Saturday, December 12, 2009

Derived Demand for Industrial Goods and Services

Derived Demand for Industrial Goods and Services
Demand for industrial goods and services are derived from the demand for consumer goods and services.

Raw materials, components and subassemblies become part of the customer’s finished product and therefore, the demand from them is directly determined by the demand for the industrial customer’s product.

Not so obviously but equally true, the demand for capital equipment, for maintenance and repair item, and for services of various kinds is also determined by the strength of demand facing the industrial marketer’s customers.

It is probably more realistic to say that industrial customer; purchases reflect their expectations about future demands for their goods and services.

Clearly purchasing decisions must be made in anticipation of the market conditions that the customer company expects to face.

The customer’s actual need for products, willingness to make commitments to potential suppliers, and ability to pay for these purchases are all a function of the customer’s optimism or pessimism about the future.

Information about purchasing agent’s expectations has proven to be a useful indicator of economic growth.

Some purchases may be made in anticipation of hard times rather than good times. For examples, cost reducing capital equipment may become a more attractive purchase of a company expects to face declining sales and eroding profits margins.

Or, to take an opposite situation, a customer operating at full capacity may not have enough organizational slack to permit a program of equipment installation or other innovation requiring a modification of production schedules.

Because demand for industrial products s derived demand, industrial marketers can sometime stimulate demand for their products by stimulating demand for their customer’s products.

A somewhat more complex from of end-user demand stimulations is often required to develop markets for truly innovative products.

For example, a manufacturer of a high barrier paper coating material used in food packaging found it necessary to work with paperboard manufacturers, paper coaters, packaging forms, food processors and retail chains in order to develop the markets for its product.

It is therefore true that understanding the nature and scope of industrial markets requires understanding both the nature of demand facing the industrial customer an the customer’s customers through out the marketing channel to actual consumer demand.

In addition, it is usually helpful to analyze competition in the customer’s industry and perhaps competition among the customers in the market that customer serves.
Derived Demand for Industrial Goods and Services

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