Business-to-Business Markets: How and Why Organizations Buy

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

2. Chapter Objectives • Describe the general characteristics of business-to-business markets • Explain the unique characteristics of business demand • Describe how business or organizational markets are classified • Explain the business buying situation and describe business buyers • Explain the roles in the business buying center • Understand the stages in the business buying decision process • Understand the growing role of B2B e-commerce

3. Real People, Real Choices • PPG Industries (Vicki Holt) • How to react to competitor Cardinal’s strategy? • Option 1: continue with current strategy • Option 2: acquire an independent IGU manufacturer • Option 3: continue with Intercept brand IGU, invest in IGU manufacturing

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

5. Characteristics That Make a Difference in Business Markets • Multiple buyers • Number of customers • Size of purchases • Geographic concentration

6. Business-to-Business Demand • Derived demand: Caused by demand for consumer goods or services. • Inelastic demand: Occurs when changes in price have little or no effect on the amount demanded.

7. Business-to-Business Demand (cont’d) • Fluctuating demand: Small changes in consumer demand create large increases or decreases in business demand; life expectancy of product can cause fluctuating demand • Joint demand: demand for two or more goods used together to create a product

8. Types of Business-to-Business Markets • Producers: for production of other goods and services • Resellers: for reselling, renting or leasing • Organizations • Government markets • Not-for-profit institutions

9. North American Industry Classification System • NAICS: a numerical coding of industries in the United States, Canada, and Mexico

10. The Buying Situation • Buy class framework: identifies degree of effort firm needs to collect information and make a purchase decision • Straight rebuy: Routine purchases that require minimal decision-making • Modified rebuy: Previous purchases that require some change and limited decision-making. • New-task buy: New and complex or risky purchases that require extensive decision-making.

11. The Professional Buyer • Trained professional buyers typically carry out buying in business-to-business markets: • Purchasing agents • Procurement officers • Directors of materials management

12. The Buying Center • The group of people in an organization who participate in a purchasing decision • Initiator • User • Gatekeeper • Influencer • Decider • Buyer

13. Step 1: Problem recognition • Someone sees that a purchase can solve a problem

14. Step 2: Information Search • Buying center searches for information about products and suppliers • Develops product specifications -- a written description of the quality, size, weight, color -- for the purchase • Identifies potential suppliers and obtains proposals

15. Step 3: Evaluation of alternatives • Buying center assesses proposals • Evaluations include discount policies, returned-goods policies, cost of repair, terms of maintenance, cost of financing, etc.

16. Step 4: Product and supplier selection • Single sourcing: relying on a single supplier. • Multiple sourcing: buying from several different suppliers. • Reciprocity: “I’ll buy from you, and you’ll buy from me.”

17. Step 4: Product and Supplier Selection (cont’d) • Outsourcing: firms obtain outside vendors to provide goods/services that might otherwise be supplied in-house • Crowdsourcing: 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

18. Step 5: Postpurchase Evaluation • Assess whether the performance of the product and the supplier is living up to expectations

19. Business-to-Business E-Commerce • Internet exchanges between two or more businesses • Include exchanges of information, products, services, and payments

20. Intranets, Extranets,and Private Exchanges • Intranets link employees in a private corporate computer network. • 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.

21. Security Threats • Security threats come from hackers and well-meaning employees who give out passwords • Firewall: Hardware and software that ensures only authorized individuals gain entry to a computer system • Encryption: Software that scrambles a message so only another individual (or computer) with the right key can unscramble it

22. Real People, Real Choices • PPG Industries (Vicki Holt) • Vicki chose Option 3: continue with Intercept brand IGU, but invest directly in IGU manufacturing to provide an alternative to Cardinal • The move has been well received by all except the large independent IGU manufacturer

23. Marketing in Action Case:You Make the Call • What is the decision facing Airbus? • What factors are important in understanding this decision situation? • What are the alternatives? • What decision(s) do you recommend? • What are some ways to implement your recommendation?

24. Keeping It Real: Fast Forward to Next Class Decision Time at Reebok • Meet Que Gaskins, VP of global marketing for the RBK division of Reebok • Allen Iverson’s endorsement changed Reebok’s image, but it was still number 2. • The decision: How could Reebok capture the pulse of youth culture in the long run?