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

2. 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

3. 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

4. Characteristics That Make a Difference in Business Markets
Multiple buyers
multiple needs to satisfy
Number of customers
Fewer and far between, effect on 4 P’s!!
Size of purchases
Both in terms of quantity and price of individual purchase
Geographic concentration
E.g. Silicon Valley

5. 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. (BMW Z4)
Figure 6.2

6. Business-to-Business Demand (cont’d)
Fluctuating demand: 1) Small changes in consumer demand create large increases or decreases in business demand; 2) life expectancy of product can cause fluctuating demand
Joint demand: demand for two or more goods used together to create a product

7. 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

8. Figure 6.3: The Business Marketplace

9. 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.

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

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

12. Figure 6.5: Roles in the Buying Center

13. 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?

14. The Business Buying Decision Process
Figure 6.6

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

16. 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

17. 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.

18. 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.”

19. 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

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

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

22. 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.

23. 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

24. 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?

25. Homework!!
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