Contemporary Marketing Ch6 Boone & Kurtz

CHAPTER 6

Business-to-Business (B2B) Marketing

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 over $515 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.

CHAPTER 6 Business-to-Business (B2B) Marketing

NATURE OF THE BUSINESS MARKET

CHAPTER 6 Business-to-Business (B2B) Marketing

NATURE OF THE BUSINESS MARKET • Companies also buy services, such as law, accounting, office-cleaning, and other services.

• Some firms focus entirely on business markets. • Example: Caterpillar, which makes construction and mining equipment.

COMPONENTS OF THE BUSINESS MARKET • Commercial market Individuals and firms that acquire products to support, directly or indirectly, production of other goods and services. • Trade industries Retailers or wholesalers (resellers) that purchase products for resale to others. • Government. • Public and private institutions.

CHAPTER 6 Business-to-Business (B2B) Marketing

B2B MARKETS: THE INTERNET CONNECTION • About 93 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.

CHAPTER 6 Business-to-Business (B2B) Marketing

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) Classification used by NAFTA countries to categorize the business marketplace into detailed market segments.

CHAPTER 6 Business-to-Business (B2B) Marketing

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 that have developed customer relationship management (CRM) systems can segment customers in terms of the stage of the relationship between the business and the customer.

CHAPTER 6 Business-to-Business (B2B) Marketing

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. • Geographic concentration decreasing 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.

CHAPTER 6 Business-to-Business (B2B) Marketing

THE PURCHASE DECISION PROCESS • Often involves multiple decision makers, is more formal, and may require bidding and negotiations.

BUYER-SELLER RELATIONSHIPS • Often more complex than in consumer market with a 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.

CHAPTER 6 Business-to-Business (B2B) Marketing

BUSINESS MARKET DEMAND • Demand characteristics vary from market to market.

CHAPTER 6 Business-to-Business (B2B) Marketing

DERIVED DEMAND • The linkage between demand for a company’s output and its purchases of resources such as machinery, components, supplies, and raw materials.

VOLATILE DEMAND • Derived demand creates volatility; for example, demand for gasoline pumps may be reduced if demand for gasoline slows.

JOINT DEMAND • Demand for two products used in combination with each other.

INELASTIC DEMAND • Demand not significantly influenced by price changes.

INVENTORY ADJUSTMENTS • Just-in-time (JIT) inventory policies boost efficiency by cutting inventory and requiring vendors to deliver inputs as they are needed.

CHAPTER 6 Business-to-Business (B2B) Marketing

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.

CHAPTER 6 Business-to-Business (B2B) Marketing

THE RISE OF OFFSHORING AND OUTSOURCING • Offshoring Movement of high-wage jobs from one country to lower-cost overseas locations. • Nearshoring Moving jobs to vendors in countries close to the business’s home country. • Outshoring Using outside vendors to provide goods and services formerly produced in-house.

PROBLEMS WITH OFFSHORING AND OUTSOURCING • Cost savings may be less than expected. • Can raise security concerns over proprietary technology or customer data. • Can reduce flexibility, create conflicts with unions, or negatively affect employee morale and loyalty.

CHAPTER 6 Business-to-Business (B2B) Marketing

THE BUSINESS BUYING PROCESS • More complex than the consumer decision process. • Takes place within formal organization’s budget, cost, and profit considerations.

INFLUENCES ON PURCHASE DECISIONS • Environmental factors—economic, political, regulatory, competitive, and technological considerations influence business buying decisions. • Organizational factors—structures, policies, and purchasing systems, which may be centralized in one office or delegated to units throughout the organization.

• Interpersonal influences of all organizational members involved in the buying decision. • Concerns and procedures of professional buyers who implement systematic buying procedures.

CHAPTER 6 Business-to-Business (B2B) Marketing

STAGES IN THE B2B BUYING PROCESS

CHAPTER 6 Business-to-Business (B2B) Marketing

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—recurring purchase decision in which a customer reorders a product that has satisfied needs in the past. • Modified rebuying—purchaser willing to reevaluate available options. • New-Task Buying—first-time or unique purchase situations that require considerable effort by the decision makers. • Reciprocity—practice of buying from suppliers that are also customers.

ANALYSIS TOOLS • Value analysis—examines each component of a purchase in an attempt to either delete the item or replace it with a more cost-effective substitute. • Vendor analysis—ongoing evaluation of a supplier’s performance in a variety of areas.

CHAPTER 6 Business-to-Business (B2B) Marketing

THE BUYING CENTER CONCEPT • Buying center Participants in an organizational buying action.

BUYING CENTER ROLES

CHAPTER 6 Business-to-Business (B2B) Marketing

INTERNATIONAL BUYING CENTERS • Two distinct characteristics differentiate international buying centers: • Marketers may have trouble identifying members of foreign buying centers because of cultural differences in decision-making methods. • A buying center in a foreign company often includes more participants than U.S. companies involve. • International buying centers can change in response to political and economic trends.

CHAPTER 6 Business-to-Business (B2B) Marketing

DEVELOPING EFFECTIVE BUSINESS-TOBUSINESS MARKETING STRATEGIES • Marketer must develop strategy based on particular organization’s buying behavior and on the buying situation.

CHALLENGES OF GOVERNMENT MARKETS • Purchases typically involve dozens of interested parties and may be influenced by social goals. • Contractual guidelines create another important influence in selling to government markets. • The government buys products under two basic types of contracts: • Fixed-price contracts – seller and buyer agree to a set price before finalizing the contract. • Cost-reimbursement contracts – the government pays the vendor for allowable costs, including profits, incurred during performance of the contract.

CHAPTER 6 Business-to-Business (B2B) Marketing

GOVERNMENTS 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.

CHAPTER 6 Business-to-Business (B2B) Marketing

CHALLENGES OF INSTITUTIONAL MARKETS • Include schools, hospitals, libraries, foundations, and others. • 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 all be considered. • Foreign governments are also an important market.