Business-to-Business (B2B) Marketing Chapter 6 Business-to-Business (B2B) Marketing

Chapter Objectives Explain each of the components of the business-to-(B2B) market. Describe the major approaches to segmenting business-to-business (B2B) markets. Identify the major characteristics of the business market and its demand. Discuss the decision to make, buy, or lease 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 of and strategies for marketing to government, institutional, and international buyers.

Nature of the Business Market Business-to-business marketing: organizational sales and purchase of goods and services to support production of other goods and services for daily company operations or for resale B2B: a popular acronym for the business-to-business market

Like final consumers, organizations purchase products and services to fill needs Their primary need is meeting the demands of their own customers Business buying decisions: Are more formal Involve complex interactions among many people Must consider the organization’s goals

Business-to-Business Marketing Consumer-Goods Marketing Product Relatively technical in nature, exact form often variable, accompanying services very important Standardized form, service important but less than for business products Price Competitive bidding for unique items, list prices for standard items List prices Promotion Emphasis on personal selling Emphasis on advertising Distribution Relatively short, direct channels to market Product passes through a number of intermediate links en route to consumer Customer Relations Relatively enduring and complex Comparatively infrequent contact, relationship of relatively short duration Decision-making process Involvement of diverse group of organization members in decision Individual or household unit makes decision

Components of the Business Market Commercial Market: Individuals and firms that acquire goods and services to support, directly or indirectly, production of other goods and services Trade Industries: Retailers and wholesalers who purchase goods for resale to others. Reseller: often used to describe the wholesalers and retailers that operate in the trade sector

Kmart and Sears reselling Martha Stewart paints

Government Organizations: Include domestic units of federal, state, local and foreign governments IRS buys products to provide federal tax service

Institutions: includes a wide variety of organizations, both public and private, such as hospitals, churches, universities, museums, and not-for-profit agencies.

B2B Market – The Internet Connection Internet plays an important role in B2B marketing 90 percent of all Internet sales are B2B transactions Differences in Foreign Business Markets Must be willing to adapt to local customs and business practices

Segmenting B2B Markets Demographic Segmentation: demographic characteristics define the useful segmentation criteria for business markets Using Demographic Segmentation in Business Markets

Customer-Based Segmentation: dividing a B2B market into homogenous groups based on buyers’ product specifications 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

Segmentation by End-Use Application: segmenting a business-to-business market based on how industrial purchasers will use the product Segmentation 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)

Characteristics of the B2B Market Geographic Market Concentration U.S. business market is more geographically concentrated than the consumer market Manufacturers concentrate in certain regions of the country Certain industries locate in particular areas to be close to their customers For example, suppliers of automobile components and assemblies frequently build their plants close to their customers

Sizes and Numbers of Buyers Business market features a limited number of buyers Use statistical information to estimate the size and characteristics of business markets is available Federal government is largest single source of such statistics

The Purchase Decision Process Businesses must understand the dynamics of the organizational purchasing process B2B suppliers often must work with multiple buyers Decision-makers at several layers may influence final orders Process is more formal and professional than with consumers

Buyer-Seller Relationships More intense than consumer relationships Require better communication among the organizations’ personnel Primary goal of B2B relationships is to provide advantages that no other seller can, for instance: Lower-prices Quicker delivery Better quality and reliability Customized product features More favorable financing terms

Genuine JD stressing the importance of business relationships

Evaluating International Business Markets Business purchasing patterns often differ from one country to the next Companies must weigh quantitative and qualitative data Global sourcing: purchasing goods and services from suppliers worldwide

Chubu Electric practices global sourcing

Derived Demand: demand for a resource that results from demand for the goods and services that are produced by that resource Volatile Demand: changes in demand that are disproportionate to normal trends Joint Demand: demand for a product that depends on the demand for another product used in combination with it Inelastic Demand: demand that, throughout an industry, will not change significantly due to a price change. Inventory Adjustments: Just-in-time inventory policies (JIT & JIT II)

Business Market Demand Derived Demand – the demand for corn derived from demand for ethanol Volatile Demand – the lower demand for new housing construction results in lower demand for lumber, concrete, plumbing items Joint Demand – greater demand for gasoline will cause greater demand for motor oil Inventory Adjustments Just-In-Time inventory policies require suppliers to deliver inputs for production just as the production process needs them Just-In-Time II brings supplier representatives into the customer’s facility to better manage supply

Microprocessors: An Example of Derived Demand

The Make, Buy, or Lease Decision Three Basic Options: Make the good or provide the service in-house Purchase it from another organization Lease it from another organization

The Rise of Outsourcing Using outside vendors to produce goods and services formerly produced in-house Outsourcing May be cost effective Allows a firm to obtain specialized technological expertise Frees up the company to focus on its core competencies

An outsourcing service for reducing risk and increasing productivity

Problems with Outsourcing Many companies discover their cost savings to be less than half the figure promised by vendors May require signing a multiyear contract that eliminates most or all benefits in a year or two Potential internal security problems Potential problems with suppliers who fail to deliver goods probably or provide required services Possible union difficulties Risk of losing touch with customers

The Business Buying Process Influences on Purchase Decisions: Environmental Factors Organizational Factors Multiple Sourcing: purchasing from several vendors Interpersonal Influences

The Role of the Professional Buyer Professional buyer (merchandisers): technically qualified employees who are responsible for securing needed products at the best possible prices Systems integration: Centralization of the procurement function within an internal division or as a service of an external supplier Category Captain: A firm designates a major supplier as their systems integrator. This supplier assumes responsibility for dealing with all of the suppliers for the firm.

Model of the Organizational Buying Process

Stage 1: Anticipate or recognize a problem/need/opportunity and a general solution Stage 2: Determine the characteristics and quantity of a needed good or service Stage 3: Describe characteristics and the quantity of a needed good or service Stage 4: Search for and qualify potential sources Stage 5: Acquire and analyze proposals Stage 6: Evaluate proposals and select suppliers Stage 7: Select an order routine Stage 8: Obtain feedback and evaluate performance

Whole Foods Selecting a supplier

Classifying Business Buying Situations Straight Rebuying Recurring purchase decision in which a customer repurchases a good or service that has performed satisfactorily in the past Modified Rebuying Purchase decision in which a purchaser is willing to reevaluate available options for repurchasing a good or service

New-Task Buying First-time or unique purchase situation that requires considerable effort by the decision Makers Reciprocity Policy to extend purchasing preference to suppliers that are also customers

Analysis Tools Value analysis: systematic study of the components of a purchase to determine the most cost-effective ways to acquire items Vendor analysis: assessment of supplier performance in areas such as price, back orders, timely delivery, and attention to special requests

The Buying Center Concept Participants in an organizational buying action Buying center roles played by various participants in the purchase decision process include: Users – initiate purchase request, develop specifications Gatekeepers – control information Influencers – provide information Decider – actually chooses good or service Buyer – has formal authority to select supplier

International Buying Centers Differentiated from domestic buying centers since: Their members are often more difficult to identify May include more participants than buying centers in U.S. firms Team selling Introducing other associates in addition to salespeople into selling situations to reach all members of a customer’s buying center

Developing Effective Business-To-Business Marketing Strategies Challenges of Government Markets Government purchasing procedures Bids: written sales proposals from vendor Specifications: written descriptions of needed goods or services Online with the federal government

Challenges of Institutional Markets Widely diverse buying practices Multiple buying influences may affect decisions Group purchasing is an important factor Challenges of International Markets Widely diverse attitudes and cultural patterns Local industries, economic conditions, geographic characteristics and legal restrictions also must be considered Remanufacturing: production to restore worn-out products to like new condition

End of Chapter Six