Customer orientation is vital in order for industrial marketers to enjoy greater profitability in the industrial marketplace, which is at present characterized by rapidly changing environmental factors. These shifts include increased computerization of the purchasing departments, greater social and legal challenges to various buying organizations, deteriorating economic conditions and the changing role of the industrial purchasing manager. This paper suggests a way by which industrial marketers may adopt the marketing concept. The first part of the paper presents evidence of industrial marketers’ failure to adopt the marketing concept and highlights the consequences of this practice. In addition, emphasis is given to the manner in which industrial marketers may adapt to the changing conditions—while capitalizing upon new opportunities that become available—by adoption of the marketing concept. The second part explores the use of market segmentation as a means for adopting the marketing concept. After reviewing the approaches that are now being utilized to segment industrial markets, a more pragmatic approach is presented.

Nonadoption of the marketing concept—a great blunder

Growing recognition that the consumer, not the company, is the center of the economic universe has led to the development of the marketing concept—an idea commonly known for its emphasis on profit maximization via matching an organization’s products to consumers’ wants.

While the marketing concept by no means is a new idea, failure to adopt it by many industrial marketers is quite evident. The major stumbling block seems to be their failure to recognize the benefits of the concept. Their thinking seems to be regimented along the lines of product, production and current operations. The industrial marketing concept seems to be in a state of limbo—accepted but not implemented as a way of business life with a recognizable impact on the business organization [16]. Most industrial goods and services firms seem to be preoccupied with the technology surrounding their offerings [40]. There is evidence to indicate that such nonadoption of the marketing concept by industrial manufacturers is indeed causing them problems.

Two surveys found that industrial manufacturers most frequently cite inadequate market knowledge as the primary reason the performance of their newly introduced products often is short of expectations, and why some have to eventually be withdrawn [10, 37]. In another study, the buying motives of specific industrial market segments—consulting engineers, architects, electrical contractors and nonresidential building contractors—were compared with the motives that industrial advertisers in these fields perceived for their customers. It was observed that the advertisers did not seem to understand the major considerations that influence the purchases of their products [33]. As a result, their advertising appeals in the respective market segments were ineffective. Other researchers have observed growing obsolescence of industrial marketing channels [31].

Hence, industrial marketing practices and procedures are often characterized by a lack of customer orientation. This means that an industrial marketer should adopt the marketing concept by devoting more time, attention and money to better understand his market so that he may reduce risks and increase profitability.

The marketing concept—an answer to changing conditions

It seems necessary for an industrial firm to adopt the marketing concept for yet another complementary reason: To better adapt to the changing environmental conditions. The response by an industrial marketer to the dynamic environment determines how successful the firm will be in serving its customers and, ultimately, in making profits. Industrial marketing relates directly to the environmental system in many ways: Technical, social and legal, economic and organizational. These are all factors that industrial marketers must take into account.

Technical: With the greater use of electronic data processing found in purchasing departments, industrial buying decision-making seems to be entering a new era [32]. The marketing implications of increased computerization of the buying centers are that there will be increased competition among marketers of industrial goods (since more vendors will probably be contacted and fewer suppliers awarded orders) and their offerings will be examined more thoroughly. These changes will probably require the companies to improve both the speed and the accuracy of their service to meet the needs of the purchasers, i.e., develop a market orientation by adopting the marketing concept.

GRANDHI BALAKRISHNA is currently employed with Bell Canada, Corporate Marketing Research in Ottawa, Canada. His responsibilities include modeling the industrial communications equipment market. He is also a doctoral candidate at the Department of Marketing, Graduate School of Business Administration, University of Minnesota, from which he graduated with an MBA degree in 1974. He also holds a Masters in Management Sciences and a BS from Madras University and Andhra University, respectively, in India. His main marketing interests are industrial buyer behavior, marketing management, international marketing and marketing research.

Social and Legal: The days of caveat emptor (let the buyer beware) are gone and the days of caveat venditor (let the seller beware) are in. The question of product safety coupled with increased Governmental regulatory activity, as well as rising public expectations and performance demands are posing great challenges to many organizations. To accommodate these changing attitudes, some organizations are changing the standards and specifications of their products and services and are becoming more socially aware of their environment [44]. Adopting the marketing concept will help an industrial marketer not only to identify changing needs and goals of the organizations and serve them as thoroughly as possible, but also to face the challenges of the marketplace—including, of course, consumerism [20]. The marketing concept should enable a progressive industrial marketer to convert various organizations’ concern for the environmental issues into opportunities for marketing new products [9].

Economic: The business environment is characterized by raw material shortages, inflation, recession, energy crisis, high interest rates and shifting demand patterns [29]. Solving these problems with new or modified products or services can open the door to new successes for an industrial marketer. Current economic conditions of slower growth and value consciousness also suggest the importance of precise product positioning relative to competitive offerings [24].

Organizational: The role and responsibilities of the industrial purchaser have increased and changed greatly over the past several decades, from that of a clerk to an executive. The increased importance of the purchasing function in these turbulent times has increased the sophistication of the purchasing individual [12]. Researchers have warned industrial marketers to realize this revolutionary change [18, 35]. The industrial buyer seems to know far more about industrial selling behavior than the industrial seller knows about industrial buying behavior. If this trend continues, the mismatch could result in poor market conditions in the industrial sector [36].

The essence of the above discussion is that effective planning in this period of transition requires a revitalization of the marketing concept in industrial marketing.

Adopting the marketing concept

Having identified the benefits of adopting the marketing concept, the next question to answer is: How may an industrial firm develop such a customer/market orientation? The first and the foremost basic step involves identification of opportunity—the needs or family of needs the industrial firm should be geared to satisfy. Since no firm can possibly satisfy all types of needs, the firm should segment the market and serve only those subsets of customers that seem most profitable. This suggests the necessity of the market segmentation process for identifying the competitive differentials and deciding which segment of the market can profitably be served by developing an appropriate marketing mix.

Ever since the concept of market segmentation was introduced as a possible means of solving marketing problems, it has received much attention, primarily as it pertains to consumer markets [4, 23, 28, 41, 43, 46, 52]. Industrial firms can also greatly benefit from using this concept. The number of customers in industrial markets is large enough to permit some breakdown into homogeneous groupings. Unfortunately, this is typically being carried out by using some arbitrary criteria that are either not correlated with buying behavior, or, even if correlated, have little pragmatic value to the industrial marketing practitioner. Most industrial marketers appear to perform segmentation analysis in less depth and in a much less explicit manner than do consumer marketers [7].

Segmentation by industrial marketers appears to be largely an after-the-fact explanation of why a marketing program did or did not work rather than a carefully thought-out foundation for marketing programs [51]. The bases for industrial market segmentation as suggested by several sources, may be referred to as organization/DMU-related bases, i.e., segmenting the industrial markets by studying the differences among the industrial organizations and decision-making units within these organizations. To summarize, the bases are:

Organizational Characteristics

  1. Geographic location of the buyers.
  2. End use of the buyer—e.g., plastics and rubber for use in artificial flowers, gloves, bags, upholstery [13, 45].
  3. Standard industrial classification category.
  4. Size of the firm—e.g., net sales and number of employees [39].
  5. Type of buying situation—new task, modified rebuy, straight rebuy [17].
  6. Stage of the adoption process [38, 42].

Decision-Maker’s Characteristics

  1. Demographics/socio-economic—e.g., age, years of experience, professional background, job tenure, job mobility, compensation, level of education [5, 19, 26, 39].
  2. Personality/decision-making style, need for certainty—normative, conservative, switcher [11, 34, 39, 49, 50].
  3. Values and value systems [21].
  4. Role commitment/self-confidence [25].

These bases for industrial segmentation have some very fundamental weaknesses. While there is contradictory evidence about the usefulness of some bases, e.g., demographics, it seems altogether impossible to use other bases, e.g., the decision-maker’s characteristics in particular. This is because of the difficulty involved in evaluating an industrial buyer on such bases, e.g., personality/decision-making styles, values and value systems and role commitments [47].

Most empirical research that is done in this area claims that an individual’s need for certainty may be a good predictor of his decision-making style [49]. The implication for the industrial marketing salesman is that he should emphasize different persuasive arguments—depending upon the purchasing decision-maker’s style.

“While the marketing concept is by no means a new idea, failure to adopt it by many industrial marketers is quite evident.”

However, overall, the perceived risk research has failed to demonstrate a strong relationship between the perceived risk paradigm and buying behavior since only a small portion of the observed variance in industrial buying behavior was explained by the perceived risk measures.

Measures such as organizational characteristics could be used in industrial market segmentation research, but as descriptors (for describing the resulting segments and assessing market potential) rather than as bases for segmentation itself, since they are ineffective in explaining industrial buyers’ preferences for one supplier vs. another [48, 51]. Since they fail to indicate the motives of supplier choice, such organizational characteristics may be of little use to industrial marketers in understanding what action they must take to realize untapped potential within a market [4]. If making profits by adopting the marketing concept is the goal of an industrial firm, it probably should take a more refined approach to segmenting its markets.

If the marketing concept is to be adopted, there should be strong consideration of the needs and motives of the industrial buyers in segmenting a market. This requires that the market segments be defined by relating the bases to those combinations of product/supplier characteristics that are considered most salient to a population subgroup. If our goal is to develop such an approach, it is important to see what pertinent grounds are available to build on in the industrial marketing literature.

Cardozo [6] has presented a purchasing strategy approach—defined as having a ‘‘regular pattern of decisions which serve to meet particular purchasing objectives’’ for understanding industrial buying behavior and suggested its use for segmenting industrial markets. He compared the purchasing strategies of two procurement executives and found that strategies do indeed vary. One buyer was more concerned with price and the other was more concerned with delivery, suggesting that a different marketing approach may be appropriate for each purchasing strategy. This theory, in essence, suggests that for any industrial product there will be some important dimensions (the criteria used for evaluating alternative suppliers—in the cited situation, price and delivery), because of which all the potential buyers can be grouped into smaller groups in terms of the importance they attach to each of the dimensions.

Cardozo and Cagley [8], in an experimental study of industrial buyer behavior, again observed the possibility of segmenting industrial markets on the bases of the purchasing strategies and preference patterns that individual buyers consistently hold. They concluded that the purchaser places varying degrees of importance on two sets of variables: Supplier/vendor characteristics (such as reputation of the firm) and product/bid characteristics. The findings of their study, even though they did not explicitly propose a segmentation procedure that the industrial marketers may actually use, do have a lot to offer for developing such a segmentation procedure.

The studies referred to above may also be credited with stimulating other research studies pertaining to the investigation of purchasing motives. Cunningham and White [14] in their study pertaining to the field of standard machine tools, observed that past experience, delivery and price are the three most important characteristics when choosing a supplier. Other factors that may cause an industrial buyer to look more favorably at a particular supplier are opportunities for trade-ins, reciprocal buying and credit benefits.

Lehman and O’Shaughnessy [30] in their empirical study of differences in attribute importance for different types of industrial products, found that the choice criteria used by purchasing agents to select suppliers does vary with the type of problem likely to arise in adopting the particular product. They also found that reliability of delivery was a very important factor across all types of industrial products. Hakansson and Wootz [22] in their study of Swedish mechanical firms, found location to be the most important supplier characteristic and price to be a more important decision variable than quality. There have been a few other studies that have attempted to obtain an insight into the choice criteria used by industrial buyers for various types of products [1, 2, 15, 27]. They all observed, basically, that the buyers do vary in terms of the importance they attach to different attributes for different industrial products.

Meaningful segmentation research using product/supplier related purchasing motives is capable of answering several important questions such as:

  1. How do buyers’ choice criteria vary within and among classes of industrial products?
  2. Do these variations within product class constitute a feasible basis for segmenting industrial markets?
  3. How are the competitive supplier offerings within product class perceived by the segments in terms of the choice criteria?
  4. What ideal offerings do these segments of buyers and prospects desire?
  5. How may marketing programs tailored to the segments differ?
  6. How can segments be identified and programs tailored most profitably?

Answering these questions with the suggested approach to market segmentation should greatly increase industrial marketers’ knowledge of their customers’ needs, thus facilitating the adoption of the marketing concept.

Acknowledgment

The author would like to express his sincere thanks to professors Richard N. Cardozo and William C. Rudelius, and doctoral candidate Alan J. Dubinsky, all at the Department of Marketing, Graduate School of Business Administration, University of Minnesota, for their valuable comments on this effort.

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