Business Goods: Classification, Features, Marketing and Distribution Channels

In this article we will discuss about the business goods and services:- 1. Meaning of Business Goods 2. Classification of Business Goods 3. Distinguishing Characteristics 4. Marketing 5. Distribution Channels 6. International Standards Organisation and Total Quality Management

Business Goods and Services: Meaning, Classification, Characteristics and Distribution Channels

Meaning of Business Goods:

Business products are the goods and services needed in the process of creation of other goods and services. Consumer goods are in the final form ready to be consumed or used by individuals or families. Business products seek profit. Consumer goods are for personal service and satisfaction.

Business marketing may be defined as “an ongoing process of discovering and converting business customer’s needs, desires expectations and requirements into products and service specifications and then, in turn, through effective promotion, pricing, channeling and after- sale service, the process of convincing more and more of these buyers to use and continue to use these business goods and services.”

If a product is to be used in making other products or for the operation of an enterprise, it is called industrial or business product. Thus, business users are the buyers in a business market. If a product is meant for immediate consumption or use in the homes, it is naturally a consumer product and it is sold in a consumer market.

It may be noted that the high degree of buyer-seller interdependence and continued interaction (relationship after the sale) must be considered a unique feature of business marketing. A business customer stresses assured supply of business products in time and as per prescribed quality. Suppliers of business goods and services must maintain quality and timely deliveries.

Business market includes all business users as organisations buying goods and services for any of the following objects:

1. For manufacturing or producing other goods and services,

2. Reselling products to other business users, e.g., wholesalers and retailers of business goods,

3. Institutional purchases, e.g., Government buyers, educational institutions, hospitals, hotels, service organisations such as banks, insurance and transport undertakings, consultancy services such as management consultants, organisations offering financial and accountancy services, etc.,

4. Farmers and agro-business concerns such as food processors,

5. Mining, fishing, timber organisations.

Business Customers:

On the supply side of business market, the major participants are farming, mining, and manufacturing concerns. On the demand side of business market there are major participants such as farmers, industrial concerns, business user, Government agencies and departments, service organisations and all types of middleman traders, e.g., business distributors and exporters.

Broadly speaking business customers are classified into four groups- (1) commercial or business enterprises, (2) Government organisations, (3) institutions, and (4) service organisations.

Classification of Business Goods:

Consumer goods are usually classified on the basis of buying habits of consumer, viz., convenience, shopping and specialty goods. Business goods are classified on the basis of use of the product.

A typical classification involves five categories:

1. Raw Materials supplied by mines, agriculture, forest, and sea.

2. Fabricated parts and materials such as spare parts, spark plugs, batteries, steering wheels, tires, speedometer, yarn, steel, etc. These are also called components and parts which are assembled (without further change) in the manufacturing of a final product such as refrigerator, motor car, computer, etc. These components are recognisable in the final product. Many manufacturers prefer to buy (instead of making) these fabricated parts.

3. Installations:

They are of two types- (a) machinery used to process raw materials or manufacture final products from fabricated materials, (b) equipment used to conduct operation of a service business. Installations are large, expensive capital goods. They determine the nature, scope and efficiency of an enterprise.

There is large machinery or heavy equipment employed to produce the finished products or service. For example, blast furnaces are installations in a steel mill. Aeroplanes are equipments in an airline offering air transport service. Desks and chairs are equipments in a school. Installations (plant and machinery) are forms of fixed durable assets and they represent permanent capital of an enterprise. There may be multipurpose machines or single-purpose machines.

4. Accessory Equipment is an equipment in the form of light or minor machine and machine tools or implements. Such light equipments are necessary for the operations of a business but it is not used in manufacturing a product itself (like fabricated materials or components).

Examples of such light equipments or accessories are hand tools, forklift trucks in a factory, cash register in a retail store, calculating machines, computers, accounting machines in an office establishment. Installations have longer life and higher cost than that of accessory equipment.

5. Operating Supplies:

There is a lot of similarity between operating supplies and convenience goods bought by consumers. They have low price, short life and they are bought with minimum efforts. They are consumable items used up rapidly and hence, they are replaced frequently. Though operating supplies help the operations of an enterprise, please note that they do not become a part of the final product (like components).

Office stationery, ink, erasers, ball pens, are examples of operating supplies required by any enterprise. Sweeping compounds, detergents, lubricants, fuel are best examples of operating supplies in a factory or workshop.

6. Business Services:

In all industries, numerous services are necessary to plan, help or support the working and operations of an enterprise. They include everything from cleaning and sanitation services to highly skilled and professional services.

Among the more common professional services are management consultancy services, protection services, maintenance services, advertising agencies, marketing research agencies, credit intelligence services, marketing information services. Small and medium firms cannot maintain experts on a permanent basis. Such services can be hired for a certain fee, whenever occasion demands.

Distinguishing Characteristics of Business Goods:

It is true that differences between business marketing and consumer marketing are, in reality, differences in degree rather than kind. General theory and practice of marketing can be applied to all marketing activities.

However, in order to understand and handle intelligently business marketing problems, we must recognise and take into account a number of substantial differences between business marketing and consumer marketing particularly relating to market demand, buyer behaviour and the four ingredients of marketing-mix, such as product, pricing, promotion and distribution.

Marketing of business goods differs from marketing consumer goods in the following important ways:

1. There is a much closer relationship and inter-dependence between business functions, such as marketing, manufacturing, research and development, engineering, and inventory control. Customer-oriented marketing approach is an absolute necessity in business marketing.

2. Technical product complexity is very dominant in business marketing; product involves combination of physical, economic, technical and personal relationship between buyer and seller.

3. There is a high degree of buyer-seller inter-dependence. Buyer is dependent on the seller for assured continued supply of business goods. Hence, pre-sale and after-sale services assume unique importance in business marketing.

4. Buying process of business goods is very complex. Complexity is a word often used to summarise the unique features of business marketing.

Marketing of Business Goods:

Demand Features of Business Market:

Important demand features distinguishing business market from the consumer market are:

1. Demand for business products is derived.

2. It is also relatively inelastic.

3. It is widely fluctuating.

4. Business buyer is well informed and always insists on quality of supplies and on regular timely deliveries.

5. Demand for business product is in big quantities and, therefore, retailers play a minor role in distribution.

6. Business buyers are geographically concentrated.

7. There is close and continuous buyer-seller relationship in business market.

1. Marketing of Natural Raw Materials:

Raw materials are defined as items that have undergone no more processing than is required for economy or protection before being transformed in the final product. There are two kinds of raw materials in the business market. Natural products are supplied by nature — mine, sea and forest goods. Then there are agricultural raw materials or farm products, such as cotton, jute, and oilseeds.

Factors Influencing Marketing of Natural Products:

1. Usually we have direct sale of natural products from producer to business user. Sometimes we may have just one middleman, if necessary. Hence, we have a short distribution channel.

2. The products are bulky and producer is separated from user by a long distance. Larger bulk, low unit value and long distances will naturally create higher cost of transport. We have to give special attention to reduce transport cost. To reduce transport cost, many a time factory is located near the natural raw material sources.

3. Appreciable differences in quality demand standardisation and grading in order to facilitate marketing.

4. Promotional tools like branding and advertising are not essential in marketing.

5. Due to obvious limitation on the supply of natural raw materials such as copper, iron ore, coal, manganese, mica, etc., there is a problem of assured supply continuously and in time. Hence, the interested business buyer enters into long-term contract with the suppliers for future delivery.

Forward purchase contracts are essential. Vertical business combination is also a good solution to solve the problem of essential raw material supply. For instance, iron and steel company may own coal mines and iron ore mines. Petroleum refinery companies may own oil mines.

Conclusion:

Business marketing of natural raw materials have three vital problems to be solved-(1) transport cost, (2) demand for standardisation, and (3) assured and timely supplies. Transport cost of natural raw material influences location of manufacturing and processing organisations. Importance of standardisation is constantly stressed by business customers.

The need for an assured supply and the problem of fluctuating prices of raw materials can be solved only by vertical integration and securing direct ownership and control of important sources of supply.

2. Marketing of Component Parts and Process Materials:

A final product like an automobile or a refrigerator needs assembling of numerous finished parts or components. These are also called fabricated parts. Similarly, we need numerous process materials in the manufacturing of medical and chemical products. Fabricated materials are subjected to further processing and lose their identity. Fabricated parts are used in the final product without any change.

Factors Influencing Marketing of Fabricated Parts/Materials:

1. These products are bought on the basis of specifications given by the buyer or according to standards developed by trade or Government agencies.

2. These products are bought in large quantities at a time. Buying motives are rational.

3. The practice of advance contract or forward purchasing is common to secure assured and timely deliveries.

4. Large buying concern may buy these products directly from the market or producer and only for small buyers, we have middlemen resellers.

5. To ensure uniformity of quality and regular delivery, a buyer prefers to buy these products only from one or a few suppliers and negotiation of contracts is important to both the buyer and the seller.

6. Promotional tools like branding, packaging, and advertising do not assume any special importance.

3. Marketing of Installations (Heavy Machinery and Equipment):

Major industrial machinery and equipment involve huge capital expenditure and constitute the fixed assets of a concern.

Factors Influencing Marketing of Heavy Machinery and Equipment:

1. Business marketers of big machinery and equipment are faced with a real marketing challenge. Each sale has a very high unit cost. We have direct sale without middlemen.

2. Usually these products are custom-made (as per demand) strictly as per detailed specifications and design.

3. The marketing of these costly capital goods involves prolonged negotiation demanding close cooperation between the technical and sales staff of the seller and the buyer.

4. Personal, professional and technical salesforce is necessary to promote sales and secure big orders. Advertising and sales-promotion are of minor importance.

5. Pre-sale and after-sale service are essential in marketing of installations. We need technical services at the time of installation as well as initial operation. Similarly, maintenance and repair services are necessary. Before buying a new costly machine, e.g., a computer, a buyer has cost-benefit analysis and the purchase decisions are based on facts and figures.

6. As major machinery involves considerable capital expenditure, its purchase involves financial problems for the buyer. Marketers have to arrange for their sale on credit, e.g., instalment sale.

4. Marketing of Accessory (Minor) Equipment:

As the minor equipments are usually standardised products, there is a widespread market for their sales. These minor machines and accessories are useful in numerous different types of business.

Factors Influencing Marketing of Accessory Equipment:

1. Marketing organisation is widespread, (geographically dispersed). It involves many business distributors or sales agents. As buyers are scattered, we need regional and local resellers to provide prompt delivery of these products. We have sale of these products through numerous outlets.

2. Pre-sale and post-sale services are normally required though they are not very important.

3. As we have mass-production and mass-distribution, we need promotion tools like advertising and sales promotion to stimulate demand.

4. These products are usually branded and brand preference plays an important role in distribution.

5. Buyer-seller relationship is less direct and immediate. It is not possible in mass-distribution.

6. Price is not an important factor in promotion and quality and reliability are given first preference. Therefore, sale by branding is common. Branded products assure quality and reliability.

5. Marketing of Operating Supplies:

Operating supplies are needed particularly by all business customers. They are used up in the routine operations of the plant or office. They are the convenience goods of industry.

Factors Involved in Marketing of Operating Supplies- (1) they must be marketed on a widespread basis. (2) Price competition plays an important role. (3) Promotion tools like advertising are not very important. (4) Brand preference is low. (5) Advance purchase contracts are not common. (6) Distribution needs many middlemen and many outlets. (7) Wider market and small unit of purchase make direct buyer-seller relationship difficult and uneconomical.

Channels of Distribution of Business Goods:

1. Direct Sale to business customer through competent salesmen.

2. Direct Sale to business customer through regional sales branches with or without warehouse.

3. Indirect Sale through Manufacturers’ Sales Representatives (Commission Agents).

4. Indirect Sale through Business Distributors (Merchant Middlemen).

5. Indirect Sale through sales branches and business distributors.

6. Indirect Sale through Manufacturers’ Representatives and business distributors.

7. Direct Sale to very big customers called House Accounts through higher marketing executives. Very big orders and repeat orders are handled by responsible officers. House Accounts prefer to buy directly business goods from the manufacturer/maker.

Business Goods Distribution:

The channels of distribution constitute the extension of the marketer into the markets he plans to supply. The channel of distribution has to be selected by the marketer for distribution of business goods in the business market.

In the business market there are the following channels of distribution:

1. Sales Branches:

Manufacturer’s branch houses and branch offices can bring about distribution of product with the help of salesmen having professional and technical competence. Such distribution outlets are part of the internal organisation of the manufacturer. Here we have direct sale to business users without any middlemen.

Direct channel (no independent middlemen) is more common in business marketing. It is always preferred due to the following reasons- (1) Very large purchase orders can be handled directly. (2) Limited number of buyers can be approached directly. (3) When there is a special demand for close and continuous buyer-seller relationship. (4) Pre-sale and after-sale services are important. (5) Technical and pricing problems demand direct negotiation between seller and buyer.

2. Sales Agents:

Manufacturers may employ sales agents who are also called manufacturers’ representatives. They act on their own account on the basis of commission. In reality they are independent salesmen. They handle the products of several, but non-competing manufacturers. They have on-going, long-term relationships with their principals.

They are given certain sales territories. They are useful as an alternative to company-employed salesmen. They are a necessity for small manufacturers, who cannot have their sales branches and salesforce, and who lack marketing experience.

There are a few drawbacks of agents against their advantages of low marketing cost, established contacts and competent selling. Manufacturer may loose control over sales agents.

3. Business Distributors:

Business distributor is a middleman who buys and sells business products. He is a merchant middleman buying goods, assuming ownership, stocking products, undertaking marketing risks and maintaining close contact with business buyers.

There are general line distributors or mill supply houses. They are general line, full service merchant wholesalers. They carry large number of items. There are also special distributing firms. They carry limited line of related products. They specialise in a particular line of business goods.

A combination house does other forms of wholesaling in addition to business distribution. For example, an industrial distributor of electrical goods sells to retailers, institutional buyers as well as to the manufacturers and the construction firms.

Why Customers Buy from Business Distributors?

1. Buyer can get fast and economical delivery of goods. Buyer can place one order for many goods. Local distributor can give quick delivery and save paperwork in buying. Speed and certainty of delivery are always welcome by business buyers.

2. Buyers can get product information. Distributors’ catalogues provide a fund of information about products of many manufacturers.

3. To small buyers, the business distributor offers credit.

4. The distributor is a local concern. He knows buyer’s needs and expectations fully. He can offer a wide assortment of products to fulfil the special needs of his customer.

5. Buyer can save his time and effort by asking the local distributor to produce hard-to- find equipment and parts.

Why Manufacturers Sell through Distributors?

1. Manufacturer need not build up regional sales branches and salesforce. Entry into market can be made by addition of a few distributors.

2. Distributor has long experience and best knowledge of local markets.

3. Distributor with numerous products gets easier contact with prospects. A salesman with a single line may not get such easy access to prospect.

4. Distributor gets straight commission on sales. Hence, sales expenses are controllable.

5. Distributor performs all marketing functions, such as assorting, financing, storage, sorting, transportation, risk-taking etc. He can offer these specialized services at reasonable cost to the manufacturer.

4. Brokers:

In business marketing, brokers play a minor role. If goods are standardised, sale by description or brand is possible, the marketer can use broker’s services for selling the products. Operating supplies and raw materials can be sold through brokers conveniently. In the marketing of raw materials, i.e., agricultural products, brokers are helpful, e.g., in the cotton industry. Brokers are expert buyers in their field.

5. Selling Agents:

Manufacturer’s agents do not take over the stocks of their principal but sell items for more than one producer. Selling agent is under contract to dispose of the whole output of the factory and to handle no goods — at least no competing goods. Manufacturer’s agent has a certain sales territory. Selling agent sells anywhere as he can.

Phases of Complex Act of Business Goods Buying:

1. Recognition of buyer’s problem and need,

2. Determination of the quality and characteristics of the needed products,

3. Description of the quality and characteristics of the required product,

4. Search for and qualification of potential sources,

5. Acquisition and analysis of proposals available,

6. Evaluation of proposals and selection of suppliers,

7. Selection and order routine,

8. Performance evaluation and feedback for the goods or services that have been bought. Future dealings with a supplier will always depend on the performance evaluation and post-purchase satisfaction. Prompt after-sale service would solve any problems arising later on.

Who can make the Purchase Decision?

(1) Top management,

(2) Finance executives,

(3) R & D executives,

(4) Production and/or engineering staff,

(5) Industrial engineer and/or production control executives,

(6) Quality control staff,

(7) Marketing staff,

(8) Purchasing staff,

(9) Factory receiving or warehouse and transport departments.

In the new purchase decision, technological and economic factors will have to be given special consideration. Business buyers want products or services of right quality, at acceptable prices, in the right quantity, at the right place, at the right time and from the best sources.

In the modified repurchase decision, modifications may be required due to certain reasons. There may be a change in the design or technology at the buyer’s or seller’s company. Customer needs may be changing. There may be change in the available sources. These and other changes may make initial product or service now unsuitable.

The issues of Standardisation vs. Adaptation play a role in the marketing of business goods. There is much greater degree of standardisation in the business products as well as in the marketing-mix of these products. There is similar buying patterns, similar demand features and similar motives of business buyers. Selling techniques for industrial goods are also similar. Photocopiers, computers, are standardised products in the world market.

International Standards Organisation and Total Quality Management:

In business marketing, at present Total Quality Management has assumed unique importance particularly in international markets.

Total Quality Management is a philosophy that focuses on quality at every level, process and product in the organisation. An organisation that adopts TQM should be ready to implement change. It should be able to review its policies, practices and procedures in all areas of management, keeping in mind that quality is a way of life and not a magic formula. Excellence in the total process of management alone can offer total customer satisfaction and profitable sales.

Quality is suddenly the buzzword in the national and international markets today. ISO certification assures total quality management and other new concepts such as quality circles and statistical quality control in the production and marketing of both consumer and business products.

Now in a market place crowded with multinationals and with a more demanding customer, Indian enterprises are suddenly faced with a question, can they compete on quality and performance? Marketers are realising that improving quality goes beyond making an attractive product. It involves re-orienting production process, marketing process and also other aspects such as Research and Development, after-sales service and all aspects of quality assurance.

Today, there are few companies that have not heard of TQM and ISO certification issued by International Standards Organisation. The marketer is anxious not to let his tenuous hold on the market (home or foreign) slip with the coming of world demand for ISO terms.

Since 1992 ISO-9000 series has stormed the Indian scene. The first in the series ISO- 8402, gives the vocabulary on quality, defining the basic and fundamental terms used. ISO-

9000 offers guidelines, and clarifies the links between the various quality concepts. ISO- 9001 is the model used in a company that develops and designs its own products. It ensures conformity from the design to the servicing stage. ISO-9001 covers 20 aspects. ISO-9002 covers the production and installation aspects. It deals with 18 aspects, leaving out design control and servicing.

ISO-9003 is an even simpler model, dealing with only 12 aspects. ISO- 9004 is a non-contractual model for a more advanced stage of TQM. It includes the 20 aspects for ISO-9001, with two additional items, ‘quality costs’ and ‘product safety and reliability.’ Being non-contractual, it merely offers guidelines, and there is no certification for its implementation.

One of the requirements of the ISO standards is an effective management representative who would be responsible for the effective documentation, implementation and co-ordination of activities of all senior executives. The standard requires that the management of the organisation must clearly enunciate its quality policy, the intentions and the directions of the organisation vis-a-vis quality.

Everybody in the organisation must understand the policy and work towards its implementation and maintenance. The management must take suitable measures to ensure that the policy is understood. Further, proper training brings understanding, and leads to commitment and involvement essential for its implementation. By 2000 there were over 1000 companies with ISO 9000 certification.

The Customer Bank:

Retaining your customers in a highly competitive and ever-changing market-place is indeed a tough task for all business marketers and not merely to consumer goods marketers. We have cut-throat competition in the market for consumer as well as business goods.

If one is not even certain about one’s present customers, how can he then be sure about getting customers in the near future? It certainly is a tough battle. Mass marketing has become outdated. Mass markets were replaced by segments and then segments were also replaced by niches. Now these niches are also giving way to individual — a single individual or a major account.

Increasing keen competition, the entry of many multinational companies in India, the emergence of global marketing and global challenges, the need for sustained growth, rising customer expectations now demanding value in time (products offering saving of time and effort) and not merely value in money, and limited company resources have considerably reduced the marketer’s reliance on telephone calls or on personal salesmanship and face-to-face interaction.

Business marketers will have to locate potential customers, cultivate them over a period of time. This implies that they will have to create a customer bank for potential use and then constantly go about wooing them. Business marketers use computers for sales-oriented activities rather than for market-driven purpose.

Very few use computers for building up a data base of potential customers and transform potential customers into active customers. The Customer database offers numerous possibilities. It could provide, for instance, control over potential customers to a marketer. Many marketers are under the impression that personal selling is the key to business marketing. They overlook an important reality. Personal selling alone is not sufficient for creating customers who will be doing business with you a few years from now.

There are three on-going and continuous steps or phases in the computer application for a customer data bank- (1) Identification of potential customers as an on-going mechanism, (2) Creation of a database in the overall customer development programme, and (3) Monitoring progress on a regular basis for translating potential customers into active customers.

Conclusion:

Business goods are meant for use in producing other goods or rendering services as against goods meant to be sold to ultimate consumers. The demand for business goods depends upon the demand for consumer goods. Business goods are used in manufacturing consumer goods. The buying process includes identification of needs, establish specification, and identify vendors, evaluation of vendors, select vendor, purchase negotiation, placing order and post purchase evaluation. Business marketing requires high degree of buyer-seller interaction and assured supply of business goods as per prescribed quality.