CHAPTER 6 Business-to-Business Markets: How and Why Organizations Buy M A R K E T I N G Real People, Real Choices Fourth Edition

6-2 Business-to-Business Marketing Marketing of goods and services that businesses and organizations buy for purposes other than personal consumption –Manufacturers –Wholesalers –Retailers –Government agencies –Hospitals –Universities

6-3 Business Markets Generally, the same principles are true for business and consumer customers There are characteristics that make B2B buying more complex –Multiple Buyers –Number of customers –Size of purchases –Geographic concentration (e.g. Silicon Valley CA; Detroit MI)

6-4 B2B Demand Characteristics Derived Demand –Demand for a b2b product depends on demand for the final b2c product Inelastic Demand –Depends on the proportion of the input to total input Fluctuating Demand –Some products may be replaced sparingly Joint Demand –When the final product contains more than one component

6-5 Inelastic Demand Inelastic demand means that business customers buy the same quantity whether the price goes up or down Example: A BMW Z4 Roadster 3.0i has a list price starting at just over $55,000. If the price of tires, batteries, or stereos goes up or down, BMW still must buy enough to meet consumer demand for the Z4.

6-6 Fluctuating Demand Small changes in consumer demand can create large increases or decreases in business demand Capital equipment coming up for replacement can suddenly spike demand

6-7 Joint Demand Joint demand occurs when two or more goods are necessary to create a product Companies try to avoid dependence on specific suppliers by dealing with multiple suppliers whenever possible

6-8 B2B Classifications Producers –Convert raw materials into finished products Resellers –Resell products without converting them Organizations –Governments competitive bids requests for proposals (RFPs) –Not-for-profit organizations

6-9 NAICS – North American Industry Classification System Numerical coding of industries in US, Canada and Mexico Classifies firms into detailed categories according to their activities Replaced the SIC system in 1997 Reports the number of firms, total dollar amount of sales, number of employees, growth rate for industries, broken down by geographic region Can be used to assess potential markets and to determine how well a firm is doing compared to their industry group

6-10 The Nature of Business Buying The Buying Situation The Professional Buyer The Buying Center

6-11 The Buying Situation A buy class framework identifies the degree of effort required of the firm’s personnel to collect information and make a purchase decision Straight rebuy Modified rebuy New task buying

6-12 The Professional Buyer Titles: purchasing agents, procurement officers, director of materials management Focus on economic factors beyond the initial price of a product, including transportation and delivery charges, accessory products or supplies, maintenance, disposal costs, etc. Large firms practice centralized purchasing - one department does all buying

6-13 The Buying Center Group of people in the organization who participate in the decision-making process May include production workers, supervisors, engineers, secretaries, shipping clerks, and financial officers Works like a committee

6-14 Roles in the Buying Center Initiator begins the buying process User needs the product Gatekeeper controls the flow of information to other members Influencer dispenses advice or shares expertise Decider makes the final decision Buyer executes the purchase

6-15 Considerations in Supplier Selection On-time deliveries Single sourcing vs. multiple sourcing Outsourcing Reverse marketing Reciprocity

6-16 Electronic B2B Commerce Internet exchanges between two or more businesses or organizations Allows marketers to link directly to suppliers, factories, distributors, and their customers Reduces time necessary to order and deliver goods, track sales, and get feedback

6-17 Intranets and Extranets An intranet is an internal corporate computer network that uses Internet technology to link company departments, employees, and databases An extranet allows outsiders to the organization to access its intranet

6-18 Security Issues Authentication - making sure only authorized individuals are allowed to access a site Firewalls - combination of hardware and software that ensures only authorized individuals gain entry Encryption - scrambling a message so that only another individual has the right “key” for deciphering it