1 CHAPTER FIVE BUSINESS MARKETING Prepared by Jack Gifford Miami University (Ohio) © 2001 South-Western College Publishing

2 BUSINESS MARKETS AND ORGANIZATIONAL BUYING n From communications giants to small parts manufacturers and systems consulting groups, firms are forming partnerships to achieve goals that would be too costly, time- consuming, or difficult to accomplish on their own. © 2001 South-Western College Publishing

3 n They are also pursuing alliances to encourage product innovation, reduce risk, expand product portfolios, and provide enhanced packages of customer services. BUSINESS MARKETS AND ORGANIZATIONAL BUYING © 2001 South-Western College Publishing

4 WHAT IS BUSINESS MARKETING? n …the marketing of goods and services to individuals and organizations for purposes other than personal consumption Products that are used to manufacture other products That become part of another product Aid the normal operations of an organization Are acquired for resale © 2001 South-Western College Publishing

5 BUSINESS MARKETING ON THE INTERNET n Over 95% of the Fortune 1,000 companies use the Internet n Businesses are expected to buy over $200 billion worth of goods and services online in eight times more than consumers. n Has increased the competitive nature of the business market. © 2001 South-Western College Publishing

6 THE INTERNET AND BUSINESS-TO- BUSINESS MARKETING n Internet Web Sites n Product & price information n Technical documents n Communications n Logistics support n FAQ s n Distribution of RFP s Request For Proposals)

7 ©2001 South-Western College Publishing THE INTERNET AND BUSINESS-TO- BUSINESS MARKETING n Internet Web Sites (continued) n On-line bidding globally n Research n Scheduling n Video conferencing n Product inspection

8 MAJOR CATEGORIES OF BUSINESS CUSTOMERS n Producers n Resellers n Governments n Institutions Profit-oriented individuals and organizations who: purchases and services to produce other products incorporate into other products facilitate the daily operations of the organization ©2001 South-Western College Publishing

9 MAJOR CATEGORIES OF BUSINESS CUSTOMERS n Producers n Resellers n Governments n Institutions Retail and wholesale businesses that buy finished goods and resell them for a profit ©2001 South-Western College Publishing

10 MAJOR CATEGORIES OF BUSINESS CUSTOMERS n Producers n Resellers n Governments n Institutions Federal State Local Largest single market in the world Often uses a contractual bid process ©2001 South-Western College Publishing

11 MAJOR CATEGORIES OF BUSINESS CUSTOMERS n Producers n Resellers n Governments n Institutions Schools Hospitals Universities Churches Clubs Foundations Labor unions ©2001 South-Western College Publishing

12 © 2001 South-Western College Publishing CLASSIFYING BUSINESS MARKETS: THE NAICS NORTH AMERICAN INDUSTRY CLASSIFICATION SYSTEM REPLACES THE STANDARD INDUSTRIAL CLASSIFICATION SYSTEM DEVELOPED AS PART OF THE NORTH AMERICAN FREE TRADE AGREEMENT CREATES A MORE RELEVANT AND CURRENT INDUSTRIAL DATABASE FOR THE UNITED STATES, CANADA, AND MEXICO

13 © 2001 South-Western College Publishing Classifying business markets: the NAICS system In a marked change from the old SIC system, NAICS reflects the enormous changes in technology and in the growth and diversification of services that have characterized recent decades.

14 © 2001 South-Western College Publishing CLASSIFYING BUSINESS MARKETS: THE NAICS SYSTEM n Firms involved in business-to-business marketing use the NAICS to identify potential buyers and sellers for their products and services and to assist in discovering new markets and opportunities. It is an essential tool of almost every business-to-business marketer now and into the 21st century.

15 CLASSIFYING BUSINESS MARKETS: THE NAICS n Extremely valuable tool for business marketers in analyzing, segmenting, and targeting markets. n Is being implemented over time n Integrated marketing data from Canada, USA & Mexico © 2001 South-Western College Publishing

16 BUSINESS VERSUS CONSUMER MARKETS n The basic philosophy and practice of marketing is the same whether the customer is a business organization or a consumer. Business markets do, however, have characteristics different from consumer markets © 2001 South-Western College Publishing

17 © 2001 South-Western College Publishing THE NATURE OF ORGANIZATIONAL DEMAND n The nature of the demand for goods and services in the multifaceted organizational marketplace differs greatly from the demand for most consumer goods!

18 © 2001 South-Western College Publishing THE NATURE OF ORGANIZATIONAL DEMAND n Generalizations about organizational demand INCREASED AUTOMOTIVE TRAVEL DEMAND FOR BUSINESS CARS DEMAND FOR SEATS & TIRES DEMAND FOR LEATHER, FABRIC AND RUBBER INCREASED MINING REQUIRED

19 © 2001 South-Western College Publishing THE NATURE OF ORGANIZATIONAL DEMAND n Generalizations about organizational demand n Price inelastic n Pass along price/cost increases to the customer n Price of any one component is a small % of the total product cost If the cost of paint increases, builders will not increase the cost of homes.

20 © 2001 South-Western College Publishing THE NATURE OF ORGANIZATIONAL DEMAND n Generalizations about organizational demand n Joint Demand n Occurs when two or more items are used together in a final product If the demand for computers goes up, so will the demand for mice and monitors

21 © 2001 South-Western College Publishing THE NATURE OF ORGANIZATIONAL DEMAND n Generalizations about organizational demand n Fluctuating demand n Linked to the economy’s ups and downs n Some products have long lives

22 THE NATURE OF ORGANIZATIONAL DEMAND n Business buyers usually buy in larger quantities than consumers n Far fewer prospective buyers n Business buyers often geographically clustered n Channels of distribution are shorter n Buying process is more formal © 2001 South-Western College Publishing

23 THE NATURE OF ORGANIZATIONAL DEMAND n More individuals involved in the purchase decision n Prices and terms are frequently negotiable n Use of reciprocity (you buy from me and I’ll buy from you) n Non consumable business products are often leased instead of purchased n The principle promotional method used is personal selling © 2001 South-Western College Publishing

24 TYPES OF BUSINESS PRODUCTS MAJOR EQUIPMENT ACCESSORY EQUIPMENT RAW MATERIALS COMPONENT PARTS PROCESSED MATERIALS SUPPLIES BUSINESS SERVICES © 2001 South-Western College Publishing

25 © 2001 South-Western College Publishing BUSINESS BUYING BEHAVIOR The buying decision-making process The buyer of organizational goods and services, whether chemicals,machinery, steel, or maintenance services, usually go through a decision-making process similar to, but more complex than, the consumer decision-making process discussed in Chapter 4.

26 © 2001 South-Western College Publishing The cross-functional buying center n Buying Center n Informal & dynamic n Cross-departmental n Decision unit n Primary objective n Acquisition of information n Dissemination of information n Processing of information DATAINFORMATION BUYING CENTER BUYING DECISION

27 © 2001South-Western College Publishing The cross-functional buying center: Roles n Roles of buying center individuals include…. n Initiators n Gatekeepers n Influencers/evaluators n Deciders n Purchaser n Users

28 © 2001 South-Western College Publishing Understanding the buying situations n Understanding the types of buying situations and behavior found in organizations is extremely important for organizational marketers. Each buying situation suggests a different marketing mix -- an adjustment of the four major elements to fit particular circumstances.

29 © 2001 South-Western College Publishing WHY DO ORGANIZATIONS BUY? n Rational reasons for buying n Product quality (TQM & ISO 9000 and 14000) n Related services n Training n Repair n Technical support n Prices n Service

30 © 2001 South-Western College Publishing THREE BUYING SITUATIONS n Straight rebuy n Simple decision process n Modified rebuy n More complex decision process n New task buying n Most complex decision process