* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download Chapter 2
Market segmentation wikipedia , lookup
Viral marketing wikipedia , lookup
Perfect competition wikipedia , lookup
Product lifecycle wikipedia , lookup
Targeted advertising wikipedia , lookup
Street marketing wikipedia , lookup
Bayesian inference in marketing wikipedia , lookup
Planned obsolescence wikipedia , lookup
Social media marketing wikipedia , lookup
Marketing communications wikipedia , lookup
Price discrimination wikipedia , lookup
Pricing strategies wikipedia , lookup
Digital marketing wikipedia , lookup
Online shopping wikipedia , lookup
Multicultural marketing wikipedia , lookup
Target audience wikipedia , lookup
Marketing strategy wikipedia , lookup
Food marketing wikipedia , lookup
Brand loyalty wikipedia , lookup
Emotional branding wikipedia , lookup
Customer engagement wikipedia , lookup
Direct marketing wikipedia , lookup
Integrated marketing communications wikipedia , lookup
Visual merchandising wikipedia , lookup
Target market wikipedia , lookup
Advertising campaign wikipedia , lookup
Youth marketing wikipedia , lookup
Segmenting-targeting-positioning wikipedia , lookup
Green marketing wikipedia , lookup
Global marketing wikipedia , lookup
Services marketing wikipedia , lookup
Product planning wikipedia , lookup
Neuromarketing wikipedia , lookup
Marketing channel wikipedia , lookup
Part 2: Determine the Value Propositions Different Customers Want Chapter 6 Understanding Consumer and Business Markets I. CHAPTER OVERVIEW In this chapter, consumer behavior is defined and reasons for purchasing studied. Students learn about the process of purchase, beginning with prepurchase behavior and ending with postpurchase behavior. Students will understand how situational factors at the time and place of purchase can influence consumer behavior. Students begin to think about how consumers’ relationships with other people influence their decision-making process. Although consumer marketing is an important area in marketing, so is business-to-business marketing (B2B). In this chapter, students learn that the fortunes of business buyers and sellers can hinge on a single transaction. Students learn how marketers categorize businesses and other organizations to develop effective business marketing strategies. Business buying behavior and the business buying decision process is evaluated. Finally, the important world of business-tobusiness e-commerce is explored. II. CHAPTER OBJECTIVES 1. Define consumer behavior and explain the purchase decision-making process. 2. Explain how internal factors influence consumers’ decision-making processes. 3. Show how situational factors and consumers’ relationships with other people influence consumer behavior 4. Understand the characteristics of business-to-business markets and business-to-business market demand and how marketers classify business-to-business customers. 5. Identify and describe the different business buying situations and the business buying decision process including the use of e-commerce and social media. III. CHAPTER OUTLINE MARKETING MOMENT INTRODUCTION Retrace a complicated decision process such as a new cell phone, computer, or car. Think about your decision to buy a can of soda (Coke) from a vending machine. These examples demonstrate the different types of consumer decision processes. p. 151 Exhibit 6. 1 REAL PEOPLE, REAL CHOICES—HERE’S MY Adam Wexler PROBLEM AT INSIGHTPOOL Adam Wexler is the founder and chief strategy officer of Insightpool, an Atlanta-based software company that specializes in proactive social engagement. The company’s software helps innovative brands, such as Home Depot, Intercontinental Hotels Group, and General Mills, drive their social goals and develop Copyright © 2016 Pearson Education, Inc. Chapter 6: Understanding Consumer and Business Markets stronger relationships. One client, DocuSign, Inc., The Global Standard for Digital Transaction Management™ (DTM), enables organizations to securely sign, send, and manage transactions and documents in the cloud. This client asked Insightpool to identify and engage existing or potential customers about subjects of interest. One of DocuSign’s objectives is to generate demand. Because the idea of transacting business and storing documents in the cloud rather than on secure servers is still fairly new, it’s necessary to persuade a prospective user to see a demo of the service. The trick is to entice people to sign up for a demo. Insightpool worked with DocuSign to target executives to engage in a one-toone dialogue using social media. While the results of Insightpool’s initial direct marketing efforts were good, there was room for improvement. The original message templates were too “salesy,” and the content was not resonating with the target audience. The Insightpool team wasn’t sure if the gift card angle was attracting executives to sit through a demo. Clearly, more needed to be done to move these busy professionals down the path to purchase Adam considered our options: Option 1. Make the message sound like less of a sales pitch Option 2. Boost the incentive to a $50 Starbucks gift card. Option 3. Drop the sweepstakes approach in favor of a more brand-focused campaign. p. 152 The vignette ends by asking the student which option he/she would choose. Adam selected option #3. 1. THE CONSUMER DECISION-MAKING PROCESS Consumer behavior is the process individuals or groups go through to select, purchase, use, and dispose of goods, services, ideas, or experiences to satisfy their needs and desires. Consumer decision making is an ongoing process—it’s more than what happens at the moment a consumer pays for a product. Marketers need to understand the many factors that influence each step in the consumer-behavior process—internal factors unique to each of us, situational factors at the time of purchase, and the social influences of people around us. Copyright © 2016 Pearson Education, Inc. Part 2: Determine the Value Propositions Different Customers Want p. 152154 1.1 Not All Decisions are the Same Decision makers actually employ a set of approaches that range from painstaking analysis to pure whim, depending on the importance of what they are buying and how much effort they choose to put into the decision. Researchers find it convenient to think in terms of an “effort” continuum that is anchored on one end by habitual decision making, such as deciding to purchase a box of cereal, and at the other end by extended problem solving, such as deciding to purchase a new car. Figure 6.1 The Consumer DecisionMaking Process When consumers engage in extended problem solving, indeed we do carefully go through the steps Figure 6.1 outlines: problem recognition, information search, and evaluation of alternatives, product choice, and post-purchase evaluation. Figure 6.2 Extended Problem Solving versus Habitual Decision Making With habitual decision making, consumers make little or no conscious effort. Many decisions fall somewhere in the middle and are characterized by limited problem solving. This means that consumers do some work to make a decision but not a great deal. The effort we put into decisions depends on our level of involvement. Involvement is the importance of the perceived consequences of the purchase to the person. We tend to be more involved in the decision-making process for products that we think are risky in some way. Perceived risk exists when there is uncertainty about a product, the product is complex or hard to understand, the buyer will be embarrassed if he/she chose the wrong product, etc. Exhibit 6. 2 WildWash dog grooming brand When perceived risk is low – like when you buy a box of cereal – we experience a small amount of involvement in the decisionmaking process. In low-involvement situations, the consumer’s decision is often a response to environmental cues, such as when you decide to try a new type of cereal because the grocery store prominently displays it at the end of the aisle. Under these circumstances, managers must concentrate on how a store displays products at the time of purchase to influence the decision-maker. For high-involvement purchases, such as when we buy a house or a car, we are more likely to carefully process all the available information and to have thought about the decision well before we buy the item. The consequences of the purchase are important and risky, especially because a bad decision may result in significant financial losses, aggravation, or embarrassment. Discussion: Explain habitual decision making, limited problem solving, and extended problem solving. What is the role of perceived risk in the decision process? Copyright © 2016 Pearson Education, Inc. Chapter 6: Understanding Consumer and Business Markets p. 154155 1.2 Step 1: Problem Recognition Problem recognition occurs whenever a consumer sees a significant difference between her current state of affairs and some desired or ideal state. Figure 6. 3 Responses to DecisionProcess Stages Most problem recognition occurs spontaneously. However, marketers can develop creative advertising messages that stimulate consumers to recognize that their current state just doesn’t equal their desired state. Use Brand You Chapter 6 (Why Employers Buy) Here—Think about employer’s needs and/or how they might influence those needs. p. 155 1.3 Step 2: Information Search Information search is the step of the decision-making process in which the consumer checks his memory and surveys the environment to identify what options are out there that might solve his problem. 1.3.1 The Internet as a Search Tool Increasingly, consumers use Internet to search for information about products. Marketers develop sophisticated search marketing techniques. With search engine optimization (SEO) marketers first find what key words consumers use most in their searches. Then they edit their site’s content or HTML to increase its relevance to those keywords so they can try to place their site high up in the millions of sites the search might generate. With search engine marketing (SEM) the search engine company charges marketers to display sponsored search ads that appear at the top or beside the search results. Comparison shopping agents (or ShopBots) such as Shopzilla.com and NexTag.com are web applications that can help online shoppers to find what they are looking for at the lowest price. p. 156 1.4 Step 3: Evaluation of Alternatives There are two components to this stage of the decision-making process. First, a consumer armed with information identifies a small number of products in which he is interested. Then he narrows down his choices by deciding which of all the possibilities are feasible and by comparing the pros and cons of each remaining option. As a buyer begins to look systematically at different possibilities Copyright © 2016 Pearson Education, Inc. Part 2: Determine the Value Propositions Different Customers Want p. 156 he/she will also identify important characteristics or evaluative criteria that he/she will use to decide among them. 1.5 Step 4: Product Choice Deciding on one product and acting on this choice is the next step in the decision-making process. Consumers often rely on decision guidelines when weighing the claims that companies make. These heuristics, or mental rulesof-thumb, help simplify the decision-making process. One such heuristic is “price = quality.” Many people willingly buy the more expensive brand because they assume that if it costs more, it must be better. Perhaps the most common heuristic is brand loyalty; this occurs when we buy the same brand repeatedly and as you can guess it’s The Holy Grail for marketers. Consumers who have strong brand loyalty feel that it’s not worth the effort to consider competing options. People form preferences for a favorite brand and then may never change their minds in the course of a lifetime. p. 157158 Another heuristic is based on country of origin. We assume that a product has certain characteristics if it comes from a certain country. Sometimes a marketer wants to encourage a country association even when none exists. 1.6 Step 5: Postpurchase Evaluation In the last step of the decision-making process, the consumer evaluates just how good a choice it was. The evaluation of the product results in a level of consumer satisfaction/ dissatisfaction, which is determined by the overall feelings, or attitude, a person has about a product after purchasing it. How well a product meets or exceeds expectations determines customer satisfaction. Consumers assess product quality by comparing what they have bought to a performance standard created by a mixture of information from marketing communications, informal information sources such as friends and family, and their own experience with the product category. This is why it is very important that marketers create accurate expectations of their product in advertising and other communications. Even when a product performs to expectations, consumers may suffer anxiety or regret, or cognitive dissonance, after we make a purchase. When we reject product alternatives with attractive features, we may second-guess our decision. Copyright © 2016 Pearson Education, Inc. Figure 6.4 Influences on Consumer Decision- Chapter 6: Understanding Consumer and Business Markets p. 158 p. 158 Marketers also try to ascertain what influences in consumers’ lives affect the decision-making process. There are three main categories: internal, situational, and social influences. A discussion of each follows. 2. INTERNAL INFLUENCES ON CONSUMERS’ DECISIONS We can attribute much of these differences to internal influences on consumer behavior—those things that cause each of us to interpret information about the outside world, including which car is the best, differently from one another. 2.1 Perception Perception is the process by which people select, organize, and interpret information from the outside world. We receive information in the form of sensations, the immediate response of our sensory receptors—eyes, ears, nose, mouth, and fingers—to such basic stimuli as light, color, and sound. We try to make sense of the sensations we receive by interpreting them in light of our past experiences. The perception process has implications for marketers because, as consumers absorb and make sense of the vast quantities of information competing for their attention, the odds are that any single message will get lost in the clutter. To help understand this process, marketers need to understand exposure, attention, and interpretation. p. 159 2.1.1 Exposure The stimulus must be within range of people’s sensory receptors to be noticed. Exposure is the extent to which a person’s sensory receptors are capable of registering a stimulus. Many people believe that even messages they can’t see will persuade them to buy advertised products. Claims about subliminal advertising of messages surface frequently. However, there is little evidence to support this technique and it is generally believed that it has no effect on our perception of products. p. 159 2.1.2 Attention Attention is the extent to which mental processing activity is devoted to a particular stimulus. Consumers are more likely to pay attention to messages that speak to their current needs. Grabbing consumers’ attention is becoming harder than ever, because people’s attention spans are shorter than ever. Now that we are accustomed to multitasking, flitting back and forth between our e-mails, TV, IMs, and so on, advertisers have to be more creative by mixing up the types of messages they send. Copyright © 2016 Pearson Education, Inc. Making Part 2: Determine the Value Propositions Different Customers Want p. 160 p. 160161 p. 160 2.1.3 Interpretation Interpretation is the process of assigning meaning to a stimulus based on prior associations we have with it and assumptions we make about it. 2.2 Motivation Motivation is an internal state that drives us to satisfy needs. Once we activate a need, a state of tension exists that drives the consumer toward some goal that will reduce this tension by eliminating the need. The theory, hierarchy of needs, categorizes motives according to the five levels of importance, the more basic needs being on the bottom of the hierarchy and the higher needs at the top. The hierarchy suggests that before a person can meet needs in a given level, she must first meet the lower level’s needs. Figure 6.5 shows the category of needs. Gamification is a strategy in which marketers apply game design techniques, often by awarding points or badges to nongame experiences in order to drive consumer behavior. Exhibit 6. 3 Van Marcke Figure 6.5 Maslow’s Hierarchy of Needs and Related Products Ethics Check Find out what other students taking this course would do and why at www.mymktlab.com Should companies be allowed to collect and use information about users obtained from gamification activities for marketing purposes? p.161 2.3 Learning Learning is a change in behavior caused by information or experience. Learning can occur deliberately or when we are not trying. Psychologists have many theories explaining the learning process. The following is a discussion of some of those theories. p. 161 2.3.1 Behavioral Learning: Behavioral learning theories assume that learning takes place as the result of connections that form between events that we perceive. In one type of behavioral learning, classical conditioning, a person perceives two stimuli at about the same time. After a while, the person transfers his response from one stimulus to the other. Another common form of behavioral learning is called operant conditioning, which occurs when people learn that their actions result in rewards or punishments. This feedback influences how they will respond in similar situations in the future. Copyright © 2016 Pearson Education, Inc. Ripped from the Headlines Ethical/Sustaina Chapter 6: Understanding Consumer and Business Markets p. 162 p. 162 2.3.2 Cognitive Learning: The cognitive learning theory views people as problem solvers who do more than passively react to associations between stimuli. Supporters of this viewpoint stress the role of creativity and insight during the learning process. Cognitive learning occurs when consumers make a connection between ideas or by observing things in their environment. Observational learning occurs when people watch the actions of others and note what happens to them as a result. 2.4 Attitudes An attitude is a lasting evaluation of a person, object, or issue. Consumers have attitudes about brands. A person’s attitude has three components: affect, cognition, and behavior. ble Decisions in the Real World Exhibit 6. 4 Marmite Affect is the feeling component of attitudes. Affect refers to the overall emotional response a person has to a product. Affect is usually dominant for expressive products. Cognition, the knowing component, is the belief or knowledge a person has about a product and its important characteristics. p. 163 Behavior, the doing component, involves a consumer’s intention to do something, such as the intention to purchase or use a certain product. 2.5 Personality and the Self: Are You What You Buy? Personality is the set of unique psychological characteristics that consistently influences the way a person responds to situations in the environment. It makes sense to assume that consumers buy products that are extensions of their personalities. That’s why marketers try to create brand personalities that will appeal to different types of people. A person’s self-concept is his attitude toward himself. The self-concept is composed of a mixture of beliefs about one’s abilities and observations of one’s own behavior and feelings (both positive and negative) about one’s personal attributes, such as body type or facial features. The extent to which a person’s self-concept is positive or negative can influence the products he buys and even the extent to which he fantasizes about changing his life. Use Website Here-www.colorquiz.com ‘personality’ assessment based on color preferences p. 163 2.6 Age A person’s age is another internal influence on purchasing Exhibit 6. 5 behavior. Many of us feel we have more in common with those of Common Sort our own age because we share a common set of experiences and memories about cultural events. Goods and services often appeal Copyright © 2016 Pearson Education, Inc. Part 2: Determine the Value Propositions Different Customers Want to a specific age group. Age is important, but actually regardless of how old we are, what Exhibit 6. 6 we buy often depends more on our current position in the family FitoSonno food life cycle—the stages through which family members pass as supplement they grow older. ►Marketing Moment In-Class Activity Using the product categories of dining out and automobiles, identify the types of restaurants and cars that are likely to be purchased in the various stages of the family life cycle. (i.e., fine dining and sports cars when dating/McDonald’s and mini-vans with full nest children/nice restaurants and a Harley when the kids leave for college.) Can you see examples within their own family? p. 164 Exhibit 6. 7 2.7 Lifestyle A lifestyle is a pattern of living that determines how people Walking shoes choose to spend their time, money, and energy and that reflects their values, tastes, and preferences. Consumers often choose goods, services, and activities that are associated with a certain lifestyle. Demographic characteristics, such as age and income, tell marketers what products people buy, but they don’t reveal why. To breathe life into demographic analyses, marketers turn to psychographics, which groups consumers according to psychological and behavioral similarities. One way to do this is to describe people in terms of their activities, interests, and opinions (AIOs). These dimensions are based on preferences for vacation destinations, club memberships, hobbies, political and social attitudes, tastes in food and fashion, and so on. ►METRICS MOMENT There are many potential metrics available to assess aspects of consumer behavior. Here are some popular ones and an example of each. Overall awareness: The percentage of all consumers who recognize or know the name of a brand Top-of-mind awareness: The first brand that comes to a consumer’s mind when he or she thinks of a product category. Consumer knowledge: Measured by asking consumers if they have some specific knowledge about a brand ● Attitude toward a brand: (1) beliefs about brand characteristics, (2) the importance of those characteristics and (3) the measure of how much the consumer likes the brand. Purchase intentions: A consumer’s stated willingness to buy or expressed likelihood of certain behavior. Purchase habits: Another measure of a consumer’s self-reported behavior. Customer loyalty: A measure of a consumer’s commitment to a specific brand. Customer satisfaction: A consumer survey may ask questions such as “How satisfied are you? Apply the Metrics Consider the consumer behavior metrics mentioned above. Pick out several metrics that you Copyright © 2016 Pearson Education, Inc. Chapter 6: Understanding Consumer and Business Markets think would be most useful to gain a better understand of each item below. How might you use each metric you choose to do the following? Better understand a firm’s existing customers Identify potential new customers for a firm Gauge the market potential for a new product p. 165 3. SITUATIONAL AND SOCIAL INFLUENCES ON CONSUMERS’ DECISIONS Situational and social influences--factors external to the consumer--have a big impact on the choices consumers make and how they make them. p. 165 3.1 Situational Influences When, where, and how consumers shop—what we call situational influences—shape their purchase choices. Some important situational cues are our physical surroundings and time pressures. Marketers know that dimensions of the physical environment, including factors such as decor, smells, lighting, music, and even temperature, can significantly influence consumption. Sensory marketing is becoming big business. p. 166 Retailers have purchased custom scents to appeal to their customers and enhance their brand. Marketers term this strategy sensory branding 3.1.1 The Physical Environment People’s moods and behaviors are strongly influenced by their physical surroundings. The store environment influences many purchases. p. 166 Arousal and pleasure determine whether a shopper will react positively or negatively to a store environment. The importance of these surroundings explains why many retailers focus on packing as much entertainment as possible into their stores. p. 166167 3.1.2 Time Marketers know that the time of day, the season of the year, and how much time one has to make a purchase affects decision making. Time is one of consumers’ most limited resources. Indeed, many consumers believe that they are more pressed for time than ever before. This sense of time poverty makes consumers responsive to marketing innovations that allow them to save time, including services such as one-hour photo processing, drive-through lanes at fast-food restaurants, and ordering products on the web. Copyright © 2016 Pearson Education, Inc. The Cutting Edge : No More Waiting on Shipping Part 2: Determine the Value Propositions Different Customers Want p. 167 3.2 Social Influences on Consumers’ Decisions Families, friends, and classmates often influence our decisions, as do larger groups with which we identify, such as ethnic groups and political parties. p. 167 3.2.1 Culture Culture is society’s personality. It is values, beliefs, customs, and tastes, produced or practiced by a group of people. A consumer’s culture influences his buying decisions. p. 167 3.2.2 Values (Again) Cultural values are deeply held beliefs about right and wrong ways to live. Marketers who understand a culture’s values can tailor their product offerings accordingly. Activity: What are the core values of your culture? How do these core values affect your behavior as a consumer? What are the implications for marketers? p. 168 3.3 Subcultures A subculture is a group that coexists with other groups in a larger culture but whose members share a distinctive set of beliefs or characteristics – such as members of a religious organization or an ethnic group. Micro cultures are groups of consumers who identify with a specific activity or art form. For marketers, some of the most important subcultures are racial and ethnic groups because many consumers identify strongly with their heritage and products that appeal to this aspect of their identities appeal to them. p.168 p. 168 3.4 Consumerism: An Emerging Lifestyle Trend Powerful new social movements within a society also contribute to how we decide what we want and what we don’t. One such influence is consumerism, the social movement directed toward protecting consumers from harmful business practices. Many consumers are becoming very aware of the social and environmental consequences of their purchases—and making their decisions accordingly 3.5 Social Class Social class is the overall rank of people in a society. People who are within the same class work in similar occupations, have similar income levels, and usually share taste in clothing, decorating styles, and leisure activities. Class members also share many political and religious beliefs as well as preferences for AIOs. Luxury goods often serve as status symbols; visible Copyright © 2016 Pearson Education, Inc. Chapter 6: Understanding Consumer and Business Markets markers that provide a way for people to flaunt their membership in higher social classes (or at least to make others believe they are members). Mass-class term refers to the hundreds of millions of global consumers who now enjoy a level of purchasing power that’s sufficient to let them afford high-quality products offered by well-known multinational companies. p. 169 3.6 Group Membership People act differently in groups than they do on their own. With more people in a group, it becomes less likely that any one member will be singled out for attention, and normal restraints on behavior may be reduced. In many cases, group members show a greater willingness to consider riskier alternatives than they would if each member made the decision alone. A reference group is a set of people a consumer wants to please or imitate. Consumers “refer to” these groups when they decide what to wear, where they hang out, and what brands they buy. p. 169 3.7 Opinion Leaders An opinion leader is a person who influences others’ attitudes or behaviors because they believe that he possesses expertise about the product. Opinion leaders usually exhibit high levels of interest in the product category. They continuously update their knowledge as they read blogs, talk to salespeople, or subscribe to podcasts about the topic. Because of this involvement, opinion leaders are valuable information sources. p. 170 3.8 Gender Roles Some of the strongest pressures to conform come from our gender roles, society’s expectations regarding the appropriate attitudes, behaviors, and appearance for men and women. These assumptions about the proper roles of men and women, flattering or not, are deeply ingrained in marketing communications. p. 170 One of the biggest marketing buzzwords over the past few years is the metrosexual—a straight, urban male who is keenly interested in fashion, home design, gourmet cooking, and personal care. p. 171 4. BUSINESS MARKETS: BUYING AND SELLING WHEN THE CUSTOMER IS ANOTHER ORGANIZATION Business-to-business marketing is the marketing of goods and services that businesses and other organizations buy for purposes other than personal consumption. These business-to-business markets or organizational markets include manufacturers, Copyright © 2016 Pearson Education, Inc. Exhibit 6. 8 Tailgaters Exhibit 6. 9 Aparecida Jewelry Exhibit 6. 10 Bauker Part 2: Determine the Value Propositions Different Customers Want wholesalers, retailers, and a variety of other organizations, such as hospitals, universities, and government agencies. p. 172173 p. 172 p. 172 p. 172 p. 173 4.1 Factors That Make a Difference in Business Markets In theory, the same basic marketing principles hold in both consumer and business markets—firms identify customer needs and develop a marketing mix to satisfy those needs. However, there are differences that make business-to-business marketing more complex. Some of the differences are described next. Figure 6.6 Key Differences in Business versus Consumer Markets 4.2 Multiple Buyers In business markets, products often have to do more than satisfy an individual’s needs. They must meet the requirements of everyone involved in the company’s purchase decision. Table 6. 1 Differences between Organizational and Consumer Markets 4.3 Number of Customers Organizational customers are rare compared to end consumers. In the United States, there are about 100 million consumer households but less than half a million businesses and other organizations. 4.4 Size of Purchases Business-to-business products can dwarf consumer purchases both in the quantity of items ordered and in the price of individual purchases. Recognizing such differences in the size of purchases allows marketers to develop effective marketing strategies. 4.5 Geographic Concentration Many business customers are located in a small geographic area rather than being spread out across the country. Discussion: How do business-to-business markets differ from consumer markets? How do these differences affect marketing strategies? p. 174 Activity: Pick a product. Put the size and complexity of the business market into perspective by tracing back all of the elements that had to come together to make the product. The text gives a good example of the manufacture of jeans. 4.6 B2B Demand Demand in business markets differs from consumer demand. Most demand for B2B products is derived, inelastic, fluctuating, and joint. Copyright © 2016 Pearson Education, Inc. Chapter 6: Understanding Consumer and Business Markets p. 174 4.6.1 Derived Demand Business customers do not purchase goods and services to satisfy their own needs. Businesses instead operate on derived demand, because a business’s demand for goods and services comes either directly or indirectly from consumers’ demand for what it produces. Because of derived demand, the success of one company may depend on another company in a different industry. The derived nature of business demand means that marketers must constantly be alert to changes in consumer trends that ultimately will have an effect on B2B sales. p. 174 4.6.2 Inelastic Demand Inelastic demand means that it usually does not matter if the price of a business-to-business product goes up or down— business customers still buy the same quantity. Demand in business-to-business markets is mostly inelastic because what is being sold is often just one of the many parts or materials that go into producing the consumer product. It is not uncommon for a large increase in a business product’s price to have little effect on the final consumer product’s price. Figure 6.7 Derived Demand Business-to-business demand is not always inelastic. Sometimes producing a consumer good or service relies on only one or a few materials or component parts. If the price of the part increases, demand may become elastic if the manufacturer of the consumer good passes the increase on to the consumer. p. 174 4.6.3 Fluctuating Demand Business demand also is subject to greater fluctuations than is consumer demand. There are two reasons for this: First, even modest changes in consumer demand can create large increases or decreases in business demand. A product’s life expectancy—some machinery needs to be replaced every 10 or 20 years and marketers have to work hard to even out production. p. 175 4.6.4 Joint Demand Joint demand occurs when two or more goods are necessary to create a product. p. 175 4.7 Types of Business-to-Business Customers p. 175 4.7.1 Producers Producers purchase products for the production of other goods and services that they in turn sell to make a profit. They are Copyright © 2016 Pearson Education, Inc. Figure 6.8 The Business Marketplace Part 2: Determine the Value Propositions Different Customers Want customers for a vast number of products from raw materials to goods manufactured by still other producers. p. 175 4.7.2 Resellers Resellers buy finished goods for reselling, renting, or leasing to consumers and other businesses. Although resellers do not actually produce goods, they do provide their customers with time, place, and possession utility by making the goods available to consumers when and where they want them. p. 176 4.7.3 Government and Not-for-Profit Organizations Governments and not-for-profit institutions are two other types of organizations in the business marketplace. Government markets make up the largest single business and organizational market in the United States. Not-for-profit institutions are organizations with educational, community, and other public service goals, such as hospitals, churches, universities, museums, and charitable and cause-related organizations such as the Salvation Army and the Red Cross. p. 176 4.7.4 The North American Industry Classification System Marketers can identify their customers using the North American Industry Classification System (NAICS). This is a numerical coding of industries developed by the United States, Canada, and Mexico. The NAICS reports the number of firms, the total dollar amount of sales, the number of employees, and the growth rate for industries, all broken down by geographic region. Firms may also use the NAICS to find new customers. 5. BUSINESS BUYING SITUATIONS AND THE BUSINESS BUYING DECISION PROCESS Table 6. 2 North American Industry Classification System p. 177 5.1 The Buyclass Framework Like end user consumers, business buyers spend more time and effort on some purchases than on others. This usually depends on the complexity of the product and how often they need to make the decision. A buyclass framework identifies the degree of effort required of the firm’s personnel to collect information and make a purchase decision. These classes, which apply to three different buying situations, are straight rebuys, modified rebuys, and newtask buys. Figure 6. 9 Elements of the Buyclass Framework p. 177 5.1.1 Straight Rebuy A straight rebuy refers to the routine purchase of items that a B2B customer regularly needs. The buyer has purchased the same items many times before and routinely reorders them when p. 177 Copyright © 2016 Pearson Education, Inc. Chapter 6: Understanding Consumer and Business Markets supplies are low, often from the same suppliers. Reordering the items takes little time. p. 177 5.1.2 Modified Rebuy A modified rebuy occurs when a firm decides to shop around for suppliers with better prices, quality, or delivery times. This situation also can occur when the organization confronts new needs for products it already buys. Modified rebuys require more time and effort than straight rebuys. The buyer generally knows the purchase requirements and she has a few potential suppliers in mind p. 178 5.1.3 New-Task Buy A first-time purchase is a new-task buy. Uncertainty and risk characterize buying decisions in this classification, and they require the most effort because the buyer has no previous experience on which to base a decision. A prospective customer’s new-task buying situation represents both a challenge and an opportunity. Although a new-task buy can be significant in and of itself, many times the chosen supplier gains the added advantage of becoming an “in” supplier for more routine purchases that will follow. ►Marketing Moment Activity Compare the various B2B buying tasks with consumer decision processes. What similarities do you see? How might this affect the sales process differ with each type of purchase process? (Straight Rebuy=Habitual; Modified Rebuy=Limited; New-task buy=Extended Decision Process) p. 1785.2 Professional Buyers and Buying Centers 179 Trained professional buyers typically carry out buying in business-to-business markets. These people typically have titles such as purchasing agents, procurement officer, or directors of materials management. Professional purchasers shop all day, every day. They are responsible for selecting quality products and Table 6.3 ensuring their timely delivery. Roles in the Buying Center The buying center is the group of people in the organization who participate in the decision-making process. Although this term may conjure up an image of “command central” buzzing with purchasing activity, a buying center is not a place at all. Instead, it is a cross-functional team of decision makers. Generally, the members of a buying center have some expertise or interest in the particular decision, and as a group, they are able to make the best decision. Copyright © 2016 Pearson Education, Inc. Part 2: Determine the Value Propositions Different Customers Want Depending on the complexity of the purchase and the size of the buying center a participant may assume one, several, or all of the following roles: User: a member of the buying center who actually needs the product. Initiator: begins the buying process by first recognizing that the firm needs to make a purchase. Gatekeeper: the person who controls the flow of information to other members. Influencer: the person(s) who affects the buying decision by dispensing advice or sharing expertise. Decider: the member of the buying center who makes the final decision. Buyer: the person who has responsibility for executing the purchase. ►Marketing Moment Activity Identify and think about family decisions in which all members of the family participated (New home? Relocation? Family pet? Family vacation?). How do the corporate roles compare to the roles individual family members play? In your family, who tends to play which roles? (I.e., Dad maintains the cars; Mom ‘screens’ phone calls, etc.) p. 180 Figure 6.10 5.3 The Business Buying Decision Process The following is a description of the five steps involved in the Steps in the business buying decision process. Business Buying Process p. 180 5.3.1 Step 1: Recognize the Problem The first step occurs when someone sees that a purchase can solve a problem. Two events may occur in the problem recognition step. First, a request or requisition, usually written, is made. Then, depending on the complexity of the purchase, a buying center may be formed. p. 180 5.3.2 Step 2: Search for Information The buying center searches for information about products and suppliers in this second step. Members of the buying center may individually or collectively refer to reports in trade magazines and journals, seek advice from outside consultants, and pay close attention to marketing communications from different manufacturers and suppliers. The job of marketers is to make sure the information is available when and where business customers want it. Business buyers often develop product specifications, that is, a written description of the quality, size, weight, color, features, quantity, training, warranty, service terms, and delivery requirements for the purchase. Once the product specifications Copyright © 2016 Pearson Education, Inc. Chapter 6: Understanding Consumer and Business Markets p. 181 are in hand, the next step is to identify potential suppliers and obtain written or verbal proposals, or bids, from one or more of them. 5.3.3 Step 3: Evaluate the Alternatives The buying center assesses the proposals in this stage of the buying decision process. Total spending for goods and services can have a major impact on the firm’s profitability. All things being equal, price is the primary consideration. Pricing evaluations must take into account discount policies for certain quantities, return-goods policies, the cost of repair and maintenance services, terms of payment, and the cost of financing large purchases. For capital equipment, cost criteria also include the life expectancy of the purchase, the expected resale value, and disposal cost for the old equipment. Although a bidder is often selected because it offers the lowest price, there are times when the buying decision is based on other factors. The more complex and costly the purchase, the more time buyers spend searching for the best supplier—and the more marketers must do to win the order. In some cases, a company may even ask one or more of its current customers to participate in a customer reference program. In these situations, customers formally share success stories and actively recommend products to other potential clients, often as part of an on-line community composed of people with similar needs. p. 182 Marketers often make formal presentations and product demonstrations to the buying center group. 5.3.4 Step 4: Select the Product and Supplier The next step in the buying process is the purchase decision—the selection of the best product and supplier to meet the firm’s needs. Reliability and durability rank especially high for equipment and systems that keep the firm’s operations running smoothly without interruption. For some purchases, warranties, repair service, and regular maintenance after the sale are important. One of the most important decisions for a buyer is how many suppliers can best serve the firm’s needs. Sometimes one supplier is more beneficial to the organization than multiple suppliers are. Single sourcing, in which a buyer and seller work quite closely, is particularly important when a firm needs frequent deliveries or specialized products. Copyright © 2016 Pearson Education, Inc. Part 2: Determine the Value Propositions Different Customers Want p. 182 Multiple sourcing means buying a product from several different suppliers. Under this system, suppliers are more likely to remain price competitive. p. 182 Sometimes supplier selection is based on reciprocity, which means that a buyer and seller agree to be each other’s customers by saying essentially, “I’ll buy from you, and you buy from me.” The U.S. government frowns on these types of agreements and often determines that the agreements are illegal, limiting free competition. p. 182 Outsourcing occurs when firms obtain outside vendors to provide goods or services that might otherwise be supplied inhouse. p. 182 Many companies find that it’s both cost-efficient and productive to call on outsiders from around the world to solve problems their own scientists can’t handle—we call this process crowdsourcing – put simply, a way to harness “crowds” to “source” solutions to business problems. p. 182 Reverse marketing occurs when buyers try to find suppliers that can produce specifically needed products and then attempt to “sell” the idea to the suppliers. The seller aims to satisfy the buying firm’s needs. p. 183 p. 183 Discussion: The practice of buying business products based on sealed competitive bids is popular among all types of business buyers. What are the advantages and disadvantages of this practice to buyers? What are the advantages and disadvantages to sellers? Should companies always give the business to the lowest bidder? Why or why not? 5.3.5 Step 5: Evaluate Post Purchase An organizational buyer assesses whether the performance of the product and the supplier is living up to expectations. The buyer surveys the users to determine their satisfaction with the product as well as with the installation, delivery, and service provided by the supplier. Activity: List the five steps of the business buying decision process. Explain the activities that occur in each. Pick a product. Explain what might happen as the business buyer moves through this process. 5.4 B2B E-Commerce and social media Business-to-business (B2B) e-commerce refers to the Internet Copyright © 2016 Pearson Education, Inc. Chapter 6: Understanding Consumer and Business Markets exchanges between two or more businesses or organizations. B2B e-commerce includes exchanges of information, goods, services, and payments. p. 184 Using the Internet for e-commerce allows business marketers to link directly to suppliers, factories, distributors, and their customers, radically reducing the time necessary for order and delivery of goods, tracking sales, and getting feedback from customers. 5.5 Intranets and Extranets, Many companies maintain intranets, which provide more secure means of conducting business. An intranet is an internal corporate computer network that uses Internet technology to link company departments, employees, and databases. Intranets give access only to authorized employees. When a company allows certain suppliers, customers, and others outside the organization to access its intranet, the system is known as an extranet. A business customer who has been authorized to use a supplier’s extranet can place orders online. Extranets can be especially useful for companies that need to have secure communications between the company and its dealers, distributors, and/or franchisees. Intranets and extranets are very cost efficient. They allow business partners to collaborate on projects and to build relationships. p.184 5.6 The Dark Side of B2B E-Commerce There are several security issues that impact B2B e-commerce. When hackers break into company sites, they can destroy company records and steal trade secrets. Both B2C and B2B ecommerce companies worry about authentication and ensuring that transactions are secure. This means making sure that only authorized individuals are allowed to access a site and place an order. Maintaining security also requires firms to keep the information transferred as part of a transaction, such as a credit card number, from criminals’ hard drives. They can give out unauthorized access to company computer systems by being careless about keeping their passwords into the system a secret. p. 184 Malware is software designed specifically to damage or disrupt computer systems. Copyright © 2016 Pearson Education, Inc. Part 2: Determine the Value Propositions Different Customers Want p. 184 A firewall is a combination of hardware and software that ensures that only authorized individuals gain entry into a computer system. The firewall monitors and controls all traffic between the Internet and the intranet to restrict access. p. 185 Encryption means scrambling a message so that only another individual (or computer) that has the right “key” can unscramble it. p. 185 5.7 B2B and Social Media There is hardly a B2B firm of any size today that does not promote itself through social networking sites such as LinkedIn, Twitter, and Facebook. Certain industries (advertising and marketing, computers and software, and the Internet) and job roles (marketing and consulting) are also heavier users of social media for business than other industries (health care, legal and retail) and job responsibilities (accounting, finance, customer support and sales). Among the social media sites, the one that has become most associated with B2B networking is LinkedIn. p. 186 Real People, Real Choices: Here’s My Choice… Adam chose option 3. People, Real Choices WEB RESOURCES Pearson MyMarketingLab: www.mymktlab.com Pearson Education, Inc. www.pearson.com Search engines: Google www.google.com, Excite (www.excite.com), Yahoo! (www.yahoo.com), Travel websites: TripAdvisor www.tripadvisor.com, Expedia.com www.expedia.com , and Hotel Chatter (www.hotelchatter.com) Social network services: Facebook www.facebook.com,, Sermo www.sermo.com, and SellaBand www.sellaband.com Comparison shopping agents (or ShopBots): www.Shopzilla.com and www.NexTag.com Personality’ assessment based on color preferences: www.colorquiz.com VALS segmentation groups and online survey: www.strategicbusinessinsights.com/ Copyright © 2016 Pearson Education, Inc. Chapter 6: Understanding Consumer and Business Markets Examples of companies that sell to other companies: Copeland Corporation: www.emersonclimate.com Social media site for B2B networking: www.linkedin.com American Red Cross (not-for-profit institutions): www.redcross.org Resellers: Wal-Mart (www.walmart.com), Target (www.target.com) Federal Business Opportunities (federal government information on business opportunities— “The U.S. Government’s One-Stop Virtual Marketplace”): www.FBO.gov GE Healthcare (sells a wide range of equipment to hospitals from surgical equipment to molecular imaging machines): www.gehealthcare.com AFLAC, American Family Life Assurance Company of Columbus (insurance company): www.aflac.com InnoCentive (a network of over 90,000 “solvers” whose member companies like Boeing, DuPont, Procter & Gamble, and Eli Lilly invite to tackle problems they wrestle with internally): www.innocentive.com Copyright © 2016 Pearson Education, Inc.