1. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-1

2. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-2 McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 5 Business-to-Business Markets and Buying Behavior

3. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-3 After studying this chapter, you should be able to: Define the nature of business-to-business buying behavior and markets. Explain the differences between business- to-business buying and consumer purchase behavior. Recognize the different types of buying decisions.

4. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-4 Define the different stages of the business buying process. Describe the buying-center concept and the determinants of influence within the buying center. Understand the nature of government, reseller, and other institutional markets. After studying this chapter, you should be able to:

5. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-5 The Nature of Business-to-Business Buying Business-to- Business buying behavior:  Refers to decision making and other activities of organizations as buyers. Business-to- Business buying is the selection of suppliers, sources, or vendors.

6. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-6 The Nature of Business-to- Business Buying Organizations fall into four categories:  Business firms  Government markets  Reseller markets  Institutional markets

7. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-7 Supply-Chain Management Supply-Chain Management:  “The integration of business processes from end user through original suppliers that provides products, services, and information that add value for customers.”

8. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-8 Supply Management Supply Management:  “The identification, acquisition, access, positioning, and management of resources the organization needs or potentially needs in the attainment of its strategic objectives.” Supply Management:  “The identification, acquisition, access, positioning, and management of resources the organization needs or potentially needs in the attainment of its strategic objectives.”

9. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-9 Characteristics of Business-to- Business Buying Behavior Consumers buy for their own use and for household consumption. Business buyers purchase for:  Further production (raw materials, components)  Use in their firm’s operations  Resale to other customers

10. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-10 Characteristics of Business-to- Business Buying Behavior Derived Demand:  Demand for business-to-business products is often dependent on demand in consumer markets. Derived Demand:  Demand for business-to-business products is often dependent on demand in consumer markets.

11. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-11 Evaluating Business-to-Business Markets: NAICS

12. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-12 The Importance of Business-to- Business Buying Two Key Reasons: 1. The size of business markets offers many opportunities for marketers. 2. Many firms are trying to increase profits by improving purchasing practices. Two Key Reasons: 1. The size of business markets offers many opportunities for marketers. 2. Many firms are trying to increase profits by improving purchasing practices.

13. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-13 Trends in Business-to-Business Buying 1. Electronic Commerce 2. Strategic Cost management 3. Strategic Sourcing 4. Supply-chain partner selection & contribution 5. Relationship management 6. Performance measurement 1. Electronic Commerce 2. Strategic Cost management 3. Strategic Sourcing 4. Supply-chain partner selection & contribution 5. Relationship management 6. Performance measurement 7. Global-supplier development 8. Third-party purchasing 9. Competitive bidding 10. Strategic supplier alliances 11. Win-win negotiation strategy 12. Complexity management 7. Global-supplier development 8. Third-party purchasing 9. Competitive bidding 10. Strategic supplier alliances 11. Win-win negotiation strategy 12. Complexity management Selected Purchasing Trends 1998-2008

14. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-14 Productivity Improvement Outsourcing Corporate downsizing often involves downsizing of the purchasing function Reducing cycle time

15. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-15 Use of Technology B2B Exchanges:  Organizational buying via the Internet. Private Exchanges:  Those that link invitation-only buyers and sellers.

16. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-16 Electronic Commerce Applications in Purchasing Requesting proposals and price quotes. Posting bids. Transmitting purchase orders. Using Electronic Data Interchanges. Ordering with electronic catalogs. Seeking suppliers. Tracking delivery schedules. Managing contracts. Managing inventory. Paying invoices/making payments.

17. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-17 A Relationship Perspective

18. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-18 Customer Value Considerations Buyers are interested in suppliers that can add value to their business by:  Continually increasing quality  Lowering costs

19. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-19 Environmental Impact Buyers emphasize an Ethics Perspective by:  Examining the costs associated with product disposal.  Looking for ways to recycle or reuse products. Buyers emphasize an Ethics Perspective by:  Examining the costs associated with product disposal.  Looking for ways to recycle or reuse products.

20. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-20 Types of Buying Decisions Type of BuyingNewness ofInformationConsideration of Decisionthe ProblemRequirementsNew Alternatives Type of BuyingNewness ofInformationConsideration of Decisionthe ProblemRequirementsNew Alternatives New taskHighMaximumImportant Modified rebuyMediumModerateLimited Straight rebuyLowMinimalNone New taskHighMaximumImportant Modified rebuyMediumModerateLimited Straight rebuyLowMinimalNone The Buying Decision Grid

21. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-21 The Business Buying Process

22. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-22 The Buying Center Buying Center:  Includes more than the purchasing department or the purchasing function; it is made up of people throughout the organization at all levels. The makeup of the buying center may vary as decisions change. The makeup of the buying center may vary as decisions change.

23. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-23 The Buying Center Gatekeepers:  Control the flow of information and communication among the buying-center participants. Sponsor:  Advocates purchase of a particular product of service.

24. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-24 Government Markets Government Market:  Includes federal, state, and local government organizations that purchase goods and services. The government market is the largest in the world, with the United States federal government the largest customer in this market

25. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-25 Reseller Markets Reseller Market:  Made up of firms that purchase goods and in turn sell them to others at a gain.  This market includes: Wholesalers Retailers 3.5 million companies with more than 20 million employees make up reseller markets.

26. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-26 Other Institutional Markets Nonprofit organizations must also purchase goods and services to support their activities. These organizations include:  Educational institutions  Public & private hospitals  Religious & charitable organizations  Trade associations

27. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-27 Ethical Issues Ethics is a constant concern in business-to- business negotiations and transactions. Bribery takes many forms:  Gifts from vendors to people involved in decision making  “Money under the table”  Promises for the future

28. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-28 Ethical Issues Reciprocity: When firm A purchases from supplier B who in turn buys A’s own products and services. Fairness, honesty, and trust should influence all negotiations and selection of suppliers or vendors. Firms pursuing global markets encounter ethical dilemmas.