Business-to-Business Markets: How and Why Organizations Buy

Chapter Objectives Describe the general characteristics of business-to-business markets Explain the unique characteristics of business demand Describe how business or organizational markets are classified Explain the business buying situation and describe business buyers Explain the roles in the business buying center Understand the stages in the business buying decision process Understand the growing role of B2B e-commerce

Real People, Real Choices PPG Industries (Vicki Holt) How to react to competitor Cardinal’s strategy? Option 1: continue with current strategy Option 2: acquire an independent IGU manufacturer Option 3: continue with Intercept brand IGU, invest in IGU manufacturing PPG INDUSTRIES

Business Markets: Buying and Selling When Stakes Are High Business-to-business marketing: the marketing of goods and services that businesses and other organizations buy for purposes other than personal consumption Business-to-business (organizational) markets include manufacturers, wholesalers, retailers, and other organizations

Characteristics That Make a Difference in Business Markets Multiple buyers Number of customers Size of purchases Geographic concentration Eaton Video

Business-to-Business Demand Derived demand: Caused by demand for consumer goods or services. Inelastic demand: Occurs when changes in price have little or no effect on the amount demanded. Figure 6.2

Business-to-Business Demand (cont’d) Fluctuating demand: Small changes in consumer demand create large increases or decreases in business demand; life expectancy of product can cause fluctuating demand Joint demand: demand for two or more goods used together to create a product

Discussion As director of purchasing for a motorcycle manufacturer, you’ve been notified that the price of an important part used in the manufacture of the bikes has nearly doubled…you see your company having three choices: Pass the cost on to the customer Absorb the increase in cost Buy a lower-priced part Discuss the pros and cons of each

Types of Business-to-Business Markets Producers: for production of other goods and services Resellers: for reselling, renting or leasing Organizations Government markets Not-for-profit institutions FEDBIZOPPS.GOV

Figure 6.3: The Business Marketplace

Discussion Many critics of government say strict engineering and other manufacturing requirements for products governments purchase increase prices unreasonably, and taxpayers end up paying too much because of such policies What are the advantages and disadvantages of such purchase restrictions? Should governments loosen restrictions on their purchases?

North American Industry Classification System NAICS: a numerical coding of industries in the United States, Canada, and Mexico NAICS

Figure 6.4: NAICS

The Buying Situation Buy class framework: identifies degree of effort firm needs to collect information and make a purchase decision Straight rebuy: Routine purchases that require minimal decision-making Modified rebuy: Previous purchases that require some change and limited decision-making. New-task buy: New and complex or risky purchases that require extensive decision-making.

The Professional Buyer Trained professional buyers typically carry out buying in business-to-business markets: Purchasing agents Procurement officers Directors of materials management

The Buying Center The group of people in an organization who participate in a purchasing decision Initiator User Gatekeeper Influencer Decider Buyer

Figure 6.5: Roles in the Buying Center

Discussion The gatekeeper determines which possible sellers are heard and which are not Does the gatekeeper have too much power? What policies might the firm implement to make sure all possible sellers are treated fairly?

The Business Buying Decision Process Figure 6.6

Step 1: Problem Recognition Someone sees that a purchase can solve a problem

Step 2: Information Search Buying center searches for information about products and suppliers Develops product specifications -- a written description of the quality, size, weight, color -- for the purchase Identifies potential suppliers and obtains proposals

Step 3: Evaluation of Alternatives Buying center assesses proposals Evaluations include discount policies, returned-goods policies, cost of repair, terms of maintenance, cost of financing, etc.

Discussion Should companies always give their business to the lowest bidder? Why or why not?

Step 4: Product and Supplier Selection Single sourcing: relying on a single supplier. Multiple sourcing: buying from several different suppliers. Reciprocity: “I’ll buy from you, and you’ll buy from me.”

Step 4: Product and Supplier Selection (cont’d) Outsourcing: firms obtain outside vendors to provide goods/services that might otherwise be supplied in-house Crowdsourcing: firms use expertise from around the globe to solve a problem Reverse marketing: buyers try to find capable suppliers and “sell” their purchase to the suppliers

Group Activity Some critics complain that outsourcing sends much-needed jobs to competitors overseas while depriving U.S. workers of opportunities. Break into small groups and take a side in this controversial argument. Present your arguments in a debate format

Step 5: Postpurchase Evaluation Assess whether the performance of the product and the supplier is living up to expectations

Business-to-Business E-Commerce Internet exchanges between two or more businesses Include exchanges of information, products, services, and payments

Intranets, Extranets, and Private Exchanges Intranets link employees in a private corporate computer network. Extranets allow authorized suppliers, customers, and other outsiders to access the firm’s intranet. Private exchanges link an invited group of suppliers and partners over the Web.

Security Threats Security threats come from hackers and well-meaning employees who give out passwords Firewall: Hardware and software that ensures only authorized individuals gain entry to a computer system Encryption: Software that scrambles a message so only another individual (or computer) with the right key can unscramble it CREDITCARDS.COM

Discussion/Individual Activity You’re the marketing manager for a small securities firm (a firm that sells stocks and bonds) whose customers are primarily businesses and other organizations. Your company is considering using the Internet to provide information and service to its customers. Outline the pros and cons of this move, the risks your firm would face, and your recommendations.

Real People, Real Choices PPG Industries (Vicki Holt) Vicki chose Option 3: continue with Intercept brand IGU, but invest directly in IGU manufacturing to provide an alternative to Cardinal The move has been well received by all except the large independent IGU manufacturer

Marketing Plan Exercise Pick a product you often buy in the grocery store What key elements of the organizational market (the grocer) must the product’s manufacturer plan for, to market to the grocer successfully? How do the elements you identified in question 1 differ from those the store uses in marketing to you as an end user? Which market for the product is more important (the grocer or you), and why?

Marketing in Action Case: You Make the Call What is the decision facing Airbus? What factors are important in understanding this decision situation? What are the alternatives? What decision(s) do you recommend? What are some ways to implement your recommendation?

Keeping It Real: Fast Forward to Next Class Decision Time at Reebok Meet Que Gaskins, VP of global marketing for the RBK division of Reebok Allen Iverson’s endorsement changed Reebok’s image, but it was still number 2. The decision: How could Reebok capture the pulse of youth culture in the long run?