foundations of Chapter M A R K E T I N G Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Business-to- Business Marketing 9

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Objectives 1.Provide an overview of the buying process between business buyers and sellers. 2.Differentiate among the three types of business markets. 3.Identify the three distinctive features of business markets. 4.Explain the characteristics of business market demand. 5.Identify the basic categories of business products. 6.Describe the nature and importance of government markets. 9 Business-to-Business Marketing 9-1

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Business-to-Business Market Firms that produce or acquire goods and services to be used, directly or indirectly, in the production of other goods and services or to be resold. 9 Business-to-Business Marketing 9-2

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Distinctive Features of the Business Market 1. Geographic market concentration. 2. Small number of buyers. 3. Complex purchase decision process. 9 Business-to-Business Marketing 9-3

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Producers Those who transform goods and services through production into other goods and services. 9 Business-to-Business Marketing 9-4

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Trade Industries Organizations, such as retailers and wholesalers, that purchase for resale to others. 9 Business-to-Business Marketing 9-5

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Value Added The increase in value of input material when transformed into semifinished or finished goods 9 Business-to-Business Marketing 9-6

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Summary of Manufacturers by Province, Business-to-Business Marketing Table MATERIALS ANDTOTAL VALUE NUMBER OF TOTAL SUPPLIES USED ADDED PROVINCEESTABLISHMENTS EMPLOYEES ($ MILLIONS) ($ MILLIONS) All Canada* Newfoundland Prince Edward Island Nova Scotia New Brunswick Quebec Ontario Manitoba Saskatchewan Alberta British Columbia NWT and Yukon *There may be a discrepancy between figures for Canada and the total of all provinces due to varying sources of information. Source:Adapted from the Statistics Canada publication Market Research Handbook, 1999, Catalogue No XPB, 1999, p.180. Reprinted with permission of the Minister of Industry Canada.

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Business-to-Business Market Demand 1.Derived Demand 2.Joint Demand 3.Inventory Demand 4.Demand Variability 9 Business-to-Business Marketing 9-8

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Derived Demand Demand for a product used by business derived (or linked to) demand for a consumer good. 9 Business-to-Business Marketing 9-9

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Joint Demand Demand for an industrial product that is related to the demand for other industrial goods. 9 Business-to-Business Marketing 9-10

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Inventory Adjustments Changes in the amounts of materials a manufacturer keeps on hand. 9 Business-to-Business Marketing 9-11

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Demand Variability In the business market, the impact of derived demand on the demand for interrelated products used in producing consumer goods. 9 Business-to-Business Marketing 9-12

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Accelerator Principle The disproportionate impact that changes in consumer demand have on business. 9 Business-to-Business Marketing 9-13

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Basic Categories of Business Products 1.Capital items 2.Expense items 9 Business-to-Business Marketing 9-14

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Capital Items Long-lived business assets that must be depreciated over time. 9 Business-to-Business Marketing 9-15

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Depreciation The accounting concept of charging a portion of the cost of a capital item as a deduction against the company’s annual revenue for purposes of determining its net income. 9 Business-to-Business Marketing 9-16

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Expense Items Products and services that are used within a short period of time. 9 Business-to-Business Marketing 9-17

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Business Purchasing Situations 1.Straight Rebuy 2.Modified Rebuy 3.New Task Buying 9 Business-to-Business Marketing 9-18

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Straight Rebuy A recurring purchase decision involving an item that has performed satisfactorily and is therefore purchased again by a customer. Business-to-Business Marketing

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. New Task Buying First-time or unique purchase situations that require considerable effort on the part of the decision makers. Business-to-Business Marketing

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Buying Centre The key individuals who participate in a buying decision. Business-to-Business Marketing

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Roles of Buying Group Members 1. Users 2. Gatekeepers 3. Influencers 4. Deciders 5. Buyers Business-to-Business Marketing

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. A Model of the Business Buying Process Business-to-Business Marketing 9 Figure 9.2 Delineation of suppliers Information search Need recognition Sales demonstration/ proposal Review of internal proposals Final decision Advertisements Technical articles Word of mouth Personal and interpersonal influences Organizational and environment influences Triggering event Source: Adapted from Majoj. K. Agarwal, Philip C. Burger and Alladi Venkatesh, “Industrial Consumer Behaviour: Toward an Improved Model,” in Developments in Marketing Science, Venkatakrishna V. Bellur et al;, eds. (Miami Beach: Academy of Marketing Science, 1981), p. 72. Copyright © Academy of Marketing Science. 9-23

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. RFP (Request for Proposal) or RFQ (Request for Quotation) Common procedure used by firms to get information on alternatives and prices. Business-to-Business Marketing

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Reciprocity Extending purchasing preference to suppliers who are also customers. Business-to-Business Marketing

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. North American Industrial Classification System (NAICS) A coding system used to categorize different types of businesses and products (formerly the Standard Industrial Classification, or SIC). Business-to-Business Marketing

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Business-to-Business Marketing 9 Table North American Industrial Classifications

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. NAICS Examples (1 of 2) Division Manufacturing Group311 Food manufacturing Class3111 Animal food manufacturing Animal food manufacturing Dog and cat food manufacturing Other animal food manufacturing Class3112 Grain and oilseed milling Flour milling and malt manufacturing Flour milling Rice milling and malt manufacturing Business-to-Business Marketing 9 Table 9.5 Source: Adapted from Statistics Canada, North American Industry Classification System, 1997, Catalogue No XME. Reproduced by permission of the Minister of Supply and Services Canada. 9-28a

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. NAICS Examples (2 of 2) Division 52 - Finance and Insurance Group521 Monetary authorities - Central Bank Class5211 Monetary authorities - Central Bank Monetary authorities - Central Bank Group522 Credit intermediation and related activities Class5221 Depository credit information Banking Personal and commercial banking industry Corporate and institutional banking Business-to-Business Marketing 9 Table 9.5 Source: Adapted from Statistics Canada, North American Industry Classification System, 1997, Catalogue No XME. Reproduced by permission of the Minister of Supply and Services Canada. 9-28b

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. The Basics of Selling to Governments 1. Selling directly to government departments and agencies. 2.Accessing MERX TM, the electronic tendering services. 3.Registering online as a supplier. Business-to-Business Marketing

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Electronic Exchange Network A single point of access to suppliers and consumers through the Internet. Business-to-Business Marketing

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. e-commerce Commerce conducted via the Internet. Business-to-Business Marketing

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. B2B e-commerce Doing business online through Internet- enabled marketplaces. Business-to-Business Marketing

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Electronic Exchange An organized group of buyers and sellers from a specific industry linked together electronically. Business-to-Business Marketing

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Vertical Web Community A site that acts as a comprehensive source of information and dialogue for a particular vertical market. Business-to-Business Marketing

Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. The Three Primary Business Models for Online Exchanges Business-to-Business Marketing 9 Table DescriptionExample 1. Third-PartyExchange is owned and operated byVentro Exchangea third-party that is not considered to (formerly Chemdex) be a trading partner, often a B2B startup. 2. Consortia-LedExchange ownership is shared GM/DaimlerChrysler/ Exchangebetween industry-leaders and a Ford exchange, Covisint technology partner. 3. Private/Exchange is owned and operatedWal-Mart’s RetailLink Proprietoryby a single large firm. Exchange Source: Steve Butler, “The Three Primary Business Models for Online Exchanges,” eMarketer, June 19, Reprinted with permission.