1 Introduction to the Business Marketing Environment McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

1-2Agenda Business Marketing: An Overview Business Marketing: An Overview Why Study Business Marketing? Why Study Business Marketing? How the Business Market Differs from the Consumer Market How the Business Market Differs from the Consumer Market Characteristics of Business Demand Characteristics of Business Demand The Nature of Business Buying Behavior The Nature of Business Buying Behavior A Classification of Business Goods and Services A Classification of Business Goods and Services Business Customers Business Customers Business Marketing Planning and Strategy Business Marketing Planning and Strategy

1-3 Business Marketing: An Overview What is Business Marketing? What is Business Marketing? What Is Marketing?What Is Marketing? One Definition: “The process of planning and executing the conception (product), pricing, promotion, and distribution of want-satisfying ideas, goods, and services to individuals and organizations.” One Definition: “The process of planning and executing the conception (product), pricing, promotion, and distribution of want-satisfying ideas, goods, and services to individuals and organizations.”

1-4 Business Marketing: An Overview What Is Business Marketing? What Is Business Marketing? Those activities that facilitate exchanges involving products and customers in business marketsThose activities that facilitate exchanges involving products and customers in business markets A business transaction between a professional seller (representing a selling company) and a professional buyer (representing a buying company)A business transaction between a professional seller (representing a selling company) and a professional buyer (representing a buying company) Activities in which goods or services are sold for any use other than personal consumptionActivities in which goods or services are sold for any use other than personal consumption Note: It is not the nature of the product; it’s the nature of the transaction.Note: It is not the nature of the product; it’s the nature of the transaction.

1-5 Which of the Following is Business Marketing? Which of the Following is Business Marketing? You buy a gear to fix your mountain bike.You buy a gear to fix your mountain bike. Ford buys the same gear to fix a machine.Ford buys the same gear to fix a machine. Xerox buys soft drinks for its cafeterias.Xerox buys soft drinks for its cafeterias. You start a landscaping business and purchase a lawnmower.You start a landscaping business and purchase a lawnmower. Coke buys TV ad time or sugar.Coke buys TV ad time or sugar. The U.S. government buys…anything.The U.S. government buys…anything. Business Marketing: An Overview

1-6 Good employment opportunities Good employment opportunities Growing importance of high-tech business products Growing importance of high-tech business products Success of foreign competition Success of foreign competition Significance of international interdependence of firms Significance of international interdependence of firms Importance of the service sector Importance of the service sector Dramatic changes in the B2B environment Dramatic changes in the B2B environment Why Study Business Marketing?

1-7 How the Business Market Differs from the Consumer Market Characteristic Sales volume Purchase volume Number of buyers Size of individual buyers Location of Buyers Buyer-seller relationship Nature of channel Nature of buying Nature of buying influences Type of negotiations Use of reciprocity Use of leasing Primary promotion method Business Market Consumer Market Exhibit 1-1

1-8 How the Business Market Differs from the Consumer Market Characteristic Sales volume Purchase volume Number of buyers Size of individual buyers Location of Buyers Buyer-seller relationship Nature of channel Nature of buying Nature of buying influences Type of negotiations Use of reciprocity Use of leasing Primary promotion method Business Market GreaterGreaterFewerLarger Geographically concentrated Closer More direct More professional Multiple (buying center) More complex YesGreater Personal selling Consumer Market SmallerSmallerManySmallerDiffuse More impersonal Less direct More personal SingleSimplerNoSmallerAdvertising

1-9 Derived Demand Derived Demand “Derived demand” says that demand for a business product is linked to demand for a consumer good. This means consumer demand affects business marketing up a vast network of channels. For example, when OfficeMax experiences increased demand for paper clips, the effect is felt by its suppliers, paper clip manufacturers, and their suppliers. Inelastic Demand Inelastic Demand Fluctuating Demand Fluctuating Demand Joint Demand Joint Demand Characteristics of Business Demand

1-10 The Nature of Business Buying Behavior Questions Asked by Typical Ultimate Consumers Product Questions Asked by Typical Business Users Personal computers Will it increase office efficiency? What is its capital investment value? Does it have special features that will help improve our company image? Will it help my child learn? Will it improve my correspondence? Is a laptop worth the extra cost? Exhibit 1-3 Evaluating Products

1-11 The Nature of Business Buying Behavior Questions Asked by Typical Ultimate Consumers Product Questions Asked by Typical Business Users Automobiles How efficient is the vehicle to operate? Would it be more economical to lease it or purchase it? What is the expected working life span of the car? How does it enhance my status? What is its potential trade- in value? Will I get reasonable gas mileage? Exhibit 1-3 Evaluating Products

1-12 The Nature of Business Buying Behavior Questions Asked by Typical Ultimate Consumers Product Questions Asked by Typical Business Users Telephones Will expanded service lower the cost of communicating with our customers? Should our intercom system be separate from or connected to the telephone system? How long will it take to have one installed? Can I get three jacks and two telephones? Exhibit 1-3 Evaluating Products

1-13 A Classification of Business Goods and Services Major Equipment Major Equipment Accessory Equipment Accessory Equipment Process Materials Process Materials MRO (maintenance, repair, operating) supplies MRO (maintenance, repair, operating) supplies Business Services Business Services Fabricated and Component Parts Fabricated and Component Parts Raw Materials Raw Materials

1-14 Business Customers Commercial Enterprises Commercial Enterprises Indirect channel members and facilitatorsIndirect channel members and facilitators OEMs (original equipment manufacturers)OEMs (original equipment manufacturers) User-customersUser-customers Governmental Organizations Governmental Organizations Institutions Institutions

1-15 Business Marketing Planning and Strategy Formulation Includes: Includes: Analysis of changing environmentsAnalysis of changing environments Assessment of organization’s strengths and weaknesses, opportunities and threatsAssessment of organization’s strengths and weaknesses, opportunities and threats Understanding of customer needs (“positioning”)Understanding of customer needs (“positioning”) Marketing planning Marketing planning Takes the best information it can getTakes the best information it can get Analyzes itAnalyzes it Generates alternativesGenerates alternatives Proposes a plan that works within constraints of the firm, now.Proposes a plan that works within constraints of the firm, now.

1-16 Business Marketing View of a Consumer Product What did purchasing buy?

1-17 The picture suggests quantities of the following were purchased: Conveyer Conveyer Conveyer replacement and maintenance materials Conveyer replacement and maintenance materials Components going down conveyer Components going down conveyer Raw material and components of components Raw material and components of components Assembly station magnifier Assembly station magnifier Power tool with blue cord Power tool with blue cord Assembly fixture Assembly fixture Table and chair Table and chair Trucks with components on them Trucks with components on them Floor cleaning systems Floor cleaning systems Lighting systems Lighting systems Heating/AC systems Heating/AC systems Uniform vest Uniform vest Health insurance Health insurance

1-18 How Do They Buy It? Items made from: Items made from: SteelSteel WoodWood PlasticPlastic ChemicalsChemicals Printed formsPrinted forms TransportationTransportation ElectronicsElectronics How do you pick one supplier from the thousands out there? How do you pick one supplier from the thousands out there? How do you get them to purchase products from your company? How do you get them to purchase products from your company?

1-19 Remember What Business Marketers Do Identify customers. Identify customers. Identify customer needs and sell benefits. Identify customer needs and sell benefits. Communicate with customers (contact personally, reach through media, build relationships, sell benefits). Communicate with customers (contact personally, reach through media, build relationships, sell benefits). Communicate internally, build relationships, sell benefits. Communicate internally, build relationships, sell benefits. Analyze buyer behavior, identify key buying center influencers and their roles. Analyze buyer behavior, identify key buying center influencers and their roles. Develop products and services (complete packages of attributes). Develop products and services (complete packages of attributes). Study the market and competitive environment (economic, legal, technological). Study the market and competitive environment (economic, legal, technological).

1-20 Remember What Business Marketers Do Set prices and terms, negotiate, sell benefits. Set prices and terms, negotiate, sell benefits. Make products available at the right time, in the right place, in the right quantity, in the right condition. Make products available at the right time, in the right place, in the right quantity, in the right condition. Allocate resources across products. Allocate resources across products. Create, implement, monitor, control, and continuously evaluate the marketing mix and strategic program to optimize customer satisfaction and meet profit objectives. Create, implement, monitor, control, and continuously evaluate the marketing mix and strategic program to optimize customer satisfaction and meet profit objectives. Be a solution to customer problems, sell benefits. Be a solution to customer problems, sell benefits. Be challenged—Use business judgment—Make decisions—Make decisions—Make decisions. Be challenged—Use business judgment—Make decisions—Make decisions—Make decisions.