© 2013 by Cengage Learning Inc. All Rights Reserved. Lamb, Hair, McDaniel Chapter 7 Business Marketing 2012-2013 CHAPTER 7 Business Marketing The key characteristic distinguishing business products from consumer products is intended use, not physical form. © Sean Gallup/Getty Images © 2013 by Cengage Learning Inc. All Rights Reserved.

Learning Outcomes Describe business marketing Chapter 7 Business Marketing Learning Outcomes 1 Describe business marketing Describe the role of the Internet in business marketing Discuss the role of relationship marketing and strategic alliances in business marketing Identify the four major categories of business market customers 2 3 4

Chapter 7 Business Marketing Learning Outcomes 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 5 6 7 8

Describe business marketing Chapter 7 Business Marketing What Is Business Marketing? Describe business marketing 1

What Is Business Marketing? Chapter 7 Business Marketing What Is Business Marketing? Business Marketing …or Industrial Marketing The marketing of goods and services to individuals and organizations for purposes other than personal consumption. Notes: Business marketing is the marketing of goods and services to individuals and organizations for purposes other than personal consumption. The sale of a PC to a college or university is an example of business marketing. 1

Business Products… The key is the intended use of the product Chapter 7 Business Marketing Business Products… 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 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. The size of the business market in the U.S. and most other countries substantially exceeds that of the consumer market. The key is the intended use of the product 1

Describe the role of the Internet in business marketing Chapter 7 Business Marketing Business Marketing on the Internet Describe the role of the Internet in business marketing 2

Business-to-Business E-Commerce Chapter 7 Business Marketing Business-to-Business E-Commerce The use of the Internet to facilitate the exchange of goods, services, and information between organizations. From Ch. 5-“The Impact of the Internet”- Trends in B to B Notes: In 1995, the commercial Web sites that did exist were static. In 2005, there were more than one billion Internet users worldwide. Interactive spending by B-to-B marketers reached $2.3 billion in 2010—including SEO, email marketing, viral videos, and webinars. Social media is growing but still facing some hurdles among B-to-B marketers. The most used features are blogs, social networking sites, Twitter, video streaming sites, and mobile marketing. Companies selling to business buyers face the same challenges as all marketers, including determining who, exactly, the market is and how best to reach them. http://www.youtube.com/watch?v=QzZyUaQvpdc&feature=related http://www.youtube.com/watch?v=QzZyUaQvpdc&feature=related 2

Measuring Online Success Chapter 7 Business Marketing Measuring Online Success Stickiness A measure of a Web site’s effectiveness; calculated by multiplying the frequency of visits by the duration of a visit by the number of pages viewed during each visit. Notes: For marketers today, three of the most important measurements of Web site hits are recency, frequency, and monetary value. Combining frequency with the length of time a visitor spends on the Web site and the number of pages viewed during each visit can provide an analytical measure of a site’s stickiness factor. Stickiness = Frequency x Duration x Site Reach 2

Internet Sites for Small Businesses Chapter 7 Business Marketing Internet Sites for Small Businesses http://www.allbusiness.com AllBusiness provides entrepreneurs with the knowledge and tools to start, manage, and grow their business. The site links to hundreds of how-to articles and provides expert answers to questions. http://www.microsoft.com/business Microsoft Business offers small business solutions from security to enterprise content management to cloud services. The site also contains practical tips, advice, and links to how-to articles. http://www.quicken.com/small_business This site offers information on starting, running, and growing a small business. It also provides links to a variety of other Quicken sites that are useful to small-business owners and managers.

Evolution of E-Business Initiatives Chapter 7 Business Marketing Exhibit 7.2 Evolution of E-Business Initiatives Notes: This slide shows three major Internet marketing strategies from the late 1990s compared to five that are currently being pursued. Disintermediation means eliminating intermediaries such as wholesalers or distributors from a marketing channel. Reintermediation means the reintroduction of an intermediary between producers and users.

of relationship marketing and strategic alliances in Chapter 7 Business Marketing Relationship Marketing and Strategic Alliances 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. 3

Relationship Marketing Chapter 7 Business Marketing Relationship Marketing Loyal customers are more profitable than price-sensitive customers with little brand loyalty Long-term relationships build competitive advantage 3

Strategic Alliances & Partnerships Chapter 7 Business Marketing Strategic Alliances & Partnerships Cooperative agreements between firms Licensing or distribution agreements Joint ventures Used for R & D Used to strengthen operations Firms can compete better Trust and commitment are essential Notes: Strategic alliances can take the form of licensing or distribution agreements, joint ventures, research and development consortia, and partnerships. 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. Another rationale behind the formation of strategic alliances is to achieve economies of scale. 3

Relationships in Other Cultures Chapter 7 Business Marketing Relationships in Other Cultures Keiretsu relationships are highly integrated: Companies have executives sitting on each others’ boards Maintain dedicated trade efforts Joint development, finance, and marketing Forming relationships is the best way to compete Notes: The concept of strategic alliances has been used in foreign cultures, such as Mexico, China, Japan, Korea, and much of Europe 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. 3

Identify the four major categories of business market customers Chapter 7 Business Marketing Major Categories of Business Customers Identify the four major categories of business market customers 4

Major Categories of Business Customers Chapter 7 Business Marketing Major Categories of Business Customers Producers Resellers Government Institutions • OEMs-Original Equip Manufacturers • Wholesalers • Retailers • Federal • State • Local • Schools • Hospitals • Colleges • Churches • Unions • Fraternal • Civic Clubs • Foundations groups • Nonbusiness organizations Notes: The business market consists of four major categories of customers: producers, resellers, governments, and institutions. Producers include profit-oriented organizations that use purchased goods and services to produce or incorporate into other products. 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. 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 Web site http://www.cbd-net.com Discuss the information provided on this Web site that helps organizations do business with the federal government. 4

Explain the North American Industry Classification System Chapter 7 Business Marketing North American Industry Classification System Explain the North American Industry Classification System 5

Industry Classification Chapter 7 Business Marketing NAICS NAICS North American Industry Classification System A detailed numbering system developed by the U.S., Canada, and Mexico to classify North American business establishments by their main production processes. Notes: The North American Industry Classification Systems (NAICS), introduced in 1997, is a joint development by the United States, Canada, and Mexico to provide a common industry classification system for NAFTA partners. 5

Example of NAICS Hierarchy Chapter 7 Business Marketing Example of NAICS Hierarchy NAICS Level Sector Subsector Industry Group Industry Industry Subdivision Code 51 513 5133 51332 513321 Description Information Broadcasting and telecoms Telecoms Wireless telecoms carriers, except satellite Paging 5

NAICS Provides a common industry classification system Chapter 7 Business Marketing NAICS Provides a 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 New customer identification Notes: The information shown on this slide describes the usefulness of NAICS for marketers. 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. 5

Explain the major differences between business and consumer markets Chapter 7 Business Marketing Business versus Consumer Markets Explain the major differences between business and consumer markets Notes: 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. 6

Business versus Consumer Markets Chapter 7 Business Marketing Business versus Consumer Markets Characteristic Demand Volume # of Customers Location Distribution Nature of Buying 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. 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. 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. Nature of buying influence: Typically, more people are involved in a single business purchase decision than in a consumer purchase. Type of negotiations: Negotiation is more 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. © 2013 by Cengage Learning Inc. All Rights Reserved.

Demand in Business Markets Chapter 7 Business Marketing Demand is... Description Derived Inelastic Joint Fluctuating Demand for business products results from demand for consumer products. A change in price will not significantly affect the demand for product. Multiple items are used together in final product. Demand for one item affects all. 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. 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. 6

Describe the seven types of business goods and services Chapter 7 Business Marketing Types of Business Products Describe the seven types of business goods and services 7

Types of Business Products Chapter 7 Business Marketing Types of Business Products Major Equipment Accessory Equipment Raw Materials Component Parts Processed Materials Supplies Business Services Notes: Major equipment: capital goods such as large or expensive machines, mainframe computers, airplanes, and 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. Usually not depreciated. Often standardized and purchased by more customers. Advertising is an important promotional tool. Raw materials: Unprocessed products, such as minerals, timber, 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. Two important markets for component parts: original equipment manufacturer (OEM) and replacement market. Processed materials: 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: 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). Business services: Expense items that do not become part of the final product. This includes janitorial, advertising, legal, management consulting, marketing research, and maintenance services. 7

Types of Business Goods and Services Chapter 7 Business Marketing Types of Business Goods and Services © 2013 by Cengage Learning Inc. All Rights Reserved.

Discuss the unique aspects of business buying behavior Chapter 7 Business Marketing Business Buying Behavior Discuss the unique aspects of business buying behavior 8

Business Buying Behavior Chapter 7 Business Marketing Business Buying Behavior 5-Customer Service 4-Business Ethics 3-Buying Situations 2-Evaluative Criteria 1-Buying Centers Aspects of Business Buying Behavior Notes: Understanding how purchase decisions are made in organizations is a first step in developing a business selling strategy. Business buying behavior has five important aspects, as shown on this slide. 8

Chapter 7 Business Marketing 1-Buying Centers All those people in an organization who become involved in the purchase decision. Number of people involved varies with each purchase decision Buying centers may not appear on formal organization charts 8

Roles in Buying Centers Chapter 7 Business Marketing Roles in Buying Centers 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/Evaluators: 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. Jim Sinegal, Chief Executive Officer of Costco Wholesale http://www.hulu.com/watch/368405#s-p1-so-i0 8

2-Evaluative Criteria Quality Service Price 8 Chapter 7 Business Marketing 2-Evaluative Criteria Quality Service Price Notes: Business buyers evaluate products and suppliers against the criteria of quality, service, and price—in that order. Quality refers to technical suitability. Quality improvement should be part of every organization’s marketing strategy. Service includes prepurchase as well as postpurchase service, along with dependability of supply. Services that help sell the finished products are especially appropriate when the seller’s product is an identifiable part of the end product. Business buyers want to buy at low prices. However, a buyer who pressures a supplier to cut prices to the point of money loss may force shortcuts on quality. It may force the supplier to quit selling to him/her. 8

3-Buying Situations New Buy Modified Rebuy Straight Rebuy Chapter 7 Business Marketing 3-Buying Situations New Buy A situation requiring the purchase of a product for the first time. Modified Rebuy A situation where the purchaser wants some change in the original good or service. Notes: Often, business firms, especially manufacturers, must decide whether to make something or buy it from an outside supplier. If a firm does decide to buy a product instead of making it, the purchase will be a new buy, a modified rebuy, or a straight rebuy. Straight Rebuy A situation in which the purchaser reorders the same goods or services without looking for new information or investigating other suppliers. 8

4-Business Ethics Ethics Training Corporate Code of Ethics Chapter 7 Business Marketing 4-Business Ethics Ethics Training Corporate Code of Ethics Standard of Behavior Employees Suppliers Notes: Business marketers are increasingly recognizing the benefits of developing a formal system to monitor customer opinions and perceptions of the quality of customer service. 8

5-Customer Service Develop measures for their target markets Chapter 7 Business Marketing 5-Customer Service Develop measures for their target markets Divide customers into groups based on their value Create policies that govern how service will be allocated among groups Notes: Business marketers are increasingly recognizing the benefits of developing a formal system to monitor customer opinions and perceptions of the quality of customer service. 8