Comparing Consumer to Industrial Marketing. Page 4 / 5

4.1 Influence of supply chain position?

Industrial markets

Industrial businesses may be involved in the supply of components which end up in consumer products.

It follows that these markets will have smaller total value than the end consumer or retail market for these items. That is not to say that percentage profit margins need be any smaller.

Consumer Markets

At the consumer end of the supply chain all value that has been added in the supply chain is evident in the price of the goods or services and therefore the market value will be the maximum for companies in this chain.

Levels of competition and the power structure pertaining to the market do not mean that percentage profits will be higher.

Summary: Consumer (end user) markets will have a higher value than those higher up the supply chain although capital equipment and infrastructure markets do not correspond in the same way.

4.2 Maximum value of transactions?

Industrial markets

Unlimited.

Industrial contracts often run into the millions in the case of high value plant and equipment or infrastructure, while at the lower end individual transactions can be tiny in respect of consumable items such as pencils.

Consumer Markets

Typically the most expensive purchase individual consumers make is their house, followed by their car. Neither of these are very often undertaken when compared to more consumable items which may be bought daily weekly or monthly.

Summary: The highest individual transactions occur in industry.

4.3 Regularity of repeat transactions and volume?

Industrial markets

The highest value industrial transactions are not going to occur often. Industrial markets feature the range of transactions from stand alone transactions to regular rebuy.

Where volume is concerned, industrial markets are more likely to feature volume and or bulk buying than the consumer sector. This impacts packaging and handling of goods where returnable and reusable containers which hold multiples of items are often used. These would be unsuitable for end customers in the consumer market.

Consumer Markets

Highest value consumer purchases also do not repeat often but there are more of them.

Normally volume and bulk buying occurs less often than in industry. Consumer packaging is usually for single or lower quantities of units and often doubles in function also being used for product display in retail outlets. Perhaps because of this it appears less often to be reusable or returnable.

Summary: It is hard to differentiate between industry and consumer markets based on regularity of re-purchase as both include all levels from one time transaction to regular rebuy. With volumes per sale being smaller in consumer markets product packaging however is distinctly different being used as protection and point of sale display. There is therefore a greater requirement for graphic POS design here for consumer marketers.

5.1 Barriers to supplier entry

Industrial markets

Buying groups mentioned above may provide some resistance to change in industry. These groups may act like an informal barrier to competitive entry.

Consumer Markets

Consumer markets may feature restrictive retail channels which may act to slow entry of new competitors but this is not exclusive to retail and consumer markets.

Summary: All the usual requirements to produce to local standards and regulations are present in the industrial and consumer market places.

I cannot think of structural reasons why barriers should be greater in either sector. Possibly the ability to buy top of mind awareness in consumer markets with a high advertising spend may make consumer sectors slightly easier to get into.

5.2 Where do buyers have greater knowledge and information?

Industrial markets

Buyers and influencers in industrial markets typically have or can obtain high levels of technical knowledge about the items they are buying. It is normal if a commercial relationship has any value to know considerable detail about the supplying organisation, their products or services, their quality systems, cost structures, production methods, development expertise and financial viability.
Often if the buying organisation has any power they will be able to obtain this information about competing organisations as part of a bidding process and thus could be argued to have good market knowledge.

Consumer Markets

While consumerist organisations and governments try to bring more knowledge to individual consumers the power imbalance between seller and buyer is stacked greatly in favour of the selling organisation over the individual.
Can you imagine shoppers at a supermarket being able to visit and inspect conditions in production facilities in overseas locations, this routinely occurs in industry.
Can you imagine consumers routinely obtaining the cost structure and gross profit budgets from their supermarkets or being able to access the required information to make ethical choices?

Summary: while government regulation tries to remove some issues from the decision making process of consumers it is arguable that consumers simply do not have the power to be able to obtain anywhere near perfect market knowledge.
The simple fact that governments feel the need to legislate on issues such as consumer product labelling indicates that consumers are not able to organise to exert enough power to extract this level of basic information on their own or in groups.
Industrial markets I argue, while still featuring imperfect market knowledge where there is power imbalance, are going to be closer to the "perfect knowledge" clause required for perfect market operation.

5.1 Switching costs?

Industrial markets

Industrial markets often feature high switching costs. This is the cost to the organisation of changing suppliers. Often drawings, specifications, test results and approvals will all be affected and buyers may need to seek the permission or approval of their customers to change a component in an item they are selling on.

Consumer Markets

I would argue that switching costs in consumer markets are lower than in industrial situations, the lack of formal procedures and buying groups may be a cause. For an individual consumer to switch from one brand of toothpaste to another (which might affect the integrity of their teeth) is likely to be much less painful than for a company to switch from one supplier of adhesive to another (which might affect the integrity of their aircraft wings!).

Summary: Switching costs (to new suppliers) tend to be higher in industry and where this is true there is less chance to persuade a company to try a new offering.
Conversely in consumer markets, where switching costs are lower, there is a greater chance to persuade someone to switch and try something else. Thus there is greater use of sales promotion including normal mass advertising.

When you consider the possibly easier entry into some consumer markets with a high advertising spend and the increased chance of getting consumers to try a new item the first time, this may start to explain why consumer markers are often called fast moving consumer markets or "FMCG".