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MARKETING Real People, Real Choices Fourth Edition CHAPTER 6 Business-to-Business Markets: How and Why Organizations Buy 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 6-2 Business Markets • Generally, the same principles are true for business and consumer customers • There are characteristics that make B2B buying more complex – Multiple Buyers – Number of customers – Size of purchases – Geographic concentration (e.g. Silicon Valley CA; Detroit MI) 6-3 B2B Demand Characteristics • Derived Demand – Demand for a b2b product depends on demand for the final b2c product • Inelastic Demand – Depends on the proportion of the input to total input • Fluctuating Demand – Some products may be replaced sparingly • Joint Demand – When the final product contains more than one component 6-4 Inelastic Demand • Inelastic demand means that business customers buy the same quantity whether the price goes up or down • Example: A BMW Z4 Roadster 3.0i 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 Z4. 6-5 Fluctuating Demand • Small changes in consumer demand can create large increases or decreases in business demand • Capital equipment coming up for replacement can suddenly spike demand 6-6 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 6-7 B2B Classifications • Producers – Convert raw materials into finished products • Resellers – Resell products without converting them • Organizations – Governments • competitive bids • requests for proposals (RFPs) – Not-for-profit organizations 6-8 NAICS – North American Industry Classification System • Numerical coding of industries in US, Canada and Mexico • Classifies firms into detailed categories according to their activities • 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 6-9 The Nature of Business Buying • The Buying Situation • The Professional Buyer • The Buying Center 6-10 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 6-11 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 6-12 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 • Works like a committee 6-13 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 6-14 Considerations in Supplier Selection • • • • • On-time deliveries Single sourcing vs. multiple sourcing Outsourcing Reverse marketing Reciprocity 6-15 Electronic B2B 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 6-16 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 6-17 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 6-18