1. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Part 2: Understanding Buyers and Markets 5.Consumer Behavior 6.Business-to-Business (B2B) Marketing 7.Serving Global Markets

2. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Chapter 6 Business-to- Business (B2B) Marketing

3. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-3 Chapter Objectives 1.Explain each of the components of the business-to- (B2B) market. 2.Describe the major approaches to segmenting business-to-business (B2B) markets. 3.Identify the major characteristics of the business market and its demand. 4.Discuss the decision to make, buy, or lease 5.Describe the major influences on business buying behavior. 6.Outline the steps in the organizational buying process. 7.Classify organizational buying situations. 8.Explain the buying center concept. 9.Discuss the challenges of and strategies for marketing to government, institutional, and international buyers.

4. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-4 Nature of the Business Market Business-to-business marketing 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 B2B: a popular acronym for the business- to-business market

5. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-5 Like a 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

6. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-6 Business-to-Business MarketingConsumer-Goods Marketing ProductRelatively technical in nature, exact form often variable, accompanying services very important Standardized form, service important but less than for business products PriceCompetitive bidding for unique items, list prices for standard items List prices PromotionEmphasis on personal sellingEmphasis on advertising DistributionRelatively short, direct channels to marketProduct passes through a number of intermediate links en route to consumer Customer Relations Relatively enduring and complexComparatively 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

7. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-7 Components of the Business Market Components of the Business Market Commercial Market Commercial Market: Individuals and firms that acquire goods and services to support, directly or indirectly, production of other goods and services Trade Industries Trade Industries: Retailers and wholesalers who purchase goods for resale to others.  Reseller  Reseller: often used to describe the wholesalers and retailers that operate in the trade sector

8. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-8 Government Organizations Government Organizations: Include domestic units of federal, state, local and foreign governments Institutions Institutions: includes a wide variety of organizations, both public and private, such as hospitals, churches, universities, museums, and not-for-profit agencies.

9. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-9 B2B Market – The Internet Connection 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 Differences in Foreign Business Markets Must be willing to adapt to local customs and business practices

10. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-10 Segmenting B2B Markets Demographic Segmentation Demographic Segmentation: demographic characteristics define the useful segmentation criteria for business markets Customer-Based Segmentation Customer-Based Segmentation: dividing a B2B market into homogenous groups based on buyers’ product specifications

11. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-11 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

12. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-12 Segmentation by End-Use Application Segmentation by End-Use Application: segmenting a business-to-business market based on how industrial purchasers will use the product Segmentation by Purchase Categories 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)

13. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-13 Characteristics of the B2B Market Geographic Market Concentration 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

14. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-14 Sizes and Numbers of Buyers 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

15. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-15 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

16. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-16 Buyer-Seller Relationships 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

17. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-17 Evaluating International Business Markets 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

18. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-18

19. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-19 Derived Demand Derived Demand: demand for a resource that results from demand for the goods and services that are produced by that resource Volatile Demand Volatile Demand: changes in demand that are disproportionate to normal trends Joint Demand Joint Demand: demand for a product that depends on the demand for another product used in combination with it Inelastic Demand Inelastic Demand: demand that, throughout an industry, will not change significantly due to a price change. Inventory Adjustments Inventory Adjustments: Just-in-time inventory policies (JIT & JIT II)

20. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-20 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

21. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-21 The Rise of Outsourcing 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

22. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-22 Problems with Outsourcing 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

23. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-23 The Business Buying Process Influences on Purchase Decisions: Environmental Factors Organizational Factors  Multiple Sourcing: purchasing from several vendors Interpersonal Influences

24. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-24 The Role of the Professional Buyer 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

25. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-25 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 Model of the Organizational Buying Process

26. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-26 Classifying Business Buying Situations Classifying Business Buying Situations Straight Rebuying Straight Rebuying Recurring purchase decision in which a customer repurchases a good or service that has performed satisfactorily in the past Modified Rebuying Modified Rebuying Purchase decision in which a purchaser is willing to reevaluate available options for repurchasing a good or service

27. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-27 New-Task Buying New-Task Buying First-time or unique purchase situation that requires considerable effort by the decision Makers Reciprocity Reciprocity Policy to extend purchasing preference to suppliers that are also customers

28. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-28 Analysis Tools 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

29. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-29 The Buying Center Concept Participants in an organizational buying action Buying center roles played by various participants in the purchase decision process include:  Users  Gatekeepers  Influencers  Decider  Buyer

30. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-30 International Buying Centers 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 I Team selling Introducing other associates in addition to salespeople into selling situations to reach all members of a customer’s buying center

31. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-31 Developing Effective Business-To- Business Marketing Strategies Challenges of Government Markets 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

32. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 6-32 Challenges of Institutional Markets Challenges of Institutional Markets Widely diverse buying practices Multiple buying influences may affect decisions Group purchasing is an important factor Challenges of International Markets 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