Chapter 6 Business-to- Business (B2B) Marketing. 6-2 Chapter Objectives 1.Explain each of the components of the business-to- (B2B) market. 2.Describe.

Chapter 6Chapter 6

Business-to-Business-to-Business (B2B) Business (B2B)

MarketingMarketing

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Chapter ObjectivesChapter Objectives1. Explain each of the components of the business-to-

(B2B) market.2. Describe the major approaches to segmenting

business-to-business (B2B) markets.3. Identify the major characteristics of the business market

and its demand.4. Discuss the decision to make, buy, or lease5. Describe the major influences on business buying

behavior.6. Outline the steps in the organizational buying process.7. Classify organizational buying situations.8. Explain the buying center concept.9. Discuss the challenges of and strategies for marketing

to government, institutional, and international buyers.

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Nature of the Business MarketNature of the Business Market

Business-to-business marketingBusiness-to-business marketing: organizational sales and purchase of goods and services to support production of other goods and services for daily company operations or for resale

B2BB2B: a popular acronym for the business-to-business market

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Like final consumers, organizations purchase products and services to fill needs

Their primary need is meeting the demands of their own customers

Business buying decisions:Are more formal Involve complex interactions among many

peopleMust consider the organization’s goals

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Business-to-Business Marketing Consumer-Goods Marketing

Product Relatively technical in nature, exact form often variable, accompanying services very important

Standardized form, service important but less than for business products

Price Competitive bidding for unique items, list prices for standard items

List prices

Promotion Emphasis on personal selling Emphasis on advertising

Distribution Relatively short, direct channels to market

Product passes through a number of intermediate links en route to consumer

Customer Relations

Relatively enduring and complex Comparatively infrequent contact, relationship of relatively short duration

Decision-making process

Involvement of diverse group of organization members in decision

Individual or household unit makes decision

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Components of the Business Market Components of the Business Market Commercial MarketCommercial Market: Individuals and

firms that acquire goods and services to support, directly or indirectly, production of other goods and services

Trade IndustriesTrade Industries: Retailers and wholesalers who purchase goods for resale to others.ResellerReseller: often used to describe the

wholesalers and retailers that operate in the trade sector

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KmartKmart and SearsSears reselling Martha Stewart paints

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Government Government OrganizationsOrganizations: Include domestic units of federal, state, local and foreign governmentsIRS buys

products to provide federal tax service

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InstitutionsInstitutions: includes a wide variety of organizations, both public and private, such as hospitals, churches, universities, museums, and not-for-profit agencies.

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B2B Market – The Internet ConnectionB2B Market – The Internet ConnectionInternet plays an important role in B2B

marketing90 percent of all Internet sales are B2B

transactions

Differences in Foreign Business MarketsDifferences in Foreign Business MarketsMust be willing to adapt to local customs

and business practices

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Segmenting B2B MarketsSegmenting B2B Markets

Demographic Demographic SegmentationSegmentation: demographic characteristics define the useful segmentation criteria for business marketsUsing Demographic

Segmentation in Business Markets

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Customer-Based SegmentationCustomer-Based Segmentation: dividing a B2B market into homogenous groups based on buyers’ product specificationsNorth American Industrial Classification

System (NAICS): classification used by NAFTA to categorize the B2B marketplace into details that market segments -- -- replaced the Standard Industrial Classification (SIC) System

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Segmentation by End-Use ApplicationSegmentation by End-Use Application: segmenting a business-to-business market based on how industrial purchasers will use the product

Segmentation by Purchase CategoriesSegmentation by Purchase CategoriesCenters on the purchasing situationOrganizations may use complicated

purchasing proceduresFirms also structure their purchasing

functions in specific ways (e.g. centralized purchasing departments)

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Characteristics of the B2B MarketCharacteristics of the B2B Market

Geographic Market ConcentrationGeographic Market ConcentrationU.S. business market is more geographically concentrated than the consumer marketManufacturers concentrate in certain

regions of the countryCertain industries locate in particular areas

to be close to their customersFor example, suppliers of automobile

components and assemblies frequently build their plants close to their customers

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Sizes and Numbers of BuyersSizes and Numbers of BuyersBusiness market features a limited number of buyersUse statistical information to estimate the

size and characteristics of business markets is available

Federal government is largest single source of such statistics

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The Purchase Decision ProcessBusinesses must understand the dynamics of the organizational purchasing processB2B suppliers often must work with

multiple buyersDecision-makers at several layers may

influence final ordersProcess is more formal and professional

than with consumers

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Buyer-Seller RelationshipsBuyer-Seller RelationshipsMore intense than consumer relationshipsRequire better communication among the

organizations’ personnelPrimary goal of B2B relationships is to

provide advantages that no other seller can, for instance:Lower-pricesQuicker deliveryBetter quality and reliabilityCustomized product featuresMore favorable financing terms

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Genuine JDGenuine JD stressing the importance of business relationships

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Evaluating International Business MarketsEvaluating International Business MarketsBusiness purchasing patterns often differ from one country to the nextCompanies must weigh quantitative and

qualitative dataGlobal sourcing: purchasing goods and

services from suppliers worldwide

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Chubu ElectricChubu Electric practices global sourcing

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Derived DemandDerived Demand: demand for a resource that results from demand for the goods and services that are produced by that resource

Volatile DemandVolatile Demand: changes in demand that are disproportionate to normal trends

Joint DemandJoint Demand: demand for a product that depends on the demand for another product used in combination with it

Inelastic DemandInelastic Demand: demand that, throughout an industry, will not change significantly due to a price change.

Inventory AdjustmentsInventory Adjustments: Just-in-time inventory policies (JIT & JIT II)

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Business Market DemandBusiness Market Demand Derived Demand – the demand for corn derived from

demand for ethanol Volatile Demand – the lower demand for new housing

construction results in lower demand for lumber, concrete, plumbing items

Joint Demand – greater demand for gasoline will cause greater demand for motor oil

Inventory AdjustmentsJust-In-Time inventory policies require suppliers to

deliver inputs for production just as the production process needs them

Just-In-Time II brings supplier representatives into the customer’s facility to better manage supply

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Microprocessors: An Example of Derived Demand

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The Make, Buy, or Lease DecisionThe Make, Buy, or Lease Decision

Three Basic Options:Make the good or provide the service

in-house

Purchase it from another organization

Lease it from another organization

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The Rise of Outsourcing The Rise of Outsourcing Using outside vendors to produce goods

and services formerly produced in-houseOutsourcing

May be cost effectiveAllows a firm to obtain specialized

technological expertiseFrees up the company to focus on its

core competencies

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An outsourcing service for reducing risk and increasing productivity

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Problems with OutsourcingProblems with OutsourcingMany companies discover their cost savings

to be less than half the figure promised by vendors

May require signing a multiyear contract that eliminates most or all benefits in a year or two

Potential internal security problemsPotential problems with suppliers who fail to

deliver goods probably or provide required services

Possible union difficultiesRisk of losing touch with customers

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The Business Buying ProcessThe Business Buying Process

Influences on Purchase Decisions:Environmental FactorsOrganizational Factors

Multiple Sourcing: purchasing from several vendors

Interpersonal Influences

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The Role of the Professional BuyerThe Role of the Professional BuyerProfessional buyer (merchandisers):

technically qualified employees who are responsible for securing needed products at the best possible prices

Systems integration: Centralization of the procurement function within an internal division or as a service of an external supplier

Category Captain: A firm designates a major supplier as their systems integrator. This supplier assumes responsibility for dealing with all of the suppliers for the firm.

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Model of the Organizational Buying ProcessModel of the Organizational Buying Process

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Stage 1: Anticipate or recognize a problem/need/opportunity and a general solution

Stage 2: Determine the characteristics and quantity of a needed good or service

Stage 3: Describe characteristics and the quantity of a needed good or service

Stage 4: Search for and qualify potential sources Stage 5: Acquire and analyze proposals Stage 6: Evaluate proposals and select suppliers Stage 7: Select an order routine Stage 8: Obtain feedback and evaluate

performance

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Whole FoodsWhole FoodsSelecting a supplier

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Classifying Business Buying Situations Classifying Business Buying Situations Straight RebuyingStraight Rebuying

Recurring purchase decision in which a customer repurchases a good or service that has performed satisfactorily in the past

Modified RebuyingModified RebuyingPurchase decision in which a purchaser is willing to reevaluate available options for repurchasing a good or service

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New-Task BuyingNew-Task BuyingFirst-time or unique purchase situation that requires considerable effort by the decision Makers

ReciprocityReciprocityPolicy to extend purchasing preference to suppliers that are also customers

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Analysis ToolsAnalysis ToolsValue analysis: systematic study of the

components of a purchase to determine the most cost-effective ways to acquire items

Vendor analysis: assessment of supplier performance in areas such as price, back orders, timely delivery, and attention to special requests

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The Buying Center ConceptThe Buying Center Concept Participants in an organizational buying action

Buying center roles played by various participants in the purchase decision process include:Users – initiate purchase request,

develop specificationsGatekeepers – control informationInfluencers – provide informationDecider – actually chooses good or

serviceBuyer – has formal authority to select

supplier

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International Buying CentersInternational Buying CentersDifferentiated from domestic buying centers since:Their members are often more difficult to

identify May include more participants than buying

centers in U.S. firms

Team sellingTeam sellingIIntroducing other associates in addition to salespeople into selling situations to reach all members of a customer’s buying center

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Developing Effective Business-To-Developing Effective Business-To-Business Marketing StrategiesBusiness Marketing Strategies

Challenges of Government MarketsChallenges of Government MarketsGovernment purchasing procedures

Bids: written sales proposals from vendor

Specifications: written descriptions of needed goods or services

Online with the federal government

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Challenges of Institutional MarketsChallenges of Institutional MarketsWidely diverse buying practicesMultiple buying influences may affect decisionsGroup purchasing is an important factor

Challenges of International MarketsChallenges of International MarketsWidely diverse attitudes and cultural patternsLocal industries, economic conditions,

geographic characteristics and legal restrictions also must be consideredRemanufacturing: production to restore

worn-out products to like new condition

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End of Chapter SixEnd of Chapter Six