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Chapter Objectives Business-to-Business (B2B) Marketing CHAPTER 6 1 2 4 7 8 Explain each of the components of the business-to-business (B2B) market. Describe the major approaches to segmenting business-to-business (B2B) markets. Identify the major characteristics of the business market and its demand. Discuss the decision to make, buy, or lease. Describe the major influences on business buying behavior. Outline the steps in the organizational buying process. Classify organizational buying situations. Explain the buying center concept. Discuss the challenges of and strategies for marketing to government, institutional, and international buyers. 5 3 6 9 0
• Business-to-business (B2B) market is significantly larger than the consumer market. • Example: U.S. companies spend more than $300 billion annually just for office and maintenance supplies. • Example: Department of Defense budget in a recent year was over $515 billion. • Business-to-business (B2B) marketing Organizational sales and purchases of goods and services to support production of other products, to facilitate daily company operations, or for resale. 0
NATURE OF THE BUSINESS MARKET • Companies also buy services, such as law, accounting, office-cleaning, and other services. • Some firms focus entirely on business markets. • Example: Caterpillar , which makes construction and mining equipment. 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 or wholesalers (resellers) that purchase products for resale to others. • Government. • Public and private institutions. 0
B2B MARKETS: THE INTERNET CONNECTION • About 93 percent of all Internet sales are B2B transactions. • Opens up foreign markets to sellers. • Largest segment of the business market. DIFFERENCES IN FOREIGN BUSINESS MARKETS • May differ due to variations in regulations and cultural practices. • Businesses must be willing to adapt to local customs and business practices and research cultural preferences. 0
SEGMENTING B2B MARKETS • Segmentation helps marketers develop the most appropriate strategy. SEGMENTATION BY DEMOGRAPHIC CHARACTERISTICS • Grouping by size based on sales revenues or number of employees. SEGMENTATION BY CUSTOMER TYPE • Grouping in broad categories, such as by industry. • 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. 0
SEGMENTATION BY END-USE APPLICATION • End-use application segmentation Segmenting a business-to-business market based on how industrial purchasers will use the product. • Example: A supplier of industrial gases that sells hydrogen to some companies and carbon dioxide to others. SEGMENTATION BY PURCHASE CATEGORIES • Segmenting according to organizational buyer characteristics. • Example: Whether a company has a designated central purchasing department or each unit within the company handles its own purchasing. • Businesses that have developed customer relationship management (CRM) systems can segment customers in terms of the stage of the relationship between the business and the customer. 0
CHARACTERISTICS OF THE B2B MARKET GEOGRAPHIC MARKET CONCENTRATION • Business market more concentrated than consumer market. • Example: Companies that sell to the federal government are often located near Washington, D.C. • Geographic concentration decreasing as Internet technology improves. SIZES AND NUMBER OF BUYERS • Business market has smaller number of buyers than consumer market. • Many buyers are large organizations, such as Boeing , which buys jet engines. 0
THE PURCHASE DECISION PROCESS • Often involves multiple decision makers, is more formal, and may require bidding and negotiations. BUYER-SELLER RELATIONSHIPS • Often more complex than in consumer market with a greater reliance on relationship marketing. EVALUATING INTERNATIONAL BUSINESS MARKETS • Business purchasing patterns differ from country to country. • Global sourcing Purchasing goods and services from suppliers worldwide. • Can bring significant cost savings but requires adjustments. 0
BUSINESS MARKET DEMAND • Demand characteristics vary from market to market. 0
DERIVED DEMAND • The linkage between demand for a company’s output and its purchases of resources such as machinery, components, supplies, and raw materials. VOLATILE DEMAND • Derived demand creates volatility; for example, demand for gasoline pumps may be reduced if demand for gasoline slows. JOINT DEMAND • Demand for two products used in combination with each other. INELASTIC DEMAND • Demand not significantly influenced by price changes. INVENTORY ADJUSTMENTS • Just-in-time (JIT) inventory policies boost efficiency by cutting inventory and requiring vendors to deliver inputs as they are needed. 0
THE MAKE, BUY, OR LEASE DECISION • Firms acquiring needed products can get them in one of three ways: • Make the good or provide the service in-house. • Purchase it from another organization. • Lease it from another organization. • Producing the item may be cheapest route, but most firms cannot make all of the products they need. • Many companies purchase many of the goods they need. • Companies can spread out costs through leasing. 0
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. • Outshoring Using outside vendors to provide goods and services formerly produced in-house. PROBLEMS WITH OFFSHORING AND OUTSOURCING • Cost savings may be less than expected. • Can raise security concerns over proprietary technology or customer data. • Can reduce flexibility, create conflicts with unions, or negatively affect employee morale and loyalty. 0
THE BUSINESS BUYING PROCESS • More complex than the consumer decision process. • Takes place within formal organization’s budget, cost, and profit considerations. INFLUENCES ON PURCHASE DECISIONS • Environmental factors—economic, political, regulatory, competitive, and technological considerations influence business buying decisions. • Organizational factors—structures, policies, and purchasing systems, which may be centralized in one office or delegated to units throughout the organization. • Interpersonal influences of all organizational members involved in the buying decision. • Concerns and procedures of professional buyers who implement systematic buying procedures. 0
CLASSIFYING BUSINESS BUYING SITUATIONS • Business buying behavior involves degree of effort involved in the decision and the levels within the organization in which these decisions are made. • Straight rebuying—recurring purchase decision in which a customer reorders a product that has satisfied needs in the past. • Modified rebuying—purchaser willing to reevaluate available options. • New-Task Buying—first-time or unique purchase situations that require considerable effort by the decision makers. • Reciprocity—practice of buying from suppliers that are also customers. ANALYSIS TOOLS • Value analysis—examines each component of a purchase in an attempt to either delete the item or replace it with a more cost-effective substitute. • Vendor analysis—ongoing evaluation of a supplier’s performance in a variety of areas. 0
THE BUYING CENTER CONCEPT • Buying center Participants in an organizational buying action. BUYING CENTER ROLES 0
• Two distinct characteristics differentiate international buying centers:
• Marketers may have trouble identifying members of foreign buying centers because of cultural differences in decision-making methods.
• 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.
DEVELOPING EFFECTIVE BUSINESS-TO- BUSINESS MARKETING STRATEGIES
• Marketer must develop strategy based on particular organization’s buying behavior and on the buying situation.
CHALLENGES OF GOVERNMENT MARKETS
• Purchases typically involve dozens of interested parties and may be influenced by social goals.
• Contractual guidelines create another important influence in selling to government markets.
• The government buys products under two basic types of contracts:
• Fixed-price contracts – seller and buyer agree to a set price before finalizing the contract.
• Cost-reimbursement contracts – the government pays the vendor for allowable costs, including profits, incurred during performance of the contract.
GOVERNMENTS PURCHASING PROCEDURES • Many purchases go through Government Services Agency , a central management agency. • By law, most federal government purchases must go through a complex bidding process governed by the Federal Acquisition Regulation . • Recent reforms have sped purchasing and increased flexibility. • State and local governments follow procedures similar to federal government. ONLINE WITH THE FEDERAL GOVERNMENT • Government buyers often rely on electronic commerce. • GSA Advantage allows government buyers to make purchases online at preferred government prices. • Many government units lag behind the private sector in electronic procurement procedures. 0
CHALLENGES OF INSTITUTIONAL MARKETS • Include schools, hospitals, libraries, foundations, and others. • Multiple buying influences can affect buying decisions, such as conflicts between professional staff and purchasing departments. CHALLENGES OF INTERNATIONAL MARKETS • Marketers must consider buyers’ attitudes and cultural patterns. • Local industries, economic conditions, geographic characteristics, and legal restrictions must all be considered. • Foreign governments are also an important market. 0