Business to Business Marketing - Chelsie G.

Lin - 01013170037

Chapter 1: Introduction to Business Marketing

1. THE IMPORTANCE OF BUSINESS MARKETS

○ Business Marketing → m ​ arketing products/services to other companies, government bodies,
institutions, and other organisations.
○ Why study?
■ Marketing majors begin in B2B marketing.
■ Magnitude of B2B marketing.
■ B2B marketing is unique.

2. B2B MARKETING VS. CONSUMER MARKETING

○ Varying buyer-seller relationships →​ can be deep and involve several layers.
○ Shorter distribution channels → ​can get involved with direct distribution.
○ Greater emphasis on personal selling →​ direct selling.
○ Greater web integration →​ Can use online communication space with special customers.
○ Unique promotional strategies →​ Trade shows, exhibitors.
■ Consumption →​ Sales are dependent on other markets.
■ Knowledge of customer’s customer →​ Must understand their customer and their
customer’s customer.
■ Marketing research →​ Smaller, direct markets lean towards qualitative research.

3. BUSINESS MARKETS
Types of Original equipment manufacturers Institutions
Customers
Users Industrial distributors

Government agencies

Types of Raw materials Capital equipment

Products
Manufactured materials Maintenance, Repair, and Operations (MRO)
products
OEM/Component parts
Facilitating supplies/services
Accessory equipment

Size and B2B markets have customers ​larger than Location tends to be ​geographically
Location of consumer markets​; tend to have ​fewer concentrated​ but are also ​globally oriented​.
Customers individual business customers​.

Purchasing Strict standards in performance and delivery Purchasing processes → ​Organisational

Standards & purchasing is in larger quantity and much more
Processes complex.

The Nature Derived Demand → ​Demand for Demand elasticity →​ ​% change in sales relative
of Demand products/services is derived from the demand to % change in price.
of their customers’ products and services. This
can cause swings in demand (​volatility)​ . Inelastic demand →​ Not affected by price.
Business to Business Marketing - Chelsie G. Lin - 01013170037

4. THE ENTIRE SYSTEM

○ Understanding the market: STP + Vision & Mission

○ Marketing mix creates value:
■ 4Ps (Product, Place, Price, Promo)
■ Value = profit for buyers, competitive advantage
○ Marketing is an integrative process:
■ Customer retention
■ Customer relationships
Business to Business Marketing - Chelsie G. Lin - 01013170037

Chapter 2: The Character of Business Marketing

1. THE MAGIC OF MARKETS

○ Markets Coordinate →​ ​market provide a mechanism for meeting individual and organisational
needs and allocating product resources within a society
○ Valuation of a product/service:
■ Buyers gauge value →​ Buyers determine how much they are willing to pay.
■ Sellers opt in or out →​ Sellers weigh out costs and revenue to set price.

2. BEYOND MARKET COORDINATION

○ Supply Chain Management →​ ​proactively planning and coordinating the flow of products,
services and information among connected firms focusing on creating and delivering value to end
users.
■ Efficiency gain →​ the impact on profits based on efficiency.
■ Effectiveness payoffs →​ efficiency has more payoffs in the long-term.
○ Relationship Management:
■ A Map of Motives to Relate:

■ Spotting transactional exchange:

● Money traded for easily measured commodities
■ Unequal interested in relating →​ when only one party is interested in building a
relationship.
Business to Business Marketing - Chelsie G. Lin - 01013170037

■ Joint interest in a relationship →​ Mutual stakes.

● Strategic partnership can be formed.
■ Key managerial implications of relationships:
● Reduce number of suppliers.
● Reduce inventory.
● JIT (Just-In-Time) relationships →​ requires suppliers to produce and deliver
OEM at the necessary quantity and time, with the objective that the products
produced by the supplier conform to performance specifications every time.

3. DEVELOPING RELATIONSHIPS
○ High-Performance Criteria
■ Preferences of Sellers:
● Want large and reliable purchase volumes at adequate margin, while leaving
other allocated costs to leave a large portion of gross profit intact.
■ Preference of Buyers:
● Often turn to supply partnerships motivated by evident inefficiencies in the
production process, thus turn to suppliers to eliminate waste and improve system
economies.
○ Designing New Standards
■ Internal assessments →​ Supplier evaluation that combines data on internal operations
with assessments from managers on supplier professionalism, responsiveness, quality,
technical capability, and vision.
■ External measures →​ Evaluates relationships on a relative basis against external norms
provided by trade associations or consulting companies.
■ Higher standards
● Integrity
● Fairness
● Loyalty
● Flexibility
● Consideration in partners’ strategy
● Partners’ participation in their own strategies
● Compliance with established administrative procedures.

4. A MODEL OF RELATIONSHIP DEVELOPMENT

○ “The Relationship Development Process”
■ AWARENESS
● No interaction.
● Independent considerations of potential partners
■ EXPLORATION
● Interaction between parties occur as both parties are probing and testing each
other.
● Termination of fragile association is simple.
● Factors to consider: attraction, communication and bargaining, power and
justice, development of norms, having expectations.
■ EXPANSION
● One party has made adjustments, and both parties are satisfied wtih the
customisation.
Business to Business Marketing - Chelsie G. Lin - 01013170037

●Additional benefits are sought from current partner over other alternative
partners.
■ COMMITMENT
● Lasting desire to maintain/preserve a valuable and important relationships.
● Inputs are significant and consistent.
● Partners adapt and resolve disputes internally.
■ DISSOLUTION
● The termination of an advanced relationship

5. SAFEGUARDING RELATIONSHIPS
○ Purpose: to cement strategic relationships.
○ Ways to safeguard a relationship:
House Calls Visiting prospective suppliers.

Supplier verification →​ Formal efforts to obtain evidence of supplier capabilities and

commitments.

Trading Places Buyers and sellers exchange personnel to provide assurances.

Managing Dependence balancing →​ Buyer reduces dependence on supplier by cultivating

Dependence relationships with other exchange partners.

Supplier Pledges Pledge of good faith intentions to give good service and fair prices over the course of the
relationship.

Contracts Sustained commitment through distributing ownership of assets involved

Ownership Vertical integration:

● Bringing a function/technology within the boundaries of the firm.
● To ensure continuity in the relationship because suppliers are hierarchically
connected to employees.
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Chapter 3: The Purchasing Function

1. THE IMPORTANCE OF PURCHASING

○ 3 Elements of the Purchasing Function (and Maximise Profit):
■ Provide Supply
■ Correct Quantity
■ Lowest Total Costs

○ PROVIDE SUPPLY:
■ Purchasing has the responsibility to ensure that the right product/service is provided.
■ Product/service must be available at the right time.
● JIT (see Ch. 2 no. 2)
● Concurrent manufacturing →​ Suppliers schedule their own manufacturing
based on shipment needs of customers.
● Electronic Data Interchange (EDI)
○ CORRECT QUALITY:
■ Poor quality = bad reputation
■ Higher quality = higher costs
○ LOWEST TOTAL COSTS:
■ The purchase price is not the only cost to contend with.
■ Several concepts are used by purchasing departments to examine and compare costs:
● Total Cost of Ownership →​ Total amount expended in order to own a product or
use a service.
● Economic Order Quantity (EOQ) →​ The quantity that minimises both ordering
and inventory costs.
○ Forward buying →​ Buying in larger quantities than currently needed
because the discount is greater than the carrying costs.
● Value Analysis →​ Compare benefit, function, cost of materials, components, and
work processes.
○ Complexity management →​ Identify links among components that raise
costs if any changes are made.

2. THE PURCHASING PHILOSOPHY

○ A company’s philosophy toward purchasing will limit the types of relationships in which it can
engage.
○ Adversarial Purchasing Philosophy → H ​ ave several vendors for each product.
■ This philosophy is developed to increase ​competition​ for buyer’s business.
■ Competition is believed to lower prices but also increase the level of service and attention
paid to the account.
○ Partnership Purchasing (or Preferred Supplier Systems) →​ Maximise benefits of collaboration
between the buyer and a few suppliers.
■ Buyers seek out best suppliers that they can find and then work to develop close
relationships, particularly in areas of strategic importance to the firm.
■ Partnering relationships are likely to be established with vendors that provide one or
more of the following:
● High purchase-volume materials, components, or products of strategic
importance.
Business to Business Marketing - Chelsie G. Lin - 01013170037

● Specialised products requiring information and training for effective use.

● Services that require specialised knowledge for cost reductions or performance.
● Materials taht no other supplier can provide.
○ Single Sourcing ​→ A company selects one supplier to satisfy all needs in a given area.
■ Can occur in adversarial setting.
■ Does not need to imply long-term collaborative relationships.

3. SUPPLIER EVALUATION
○ Buy Grid Model ​→ a general modal of rational organisational decision making that explains how
companies make strategic decisions. There are 2 parts:
■ Buy Phase Model →​ people go through a series of steps/phases when making a decision.
STEP 1: ​Recognition​ of a need.
STEP 2: ​Definition ​of the product type needed.
STEP 3: ​Development​ of detailed specifications.
STEP 4: ​Search​ for qualified suppliers.
STEP 5: ​Acquisition​ and analysis of proposals.
STEP 6: ​Evaluation​ of proposals and s​ election​ of a supplier.
STEP 7: ​Selection​ of an order procedure.
STEP 8: ​Evaluation​ of product performance.
■ Buy Class →​ The type of buying decision, based on the experience of the buyer with a
purchase of a particular product or service.
Buy Phase Marketing Element

New Buy/New Task Advertising

(Out-Suppliers)
All steps of the buying
process are used, with
emphasis on product
definition and development
of product specifications.
Detailed, educational, must try to get users to try the product, substitute for old method.
Promotion
Use demonstrations at trade shows to show how it works.
Offer free trials/demonstrations at the customer’s site.
Selling
Heavy emphasis on understanding customers’ needs and showing how new product satisfies needs
better than old methods.

Modified Rebuy Advertising

(Out-Suppliers)
Less emphasis on product
definition. More emphasis
on search and evaluation of
suppliers.
Use comparison advertising to show your product and similar products.
Promotion
Customer site demonstrations, hospitality events at trade shows.
Selling
Protect relationship with current customers.
Anticipate or respond quickly to changes in customer needs.

Straight Rebuy Advertising

Use reminder adveritising. Build an image for the company.
(In-Suppliers)
Needs recognition and Promotion
purchase. Hospitality events at trade shows.

Selling
Any personal selling is designed to build relationships.
Automate the purchasing process through using ​EDI​.
Business to Business Marketing - Chelsie G. Lin - 01013170037

○ Buy-Grid and Marketing Practice

■ Theory suggests that information is needed by the buyer to make a new buy than when
making a modified rebuy, and almost no information is needed for a straight rebuy.
■ To use the model, a company would look at the degree to which a market is buying a
product for the first time in order to determine marketing communications strategy.
○ Multiattribute Decision Making
■ Multiattribute model → ​ the idea that people compare products across attributes, or
features, weighted by importance.

4. TRENDS IN PURCHASING
○ Strategic Sourcing​ → the process of designing and managing supply networks to optimise
operational and organisational performance.
○ Supply Chain Management​ →​ t​ he integration of supply processes from end user through original
suppliers that provide products, services, and information that adds value for customers.
○ Demand Planning​ ​→ a strategy of attempting to influence demand for products and services
made by your company so that the supply chain can be managed most efficiently.
■ Related to forecasting.
○ A key factor of ​globalisation​ involves sourcing in low-cost countries of supply and managing the
logistics of getting the products to another place.
○ Increased Price Pressure​ → ​ Managing costs is a major part of purchasing, and professionals must
consider every possible way to cut costs.
○ Outsourcing​ → Process of finding another organisation to supply the buying organisation with a
product or service.
■ Early Supplier Involvement (ESI) → ​ Companies use suppliers to help design new
products or processes.
■ Make-or-Buy ​→ Comparison of the value created internally versus if created by someone
else.
○ Stronger Relationships with Sellers:
■ Factors that combine to increase the importance of strong relationships:
● Important responsibilities are being moved outside of the organisation;
● Companies are trying to reduce the number of vendors and increase the amount
of business with each vendor.
■ Supplier Relationship Management (SRM)​ → the use of computer models to identify the
most valuable suppliers and to identify purchasing opportunities.
○ Cross-Functional Sourcing Teams​ → Purchasing teams that include members of various
functional areas within the firm, and sometimes include personnel from suppliers and customers
too.
■ Teams are formed to:
● Develop cost-reduction strategies
● Create sourcing strategies
● Handle other purchasing functions in global servicing situations.
■ Teams are designed to take advantage of the different types of expertise in various
departments across the organisation.
○ Professionalism in Purchasing​ → Encouraging and providing certification for purchasing
managers, who must pass tests to indicate knowledge of profession’s ​code of ethics​ and
procedures of purchasing​.
Business to Business Marketing - Chelsie G. Lin - 01013170037

5. PURCHASING IN GOVERNMENT
○ Political and Social Goals
■ Compliance programs​ → Purchasers must be in compliance with federal guidelines in
order to be eligible to supply the government.
■ Minority subcontracting programs​ → require general contractors and other major
suppliers to allocate a certain percentage of the total contract to minority-owned
subcontractors.
○ The Department of Defense (in the US)
■ Purchases are made through the Defense Logistics Agency (DLA).
■ Department of Defense developed many single-sourcing arrangements due to the huge
investment needed to develop weapon systems.
○ Non-Defense Buying (in the US)
■ US Govt. uses the General Services Administration (GSA) to supply government
agencies with office space, facilitating services and products, and MRO items.
○ Marketing to the Government
■ Selling to the government is a complicated and arduous task.
■ The agents (GSA and DLA) negotiate a price prior to being approved on the vendors list.
■ Fixed-price agreement
■ Cost-plus contract

6. ETHICS IN PURCHASING
○ Ethics →​ Moral codes of conduct; rules for how someone should operate that can be
followed as situations of demand.
○ Ethical Issues Facing Purchasing:
■ Equal Access to the Buying Opportunity
● Fair competition → ​any competitor has equal opportunity to sell to the
buyer and equal access to information from the buyer.
● Bribery is unethical because it gives one competitor an unfair advantage.
■ Responsibility to the Buying Organisation
■ Receiving GIfts → ​ might be a form of bribery.
■ Access to Information → ​Having more information = competitive advantage.
● Nondisclosure Agreement →​ They will not share any information about
new products with anyone who has also not signed such an agreement.
Business to Business Marketing - Chelsie G. Lin - 01013170037

Chapter 4: Organisational Buyer Behaviour

1. BUYING DETERMINANTS THEORY

○ Buying Determinants Theory → D​ escribes behaviour as due to the ​combined effects of 4 factors​:
■ Environmental Factors (government regulations and technology)
■ Market Factors (size and number of competitors)
■ Organisational Factors (company size, corporate culture, and policies)
■ Individual Factors (age, experience, and education)

2. ROLE THEORY
○ Suggests that people behave within a set of norms/expectations of others due to the role in which
they have been placed.
■ Autonomous​ → When a person makes a purchase decision alone.
■ Buying Center/Decision-Making Unit (DMU)​ → more than one person is involved.
○ Roles in the buying center:
■ Initiator​ → starts the purchase process by recognising the need.
■ Controller​ → Controls/sets the budget for the purchase.
■ Influencers​ → Individuals who seek to affect the decision maker’s final decision through
recommendations of which vendors to include or which products are best suited to solve
the organisation’s needs.
■ Decision Maker​ → The person who makes the final decision.
■ Purchasing Agent​ → The person who actually makes the purchase
Business to Business Marketing - Chelsie G. Lin - 01013170037

○ Dimensions of buying centers:

■ Time fragmentation → ​Members come and go.
■ Vertical dimensions → H ​ ow many layers of management are involved.
■ Horizontal dimensions → ​How many departments are involved
■ Formalisation dimension →​ The degree to which purchasing tasks and roles are defined
by written documents describing procedures and policies.
○ Marketing to Buying Centers
■ Premier salespeople can encourage users to influence the decision in their favour.
○ When Buying Centers Occur
■ Risk​ → the profitability of an outcome and the importance/cost associated with the
outcome.
● Financial/Economic Risk​ → Associated with cost of new product and potential
for lost revenue if the product breaks down or doesn’t perform as advertised.
● Performance Risk​ → The product will not perform as intended.
● Social/Ego Risk → ​ The purchase will not meet the approval of an important
reference group.
■ Using Information to Reduce Risk:

■ Using Loyalty to Reduce Risk:

● The Importance of Trust ​in marketing through:
○ Warranties and guarantees.
○ Supplier behaviour and responsiveness.

3. INDIVIDUAL BUYER THEORY

○ Behaviour Choice Theory →​ buyers go through a choice process to arrive at decisions of ​how​ they
will buy, as opposed to the choice of ​what​ will be bought.
○ Self-orientation​ → Individual works to achieve personal benefit.
○ Company orientation​ → Individual works to achieve benefits for the company.
○ Extrinsic rewards​ → Rewards given by the organisation (salary, promotion, etc.)
○ Intrinsic rewards​ → Rewards that the buyers give themselves (satisfaction)
Business to Business Marketing - Chelsie G. Lin - 01013170037

4. Compare Behaviour Choice and Multiattribute

5. Integrate Behaviour Choice and Buying Determinants

○ Environmental Factors
○ Market Factors
○ Organisational Factors
■ Multiattribute and Behavioural Choice
○ Individual Factors
■ Experience
■ Choice of reward-role orientation
■ Valence of reward
■ Probability perceptions

6. Marketing and Buyer Behaviour Choice

Business to Business Marketing - Chelsie G. Lin - 01013170037

Chapter 5: Market Opportunities

1. FINDING OPPORTUNITIES
○ Market opportunities mean:
■ Expand markets
■ Tap into new markets
■ Gain opportunity from current markets

○ Markets among Current Customers (Expand Markets)

■ Best Customers → ​Account retention​ → % of accounts that continue doing business with
the seller each year.
■ Customer Maximisation → Make current customers buy more from you.
■ New Products → Increases potential of customers to buy more.
■ Network Payoff → Current customers are strategic assets and help tap into new markets,
so businesses should build good relationships with them.
○ Finding Opportunities with Customers
■ Empathic dialogue​ → Active listening and identification of customer concerns, resulting
in customer-centered communication and problem solving.
■ The role of Data
● Some business marketers serve so many customers and execute so many
transactions that account management (and other opportunities) are critically
supported by sophisticated data management systems.
● Data Warehousing​ → uses centrally managed data from all functional areas of
the organisation (sales, purchasing, human resources, finance, accounts payable,
etc.) that is formatted to company standards so that it may be accessed by
authorised users through their personal computers for queries, custom reports,
and analysis.
■ Customer Research:
● Focus Group​ → A small group of customers discussing a specific topic/issue.
● Surveys​ → ​Sample Surveys ​→ A questionnaire administered to a representative
group of a particular population.
○ Sugging​ → the unethical practice of using marketing research as a
guise for selling.
● Joint Development and Testing​ → To help with ongoing adjustments and
developments of products.
● Customer Visits​ → Calling on a subset of key customers, using cross-functional
teams, and following protocols that take the parties out of the conference rooms,
a customer visitation program can be a powerful tool.
○ Acquisition of new customers (untapped market)
■ Customer Lifetime Value (CLV)​ → an estimate of the NPV of the stream of benefits from
a customer, less the burdens of servicing the account or managing the relationship.
○ The Search for Look-Alikes → ​Duplicate loyal customers (CLV) to get new ones.
■ Finding and Developing New Markets
● CAGE (Cultural, Administrative, Geographic, Economic factors)
■ Roles for Marketing Research
● Customer Management​ → Grouping customers, seeking feedback, analysing
needs.
Business to Business Marketing - Chelsie G. Lin - 01013170037

● Aim to manage CLV

● Acquire new customers through research in market segmentation and estimation
of size.
● Marketing research in business marketing is vital and often highly sophisticated,
but its scale and scope are a fraction of what one sees for consumer goods.

2. MARKET SEGMENTATION
○ Industrial Classification System:
■ Standard Industrial Classification (SIC) codes → ​ Developed by the U.S. government to
collect and disseminate meaningful information on different sectors of the economy.
■ North American Industrial Classification System (NAICS)​ → Six-digit hierarchical code
that is used in the U.S., Canada, and Mexico, and is also compatible with the UN’s
two-digit system of industry classification.
○ Company Characteristics​ → Segmenting variables to consider through fairly observable traits:
■ Company sales
■ Number of employees
■ Number of locations
■ Degree of vertical integration
■ Etc.
○ Buying Processes​ → Purchasing
○ Benefits Sought →​ When customers differ in the priorities they place on specific performance
dimensions, marketers must be sure to properly match their offering to the segment seeking what
their product does best.
■ Positioning → A loosely used term that generally refers to marketing efforts to secure a
valued categorisation in the mind of a customer.
○ Memberships and media ​→ Creative marketers have successfully served business market
segments defined by membership in professional societies, trade associations, and even readership
of a particular publication.

3. SEGMENT CRITERIA
○ Identifiable​ members of market segments can be enumerated and evaluated.
○ Accessibility​ → members of a market can be reached or impacted by some directed marketing
activity.
○ Substantial market​ → promising sufficient business to justify the efforts to serve it.

4. MARKET ASSESSMENT TOOLS

○ Scenarios → ​ A forecasting technique that requires manage
○ Buildup Approach ​or​ Factoring​ → Involves hard thinking and analysis of how the product fits into
the value-added process.
○ Statistical Series​ → An estimation technique that uses the correlation between demand and some
other set of economic activities to yield a forecast.

5. MARKET ASSESSMENT TOOLS

○ No one can buy a product about what they do not know.
○ Buyers must view the product favourably, regard the price as acceptable, and have some
reasonable degree of access to the product.