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Chapter 6Chapter 6
Business-to-Business-to-Business (B2B) Business (B2B)
MarketingMarketing
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Chapter ObjectivesChapter Objectives1. Explain each of the components of the business-to-
(B2B) market.2. Describe the major approaches to segmenting
business-to-business (B2B) markets.3. Identify the major characteristics of the business market
and its demand.4. Discuss the decision to make, buy, or lease5. Describe the major influences on business buying
behavior.6. Outline the steps in the organizational buying process.7. Classify organizational buying situations.8. Explain the buying center concept.9. Discuss the challenges of and strategies for marketing
to government, institutional, and international buyers.
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Nature of the Business MarketNature of the Business Market
Business-to-business marketingBusiness-to-business marketing: organizational sales and purchase of goods and services to support production of other goods and services for daily company operations or for resale
B2BB2B: a popular acronym for the business-to-business market
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Like final consumers, organizations purchase products and services to fill needs
Their primary need is meeting the demands of their own customers
Business buying decisions:Are more formal Involve complex interactions among many
peopleMust consider the organization’s goals
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Business-to-Business Marketing Consumer-Goods Marketing
Product Relatively technical in nature, exact form often variable, accompanying services very important
Standardized form, service important but less than for business products
Price Competitive bidding for unique items, list prices for standard items
List prices
Promotion Emphasis on personal selling Emphasis on advertising
Distribution Relatively short, direct channels to market
Product passes through a number of intermediate links en route to consumer
Customer Relations
Relatively enduring and complex Comparatively infrequent contact, relationship of relatively short duration
Decision-making process
Involvement of diverse group of organization members in decision
Individual or household unit makes decision
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Components of the Business Market Components of the Business Market Commercial MarketCommercial Market: Individuals and
firms that acquire goods and services to support, directly or indirectly, production of other goods and services
Trade IndustriesTrade Industries: Retailers and wholesalers who purchase goods for resale to others.ResellerReseller: often used to describe the
wholesalers and retailers that operate in the trade sector
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KmartKmart and SearsSears reselling Martha Stewart paints
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Government Government OrganizationsOrganizations: Include domestic units of federal, state, local and foreign governmentsIRS buys
products to provide federal tax service
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InstitutionsInstitutions: includes a wide variety of organizations, both public and private, such as hospitals, churches, universities, museums, and not-for-profit agencies.
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B2B Market – The Internet ConnectionB2B Market – The Internet ConnectionInternet plays an important role in B2B
marketing90 percent of all Internet sales are B2B
transactions
Differences in Foreign Business MarketsDifferences in Foreign Business MarketsMust be willing to adapt to local customs
and business practices
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Segmenting B2B MarketsSegmenting B2B Markets
Demographic Demographic SegmentationSegmentation: demographic characteristics define the useful segmentation criteria for business marketsUsing Demographic
Segmentation in Business Markets
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Customer-Based SegmentationCustomer-Based Segmentation: dividing a B2B market into homogenous groups based on buyers’ product specificationsNorth American Industrial Classification
System (NAICS): classification used by NAFTA to categorize the B2B marketplace into details that market segments -- -- replaced the Standard Industrial Classification (SIC) System
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Segmentation by End-Use ApplicationSegmentation by End-Use Application: segmenting a business-to-business market based on how industrial purchasers will use the product
Segmentation by Purchase CategoriesSegmentation by Purchase CategoriesCenters on the purchasing situationOrganizations may use complicated
purchasing proceduresFirms also structure their purchasing
functions in specific ways (e.g. centralized purchasing departments)
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Characteristics of the B2B MarketCharacteristics of the B2B Market
Geographic Market ConcentrationGeographic Market ConcentrationU.S. business market is more geographically concentrated than the consumer marketManufacturers concentrate in certain
regions of the countryCertain industries locate in particular areas
to be close to their customersFor example, suppliers of automobile
components and assemblies frequently build their plants close to their customers
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Sizes and Numbers of BuyersSizes and Numbers of BuyersBusiness market features a limited number of buyersUse statistical information to estimate the
size and characteristics of business markets is available
Federal government is largest single source of such statistics
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The Purchase Decision ProcessBusinesses must understand the dynamics of the organizational purchasing processB2B suppliers often must work with
multiple buyersDecision-makers at several layers may
influence final ordersProcess is more formal and professional
than with consumers
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Buyer-Seller RelationshipsBuyer-Seller RelationshipsMore intense than consumer relationshipsRequire better communication among the
organizations’ personnelPrimary goal of B2B relationships is to
provide advantages that no other seller can, for instance:Lower-pricesQuicker deliveryBetter quality and reliabilityCustomized product featuresMore favorable financing terms
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Genuine JDGenuine JD stressing the importance of business relationships
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Evaluating International Business MarketsEvaluating International Business MarketsBusiness purchasing patterns often differ from one country to the nextCompanies must weigh quantitative and
qualitative dataGlobal sourcing: purchasing goods and
services from suppliers worldwide
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Chubu ElectricChubu Electric practices global sourcing
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Derived DemandDerived Demand: demand for a resource that results from demand for the goods and services that are produced by that resource
Volatile DemandVolatile Demand: changes in demand that are disproportionate to normal trends
Joint DemandJoint Demand: demand for a product that depends on the demand for another product used in combination with it
Inelastic DemandInelastic Demand: demand that, throughout an industry, will not change significantly due to a price change.
Inventory AdjustmentsInventory Adjustments: Just-in-time inventory policies (JIT & JIT II)
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Business Market DemandBusiness Market Demand Derived Demand – the demand for corn derived from
demand for ethanol Volatile Demand – the lower demand for new housing
construction results in lower demand for lumber, concrete, plumbing items
Joint Demand – greater demand for gasoline will cause greater demand for motor oil
Inventory AdjustmentsJust-In-Time inventory policies require suppliers to
deliver inputs for production just as the production process needs them
Just-In-Time II brings supplier representatives into the customer’s facility to better manage supply
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Microprocessors: An Example of Derived Demand
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The Make, Buy, or Lease DecisionThe Make, Buy, or Lease Decision
Three Basic Options:Make the good or provide the service
in-house
Purchase it from another organization
Lease it from another organization
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The Rise of Outsourcing The Rise of Outsourcing Using outside vendors to produce goods
and services formerly produced in-houseOutsourcing
May be cost effectiveAllows a firm to obtain specialized
technological expertiseFrees up the company to focus on its
core competencies
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An outsourcing service for reducing risk and increasing productivity
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Problems with OutsourcingProblems with OutsourcingMany companies discover their cost savings
to be less than half the figure promised by vendors
May require signing a multiyear contract that eliminates most or all benefits in a year or two
Potential internal security problemsPotential problems with suppliers who fail to
deliver goods probably or provide required services
Possible union difficultiesRisk of losing touch with customers
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The Business Buying ProcessThe Business Buying Process
Influences on Purchase Decisions:Environmental FactorsOrganizational Factors
Multiple Sourcing: purchasing from several vendors
Interpersonal Influences
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The Role of the Professional BuyerThe Role of the Professional BuyerProfessional buyer (merchandisers):
technically qualified employees who are responsible for securing needed products at the best possible prices
Systems integration: Centralization of the procurement function within an internal division or as a service of an external supplier
Category Captain: A firm designates a major supplier as their systems integrator. This supplier assumes responsibility for dealing with all of the suppliers for the firm.
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Model of the Organizational Buying ProcessModel of the Organizational Buying Process
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Stage 1: Anticipate or recognize a problem/need/opportunity and a general solution
Stage 2: Determine the characteristics and quantity of a needed good or service
Stage 3: Describe characteristics and the quantity of a needed good or service
Stage 4: Search for and qualify potential sources Stage 5: Acquire and analyze proposals Stage 6: Evaluate proposals and select suppliers Stage 7: Select an order routine Stage 8: Obtain feedback and evaluate
performance
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Whole FoodsWhole FoodsSelecting a supplier
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Classifying Business Buying Situations Classifying Business Buying Situations Straight RebuyingStraight Rebuying
Recurring purchase decision in which a customer repurchases a good or service that has performed satisfactorily in the past
Modified RebuyingModified RebuyingPurchase decision in which a purchaser is willing to reevaluate available options for repurchasing a good or service
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New-Task BuyingNew-Task BuyingFirst-time or unique purchase situation that requires considerable effort by the decision Makers
ReciprocityReciprocityPolicy to extend purchasing preference to suppliers that are also customers
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Analysis ToolsAnalysis ToolsValue analysis: systematic study of the
components of a purchase to determine the most cost-effective ways to acquire items
Vendor analysis: assessment of supplier performance in areas such as price, back orders, timely delivery, and attention to special requests
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The Buying Center ConceptThe Buying Center Concept Participants in an organizational buying action
Buying center roles played by various participants in the purchase decision process include:Users – initiate purchase request,
develop specificationsGatekeepers – control informationInfluencers – provide informationDecider – actually chooses good or
serviceBuyer – has formal authority to select
supplier
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International Buying CentersInternational Buying CentersDifferentiated from domestic buying centers since:Their members are often more difficult to
identify May include more participants than buying
centers in U.S. firms
Team sellingTeam sellingIIntroducing other associates in addition to salespeople into selling situations to reach all members of a customer’s buying center
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Developing Effective Business-To-Developing Effective Business-To-Business Marketing StrategiesBusiness Marketing Strategies
Challenges of Government MarketsChallenges of Government MarketsGovernment purchasing procedures
Bids: written sales proposals from vendor
Specifications: written descriptions of needed goods or services
Online with the federal government
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Challenges of Institutional MarketsChallenges of Institutional MarketsWidely diverse buying practicesMultiple buying influences may affect decisionsGroup purchasing is an important factor
Challenges of International MarketsChallenges of International MarketsWidely diverse attitudes and cultural patternsLocal industries, economic conditions,
geographic characteristics and legal restrictions also must be consideredRemanufacturing: production to restore
worn-out products to like new condition
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End of Chapter SixEnd of Chapter Six