B 2 B

Chapter Objectives
Business-to-Business (B2B)
Marketing
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Explain each of the
components of the
business-to-business
(B2B) market.
Describe the major
approaches to
segmenting B2B
markets.
Identify the major
characteristics of the
business market and its
demand.
Discuss the decision to
make, lease, or buy.
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
and strategies for
marketing to
government,
institutional, and
international buyers.
5
3
6
9
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.
NATURE OF THE BUSINESS MARKET
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.
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.
Governmentall domestic levels (federal, state, local) and foreign
governments; also act as sellerse.g., confiscated goods.
Public and private institutions, such as hospitals, churches, colleges and
universities, and museums.
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.
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.
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.
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.
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.
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.
BUSINESS MARKET DEMAND
Demand characteristics vary from market to market.
DERIVED DEMAND
The linkage between demand for a companys 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 itemslong-lived business aspects that depreciate.
Expense itemsitems consumed within short time periods.
VOLATILE DEMAND
Derived demand creates volatility.
Example: Demand for gasoline pumps may be reduced if demand for
gasoline slows.
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.
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 firms entire stock of a product from just
one supplier.
Latest inventory trend: JIT II, suppliers to place representatives at the
customers facility to work as part of an integrated, on-site customersupplier
team.
Inventory adjustments are also vital to wholesalers and retailers.
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.
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 worlds copiers, microwaves,
DVD players, and shoes, and virtually all of the worlds 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 businesss
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.
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.
THE BUSINESS BUYING PROCESS
More complex than the consumer decision process.
Takes place within formal organizations 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.
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.
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.
MODEL OF THE ORGANIZATIONAL BUYING PROCESS
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 employees 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.
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.
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
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.
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.
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 analysisexamines each component of a purchase in an attempt to
either delete the item or replace it with a more cost-effective substitute.
Vendor analysisan ongoing evaluation of a suppliers performance in
categories such as price, EDI capability, back orders, delivery times, liability
insurance, and attention to special requests.
THE BUYING CENTER CONCEPT
Buying center Participants in an organizational buying action.
BUYING CENTER ROLES
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 firms own supply network in the sales
situation.
Example: Reseller of specialized computer applications whose clients
require access to training.
DEVELOPING EFFECTIVE BUSINESS-TO-
BUSINESS MARKETING STRATEGIES
Marketer must develop strategy based on particular organizations 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.
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.
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.

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