Chapter 6 Business-to-Business (B2B) Markets: How and Why Organizations Buy

6-2 Chapter Objectives 1.Explain each of the components of the business market. 2.Describe the major approaches to segmenting business-to-business (B2B) markets. 3.Identify the major ways the business market differs from the consumer market. 4.Classify organizational buying situations. 5.Discuss the Pro’s and Con’s of making products in-house versus Outsourcing

6-3 B2B MARKETING B2B Marketing - Marketing of products either for use in producing a product or for usage in conducting business to: 1.Companies (ex: Paper to Office Depot or Winthrop University) 2.Government Organizations (ex: The Navy) 3.Institutions (ex: CMC Hospitals) 4.Non-Profit Organizations (ex: American Red Cross) 5.Retailers and Wholesalers (ex: Polo shirts)

6-4 Firm specializing in the B2B market

6-5 HOW BUSINESS TO BUSINESS (B2B) DIFFERS FROM BUSINESS TO CONSUMER (B2C) 1.Customers are Other Businesses, rather than consumers 2.A much smaller number of Larger customers 3.Stronger Buyer-seller Relationships (personal selling) THE MOST important aspect of B2B Marketing 4.Stricter performance standards for products demanded by businesses – the stakes are often higher! (ex: Software for airplanes vs. software for Madden 2010)

6-6 HOW BUSINESS TO BUSINESS (B2B) DIFFERS FROM BUSINESS TO CONSUMER (B2C) 5.More complicated purchasing decisions – large # of buyers involved & longer time to make decisions 6.Success is dependent upon other companies’ ability to market (ex: Lucky Brand Jeans) 7.The demand for a company’s products comes from the demand for their customer’s products = “Derived Demand”  Sony can’t sell Sony TV’s to Best Buy if customers don’t want to buy their TV’s from Best Buy!

6-7 B2B Derived Demand Demand for certain products is caused by demand for other products

6-8 Advertising Aimed Mainly at Business Buyers May Often Appear to Be Consumer Advertising

6-9 TYPICAL BUSINESS TO BUSINESS GOODS AND SERVICES INCLUDE: RAW MATERIALS COMPONENT OR OEM PARTS (Part of a completed product) ACCESSORY EQUIPMENT (Tools) CAPITAL EQUIPMENT (Machinery) MRO ITEMS (Operating supplies) FINISHED GOODS Q. Provide an Example for each of these

6-10 B2B and B2C….for Salt Business marketingBusiness MarketingConsumer Marketing McDonalds Salt is added to fries You Salt mineMorton’s SaltHarris-Teeter Salt is sold in shakers Salt is minedSalt is processed into food-grade or industrial grade salt General Foods Salt is added to frozen dinners

6-11 Business to Business (B2B) Marketing in YOUR WORLD For the last Fast Food restaurant you ate in…. Q1. Who was the Business to Consumer (B2C) marketer? Q2. Who was the B2C Consumer? Q3. What Business to Business (B2B) marketing may have taken place? Q4. Who were the B2B customers?

6-12 Business to Business (B2B) Marketing in YOUR WORLD For the shirt you are wearing today…. Q1. Who was the Business to Consumer (B2C) marketer? Q2. Who was the B2C Consumer? Q3. What Business to Business (B2B) marketing may have taken place? Q4. Who were the B2B customers?

6-13 Business to Business (B2B) Marketing in YOUR WORLD For the textbook you (hopefully) have sitting on your desk…. Q1. Who was the Business to Consumer (B2C) marketer? Q2. Who was the B2C Consumer? Q3. What Business to Business (B2B) marketing may have taken place? Q4. Who were the B2B customers?

6-14 Business to Business (B2B) Marketing in YOUR WORLD For the car you or someone you know bought…. Q1. Who was the Business to Consumer (B2C) marketer? Q2. Who was the B2C Consumer? Q3. What Business to Business (B2B) marketing may have taken place? Q4. Who were the B2B customers?

6-15 One More Big Reason to Care about B2B Marketing College students generally land jobs in B2C marketing while…. College GRADUATES generally land jobs in B2B marketing… Greater skill requirements (marketing, analytical, and people skills) + Greater responsibility ($/sale and total sales) = Greater challenge and Greater PAY!

6-16 B2B MarketingB2C Marketing Product Relatively technical in nature, accompanying services very important. Often is a product eventually marketed B2C Service important but less than in B2B 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 market Product passes through a number of intermediate links en route to consumer Customer Relations Relatively enduring and complex. Most important aspect of B2B Marketing Important, but comparatively less contact & relationship generally shorter Decision-making process Involvement of diverse group of organization members in decision Individual or household unit makes decision

6-17 Figure 6.1 Differences Between Organizational and Consumer Markets

6-18 North American Industry Classification System Marketers use the North American Industry Classification System (NAICS) to identify their customers and to find new customers NAICS is a numerical coding of industries in the United States, Canada, and Mexico

6-19 Figure 6.4 North American Industry Classification System

6-20 Classifying Business Buying Situations 1.Straight Rebuy - 1.Straight Rebuy - Recurring purchase decision in which a customer repurchases a good or service that has performed satisfactorily in the past 2.Modified Rebuy- p 2.Modified Rebuy- purchase decision in which a purchaser is willing to reevaluate available options for repurchasing a good or service (the competition is given another shot)  Bidding 3.New-Task Buying - f 3.New-Task Buying - first-time or unique purchase situation that requires considerable effort by the decision Makers  Bidding

6-21 OfficeMax.com Promoting a straight rebuy

6-22 Purchasing a business jet: a new task buy

6-23 It’s Debatable Class Discussion Question Suppose that the price of a key component used in your product has unexpectedly tripled. Think about the pros and cons of each of the following potential actions. Where do you stand? 1) Pass the price increase onto the customer 2) Absorb the price increase 3) Change vendors and purchase a lower- priced alternative part instead

6-24 Figure 6.6 Steps in the Business Buying Process

6-25 Business Buying Decision Process Step 1: Recognize the Problem Recognition often stems from A need to replace outdated equipment Changes in technology Marketing communications spur action

6-26 Business Buying Decision Process Step 2: Search for Information In this stage, buyers: Search for information about products and suppliers Develop product specifications - Written descriptions of the quality, size, weight, color of the item to be purchased Identify potential suppliers and obtain proposals

6-27 Business Buying Decision Process Step 3: Evaluate the Alternatives Price is a primary consideration Evaluations include discount policies, returned-goods policies, cost of repair, terms of maintenance, and cost of financing Other factors may be considered, such as extra services or other perks Customer reference programs, product demos, and presentations can help sell the marketer’s products to firms

6-28 Business Buying Decision Process Step 4: Select the Product & Supplier Single sourcing: Business practice of buying a particular product from only one supplier Multiple sourcing: Buying from several different suppliers Reciprocity: Trading partnership in which two firms agree to buy from one another Produce In-House or Outsource??

6-29 In-House or Outsource? Outsourcing Outsourcing: using outside vendors to produce goods and services rather than produce them in- house Q. What are the Advantages and Disadvantages of making products yourself vs. outsourcing? Q. What are the Advantages and Disadvantages of outsourcing?

6-30 Advantages of Outsourcing May be cost effective Allows a firm to obtain specialized technological expertise Frees up the company to focus on its core competencies

6-31 Disadvantages of Outsourcing Many companies discover their cost savings to be less than half the figure promised by vendors Potential problems with suppliers who fail to deliver goods properly or provide required services Risk of losing touch with customers

6-32 Business Buying Decision Process Step 5: Evaluate Postpurchase Organizational buyers assess whether the performance of the product and the supplier live up to expectations Users are surveyed to determine satisfaction Producers may also research end-user satisfaction with the final product Changes in demand are analyzed