Notes: Business marketing is the marketing of goods and services to individuals and organizations for purposes other than personal consumption. The sale of a personal computer to a college is an example of business marketing. If that same computer is purchased for personal or family consumption or as a gift, it is a consumer good. The size of the business market in the U.S. and most countries substantially exceeds that of the consumer market.
Notes: A product that is purchased for personal use is considered a consumer good. If the same product is purchased for use in a business, it is a business product. The key in classification as a business product is intended use.
Notes: It is hard to imagine that commercial use of the Internet began as recently as the mid-1990s. In 2005, there were over one billion Internet users worldwide. The use of the Internet to facilitate activities between organizations is called business-to-business electronic commerce. In 2006, the U.S. alone was expected to account for over $800 billion of B2B e-commerce.
Notes: Marketers must be able to comprehend data stored in the log files generated by their Web servers. By evaluating this information, a marketer can fine-tune the marketing effort to maximize online success. For marketers today, three of the most important measurements of Web site hits are recency, frequency, and monetary value. Combining frequency with the length of time a visitor spends on the Web site and the number of pages viewed can provide a measure of a site’s stickiness factor.
Notes : This slide shows the Internet marketing strategies from the late 1990s to five that are currently being pursued. Disintermediation means eliminating intermediaries such as wholesalers or distributors from a marketing channel. Source Andrew J. Rohm and Fareena Sultan, “The Evolution of E-Business,” Marketing Management , January/February 2004, p. 35.
Notes: Relationship marketing has become an important business marketing strategy as customers have become more demanding and competition has become more intense. Building long-term relationships with customers offers a way to build competitive advantage. Discussion/Team Activity: Go to FedEx’s Website at www.fedex.com. Review the different products available to meet varying customer needs, and discuss how these products/services can establish long-term relationships and customer loyalty for FedEx.
Notes: Strategic alliances can take the form of licensing or distribution agreements, joint ventures, research and development consortia, and partnerships. Businesses form strategic alliances to leverage the assets they have (such as technology, financial resources, market access) by combining these assets with those of other firms. Another rationale behind the formation of strategic alliances is to achieve economies of scale.
Notes: The concept of strategic alliances has been used in foreign cultures, such as Mexico, China, Japan, Korea, and much of Europe for a long time. For example, in Japan the basis of exchange between firms is personal relationships that are developed through indulgent dependency. Relationships between companies can develop into a keiretsu—a network of interlocking corporate affiliates. Members of a keiretsu trade with each other and often engage in joint product development, finance, and marketing activity. Many American firms have found the best way to compete in Asian countries is to form relationships with Asian firms.
Notes: Producers include profit-oriented organizations that use purchased goods and services to produce or incorporate into other products. Examples include construction, manufacturing, transportation, finance, real estate, and food service firms. The reseller market includes retail and wholesale businesses that buy finished goods to resell at a profit. Government organizations include thousands of federal, state, and local buying units. This may be the largest single market for goods and services in the world. The U.S. federal government, buying goods and services valued at over $590 billion a year, is the world’s largest customer. Institutions do not have the standard business goals of profit, market share, and return on investment. Includes schools, hospitals, colleges and universities, churches, labor unions, fraternal organizations, civic clubs, foundations, and other nonbusiness organizations. Discussion/Team Activity: Access the Web site http://www.cbd-net.com Discuss the information provided on this Web site that helps organizations do business with the federal government.
Notes: The North American Industry Classification Systems, introduced in 1997, is a joint development by the United States, Canada, and Mexico to provide a common industry classification system for NAFTA partners.
Notes: The information shown on this slide describes the usefulness of NAICS for marketers. For example, if a supplier understands the needs of a few firms within a classification, the needs can be projected to all firms in the category. This information can be converted into market potential, market share estimates, and sales forecasts. Discussion/Team Activity: Discuss how NAICS information can be used for other marketing applications.
Notes: The basic marketing concepts are the same whether the customer is a business organization or a consumer. However, the characteristics of business markets and consumer markets are different.
Notes: The main differences between business and consumer markets are summarized on this slide. The first characteristic demand is described on the next slide. Follow the hyperlink. Purchase volume: Business customers buy in larger quantities than consumers. Number of customers: Business marketers have fewer customers than consumer marketers. An advantage is that it is easier to identify buyers, monitor customer needs, and build personal relationships. A disadvantage is that each customer becomes crucial, especially for those manufacturers who have only one customer. Location of buyers: Business customers are more geographically concentrated than consumers. For example, many firms in the automobile manufacturing industry are clustered near Detroit. Distribution structure: Business products typically have shorter channels of distribution, and direct channels are common. On the other hand, consumer products pass through a distribution system that may include the producer, the wholesaler(s), and the retailers. Nature of buying: More people are involved in a business market purchase decision than in a consumer purchase. Representatives from quality control, marketing, finance, and purchasing may be grouped in a buying center. Type of negotiations: Consumers are used to negotiating price on items like real estate and automobiles, although in most cases, however, the sellers set the price and other conditions of sale. In contrast, negotiation is common in business marketing decisions and may take months to work out the final contracts. Use of reciprocity: Business purchasers often choose to buy from their own customers. It is not unethical or illegal unless the exchange is coerced. Use of leasing: Businesses commonly lease expensive equipment to reduce capital outflow, keep state of the art products, and gain tax advantages. Primary promotional method: Business marketers emphasize personal selling, especially for expensive, custom-designed products.
Notes: Business demand is different from consumer demand in the following areas: The demand for business products is derived demand, meaning that organizations buy products to be used in producing customer products. As a result, business marketers must carefully monitor trends and patterns in final consumer markets as well as customers’ forecasts. Inelastic demand is demand without regard to price. An increase or decrease in the product price will not significantly affect the demand for the product. Joint demand occurs when multiple items are used together in a final product. Consequently, a demand change for one product will affect the other products as well. Fluctuating demand: The demand for business products tends to be more unstable than the demand for consumer products. A small increase or decrease in consumer demand can produce a much larger change in demand for the facilities and manufacturing equipment needed to make the consumer product. This is known as the multiplier effect. Discussion/Team Activity: 1. Discuss examples of products that describe each of the demand differences in business markets.
Online: Sysco What kind of business product does Sysco provide its customers? What do you think is Sysco’s largest category of business customers? Are there indications on the site that Sysco sells direct to customers? Notes: Major equipment: capital goods such as large or expensive machines, airplanes, buildings. Depreciated over time, often custom-designed. Personal selling is an important marketing strategy. Accessory equipment: Less expensive and shorter-lived than major equipment, includes fax machines, personal computers, power tools. Often charged as an expense. Often standardized and purchased by more customers. Advertising is an important promotional tool. Raw materials: Unprocessed products, such as minerals, timber, wheat, corn, fish. Become part of finished products. Personal selling is the marketing mix component used, distribution channels usually direct from producer to business user. Component parts: Finished items ready for assembly or that need very little processing. Examples are tires and electric motors. Two important markets for component parts: original equipment manufacturer (OEM) and replacement market. Processed materials are used directly in manufacturing other products. Sheet metals, chemicals, and lumber. Do not retain their identity in final products. Price and service are important factors in choosing a supplier. Supplies are consumable items that do not become part of the final product. Short lives and inexpensive. Generally fall into categories of maintenance, repair, or operating supplies (MRO), and include such items as detergents, pencils, paper, etc. Business services are expense items that do not become part of the final product. This includes janitorial, advertising, legal, management consulting, marketing research, and maintenance services.
Notes: Understanding how purchase decisions are made in organizations is a first step in developing a business selling strategy. Business buying behavior has five important aspects, as shown on this slide.
Online Loctite Corporation What evidence do you see on Loctite’s Web site that its marketing efforts focus on engineers? Read some of its online literature. Notes: Several people may play a role in the business purchase decision: Initiator: the person who suggests the purchase. Influencers: help define specifications and provide information for evaluating options. Gatekeepers: group members who regulate the flow of information, often the purchasing agent. Decider: the person with the power to choose or approve the selection. Purchaser: the person who negotiates the purchase. Users: members of the organization who actually use the product.
Notes: Business buyers evaluate products and suppliers against the criteria of quality, service, and price—in that order. Quality refers to technical suitability. Quality improvement should be part of every organization’s marketing strategy. Service includes prepurchase as well as postpurchase service, along with dependability of supply. Services that help sell the finished products are especially appropriate when the seller’s product is an identifiable part of the end product. Business buyers want to buy at low prices. However a buyer who pressures a supplier to cut prices to the point of money loss may force shortcuts on quality. It may force the supplier to quit selling to him/her.
CHAPTER 6 Business Marketing Designed by Eric Brengle B-books, Ltd. Prepared by Deborah Baker Texas Christian University Introduction to Marketing McDaniel, Lamb, Hair 9
Learning Outcomes Describe business marketing Describe the role of the Internet in business marketing Discuss the role of relationship marketing and strategic alliances in business marketing Identify the four major categories of business market customers LO I LO 2 LO 3 LO 4
Learning Outcomes Explain the North American Industry Classification System Explain the major differences between business and consumer markets Describe the seven types of business goods and services Discuss the unique aspects of business buying behavior LO 5 LO 6 LO 7 LO 8
What Is Business Marketing? Describe business marketing LO I
What Is Business Marketing? The marketing of goods and services to individuals and organizations for purposes other than personal consumption. LO I Business Marketing
REVIEW LEARNING OUTCOME Business Marketing LO I cupboards oven folder and pen Teddy bear CONSUMER BUSINESS cupboards Coffee pot oven folder and pen photocopier
Business Marketing on the Internet Describe the role of the Internet in business marketing LO 2
Measuring Online Success LO 2 A measure of a Web site’s effectiveness; calculated by multiplying the frequency of visits times the duration of a visit times the number of pages viewed during each visit. Stickiness = Frequency x Duration x Site Reach Stickiness
REVIEW LEARNING OUTCOME The Internet in Business Marketing LO 2 THEN NOW Reduce costs Build partnerships and alliances Build and support branding Develop customer-focused technology and systems Integrate online and traditional media Revenue Generation Basic Marketing Communication Business Internet Uses and
Relationship Marketing and Strategic Alliances Discuss the role of relationship marketing and strategic alliances in business marketing LO 3
Strategic Alliances LO 3 A cooperative agreement between business firms (strategic partnership). Strategic Alliance
Relationships in Other Cultures LO 3 A network of interlocking corporate affiliates. Keiretsu
REVIEW LEARNING OUTCOME Relationship Marketing and Strategic Alliances LO 3 Supplier (like Intel) Supplier Supplier Company (like Dell) Company 1 (like Starbucks) Company 2 (like Jim Beam) Company (like UPS) Customer/ Distributor (like Ford)
Major Categories of Business Customers Identify the four major categories of business market customers LO 4
Major Categories of Business Customers LO 4 Producers Resellers Governments Institutions OEMs Wholesalers Retailers Federal Municipal Local Schools Hospitals Colleges Churches Unions Fraternal groups Civic Clubs Foundations Nonbusiness organizations
Producers LO 4 OEMs. Individuals and organizations that buy business goods and incorporate them into the products that they produce for eventual sale to other producers or to consumers . Original Equipment Manufacturers
REVIEW LEARNING OUTCOME Business Market Customers LO 4 Business Marketing Institutions Resellers Wholesalers Retailers Producers OEMs Governments Federal State Municipal County Unions Civic Clubs Other Churches Foundations Nonprofits
North American Industry Classification System Explain the North American Industry Classification System LO 5
NAICS LO 5 A detailed numbering system developed by the U.S., Canada, and Mexico to classify North American business establishments by their main production processes. North American Industry Classification System NAICS
Example of NAICS Hierarchy LO 5 Reproduction of software Mfg. and reproduction of magnetic/ optical media Computer electronic product manufacturing Manufacturing Description 334611 3346 334 31-33 NAICS Code U.S. Industry Industry Group Subsector Sector NAICS Level
Valuable tool for marketers in analyzing, segmenting, and targeting markets
Data can be used to determine:
Number, size, and geographic dispersion of firms
Market potential / market share estimates
New customer identification
Business versus Consumer Markets Explain the major differences between business and consumer markets LO 6
Business versus Consumer Markets LO 6 Characteristic Demand Volume # of Customers Location Distribution Nature of Buy Buy Influence Negotiations Reciprocity Leasing Promotion Business Market Organizational Larger Fewer Concentrated More Direct More Professional Multiple More Complex Yes Greater Personal Selling Consumer Market Individual Smaller Many Dispersed More Indirect More Personal Single Simpler No Lesser Advertising
Demand in Business Markets LO 6 Demand is... Description Derived Demand for business products results from demand for consumer products. Inelastic A change in price will not significantly affect the demand for product. Joint Multiple items are used together in final product. Demand for one item affects all. Fluctuating Demand for business products is more volatile than for consumer products.
Fluctuating Demand LO 6 Multiplier Effect (Accelerator Principle) Phenomenon in which a small increase or decrease in consumer demand can produce a much larger change in demand for the facilities and equipment needed to make the consumer product.
Types of Business Products Describe the seven types of business goods and services LO 7
Types of Business Products LO 7 Major Equipment Accessory Equipment Raw Materials Component Parts Processed Materials Supplies Business Services Online http://www.sysco.com
REVIEW LEARNING OUTCOME Types of Business Goods and Services LO 7 Aluminum ore: raw material Extruded metal: processed material Propeller blade: component part Extruding machine: major equipment Tool cart: accessory equipment Uniforms: contracted service Paper: supply
Business Buying Behavior Discuss the unique aspects of business buying behavior LO 8
Business Buying Behavior LO 8 Customer Service Business Ethics Buying Situations Evaluative Criteria Buying Centers Aspects of Business Buying Behavior
Buying Centers LO 8 Buying Center All those persons in an organization who become involved in the purchase decision.
Roles in the Buying Center LO 8 Initiator Influencers Gatekeepers Decider Purchaser Users Online http://www.loctite.com
Buying Situations LO 8 New Buy A situation requiring the purchase of a product for the first time. Modified Rebuy A situation where the purchaser wants some change in the original good or service. Straight Rebuy A situation in which the purchaser reorders the same goods or services without looking for new information or investigating other suppliers.