CHAPTER 5: UNDERSTAND BUSINESS-TO- BUSINESS MARKETS Part 2: Use Information to Drive Marketing Decisions McGraw-Hill Education Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

LEARNING OBJECTIVES  Recognize the importance of B2B marketing  Understand the differences between B2C and B2B markets  Understand the critical role of the buying center and each participant in the B2B process  Learn the B2B purchase decision process and different buying situations  Comprehend the role of technology in business markets 2

DIFFERENCES BETWEEN BUSINESS AND CONSUMER MARKETS Relationship with Customers Number and Size of Customers Geographic Concentration Complexity of Buying Process Complexity of the Supply Chain 3

DIFFERENCES BETWEEN BUSINESS AND CONSUMER MARKETSEXHIBIT 5.1 B2B MarketConsumer Market Relationship with Customers Invest more in maintaining personal relationships Impersonal; exist through electronic communication Number and Size of Customers Few put larger customersMore customers but buy in smaller, less frequent quantities Geographic Concentration Suppliers located Strategically by the Buyers Could be anywhere in the world Complexity of Buying Process Complex process that can take a long time (years in some cases) and involve more people Fewer people, often just one, directly involved in the purchase decision and the purchase decision is often based on personal and psychological benefits Complexity of Supply Chain Direct from supplier to manufacturerComplex with products moving through the channel to reach the consumer Demand for Products Derived from consumer demand, fluctuates with changes to consumer demand and more inelastic (less price sensitive) Consumer perceptions about their own needs mitigated by environmental factors and marketing stimuli 4

DIFFERENCES BETWEEN BUSINESS AND CONSUMER MARKETS  Demand for Products and Services is Different in a Business Market  Product Demand differs on three dimensions: Derived Demand: If consumers are buying finished products, producers need more inputs. Fluctuating Demand: the difference between consumer and business product demand Acceleration Effect Inelastic Demand : Producers by raw materials even if the price rises. 5

EXAMPLES OF ELASTIC AND INELASTIC DEMANDEXHIBIT 5.2 6

BUYING SITUATIONS  Factors influencing business buying decisions  Nature of the purchase  Number of people involved in the decision  Understanding of the product being purchased  Time frame for the decision 7

BUYING SITUATIONS 8 Straight RebuyModified RebuyNew Purchase

BUYING CENTERS  A number of individuals with a stake in the purchase decision come together to form a buying center that manages the purchase decision process and ultimately makes the decision. 9

BUYING CENTER PARTICIPANTSEXHIBIT 5.4 Decider Person(s) responsible for making final decision Decider Person(s) responsible for making final decision Gatekeeper Controls access to key participants in the process Gatekeeper Controls access to key participants in the process Influencer Individuals in and out of company that affect decision Influencer Individuals in and out of company that affect decision Initiator Could be user or executive who starts the process Initiator Could be user or executive who starts the process Users Actual consumer of the product Users Actual consumer of the product Buying Center Buying Center 10

MARKETING CHALLENGES IN BUYING CENTERSEXHIBIT 5.5 Who is part of the buying center? Who are the most significant influencers? What are the decision criteria for evaluating the various product options? Target Market 11

THE PLAYERS IN BUSINESS TO BUSINESS MARKETS  The North American Industrial Classification System (NAICS)  Manufacturers Original Equipment Manufacturer (OEM) purchases End User purchases Capital Equipment Materials, Repairs and Operational (MRO) 12

THE PLAYERS IN BUSINESS TO BUSINESS MARKETS  Resellers  Government  Institutions 13

MODEL OF BUSINESS MARKET CONSUMER DECISION PROCESSEXHIBIT 5.7 Problem Recognition Define the Need and Product Specifications Search for Suppliers Seek Sales Proposals - Response to RFP Making the Purchase Decision Post- Purchase Evaluate of Product and Vendor 14

THE BUSINESS MARKET PURCHASE DECISION PROCESS  Problem Recognition  Define the Need and Product Specifications  Request for Proposal (RFP)  Seek Sales Proposals in Response to RFP 15

THE BUSINESS MARKET PURCHASE DECISION PROCESS  Making the Purchase Decision Product Selection Product Choice Financial Criteria Value Criteria Service Criteria 16

THE BUSINESS MARKET PURCHASE DECISION PROCESS  Making the Purchase Decision  Product Selection uses three criteria to evaluate the product choice Financial Criteria Value Criteria Service Criteria  Supplier Choice Reliability  Personal and Organizational Factors 17

THE BUSINESS MARKET PURCHASE DECISION PROCESS  Post-Purchase Evaluation of Product and Supplier  Assess product performance  Consider the level of support provided by seller  Expect follow up after sale 18

THE ROLE OF TECHNOLOGY IN BUSINESS MARKETS  Electronic Data Interchange (EDI)  E-Procurement Industry Purchasing SitesBusiness Function SitesExtranet to Major SuppliersCompany Buying Sites 19

Photo Credits  Slide 5-7: BananaStock  Slide 5-9: Comstock Images  Slide 5-13: Dennis MacDonald 20