1. Chapter 7 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. BUSINESS- TO-BUSINESS (B2B) MARKETING 1

2. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Objectives 1. Explain each of the components of the business-to-business (B2B) market. 2. Describe the major approaches to segmenting business-to-business (B2B) markets. 3. Identify the major characteristics of the business market and its demand. 4. Discuss the decision to make, buy, or lease. 5. Describe the major influences on business buying behavior. 2

3. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Objectives 6. Outline the steps in the organizational buying process. 7. Classify organizational buying situations. 8. Explain the buying center concept. 9. Discuss the challenges of and strategies for marketing to government, institutional, and international buyers. 3

4. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing B2B Marketing ▮ Business-to-business (B2B) marketing – Organizational sales and purchases of goods and services To support production of other products To facilitate daily company operations For resale 4

5. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Table 7.1 - Comparing Business-to- Business Marketing and Consumer Marketing 5

6. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Nature of the Business Market ▮ Firms sell fewer standardized products to organizational buyers than to ultimate consumers ▮ Organizations purchase products to fill needs ▮ Companies buy services from other businesses ▮ Influences in B2B markets Environmental Organizational Interpersonal ▮ An organization’s goals must be considered in the B2B buying process 6

7. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Nature of the Business Market ▮ Some firms focus entirely on business markets Example: Caterpillar which makes construction and mining equipmentCaterpillar ▮ Some firms sell to both consumer and business markets Example: Knoll makes award-winning office furniture as well as stylish furniture for homesKnoll ▮ The B2B market is diverse 7

8. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing 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 and wholesalers that purchase products for resale to others Resellers - Retailers and wholesalers 8

9. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Components of the Business Market ▮ Government Federal State Local Foreign governments ▮ Public and private institutions 9

10. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing B2B Markets: The Internet Connection ▮ 91 percent of all Internet sales are B2B transactions ▮ Marketers can connect with each other online through affiliate marketing ▮ Internet opens up foreign markets to sellers 10

11. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Differences in Foreign Business Markets ▮ May differ due to variations in regulations and cultural practices ▮ Marketers must be willing to adapt to local customs and business practices 11

12. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Segmenting B2B Markets ▮ Segmentation helps marketers develop a strategy that best suits a particular segment’s needs ▮ Segmentation by demographic characteristics Firms can be grouped by size, based on sales revenues or number of employees 12

13. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Segmenting B2B Markets ▮ Segmentation by customer type 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 13

14. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Table 7.2 - NAICS Classification for Home Furnishing Merchant Wholesalers 14

15. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Segmenting B2B Markets ▮ Segmentation by end-use application Segmenting a business-to-business market based on how industrial purchasers will use the product 15

16. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Segmenting B2B Markets ▮ Segmentation by purchase categories Segmenting according to organizational buyer characteristics Consider whether the customer has made previous purchases or this is the customer’s first order 16

17. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Segmenting B2B Markets CRM systems can help segment customers in terms of the relationship between the business and the customer Customer relationship management (CRM) - Combination of strategies and tools that drives relationship programs, reorienting the entire organization to a concentrated focus on satisfying customers 17

18. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Characteristics of the B2B Market ▮ Geographic market concentration The U.S. business market is more concentrated than the consumer market Certain industries locate in particular areas to be close to customers Due to the Internet, business markets may become less geographically concentrated 18

19. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Characteristics of the B2B Market ▮ Sizes and number of buyers Business market has limited number of buyers Many buyers in limited-buyer markets are large organizations Trade associations and business publications provide additional information on the business market 19

20. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Characteristics of the B2B Market ▮ The purchase decision process Suppliers who serve B2B markets must work with multiple buyers More formal and professional than the consumer purchasing process Purchasers require a longer time frame B2B involves more complex decisions 20

21. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Characteristics of the B2B Market ▮ Buyer-seller relationships More complex than consumer relationships Require superior communication among the organizations’ personnel Involve developing long-term, value-added customer relationships Relationship with not-for-profit organizations is important 21

22. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Evaluating International Business Markets ▮ Business purchasing patterns differ from one country to the next ▮ Global sourcing - Purchasing goods and services from suppliers worldwide Requires companies to adopt a new mindset Some must even reorganize their operations 22

23. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Figure 7.1 - Categories of Business Market Demand 23

24. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Derived Demand ▮ Linkage between demand for a company’s output and its purchases of resources Example: Demand for computer microprocessor chips is derived from demand for personal computers ▮ Organizational buyers purchase: Capital items Expense items 24

25. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Volatile Demand ▮ Derived demand creates volatility in business market demand Example: Demand for gasoline pumps may be reduced if demand for gasoline slows down 25

26. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Joint Demand ▮ Demand for a product that depends on the demand for another product used in combination with it Example: If the supply of lumber falls, the drop in housing construction will affect the demand for concrete 26

27. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Inelastic Demand ▮ Demand throughout an industry will not change significantly due to a price change Example: If the price of lumber drops, construction firms will not buy more lumber unless the overall demand for housing also increases 27

28. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Inventory Adjustments ▮ Adjustments in inventory and inventory policies can also affect business demand ▮ Just-in-time (JIT) inventory policies boost efficiency by cutting inventory and requiring vendors to deliver inputs as they are needed by the production process ▮ JIT leads to sole sourcing, buying a firm’s entire stock of a product from just one vendor 28

29. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Inventory Adjustments ▮ JIT II - Leads suppliers to place representatives at the customer’s facility to work as part of an integrated, on-site customer-supplier team Latest inventory trend ▮ Inventory adjustments are vital to wholesalers and retailers too 29

30. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing The Make, Buy, or Lease Decision ▮ Firms acquiring finished goods have three options Make the good or provide the service in-house Purchase it from another organization Lease it from another organization 30

31. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 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 Canada and Mexico are attractive nearshoring locations 31

32. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing The Rise of Offshoring and Outsourcing ▮ Outsourcing - Using outside vendors to provide goods and services formerly produced in-house Reasons for outsourcing: Cost reduction Quality and speed of software maintenance and development Greater value 32

33. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Problems with Offshoring and Outsourcing ▮ Cost savings are less than expected ▮ Can raise security concerns over proprietary technology or customer data ▮ Can reduce company’s ability to respond quickly to marketplace ▮ Can create conflicts between nonunion outside workers and in-house union employees ▮ Can negatively affect employee morale and loyalty 33

34. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing The Business Buying Process ▮ More complex than the consumer decision process ▮ Takes place within a formal organization’s budget, cost, and profit considerations ▮ Involves many people with complex interactions among individuals and organizational goals 34

35. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Influences on Purchase Decisions ▮ Environmental factors Economic, political, regulatory, competitive, and technological considerations influence business buying decisions Natural disasters 35

36. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Influences on Purchase Decisions ▮ Organizational factors Marketers must understand their customers’ organizational structures, policies, and purchasing systems Multiple sourcing - Purchasing from several vendors 36

37. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Influences on Purchase Decisions ▮ Interpersonal influences Individuals and committees influence B2B buying decisions Marketers must know the influencers and understand their priorities Sales personnel must have a good technical understanding of their products 37

38. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing The Role of Merchandisers and Category Advisors ▮ Merchandisers - Trade sector buyers who secure needed products at the best possible prices ▮ Functions of a merchandising unit Determining needs Locating and evaluating alternative suppliers Making purchase decisions 38

39. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing The Role of Merchandisers and Category Advisors ▮ Systems integration - Centralization of procurement function within an internal division or as a service of an external supplier ▮ Category advisor or category captain - Trade industry vendor who develops a comprehensive procurement plan for a retail buyer 39

40. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Figure 7.2 - Stages in the B2B Buying Process 40

41. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Stages in the B2B Buying Process ▮ Stage 1: Anticipate a problem/need/opportunity and a general solution Example: Needing to provide a good cup of coffee to a firm’s employees ▮ Stage 2: Determine the characteristics and quantity of a needed good or service Example: Offering a coffee system that brews one cup of coffee at a time according to each employee’s preference 41

42. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Stages in the B2B Buying Process ▮ Stage 3: Describe characteristics and the quantity of a needed good or service Example: Firms need a simple system for brewing a good cup of coffee; quantity requirements can be easily correlated to the number of coffee drinkers ▮ Stage 4: Search for and qualify potential sources Choice of supplier may be relatively straightforward or very complex 42

43. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Stages in the B2B Buying Process ▮ Stage 5: Acquire and analyze proposals May involve competitive bidding, especially if the buyer is the government or a public agency ▮ Stage 6: Evaluate proposals and select suppliers Buyers choose the proposal best suited to their needs Final choice involves trade-offs 43

44. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Stages in the B2B Buying Process ▮ Stage 7: Select an order routine Buyer and vendor work out the best way to process future purchases ▮ Stage 8: Obtain feedback and evaluate performance Buyers measure vendors’ performance Some firms rely on outside organizations to gather quality feedback and summarize results 44

45. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Classifying Organizational Buying Situations ▮ Straight rebuy A recurring purchase decision in which a customer reorders a good or service that has performed satisfactorily in the past ▮ Modified rebuy Situation in which a purchaser is willing to reevaluate available options for repurchasing a good or service 45

46. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Classifying Organizational Buying Situations ▮ New-task rebuy First-time or unique purchase situation that requires considerable effort by decision makers ▮ Reciprocity Buying from suppliers who are also customers 46

47. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Analysis Tools ▮ Value analysis Systematic study of the components of a purchase to determine the most cost-effective approach ▮ Vendor analysis Assessment of supplier performance such as price, back orders, timely delivery, and attention to special requests 47

48. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing The Buying Center Concept ▮ Buying center - Participants in an organizational buying decision ▮ Buying center roles Users are the people who will actually use the good or service Gatekeepers control the information that all buying center members will review 48

49. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing The Buying Center Concept Influencers affect the buying decision by supplying information to guide evaluation of alternatives or by setting buying specifications Deciders choose a good or service, although another person may have the formal authority to do so Buyers have the formal authority to select a supplier and to implement the procedures for securing the good or service 49

50. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing International Buying Centers ▮ Two distinct characteristics differentiate international buying centers from domestic ones Marketers have trouble identifying members of foreign buying centers 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 50

51. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Developing Effective Business-to-Business Marketing Strategies ▮ Marketers must develop a strategy based on a particular organization’s buying behavior and on the buying situation ▮ Challenges of government markets Purchases typically involve dozens of interested parties Purchases are influenced by social goals Contractual guidelines are an important influence in selling to government markets 51

52. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Developing Effective Business-to-Business Marketing Strategies ▮ The government buys products under two basic types of contracts Fixed-price contracts Cost-reimbursement contracts 52

53. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Government Purchasing Procedures ▮ Many purchases go through Government Services Agency, a central management agencyGovernment Services Agency ▮ By law, most federal government purchases must go through a complex bidding process governed by the Federal Acquisition RegulationFederal Acquisition Regulation 53

54. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Online with the Federal Government ▮ Government procurement professionals streamline purchasing procedures with new technology ▮ Vendors can sell products to the federal government through three electronic options Websites Federally issued credit cards Government-sponsored electronic ordering systems 54

55. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Challenges of Institutional Markets ▮ Institutional buyers - Schools, hospitals, libraries, foundations, clinics, churches, and not-for-profit agencies Widely diverse buying practices Multiple buying influences can affect buying decisions Group purchasing is an important factor Diverse practices 55

56. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Challenges of International Markets ▮ Marketers must consider buyers’ attitudes and cultural patterns ▮ Local industries, economic conditions, geographic characteristics, and legal restrictions must be considered ▮ Remanufacturing – Efforts to restore older products to like-new condition ▮ Foreign governments are an important business market 56

57. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Strategic Implications of Marketing in the 21st Century ▮ Marketers must understand the buying practices that govern the segment they are targeting ▮ B2B marketers must identify people who play the various roles in the buying decision ▮ Marketers must direct their marketing efforts carefully 57

58. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 7 Business-to-Business (B2B) Marketing Zappos Video 58 http://www.cengage.com/marketing/book_content/boone_9781133628460 /videos/ch07.html