Chapter 13 – Products and Services for Businesses
Teaching Objectives
The overall objective of this chapter is to illustrate how the differences in the motives between buyers of consumer products and industrial goods and services place different emphasis on the marketing of these products. It is important to stress that much of what has been discussed in Chapter 13 is relevant for industrial goods and services but that emphasis is affected by the inherent nature of industrial goods. The teaching objectives are to:
1) Emphasize a fundamental difference in consumer demand vis-à-vis industrial demand—the inherent volatility of the latter.
2) Explore the relationship between a country's stage of economic development and demand for industrial goods.
3) Stress the growing importance of technology and quality in successful product development.
4) Illustrate the important role of relationship marketing in maintaining competitiveness in industrial goods marketing.
5) Examine industrial trade shows as an important means of promotion.
6) Present the major issues in marketing business services globally and the affect of the fundamental characteristics of business services on marketing.
Comments and Suggestions
- Perhaps the most important point to make regarding the marketing and development of industrial products is the inherent volatility of derived demand. Demand for capital equipment is particularly susceptible to huge fluctuations in demand. This is the central issue of case 4–10 (Boeing).
- The growing importance of technology and quality in successful industrial goods marketing cannot be overstressed. The level of technology reflected in the product, compliance with standards that reflect customer needs, support services and follow through, and the price relative to competitive products are all part of a customer’s evaluation and perception of quality.
Lecture Outline
I. The Volatility of Derived Demand
II. The Industrial Product Market
A. Stages of Economic Development
B. Technology and Market Demand
C. Attributes of Product Quality
D. Quality is Defined by the Customer
E. Service and Replacement Parts
G. Universal Standards
H. ISO 9000 Certification—An International Standard of Quality
III. Relationship Marketing and Industrial Products
IV. Promoting Industrial Products
A. Industrial Trade Shows
V. Countertrade—A Pricing Tool
VI. Marketing Services Globally
A. Services Opportunities in Global Markets
B. Entering Global Markets
1 Client Followers and Market Seekers
2. Entry Modes
C. Market Environment for Business Services
1. Protectionism
2. Transborder Data Flow
3. Competition
D. Cultural Barriers and Adaptation
Discussion Questions
1. / Define the following terms and show the significance to international marketing:Derived demand / ISO 9000
Price-quality relationship / Relationship marketing
Client followers
2. What are the differences between consumer and industrial goods and what are the implications for international marketing? Discuss.
The committee on definitions of the National Association of Marketing Teachers has broken down the differences between consumer and industrial goods by four areas. They are:
a. Nature of the market or buyer – this typically means that consumer goods are used by the end customer in a channel of distribution and are consumed by this customer in its finished stage. The industrial goods are typically those goods which are used for the further production of other goods and are not used for the personal benefit of the customer. There are, however, many overlapping categories within this description.
b. Organization or operational setup.
c. Characteristics of the product – as was mentioned, industrial goods are typically used for the production of other goods while consumer goods are consumed by the final customer.
d. Miscellaneous differences – including such points as the need for a sales force (highly skilled or not), speed and dependability of delivery, and the like.
e. We must of course add the volatility of derived demand, which if noticed, has huge implications for the marketing of industrial products.
These differences are the same in international marketing, and they are further complicated by the foreign environment.
3. Discuss how the various stages of economic development affect the demand for industrial goods.
Perhaps the most significant environmental factor affecting the market for industrial products is the degree of industrialization. Although generalizing about countries is a dangerous practice, the stage of economic development of a country can be used as a rough gauge of market characteristics for industrial goods. Regardless of the stage, demand for industrial goods exists, but different levels of development typically result in changes in the demand and the kinds and quality of the industrial goods sought. According to the text in the first stage, that is preindustrial or commercial stage, there is little or no manufacturing, and the economy is almost wholly based upon the exploitation of raw materials and agricultural products. There is, however, a demand for industrial products even though it is limited to those items used in the simple production of the country's resources; that is, the industrial machinery, equipment, and goods required in the production of the country's natural resources. Also in this stage, a transportation system typically develops and this creates a market for highly specialized and expensive construction equipment that must be imported from other countries.
The second stage generally reflects the development of primary manufacturing industry concerned with the partial processing of raw materials and resources. At this level, there is a demand for the machinery and other industrial goods necessary for the processing of the raw materials prior to exportation.
The third stage of development is characterized by the growth of manufacturing facilities for nondurable and semidurable consumer goods. Generally, industry consists of small local manufacturers of consumer goods which have relatively large mass field. The demand for industrial products extends to entire factories and the supplies necessary to support manufacturing. Such a degree of industrialization requires machinery and equipment to build and supply the factories and the supplies to keep them operating.
A country at stage four is really a fairly well-industrialized economy. This stage reflects the production of capital goods as well as consumer goods including such products as automobiles, refrigerators, and machinery. Even though industrial goods are in production, there is still the need for the importation for other goods which the country does not produce. Demand is generally for more specialized and heavy capital equipment to supply the domestic industry.
A country in stage five has reached the point of complete industrialization which generally denotes world leadership in the production of a large variety of goods. Even though these countries have achieved the highest level of industrialization, there is still a market for industrial products because a country at this stage typically does not produce all of the goods it needs but specializes in the production of certain goods and imports those highly specialized items which it cannot profitably produce but still needs. Although each stage of economic development appears to be clear cut, most countries are actually in a stage of economic and industrial flux, striving for greater and more rapid economic growth. Thus, a country may be in more than one stage at any one time, which again has an effect on the industrial demand within that country.
4. “Industrialization is typically a national issue, and industrial goods are the fodder for industrial growth.” Comment.
The main points in the solution of this problem center around the desire of the underdeveloped countries to industrialize. This industrialization is not a haphazard, natural growth, but a planned growth, and as a consequence the sale or purchase of industrial goods both to help industrialize a nation as well as the purchase of those industrial goods which a country cannot produce become virtually a national issue rather than just a private venture between a buyer and a seller. The reason is very obvious since industrial goods are part of industrialization in the sense that industrial goods must be purchased to build plants and to supply raw materials for plants. In those cases when plants have not been built, industrial goods are still in need in the country but are always subject to evaluation in terms of should the country build the plant; that is, further industrialize, and thereby not have to import the goods, or should it continue to import the goods. Industrialization is a national issue which adds another ingredient to the environment that the foreign marketer must face. There are political overtones to the statement in that a country may have support for its industrialization from a second country, and this support may take the form of industrial products at very low prices or extra-liberal credit terms. All of this, of course, adds still another dimension to the competitive situation for industrial goods in the industrializing country.
5. “. . . The adequacy of a product must be considered in relation to the general environment within which it will be operated rather than solely on the basis of technical efficiency.” Discuss the implications of this statement.
The statement really refers to a major problem faced by many U.S. marketers in that the industrial goods they intend to sell abroad are the same ones which have a market in the United States. The United States, being a highly industrialized nation, obviously has need for equipment of the highest technical standards and technical efficiency. For example, highly technical automotive equipment that can operate within extremely close tolerances. The demand for as fine a piece of equipment as is produced in the United States and consumed in the United States may not exist in countries which are less developed and have different labor cost structures, or it may not exist in the sense or in relationship to the price that must be charged for the equipment. Besides the price, there is the capability of the labor force to utilize the equipment in terms of maintenance and in terms of being able to effectively make use of some of the refinements that may exist. Thus, a product should be considered in relation to how it is going to be used, the purpose for which it is going to be used, the environment within which it is going to operate in measuring its efficiency rather than on the basis of it being technically sound from an engineering viewpoint or from the viewpoint of a highly industrialized country as the United States.
6. Why hasn't the United States been more helpful in setting universal standards for industrial equipment? Do you feel that the argument is economically sound? Discuss.
It seems that the main reason why the United States has not been more helpful in setting universal standards is that a rather large demand still exists for products or replacement parts which are based on the inchpound system of measurement. This demand exists in the United States and foreign countries as well. Another reason for the lack of help is that the expenses involved in such a change are considerable, and no one particular firm is willing to incur such an expense when none of its competitors or other companies are willing to either lead or follow the example. This argument may be economically sound when one considers a short-run period but not sound over a longer period of time. Over a short period of time, the domestic sales lost and the foreign sales gained would probably not be enough to offset each other nor adequate enough to cover the expenses incurred in such a change. However, when one considers the impact of such a change over a long-run period, the foreign sales gained would probably be substantial enough to cover both the domestic sales lost and the expenses incurred from such a change. What is presently being done is that companies are sitting back and waiting for the “other fellow” to make the first move and seeing what effect this has on the profitability of the company and its accompanying aspects.
7. What role do service, replacement parts, and standards play in competition in foreign marketing? Illustrate.
Service, replacement parts, and standards are an important aspect of competition in foreign marketing. These aspects all rate high with the foreign customer; and the company which can meet these demands, and several others, is the company which will profit and will be more competitive. It should also be noted that the lack of any one of these factors may mean the loss of business for a foreign or a domestic based firm. Take, for example, the factor of delivery time on spare parts. If two companies are equal in all other factors, the company which can deliver the goods the fastest and most economically will be the company which will get the business. This is true for many of the other aspects as well as for those mentioned above.
8. Discuss the part industrial trade fairs and trade centers play in international marketing of industrial goods. What is the difference between industrial trade fairs and trade centers?
A trade center is a permanent, year round display location in which the products of a particular country are displayed, demonstrated, and sold. These centers are located in countries other than the “guest” countries which display the products. Thus, an Americanbased company may be able to utilize the display facilities in such centers as London, Frankfurt, Milan, Bangkok, or other such cities. These centers provide a place where foreignbased companies can exhibit their goods and stimulate sales for these goods.
A trade fair is a government-sponsored attempt to facilitate foreign trade with the “host” country. Foreignbased companies are invited to exhibit their goods within the “host” country at a particular location. Trade fairs are scheduled periodically and any interested manufacturer can reserve space to exhibit his goods.
9. Describe the reasons an MNC might seek an ISO 9000 certification.
One research report examining the purchase decision variables of importer managers found that product quality, including dependability of suppliers and timely delivery, were the most important variables influencing purchase decisions.
With quality becoming the cornerstone of global competition, companies are requiring assurance of standard conformance from suppliers just as their customers are requiring the same from them. Outside of regulated product areas, the importance of ISO 9000 registration as a competitive market tool in the EC varies from sector to sector. In some sectors, European companies may require suppliers to attest that they have an approved quality system in place as a condition for purchase. ISO 9000 may be used to serve as a means of differentiating different “classes” of suppliers (particularly in high-tech areas) where high product reliability is crucial. In other words, if two suppliers are competing for the same contract, the one with ISO 9000 registration may have a competitive edge.