Chapter 6. Business-to-Business (B2B) Marketing. 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.
Chapter 6 Business-to-Business (B2B) Marketing
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.
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
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
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
Government Organizations: Include domestic units of federal, state, local and foreign governments • IRS buys products to provide federal tax service
Institutions: includes a wide variety of organizations, both public and private, such as hospitals, churches, universities, museums, and not-for-profit agencies.
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
Segmenting B2B Markets • Demographic Segmentation: demographic characteristics define the useful segmentation criteria for business markets • Using Demographic Segmentation in Business Markets
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
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)
Characteristics of the B2B Market • Geographic Market ConcentrationU.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
Sizes and Numbers of BuyersBusiness 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
The Purchase Decision ProcessBusinesses 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
Buyer-Seller RelationshipsMore 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
Genuine JD stressing the importance of business relationships
Evaluating International Business MarketsBusiness 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
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)
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
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
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
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
The Business Buying Process • Influences on Purchase Decisions: • Environmental Factors • Organizational Factors • Multiple Sourcing: purchasing from several vendors • Interpersonal Influences
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.
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
Classifying Business Buying Situations • Straight RebuyingRecurring purchase decision in which a customer repurchases a good or service that has performed satisfactorily in the past • Modified RebuyingPurchase decision in which a purchaser is willing to reevaluate available options for repurchasing a good or service
New-Task BuyingFirst-time or unique purchase situation that requires considerable effort by the decision Makers • ReciprocityPolicy to extend purchasing preference to suppliers that are also customers
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
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
International Buying CentersDifferentiated 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 sellingIntroducing other associates in addition to salespeople into selling situations to reach all members of a customer’s buying center
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
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