6

CHAPTER Business-to-Business (B2B)

Marketing

Chapter Objectives
1 Explain each of the 4 Discuss the decision 7 Classify
components of the to make, lease, or organizational
business-to-business buy. buying situations.
(B2B) market.
5 Describe the major 8 Explain the buying
2 Describe the major influences on center concept.
approaches to business buying
9 Discuss the
segmenting B2B behavior.
challenges and
markets.
6 Outline the steps in strategies for
3 Identify the major the organizational marketing to
characteristics of buying process. government,
the business market institutional, and
and its demand. international buyers.
 CHAPTER 6 Business-to-Business (B2B) Marketing

• Business-to-business (B2B) market is significantly larger than the

consumer market.
• Example: U.S. companies spend more than $300 billion annually just
for office and maintenance supplies.
• Example: Department of Defense budget in a recent year was $500
billion.
• Business-to-business (B2B) marketing Organizational sales and
purchases of goods and services to support production of other products, to
facilitate daily company operations, or for resale.
 CHAPTER 6 Business-to-Business (B2B) Marketing

NATURE OF THE BUSINESS

MARKET
 CHAPTER 6 Business-to-Business (B2B) Marketing

NATURE OF THE BUSINESS

MARKET
• Companies also buy services, such as legal, accounting, office-cleaning,
and other services.
• Some firms focus entirely on business markets.
• Example: Caterpillar, which makes construction and mining
equipment.
• Diverse market, everything from a box of paper clips to thousands of parts
for an automobile manufacturer.
 CHAPTER 6 Business-to-Business (B2B) Marketing

COMPONENTS OF THE BUSINESS MARKET

• Four main components:
• Commercial market Individuals and firms that acquire products to
support, directly or indirectly, production of other goods and services.
• Largest segment of the business market.
• Trade industries Retailers or wholesalers that purchase products for resale
to others.
• Also called resellers, marketing intermediaries that operate in the trade

sector.
• Government—all domestic levels (federal, state, local) and foreign
governments; also act as sellers—e.g., confiscated goods.
• Public and private institutions, such as hospitals, churches, colleges and
universities, and museums.
 CHAPTER 6 Business-to-Business (B2B) Marketing

B2B MARKETS: THE INTERNET CONNECTION

• More than 94 percent of all Internet sales are B2B transactions.
• Opens up foreign markets to sellers.
• Largest segment of the business market.

DIFFERENCES IN FOREIGN BUSINESS MARKETS

• May differ due to variations in regulations and cultural practices.
• Businesses must be willing to adapt to local customs and business practices
and research cultural preferences.
 CHAPTER 6 Business-to-Business (B2B) Marketing

SEGMENTING B2B
MARKETS
• Segmentation helps marketers develop the most appropriate strategy.

SEGMENTATION BY DEMOGRAPHIC
CHARACTERISTICS
• Grouping by size based on sales revenues or number of employees.

SEGMENTATION BY CUSTOMER TYPE

• Grouping in broad categories, such as by industry.
• Customer-based segmentation Dividing a business-to-business market
into homogeneous groups based on buyers’ product specifications.
 CHAPTER 6 Business-to-Business (B2B) Marketing

North American Industry Classification System

(NAICS)
• Federal government developed Standard Industrial Classification in 1930s
to subdivide business market into detailed segments.
• Replaced by NAICS with implementation of NAFTA.
• North American Industry Classification System Classification used by
NAFTA countries to categorize the business marketplace into detailed
market segments.
 CHAPTER 6 Business-to-Business (B2B) Marketing

SEGMENTATION BY END-USE APPLICATION

• End-use application segmentation Segmenting a business-to-business
market based on how industrial purchasers will use the product.
• Example: A supplier of industrial gases that sells hydrogen to some
companies and carbon dioxide to others.

SEGMENTATION BY PURCHASE CATEGORIES

• Segmenting according to organizational buyer characteristics.
• Example: Whether a company has a designated central purchasing
department or each unit within the company handles its own purchasing.
• Businesses increasingly segment customers according to the stage in their
relationship.
• Example: Whether a customer is new or a long-term partner.
 CHAPTER 6 Business-to-Business (B2B) Marketing

CHARACTERISTICS OF THE B2B

MARKET
GEOGRAPHIC MARKET CONCENTRATION
• Business market more concentrated than consumer market.
• Example: Companies that sell to the federal government are often

located near Washington, D.C.

• Businesses becoming less geographically concentrated as Internet
technology improves.

SIZES AND NUMBER OF BUYERS

• Business market has smaller number of buyers than consumer market.
• Many buyers are large organizations, such as Boeing, which buys jet
engines.
 CHAPTER 6 Business-to-Business (B2B) Marketing

THE PURCHASE DECISION PROCESS

• Sellers must navigate organizational buying processes that often involve
multiple decision makers.
• Purchasing process usually more formal than in consumer market.
• Purchases may require bidding and negotiations.

BUYER-SELLER RELATIONSHIPS
• Often more complex than in consumer market.
• Greater reliance on relationship marketing.

EVALUATING INTERNATIONAL BUSINESS MARKETS

• Business purchasing patterns differ from country to country.
• Global sourcing Purchasing goods and services from suppliers worldwide.
• Can bring significant cost savings but requires adjustments.
 CHAPTER 6 Business-to-Business (B2B) Marketing

BUSINESS MARKET
DEMAND
• Demand characteristics vary from market to market.
 CHAPTER 6 Business-to-Business (B2B) Marketing

DERIVED DEMAND
• The linkage between demand for a company’s output and its purchases of
resources such as machinery, components, supplies, and raw materials.
• Example: Demand for computer microprocessor chips is derived
from demand for personal computers.
• Organizational buyers purchase two types of items:
• Capital items—long-lived business aspects that depreciate.
• Expense items—items consumed within short time periods.

VOLATILE DEMAND
• Derived demand creates volatility.
• Example: Demand for gasoline pumps may be reduced if demand for
gasoline slows.
 CHAPTER 6 Business-to-Business (B2B) Marketing

JOINT DEMAND
• Results when the demand for one business product is related to the demand
for another business product used in combination with the first item.
• Example: If lumber supply falls, then decrease in construction will
affect concrete market.

INELASTIC DEMAND
• Demand throughout an industry will not change significantly due to a price
change.
• Example: Construction firms will not necessarily buy more lumber if
prices fall unless overall housing demand also increases.
 CHAPTER 6 Business-to-Business (B2B) Marketing

INVENTORY ADJUSTMENTS
• Just-in-time (JIT) inventory policies boost efficiency by cutting inventory
and requiring vendors to deliver inputs as they are needed.
• Often use sole sourcing, buying a firm’s entire stock of a product from just
one supplier.
• Latest inventory trend: JIT II, suppliers to place representatives at the
customer’s facility to work as part of an integrated, on-site customer–
supplier team.
• Inventory adjustments are also vital to wholesalers and retailers.
 CHAPTER 6 Business-to-Business (B2B) Marketing

THE MAKE, BUY, OR LEASE

DECISION
• Firms acquiring needed products can get them in one of three ways:
• Make the good or provide the service in-house.
• Purchase it from another organization.
• Lease it from another organization.
• Producing the item may be cheapest route, but most firms cannot make all
of the products they need.
• Many companies purchase many of the goods they need.
• Companies can spread out costs through leasing.
 CHAPTER 6 Business-to-Business (B2B) Marketing

THE RISE OF OFFSHORING AND OUTSOURCING

• Offshoring Movement of high-wage jobs from one country to lower-cost
overseas locations.
• Example: China makes two-thirds of the world’s copiers, microwaves,
DVD players, and shoes, and virtually all of the world’s toys.
• Allows firms to concentrate their resources on their core business and
access specialized talent or expertise.
• Nearshoring Moving jobs to vendors in countries close to the business’s
home country.
• U.S. firms often nearshore in Canada or Mexico.
• Outshoring Using outside vendors to provide goods and services formerly
produced in-house.
• Commonly outshore for three reasons: cost reduction, quality and
speed of software maintenance and development, and greater value.
 CHAPTER 6 Business-to-Business (B2B) Marketing

PROBLEMS WITH OFFSHORING AND OUTSOURCING

• Many companies discover their cost savings are less than expected.
• Can raise security concerns over proprietary technology or customer data.
• Can reduce flexibility to respond quickly to marketplace.
• Can create conflicts with unions, even leading to shutdowns and strikes.
• Can negatively affect employee morale and loyalty.
 CHAPTER 6 Business-to-Business (B2B) Marketing

THE BUSINESS BUYING

PROCESS
• More complex than the consumer decision process.
• Takes place within formal organization’s budget, cost, and profit
considerations.

INFLUENCES ON PURCHASE DECISIONS

Environmental Factors
• Economic, political, regulatory, competitive, and technological
considerations influence business buying decisions.
• Example: Law freezing cable rates or introduction of new product

by a competitor will affect demand.

• Natural disasters, such as Hurricane Katrina.
• Example: Rising fuel prices prompted
Viking Energy Management to lock in fuel prices.
 CHAPTER 6 Business-to-Business (B2B) Marketing

Organizational Factors
• Successful marketers understand their customers’ organizational structures,
policies, and purchasing systems.
• Some firms have centralized procurement, others delegate it throughout the
units.
• Many companies use multiple sourcing to avoid depending too heavily on a
sole supplier.

Interpersonal Influences
• Many different people influence B2B buying decisions, sometimes as
individuals and sometimes as part of a committee.
• Marketers must know who the influencers are and understand their
priorities.
• Sales personnel must be flexible and have a good technical understanding
of their products.
 CHAPTER 6 Business-to-Business (B2B) Marketing

The Role of the Professional Buyer

• Many organizations rely on professionals, often called merchandisers, who
implement systematic buying procedures.
• Firms usually buy expense items with little delay but carefully consider
capital purchases.
• May rely on systems integration, centralization of the procurement
function.
• Corporate buyers often use the Internet to identify sources of supplies.
 CHAPTER 6 Business-to-Business (B2B) Marketing

MODEL OF THE ORGANIZATIONAL BUYING

PROCESS
 CHAPTER 6 Business-to-Business (B2B) Marketing

Stage 1: Anticipate a Problem/Need/Opportunity

and a General Solution
• Example: Need to provide employees with a good cup of coffee to enhance
productivity.

Stage 2: Determine the Characteristics and

Quantity of a Needed Good or Service
• Example: Offering a coffee system that brews one cup of coffee at a time
according to each employee’s preference.

Stage 3: Describe Characteristics and the Quantity

of a Needed Good or Service
• Example: Firms need a simple system for
brewing a good cup of coffee; quantity
requirements are easily correlated to the
number of coffee drinkers.
 CHAPTER 6 Business-to-Business (B2B) Marketing

Stage 4: Search for and Qualify Potential Sources

• Choice of supplier may be fairly straightforward or very complex.

Stage 5: Acquire and Analyze Proposals

• May involve competitive bidding, especially if the buyer is the government
or a public agency.

Stage 6: Evaluate Proposals and Select Suppliers

• Buyers choose proposal best suited to their needs.
• Final choice may involve trade-offs between feature
such as price, reliability, quality, and order accuracy.
 CHAPTER 6 Business-to-Business (B2B) Marketing

Stage 7: Select an Order Routine

• Buyer and vendor work out best way to process future purchases.

Stage 8: Obtain Feedback and Evaluate

Performance
• Buyers measure vendors’ performance.
• Larger firms are more likely to use formal evaluation procedures.
• Some firms rely on outside organizations to gather quality feedback and
summarize results.
• Example: J. D. Power and Associates
 CHAPTER 6 Business-to-Business (B2B) Marketing

CLASSIFYING BUSINESS BUYING SITUATIONS

• Business buying behavior involves degree of effort involved in the decision
and the levels within the organization in which these decisions are made.

Straight Rebuying
• A recurring purchase decision in which a customer reorders a product that
has satisfied needs in the past.
• Purchaser see little reason to assess competing options.
• Marketers who maintain good relationships with customers can go a long
way toward ensuring straight rebuys.
• High-quality products.
• Superior service.
• Prompt delivery.
 CHAPTER 6 Business-to-Business (B2B) Marketing

Modified Rebuying
• Purchaser willing to reevaluate available options.
• May occur if supplier has let a rebuy circumstance deteriorate because of
poor service or delivery performance.

New-Task Buying
• First-time or unique purchase situations that require considerable effort by
the decision makers.
• Most complex category of business buying.
• Often requires purchaser to consider alternative offerings and vendors.
 CHAPTER 6 Business-to-Business (B2B) Marketing

Reciprocity
• Practice of buying from suppliers that are also customers.
• In U.S., Department of Justice and the Federal Trade Commission view
reciprocity as an attempt to reduce competition.

ANALYSIS TOOLS
• Value analysis—examines each component of a purchase in an attempt to
either delete the item or replace it with a more cost-effective substitute.
• Vendor analysis—an ongoing evaluation of a supplier’s performance in
categories such as price, EDI capability, back orders, delivery times, liability
insurance, and attention to special requests.
 CHAPTER 6 Business-to-Business (B2B) Marketing

THE BUYING CENTER

CONCEPT
• Buying center Participants in an organizational buying action.

BUYING CENTER ROLES

 CHAPTER 6 Business-to-Business (B2B) Marketing

INTERNATIONAL BUYING CENTERS

• Marketers may have difficulty identifying members of foreign buying
centers.
• Foreign buying centers often include more participants than those in U.S.
• Marketers who can quickly identify decision makers have an advantage
over competition.

TEAM SELLING
• Combining several sales associates or other staff to help the lead account
representative reach all those who influence the purchase decision.
• May include members of the seller firm’s own supply network in the sales
situation.
• Example: Reseller of specialized computer applications whose clients
require access to training.
 CHAPTER 6 Business-to-Business (B2B) Marketing

DEVELOPING EFFECTIVE BUSINESS-

TO-
BUSINESS MARKETING STRATEGIES
• Marketer must develop strategy based on particular organization’s buying
behavior and on the buying situation.

CHALLENGES OF GOVERNMENT MARKETS

• Government agencies make up the largest customer group in the U.S.
• More than 85,000 government units buy products.
• Purchases typically involve dozens of interested parties.
• Influenced by social goals, such as minority subcontracting programs.
• Can have either fixed-price contracts or cost-reimbursement contracts.
 CHAPTER 6 Business-to-Business (B2B) Marketing

Government Purchasing Procedures

• Many purchases go through Government Services Agency, a central
management agency.
• By law, most federal government purchases must go through a complex
bidding process governed by the Federal Acquisition Regulation.
• Recent reforms have sped purchasing and increased flexibility.
• State and local governments follow procedures similar to federal
government.

Online with the Federal Government

• Government buyers often rely on electronic commerce.
• GSA Advantage allows government buyers to make purchases online at
preferred government prices.
• Many government units lag behind the private sector in electronic
procurement procedures.
 CHAPTER 6 Business-to-Business (B2B) Marketing

CHALLENGES OF INSTITUTIONAL MARKETS

• Institutional buyers include schools, hospitals, libraries, foundations, and
others.
• Have widely diverse buying practices among, and even within, institutions.
• Multiple buying influences can affect buying decisions, such as conflicts
between professional staff and purchasing departments.

CHALLENGES OF INTERNATIONAL MARKETS

• Marketers must consider buyers’ attitudes and cultural patterns.
• Local industries, economic conditions, geographic characteristics, and legal
restrictions must also be considered.
• Remanufacturing, or restoring worn-out products to like-new condition,
can be an important strategy in places that cannot afford new products.
• Foreign governments are also an important market.