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Ind. Ch 2 (ppt).pptx

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Ind. Ch 2 (ppt).pptx

  1. 1. CHAPTER 2 THE NATURE OF DEMAND IN INDUSTRIAL MARKETS
  2. 2. 2.1 Demand Defined • Demand can be defined as the volume of a specific product a customer or customer group in a particular geographic area buys during a specified period of time.
  3. 3. Derived Demand • Business demand differs from consumer product demand in a number of significant aspects. • Derived demand can be defined as the demand for a business product that is linked to demand for consumer goods. • Purchases made by business buyers, institutions, and organizations are expressions of derived demand – that is, they are derived from the demand generated by the customers or clients of the organization. • Direct Demand • Direct demand is generated by individuals who buy goods and services to satisfy their own personal needs.
  4. 4. • Inelastic Demand • The primary or direct demand for business products is more price inelastic than that for consumer products. Inelastic demand takes place if price changes have little impact on the quantity of goods or services demanded. • Fluctuating Demand • The demand for industrial goods and services tends to be more volatile than the demand for consumer goods and services. • Joint Demand • Joint demand exists in situations where two products are used together and are demanded together.
  5. 5. 2.2 The Implications of Derived Demand • The concept of derived demand is perhaps the most important idea in business marketing with many significant implications for the marketing mix. • Changes in the business marketer's price may shift market shares among competitors but are not likely to affect overall industry demand. • The business marketer's promotional efforts may benefit from use of a telescopic marketing strategy. • In distribution, changes in demand may be magnified by the acceleration effect, the whiplash effect, inventory policies, speculation, and discontinuities associated with capital goods purchases.
  6. 6. 1. Price and Profit Impact • Derived demand carries three implications for the pricing of business products and services: difficulty in expanding overall demand, relative price insensitivity, and relative price sensitivity.
  7. 7. a. Difficulty in Expanding Overall Demand • it is virtually impossible to expand total market demand by lowering the price of a component sold in the business market. • b. Relative Price Insensitivity (industrial buyers) • In industries in which industrial products feed production lines, the customer is likely to view price as relatively unimportant in comparison with such supplier attributes as assurance of stability in product specifications and reliability in consistently meeting delivery dates. • The buyer will pay more to prevent breakdown in capital equipment and to keep the assembly line moving. • Organizational buyers are also willing to pay a higher price if purchases promise to make their products more attractive to the customer. • business marketers must keep in mind their customer's customers.
  8. 8. • c. Relative Price Sensitivity (industrial marketers) - In comparison with the direct-demand consumer market, derived demand tends to respond more often to pressure on price. One reason for this is the profit-generating potential of any cost reductions the business buyer can achieve. • However, business marketers can insulate themselves from such pressure if their product or service plays a critical role (as in the case of assembly-line supplies) or if they have created a competitive advantage for their product or service.
  9. 9. 2. Promotion • Because of derived demand, business marketers must direct promotional efforts to more targets than just their immediate customers. • They may need to use pull promotion to increase derived demand by stimulating their customer's customers to specify the marketer's specific material, component, or service thus pulling the product through the distribution channel from a lower level.
  10. 10. • Telescopic Marketing strategy - • In telescopic marketing, the marketer stimulates direct demand for an end product containing the marketer's product. This in turn increases derived demand for the business good or service. • Thus telescopic marketing is something more than a simple pull promotion strategy.
  11. 11. Factors Permitting Use of Telescopic Marketing - • a company that is considering telescopic marketing should have a high market share in the product. • Telescopic marketing is a feasible strategy for products or processes that are patentable or that have high entry barriers. • Telescopic marketing is likely to bring the greatest derived- demand benefits if current penetration of end markets is small. • The state of the economy is another variable affecting the feasibility of a telescopic marketing strategy. • Finally, the marketer should weigh the advantages and disadvantages of the item to be promoted from the perspective of all channel members.
  12. 12. 3. Distribution • The chain of derived demand forms a channel of distribution characterized by dramatically wide swings in inventories and expectations. • This boom and bust volatility can be caused by shifts in tastes and preferences at the consumer direct demand level, by inventory policies, by technological developments, or by changes in economic conditions.
  13. 13. • a. The Acceleration Effect -A change in direct demand at the consumer level has an acceleration effect on the business market. • For instance if the overall business demand decreased by a larger absolute amount than the decrease in consumer demand, it is also likely that distributors, jobbers, and retailers, which base their inventory levels on some multiple of current sales, will further reduce their inventories. This will have an accelerating or multiplying effect on inventory levels back through the channel.
  14. 14. • b. The Whiplash Effect - The small fluctuations in retail demand that are reflected in inventory patterns at each level of the channel are called the whiplash effect. • c. Volatility in Longer Channels - When organizational buyers are trying to assure adequate supplies of components and material for production in their company they too will establish an inventory objective for each item they buy.

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