Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Introduction to Marketing

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Chapter 7 Objectives 1.Identify the major types of customers that comprise the business market and the massive buying power these customers represent. 2.Appreciate the importance of developing close buyer-seller relationships in business-to- business marketing.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Chapter 7 Objectives 3.Understand the decision process that organizational buyers apply as they confront different buying situations and the approach organizational buyers use to evaluate the performance of business marketers.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Chapter 7 Objectives 4.Appreciate the environment, organizational, group, and individual forces that influence the buying decisions of organizations.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Business-to-Business Marketing In the business market, the customers are organizations and these customers represent a huge market opportunity. Building and maintaining a close relationship with a customer requires careful attention to details, meeting promises, and swiftly responding to new requirements.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. The Business Market: Size and Scope The business market consists of all organizations that buy goods and services for incorporation into other goods, for consumption, for use, or for resale. Objective 1

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Characteristics of Business Market Customers In business marketing, the customers are organizations: Commercial enterprises Governments Institutions Objective 1

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Commercial Enterprises as Customers Objective 1 Commercial enterprises include manufacturers, construction companies, service firms, transportation companies, selected professional groups, and resellers. Resellers include wholesalers and retailers.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Commercial Enterprises as Customers Objective 1 Wholesalers are businesses that purchase products to sell to organizational users and retailers. Retailers are businesses that sell to household customers.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. A Concentration of Customers Objective 1 Concentration by size –The business marketer serves far fewer but far larger customers than a consumer-product marketer.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. A Concentration of Customers Objective 1 Concentration by geography –More than half of the manufacturers are concentrated in eight states: California, New York, Ohio, Illinois, Michigan, Texas, Pennsylvania, and New Jersey.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Many Small Business Customers Too Objective 1 Small businesses represent a dominant category of business market customers but a market that is often difficult to serve. Small businesses have differing needs and often a different orientation.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Significant Buying Power Objective 1 Every firm, regardless of its organizational characteristics, must procure the materials, supplies, equipment, and services necessary to operate the business successfully.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Professional and Group Purchasing Objective 1 Manager of Purchasing or Director of Purchasing is responsible for administering the purchasing process and managing relationships with suppliers. Buyers carry out the day-to-day purchasing function. Each is responsible for a specific group of products.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Professional and Group Purchasing Objective 1 E-Procurement –Purchasing managers use the Internet to find new suppliers, communicate with current suppliers, or place an order. –E-Procurement systems enable individual employees to buy online while the company retains control of the entire purchasing process. –Reverse Auction involves one buyer who invites bids from several pre-qualified suppliers.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Demand Issues Objective 1 The demand for business products differs from the demand for consumer products in that demand is derived and fluctuates. –Derived Demand –Fluctuating Demand –Stimulating Demand

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Governmental Units as Customers Objective 1 Governmental units comprise the sector of the business market represented by federal, state, and local governmental units that purchase goods and services.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Government Buying Objective 1 Formal Advertising- the government solicits bids from appropriate suppliers. Negotiated Contract- used by the government to purchase goods and services that cannot be differentiated on the basis of price alone or when there are few potential suppliers.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Government Buying Objective 1 Defense and Homeland Security –The Department of Defense spends a large proportion of the federal government’s total procurement budget. E-Government –E-government involves transferring traditional government operations to an integrated Internet environment for improved public sector accessibility, efficiency, and customer service.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Institutions as Customers Objective 1 Institutional customers comprise the sector of the business market represented by health care organizations, colleges and universities, libraries, foundations, art galleries, and clinics that purchase goods and services.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Institutional Buying Objective 1 In most cases, depending on size, the institution will employ a purchasing agent and, in large institutions, a sizable purchasing department. Group purchasing allows institutions to enjoy lower prices, improved quality, reduced administrative costs, and greater competition.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. International Business-to-Business Markets Objective 1 Countries like Germany, Japan, Korea, and Brazil offer large and growing markets for many business marketers. Countless small firms and many large ones derive a significant portion of their sales and profits from international markets.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. The Purchasing Process of International Customers Objective 1 Although similarities exist in the business marketing process across countries, the marketing strategy must be targeted to the culture, product usage, and buying procedures of the international buyers.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Business-to-Business Classification Systems Objective 1 Marketers can gain valuable strategy insights by identifying the needs and requirements of different types of commercial enterprises or business customers. –The North American Industrial Classification System (NIACS) –The North American Free Trade Agreement (NAFTA)

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Developing Closer Buyer-Seller Relationships Relationships in the business market are often close and enduring. To maintain the relationship, the business marketer must develop an intimate knowledge of the customer’s operations and contribute unique value to the customer’s business. Objective 2

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Customer Relationship Management 80/20 Rule- 20% of the customers account for 80% of the sales CRM Systems- enterprise software applications that synthesize customer information from all of a company’s contact or touch points. Objective 2

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Customer Relationship Management To develop a profitable customer strategy, special attention must be given to the following activities: 1.Acquiring the right customers. 2.Crafting the right value proposition. 3.Instituting the best processes. 4.Motivating employees. 5.Learning to retain customers. Objective 2

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Supply-Chain Management Supply-chain management is a technique for linking a manufacturer’s operations with those of all of its strategic suppliers and its key intermediaries and customers to enhance efficiency and effectiveness. Objective 2

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Just-in-Time Systems Just-in-time (JIT)- deliver defect-free parts and materials to the production process just at the moment they are needed. Goals of JIT –Minimize inventory costs –Improve product quality –Maximize production efficiency –Provide optimal levels of customer service Objective 2

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. The Organizational Buying Process Eight Major Stages: 1.Problem Recognition 2.General description of need 3.Detailed description of product specs 4.Supplier Search 5.Acquisition and analysis of proposals 6.Supplier Selection 7.Selection of an order routine 8.Performance Review Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Types of Buying Situations Three types of buying situations: 1.New Task 2.Straight Buy 3.Modified rebuy Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. How Organizational Buyers Evaluate Potential Suppliers The total cost of ownership considers not only the purchase price but also an array of other factors such as transportation and acquisition costs, as well as the quality, reliability, and other attributes of a product over its complete life cycle. Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. How Organizational Buyers Evaluate Potential Suppliers Measuring Value –Value is achieved when the proper function is secured for the proper cost. Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Evaluating Supplier Performance Once a contract is awarded to a supplier, buyers formally rate supplier performance to assess the quality of past decisions and to guide future vendor selections. –The Weighted Point Plan Objective 3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Major Forces Impacting Organizational Buying Decisions 1.Environmental Forces 2.Organizational Forces 3.Group Forces 4.Individual Forces Objective 4

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Differing Evaluative Criteria Evaluative criteria are specifications that organizational buyers use to compare alternative goods and services. Objective 4