Chapter 1

Introduction to Business-to-Business Marketing

Prepared by John T. Drea, Western Illinois University
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 The Marketing Mix:
The “4 P’s” of Marketing

Place

The
Product Marketing Price
Mix

Promotion
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 Marketing Mix: Product

The total offering is created by a

+ Core Product partnership between the buying
+ Financing Terms organization and the marketing
+ Delivery Options organization.
= “Total Offering”
The process creates an
augmented product that is specific
to the buying unit’s needs and
maximizes the value creation
capabilities of the marketer.

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 Marketing Mix: Price
Price…
•is the mutually agreed-upon
amount that satisfies both
sides in an exchange. Price is the
•often varies from fixed price, measure of value
with more special discounts exchanged and is
and allowances (in determined by the
market (not by
comparison to consumer costs).
markets).
•may involve things other than
a one-time price payment
(such as commissions). 4
 Marketing Mix: Place

Place is about getting the product to the customer in

order to maximize economic utility.

Form Utility (having the product in the right

size package, quantity, etc.)
Time Utility (having product available at
Economic useful times)
Utility Place Utility (getting the product to the
customer where & when it is expected)
Possession Utility (making it easy to
transfer ownership to the buyer) 5
 Marketing Mix: Promotion

Business-to-business marketing requires a different

emphasis on different parts of the promotional mix

Consumer marketing Business-to-business

•Emphasis is marketing
frequently on •Emphasis is frequently on
advertising. personal selling.
•Communication with •Communication with
customers is often a customers should be a
monologue. dialogue.
•Relationship is often •Relationship is often long-
brief. lasting. 6
Business Markets and Business Marketing

• Business markets
– All organizations that purchase goods and
services to use in the creation of their own
goods and services.
• Business marketing
– The process of matching and combining
the capabilities of the supplier with the
desired outcomes of the customer to
create value for the “customer’s customer.”
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 The
Marketing 1. Be contextually
Concept market sensitive

For a 2. Understand customer needs

business-to-business
organization to
successfully practice
3. Meet customer
the marketing concept,
needs in a way that provides
it should:
value to the customer

4. Meet organizational goals

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 Consumer Demand and Derived Demand

Business demand is
derived from
consumer demand.
Trees are demanded to make wood pulp
…because wood pulp is demanded to make paper
…because paper is demanded to produce books
…because the consumer demands books!

Because of this, Inelastic (short-run)

business-to-
Volatile (leveraged)
business demand
tends to be Discontinuous 9
 The Bullwhip Effect
1. Suppliers forecast 2. But, if consumer
their production on demand drops, the
existing order rates. order rate also drops.

3. Supply chain members are then likely to over-

compensate the difference between the old and new
forecasts, because…

A. Inventory levels can decline to fit new order rate,

B. Customers change orders frequently,
C. Minimum order quantities may exist, and/or
D. Trade promotions may influence buying patterns
(discontinuities of B2B demand add to the bullwhip effect) 10
 B2B demand is discontinuous –
it moves in large increments.

1. Consumers 2. To produce more, a consumer

increase their goods manufacturer consumes
demand for a more raw materials, equipment,
product. and supplies.

3. Suppliers of raw materials, 4. Industry

equipment, and supplies are capacity increases
pressured to expand capacity in large
and eventually do so. increments.

The industry capacity increases in a discontinuous manner.

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Business-to-business demand tends to be inelastic

Price elasticity:
•It is the change in the quantity
demanded relative to the change in
price.
•When the price changes by X% and
demand changes by less than X%,
demand is described as inelastic.

Demand tends to be inelastic for those components that

are differentiated from competitors.

Manufacturers often choose to absorb price increases

rather than alienate customers (the manufacturer may
choose to later eliminate the component by design). 12
 Outsourcing
Outsourcing is the purchasing of part of the
company’s continuing operations, such as
manufacturing, rather than producing the
same function internally.

Quantity Discounts

Complementary Products Increases the

complexity of
business-to-business
Delivery Schedules
marketing

Outsourcing 13
 Value Chain
The Value Chain
•The chain of activities that creates
something of value for targeted customers.

Direct activities
The value chain contribute directly
to the offering.
contains both
direct and
support Support activities
activities. makes it possible to
perform the direct
activities.
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 The Value Chain and Offering

Perceives
Infrastructure
Human resources Offering:
Procurement
Technology &
technology development Product
Support activities
Service Target
Added value
Direct activities Image Customers
Availability
Quantity
Evaluated Price

Creates

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 Implications of the Value Chain
• The organization must understand its
prospective customers, what customers
perceive as valuable, and how prospects
might be persuaded to change their minds.
• Not all customers are alike. Customers can
be segmented on the basis of what they seek
and can afford.
• Direct and support activities are equally
important.
• The value chain extends from the customer
back thorough distribution channels,
manufacturers, suppliers and raw materials
suppliers. 16
Trends and Changes in Business Marketing

• Hypercompetition: the rapid emergence

of new competitors and industries.
• Formation of partner networks (use of
ERP systems).
• Use of Internet technologies to reduce
costs and to improve communication
and customer service.
• Time compression: an increase in the
speed of doing business.
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