224 ENTREPRENEURSHIP
Industrial or business goods are usually sold to businesses or their intermediaries
(wholesalers or distributors) either for resale or for use in the production of another
good or service. Examples of industrial goods are raw materials, machines that make
products or make other machines (machine tools), and supplies for factories or offices.
There are five basic types of industrial product: direct materials; indirect materials; cap-
ital assets; contracted services; and maintenance, repair, and operating supplies (MRO).- Direct materialsinclude the raw materials, subassemblies, and components used in
manufacturing. For example, in manufacturing MP3 players, direct materials
include the electronics that are the guts of the player; the cases to hold the electron-
ics; any coatings applied to the casings; any displays, knobs, or dials attached to the
player; and the wires and headphone apparatus. - Indirect materialsare the supplies used in the manufacturing process but not phys-
ically incorporated into the final product. Office supplies are the most common
example. Because these supplies are often difficult to differentiate and are sold at
prices very close to cost, they are like commodities. In this case, entry barriers are
high and new entry opportunities are limited. - Capital assetsare major machinery and equipment purchases, buildings and land,
and construction projects for plant and leasehold improvements. These purchases
(and subsequently sales) are different from other types of industrial products.
Capital assets are usually purchased as a result of budgeting decisions and plans.
Because of the large sums of money involved, high-level executives are often the
decision makers. Because each side has so much at stake, negotiations between ven-
dor and buyer tend to be complex. - Contracted servicesinclude a broad range of activities including consulting, engi-
neering, market research, and accounting. In Chapter 1 we referred to the trend for
larger organizations to keep only the core distinctive competence under their direct
control and to subcontract other auxiliary services. This “shamrock” organizational
form was described as promoting entrepreneurship by creating the need for all sorts
of contracted services. There are many niches available in service contracts, and
firms that succeed will do so by successfully managing exceedingly complex tasks
and relationships. - Maintenance, repair, and operating (MRO) products form a large market com-
posed of the many essential supplies that businesses cannot do without: Light bulbs,
janitorial supplies, and toilet paper are examples. The procurement of these items
usually falls to a purchasing agent. PAs will expect competitive prices, but most of
all they value vendors who can guarantee convenient delivery schedules and who
have an established reputation for reliable service.
Business marketing is different from consumer marketing because the buyers are dif-
ferent, and the criteria by which they make decisions are more complex. Table 6.5 sum-
marizes these differences.
Note that many business-buyer characteristics are salient for the application of the
Porter model of competitive industry analysis covered in Chapter 3. This emphasizes
that the strategies and tactics of business marketing are different from those of typical
consumer marketing.