Chapter Objectives Business-to-Business (B2B) Marketing CHAPTER Explain each of the components of the business-to-business (B2B) market. Describe the major approaches to segmenting B2B markets. Identify the major characteristics of the business market and its demand. Discuss the decision to make, lease, or buy. Describe the major influences on business buying behavior. Outline the steps in the organizational buying process. Classify organizational buying situations. Explain the buying center concept. Discuss the challenges and strategies for marketing to government, institutional, and international buyers

CHAPTER 6 Business-to-Business (B2B) Marketing Business-to-business (B2B) marketing Organizational sales and purchases of goods and services to support production of other products, to facilitate daily company operations, or for resale. B2B B2B: a popular acronym for the business-to-business market Business-to-business (B2B) market is significantly larger than the consumer market. Example: U.S. companies spend more than $300 billion annually just for office and maintenance supplies. Example: Department of Defense budget in a recent year was $500 billion.Department of Defense

CHAPTER 6 Business-to-Business (B2B) Marketing NATURE OF THE BUSINESS MARKET

CHAPTER 6 Business-to-Business (B2B) Marketing NATURE OF THE BUSINESS MARKET Companies also buy services, such as legal, accounting, office-cleaning, and other services. Some firms focus entirely on business markets. COMPONENTS OF THE BUSINESS MARKET Commercial market Trade industries Government Public and private institutions More than 94 percent of all Internet sales are B2B transactions.

CHAPTER 6 Business-to-Business (B2B) Marketing SEGMENTING B2B MARKETS Segmentation helps marketers develop the most appropriate strategy. SEGMENTATION BY DEMOGRAPHIC CHARACTERISTICS Grouping by size based on sales revenues or number of employees. SEGMENTATION BY CUSTOMER TYPE Grouping in broad categories, such as by industry. Customer-based segmentation Dividing a business-to-business market into homogeneous groups based on buyers’ product specifications. North American Industry Classification System Classification used by NAFTA countries to categorize the business marketplace into detailed market segments.

CHAPTER 6 Business-to-Business (B2B) Marketing –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

CHAPTER 6 Business-to-Business (B2B) Marketing

Segmentation by End-Use ApplicationSegmentation by End-Use Application: segmenting a business-to-business market based on how industrial purchasers will use the product Segmentation by Purchase CategoriesSegmentation by Purchase Categories –Centers on the purchasing situation –Organizations may use complicated purchasing procedures –Firms also structure their purchasing functions in specific ways (e.g. centralized purchasing departments)

CHAPTER 6 Business-to-Business (B2B) Marketing SEGMENTATION BY END-USE APPLICATION End-use application segmentation Segmenting a business-to-business market based on how industrial purchasers will use the product. Example: A supplier of industrial gases that sells hydrogen to some companies and carbon dioxide to others. SEGMENTATION BY PURCHASE CATEGORIES Segmenting according to organizational buyer characteristics. Example: Whether a company has a designated central purchasing department or each unit within the company handles its own purchasing.

CHAPTER 6 Business-to-Business (B2B) Marketing CHARACTERISTICS OF THE B2B MARKET GEOGRAPHIC MARKET CONCENTRATION Business market is more concentrated than consumer market - Companies often locate near customers SIZES AND NUMBER OF BUYERS Business market has smaller number of buyers than consumer market. Many buyers are large organizations, such as Boeing, which buys jet engines.Boeing

CHAPTER 6 Business-to-Business (B2B) Marketing 2006 Estimated Population Density Pop = 329,202  = 200 people

CHAPTER 6 Business-to-Business (B2B) Marketing 2006 Estimated Population Change

CHAPTER 6 Business-to-Business (B2B) Marketing 2006 Estimated Income Distribution

CHAPTER 6 Business-to-Business (B2B) Marketing BUSINESS MARKET DEMAND Demand characteristics vary from market to market.

CHAPTER 6 Business-to-Business (B2B) Marketing THE BUSINESS BUYING PROCESS More complex than the consumer decision process. Takes place within formal organization’s budget, cost, and profit considerations. INFLUENCES ON PURCHASE DECISIONS Environmental factors—economic, political, regulatory, competitive, and technological considerations influence business buying decisions. Organizational factors—structures, policies, and purchasing systems, which may be centralized in one office or delegated to units throughout the organization. Interpersonal Influences of all organizational members involved in the buying decision. Concerns and procedures of professional buyers who implement systematic buying procedures.

CHAPTER 6 Business-to-Business (B2B) Marketing THE BUYING CENTER CONCEPT Buying center Participants in an organizational buying action. BUYING CENTER ROLES

CHAPTER 6 Business-to-Business (B2B) Marketing THE PURCHASE DECISION PROCESS Often involves multiple decision makers, is more formal, and may require bidding and negotiations. BUYER-SELLER RELATIONSHIPS Often more complex than in consumer market with a greater reliance on relationship marketing. EVALUATING INTERNATIONAL BUSINESS MARKETS Business purchasing patterns differ from country to country. Global sourcing Purchasing goods and services from suppliers worldwide. Can bring significant cost savings but requires adjustments.

CHAPTER 6 Business-to-Business (B2B) Marketing CLASSIFYING BUSINESS BUYING SITUATIONS Business buying behavior involves degree of effort involved in the decision and the levels within the organization in which these decisions are made. Straight rebuying—recurring purchase decision in which a customer reorders a product that has satisfied needs in the past. Modified rebuying—purchaser willing to reevaluate available options. New-Task Buying—first-time or unique purchase situations that require considerable effort by the decision makers. Reciprocity—practice of buying from suppliers that are also customers. ANALYSIS TOOLS Value analysis—examines each component of a purchase in an attempt to either delete the item or replace it with a more cost-effective substitute. Vendor analysis—ongoing evaluation of a supplier’s performance in a variety of areas.

CHAPTER 6 Business-to-Business (B2B) Marketing THE MAKE, BUY, OR LEASE DECISION Firms acquiring needed products can get them in one of three ways: Make the good or provide the service in-house. Purchase it from another organization. Lease it from another organization. Producing the item may be cheapest route, but most firms cannot make all of the products they need. Many companies purchase many of the goods they need. Companies can spread out costs through leasing.