IMT-76: Industrial Marketing

IMT-76: INDUSTRIAL MARKETING

PART - A

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Q1: What is industrial marketing? What is so distinctive about industrial marketing that it requires a special approach, a separate set of concepts and body of knowledge?

Q2: Why is it important to understand the purchasing practices of industrial customers? What are the factors that govern the purchasing decisions of commercial enterprises, government units, institutions and the reseller market?

Q3: In which of the phases of the purchasing process is the upper management most likely to be involved? At what stage should the marketer attempt to get involved? What types of action should be taken?

Q4: Why is personal selling important for industrial products? What are the different steps involved in the personal selling of an industrial product?

Q5: How would you segment an industrial market with which you are familiar? Distinguish between the macro and micro variables used to segment industrial markets.

PART - B

Q1. How is market testing for industrial goods done? Explain the methods used.

Q2. How do strategic business units conduct their business strategic planning? What is the role played by strategy grids?

Q3. Under what conditions would an industrial marketer want to use a price skimming strategy? Under what conditions would he switch from a skimming to a penetration strategy?

Q4. Pricing policies involve adjustments to the base price to account for various differences. Explain. Also, state the methods of geographical pricing.

Q5. Direct selling forms the link between the buyer and seller in business transactions. Explain throwing light on the various types of buyers.

PART - C

Q1. The final stage of an industrial marketing research study is report preparation and presentation of the research findings. What are the points to be kept in mind by a researcher preparing for a presentation?

Q2. What are the statistical techniques used to classify marketing research?

Q3. A marketing channel performs the work of moving goods from producers to consumers. Discuss with emphasis on the key functions of the members of the channel.

Q4. Discuss the marketing tactics employed by successful service organizations.

Q5. Services can be marketed more effectively if associated with the brand. Comment.

CASE STUDY - 1

Metal Products India Limited (MPIL) was one of the leading manufacturers of MS (mild steel) metal sections widely used in construction, furniture, rolling shutters and industrial sheds. The factory was located at Whitefield, on the outskirts of Bangalore.

The market for metal sections was highly regionalized. In and around Bangalore, there were four manufacturers of metal sections. MPIL was set up in 1987 by its parent company, Madhya Bharath Metal Sections Ltd. (MBMS), Bhilai, mainly to serve the southern markets. Before this unit was set up, material was supplied to dealers/customers in South India directly from Bhilai. The advantages perceived by the promoters in setting up MPIL was substantial savings in freight coupled with better availability of material. Prior to 1987, there was only one manufacturer of metal sections at Bangalore, viz. Karnataka Metal Sections (KMS). Between 1993 and 1996, two more manufacturers set up their units at Bangalore, viz. Adarsh Metals and Mahavir Metal Sections.

The total size of the market for metal sections in South India in 1998 was estimated at 40,000 metric tons (MT) with an annual growth rate of around 6 percent.

MPIL had tied up with the existing dealers of MBMS for distributing their products. MBMS had dealers at all the important locations in the South. However, in Karnataka, they had only one dealer-Bangalore Metal Traders (BMT) based at Bangalore.

Apart from making use of the existing distribution channel of MBMS, MPIL also appointed new dealers at places like Vijayawada, Calicut, and Erode. Most of the dealers supplied the metal sections in smaller lots to the customers who were mostly fabricators and small-scale industries. Apart from this, some of the dealers also operated through sub-dealers. The price to dealers was decided by the manufacturers and the dealers usually marked up the prices by seven per cent to eight per cent. The prices at which dealers operated were not controlled by the manufacturers but were solely at the discretion of the dealers. Depending on the off-take, dealers got volume discounts from manufacturers varying from three per cent to seven per cent.

Apart from distributing the products through dealer network, MPIL also sold their products directly to OEMs (Original Equipment Manufacturers) and Government customers. However, this added up to only 20 per cent of their total sales. To support the dealers, MPIL had opened depots (i.e. warehouses) at Chennai, Coimbatore, Ernakulam and Hyderabad.

Bangalore Metal Traders (BMT) was the largest dealer of metal sections in South India with an off-take of 2,000 MT per annum, which was 20 per cent of the MPIL's production. By virtue of their off-take, they enjoyed the highest slab of volume discount offered by the Company. As per the understanding with BMT, MPIL was not supposed to appoint dealers at other centres in Karnataka. However, there was no specific written agreement which debarred the company from appointing dealers at other stations.

Prior to the entry of Adarsh Metals (AM) and Mahavir Metal Sections (MMS), BMT enjoyed more than 50 per cent share of the market in Karnataka. In view of the informal agreement with the company not to appoint dealers at other stations in Karnataka, BMT also did not deal with other manufacturers and exclusively sold the product of MPIL. KMS also had a dealer at Bangalore by the name of Kavery Agencies, which had branches at other major centres in Karnataka. Prior to the entry of AM and MMS, the combined market share of MPIL and KMS in Karnataka was more than 80 per cent.

AM and MMS found it difficult to compete with BMT and Kavery Agencies, which were well-established in the market and had exclusive arrangements with their principals. To penetrate the market, AM and MMS adopted a different strategy of offering material directly to customers in Bangalore, though it was not as cost effective as selling through the dealers. In the upcountry markets, they identified potential dealers dealing with steel and hardware and offered the same discounts as offered by MPIL and KMS to their respective dealers. The new entrants succeeded in attracting the hardware dealers at locations like Mysore, Mangalore, Hubli, and Belgaum. Most of the upcountry hardware dealers were earlier sub-dealers of BMT.

Out of the volume discount of seven per cent offered by the company, BMT used to keep three per cent for them and pass on the balance four per cent to the sub-dealers. To break the stronghold of BMT and Kavery Agencies, the new entrants started offering discounts of six per cent to seven per cent to upcountry sub-dealers who found it more comfortable to deal directly with the manufacturers instead of being sub-dealers of BMT.

The aggressive marketing strategy adopted by the new entrants resulted in the loss of business volume for MPIL on account of reduced off-take by BMT. As compared to 2,050 MT lifted by BMT in 1996-97, during the first six months of the year 1997-98, their off-take was only 850 MT. Though the drop in sales volume was noticed by Mr Bhatia, President, during the first quarter itself, in the quarterly review meeting, Mr Shekhar, Marketing Manager, attributed this to the recessionary trends prevalent in the market and the poor performance of the economy as a whole. However, this did not satisfy Mr Bhatia on whose insistence Mr Shekhar undertook an extensive tour of Karnataka along with the representative of BMT, and found to his dismay that in Hubli and Belgaum they did not enjoy even 30 per cent of the market share, whereas the new entrants had captured more than 50 per cent of the market. Most of the hardware dealers who were earlier sub-dealers of BMT, had been appointed as the authorized dealers of AM and MMS. However, they had not stopped dealings with BMT totally, though the dealings were confined to ordering only those sizes which were not readily available with AM and MMS. When this was pointed out to Mr Bhatia, he advised Mr Shekhar to come out with a suitable strategy to recapture the market in north Karnataka. Attempts by Mr Shekhar and representatives of BMT to get the subdealers back to their fold by emphasizing on the superior quality of their product compared to the competitors' and offering special incentives subject to certain guaranteed off-take, did not yield the desired results. This left Mr Shekhar, who had been given the ultimatum by Mr Bhatia, a frustrated man.

Questions:

Q1. Identify the root cause of the problem of loss of business for Metal Products of India Limited.

Q2. What would be your recommendations to Mr. Shekhar to recapture the market in North Karnataka?

CASE STUDY - 2

Marketing Plastic Resins: GE and BW

General Electric Plastics and Borg Warner Chemicals, prominent suppliers in the engineering plastics markets, were facing increased competition and a changing market environment. Value as viewed by customers was evolving, and sales channels and field marketing organizational structure played a major role in the way each company elected to provide products and services to its customers.

Manufacturers whose products include plastic components or cases must either manufacture the plastic parts themselves or outsource production to a contract provider. When outsourced, plastic components are produced to the manufacturer's specifications by custom injection moulders - contract providers that produce plastic parts as designed and specified by the manufacturer. Custom moulders are5 often independent small businesses.

Plastic materials are generally purchased by either very large companies, which have captive moulding facilities through volume buying agreements or by smaller custom moulders, custom providers whose volume is significantly less. Larger purchases usually process very high volumes of just a few material types, in bulk quantities shipped in tank trucks or rail cars. Custom moulders manufacture a variety of parts for several different customers, often from several types of materials, making large-volume purchases of any material unlikely. Thus, they buy a larger assortment of both engineering and commodity materials in smaller quantities.

There are two basic categories of plastic materials: commodity plastics and engineering plastics.

a. Commodity plastics are used for consumer packaging, fast food and 'throw-away' items, toys, and items that generally are not required to perform any mechanical or structural functions or demonstrate any long-term durability. These plastics are generally inexpensive, available from several sources, and most often known by their generic chemical names.

b. Engineering plastics are used for components that are generally required to perform one or several mechanical or structural functions and/or meet durability or safety standards imposed by independent agencies. Their manufacturer brands many of these products, though comparable materials are usually available at least from one other source.

GE recognized that advanced engineering plastics materials were capable of successfully performing mechanical and structural functions, and began to provide extensive services related to end-user education. By the early 1970s, GE started using field market development (FMD) personnel, who were complementing the GE field sales force by working with plastic specifiers and end-users (not moulders) to encourage the design and development of products that would rely on the properties of GE plastics. FMDs as relationship builders kept specifiers up-to-date on new product developments and design techniques, generally creating goodwill and an allegiance to GE products. FMDs generally did not call on custom moulders and were not responsible for any direct sales, leaving the direct sales responsibilities to the field sales team. The FMD approach was very successful in the market place and soon developed sales leadership in all product types it marketed.

Borg Warner (BW) was forced to adopt the FMD approach to the market to stay competitive, though account coverage and resource commitment were not as broad as those provided by GE. By the end of the seventies, BW realized that a new approach was needed to serve small and mid-sized customers. These customers used small quantities of three or more types of engineering plastics, required short lead times, and had limited cash flows and other special needs. Because most plastic companies' field sales forces concentrated on large-volume customers, these smaller customers had not been consistently been called on by representatives from plastic producers.

During the same time period, GE and BWwere facing increased competition. Companies that had previously ignored the engineering plastics market were now attracted by higher margins available. In addition, reputed foreign companies were beginning to compete in the US market.

Recognizing the increased competitive threat and the need to distinguish itself from new competitors, BW established Plastic Service Centres (PSCs) in 1981. PSC was a nationwide full-service distributor catering to less than truckload (LTL) customers whose service needs were not fully addressed by direct representation from major plastic companies. While BW continued to maintain its direct sales force for its large customers, it turned over small account responsibility to the new PSC sales team. BW approached other plastic companies whose product types did not directly compete with its own. Several of these companies agreed to use PSC as their distributor, turning over LTL customers to the PSC team.

PSCs were one-stops shop for processors (custom moulders) for plastic materials in producers' standard packaging and in producers' quantity-scaled prices. PSCs shipped the material quickly; eliminated the need for processors to keep large inventories; and provided technical advice. They provided personal touch typical of engineering plastics-producer and large customer relationships.

The suitability of using industrial distributors for engineering plastics, however, was not a universally agreed-upon idea. GE, which had grown to an industry leader through its market development efforts, did not necessarily see the fit. They opted to continue selling their materials through their own direct sales team.

Questions:

a. Identify the customer needs as viewed by GE and BW of different customer segments of engineering plastics.

b. Based on the facts given, what is your recommended channel structure for engineering plastics?

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