Part One

Business Markets and

Business Marketing

Part One

Business Markets and Business MarketingOrients you to some of the unique phenomena and players in

business markets:

Chapter 1 – What is B2B?

Chapter 2 - The buyer-seller relationship

Chapter 3 - The purchasing Function

Chapter 4 - Organizational Buyer Behavior

Chapter 1

What is Business Marketing

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Learning Objectives

The aim is to introduce and explore the characteristics and dimensions of business-to-business marketing

• Define and explain the nature of business markets

• Identify the different types of organizational customers and categorize the goods and services that are sold and bought in business markets

• Explore the characteristics of B2B marketing

• Discuss the nature of demand for business products and services

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What is Business Marketing (B2B)

Business Marketing is marketing of goods and services to:• Companies• Government Bodies• Institutions (i.e. hospitals)• Non-Profit Organizations (i.e. China Red Cross)

These products and services are purchased for: • Use in producing their products (i.e. raw materials,

components, tools and machinery)• Facilitate their operations (i.e. copy papers, fax machine,

desktops)

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Business marketing Business Marketing Consumer Marketing

McDonalds

Salt is added to fries

You

Salt mine Morton’s Salt Kroger

Salt is sold in

shakers

Salt is mined Salt is processed into food-grade or industrial grade salt

General Foods

Salt is added to

frozen dinners

Example: How Salt is Distributed (Video)

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Types of Business Customers

Original Equipment Manufacturers (OEMs) – purchasers of products to be included in its own final product

Users – when purchasing products/services to be consumed in support of the firm’s operation

Government Agencies – the largest, single purchaser of products and services

Institutions – the college or university

Industrial distributors – similar to the wholesaler/retailer serving the consumer market

As compared to individual consumers, business customers are:

1) Larger – buying in large quantities2) Fewer in number3) More geographically concentrated4) Globally oriented

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Types of Products in Business MarketsRaw materials – e.g., gold purchased by AT&T

Manufacturing materials – raw materials which have been further processed or transformed to make them suitable for specific applications

Component or OEM parts - part of a completed product; parts that may be assembled into a final product without further processing

Accessory equipment (tools) – e.g., computers used to guide/control the manufacturing operations in a firm

Capital equipment (machinery) – large, expensive items directly used in the production process

MRO items (operating supplies) – products purchased for use in the firm’s operations, maintenance, repair, and operations products. Other names are facilitating supplies or facilitating services, such as the hiring of an advertising agency

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Differences between B2B vs. B2C• Varying buyer-seller relationship• Shorter distribution channels• Greater emphasis on personal selling

The small number of large, geographically concentrated buyers in this market makes shorter channels and long-term relationships feasible/necessary. Both of these factors favor personal selling.

• Greater web integrationThe web is a perfect tool to speed communications required for effective coordination between partners who trust each other.

• Unique promotional strategiesE.g., trade show, public relations

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Unique Nature of B2B

BUSINESS TO BUSINESS DEPENDS ON:

• Close Business and Personal Relationships

• Shorter Distribution Channels

• Emphasis on Personal Selling

• Dependence on WEB Integration

and

• Unique Promotional Strategies

Because of

Leads to

Through

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IBM

ComponentsRaw materialsAssemblies

OEM Capital equipment Accessory equipment Facilitating services and products

Maintenance, repair, and operations supplies

Components Raw materials Manufactured materials

Supply houses

Value-addedresellersIntegratedsolutions vendors

Maintenance repair, and operationssupplies

Distributors

Originalequipment products

Users

OEM partsManufactured materialsSubassemblies

Customer Focused Team Structure

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Business Markets Challenges• The size and location of customers – bigger, fewer, and

concentrated

• Strict performance standards for products by customers -

organizational purchasing have strict performance standards for products: cost constraints; design specifications; delivery windows and durability requirements

• Complicated purchasing decisions – Involvement and time: a large number of people involved require a longer time to negotiate

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Business Market Face Derived Demand

• Derived Demand

- The reality that business demand for products & services is shaped by the requirements of the products and services demanded by their customers

- Most demand comes from consumers

• Joint Demand

- Situations in which two products are used together and demanded together

- The demand for each is significantly affected by changes in the demand for the other

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Example: Derived Demand Simplified

You can make headlamp assemblies for autos – Auto company’s demand for headlamp is affected by the consumers’ demand for cars.

Consumers want more cars Automobile

manufacturers need more components and steel

Need more of your company’s headlamp assemblies

Consumers stop buying cars Automobile

manufacturers stop making cars

You can’t sell headlamp assemblies

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Transported via facilitating services

Raw Materials

Manufactured materials

Sub- assembly

Assembly Component parts

Finished car

Purchase order printed—facilitating product

Amount and type of car determined by

research—facilitating service

The Entire Systems

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Understanding the Market

Three critical questions for a successful B2B program

A business must determine:

1. Who Are Its Customers? (Target markets)

2. What Do Its Customers Want? (Identify)

3. How Do Its Buyers Make Their Buying Decisions? (Identify)