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 Define the nature of b2b buying behavior and markets. Explain the differences between b2b buying and consumer purchase behavior. Recognize the different stages of 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:

4. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-4 Business – to – Business Buying Behavior B2B buying behavior refers to the process through which organizations make purchase decisions involving other organizations as suppliers. A key element in B2B buying is the selection of suppliers, sources, or vendors.

5. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-5 Business firms: including manufacturers of tangible goods and firms that provide services such as health care, entertainment, and transportation; Government markets: such as federal, state, and local government purchasing; Reseller markets: such as the wholesalers and retailers; Institutional markets: such as hospitals, educational and religious, and trade associations. Business – to – Business Buying Behavior Categories of Organizations

6. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-6 Two Purchasing Approaches 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. Supply Management: the identification, acquisition, access, positioning, and management of resources the organization needs or potentially needs in the attainment of its strategic objectives.

7. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-7 Differences between B2B and Consumer Buying B2B buyers are more in number, larger and more concentrated geographically than consumer buyers; B2B purchase decision involves more deliberate and thorough product evaluation and are influenced by multiple sources; B2B buying is closely tied to economic fluctuations in consumer market; Demand for some products is related to purchase of other products (joint demand); B2B purchased products are often complex, expensive and bought in large quantity; There is much more interdependence between business buyers and sellers.

8. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-8 Importance of B2B Buying Most firms try to increase profits by both increasing sales and reducing costs. B2B buying is important for two basic reasons  Size of markets offers many opportunities for smart markets;  Many firms try to increase profits by improving purchasing practices.

9. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-9 Trends in B2B Buying Key marketing perspectives that are relevant for business marketers are: Productivity Improvement Use of Technology A Relationship Perspective Customer Value Considerations Environmental Impact

10. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-10 Trends Exhibit 5 – 3 Electronic commerce Strategic cost management Strategic sourcing Supply-chain partner selection and contribution Relationship management Performance measurement Global-supplier development Third-party purchasing Competitive bidding Strategic supplier alliances Win-win negotiation strategy Complexity management

11. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-11 Productivity Improvement Productivity improvement affects purchasing in three ways:  Outsourcing Firms find it is often more productive to purchase products and services from other companies than to make them internally.  Restructuring/Downsizing Reducing the time, steps, and roles of purchasing function  Cycle time Reducing total elapsed time to complete a business process

12. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-12 Use of Technology Buyers adopt technology to improve the productivity of purchasing operations.  Reducing cycle time: buyers are looking for ways to reduce purchasing, product-development, product- delivery, manufacturing, and inventory cycles.  E-Commerce: B2B exchanges, B2C exchanges, Private exchanges

13. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-13 Relationship Perspective The focus on supplier relationships by buyers is driving the emphasis on relationship marketing by sellers. Many of the purchasing trends reflect the emphasis on buyer-seller relationships. The goal of strong buyer-seller relationship are to foster innovation and improve business efficiencies. Achieving these goals would influence customer satisfaction and loyalty. Good suppliers relationship and teamwork are two important aspects of relationship perspective.

14. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-14 Customer Value Considerations One of the keys of successful supplier relationships is building customer value. Buyers are interested in suppliers who add value to their business. Quality and cost considerations go beyond just the product being purchased to everything related to doing business together.

15. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-15 Environmental Impact Reusing certain products pose environmental threat. Many organizations are working on improving their products environmentally. Purchasers and suppliers can work together to reduce excessive packaging, conserve natural resources, and minimize the dangers of products and processes that may harm the environment.

16. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-16 Type of Buying Decisions New-Task:  the buying problem is new and a great deal of information must be gathered. These are relatively infrequent but cost of making a wrong decision is high. Modified Rebuy:  calls for evaluation of new alternatives; could consider new suppliers for current products or new products for current suppliers. Straight Rebuy  Most common type; products and services purchases previously are simply re-purchased. Delivery, performance, and price are critical considerations. Based on complexity B2B purchase decision can be classified into three categories

17. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-17 The Buying Process Recognize problem or opportunity Determine desired product characteristics & quantity Describe desired product specifications Locate and qualify suppliers Evaluate and select suppliers Make purchase and evaluate performance The most complex purchase decisions involve this sequence:

18. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-18 The Buying Center The buying center for an organization is responsible for selecting suppliers and arranging purchase terms. It is made up of people involved in routine and non-routine purchase decisions. They may come from different departments or levels in an organization. They may play any roles like: initiator, decider, influencer, purchaser, gatekeeper, or user.

19. Irwin/McGraw-Hill Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 1-19 Government, Reseller, and Other Markets The federal government is the largest single purchaser. State and local governments also make purchases. Resellers are wholesalers and retailers that purchase goods to resell to other organization or directly to customers.