Chapter 5 Business Marketing Prepared by Deborah Baker Texas Christian University Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Learning Objectives 1. Describe business marketing. 2. Describe the role of the Internet in business marketing. 3. Discuss the role of relationship marketing and strategic alliances in business marketing. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Learning Objectives (continued) 4. Identify the four major categories of business market customers. 5. Explain the North American Industry Classification System. 6. Explain the major differences between business and consumer markets. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Learning Objectives (continued) 7. Describe the seven types of business goods and services. 8. Discuss the unique aspects of business buying behavior. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Describe business marketing. Chapter 5 Business Marketing Learning Objective 1 On Line http://www.gm.com Describe business marketing. On Line General Motors Visit the General Motors Web site and see what you can find out about the company’s various alliances and automotive divisions. How well are the alliances and partnerships promoted on GM’s Web site? On the various partners’ Web sites? Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

The marketing of goods and services to individuals Chapter 5 Business Marketing Business Marketing 1 The marketing of goods and services to individuals and organizations for purposes other than personal consumption. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Business Products 1 Key is intended use Chapter 5 Business Marketing Business Products 1 Are used to manufacture other products Become part of another product Aid the normal operations of an organization Are acquired for resale without change in form Key is intended use Notes: A product that is purchased for personal use is considered a consumer good. If the same product is purchased for use in a business, it is a business product. The key in classification as a business product is intended use. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Describe the role of the Internet in business marketing. Learning Objective 2 Describe the role of the Internet in business marketing. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Internet Marketing Opportunities Chapter 5 Business Marketing Internet Marketing Opportunities 2 On Line http://www.gepolymerland.com Increase efficiency Reduce costs Improve customer service Create one-to-one relationships Introduce new products Expand markets On Line GE Polymerland Is GE Polymerland just an e-commerce site, or is it also a virtual community? Visit the site and see what it offers beyond on-line ordering of resins. Notes: The commercial growth of the Internet began in the mid-1990s. In fact, in early 1995, the entire Internet could have been stored on fewer than fifty compact discs. Today, Dell Computer sells over $1 million worth of computer equipment every day on the Internet, and IBM purchases over $6 billion in goods and services annually through Internet connections. Business marketing on the Internet offers tremendous opportunities, such as those described by the bullet points shown on this slide. Over 80 percent of all U.S. companies with five thousand or more employees have an Internet presence. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Benefits of Marketing on the Internet Chapter 5 Business Marketing Benefits of Marketing on the Internet 2 On Line http://www.covisint.com 5. Lower costs 4. Around-the-clock ordering & customer service 3. Access to customer and product sales data 2. Greater selection of products and vendors 1. Lower prices 6. Customized products On Line Covisint How many trading partners does Covisint boast? Check the Web site to find out. Read Covisint’s latest newsletter, specifically the metrics column (various measurements Covisint makes to track its progress). Check back at the end of the semester to see what progress has been made. Notes: Companies that use the Internet effectively gain clear advantage, such as those listed here. Exhibit 5.1 lists resources for small business exporting information. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Discuss the role of relationship marketing and strategic alliances Chapter 5 Business Marketing Learning Objective 3 Discuss the role of relationship marketing and strategic alliances in business marketing. Notes: Relationship marketing has become an important business marketing strategy as customers have become more demanding and competition has become more intense. Building long-term relationships with customers offers a way to build competitive advantage. Discussion/Team Activity: Go to FedEx’s Website at www.fedex.com. Review the different products available to meet varying customer needs, and discuss how these products/services can establish long-term relationships and customer loyalty for FedEx. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Chapter 5 Business Marketing Strategic Alliance 3 A cooperative agreement between business firms (strategic partnership). Notes: Businesses form strategic alliances to leverage the assets they have (such as technology, financial resources, market access) by combining these assets with those of other firms. Strategic alliances may be formed to achieve economies of scale. Strategic alliances may take the form of licensing or distribution agreements, joint ventures, research and development consortia, and partnerships. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

A network of interlocking corporate affiliates. Chapter 5 Business Marketing Keiretsu 3 A network of interlocking corporate affiliates. Notes: The concept of strategic alliances has been used in foreign cultures, such as Mexico, China, Japan, and Korea, for a long time. For example, in Japan the basis of exchange between firms is personal relationships that are developed through indulgent dependency. Relationships between companies can develop into a keiretsu—a network of interlocking corporate affiliates. Members of a keiretsu trade with each other and often engage in joint product development, finance, and marketing activity. Many American firms have found the best way to compete in Asian countries is to form relationships with Asian firms. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Identify the four major categories of business market customers. Learning Objective 4 Identify the four major categories of business market customers. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Categories of Business Customers Chapter 5 Business Marketing Categories of Business Customers 4 On Line http://www.cbd-net.com http://www.governmentbids.com Categories of Business Customers Producers Resellers Governments Institutions On Line: Commerce Business Daily What do you have to do to get a government contract? Check out the Web sites below to find out. Does it seem worth the effort? Notes: Producers include profit-oriented organizations that use purchased goods and services to produce or incorporate into other products. Examples include construction, manufacturing, transportation, finance, real estate, and food service firms. The reseller market includes retail and wholesale businesses that buy finished goods to resell at a profit. Government organizations include thousands of federal, state, and local buying units. This may be the largest single market for goods and services in the world. The U.S. federal government is the world’s largest customer. Institutions do not have the standard business goals of profit, market share, and return on investment. Includes schools, hospitals, colleges and universities, churches, labor unions, fraternal organizations, civic clubs, foundations, and other nonbusiness organizations. Discussion/Team Activity: Access the Website www.govcon.com. Discuss the resources provided on this Website that help organizations do business with the federal government. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Explain the North American Industry Classification System. Learning Objective 5 Explain the North American Industry Classification System. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

North American Industry Classification System Chapter 5 Business Marketing NAICS 5 A detailed numbering system developed by the U.S., Canada, and Mexico to classify North American business establishments by their main production processes. North American Industry Classification System Notes: The North American Industry Classification Systems, introduced in 1997, is a joint development by the United States, Canada, and Mexico to provide a common industry classification system for NAFTA partners. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Chapter 5 Business Marketing Examples of NAICS 5 Notes: Exhibit 5.4 shown above demonstrates the six-digit classification system for two NAICS sectors: manufacturing and information. The first two digits designate a major economic sector. The third digit designates an economic subsector. The fourth digit designates an industry group. The fifth digit designates the NAICS industry. The sixth digit identifies subdivisions of NAICS industries that accommodate user needs in individual countries. Discussion/Team Activity: Review a complete listing of all NAICS codes at http://www.census.gov/epcd/www/naics.html. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Provides common industry classification system Chapter 5 Business Marketing NAICS 5 Provides common industry classification system Valuable tool for marketers in analyzing, segmenting, and targeting markets Data can be used to determine: Number, size, and geographic dispersion of firms Market potential / market share estimates Sales forecasts Notes: The information shown on this slide describes the usefulness of NAICS for marketers. For example, if a supplier understands the needs of a few firms within a classification, the needs can be projected to all firms in the category. This information can be converted into market potential, market share estimates, and sales forecasts. Discussion/Team Activity: Discuss how NAICS information can be used for other marketing applications. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Explain the major differences between business and Chapter 5 Business Marketing Learning Objective 6 Explain the major differences between business and consumer markets. Notes: The basic marketing concepts are the same whether the customer is a business organization or a consumer. However, the characteristics of business markets and consumer markets are different. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Business vs. Consumer Markets Chapter 5 Business Marketing Business vs. Consumer Markets 6 Characteristic Demand Volume # of Customers Location Distribution Nature of Buy Buy Influence Negotiations Reciprocity Leasing Promotion Business Market Organizational Larger Fewer Concentrated More Direct More Professional Multiple More Complex Yes Greater Personal Selling Consumer Market Individual Smaller Many Dispersed More Indirect More Personal Single Simpler No Lesser Advertising Notes: The main differences between business and consumer markets are summarized on this slide and in Exhibit 5.5. The first characteristic demand is described on the next slide. Purchase volume: Business customers buy in larger quantities than consumers. Number of customers: Business marketers have fewer customers than consumer marketers. An advantage is that it is easier to identify buyers, monitor customer needs, and build personal relationships. A disadvantage is that each customer becomes crucial, especially for those manufacturers who have only one customer. Location of buyers: Business customers are more geographically concentrated than consumers. For example, many firms in the automobile manufacturing industry are clustered near Detroit. Distribution structure: Business products typically have shorter channels of distribution, and direct channels are common. On the other hand, consumer products pass through a distribution system that may include the producer, the wholesaler(s), and the retailers. Nature of buying: More people are involved in a business market purchase decision than in a consumer purchase. Representatives from quality control, marketing, finance, and purchasing may be grouped in a buying center. Type of negotiations: Consumers are used to negotiating price on items like real estate and automobiles, although in most cases, however, the sellers set the price and other conditions of sale. In contrast, negotiation is common in business marketing decisions and may take months to work out the final contracts. Use of reciprocity: Business purchasers often choose to buy from their own customers. It is not unethical or illegal unless the exchange is coerced. Use of leasing: Businesses commonly lease expensive equipment to reduce capital outflow, keep state of the art products, and gain tax advantages. Primary promotional method: Business marketers emphasize personal selling, especially for expensive, custom-designed products. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Demand in Business Markets Chapter 5 Business Marketing Demand in Business Markets 6 Demand is... Description Derived Demand for business products results from demand for consumer products Inelastic A change in price will not significantly affect the demand for product Joint Multiple items are used together in final product. Demand for one item affects all Fluctuating Demand for business products is more volatile than for consumer products Notes: Business demand is different from consumer demand in the following areas: The demand for business products is derived demand, meaning that organizations buy products to be used in producing customer products. As a result, business marketers must carefully monitor trends and patterns in final consumer markets as well as customers’ forecasts. Inelastic demand is demand without regard to price. An increase or decrease in the product price will not significantly affect the demand for the product. Joint demand occurs when multiple items are used together in a final product. Consequently, a demand change for one product will affect the other products as well. Fluctuating demand: The demand for business products tends to be more unstable than the demand for consumer products. A small increase or decrease in consumer demand can produce a much larger change in demand for the facilities and manufacturing equipment needed to make the consumer product. This is known as the multiplier effect. Discussion/Team Activity: 1. Discuss examples of products that describe each of the demand differences in business markets. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Multiplier Effect (Accelerator Principle) 6 Phenomenon in which a small increase or decrease in consumer demand can produce a much larger change in demand for the facilities and equipment needed to make the consumer product. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Describe the seven types of business goods and services. Learning Objective 7 Describe the seven types of business goods and services. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Types of Business Products Chapter 5 Business Marketing Types of Business Products 7 On Line http://www.pmpa.org Major Equipment Accessory Equipment Raw Materials Component Parts Processed Materials Supplies Business Services Major Categories of Business Products On Line: Precision Machined Parts Association Read about history’s oldest component part industry at the PMPA Web site. Does the PMPA participate in any global organizations? If so, what are they? Surf the site to find out. Notes: Major equipment: capital goods such as large or expensive machines, airplanes, buildings. Depreciated over time, often custom-designed. Personal selling is an important marketing strategy. Accessory equipment: Less expensive and shorter-lived than major equipment, includes fax machines, personal computers, power tools. Often charged as an expense. Often standardized and purchased by more customers. Advertising is an important promotional tool. Raw materials: Unprocessed products, such as minerals, lumber, wheat, corn, fish. Become part of finished products. Personal selling is the marketing mix component used, distribution channels usually direct from producer to business user. Component parts: Finished items ready for assembly or that need very little processing. Examples are tires and electric motors. Two important markets for component parts: original equipment manufacturer (OEM) and replacement market. Processed materials are used directly in manufacturing other products. Sheet metals, chemicals, and lumber. Do not retain their identity in final products. Price and service are important factors in choosing a supplier. Supplies are consumable items that do not become part of the final product. Short lives and inexpensive. Generally fall into categories of maintenance, repair, or operating supplies (MRO), and include such items as detergents, pencils, paper, etc. Business services are expense items that do not become part of the final product. This includes janitorial, advertising, legal, and maintenance services. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Discuss the unique aspects of business buying behavior. Learning Objective 8 Discuss the unique aspects of business buying behavior. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Business Buying Behavior 8 Customer Service Purchasing Ethics Buying Situations Evaluation Criteria Buying Centers Aspects of Business Buying Behavior Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

an organization who become involved in Chapter 5 Business Marketing Buying Center 8 On Line http://www.loctite.com http://www.napm.org All those persons in an organization who become involved in the purchase decision. On Line Loctite Corporation What evidence do you see on Loctite’s Web site that its marketing efforts focus on engineers? Read some of its on-line literature. National Association of Purchasing Managers Familiarize yourself with the National Association of Purchasing Managers (NAPM) by reading about the organization on its Web site. Based on what you read, do you think a purchasing manager can be effective without being certified by NAPM? How does NAPM help its members with ethical dilemmas? Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Roles in the Buying Center Chapter 5 Business Marketing Roles in the Buying Center 8 Initiator Influencers Gatekeepers Decider Purchaser Users Notes: Several people may play a role in the business purchase decision: Initiator: the person who suggests the purchase. Influencers: help define specifications and provide information for evaluating options. Gatekeepers: group members who regulate the flow of information, often the purchasing agent. Decider: the person with the power to choose or approve the selection. Purchaser: the person who negotiates the purchase. Users: members of the organization who actually use the product. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Roles in the Buying Center Chapter 5 Business Marketing Roles in the Buying Center 8 Notes: Exhibit 5.6 shows an example of basic buying center roles. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

Evaluative Criteria for Business Buyers Chapter 5 Business Marketing Evaluative Criteria for Business Buyers 8 Price Service Notes: Business buyers evaluate products and suppliers against the criteria of quality, service, and price—in that order. Quality Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

New Buy Modified Rebuy Straight Rebuy Chapter 5 Business Marketing Buying Situations 8 New Buy Modified Rebuy Straight Rebuy Notes: If a firm decides to purchase a product instead of make it, the purchase will be a new buy, and modified rebuy, or a straight rebuy. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning

A situation requiring the purchase of a product for the first time. Buying Situations 8 New Buy Modified Rebuy Straight A situation requiring the purchase of a product for the first time. A situation where the purchaser wants some change in the original good or service. A situation in which the purchaser reorders the same goods or services without looking for new information or investigating other suppliers. Chapter 5 Essentials of Marketing 4e Lamb Hair McDaniel ©2005 South-Western/Thomson Learning