Business-to-Business Markets: How and Why Organizations Buy Chapter Six © 2012 Pearson Education, Inc. publishing as Prentice-Hall.

6-2 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Chapter Objectives  Understand the characteristics of business-to-business markets, business- to-business market demand, and how marketers classify business-to-business customers  Appreciate opportunities for using e- commerce and social media in business- to-business settings  Identify and describe the different business buying situations and the business buying decision process

6-3 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Real People, Real Choices: Decision Time at NCR Corporation  Which option should NCR pursue in order to market the new generation of point of sale workstations effectively? Option 1: Attend the trade show as in the past Option 1: Attend the trade show as in the past Option 2: Skip the show this year and reallocate resources to other alternatives Option 2: Skip the show this year and reallocate resources to other alternatives Option 3: Forego the show this year and find out if the venue and sponsorship changes are real Option 3: Forego the show this year and find out if the venue and sponsorship changes are real

6-4 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Business Markets: Buying and Selling When the Customer is Another Firm  Business-to-business marketing The marketing of goods and services that businesses and other organizations buy for purposes other than personal consumption Business-to-business (organizational) markets include manufacturers, wholesalers, retailers, and other organizations such as hospitals, and government Business-to-business (organizational) markets include manufacturers, wholesalers, retailers, and other organizations such as hospitals, and government

6-5 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Factors That Make a Difference in Business Markets  Business markets differ from consumer markets in several ways: Multiple buyers are involved Multiple buyers are involved Fewer organizational customers exist Fewer organizational customers exist Order quantities and cost are much larger Order quantities and cost are much larger Business customers are more geographically concentration Business customers are more geographically concentration  These differences make B2B marketing more complex

6-6 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Business-to-Business Demand  Business-to-business demand differs from consumer product demand  Demand is: Derived Derived Inelastic Inelastic Fluctuating Fluctuating Joint Joint

6-7 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Business-to-Business Demand  Derived demand: Demand for organizational products is caused by demand for consumer goods Demand for organizational products is caused by demand for consumer goods Changes in consumer trends can impact B2B sales Changes in consumer trends can impact B2B sales  Inelastic demand: Changes in price have little or no effect on the amount demanded Changes in price have little or no effect on the amount demanded

6-8 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Business-to-Business Demand  Fluctuating demand: Small changes in consumer demand create large increases or decreases in business demand Small changes in consumer demand create large increases or decreases in business demand Life expectancy of the product can cause fluctuating demand Life expectancy of the product can cause fluctuating demand  Joint demand: Demand occurs for two or more goods that are used together to create a product Demand occurs for two or more goods that are used together to create a product

6-9 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Types of Business-to-Business Customers  Producers: Individuals or firms that purchase products for use in the production of other goods and services Individuals or firms that purchase products for use in the production of other goods and services  Example: Dell buys RAM chips for integration into their PCs  Resellers: Individuals or firms that buy finished goods for reselling, renting, or leasing Individuals or firms that buy finished goods for reselling, renting, or leasing

6-10 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Types of Business-to-Business Customers  Organizations: Government markets: Federal, state, county, and local governments that buy goods and services to carry out public objectives, and support their operations Federal, state, county, and local governments that buy goods and services to carry out public objectives, and support their operations  Organizations: Not-for-profit firms: Organizations with charitable, educational, community, and other public service goals that buy goods and services to support their functions and to attract and serve their members Organizations with charitable, educational, community, and other public service goals that buy goods and services to support their functions and to attract and serve their members

6-11 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. North American Industry Classification System  Marketers use the North American Industry Classification System (NAICS) to identify their customers and to find new customers NAICS is a numerical coding of industries in the United States, Canada, and Mexico NAICS is a numerical coding of industries in the United States, Canada, and Mexico

6-12 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Business-to-Business E-Commerce and Social Media  B2B E-Commerce Internet exchanges between two or more businesses: Includes exchanges of information, products, services, and payments Includes exchanges of information, products, services, and payments Allows business marketers to link to suppliers, factories, distributors, and their customers Allows business marketers to link to suppliers, factories, distributors, and their customers B2B Internet site provides technical support, item and order status information, and customer service B2B Internet site provides technical support, item and order status information, and customer service

6-13 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Intranets, Extranets, and Private Exchanges  Intranets: Link a firms’ departments, employees, and databases Link a firms’ departments, employees, and databases  Extranets: Allow authorized suppliers, customers, and other outsiders to access the firm’s intranet Allow authorized suppliers, customers, and other outsiders to access the firm’s intranet  Private exchanges: Link an invited group of suppliers and partners over the Web Link an invited group of suppliers and partners over the Web

6-14 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. The Dark Side of B2B Commerce  Hackers threaten security: Customer credit card number theft Customer credit card number theft May destroy firm records or steal trade secrets May destroy firm records or steal trade secrets Authenticating transactions is critical Authenticating transactions is critical  Well-meaning employees can be security threats  Firewalls and encryption safeguard e-commerce transactions`

6-15 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. B2B and Social Media  Games generate buzz and drive brand awareness  B2B marketers use social networking sites to promote themselves  Linked in is the most prominent social networking site for B2B marketers and offers several advantages

6-16 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Business Buying Situations and the Buying Decision Process  Buy class framework Identifies the degree of effort a firm needs to collect information and make a decision Identifies the degree of effort a firm needs to collect information and make a decision  Three buy classes: Straight rebuy Straight rebuy Modified rebuy Modified rebuy New-task buy New-task buy

6-17 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Professional Buyers and Buying Centers  Trained professional buyers typically carry out buying in business-to- business markets: Purchasing agents Purchasing agents Procurement officers Procurement officers Directors of materials management Directors of materials management

6-18 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. The Buying Center  The group of people in an organization who participate in a buying decision: Initiator Initiator User User Gatekeeper Gatekeeper Influencer Influencer Decider Decider Buyer Buyer

6-19 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Business Buying Decision Process Step 1: Problem Recognition  Factors prompting recognition vary by buying situation  Actions resulting from problem recognition include: Initiation of a purchase requisition or request Initiation of a purchase requisition or request Formation of a buying center, if needed Formation of a buying center, if needed

6-20 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Business Buying Decision Process Step 2: Information Search  In this stage, buying center members: Search for information about products and suppliers Search for information about products and suppliers  Marketers must provide information where and when business buyers need it Develop product specifications Develop product specifications  Written descriptions of the quality, size, weight, color of the item to be purchased Identify potential suppliers and obtain proposals (or bids) Identify potential suppliers and obtain proposals (or bids)

6-21 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Business Buying Decision Process Step 3: Evaluate the Alternatives  The buying center assesses proposals: Price is a primary consideration Price is a primary consideration Other factors may be considered, such as extra services or other perks Other factors may be considered, such as extra services or other perks Customer reference programs, product demos, and presentations can help sell the marketer’s products to firms Customer reference programs, product demos, and presentations can help sell the marketer’s products to firms

6-22 © 2012 Pearson Education, Inc. publishing as Prentice-Hall.  Single sourcing: Business practice of buying a particular product from only one supplier Business practice of buying a particular product from only one supplier  Multiple sourcing: Buying from several different suppliers Buying from several different suppliers  Reciprocity: Trading partnership in which two firms agree to buy from one another Trading partnership in which two firms agree to buy from one another Business Buying Decision Process Step 4: Select the Product and Supplier

6-23 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Business Buying Decision Process Step 4: Select the Product and Supplier  Outsourcing: Obtaining vendors to provide goods / services that might otherwise be supplied in-house Obtaining vendors to provide goods / services that might otherwise be supplied in-house  Crowdsourcing: Pulling together expertise from around the globe to work on solving a problem Pulling together expertise from around the globe to work on solving a problem  Reverse marketing: Buyers try to find capable suppliers and “sell” their purchase to the suppliers Buyers try to find capable suppliers and “sell” their purchase to the suppliers

6-24 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Business Buying Decision Process Step 5: Evaluate Postpurchase  Organizational buyers assess whether the performance of the product and the supplier live up to expectations: Users are surveyed to determine satisfaction Users are surveyed to determine satisfaction Producers may also research ultimate consumer satisfaction with the final product Producers may also research ultimate consumer satisfaction with the final product Changes in demand are analyzed Changes in demand are analyzed Supplier performance is documented Supplier performance is documented

6-25 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Business Buying Decision Process Step 5: Evaluate Postpurchase  Metrics used by organizational buyers include: Satisfaction Satisfaction Quality Quality Customer engagement Customer engagement Purchase intentions Purchase intentions Promptness and effectiveness of problem resolution Promptness and effectiveness of problem resolution

6-26 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Real People, Real Choices: Decision Made at NCR Corporation  Brad chose option 2 Why do you think that Brad passed on the trade show and reallocated its resources to two smaller events? Why do you think that Brad passed on the trade show and reallocated its resources to two smaller events?

6-27 © 2012 Pearson Education, Inc. publishing as Prentice-Hall.  Meet Jim Multari, director of research at PBS Kids Sprout  Sprout is an emerging cable network that attempts to foster parent and preschooler interaction  The decision to be made: Should the network target current viewers, nonviewers, or both for its first ever brand awareness campaign? Keeping It Real: Fast-Forward to Next Class Decision for PBS KIDS Sprout

6-28 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America