Copyright © 2001 by Harcourt, Inc. All rights reserved. 10-1 CHAPTER TEN BUSINESS-TO-BUSINESS MARKETING Text by Profs. Gene Boone & David Kurtz Multimedia.

10-1

Copyright © 2001 by Harcourt, Inc. All rights reserved.

CHAPTER TEN

BUSINESS-TO-BUSINESS MARKETING

Text by Profs. Gene Boone & David KurtzMultimedia Presentation byProf. Milton PressleyThe University of New Orleans

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CHAPTER OBJECTIVESCHAPTER OBJECTIVESCHAPTER OBJECTIVESCHAPTER OBJECTIVES• Explain each of the components of the

business market• Describe the major approaches to segmenting

business-to-business markets• Identify the major characteristics of the

business market and its demand• Describe the major influences on business

buying behavior

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CHAPTER OBJECTIVESCHAPTER OBJECTIVESCHAPTER OBJECTIVESCHAPTER OBJECTIVES• Outline the steps in the organizational buying

process• Classify organizational buying situations• Explain the buying center concept• Discuss the challenges of marketing to

government, institutional, and international buyers

• Summarize key differences between consumer and business-to-business marketing

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IntroductionIntroductionIntroductionIntroduction

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

• B2B: a popular acronym for the business-to-business market

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Figure 10-1: Firm Specializing in the B2B MarketFigure 10-1: Firm Specializing in the B2B MarketFigure 10-1: Firm Specializing in the B2B MarketFigure 10-1: Firm Specializing in the B2B Market

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Bidcom.com: A B2B Website that Brings Builders and Bidcom.com: A B2B Website that Brings Builders and Their Suppliers Together on the WWWTheir Suppliers Together on the WWWBidcom.com: A B2B Website that Brings Builders and Bidcom.com: A B2B Website that Brings Builders and Their Suppliers Together on the WWWTheir Suppliers Together on the WWW


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NATURE OF THE BUSINESS NATURE OF THE BUSINESS MARKETMARKETNATURE OF THE BUSINESS NATURE OF THE BUSINESS MARKETMARKET• Like a 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

people• Must consider the organization’s goals

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Components of the Components of the Business MarketBusiness MarketComponents of the Components of the Business MarketBusiness Market

• Commercial Market: Individuals and firms that acquire goods and services to support, directly or indirectly, production of other goods and services

Commercial Market

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TWA

The commercial market: TWA buying aircraft to provide flight service

TWA

The commercial market: TWA buying aircraft to provide flight service


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• Trade Industries: Retailers and wholesalers who purchase goods for resale to others.

• Reseller: often used to describe the wholesalers and retailers that operate in the trade sector

Commercial Market

Trade Industries

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Martha Stewart’s Paints

Trade industries: Kmart and Sears reselling Martha Stewart paints

Martha Stewart’s Paints

Trade industries: Kmart and Sears reselling Martha Stewart paints


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• Government Organizations: Include domestic units of federal, state, local and foreign governments

Commercial Market

Trade Industries

Government Organizations

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IRS

IRS buys products to provide federal tax service

IRS

IRS buys products to provide federal tax service


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• Institutions: includes a wide variety of organizations, both public and private, such as hospitals, churches, skilled care centers, colleges and universities, museums, and not-for-profit agencies.

Commercial Market

Trade Industries

Government Organizations

Institutions

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Australian Koala Foundation

Not-for-profits: an institutional component of the business market

Australian Koala Foundation

Not-for-profits: an institutional component of the business market


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Components of the Business Components of the Business MarketMarketComponents of the Business Components of the Business MarketMarket

B2B Market – The Internet Connection• Internet is now playing an important

role in B2B marketing• 70 percent of all Internet sales are

B2B transactions

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Class DiscussionClass Discussion

Why do you think that 70% of all Why do you think that 70% of all Internet Sales are B2B transactions Internet Sales are B2B transactions instead of Consumer transactions?instead of Consumer transactions?


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Tradeout.com

Online auctions: an example of B2B e-commerce

Tradeout.com

Online auctions: an example of B2B e-commerce


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Table 10.1Table 10.1: Examples of E-Commerce Sites : Examples of E-Commerce Sites Engaged in B2B MarketingEngaged in B2B Marketing

E-Exchanges What They Do

Paperexhange Helps businesses trade pulp and paper

Universal Access Allows businesses to trade datacom services

Arebinet Communications

Allows business to trade bandwidth

Autovia Helps mechanics procure auto parts

Bidcom Brings together builders and their suppliers

Collabria Allows businesses to trade printing equipment

Commerx A trading post for the plastics industry

E-chemicals A place for businesses to procure bulk chemicals

iParts Allows businesses to trade electronic parts

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E-Commerce Site of E-Commerce Site of iPart.com – the last listing in Table 10.1iPart.com – the last listing in Table 10.1 E-Commerce Site of E-Commerce Site of iPart.com – the last listing in Table 10.1iPart.com – the last listing in Table 10.1


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Segmenting Business-to-Segmenting Business-to-Business MarketsBusiness MarketsSegmenting Business-to-Segmenting Business-to-Business MarketsBusiness Markets

• Demographic Segmentation: demographic characteristics define the useful segmentation criteria for business markets

• A firm’s size, for example, can be a useful classification basis

Demographic

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Figure 10-2: Figure 10-2: Using Demographic Using Demographic Segmentation in Segmentation in Business MarketsBusiness Markets

Figure 10-2: Figure 10-2: Using Demographic Using Demographic Segmentation in Segmentation in Business MarketsBusiness Markets

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• Customer-based segmentation: dividing a B2B market into homogenous groups based on buyers’ product specifications

• North 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

Demographic

Customer Type

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Table 10.2Table 10.2: An Example of the NAICS Hierarchy: An Example of the NAICS Hierarchy

NAICS Level NAICS Code

Description

Sector 31–33 Manufacturing

Subsector 334 Computer and electronic product manufacturing

Industry group 3346 Manufacturing and reproduction of magnetic and optical media

Industry 33461 Manufacturing and reproduction of magnetic and optical media

U.S. Industry 334611 Reproduction of software

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The NAICS WebsiteThe NAICS WebsiteThe NAICS WebsiteThe NAICS Website


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• End-use application segmentation: segmenting a business-to-business market based on how industrial purchasers will use the product

Demographic

Customer Type

End-use Application

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• Centers on the purchasing situation

• Organizations use more complicated purchasing procedures than those of consumers

• Firms also structure their purchasing functions in specific ways

Demographic

Customer Type

End-use Application

Purchasing Situation

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Praxair: A Supplier of Industrial Gases Could Segments Praxair: A Supplier of Industrial Gases Could Segments Its Markets According to User (End-use Application)Its Markets According to User (End-use Application)Praxair: A Supplier of Industrial Gases Could Segments Praxair: A Supplier of Industrial Gases Could Segments Its Markets According to User (End-use Application)Its Markets According to User (End-use Application)


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Characteristics of the Characteristics of the B2B MarketB2B Market


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Geographic Market Geographic Market ConcentrationConcentrationGeographic Market Geographic Market ConcentrationConcentration• U.S. business market is more geographically

concentrated than the consumer market• Manufacturers concentrate in certain regions of

the country• Certain industries locate in particular areas to be

close to their customers• Suppliers of automobile components and

assemblies frequently build their plants close to their customers

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Figure 10-3: Locating Close to CustomersFigure 10-3: Locating Close to CustomersFigure 10-3: Locating Close to CustomersFigure 10-3: Locating Close to Customers

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Sizes and Numbers of Sizes and Numbers of BuyersBuyersSizes and Numbers of Sizes and Numbers of BuyersBuyers• Business market features a limited number of

buyers• 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 U.S. Census Bureau’s Business Statistics Can The U.S. Census Bureau’s Business Statistics Can Help Determine the Size and Number of BuyersHelp Determine the Size and Number of BuyersThe U.S. Census Bureau’s Business Statistics Can The U.S. Census Bureau’s Business Statistics Can Help Determine the Size and Number of BuyersHelp Determine the Size and Number of Buyers


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The Purchase Decision The Purchase Decision ProcessProcessThe Purchase Decision The Purchase Decision ProcessProcess• Businesses must understand the dynamics of the

organizational purchasing process• B2B suppliers often must work with multiple

buyers• Decision-makers at several layers may influence

final orders• Process is more formal and professional than with

consumers

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Buyer-Seller RelationshipsBuyer-Seller RelationshipsBuyer-Seller RelationshipsBuyer-Seller Relationships• More intense than consumer relationships• Require better communication among the

organizations’ personnel• Primary goal of B2B relationships is to provide

advantages that no other seller can, for instance:• Lower-prices• Quicker delivery• Better quality and reliability• Customized product features• More favorable financing terms

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Figure 10-4: Stressing the Importance of Business RelationshipsFigure 10-4: Stressing the Importance of Business RelationshipsFigure 10-4: Stressing the Importance of Business RelationshipsFigure 10-4: Stressing the Importance of Business Relationships

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Evaluating International Evaluating International Business MarketsBusiness MarketsEvaluating International Evaluating International Business MarketsBusiness Markets• Business purchasing patterns often differ from

one country to the next• Companies must weigh quantitative and

qualitative data• Global sourcing: contracting to purchasing

goods and services from suppliers worldwide, is often practiced in today’s international marketplace

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Chubu Electric Power Co., Inc.

Chuba Electric practices global sourcing

Chubu Electric Power Co., Inc.

Chuba Electric practices global sourcing


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Sites like ChinaSite.com Can Help Firms to Evaluate Sites like ChinaSite.com Can Help Firms to Evaluate International Business MarketsInternational Business MarketsSites like ChinaSite.com Can Help Firms to Evaluate Sites like ChinaSite.com Can Help Firms to Evaluate International Business MarketsInternational Business Markets


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BUSINESS MARKET DEMANDBUSINESS MARKET DEMANDBUSINESS MARKET DEMANDBUSINESS MARKET DEMAND

• Derived demand: demand for a business product that results from demand for a consumer product of which it is a component

• Joint demand: demand for a business product that depends on the demand for another business product that is necessary for the use of the first

• Volatile demand: changes in demand that are disproportionate to normal trends

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Figure10-5: Microprocessors: An Example of Derived DemandFigure10-5: Microprocessors: An Example of Derived DemandFigure10-5: Microprocessors: An Example of Derived DemandFigure10-5: Microprocessors: An Example of Derived Demand

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THE MAKE, BUY, OR LEASE THE MAKE, BUY, OR LEASE DECISIONDECISIONTHE MAKE, BUY, OR LEASE THE MAKE, BUY, OR LEASE DECISIONDECISION• 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 OutsourcingThe Rise of OutsourcingThe Rise of OutsourcingThe Rise of Outsourcing• Outsourcing: acquiring inputs from outside

vendors for goods and services formerly produced in-house

• Outsourcing • May be cost effective• Allows a firm to obtain specialized

technological expertise• Frees up the company to focus on its core

competencies

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Figure 10-6: Figure 10-6: An Outsourcing An Outsourcing Service for Service for Reducing Risk and Reducing Risk and Increasing Increasing ProductivityProductivity

Figure 10-6: Figure 10-6: An Outsourcing An Outsourcing Service for Service for Reducing Risk and Reducing Risk and Increasing Increasing ProductivityProductivity

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Problems With OutsourcingProblems With OutsourcingProblems With OutsourcingProblems With Outsourcing• Many 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 problems• Potential problems with suppliers who fail to

deliver goods probably or provide required services

• Possible union difficulties• Risk of losing touch with customers

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iSky

iSky: an outsourcing customer care service

iSky

iSky: an outsourcing customer care service


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THE BUSINESS BUYING THE BUSINESS BUYING PROCESSPROCESSTHE BUSINESS BUYING THE BUSINESS BUYING PROCESSPROCESS• Influences on Purchase Decisions:

• Environmental Factors• Organizational Factors

• Multiple Sourcing: purchasing from several vendors

• Interpersonal Influences

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American Express Corporate Services

Internet technology influencing purchase decisions by streamlining the buying process and cutting costs

American Express Corporate Services

Internet technology influencing purchase decisions by streamlining the buying process and cutting costs


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Figure 10-7: Grainger: A Single Source for MRO SuppliesFigure 10-7: Grainger: A Single Source for MRO SuppliesFigure 10-7: Grainger: A Single Source for MRO SuppliesFigure 10-7: Grainger: A Single Source for MRO Supplies

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The Role of the Professional The Role of the Professional BuyerBuyerThe Role of the Professional The Role of the Professional BuyerBuyer• Professional buyer: 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

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Figure 10-8: Online Figure 10-8: Online Auction Service for Auction Service for Buyers of Industrial Buyers of Industrial SuppliesSupplies

Figure 10-8: Online Figure 10-8: Online Auction Service for Auction Service for Buyers of Industrial Buyers of Industrial SuppliesSupplies

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Figure 10-9: Stages in the B2B Buying ProcessFigure 10-9: Stages in the B2B Buying ProcessFigure 10-9: Stages in the B2B Buying ProcessFigure 10-9: Stages in the B2B Buying Process

Model of the Organizational Model of the Organizational Buying ProcessBuying ProcessModel of the Organizational Model of the Organizational Buying ProcessBuying Process

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Organizational Buying Process ModelOrganizational Buying Process ModelOrganizational Buying Process ModelOrganizational Buying Process Model

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

Anticipate Need

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Hunterdirect.Com: A Firm That Helps Others Create Hunterdirect.Com: A Firm That Helps Others Create New Ways for Firms to Increase SalesNew Ways for Firms to Increase SalesHunterdirect.Com: A Firm That Helps Others Create Hunterdirect.Com: A Firm That Helps Others Create New Ways for Firms to Increase SalesNew Ways for Firms to Increase Sales


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

Anticipate Need

Determine Characteristics


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

Anticipate Need


Describe Characteristics


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• Stage for: Search for and qualify potential sources

Anticipate Need



Search


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• Stage 5: Acquire and analyze proposals

Anticipate Need



Search

Acquire and Analyze


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• Stage 6: Evaluate proposals and select suppliers

Anticipate Need



Search

Acquire and Analyze

Evaluate and Select Suppliers


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Figure 10-10:Figure 10-10:Selecting a SupplierSelecting a SupplierFigure 10-10:Figure 10-10:Selecting a SupplierSelecting a Supplier

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• Stage 7: Select an order routine

Anticipate Need



Search

Acquire and Analyze


Select Order Routine


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• Stage 8: Obtain feedback and evaluate performance

Anticipate Need



Search

Acquire and Analyze


Select Order Routine

Feedback


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Classifying Business Buying Classifying Business Buying SituationsSituationsClassifying Business Buying Classifying Business Buying SituationsSituations

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

Straight Rebuy

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Figure 10-11: Figure 10-11: Promoting a Straight Promoting a Straight RebuyRebuy

Figure 10-11: Figure 10-11: Promoting a Straight Promoting a Straight RebuyRebuy

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3M Post-it

A straight rebuy purchase decision

3M Post-it

A straight rebuy purchase decision


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• Purchase decision in which a purchaser is willing to reevaluate available options for repurchasing a good or service

Straight Rebuy

Modified Rebuy

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Sites Like OfficeMax.com’s Can Also Help Sites Like OfficeMax.com’s Can Also Help Businesses with Modified Rebuy DecisionsBusinesses with Modified Rebuy DecisionsSites Like OfficeMax.com’s Can Also Help Sites Like OfficeMax.com’s Can Also Help Businesses with Modified Rebuy DecisionsBusinesses with Modified Rebuy Decisions


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• First-time or unique purchase situation that requires considerable effort by the decision Makers

Straight Rebuy

Modified Rebuy

New-Task Buying

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Figure 10-12:Figure 10-12:New-Task BuyingNew-Task BuyingFigure 10-12:Figure 10-12:New-Task BuyingNew-Task Buying

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Dassault Falcon Jet

Purchasing a business jet: a new task buy

Dassault Falcon Jet

Purchasing a business jet: a new task buy


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• Policy to extend purchasing preference to suppliers that are also customers

Straight Rebuy

Modified Rebuy

New-Task Buying

Reciprocity

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Analysis ToolsAnalysis ToolsAnalysis ToolsAnalysis Tools

• Value 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 THE BUYING CENTER CONCEPTCONCEPTTHE BUYING CENTER THE BUYING CENTER CONCEPTCONCEPT• Buying center roles played by various participants

in the purchase decision process include:• Users• Gatekeepers• Influencers• Decider• Buyer

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Figure 10-13:Figure 10-13:

Users: A Buying Users: A Buying Center ParticipantCenter Participant

Figure 10-13:Figure 10-13:

Users: A Buying Users: A Buying Center ParticipantCenter Participant

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MARKETING TO BUYING CENTERS: MARKETING TO BUYING CENTERS: STRATEGIC IMPLICATIONS STRATEGIC IMPLICATIONS MARKETING TO BUYING CENTERS: MARKETING TO BUYING CENTERS: STRATEGIC IMPLICATIONS STRATEGIC IMPLICATIONS • B2B marketers must identify people who play

the various roles in a buying center• Must understand how these members interact

with:• Each other• Other members of their own organizations,

and • Outside vendors

• Team selling, introducing other associates in addition to salespeople into selling situations to reach all members of a customer’s buying center, can be effective

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International Buying International Buying CentersCentersInternational Buying International Buying CentersCenters• Differentiated from domestic buying centers since

they:• Their members are often more difficult to

identify • May include more participants than buying

centers in U.S. firms

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DEVELOPING EFFECTIVE B2B DEVELOPING EFFECTIVE B2B MARKETING STRATEGIESMARKETING STRATEGIESDEVELOPING EFFECTIVE B2B DEVELOPING EFFECTIVE B2B MARKETING STRATEGIESMARKETING STRATEGIES

• Government purchasing procedures• Bids: written sales

proposals from vendor• Specifications: written

descriptions of needed goods or services

• Online with the federal government

Challenges of Government Markets

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Figure 10-14: Government Purchasing OnlineFigure 10-14: Government Purchasing OnlineFigure 10-14: Government Purchasing OnlineFigure 10-14: Government Purchasing Online

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GSA Advantage Web Site: One of the Larger GSA Advantage Web Site: One of the Larger Government-Sponsored Electronic Ordering SystemGovernment-Sponsored Electronic Ordering SystemGSA Advantage Web Site: One of the Larger GSA Advantage Web Site: One of the Larger Government-Sponsored Electronic Ordering SystemGovernment-Sponsored Electronic Ordering System


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The Defense Link: A Large Government The Defense Link: A Large Government Sponsored Electronic Ordering SystemSponsored Electronic Ordering SystemThe Defense Link: A Large Government The Defense Link: A Large Government Sponsored Electronic Ordering SystemSponsored Electronic Ordering System


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• Widely diverse buying practices

• Multiple buying influences may affect decisions

• Group purchasing is an important factor


Challenges of Institutional Markets

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• Widely diverse attitudes and cultural patterns

• Local industries, economic conditions, geographic characteristics and legal restrictions also must be considered

• Remanufacturing, production to restore worn-out products, can be important


Challenges of International Markets

Challenges of Institutional Markets

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TTable 10.3able 10.3: Business-to Business Marketing versus Consumer Goods Marketing: : Business-to Business Marketing versus Consumer Goods Marketing: Some Distinguishing CharacteristicsSome Distinguishing Characteristics

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

Strategies for Marketing to Both Business Strategies for Marketing to Both Business Purchasers and Final UsersPurchasers and Final Users

Strategies for Marketing to Both Business Strategies for Marketing to Both Business Purchasers and Final UsersPurchasers and Final Users

Copyright © 2001 by Harcourt, Inc. All rights reserved. 10-1 CHAPTER TEN BUSINESS-TO-BUSINESS MARKETING Text by Profs. Gene Boone & David Kurtz Multimedia.

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