1. Business-to-Business (B2B) Marketing
Chapter 6
Business-to-Business (B2B) Marketing

2. Chapter Objectives
Explain each of the components of the business-to-(B2B) market.
Describe the major approaches to segmenting business-to-business (B2B) markets.
Identify the major characteristics of the business market and its demand.
Discuss the decision to make, buy, or lease
Describe the major influences on business buying behavior.
Outline the steps in the organizational buying process.
Classify organizational buying situations.
Explain the buying center concept.
Discuss the challenges of and strategies for marketing to government, institutional, and international buyers.

3. Nature of the Business Market
Business-to-business marketing: organizational sales and purchase of goods and services to support production of other goods and services for daily company operations or for resale
B2B: a popular acronym for the business-to-business market

4. Like final consumers, organizations purchase products and services to fill needs
Their primary need is meeting the demands of their own customers
Business buying decisions:
Are more formal
Involve complex interactions among many people
Must consider the organization’s goals

5. Business-to-Business Marketing Consumer-Goods Marketing
Product
Relatively technical in nature, exact form often variable, accompanying services very important
Standardized form, service important but less than for business products
Price
Competitive bidding for unique items, list prices for standard items
List prices
Promotion
Emphasis on personal selling
Emphasis 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
Comparatively infrequent contact, relationship of relatively short duration
Decision-making process
Involvement of diverse group of organization members in decision
Individual or household unit makes decision

6. Components of the Business Market
Commercial Market: Individuals and firms that acquire goods and services to support, directly or indirectly, production of other goods and services
Trade Industries: Retailers and wholesalers who purchase goods for resale to others.
Reseller: often used to describe the wholesalers and retailers that operate in the trade sector

7. Kmart and Sears reselling Martha Stewart paints

8. Government Organizations: Include domestic units of federal, state, local and foreign governments
IRS buys products to provide federal tax service

9. Institutions: includes a wide variety of organizations, both public and private, such as hospitals, churches, universities, museums, and not-for-profit agencies.

10. B2B Market – The Internet Connection
Internet plays an important role in B2B marketing
90 percent of all Internet sales are B2B transactions
Differences in Foreign Business Markets
Must be willing to adapt to local customs and business practices

11. Segmenting B2B Markets
Demographic Segmentation: demographic characteristics define the useful segmentation criteria for business markets
Using Demographic Segmentation in Business Markets

12. Customer-Based Segmentation: dividing a B2B market into homogenous groups based on buyers’ product specifications
North American Industrial Classification System (NAICS): classification used by NAFTA to categorize the B2B marketplace into details that market segments replaced the Standard Industrial Classification (SIC) System

13. Segmentation by End-Use Application: segmenting a business-to-business market based on how industrial purchasers will use the product
Segmentation by Purchase Categories
Centers on the purchasing situation
Organizations may use complicated purchasing procedures
Firms also structure their purchasing functions in specific ways (e.g. centralized purchasing departments)

14. Characteristics of the B2B Market
Geographic Market Concentration U.S. business market is more geographically concentrated than the consumer market
Manufacturers concentrate in certain regions of the country
Certain industries locate in particular areas to be close to their customers
For example, suppliers of automobile components and assemblies frequently build their plants close to their customers

15. Sizes and Numbers of Buyers Business market features a limited number of buyers
Use statistical information to estimate the size and characteristics of business markets is available
Federal government is largest single source of such statistics

16. The Purchase Decision Process Businesses must understand the dynamics of the organizational purchasing process
B2B suppliers often must work with multiple buyers
Decision-makers at several layers may influence final orders
Process is more formal and professional than with consumers

17. Buyer-Seller Relationships More intense than consumer relationships
Require better communication among the organizations’ personnel
Primary goal of B2B relationships is to provide advantages that no other seller can, for instance:
Lower-prices
Quicker delivery
Better quality and reliability
Customized product features
More favorable financing terms

18. Genuine JD stressing the importance of business relationships

19. Evaluating International Business Markets Business purchasing patterns often differ from one country to the next
Companies must weigh quantitative and qualitative data
Global sourcing: purchasing goods and services from suppliers worldwide

20. Chubu Electric practices global sourcing

22. Derived Demand: demand for a resource that results from demand for the goods and services that are produced by that resource
Volatile Demand: changes in demand that are disproportionate to normal trends
Joint Demand: demand for a product that depends on the demand for another product used in combination with it
Inelastic Demand: demand that, throughout an industry, will not change significantly due to a price change.
Inventory Adjustments: Just-in-time inventory policies (JIT & JIT II)

23. Business Market Demand
Derived Demand – the demand for corn derived from demand for ethanol
Volatile Demand – the lower demand for new housing construction results in lower demand for lumber, concrete, plumbing items
Joint Demand – greater demand for gasoline will cause greater demand for motor oil
Inventory Adjustments
Just-In-Time inventory policies require suppliers to deliver inputs for production just as the production process needs them
Just-In-Time II brings supplier representatives into the customer’s facility to better manage supply

24. Microprocessors: An Example of Derived Demand

25. The Make, Buy, or Lease Decision
Three Basic Options:
Make the good or provide the service in-house
Purchase it from another organization
Lease it from another organization

26. The Rise of Outsourcing
Using outside vendors to produce goods and services formerly produced in-house
Outsourcing
May be cost effective
Allows a firm to obtain specialized technological expertise
Frees up the company to focus on its core competencies

27. An outsourcing service for reducing risk and increasing productivity

28. Problems with Outsourcing
Many companies discover their cost savings to be less than half the figure promised by vendors
May require signing a multiyear contract that eliminates most or all benefits in a year or two
Potential internal security problems
Potential problems with suppliers who fail to deliver goods probably or provide required services
Possible union difficulties
Risk of losing touch with customers

29. The Business Buying Process
Influences on Purchase Decisions:
Environmental Factors
Organizational Factors
Multiple Sourcing: purchasing from several vendors
Interpersonal Influences

30. The Role of the Professional Buyer
Professional buyer (merchandisers): technically qualified employees who are responsible for securing needed products at the best possible prices
Systems integration: Centralization of the procurement function within an internal division or as a service of an external supplier
Category Captain: A firm designates a major supplier as their systems integrator. This supplier assumes responsibility for dealing with all of the suppliers for the firm.

31. Model of the Organizational Buying Process

32. Stage 1: Anticipate or recognize a problem/need/opportunity and a general solution
Stage 2: Determine the characteristics and quantity of a needed good or service
Stage 3: Describe characteristics and the quantity of a needed good or service
Stage 4: Search for and qualify potential sources
Stage 5: Acquire and analyze proposals
Stage 6: Evaluate proposals and select suppliers
Stage 7: Select an order routine
Stage 8: Obtain feedback and evaluate performance

33. Whole Foods Selecting a supplier

34. Classifying Business Buying Situations
Straight Rebuying Recurring purchase decision in which a customer repurchases a good or service that has performed satisfactorily in the past
Modified Rebuying Purchase decision in which a purchaser is willing to reevaluate available options for repurchasing a good or service

35. New-Task Buying First-time or unique purchase situation that requires considerable effort by the decision Makers
Reciprocity Policy to extend purchasing preference to suppliers that are also customers

36. Analysis Tools
Value analysis: systematic study of the components of a purchase to determine the most cost-effective ways to acquire items
Vendor analysis: assessment of supplier performance in areas such as price, back orders, timely delivery, and attention to special requests

37. The Buying Center Concept
Participants in an organizational buying action
Buying center roles played by various participants in the purchase decision process include:
Users – initiate purchase request, develop specifications
Gatekeepers – control information
Influencers – provide information
Decider – actually chooses good or service
Buyer – has formal authority to select supplier

38. International Buying Centers Differentiated from domestic buying centers since:
Their members are often more difficult to identify
May include more participants than buying centers in U.S. firms
Team selling Introducing other associates in addition to salespeople into selling situations to reach all members of a customer’s buying center

39. Developing Effective Business-To-Business Marketing Strategies
Challenges of Government Markets
Government purchasing procedures
Bids: written sales proposals from vendor
Specifications: written descriptions of needed goods or services
Online with the federal government

40. Challenges of Institutional Markets
Widely diverse buying practices
Multiple buying influences may affect decisions
Group purchasing is an important factor
Challenges of International Markets
Widely diverse attitudes and cultural patterns
Local industries, economic conditions, geographic characteristics and legal restrictions also must be considered
Remanufacturing: production to restore worn-out products to like new condition

41. End of Chapter Six