1. Chapter 6 Business-to-Business Markets: How and Why Organizations Buy

2. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-2 Chapter Objectives  Define business-to-business (B2B) markets  Describe the characteristics of B2B markets that differ from C2B markets  Explain the unique aspects of B2B markets  Describe how marketers classify B2B customers  Identify different business buying situations  Identify and discuss the stages in the business buying decision process  Understand the Internet’s role in B2B settings

3. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-3 Real People, Real Choices: Decision Time at NCR Corporation  Which option should NCR pursue in order to market the new generation of point-of-sale workstations effectively? –Option 1: Attend the trade show as in the past –Option 2: Skip the show this year and reallocate resources to other alternatives –Option 3: Forego the show this year and find out if the venue and sponsorship changes are real

4. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-4 Business Markets: Buying and Selling When Stakes Are High  Business-to-business marketing: The marketing of goods and services that businesses and other organizations buy for purposes other than personal consumption –Business-to-business (organizational) markets include manufacturers, wholesalers, retailers, and other organizations such as hospitals, and government

5. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-5 B2B Advertising Even firms that sell strictly functional products such as copiers can be creative when they advertise to business customers Learn more at b2badvertising.org b2badvertising.org

6. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-6 Characteristics That Make a Difference in Business Markets  Business markets differ from consumer markets in several ways –Multiple buyers are involved –Fewer organizational customers exist –Order quantities and cost are much larger –Business customers are more geographically concentration Eaton Video

7. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-7 Figure 6.1 Differences Between Organizational and Consumer Markets

8. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-8 Business-to-Business Demand  Business-to-business demand differs from consumer product demand, because demand is: –Derived –Inelastic –Fluctuating –Joint

9. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-9 Business-to-Business Demand  Derived demand: –Demand for organizational products is caused by demand for consumer goods

10. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-10 Business-to-Business Demand  Inelastic demand: –Changes in price have little or no effect on the amount demanded  Fluctuating demand: –Small changes in consumer demand create large increases or decreases in business demand –Life expectancy of the product can cause fluctuating demand  Joint demand: –Demand for two or more goods used together to create a product

11. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-11 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

12. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-12 Figure 6.3 The Business Marketplace

13. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-13 Types of Business-to-Business Customers  Producers: –Individuals or firms that purchase products for use in the production of other goods and services Example: Dell buys RAM chips for integration into their PCs  Resellers: –Individuals or firms that buy goods for reselling, renting, or leasing

14. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-14 Types of Business-to-Business Customers  Organizations: Government markets –Federal, state, county, and local governments that buy goods and services to carry out public objectives and to support their operations  Organizations: Not-for-profit firms –Organizations with charitable, educational, community, and other public service goals that buy goods and services to support their functions and to attract and serve their members

15. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-15 FedBizOpps.gov The Federal Business Opportunities Web site bills itself as “The U.S. Government’s One- Stop Virtual Marketplace” FedBizOpps.gov

16. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-16 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

17. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-17 Figure 6.4 North American Industry Classification System

18. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-18 Business Buying Situations  Buy class framework –Identifies the degree of effort a firm needs to collect information and make a decision  Three buy classes: –Straight rebuy –Modified rebuy –New-task buy

19. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-19 The Professional Buyer  Trained professional buyers typically carry out buying in business-to- business markets: –Purchasing agents –Procurement officers –Directors of materials management

20. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-20 Figure 6.5 Roles in the Buying Center

21. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-21 Figure 6.6 Steps in the Business Buying Process

22. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-22 Business Buying Decision Process Step 1: Problem Recognition  Recognition often stems from –A need to replace outdated equipment –Changes in technology –Marketing communications  Actions resulting from problem recognition include: –Initiation of a purchase requisition or request –Formation of a buying center

23. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-23 Business Buying Decision Process Step 2: Information Search  In this stage, buying center members: –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

24. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-24 B2B Advertising Marketers must realize that buyers may need to procure materials that will go into many different products with varying specifications The ad at left addresses this potential need head on

25. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-25 Business Buying Decision Process Step 3: Evaluate the Alternatives  The buying center assesses proposals –Price is a primary consideration Evaluations include discount policies, returned-goods policies, cost of repair, terms of maintenance, cost of financing, etc. –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

26. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-26 It’s Debatable Class Discussion Question What factors should be evaluated besides price? When would price not be the most important factor?

27. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-27 Business Buying Decision Process Step 4: Select the Product and 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

28. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-28 Business Buying Decision Process Step 4: Select the Product and Supplier  Outsourcing: –Obtaining vendors to provide goods/services that might otherwise be supplied in-house  Crowdsourcing: –Via a formal network, firms use expertise from around the globe to solve a problem  Reverse marketing: –Buyers try to find capable suppliers and “sell” their purchase to the suppliers

29. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-29 Business Buying Decision Process Step 5: Postpurchase Evaluation  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 ultimate consumer satisfaction with the final product –Changes in demand are analyzed –Supplier performance is documented

30. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-30 Business-to-Business E-Commerce  B2B E-Commerce: Internet exchanges between two or more businesses –Includes exchanges of information, products, services, and payments –Allows business marketers to link to suppliers, factories, distributors, and their customers –B2B Internet site provides technical support, item/order status information, and customer service

31. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-31 Intranets, Extranets, and Private Exchanges  Intranets –Link a firms’ departments, employees, and databases  Extranets –Allow authorized suppliers, customers, and other outsiders to access the firm’s intranet  Private exchanges –Link an invited group of suppliers and partners over the Web

32. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-32 The Dark Side of B2B Commerce  Hackers threaten security –Customer credit card number theft –May destroy firm records or steal trade secrets –Authenticating transactions is critical  Well-meaning employees can be security threats when careless with their passwords

33. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-33 The Dark Side of B2B Commerce  Most firms safeguard e-commerce transactions using firewalls and encryption –Firewalls are hardware and software that ensure only authorized individuals gain entry to a computer system –Encryption software scrambles a message so only another individual (or computer) with the right key can unscramble it

34. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-34 Real People, Real Choices: Decision Made at NCR Corporation  Brad chose option 2 –NCR’s retail division passed on the trade show and reallocated its resources to two smaller events –Implementation: Event A drew a solid number of prospects, and NCR increased the quality and length of interactions with booth visitors. Event B did not draw the expected number of attendees –Measuring success: # of attendees, # of interactions, total cost, cost per attendee and interaction, and # captured leads

35. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-35 Keeping It Real: Fast-Forward to Next Class Decision for NutriSystem  Meet Thomas Connerty, Chief Marketing Officer for NutriSystem  NutriSystem experienced tremendous growth as a result of their 28-day weight loss program among women  The decision to be made: Should NutriSystem actively target the male market?

36. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6-36 Copyright © 2009 Pearson Education, Inc. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.