TOPIC ONE

OVERVIEW OF BUSINESS-TO-BUSINESS MARKETING

Expected learning outcomes
At the end of the topic, you will be able to:
1) Explain the reasons for the study of B2B marketing;
2) Discuss how Business-to-Business market differ from the consumer market;
3) Examine the demand characteristics of B2B/Industrial market;
4) Describe the classification of Business-to-Business goods and services; and
5) Identify Business to Business customers/Industrial customers.

Introduction
In one way or another, most large firms sell to other organizations. Companies such as
Safaricom sell most of their product mix to other organizations. Even large consumer products
companies engage in organizational or business to business marketing e.g., large consumer
product companies such as Unga, Aquamist, Unilever sell their products to final consumers
through wholesalers and retailers.

Some manufacturers sell their products specifically to industrial markets e.g., companies selling
industrial chemicals. Also, business to business marketing/industrial organizations such as
Xerox, Boeing, and Unga constitute a large market.

Companies that sell to other organizations must do their best to understand organizational buying
behaviour and the buyers’ needs, resources, motivations and buying process that shape such
behaviour.

In addition, the marketer must have a firm grasp of how some of the traditional marketing tools
and techniques that present major opportunities and challenges for B2B marketing.

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The B2B Market
A B2B marketing transaction takes place whenever a good or service is sold for any use other
than personal consumption. All the activities involving this process make up B2B marketing.
1. According to Webster (1995), Industrial marketing is the marketing of goods and services to
industrial and institutional customers. This includes: manufacturing firms, governments, public
utilities, educational institutions, hospitals, wholesalers and retailers and other formal
organizations.
2. Bingham and Raffield (1992) notes that industrial marketing consists of all activities involved
in the marketing of goods and services to organization of all types. These organizations may use
products and services for: -
 Production of consumer and industrial products.
 Use in facilitation of their operations.
 Re-selling to other business users or to consumers for profits.
3. Jim Blythe and Alan Zimmerman (2005) defines B2B as that which includes organizations
that buy goods and services for use in the production of other products and services that are
sold, rented or supplied to others.

Reasons for the study of B2B marketing

Traditionally, B2B marketing has been ignored. However, the following developments have
contributed to the growing importance of B2B marketing:
 Increased employment opportunities in business organizations;
 The growing importance of high technology products;
 The success of foreign competition;
 The increasing size of the business market;
 The significance of the international interdependence of many firms;
 The importance of the service sector of the economy which in most economies is more
than twice than the manufacturing sector. The increasingly competitive nature of both the
international and service sectors of the B2B market requires a new emphasis on
marketing for such diverse industries as airlines and accounting, hotels and hospitals,
banking and manufacturing; and
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  The academic research is now focusing on B2B marketing which had been relegated to
side lines in favour of consumer marketing.

NB:
The attractiveness of the opportunities in the B2B marketing field will continue to grow because
the majority of students graduating with Bachelors and Masters Degrees begin their careers with
the B2B firms rather than with consumer’s goods companies. They are employed to sell to
organizations (i.e., wholesalers, retailers, banks, manufacturing firms, institutions etc) rather than
final consumers.

How Business to Business market differ from the consumer market

B2B markets have specific characteristics that differ significantly from consumer market. These
characteristics include: -
1) Greater sales volume
Total monetary sales in the business-to-business market are greater than they are in the consumer
market even though there are far few business buyers than final consumers.
2) Large volume purchases
B2B marketers also sell the consumers who buy in large quantities than do final consumers. For
instance, Ford Motor Company buys several hundred tyres from different major tyre
manufacturers.
3) Few Buyers
A business-to-Business marketer generally deals with far fewer buyers than does the consumer
marketer. Firms that sell to manufacturers usually have less difficulty in identifying prospective
customer than that sells to final consumers. E.g., Boeing sells its aircrafts to a few airlines while
Unga Ltd sells its wheat and maize flour to millions of consumers.
4) Larger buyers
Unlike final consumer markets, a few large buyers account for most of the purchasing in many
business-to-business markets.
5) Geographically concentrated buyers.
Businesses to business buyers are geographically concentrated whereas final consumers are
found virtually everywhere e.g., most textiles firms are in EPZ (Athi River-Kitengela).

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6) Close supplier consumer relationship
There is close relationship between sellers and customers in B2B market because of the smaller
customer base, the greater volume and cost of the average sale and the importance and power of
the larger customers of a supplier. Sales are typically made by those suppliers who closely
cooperate with the buyer on technical specification and delivery requirement.
7) More direct channels of distribution
In consumer markets, the great majority of the goods are sold through a complex structure of
wholesalers and retailers who serve as intermediaries between the producer and the consumers.
In most B2B marketing, however, sellers and buyers are more directly linked. When dealing with
very large buyers, marketers can make direct sales rather than go through industrial distributors
or other intermediaries. However, some products sold to business buyers are commonly sold
through one or two levels of intermediaries/marketing channel.
8) Professional buying
Business buyers normally take a more formalized approach to buying than do final consumers. A
sales person, who is selling products in a supermarket, generally deals with one customer at a
time. Yet a sales person, selling computers to an organization, they have to give demonstrations
to the purchasing manager, office manager and secretaries. Professional buying has resulted in
professional training for organizational buyers. E.g., There are professional exams such as
Chartered Institute of Purchasing (CIP). B2B buyers are professional buyers and selling to them
requires professional sales people.
9) Multiple buying influences
More people typically influence organizational buying decisions than consumers buying
decisions. Buying committee composed of technical experts and senior management are common
in the purchase of major goods. This phenomenon coupled with cross functional nature of these
influences complicates the marketing communication process. Therefore, marketers must employ
well trained sales representatives. They also use sales team to deal with highly skilled buyers.
10) Complex negotiations
Although there are few consumer goods such as automobiles and real estate in which
negotiations commonly takes place, considerable buyer-seller negotiations exist in the purchase
and sale of more expensive business products. Areas of negotiations includes: Products
specifications, delivery dates, payment terms and price. In many cases buyer representatives

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meet with seller representatives several times to negotiate sales contract and this process may
continue over several months.
11) Reciprocity
Business buyers often choose suppliers who also purchase from them. For instance, a paper
manufacturer may buy chemicals for its production process from a chemical company that buys
large amount of its paper. Reciprocity is considered to be illegal if there is a cohesive use of
pressure by one of the parties that results in reduced competition.
12) Leasing
Many business-to-business buyers lease their equipment rather than buy it. E.g., Kenya Airways
lease aircraft from Boeing. Computer’s packaging equipment, heavy construction equipment,
machine tools and vehicles serve as examples of these phenomena. The lease is able to conserve
capital, acquire the seller’s latest product, and receive better servicing and so on. The lessor often
receives a larger net income and has the opportunity to sell to those customers who could not
afford to purchase the equipment outright.
13) Emphasis on personal selling
Because of the characteristics discussed above, B2B marketers emphasize personal selling more
than advertising in designing and implementing their marketing mixes. A good sales person can
tailor presentation and highlight different products features for those individuals involved in the
purchase. The cost of sales call can be justified because of size, complexity and sales volume per
customer of most business products as compared to typical consumer products. The use of
personal selling in contrast to advertising provides immediate customer feedback and sales
representative can adjust their promotional messages on the spot.

Demand Characteristics of B2B/Industrial market

1. Derived demand
All demand for B2B goods is derived from the demand for consumer goods and services.
Derived demand can be defined as the demand for a B2B product that is linked to demand for a
consumer good. If the demand for consumer goods falls off so will the demand for all the goods
entering into production. For this reason, the marketer must closely monitor the buying patterns
of the final consumers and the environmental factors affecting them.

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E.g., Briggs and Stratton Company advertises it lawn mower engines to encourage consumers to
purchase lawn mowers with Briggs and Stratton engines.
2) Inelastic demand
Because of the derived demand for business product, there is less opportunity for marketers to
stimulate primary demand through price cut than there is for consumer goods marketers.
Therefore, the primary demand for B2B products is more price inelastic than for consumer
products e.g., automobile manufacturers purchase headlights as component parts for
automobiles. If the price of headlights goes down, the automobile manufacturers are not very
likely to increase greatly their purchase of headlights. If, however, they expect the price decrease
to be temporary they may do some stock piling but this will result in a change in the timing of
orders and not an increase in the long run purchase volume. Because the cost of headlights
accounts for a very small part of the total cost of manufacturing an automobile, a reduction in a
few cents in the selling price of cars is unlikely to stimulate new cars sale.
3) Fluctuating demand
The demand for business goods and services tends to be more volatile than the demand for
consumers goods and services. This is especially true of the demand for new products and
equipment. A small percentage increase in consumers’ demand can lead to a much larger
percentage in the demand for plant and equipment necessary to produce the additional output.
This phenomenal is referred to as the acceleration principle. An increase in consumer demand of
only 10% can result in as much as a 200% rise in industrial demand in the next period and a 10%
decrease in consumer demand can cause a total collapse in the demand for business goods. This
demand volatility has caused many marketers to diversify their products lines and market in
order to achieve more balanced sales over the business cycle.
4) Joint demand
The demand for a number of business products such as raw materials and component parts is
affected by joint demand. Joint demand occurs when two or more items are used in combination
to produce a product. E.g., a firm that manufactures hammers needs the same number of handles
as it does the hammer heads. These two products are demanded jointly. If the suppliers of
handles cannot furnish the required number, and the hammer producers cannot obtain them
elsewhere the producers will stop buying heads.

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Classification of Business-to-Business goods and services
B2B goods and services can be classified in the following forms:
 Major equipment/Capital goods.
 Accessory equipment.
 Fabricated and component parts.
 Process materials.
 Maintenance, repair and operating supplies (MRO).
 The raw materials.
 The Business Services.

1. Major Equipment
It consists of products such as machinery, building, computers, generators, earth moving
equipment (e.g., caterpillar tractors), and vehicles. The demand for major equipment is
considered inelastic. Also, in view of price, and technical requirements, the purchase of major
equipment usually requires close cooperation between the technical and sales staff of both the
business buyer and seller. Instalment’s payment schedules and leasing arrangements are common
because of the large investment involved. The major equipment for one company may be a piece
of accessory equipment for another. The seller’s marketing strategies includes strong personal
selling efforts, exposure to multiple buying influences in most cases and a strong engineering
service support by the salesperson or sales team.
2. Accessory Equipment
They are used to facilitate production, administrative, clerical and marketing activities. The
examples include; calculators, stationeries, staples, and fire extinguishers. They are mainly light
equipment. In general, accessory equipment tend to be standardized and less costly than major
equipment. The demand for accessory equipment exhibits an elastic demand curve.
Less technical service is required on the part of the seller. The purchase may be considered
routine, distribution channels are usually longer and fewer buying influences are involved in the
purchase decisions.

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3) Fabricated and component parts
There are products that are purchased for inclusion into the final product E.g., Stereo in vehicles,
batteries, and switches. Although they typically become part of another product, fabricated and
component parts can often be easily identified and distinguished. Business buyers purchase such
items according to their own predetermined prescription or by standards common within an
industry. In purchasing component parts, buyers expect the part to consistently meet a specified
quality level and to be delivered on time so that production is not slowed or stopped.
4) Process materials
They differ from fabricated and component parts in that most of them cannot be identified or
regrouped into the finished product. Examples include: chemicals, plastics, cement and so on.
Most processed materials are marketed to customers who are original equipment manufacturers
(OEMs) or distributors who in turn sell to the original equipment manufacturer’s market as very
few have a replacement market. Process materials are generally bought per specification
prepared by the users or bought according to standards developed by a particular trade or
industry. Generally, price and service are important factors in the sales of the process materials.
5) Maintenance, Repair and Operating supplies (MRO)
MRO supplies do not become part of the finished product but are used up in the production
process. Example of maintenance supplies include: paint, nails, cleaning compounds, and light
bulbs. Repair supplies include: - bearing filers. Typing paper, ink, paper clips, pencils and
lubrication oils are types of operating supplies. All these supplies facilitate the production
process; they have a relatively short life and are generally less expensive than most other
business goods. MRO items are usually standardized, involve longer channel of distribution,
expose the seller to fewer buying influences and they show a more elastic demand curve than
accessory equipment. They are usually bought by the purchasing manager.
6) Raw materials
Raw materials are often considered as a basis life blood of industry, are supplied primarily by the
agriculture or forestry, mining and fishing industry. Raw material become part of a manufactured
product, are generally bought in large quantities and exhibit an inelastic demand curve. They are
usually purchased on the basis of such recognized standards as grade designations or central
specifications. Channel of distribution can be either long or short and multiple buying influences
are involved in the purchase at least in the initial stages of the procurement cycles.

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7) Business services
Services are provided to the firms by commercial banks, insurance companies, advertising
agencies, accounting firms, law firms and employment agencies and management consultants.
Business services are expense items that do not become part of the final product. The buyer
decides to buy the service from outside specialists if it is less costly than having company
employees performing it. Multiple buying influences may be present when the cost of a service
exceeds a pre-established amount.

Business to Business customer/Industrial customers

To gain a full understanding of business marketing, knowledge on different customers it serves is
important. These customers can be broken down into 3 categories:
 Commercial enterprises.
 Governmental organizations.
 Institutions.
Since each of these customers buy goods and services in a different way, the business marketers
need to adjust their marketing strategies to the kind of the customers they target.
A. Commercial enterprises: They consist of the following: Indirect channel members, Original
Equipment Manufacturers and User customers.
- Indirect channel members: This category consist of firms engaged in re-selling goods
in basically the same form to commercial, governmental or institutional markets, e.g., the
wholesalers/industrial distributors and agents and vehicle distributors.
- Original equipment manufacturers (OEM): OEM buy business goods which they in-
turn incorporate into the products they produce for eventual sale to either the business or
consumer markets. Thus, tyre producers such as Sameer Group, Michelin, Goodyear, and
Pirelli sells tyre to General Motors (GM) consider the GM to be an original equipment
manufacturer.
- User customers: They generally buy products to support a manufacturing process or to
facilitate the operation of their business. Products purchased by users are not incorporated
in any final product. Examples of such products include: photocopiers, fax machines,
computers, calculators, pins, staples, pencils, and papers. They facilitate operations but
are not included in the final product.

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B) Governmental organizations: They include hundreds of central and local governments
buying units. Much of government procurement is done on a bid basis with government
advertising for bids, stating product specifications and accepting the lowest bid that meet the
specification. Such procedure sometimes results in rejection of the lowest bids. This is
particularly where the lowest bid does not meet the specifications. Although the governmental
market could be an attractive market some marketers make no real effort to sell to the
government because of the red tape involved. Dealing with the government to any significance
extent usually requires specialized marketing techniques and information.
C) Institutions: These are non-business or not for profit institutions. They include such diverse
institutions as colleges and universities, museums, hospitals, trade unions, charitable
organizations and churches. These organizations which have real marketing problems spend
millions of shillings to buy products and services for their organizations. Marketers who desire to
sell to institutional customers must be aware of the diversity of this market and tailor their
marketing programs to meet the particular needs and wants of prospective customers.

The future of B2B marketing

B2B Marketing is strongly affected by 3 major trends i.e., globalization, rapidly changing
technology and increased visibility.
(a) Globalization: Globalization is the inexorable integration of markets, nations-states and
technologies to a degree never witnessed before in a way that is enabling individuals,
corporations and nation-states to reach around the world further, faster, deeper and cheaper than
ever before. Drivers of globalization include:
 Market factors: more and more the world customer is becoming a real factor. Products
can be designed to meet similar needs of customers throughout the world. In addition,
customers are expecting higher quality of service as well as customization. They see
fewer real products differences and are fewer brands loyal.
 Cost factor: cost efficiencies and the avoidance of duplication of efforts are two
important drivers of globalization. Developing new product has become more and more
expensive so that firms must look to a very large market in order to satisfy the cost of
product development.

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  Environmental factors: the removal of various barriers to trade and improved
communication are also driving firms towards seeing market globally.
 Competitive factors: when a firm is marketing its product in many nations throughout the
world, it must aim to match competitor’s strategy and tactics and prevent the competition
from securing unassailable (unquestionable) advantage. A firm must seek a global
competitive advantage rather than just national advantage.
Areas of concern about globalization include:
 Subsidization of agriculture.
 Dumping regulations.
 Intellectual property rules.
(b) Rapidly changing technology: This is especially so in electronic and communications
industry. Internet is the most significant technology impacting business marketing. Advance in
cell phone has also allowed for higher quality product and customization to meet customer
needs. However, the advent of websites has not reduced the need for other forms of marketing
communications. It is just one of the components of marketing communications. A well-designed
website helps firms to serve large number of smaller volume customers in a more effective
manner. Webcasting is sending information to be viewed by users at the own convenience. It is
used by B2B market to announce new product or service or other important information to
selected segment of their customers. Online auction and exchanges have received some attention
lately as providing a model for future B2B dealings.
(c) Increased visibility: Business and institutions have become more visible especially due to
increase in media outlets. Institutions are responding by showing their good intentions. Firms
concerned about their reputation management keeps on monitoring the web and are proactive in
providing corrective information. Interest in marketing ethics is greater than ever before. UN has
developed UN global compact that is supposed to be adopted by global companies and deal with
human rights, labour and environment. Sustainability of environment is another major issue that
affects visibility of organization. Increased visibility has also encouraged terrorists. In today
world, marketing executives must give at least some thought to security.

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