CHAPTER 6 Business-to-Business (B2B) Marketing Chapter Objectives 1 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. 4 Discuss the decision to make, lease, or buy. Describe the major influences on business buying behavior. Outline the steps in the organizational buying process. 7 Classify organizational buying situations. Explain the buying center concept. Discuss the challenges and strategies for marketing to government, institutional, and international buyers. 5 8 2 9 6 3

• 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. • 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.

NATURE OF THE BUSINESS MARKET

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. • Example: Caterpillar, which makes construction and mining equipment. • Diverse market, everything from a box of paper clips to thousands of parts for an automobile manufacturer.

COMPONENTS OF THE BUSINESS MARKET • Four main components: • Commercial market Individuals and firms that acquire products to support, directly or indirectly, production of other goods and services. • Largest segment of the business market. • Trade industries Retailers or wholesalers that purchase products for resale to others. • Also called resellers, marketing intermediaries that operate in the trade sector. • Government—all domestic levels (federal, state, local) and foreign governments; also act as sellers—e.g., confiscated goods. • Public and private institutions, such as hospitals, churches, colleges and universities, and museums.

B2B MARKETS: THE INTERNET CONNECTION • More than 94 percent of all Internet sales are B2B transactions. • Opens up foreign markets to sellers. • Largest segment of the business market. DIFFERENCES IN FOREIGN BUSINESS MARKETS • May differ due to variations in regulations and cultural practices. • Businesses must be willing to adapt to local customs and business practices and research cultural preferences.

SEGMENTING B2B MARKETS SEGMENTATION BY DEMOGRAPHIC CHARACTERISTICS • 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 (NAICS) • Federal government developed Standard Industrial Classification in 1930s to subdivide business market into detailed segments. • Replaced by NAICS with implementation of NAFTA. • North American Industry Classification System Classification used by NAFTA countries to categorize the business marketplace into detailed market segments.

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. • Businesses increasingly segment customers according to the stage in their relationship. • Example: Whether a customer is new or a long-term partner.

CHARACTERISTICS OF THE B2B MARKET GEOGRAPHIC MARKET CONCENTRATION • Business market more concentrated than consumer market. • Example: Companies that sell to the federal government are often located near Washington, D.C. • Businesses becoming less geographically concentrated as Internet technology improves. 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.

THE PURCHASE DECISION PROCESS • Sellers must navigate organizational buying processes that often involve multiple decision makers. • Purchasing process usually more formal than in consumer market. • Purchases may require bidding and negotiations. BUYER-SELLER RELATIONSHIPS • Often more complex than in consumer market. • 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.

BUSINESS MARKET DEMAND • Demand characteristics vary from market to market.

DERIVED DEMAND VOLATILE DEMAND • The linkage between demand for a company’s output and its purchases of resources such as machinery, components, supplies, and raw materials. • Example: Demand for computer microprocessor chips is derived from demand for personal computers. • Organizational buyers purchase two types of items: • Capital items—long-lived business aspects that depreciate. • Expense items—items consumed within short time periods. VOLATILE DEMAND • Derived demand creates volatility. • Example: Demand for gasoline pumps may be reduced if demand for gasoline slows.

JOINT DEMAND INELASTIC DEMAND • Results when the demand for one business product is related to the demand for another business product used in combination with the first item. • Example: If lumber supply falls, then decrease in construction will affect concrete market. INELASTIC DEMAND • Demand throughout an industry will not change significantly due to a price change. • Example: Construction firms will not necessarily buy more lumber if prices fall unless overall housing demand also increases.

INVENTORY ADJUSTMENTS • Just-in-time (JIT) inventory policies boost efficiency by cutting inventory and requiring vendors to deliver inputs as they are needed. • Often use sole sourcing, buying a firm’s entire stock of a product from just one supplier. • Latest inventory trend: JIT II, suppliers to place representatives at the customer’s facility to work as part of an integrated, on-site customer–supplier team. • Inventory adjustments are also vital to wholesalers and retailers.