationships

prof. Hossein Dadfar

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 Three Types of Buyer Supplier Relationships

„ Transactional
„ Collaborative
„ Alliance

prof. Hossein Dadfar

Continuum of Buyer-Seller Relationships

Activity/Attribute Transactional Collaborative Alliance

Communication High pot. for problems Systematic approach

Competitive Adv. Low High
Connectedness Independence Interdependence
Continuous Impr. Little A focus
Contributions to NPD Few Many – ESI
Difficulty of Exit Low Difficult – high impact
Duration Short Long
Expediting Reactive Proactive
Focus Price Total cost
Level of Integration Little or none High or total

prof. Hossein Dadfar

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Continuum of Buyer-Seller Relationships

Activity/Attribute Transactional Collaborative Alliance

Number of Suppliers Many One or few

Open Books No Yes
Quality Incoming inspection Design quality in system
Relations Inward looking Concern w/well being
Resources Few – low skill level Professional
Service Minimal Greatly improved
Shared Forecasts No Yes
Supply Disruptions Possible Unlikely
Technology Inflows No Yes
Type of Interaction Tactical Strategic synergy
prof. Hossein Dadfar

Relationships in a value chain

Steel Steel
Car
manufactur processor Paintshop
manufac
er (steel (molds steel
parts) turer
sheets)

prof. Hossein Dadfar

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 The process of developing
relationship management

How to Which How do they

characterize differences matter?
relationships? matter?

What does that mean

for managing these
relationships?
prof. Hossein Dadfar

Value creation

„ What value?

prof. Hossein Dadfar

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 Shortfalls of Previous Theories
a) In the marketing mix concept, it is implicit that buyers are passive and
only react to the stimuli of the seller by buying or by not buying.

b) Organizational buying neglects the importance of the establishment

and maintenance of relationships between suppliers and customers.

c) Literature implying an atomic structure in industrial markets is

challenged for being based on the assumptions that there is a large
number of buyers and suppliers who can easily and speedily change
buyers or suppliers, and that there are no or low-entry boundaries for
those suppliers

prof. Hossein Dadfar

Interaction Approach
Interaction approach is based upon four main assumptions:
1. Both the buying and selling firms are active in transaction (exchange).

2. The relationship between buyer and seller is close and continuous in

nature and frequently long-term.

3. There is a stable industrial market structure, where buyer and seller know
each other and have a good knowledge of the market.

4. There is a similarity of task for buyers and sellers. An understanding can

be reached by studying both sides of a relationship.

prof. Hossein Dadfar

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 Shortfalls of Previous Theories
a) In the marketing mix concept, it is implicit that buyers are passive and
only react to the stimuli of the seller by buying or by not buying.

b) Organizational buying neglects the importance of the establishment

and maintenance of relationships between suppliers and customers.

c) Literature implying an atomic structure in industrial markets is

challenged for being based on the assumptions that there is a large
number of buyers and suppliers who can easily and speedily change
buyers or suppliers, and that there are no or low-entry boundaries for
those suppliers

prof. Hossein Dadfar

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