CHAPTER 6 BusinesstoBusiness Markets: How and Why Organizations Buy

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CHAPTER 6Business-to-Business Markets How and
Why Organizations Buy
M A R K E T I N G
Real People, Real Choices Fourth Edition
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Business-to-Business Marketing

• Marketing of goods and services that businesses
  and organizations buy for purposes other than
  personal consumption
• Manufacturers
• Wholesalers
• Retailers
• Government agencies
• Hospitals
• Universities

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Business Markets

• Generally, the same principles are true for
  business and consumer customers
• There are characteristics that make B2B buying
  more complex
• Multiple Buyers
• Number of customers
• Size of purchases
• Geographic concentration (e.g. Silicon Valley CA
  Detroit MI)

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B2B Demand Characteristics

• Derived Demand
• Demand for a b2b product depends on demand for
  the final b2c product
• Inelastic Demand
• Depends on the proportion of the input to total
  input
• Fluctuating Demand
• Some products may be replaced sparingly
• Joint Demand
• When the final product contains more than one
  component

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Inelastic Demand

• Inelastic demand means that business customers
  buy the same quantity whether the price goes up
  or down
• Example A BMW Z4 Roadster 3.0i has a list price
  starting at just over 55,000. If the price of
  tires, batteries, or stereos goes up or down, BMW
  still must buy enough to meet consumer demand for
  the Z4.

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Fluctuating Demand

• Small changes in consumer demand can create large
  increases or decreases in business demand
• Capital equipment coming up for replacement can
  suddenly spike demand

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Joint Demand

• Joint demand occurs when two or more goods are
  necessary to create a product
• Companies try to avoid dependence on specific
  suppliers by dealing with multiple suppliers
  whenever possible

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B2B Classifications

• Producers
• Convert raw materials into finished products
• Resellers
• Resell products without converting them
• Organizations
• Governments
• competitive bids
• requests for proposals (RFPs)
• Not-for-profit organizations

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NAICS North American Industry Classification
System

• Numerical coding of industries in US, Canada and
  Mexico
• Classifies firms into detailed categories
  according to their activities
• Replaced the SIC system in 1997
• Reports the number of firms, total dollar amount
  of sales, number of employees, growth rate for
  industries, broken down by geographic region
• Can be used to assess potential markets and to
  determine how well a firm is doing compared to
  their industry group

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The Nature of Business Buying

• The Buying Situation
• The Professional Buyer
• The Buying Center

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The Buying Situation

• A buy class framework identifies the degree of
  effort required of the firms personnel to
  collect information and make a purchase decision
• Straight rebuy
• Modified rebuy
• New task buying

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The Professional Buyer

• Titles purchasing agents, procurement officers,
  director of materials management
• Focus on economic factors beyond the initial
  price of a product, including transportation and
  delivery charges, accessory products or supplies,
  maintenance, disposal costs, etc.
• Large firms practice centralized purchasing - one
  department does all buying

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The Buying Center

• Group of people in the organization who
  participate in the decision-making process
• May include production workers, supervisors,
  engineers, secretaries, shipping clerks, and
  financial officers
• Works like a committee

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Roles in the Buying Center

• Initiator begins the buying process
• User needs the product
• Gatekeeper controls the flow of information to
  other members
• Influencer dispenses advice or shares expertise
• Decider makes the final decision
• Buyer executes the purchase

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Considerations in Supplier Selection

• On-time deliveries
• Single sourcing vs. multiple sourcing
• Outsourcing
• Reverse marketing
• Reciprocity

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Electronic B2B Commerce

• Internet exchanges between two or more businesses
  or organizations
• Allows marketers to link directly to suppliers,
  factories, distributors, and their customers
• Reduces time necessary to order and deliver
  goods, track sales, and get feedback

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Intranets and Extranets

• An intranet is an internal corporate computer
  network that uses Internet technology to link
  company departments, employees, and databases
• An extranet allows outsiders to the organization
  to access its intranet

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Security Issues

• Authentication - making sure only authorized
  individuals are allowed to access a site
• Firewalls - combination of hardware and software
  that ensures only authorized individuals gain
  entry
• Encryption - scrambling a message so that only
  another individual has the right key for
  deciphering it