Copyright © 2001 by Harcourt, Inc. All rights reserved CHAPTER TEN BUSINESS-TO-BUSINESS MARKETING Text by Profs. Gene Boone & David Kurtz Multimedia Presentation by Prof. Milton Pressley The University of New Orleans

Copyright © 2001 by Harcourt, Inc. All rights reserved CHAPTER OBJECTIVES Explain each of the components of the business market Describe the major approaches to segmenting business-to-business markets Identify the major characteristics of the business market and its demand Describe the major influences on business buying behavior

Copyright © 2001 by Harcourt, Inc. All rights reserved CHAPTER OBJECTIVES Outline the steps in the organizational buying process Classify organizational buying situations Explain the buying center concept Discuss the challenges of marketing to government, institutional, and international buyers Summarize key differences between consumer and business-to-business marketing

Copyright © 2001 by Harcourt, Inc. All rights reserved IntroductionIntroduction Business-to-business marketing: organizational 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 © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Figure 10-1: Firm Specializing in the B2B Market

Copyright © 2001 by Harcourt, Inc. All rights reserved Bidcom.com: A B2B Website that Brings Builders and Their Suppliers Together on the WWW Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-7 NATURE OF THE BUSINESS MARKET Like a 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 © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved 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 Commercial Market © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved TWA The commercial market: TWA buying aircraft to provide flight service Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-10 Components of the Business Market 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 Commercial Market Trade Industries © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Martha Stewart’s Paints Trade industries: Kmart and Sears reselling Martha Stewart paints Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-12 Components of the Business Market Government Organizations: Include domestic units of federal, state, local and foreign governments Commercial Market Trade Industries Government Organizations © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved IRS IRS buys products to provide federal tax service Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-14 Components of the Business Market Institutions: includes a wide variety of organizations, both public and private, such as hospitals, churches, skilled care centers, colleges and universities, museums, and not-for-profit agencies. Commercial Market Trade Industries Government Organizations Institutions © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Australian Koala Foundation Not-for-profits: an institutional component of the business market Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-16 Components of the Business Market B2B Market – The Internet Connection Internet is now playing an important role in B2B marketing 70 percent of all Internet sales are B2B transactions © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Class Discussion Why do you think that 70% of all Internet Sales are B2B transactions instead of Consumer transactions? Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-18 Tradeout.com Online auctions: an example of B2B e-commerce Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-19 Table 10.1: Examples of E-Commerce Sites Engaged in B2B Marketing E-ExchangesWhat They Do PaperexhangeHelps businesses trade pulp and paper Universal AccessAllows businesses to trade datacom services Arebinet Communications Allows business to trade bandwidth AutoviaHelps mechanics procure auto parts BidcomBrings together builders and their suppliers CollabriaAllows businesses to trade printing equipment CommerxA trading post for the plastics industry E-chemicalsA place for businesses to procure bulk chemicals iPartsAllows businesses to trade electronic parts

Copyright © 2001 by Harcourt, Inc. All rights reserved E-Commerce Site of iPart.com – the last listing in Table 10.1 Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-21 Segmenting Business-to- Business Markets Demographic Segmentation: demographic characteristics define the useful segmentation criteria for business markets A firm’s size, for example, can be a useful classification basis Demographic © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Figure 10-2: Using Demographic Segmentation in Business Markets

Copyright © 2001 by Harcourt, Inc. All rights reserved Segmenting Business-to- 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 Demographic Customer Type © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Table 10.2: An Example of the NAICS Hierarchy NAICS LevelNAICS Code Description Sector31–33Manufacturing Subsector334Computer and electronic product manufacturing Industry group3346Manufacturing and reproduction of magnetic and optical media Industry33461Manufacturing and reproduction of magnetic and optical media U.S. Industry334611Reproduction of software

Copyright © 2001 by Harcourt, Inc. All rights reserved The NAICS Website Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-26 Segmenting Business-to- Business Markets End-use application segmentation: segmenting a business-to-business market based on how industrial purchasers will use the product Demographic Customer Type End-use Application © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Segmenting Business-to- Business Markets Centers on the purchasing situation Organizations use more complicated purchasing procedures than those of consumers Firms also structure their purchasing functions in specific ways Demographic Customer Type End-use Application Purchasing Situation © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Praxair: A Supplier of Industrial Gases Could Segments Its Markets According to User (End-use Application) Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-29 Characteristics of the B2B Market

Copyright © 2001 by Harcourt, Inc. All rights reserved Characteristics of the B2B Market

Copyright © 2001 by Harcourt, Inc. All rights reserved 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 Suppliers of automobile components and assemblies frequently build their plants close to their customers © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Figure 10-3: Locating Close to Customers

Copyright © 2001 by Harcourt, Inc. All rights reserved Characteristics of the B2B Market

Copyright © 2001 by Harcourt, Inc. All rights reserved Sizes and Numbers of Buyers Business market features a limited number of buyers Statistical information to estimate the size and characteristics of business markets is available Federal government is largest single source of such statistics © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved The U.S. Census Bureau’s Business Statistics Can Help Determine the Size and Number of Buyers Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-36 Characteristics of the B2B Market

Copyright © 2001 by Harcourt, Inc. All rights reserved 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 © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Characteristics of the B2B Market

Copyright © 2001 by Harcourt, Inc. All rights reserved 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 © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Figure 10-4: Stressing the Importance of Business Relationships

Copyright © 2001 by Harcourt, Inc. All rights reserved Characteristics of the B2B Market

Copyright © 2001 by Harcourt, Inc. All rights reserved Evaluating International Business Markets Business purchasing patterns often differ from one country to the next Companies must weigh quantitative and qualitative data Global sourcing: contracting to purchasing goods and services from suppliers worldwide, is often practiced in today’s international marketplace © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Chubu Electric Power Co., Inc. Chuba Electric practices global sourcing Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-44 Sites like ChinaSite.com Can Help Firms to Evaluate International Business Markets Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-45 BUSINESS MARKET DEMAND Derived demand: demand for a business product that results from demand for a consumer product of which it is a component Joint demand: demand for a business product that depends on the demand for another business product that is necessary for the use of the first Volatile demand: changes in demand that are disproportionate to normal trends © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Figure10-5: Microprocessors: An Example of Derived Demand

Copyright © 2001 by Harcourt, Inc. All rights reserved 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 © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved The Rise of Outsourcing Outsourcing: acquiring inputs from outside vendors for 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 © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Figure 10-6: An Outsourcing Service for Reducing Risk and Increasing Productivity

Copyright © 2001 by Harcourt, Inc. All rights reserved 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 © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved iSky iSky: an outsourcing customer care service Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-52 THE BUSINESS BUYING PROCESS Influences on Purchase Decisions: Environmental Factors Organizational Factors Multiple Sourcing: purchasing from several vendors Interpersonal Influences © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved American Express Corporate Services Internet technology influencing purchase decisions by streamlining the buying process and cutting costs Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-54 Figure 10-7: Grainger: A Single Source for MRO Supplies

Copyright © 2001 by Harcourt, Inc. All rights reserved The Role of the Professional Buyer Professional buyer: 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 © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Figure 10-8: Online Auction Service for Buyers of Industrial Supplies

Copyright © 2001 by Harcourt, Inc. All rights reserved Figure 10-9: Stages in the B2B Buying Process Model of the Organizational Buying Process

Copyright © 2001 by Harcourt, Inc. All rights reserved Organizational Buying Process Model Stage 1: Anticipate or recognize a problem/need/opportunity and a general solution Anticipate Need © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Hunterdirect.Com: A Firm That Helps Others Create New Ways for Firms to Increase Sales Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-60 Stage 2: Determine the characteristics and quantity of a needed good or service Anticipate Need Determine Characteristics Organizational Buying Process Model © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Stage 3: Describe characteristics and the quantity of a needed good or service Anticipate Need Determine Characteristics Describe Characteristics Organizational Buying Process Model © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Stage for: Search for and qualify potential sources Anticipate Need Determine Characteristics Describe Characteristics Search Organizational Buying Process Model © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Stage 5: Acquire and analyze proposals Anticipate Need Determine Characteristics Describe Characteristics Search Acquire and Analyze Organizational Buying Process Model © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Stage 6: Evaluate proposals and select suppliers Anticipate Need Determine Characteristics Describe Characteristics Search Acquire and Analyze Evaluate and Select Suppliers Organizational Buying Process Model © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Figure 10-10: Selecting a Supplier

Copyright © 2001 by Harcourt, Inc. All rights reserved Stage 7: Select an order routine Anticipate Need Determine Characteristics Describe Characteristics Search Acquire and Analyze Evaluate and Select Suppliers Select Order Routine Organizational Buying Process Model © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Stage 8: Obtain feedback and evaluate performance Anticipate Need Determine Characteristics Describe Characteristics Search Acquire and Analyze Evaluate and Select Suppliers Select Order Routine Feedback Organizational Buying Process Model © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Classifying Business Buying Situations Recurring purchase decision in which a customer repurchases a good or service that has performed satisfactorily in the past Straight Rebuy © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Figure 10-11: Promoting a Straight Rebuy

Copyright © 2001 by Harcourt, Inc. All rights reserved M Post-it A straight rebuy purchase decision Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-71 Classifying Business Buying Situations Purchase decision in which a purchaser is willing to reevaluate available options for repurchasing a good or service Straight Rebuy Modified Rebuy © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Sites Like OfficeMax.com’s Can Also Help Businesses with Modified Rebuy Decisions Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-73 Classifying Business Buying Situations First-time or unique purchase situation that requires considerable effort by the decision Makers Straight Rebuy Modified Rebuy New-Task Buying © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Figure 10-12: New-Task Buying

Copyright © 2001 by Harcourt, Inc. All rights reserved Dassault Falcon Jet Purchasing a business jet: a new task buy Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-76 Classifying Business Buying Situations Policy to extend purchasing preference to suppliers that are also customers Straight Rebuy Modified Rebuy New-Task Buying Reciprocity © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved 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 © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved THE BUYING CENTER CONCEPT Buying center roles played by various participants in the purchase decision process include: Users Gatekeepers Influencers Decider Buyer © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Figure 10-13: Users: A Buying Center Participant

Copyright © 2001 by Harcourt, Inc. All rights reserved MARKETING TO BUYING CENTERS: STRATEGIC IMPLICATIONS B2B marketers must identify people who play the various roles in a buying center Must understand how these members interact with: Each other Other members of their own organizations, and Outside vendors Team selling, introducing other associates in addition to salespeople into selling situations to reach all members of a customer’s buying center, can be effective © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved International Buying Centers Differentiated from domestic buying centers since they: Their members are often more difficult to identify May include more participants than buying centers in U.S. firms © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved DEVELOPING EFFECTIVE B2B MARKETING STRATEGIES Government purchasing procedures Bids: written sales proposals from vendor Specifications: written descriptions of needed goods or services Online with the federal government Challenges of Government Markets © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Figure 10-14: Government Purchasing Online

Copyright © 2001 by Harcourt, Inc. All rights reserved GSA Advantage Web Site: One of the Larger Government-Sponsored Electronic Ordering System Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-85 The Defense Link: A Large Government Sponsored Electronic Ordering System Copyright © 2001 by Harcourt, Inc. All rights reserved.

10-86 DEVELOPING EFFECTIVE B2B MARKETING STRATEGIES Widely diverse buying practices Multiple buying influences may affect decisions Group purchasing is an important factor Challenges of Government Markets Challenges of Institutional Markets © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved DEVELOPING EFFECTIVE B2B MARKETING STRATEGIES 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, can be important Challenges of Government Markets Challenges of International Markets Challenges of Institutional Markets © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Table 10.3: Business-to Business Marketing versus Consumer Goods Marketing: Some Distinguishing Characteristics Business-to-Business MarketingConsumer-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 sellingEmphasis on advertising Distribution Relatively short, direct channels to marketProduct passes through a number of intermediate links en route to consumer Customer relations Relatively enduring and complexComparatively 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 Strategies for Marketing to Both Business Purchasers and Final Users