MARKETING Real People Real Choices Fourth Edition CHAPTER

MARKETING Real People, Real Choices Fourth Edition CHAPTER 6 Business-to-Business Markets: How and Why Organizations Buy Michael R. Solomon Greg W. Marshall Elnora W. Stuart

Chapter Objectives_1 • Describe the general characteristics of business-to-business markets • Explain the unique characteristics of business demand • Describe how business or organizational markets are classified • Explain the business buying situation and describe business buyers 2

Chapter Objectives _2 • Explain the roles in the business buying center • Understand the stages in the business buying decision process • Understand the growing role of B 2 B ecommerce 3

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 4

Business Markets • Generally, the same principles are true for business and consumer customers • There are characteristics that make B 2 B buying more complex – Multiple Buyers – Number of customers – Size of purchases – Geographic concentration 5

B 2 B Demand Characteristics • • Derived Demand Inelastic Demand Fluctuating Demand Joint Demand 6

Inelastic Demand • Inelastic demand means that business customers buy the same quantity whether the price goes up or down • Example: A BMW Z 4 Roadster 3. 0 i 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 Z 4. 7

Fluctuating Demand • Small changes in consumer demand can create large increases or decreases in business demand • Acceleration principles (multiplier effect) means that changes in consumer behavior have a ripple effect through several related businesses 8

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 9

B 2 B Classifications • Producers • Resellers • Governments – competitive bids – requests for proposals (RFPs) • Not-for-profit organizations 10

NAICS • North American Industry Classification System • 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 11

The Nature of Business Buying • The Buying Situation • The Professional Buyer • The Buying Center 12

The Buying Situation • A buy class framework identifies the degree of effort required of the firm’s personnel to collect information and make a purchase decision • Straight rebuy • Modified rebuy • New task buying 13

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 14

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 15

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 16

Considerations in Supplier Selection • • On-time deliveries Single sourcing vs. multiple sourcing Outsourcing Reverse marketing 17

Electronic B 2 B 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 18

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 • A private exchange links invited groups of suppliers and partners over the Web 19

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 20

Issues for Discussion_1 • What are the advantages of B 2 B ecommerce for companies? For society? Are there any disadvantages? • What are the advantages and disadvantages of using sealed competitive bids for buyers? For sellers? Should companies always pick the lowest bidder? • Is it ethical for firms to use a single sourcing policy in their buying? 21

Issues for Discussion_2 • What are the advantages and disadvantages of strict engineering and manufacturing requirements for products purchased by governments? • Do gatekeepers have too much power? What policies might ensure that all possible sellers are treated fairly? • What are the advantages and disadvantages of reference programs like the one used by Siebel Systems? 22