Business Marketing Chapter 7 Business Marketing

Learning Outcomes Describe business marketing Chapter 7 Business Marketing Describe business marketing Describe trends in B-to-B Internet marketing Discuss the role of relationship marketing and strategic alliances in business marketing Identify the four major categories of business market customers

Learning Outcomes (continued) Chapter 7 Business Marketing Explain the North American Industry Classification System Explain the major differences between business and consumer markets Describe the seven types of business goods and services Discuss the unique aspects of business buying behavior

Business Marketing Chapter 7 Business Marketing LO 1 Marketing of goods and services to individuals and organizations for purposes other than personal consumption Called industrial, business-to-business, B-to-B, or B2B marketing Business products Are used to manufacture other products Consumer products Are bought to satisfy an individual's personal wants or needs Example - Sale of a PC to a college or university A product that is purchased for personal or family consumption or as a gift is a consumer good. If the same product is purchased for use in a business, it is a business product. The key characteristic distinguishing business products from consumer products is intended use and not physical form. The size of the business market in the U.S. and most other countries substantially exceeds that of the consumer market. Some large firms that produce goods such as steel, computer memory chips, or production equipment market exclusively to business customers.

Trends in B-to-B Internet Marketing Chapter 7 Business Marketing LO 2 Company websites used to facilitate communication and orders Digital marketing used to increase brand awareness and to position businesses as thought leaders to generate sales leads New applications provide additional information about customers Technology is used to facilitate orders and enhance customer experiences Use of social media to attract customers B-to-B companies are increasingly leveraging the Internet as an effective sales and promotion platform (much like B-to-C companies have done for decades). Use of social media in marketing requires vigilant adjustment to keep track of new applications and platforms and constant evaluation to determine whether these new avenues are beneficial to (or used by) customers.

Content Marketing Chapter 7 Business Marketing LO 2 Strategic marketing approach focused on creating and distributing valuable, relevant, and consistent content Metrics that are useful for increasing the success of a social media campaign Awareness Engagement Conversion This strategy has played an important role for B-to-B marketers. Other goals of the strategy include: Product promotion Traffic building Search engine optimization (SEO) Competitive intelligence and listening Customer feedback and support Product development

Relationship Marketing Chapter 7 Business Marketing LO 3 Importance Customers have become more demanding Competition has become more intense Business suppliers use social networking sites to advertise themselves to businesses Steady dialogue between the supplier and the customer needs to be maintained to gain repeat business Relationship marketing is a strategy that entails seeking and establishing ongoing partnerships with customers. 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.

Cooperative agreement between business firms Types Strategic Alliance Chapter 7 Business Marketing LO 3 Cooperative agreement between business firms Types Licensing or distribution agreements Joint ventures Research and development consortia Partnerships A strategic alliance is sometimes called a strategic partnership. Sometimes alliance partners are fierce competitors. For an alliance to succeed in the long term, it must be built on commitment and trust. Relationship commitment means that a firm believes an ongoing relationship with some other firm is so important that it warrants maximum efforts at maintaining it indefinitely. Trust exists when one party has confidence in an exchange partner’s reliability and integrity.

Major Categories of Business Customers Chapter 7 Business Marketing LO 4 Producers - Construction, manufacturing, transportation, finance, real estate, and food service firms Resellers - Wholesalers and retailers Governments - Federal, state, and local buying units Institutions - Educational institutions, hospitals, churches, labor unions, fraternal organizations, civic clubs, foundations, and other nonbusiness organizations Producers include profit-oriented organizations that use purchased goods and services to produce other products, to incorporate into other products, or to facilitate the daily operations of the organization. Original equipment manufacturers (OEMs): Individuals and organizations that buy business goods and incorporate them into the products they produce for eventual sale to other producers or to consumers The reseller market includes retail and wholesale businesses that buy finished goods to resell at a profit. Government units account for the greatest volume of purchases of any customer category in the United States. Institutions seek to achieve goals other than the standard business goals of profit, market share, and return on investment. Discussion/Team Activity Access the web site http://www.cbd-net.com. Discuss the information provided on this web site that helps organizations do business with the federal government.

North American Industry Classification System (NAICS) Chapter 7 Business Marketing LO 5 Detailed numbering system developed by the U.S., Canada, and Mexico Classifies North American business firms by their main production processes Number, size, and geographic dispersion of firms can be identified Data can be converted to market potential and share estimates and sales forecasts Can identify firms that may be prospective users of a supplier’s goods and services NAICS is an extremely valuable tool for business marketers engaged in analyzing, segmenting, and targeting markets. Discussion/Team Activity Discuss how NAICS information can be used for other marketing applications.

Nature of Demand in Business Chapter 7 Business Marketing LO 6 Demand for business products results from demand for consumer products Derived Demand for product not significantly affected by change in price Inelastic Demand for multiple items used together in final product Joint 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. In joint demand, sales of the two products are directly linked. Multiplier effect (accelerator principle): 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 Discussion/Team Activity Discuss examples of products that describe each of the demand differences in business markets. Demand for business products is more volatile than for consumer products Fluctuating

Business versus Consumer Markets Chapter 7 Business Marketing LO 6 Characteristic Business market Consumer market Demand Organizational Individual Volume Larger Smaller No. of customers Fewer Many Location Concentrated Dispersed Distribution Direct Indirect Nature of buying Formal Informal Buying influence Multiple Single Negotiation Common Rare Reciprocity Yes No Leasing Greater Lesser Promotion Personal selling Advertising The basic philosophy and practice of marketing are the same whether the customer is a business organization or a consumer. Business markets do, however, have characteristics different from consumer markets. Business marketers have fewer customers than consumer marketers. An advantage is that it is easier to identify buyers, monitor customer needs and levels of satisfaction, and personally attend to existing customers. A disadvantage is that each customer becomes crucial, especially for those manufacturers who have only one customer. Business customers are more geographically concentrated than consumers. 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. Businesses use professionally trained purchasing agents or buyers who spend their entire career purchasing a limited number of items. More people are involved in a single business purchase decision than in a consumer purchase. Negotiation is more common in business marketing decisions and may take months to work out the final contracts. Business purchasers choose to buy from their own customers. It is not unethical or illegal unless the exchange is coerced. Businesses commonly lease expensive equipment to reduce capital outflow, keep state-of-the-art products, and gain tax advantages. Business marketers emphasize personal selling, especially for expensive, custom-designed products.

Types of Business Products Chapter 7 Business Marketing LO 7 Major equipment Accessory equipment Raw materials Component parts Processed materials Supplies Business services Major equipment: Capital goods such as large or expensive machines, mainframe computers, airplanes, and buildings Depreciates over time and often custom-designed Personal selling is an important marketing strategy. Accessory equipment: Less expensive and shorter-lived than major equipment Portable drills, power tools, microcomputers, and computer software Advertising is an important promotional tool. Raw materials: Unprocessed extractive or agricultural products, such as mineral ore, lumber, wheat, corn, fruits, vegetables, and fish Promotion is almost always via personal selling, and distribution channels are usually direct from producer to business user. Component parts: Either finished items ready for assembly or that need very little processing There are two important markets for many component parts: the OEM market and the replacement market. Processed materials: Used directly in manufacturing other products and do not retain their identity in final products Sheet metals, chemicals, and lumber Supplies: Consumable items that do not become part of the final product Fall into categories of maintenance, repair, or operating supplies (MRO) Business services: Expense items that do not become part of the final product Includes janitorial, advertising, legal, management consulting, marketing research, maintenance, and other services

Aspects of Business Buying Behavior Chapter 7 Business Marketing LO 8 Buying centers Evaluative criteria Buying situations Business ethics Customer service Understanding how purchase decisions are made in organizations is a first step in developing a business selling strategy.

Key Terms Business marketing (industrial, business- to-business, B-to-B, or B2B marketing) Business product (industrial product) Consumer product Content marketing Strategic alliance (strategic partnership) Relationship commitment Trust Keiretsu Original equipment manufacturers (OEMs) North American Industry Classification System (NAICS) Derived demand Joint demand

Key Terms (continued) Multiplier effect (accelerator principle) Business-to-business online exchange Reciprocity Major equipment (installations) Accessory equipment Raw materials Component parts Processed materials Supplies Business services Buying center New buy Modified rebuy Straight rebuy

Summary Business marketing is marketing of goods and services for purposes other than personal consumption The Internet acts as an effective sales and promotion platform Strategic alliance is a cooperative agreement between business firms Business market consists of producers, resellers, governments, and institutions

Summary (continued) NAICS is an industry classification system introduced in 1997 Business markets have characteristics different from consumer markets Business products fall under seven categories Business selling strategy requires understanding how purchase decisions are made in organizations