Chapter Five Business-to-Business Behavior. Business-to-Business Behavior Chapter Objectives Identify types of goods and services. Identify types.

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Chapter FiveChapter Five

Business-to-Business BehaviorBusiness-to-Business Behavior

Business-to-Business BehaviorBusiness-to-Business Behavior

Chapter ObjectivesChapter Objectives

Identify types of goods and services.Identify types of goods and services. Identify types of business customers.Identify types of business customers. Explain derived and joint demand.Explain derived and joint demand. Identify types of buying situations and when each is used.Identify types of buying situations and when each is used. Describe the buying center and the different roles of Describe the buying center and the different roles of

employees.employees. Discuss factors that influence business-to-business buyer Discuss factors that influence business-to-business buyer behavior.behavior. List the steps in the B-to-B buying process.List the steps in the B-to-B buying process.

Types of BusinessTypes of BusinessGoods and ServicesGoods and Services

Major equipment, buildings, and landMajor equipment, buildings, and land Accessory equipmentAccessory equipment Fabricated and component partsFabricated and component parts Process materialProcess material Maintenance and repair partsMaintenance and repair parts Operating suppliesOperating supplies Raw materials Raw materials Goods for resaleGoods for resale Business servicesBusiness services

All require a different marketing approach

Major Equipment, Buildings, and LandMajor Equipment, Buildings, and Land

Top management is Top management is always included in always included in the decision. the decision.

High-cost items High-cost items

Financing is an Financing is an issue, e.g., leasing. issue, e.g., leasing.

Purchase has strategic Purchase has strategic implications.implications.

Examples: factory machines, mainframe computers, robotic equipment, land, and buildings

Accessory EquipmentAccessory Equipment

Item is usually not involved in the production or Item is usually not involved in the production or sale of the firm’s product.sale of the firm’s product.

Top management is involved in decision Top management is involved in decision approval but not in the selection of equipment.approval but not in the selection of equipment.

Examples: furniture, trucks, personal computers, fax machines, and copy machines

Fabricated and Component PartsFabricated and Component Parts

Identifiable products that are incorporated Identifiable products that are incorporated into another productinto another product

Purchased from an outside source Purchased from an outside source (vendors) and only assembled at the (vendors) and only assembled at the manufacturermanufacturer

Quality and Dependability need to be guaranteed in

order to maintain brand name of finished product!

Examples: tires, batteries, spark plugs, radios, etc., used in automobiles

Process MaterialsProcess Materials Used in the manufacture of other productsUsed in the manufacture of other products Lose their identityLose their identity Defects in finished goods are attributed to the Defects in finished goods are attributed to the

manufacturer.manufacturer.

Quality tends be the same from all vendors. Quality tends be the same from all vendors. Then other factors such as delivery time Then other factors such as delivery time become more important.become more important.

ExamplesExamples:: cement, aluminum, cement, aluminum, steel, plastic, and wiresteel, plastic, and wire

Quality and Durability are crucial!

Maintenance and Repair PartsMaintenance and Repair Parts

Needed to keep machines runningNeeded to keep machines running Little or no brand recognitionLittle or no brand recognition May be supplied by vendorMay be supplied by vendor

ExamplesExamples:: oil, grease, oil, grease, filters, gear, switches, filters, gear, switches, and motorsand motors

Price is an important determinant.

Operating SuppliesOperating Supplies

Price and convenience are important Price and convenience are important purchase criteria.purchase criteria.

Little effort or time is devoted in Little effort or time is devoted in purchasing.purchasing.

Examples: light bulbs, paper, pencils,

paper clips, and cleaning chemicals.

Raw MaterialsRaw Materials

Materials are supplied by the agriculture, Materials are supplied by the agriculture, fishing, mining, and timber industries.fishing, mining, and timber industries.

Materials must go through some type of Materials must go through some type of manufacturing process.manufacturing process.

Raw material lose their identity in the Raw material lose their identity in the finished product.finished product.

ExamplesExamples: : wheat, minerals, grainwheat, minerals, grain

Goods for ResaleGoods for Resale Wholesalers and distributors buy products in Wholesalers and distributors buy products in

order to resell these products to retail stores.order to resell these products to retail stores.

They function as middlemen. They function as middlemen.

manufacturer manufacturer wholesaler wholesaler

retail store consumerretail store consumer

ExampleExample: Reebok needs to : Reebok needs to understand the needs of every understand the needs of every member in the chain. They all member in the chain. They all want to maximize their benefitswant to maximize their benefits..

Business ServicesBusiness Services

Professional ServicesProfessional Services

legal counsellegal counsel

medical servicesmedical services

CPA‘sCPA‘s

auditing servicesauditing services

consulting servicesconsulting services

hired for a particular situation hired for a particular situation

Operating ServicesOperating Services

telephone servicetelephone service

Internet providerInternet provider

insurance carrierinsurance carrier

lawn care servicelawn care service

shipping serviceshipping service

hired on contract for a fixed hired on contract for a fixed period of timeperiod of time

Companies often outsource Companies often outsource

operating servicesoperating servicesGuarantee qualityGuarantee qualitySave costsSave costs

Purchasing servicesPurchasing servicesTrust and relationships are important.Trust and relationships are important.Price is secondary.Price is secondary.

Characteristics of Characteristics of Business-to-Business MarketsBusiness-to-Business Markets

Business-to-Business-to-Business market Business market

Few buyersFew buyers Large volumeLarge volume Geographic Geographic

concentrationconcentration Formal buying Formal buying

processprocess

Consumer marketConsumer market Large number of Large number of

buyersbuyers Small volumeSmall volume Some geographic Some geographic

concentrationconcentration Different buying Different buying

processesprocesses

Types of CustomersTypes of Customers ManufacturersManufacturers:: Involved in producing goods for resale Involved in producing goods for resale

Wholesalers:Wholesalers: Purchase goods from a manufacturer Purchase goods from a manufacturer and resell to retailers/distributorsand resell to retailers/distributors

Retailers:Retailers: Can purchase from wholesalers or Can purchase from wholesalers or directly from manufacturersdirectly from manufacturers

Government agenciesGovernment agencies Purchase major equipment, land, and buildings, supplies, etc.Purchase major equipment, land, and buildings, supplies, etc. Use competitive bidding processUse competitive bidding process Can be very lucrative for businesses Can be very lucrative for businesses

Nonprofit organizationsNonprofit organizations Hospitals, schools, etc.Hospitals, schools, etc. Most use competitive bidding processMost use competitive bidding process Can be very lucrative for businessesCan be very lucrative for businesses

Raw materials

Process materials New goods

Component parts

Types of Buying Situations (cont.)Types of Buying Situations (cont.)

Straight rebuy Modified rebuy New buy

• Low dollar amount

• Little information needed

• Low management involvement

• High dollar amount

• Lots of information needed

• High management involvement

1. A printing company is purchasing a new $300,000 printing press, so they can expand their business from two presses to three. This is the first press they have purchased since 1993.

New buy

2. A company with 500 employees is purchasing a new computer system to upgrade the system they purchased 3 years ago.

Modified rebuy

3. A manufacturer of lawn mowers is placing their monthly order for 2,000 mufflers. Straight rebuy 4. A manufacturer of lawn mowers is unhappy with the reliability in delivery of their current vendor of mufflers and is therefore seeking bids from four other vendors.

Modified rebuy

5. A manufacturer of lawn mowers has been approached by a new vendor offering mufflers at a lower price than their current vendor. While the new price is att ractive, the purchasing agent continues to purchase from the company’s current vendor.

Straight rebuy

6. The contract for pest control at a large commercial bakery is up at the end of the year. According to the bakery’s policy, they put the contract up for bid allowing the current vendor as well as others to make bids on the new contract.

Modified rebuy

New buyNew buy Purchases made for the first timePurchases made for the first time Normally complex decisionsNormally complex decisions Involve top managementInvolve top management High dollar amountHigh dollar amount Land, buildings, equipmentLand, buildings, equipment

Modified rebuyModified rebuy Limited experience with goods or serviceLimited experience with goods or service Dissatisfaction with the current vendorDissatisfaction with the current vendor End of a contractual relationshipEnd of a contractual relationship

Straight rebuyStraight rebuy Routine purchasesRoutine purchases No changes in purchase criteria or No changes in purchase criteria or

specificationsspecifications Satisfied with current vendorSatisfied with current vendor

Derived demandDerived demandJoint demandJoint demand

The Buying CenterThe Buying Center

Gatekeeper:Gatekeeper: Responsible for the flow of informationResponsible for the flow of information User:User: Individual actually using the product. Provides information about the Individual actually using the product. Provides information about the

current product and vendor. current product and vendor. Influencer:Influencer: Influences the purchase decision, e.g., an engineer familiar with Influences the purchase decision, e.g., an engineer familiar with

certain component partscertain component parts Decider:Decider: Person who makes the final decision, e.g., the president of the Person who makes the final decision, e.g., the president of the

company. May be a group if the decision is complex or is of high dollar value.company. May be a group if the decision is complex or is of high dollar value. Purchaser:Purchaser: Person who makes the actual purchasePerson who makes the actual purchase

PurchaseDecision

Users Infuencers

Deciders

Gatekeeper

Purchaser

Influences on the Purchase ProcessInfluences on the Purchase Process

The behavior of each member of the The behavior of each member of the buying center are influenced by a buying center are influenced by a variety of factors: variety of factors:

OrganizationalOrganizational IndividualIndividual SocialSocial TemporaryTemporary

The Business-to-Business The Business-to-Business Buying ProcessBuying Process

1.1. Identification of needsIdentification of needs

2.2. Establishment of specificationEstablishment of specification

3.3. Identification of feasible solutionsIdentification of feasible solutions

4.4. Identification of feasible vendorsIdentification of feasible vendors

5.5. Evaluation of vendorsEvaluation of vendors

6.6. Selection of vendor(s)Selection of vendor(s)

7.7. Negotiation of purchase termsNegotiation of purchase terms

SevenSteps

The B2B Buying ProcessThe B2B Buying Process

Identification of Need:Identification of Need: Normally direct result of a companies Normally direct result of a companies operations. Advertisement and marketing are normally not involved, operations. Advertisement and marketing are normally not involved, e.g., a bakery needs flour, sugar, etc.e.g., a bakery needs flour, sugar, etc.

Establishment of Specifications:Establishment of Specifications: Important when comparing vendors (modified rebuy or new buy)Important when comparing vendors (modified rebuy or new buy) Develop list of purchase criteriaDevelop list of purchase criteria Establish specificationsEstablish specifications

Identification of feasible solutions:Identification of feasible solutions: Purchase product from an external source Purchase product from an external source Produce product yourselfProduce product yourself Lease product (e.g., equipment, buildings, or land)Lease product (e.g., equipment, buildings, or land)

Identification of Feasible Vendors:Identification of Feasible Vendors: (only if external source) (only if external source) Gatekeeper contacts and screens potential vendors.Gatekeeper contacts and screens potential vendors. Feasible vendors meet screening criteria.Feasible vendors meet screening criteria. Here there is Here there is only Ifonly If not not how wellhow well vendors meet criteria. vendors meet criteria.

The Business-to-Business Buying The Business-to-Business Buying Process (cont.)Process (cont.)

Evaluation of Vendors:Evaluation of Vendors: 1st level:1st level: Screening evaluates how well vendors meets specified Screening evaluates how well vendors meets specified

criteria. criteria.

2nd level:2nd level: Vendor analyses is concrete and more specific. Vendor analyses is concrete and more specific.

3rd level:3rd level: Vendor audit or presentations to guarantee that vendor Vendor audit or presentations to guarantee that vendor has potential to meet purchaser‘s supply demands. has potential to meet purchaser‘s supply demands. EDI (electronic data interchange): Data of manufacturer is EDI (electronic data interchange): Data of manufacturer is

directly sent to suppliers through computer/guarantee always directly sent to suppliers through computer/guarantee always enough productenough product

Excellent Superior Acceptable Inferior1. Speed of delivery ……………………….. _____ _____ ______ ____2. Handing of emergency and rush orders…. _____ _____ ______ ____3. Quality of denim material ……………… _____ _____ ______ ____4. Availability of different colors /s tyles ….. _____ _____ ______ ____5. Handling of defective denim ……..……. _____ _____ ______ ____6. Percent of denim that is defective ……... _____ _____ ______ ____7. Purchase terms ………………………… _____ _____ ______ ____

Excellent Superior Acceptable Inferior1. Speed of delivery ……………………….. _____ _____ ______ _____2. Handing of emergency and rush orders…. _____ _____ ______ _____3. Quality of denim material ……………… _____ _____ ______ _____4. Ava ilability of different colors/styles ….. _____ _____ ______ _____5. Handling of defective denim ……..……. _____ _____ ______ _____6. Percent of denim that is defective ……... _____ _____ ______ _____7. Purchase terms ………………………… _____ _____ ______ _____

The Business-to-Business Buying The Business-to-Business Buying Process (cont.)Process (cont.)

Selection of Vendor(s):Selection of Vendor(s): One or multiple vendorsOne or multiple vendors DependabilityDependability Cost (discounts)Cost (discounts) Relationship Relationship

Negotiation of Purchase TermsNegotiation of Purchase Terms e.g., payment method, due date, exact e.g., payment method, due date, exact

size of order, etc. size of order, etc.