Industrial Market Meaning, Definition, Characteristics, Types and Importance
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Industrial Market Meaning
The Business Market (also referred to as the producer/manufacturer industrial/organisational market or B2B business-to-business market) consists of all the individuals or organisations who acquire goods and services that enter into the production of other products or services that are rented, sold, or supplied to others. The place where industrial buyers come into direct contact with industrial sellers is known as the industrial market.
Industrial Market Definition
According to Philip Kotler, “The Industrial market consists of all the organisations that acquire goods and services that are sold, rented or supplied to others”.
Industrial/organisational buyers make purchase decisions to satisfy their goals, as final consumers do, but the goals differ. Organisations have the objectives of producing goods, services, or reselling an item and therefore buying products and services that will allow them to effectively engage in these activities. Buyers may be for-profit operations or non-profit operations, product or service-oriented, governmental or private.
In all cases, organisational buying takes place to produce a product, provide a service, or engage in resale. Organisational buying, then, is the decision-making process by which organisations establish the need for purchased products and services, and identify, evaluate, and choose among alternative brands and suppliers.
Characteristics of Industrial Market
The major characteristics that represent the nature of the industrial market are as follows:
1) Geographical Concentration: In B2B markets buyers are more concentrated than in consumer markets.
For example, approximately one-half of 1.8 million firms engaged in manufacturing and service are found in nine states.
2) Fewer, Larger Buyers: As compared to the consumer market, there is fewer/less number of buyers in the industrial market. Customers are also concentrated by size in the organisational market. In the industrial market, there are a few large buyers who account for most of their purchases.
For example, about one-half of the value added by manufacturing occurs among the largest 200 companies.
3) Vertical or Horizontal Markets: Organisational buyer markets may be either vertical or horizontal. In a vertical market, the product or service would be sold to virtually all organisations in perhaps one or two industries. Horizontal markets are those, which are very broad, in which the product or service is sold to a wide spectrum of industries.
4) Derived Demand: Organisational demand is derived from consumer demand. This means that the demand for industrial goods will ultimately be derived from the demand for consumer goods.
For example, the demand for aluminium depends upon parts for automobiles, home appliances, containers, etc. demanded.
5) Inelastic Demand: Total industry demand for industrial goods is relatively unaffected by changes in price in the short run, compared to the price influence on demand in consumer markets. If the total demand for the industrial product remains unaffected by price changes, the demand is said to be inelastic.
6) Fluctuating Demand: Organisational demand is characterised by much greater fluctuation than that of consumer markets. Generally, organisational buying is related to the economic cycle. When demand for consumer goods is up, industrial goods are also up, and organisational buyers may build large inventories of raw materials and component parts and may add to their plants and factories, office equipment and other items. When the economy slows down or reverses, manufacturers, wholesalers, and retailers may use up existing inventories and postpone purchases of supplies, equipment, and so forth.
7) Group Involvement: Because products purchased by organisational buyers are often costly and complex, a group of individuals may be involved in the decision. People from engineering, production, finance, purchasing, and even top management could participate in a large machinery purchase decision.
8) Professional Purchasing/Technical Knowledge: Since industrial buying is a complex purchase decision, more specialised personnel with the necessary technical expertise are involved in the purchase of such industrial goods and services. Professional buyers, generally completely knowledgeable about the products or services being bought, make the purchase decision or may be directed by other technically competent individuals (such as engineers) to the proper purchase decision based on a group decision.
Related Article:- Scope of Marketing
Types of Industrial Market
Business-to-business customers can be placed into such categories as producers, resellers, and organisations Grouping customers makes marketers more effective because they can develop similar strategies when dealing with customers who belong to the same category.
Total Business Market
Fishing, agricultural, and
Wholesalers and distributors
Government, including federal, state, and country. and local units
Manufacturers of consumer goods and component parts
Not-for-profit institutions, including organisations with education, charity, community, and other public-service goals
Services, including financial, transportation, restaurants, hotels, healthcare, recreation and entertainment, and others
Figure 2.11: Business Marketplace
Producers purchase products for the production of other goods and services that they, in turn, sell to make their profit. Producers are customers for a vast number of products from raw materials to goods manufactured by other producers. For example, DuPont buys resins and uses them to manufacture insulation material for sleeping bags. Maruti buys car parts and then assembles them. Luxury hotels buy linens, furniture, and food to produce the accommodations and meals their guests expect.
Resellers buy finished goods to resell, rent or lease to other businesses. Although resellers do not actually produce goods, they do provide their customers with the place, time, and possession utility.
i) Wholesalers: Wholesalers buy or handle merchandise and its subsequent resale to organisational users, retailers, and other wholesalers. They do not sell significant volume to final users but are involved when services are marketed to organisational consumers.
ii) Retailers: Retailers buy or handle goods and services for sale (resale) to the final (ultimate) consumer. They usually obtain goods and services from both manufacturers and wholesalers.
i) Government: Government consumes goods and services in performing its duties and responsibilities. Governmental consumers buy a wide range of goods and services, including food, military equipment, office buildings, subway cars, office supplies, clothing, and vehicles. Some purchases involve standard products offered to traditional consumers, others, such as highways, are specially made for a government customer. Although many big firms derive major percentages of their sales from government contracts. Some small firms are unfamiliar with the bureaucracy, barriers, political sensitivities, and financial constraints of selling to government consumers.
ii) Non-Profit Organisations: Non-profit institutions act in the public interest or to encourage a cause and do not seek financial profits. They buy goods and services to run their organisations and also buy items for resale to generate additional revenues to offset costs.
Not-for-profit institutions are organisations with charitable, educational, community, and other public service goals-such as hospitals, churches, universities, museums, and nursing homes. The institutional market also includes charitable and cause-related organisations such as the Red Cross Society. Not-for-profit institutions tend to operate on low budgets. In all but the largest not-for-profits, non-professional part-time buyers who have other duties or who are volunteers – often make purchases. Such customers rely on marketers to provide more advice and assistance before and after the sale than professional business buyers require.
Importance of Analysing Industrial Market
By conducting an industrial market analysis, a business can have the following advantages:
1) Performance: In B2B markets, a company performs as well as its industry is performing. Therefore, understanding how an industrial market change is key to predicting the performance of a firm in that industry.
For example, if the price of steel drops significantly, a steel-products manufacturer may be able to get cheaper materials and enjoy higher profit margins. Being able to predict changes such as these allows companies to react strategically.
2) Positioning: Understanding the industrial market and its competitor helps planners position their companies in the market for their products or services, allowing them to determine how they can differentiate from other companies in the same industrial market. Without an industrial market analysis, a business might enter a market that’s too competitive or one that’s already saturated with similar products and services.
3) Opportunities and Threats: Another reason industrial market analysis is such an important tool for businesses is that it helps firms identify potential opportunities for the business to develop, as well as threats that could prevent company growth. Being able to meet an otherwise underserved consumer need might be an opportunity; high capital costs or strict government regulations on imports or exports are examples of possible threats in various industries.
4) Internal Preferences: Although an industrial market analysis looks primarily at the external factors affecting a business, it can help determine whether there’s a fit between internal management preferences and the business market environment. If they disconnect, the business may not survive as managers resist the forces that shape an industry.
Thorough industrial market analysis may be combined with a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis, which looks at both internal and external factors to help analyse a company’s potential for success in a given market.
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