Marketing Real People Real Decisions BusinesstoBusiness Markets Chapter

Marketing: Real People, Real Decisions Business-to-Business Markets Chapter 7 Lecture Slides Solomon, Stuart, Carson, & Smith Your name here Course title/number Date ©Copyright 2003 Pearson Education Canada Inc.

Marketing: Real People, Real Decisions Chapter Learning Objectives When you have completed your study of this chapter, you should be able to: • Describe the general characteristics of business-to-business markets and business buying practices. • Explain how marketers classify business and organizational markets. • Explain the business buying situation and describe business buyers. • Summarize the main stages in the business buying decision process. • Explain how e-commerce is dramatically changing business-to-business marketing. ©Copyright 2003 Pearson Education Canada Inc. 2

Marketing: Real People, Real Decisions Introduction to the Topic • Business-to-business marketing: the marketing of goods and services that business and organizational customers need to produce other goods and services for resale or to support their operations. • One reason that we are interested in this type of marketing is because the volume is four times larger than the consumer market! • Note that the purple arrows represent selling relationships, while the green arrows represent buying relationships. • Why would this be important to understanding the nature of organizational markets? ©Copyright 2003 Pearson Education Canada Inc. Suppliers Manufacturers W/S Distributors Retailers 3

Marketing: Real People, Real Decisions Differences in Organizational Markets • The differences in decision making by organizations are mainly related to the more serious consequences (and risk) of making bad purchase decisions, in comparison to the individual consumer. • The number of people involved increases as the value and complexity of the product increases • More professional purchasing effort because buyers are held accountable for what they are doing! • The process is more structured to ensure that the decision is based on more objective criteria, rather than subjective or emotional reasons. • There is also a greater likelihood of long-term business relationships existing between companies. ©Copyright 2003 Pearson Education Canada Inc. 4

Marketing: Real People, Real Decisions Differences in Organizational Markets • There are fewer customers in organizational markets which translates into larger orders placing a greater importance on maintaining the business relationship. • The products or services can be more technical in nature, thus requiring a higher level of expertise on both sides. • Buying criteria go beyond price and can place a higher importance on: – delivery time – technical assistance – after the sale service – financing assistance • Promotional strategies rely primarily on personal selling efforts, rather than advertising in mass media. ©Copyright 2003 Pearson Education Canada Inc. 5

Marketing: Real People, Real Decisions Differences in Organizational Markets • Customers in organizational markets tend to be geographically concentrated depending on the industry and the availability of natural resources. • Purchases may require: – written specifications, – competitive bidding, – price negotiations, and – complex financial arrangements • Organizational demand is derived from demand for other goods and services, and is generally inelastic in the short term, subject to fluctuations, and may be joined in demand for other goods and services. • Why is derived demand important? ©Copyright 2003 Pearson Education Canada Inc. 6

Marketing: Real People, Real Decisions Derived Demand • Derived demand: the demand for business or organizational products that is derived from demand for consumer goods or services. • The more consumers spend, the more goods are sold, and the more orders that are placed to replenish inventories. This works its way backwards all the way through the economy. • This is why we keep track of consumer spending indicators such as new housing starts or debt levels. Figure 7. 2 ©Copyright 2003 Pearson Education Canada Inc. 7

Marketing: Real People, Real Decisions Influence of Derived Demand • Acceleration principle (multiplier effect): a marketing phenomenon in which a small percentage change in consumer demand can create a large percentage change in business-to-business demand. • Inelastic demand: the demand for products that does not change because of increases or decreases in price. When producers or distributors have orders to fill, they need their factors of production and demand is less affected by price fluctuations. • Joint demand: the demand for two or more goods that are used together to create a product. Such as all of the parts and pieces that go into assembling motor vehicles or appliances. ©Copyright 2003 Pearson Education Canada Inc. 8

Marketing: Real People, Real Decisions Classifying Business Markets Figure 7. 3 ©Copyright 2003 Pearson Education Canada Inc. 9

Marketing: Real People, Real Decisions Classifying Business Markets (continued) • North American Industry Classification System (NAICS): the numerical coding system that the United States, Canada, and Mexico use to classify firms into detailed categories according to their business activities and shared characteristics. • Producers: the individuals or organizations that purchase products for use in the production of other goods and services. • Resellers: the individuals or organizations that buy finished goods for the purpose of reselling, renting, or leasing to others to make a profit and to maintain their business operations. ©Copyright 2003 Pearson Education Canada Inc. 10

Marketing: Real People, Real Decisions Classifying Business Markets (continued) • Not-for-profit institutions: organizations with charitable, educational, community, and other public service goals, that buy goods and services to support their functions and to attract and serve their members. • Government markets: federal, provincial, and local governments that buy goods and services to carry out public objectives and to support their operations. Due to the use of public money, government buying uses only competitive bidding. • Competitive bids: a business buying process in which two or more suppliers submit proposals (including price and associated data) for a proposed purchase and the firm providing the better offer gets the bid. ©Copyright 2003 Pearson Education Canada Inc. 11

Marketing: Real People, Real Decisions The Nature of Business Buying • Buy class: one of three classifications of business buying situations that characterize the degree of time and effort required to make a decision in a buying situation. • Straight rebuy: a buying situation in which business buyers make routine purchases that require minimal decision making. • This can be re-ordering from an existing supplier, which makes it more difficult for another supplier to break into the business • Modified rebuy: a buying situation classification that business buyers use to categorize a previously made purchase that involves some change and that requires limited decision making. ©Copyright 2003 Pearson Education Canada Inc. 12

Marketing: Real People, Real Decisions The Nature of Business Buying (continued) • New-task buy: a new business-to-business purchase that is complex or risky and that requires extensive decision making. This is where the problem-solving skills of a sales person are used to create value for customers. • Centralized purchasing: a business buying practice in which an organization’s (central) purchasing department does the buying for all of the company. • This provides greater control over the process and more buying power due to larger purchase volumes. • Buyers become more expert in the products that they must purchase. • Unfortunately, it can also become slow and inefficient ©Copyright 2003 Pearson Education Canada Inc. 13

Marketing: Real People, Real Decisions The Buying Centre • Buying centre: the group of people in an organization who influence and participate in purchasing decisions. The most difficult thing for a sales person to find out is who is the true decision maker. ©Copyright 2003 Pearson Education Canada Inc. 14

Marketing: Real People, Real Decisions Electronic Commerce • Electronic commerce: the buying and selling of products electronically, usually via the Internet. The vast majority of ecommerce is business-to-business selling, and it provides buyers with the opportunity to auction off their supply requirements. • Intranet: the internal computer connections that organizations use to distribute information among their different offices and locations. • Buying group: the coordination of purchasing among member organizations to realize economies of scale and other efficiencies. ©Copyright 2003 Pearson Education Canada Inc. 15

Marketing: Real People, Real Decisions Problem recognition Steps in the Buying Decision Process • Purchase requisition or request made • Buying centre formed if needed (Figure 7. 6) • Proposals evaluated • Samples obtained or evaluated Information search • Product specifications developed • Potential suppliers identified • Proposals and quotations obtained Evaluation of alternatives Product and supplier selection • Purchase order issued Post-purchase evaluation • Users surveyed • Performance documented ©Copyright 2003 Pearson Education Canada Inc. 16

Marketing: Real People, Real Decisions Stages of the organizational buying process New Modified Straight Task Rebuy Problem recognition Yes General need description Yes Product specification Yes Supplier search Yes Proposal solicitation Yes Supplier selection Yes Order routing specification Yes Performance review Yes The buying situation Maybe Yes Maybe Yes No No Yes Source: Adapted from Patrick J. Robinson, Charles W. Faris, and Yoram Wind, Industrial Buying and Creative Marketing (Boston: Allyn & Bacon, 1967), p. 14. ©Copyright 2003 Pearson Education Canada Inc. 17

Marketing: Real People, Real Decisions Business Market Characteristics • Just in time (JIT): inventory management and purchasing processes that manufacturers and resellers use to reduce inventory to very low levels and ensure that deliveries from suppliers arrive only when needed. • Single sourcing: the business practice of buying a particular product from only one supplier. • Multiple sourcing: the business practice of buying a particular product from many suppliers. • Businesses must balance the synergies to be gained from single sourcing against the risk of having only one source of supply. ©Copyright 2003 Pearson Education Canada Inc. 18

Marketing: Real People, Real Decisions Business Market Characteristics • Reciprocity: a trading partnership in which two firms agree to buy from one another. While many companies practice this, it is illegal to demand it of a business partner as a condition of doing business. • Outsourcing: the business buying process of obtaining outside vendors to provide goods or services that otherwise might be supplied in-house. • MERX is an example of this, click the link below for more information. • Reverse marketing: a business practice in which a buyer firm shapes a supplier’s products and operations to satisfy its needs. ©Copyright 2003 Pearson Education Canada Inc. 19

Marketing: Real People, Real Decisions Famous Last Words… • Business-to-business marketing is just like consumer marketing, only different! • All of the differences relate to the higher degree of risk associated with making a bad purchase decision. ©Copyright 2003 Pearson Education Canada Inc. 20