Cd6813 business mkt

© Kotler, Keller, Marketing Management 7-1
CONNECTINGCONNECTING
WITH CUSTOMERS
PART
3

ANALYZINGANALYZING
Business Markets
Chapter
7

1. What is the business market & how does it differ from the
consumer market?
2. What buying situations do organizational buyers face?
3. Who participates in the business-to-business buying process?
4. How do business buyers make their decisions?
5. How can companies build strong relationships with business
customers?
6. How is B2B relationship marketing conducted in the
Japanese keiretsu & the Korean chaebol?
7. How do institutional buyers & government agencies do their
buying?
In this chapter, we
address the following
questions:

German SAP: leading seller to business market
Strategy - focus on what customers want
“The best run businesses run SAP”
• Software helps standardize processes & automate functions

What is Organizational Buying?What is Organizational Buying?
Organizational buyingOrganizational buying
decision making process where
formal organizations establish
need for purchased products & services
& identify, evaluate & choose
among alternative brands & suppliers

The Business Market versus the Consumer MarketThe Business Market versus the Consumer Market
 Business market
All firms that acquire goods
used in production
of other products that are
sold, rented or supplied to others

The Business Market versus the Consumer MarketThe Business Market versus the Consumer Market
Business market characteristicsBusiness market characteristics
1. Fewer, larger buyers
2. Close supplier-customer relationship
3. Professional purchasing
4. Several buying influences
5. Multiple sales calls
6. Derived demand
7. Inelastic demand
8. Fluctuating demand
9. Geographically concentrated buyers
10.Direct purchasing

Buying SituationsBuying Situations
Business buyer faces decisions – buying situation
3 types of buying situations:
1. STRAIGHT REBUY reorders on a routine basis
2. MODIFIED REBUY modify product, prices etc
3. NEW TASK buys product for the 1st
time

Systems Buying & SellingSystems Buying & Selling
 Systems buying
Buy total solution from 1 seller
 Systems selling
Key industrial marketing strategy -
large-scale industrial projects
eg dams, utilities

Systems Buying & SellingSystems Buying & Selling
 Systems contracting
1 supplier for entire MRO
(maintenance, repair, operating) supplies
– Supplier manages inventory - BENEFITS?
– Customer - reduce cost & protect price
– Seller - low operating costs - steady demand

Participants in the Business BuyingParticipants in the Business Buying
Process –Process – The Buying CenterThe Buying Center
 The buying center
decision making unit of a buying
organization
 May include people outside
organization such as government
officials, consultants

Process –Process – The Buying CenterThe Buying Center
Buying center includes:
 Initiators
 Users
 Influencers
 Deciders
 Approvers
 Buyers
 Gatekeepers

Process –Process –Buying Center InfluencesBuying Center Influences
 Buying members - priority to different criteria
 Respond to influences eg perception education
 Different buying styles
 Personal needs “motivate” person’s behavior
but organizational needs “legitimize” buying
decision
 Industrial buying decisions serve both needs of
organization & individual

Process –Process –Buying Center TargetingBuying Center Targeting
 Who are major decision participants?
 What decisions do they influence?
 What is their level of influence?
 What evaluation criteria do they use?
 Small sellers- key buying influencers
 Large sellers - multilevel in-depth selling

4 types of business customers
1.Price-oriented
2.Solution-oriented
3.Gold-standard
4.Strategic-value

 Price-oriented buyers - lower price, conditions
– Eg: No refunds
 Risk & gain sharing - offset requested price
reductions from customers
 Solution selling - alleviate price pressure -
enhance revenues, decrease risks & costs

AA Kodak adKodak ad targetstargets
hospital administratorshospital administrators
- offer services- offer services
that streamlinethat streamline
processes, integrateprocesses, integrate
technologies &technologies &
improveimprove
productivityproductivity
Business marketers -Business marketers -
periodically reviewperiodically review
their assumptionstheir assumptions
about buying centerabout buying center
participantsparticipants

The Purchasing/Procurement ProcessThe Purchasing/Procurement Process
 Business buyers -highest benefit
for market offering’s costs
 Incentive to purchase > in
proportion to ratio of perceived
benefits to costs
 Construct profitable offering -
superior customer value to
target buyers

 Buying Orientation –short-term, tactical
 Procurement Orientation – seek to
improve quality & reduce cost
 Supply Chain Management Orientation –
a more strategic, value-adding operation

--Types of Purchasing ProcessesTypes of Purchasing Processes
4 product-related purchasing processes:
1. Routine products
- low value & cost & little risk
2. Leverage products
- high value, cost; little supply risk
3. Strategic products
- high value, cost & risk
4. Bottleneck products
- low value, cost some risk

-- Purchasing Organization & AdministrationPurchasing Organization & Administration
 Purchasing jobs - strategic, technical, team-
oriented
 In MNCs – purchasing - separate divisions
 Centralize purchasing
– Headquarters buys centrally
– Substantial savings
 Business marketer - fewer & higher-level buyer

Table 7.1Table 7.1 Buygrid Framework:
Major Stages (Buyphases) of Industrial Buying Process in
Relation to Major Buying Situations (Buyclasses)

Figure 7.1 Organizational Buying Behavior in Japan:
Packaging-Machine Purchase Process

Stages in the Buying ProcessStages in the Buying Process
-- Problem RecognitionProblem Recognition
 Buying process - problem/need
recognized - met by good/service
 Trigger - internal or external stimuli
 Events lead to problem recognition
 Stimulate problem recognition - direct
mail, telemarketing & calling on
prospects

Stages in the Buying Process -Stages in the Buying Process - GeneralGeneral
Need Description & Product SpecificationNeed Description & Product Specification
 Buyer - item’s features & quantity
 Complex items - buyer work with others
on reliability, durability or price
 Business marketers - how their products
meet or exceed buyer’s needs

Product value analysis (PVA)Product value analysis (PVA)
Approach to cost reduction
where components are studied
and redesigned or standardized
and/or produced
with lower costs

 Buyer - develops technical specifications
 Examine high-cost components
 Identify those - last longer than product
 Tightly written specifications - buyer can
refuse if too expensive, below standards
 Suppliers - PVA as tool to win account

Hewlett PackardHewlett Packard adsads
with themewith theme
“+ hp = everything is“+ hp = everything is
possible”possible”
Focus - consulting & advisoryFocus - consulting & advisory
capabilitiescapabilities
Joint venture with the HongJoint venture with the Hong
Kong Special AdministrativeKong Special Administrative
Region governmentRegion government
-- created Web portalcreated Web portal --
Hong Kong’s citizensHong Kong’s citizens
24-hour access to24-hour access to
government servicesgovernment services

–– Supplier SearchSupplier Search
 Buyer identify appropriate suppliers:
– Trade directories
– Contacts with companies
– Trade advertisements & shows
 Marketers put products, prices online
 Internet purchasing - future purchasing
 B2B marketing in Asia - learn from the
U.S.

The Business-to-Business (B2B)The Business-to-Business (B2B)
Cyberbuying BazaarCyberbuying Bazaar
Electronic marketplacesElectronic marketplaces - several forms:
1) Catalog sites
2) Vertical markets
3) “Pure Play” auction sites
4) Spot (or exchange) markets
5) Private exchanges
6) Barter markets
7) Buying alliances

The Business-to-Business B2BThe Business-to-Business B2B
Cyberbuying BazaarCyberbuying Bazaar
Online business buyingOnline business buying
AdvantagesAdvantages:
1. Low costs for both parties
2. Reduces time: order-delivery
3. Consolidate purchasing systems
4. Close relationships
5. In Asia, increased transparency
DownsideDownside:
1. Erode supplier–buyer loyalty
2. Potential security problems

The Asian B2B EnvironmentThe Asian B2B Environment
 Building B2B marketplaces in Asia - address
& adapt to Asian business environment:
Manufacturing dominates
Less efficient supply chains
Less well developed infrastructure
Smaller markets

–– E-ProcurementE-Procurement
 Vertical hubs & Functional hubs
 Direct extranet links to major suppliers
 Buying alliances
 Company buying sites
 e-procurement change purchasing
strategy
 Supplier - list in online catalogs, strong
advertising & build good reputation

–– E-ProcurementE-Procurement
Benefits:
1. Aggregate purchase -volume discounts
2. Less buying of substandard goods
3. Smaller number of purchasing staff

–– Proposal SolicitationProposal Solicitation
 Qualified suppliers - submit proposals
 A few make formal presentations
 Written proposals - marketing documents
- describe value & benefits to customer
 Oral presentations - confidence &
position capabilities - stand out from
competition

–– Proposal SolicitationProposal Solicitation
Eg: Hurdles Xerox set up to qualify supplier
– To qualify - ISO 9000
– To win - Xerox Multinational Supplier Quality
Survey
– Then, Xerox’s Continuous Supplier
Involvement process
– Final- rigorous quality training & evaluation
– Only 176 suppliers worldwide get 95 % rating
required

–– Supplier SelectionSupplier Selection
 Desired attributes & importance
– Supplier-evaluation model
 Marketers - how buyers get valuations
 8 customer value assessment (CVA)
methods to assess customer value
 Buying centers to decide number of
suppliers

Table 7.2Table 7.2
An Example of Vendor Analysis

Methods of Assessing Customer ValueMethods of Assessing Customer Value
1. Internal engineering assessment
2. Field value-in-use assessment
3. Focus-group value assessment
4. Direct survey question
5. Conjoint analysis
6. Benchmarks
7. Compositional approach
8. Importance ratings

–– Order-Routine SpecificationOrder-Routine Specification
 After selection - negotiates final order
 Blanket contracts rather than periodic
purchase
 Blanket contract - long-term relationship
– Supplier promises to resupply buyer as
needed
– At agreed prices, over specified time

–– Order-Routine SpecificationOrder-Routine Specification
 Vendor-managed inventory
– Some shift ordering responsibility to
suppliers
 Suppliers replenish it automatically
through continuous replenishment
programs

–– Performance ReviewPerformance Review
Review supplier performance
3 methods:
1. Contact end users for evaluations
2. Rate on criteria - weighted score
3. Aggregate poor performance cost - get
adjusted costs of purchase & price

–– Performance ReviewPerformance Review
 Lead buyer to decide on supplier
relationship
 Reward managers for good buying
performance
 Increase pressure on sellers for best
terms

Managing Business-to Business CustomerManaging Business-to Business Customer
RelationshipsRelationships
-- The Benefits of Vertical CoordinationThe Benefits of Vertical Coordination
 Vertical coordination - buying partners &
sellers to engage in activities - create
more value for both
 Trust between parties - prerequisite to
healthy long-term relationships

RelationshipsRelationships -- The Benefits of Vertical CoordinationThe Benefits of Vertical Coordination
Relationship between ad agencies & clients:
1) Formation stage - 1 partner big market growth
2) Information between partners – profit both
3) At least 1 - high barriers to entry
4) Dependence asymmetry - 1 influence the other
5) 1 partner - economies of scale

RelationshipsRelationships
-- The Benefits of Vertical CoordinationThe Benefits of Vertical Coordination
8 buyer-supplier relationships:8 buyer-supplier relationships:
1) Basic buying & selling
2) Bare bones
3) Contractual transaction
4) Customer supply
5) Cooperative systems
6) Collaborative
7) Mutually adaptive
8) Customer is king

Establishing Corporate TrustEstablishing Corporate Trust
& Credibility& Credibility
Corporate credibility - 3 factors:Corporate credibility - 3 factors:
I. Corporate expertise
II. Corporate trustworthiness
III. Corporate likability
Factors affecting trust in B2B relationship:Factors affecting trust in B2B relationship:
I. Perceived competence
II. Integrity
III. Honesty
IV. Benevolence of firm

Trust in online settings, stringent
requirements
Buyers worry - get products - right quality
to right place at right time
Sellers worry - paid on time/at all - how
much credit to extend
 ToolsTools: automated credit-checking
applications & online trust services -
determine credibility of trade partner
Establishing Corporate TrustEstablishing Corporate Trust
& Credibility& Credibility

RelationshipsRelationships -- Business Relationships: Risks &Business Relationships: Risks &
OpportunismOpportunism
 Customer-supplier relation, tension
between to safeguard & to adapt
 Vertical coordination – strong ties but
increase risk
 Specific investments - spending tailored
to firm & value chain partner
 Supplier not monitored- might not deliver
expected value

RelationshipsRelationships -- Business Relationships: Risks &Business Relationships: Risks &
OpportunismOpportunism
 Opportunism - cheating or undersupply
relative to contract
 Concern - resources to control - more
productive elsewhere
 Expropriation to bonding if:
– Significant time horizon
– Strong solidarity norms
– Customer & supplier- joint benefit

Relationship Marketing in theRelationship Marketing in the
Keiretsu & ChaebolKeiretsu & Chaebol
 Japanese keiretsu & Korean chaebol
 Buy & sell among each other
 Production keiretsu -vertical integration
of manufacturers & suppliers
 Procurement keiretsu
– “Buy group products” mentality
– Reciprocal purchasing prominent

Relationship Marketing in theRelationship Marketing in the
Keiretsu & ChaebolKeiretsu & Chaebol
 Long-term cooperative relationships
developed
 Interdependence, social ties & trust
 Competition & downturn 1990s
– Keiretsu firms expand outside group
 Convergence - supplier polices of
Japanese & Western automakers

Institutional & GovernmentInstitutional & Government
MarketsMarkets
 Institutional market - provide for people
in their care (schools, hospitals)
 Low budgets & captive clienteles
 GovernmentGovernment Major buyer goods & service
 Suppliers – take lowest bid
 Negotiated contract basis – complex projects

MarketsMarkets
 Government spending - public review
– Considerable paperwork
– Justify cost - major consideration
– Show bottom-line of offerings
 Suppliers - ways to cut through red tape

MarketsMarkets
 Government procurement - price
 Win government contracts - revenue &
spillover benefits - others may follow
– Eg Growth of Linux expected strong in
key Asian markets
– Government endorsements boost
visibility

MarketsMarkets
 In Asia - some governments favor local
companies - award contracts
 Government purchase – kickback, bribery
 Tie up with influential local business -
effective way to penetrate
government market

Government Procurement in KoreaGovernment Procurement in Korea
Procurement irregularitiesProcurement irregularities uncovered in procedures:
1. Preferential treatment to firms when establishing
specifications & contract methods
2. Preferential access to tender information when
making order
3. Apply procedures to select successful bidders &
conduct private contract negotiations arbitrarily
4. Wrongdoings of contract officers

Government Procurement in KoreaGovernment Procurement in Korea
Improvements made:Improvements made:
1. Change specific procurement to general ones
2. Reduce private contract & restricted
competition tenders
3. Actively publicize tender information
4. Establish contract procedures criteria to
prevent arbitrary implementation
5. Online digitalizing of procurement process
6. Increase officials’ awareness on corruption

MarketsMarkets
China - innovative market economy
PrinciplesPrinciples:
1) Interact with all government levels
2) Develop relations through organizations
3) Guanxi not enough for good relations
4) No one-size-fits-all solution
 Form government marketing department

Marketing Debate
How Different is Business-to-Business Marketing?
Many business-to-business marketing executives lament the
challenges of business-to-business marketing, maintaining that many
traditional marketing concepts & principles do not apply. For a
number of reasons, they assert that selling products & services to a
company is fundamentally different from selling to individuals. Others
disagree, claiming that marketing theory is still valid & only
involves some adaptation in the marketing tactics.
Take a position: Business-to-business marketing requires a special,
unique set of marketing concepts & principles versus Business-to-
business marketing is really not that different & the basic marketing
concepts & principles apply.
Marketing Discussion
Consider some of the consumer behavior topics from Chapter 6. How
might you apply them to business-to-business settings? For example,
how might non-compensatory models of choice work?
Final discussion

Cd6813 business mkt

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