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Marketing: Real People, Real Decisions
Business-to-Business Markets
Chapter 7
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Solomon, Stuart,
Carson, & Smith
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Marketing: Real People, Real Decisions
Chapter Learning Objectives
When you have completed your study of this chapter,
you should be able to:
• Describe the general characteristics of
business-to-business markets and business
buying practices.
• Explain how marketers classify business
and organizational markets.
• Explain the business buying situation and
describe business buyers.
• Summarize the main stages in the business
buying decision process.
• Explain how e-commerce is dramatically
changing business-to-business marketing.
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Marketing: Real People, Real Decisions
Introduction to the Topic
• Business-to-business marketing:
the marketing of goods and services that
business and organizational customers
need to produce other goods and services
for resale or to support their operations.
• One reason that we are interested in this
type of marketing is because the volume is
four times larger than the consumer market!
• Note that the purple arrows represent
selling relationships, while the green arrows
represent buying relationships.
• Why would this be important to
understanding the nature of organizational
markets?
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Suppliers
Manufacturers
W/S Distributors
Retailers
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Marketing: Real People, Real Decisions
Differences in Organizational Markets
• The differences in decision making by organizations are mainly related
to the more serious consequences (and risk) of making bad purchase
decisions, in comparison to the individual consumer.
• The number of people involved increases as the value and complexity
of the product increases
• More professional purchasing effort because buyers are held
accountable for what they are doing!
• The process is more structured to
ensure that the decision is based on
more objective criteria, rather than
subjective or emotional reasons.
• There is also a greater likelihood of
long-term business relationships
existing between companies.
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Marketing: Real People, Real Decisions
Differences in Organizational Markets
• There are fewer customers in organizational markets which translates
into larger orders placing a greater importance on maintaining the
business relationship.
• The products or services can be more technical in nature, thus
requiring a higher level of expertise on both sides.
• Buying criteria go beyond price and
can place a higher importance on:
– delivery time
– technical assistance
– after the sale service
– financing assistance
• Promotional strategies rely primarily on
personal selling efforts, rather than
advertising in mass media.
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Marketing: Real People, Real Decisions
Differences in Organizational Markets
• Customers in organizational markets tend to be geographically
concentrated depending on the industry and the availability of
natural resources.
• Purchases may require:
– written specifications,
– competitive bidding,
– price negotiations, and
– complex financial arrangements
• Organizational demand is derived from
demand for other goods and services, and
is generally inelastic in the short term,
subject to fluctuations, and may be joined
in demand for other goods and services.
• Why is derived demand important?
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Marketing: Real People, Real Decisions
Derived Demand
• Derived demand: the demand
for business or organizational
products that is derived from
demand for consumer goods or
services.
• The more consumers spend, the
more goods are sold, and the more
orders that are placed to replenish
inventories. This works its way
backwards all the way through the
economy.
• This is why we keep track of
consumer spending indicators such
as new housing starts or debt levels.
Figure 7.2
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Marketing: Real People, Real Decisions
Influence of Derived Demand
• Acceleration principle (multiplier effect): a marketing
phenomenon in which a small percentage change in consumer
demand can create a large percentage change in business-to-business
demand.
• Inelastic demand: the demand for products that does not change
because of increases or decreases in price. When producers or
distributors have orders to fill, they need their factors of production
and demand is less affected by price fluctuations.
• Joint demand: the
demand for two or more
goods that are used together
to create a product. Such as
all of the parts and pieces
that go into assembling
motor vehicles or
appliances.
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Marketing: Real People, Real Decisions
Classifying Business Markets
Figure 7.3
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Marketing: Real People, Real Decisions
Classifying Business Markets (continued)
• North American Industry Classification System
(NAICS): the numerical coding system that the United States,
Canada, and Mexico use to classify firms into detailed categories
according to their business activities and shared characteristics.
• Producers: the individuals or
organizations that purchase products
for use in the production of other
goods and services.
• Resellers: the individuals or
organizations that buy finished goods
for the purpose of reselling, renting, or
leasing to others to make a profit and
to maintain their business operations.
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Marketing: Real People, Real Decisions
Classifying Business Markets (continued)
• Not-for-profit institutions: organizations with charitable,
educational, community, and other public service goals, that buy goods
and services to support their functions and to attract and serve their
members.
• Government markets: federal, provincial, and local governments
that buy goods and services to carry out public objectives and to
support their operations. Due to the use of public money, government
buying uses only competitive bidding.
• Competitive bids: a business
buying process in which two or
more suppliers submit proposals
(including price and associated
data) for a proposed purchase and
the firm providing the better offer
gets the bid.
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Marketing: Real People, Real Decisions
The Nature of Business Buying
• Buy class: one of three classifications of business buying situations
that characterize the degree of time and effort required to make a
decision in a buying situation.
• Straight rebuy: a buying situation in
which business buyers make routine
purchases that require minimal decision
making.
• This can be re-ordering from an existing
supplier, which makes it more difficult for
another supplier to break into the business
• Modified rebuy: a buying situation
classification that business buyers use to
categorize a previously made purchase that
involves some change and that requires
limited decision making.
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Marketing: Real People, Real Decisions
The Nature of Business Buying (continued)
• New-task buy: a new business-to-business purchase that is complex
or risky and that requires extensive decision making. This is where the
problem-solving skills of a sales person are used to create value for
customers.
• Centralized purchasing: a business buying practice in which an
organization’s (central) purchasing department does the buying for all
of the company.
• This provides greater control over
the process and more buying power
due to larger purchase volumes.
• Buyers become more expert in the
products that they must purchase.
• Unfortunately, it can also become
slow and inefficient
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Marketing: Real People, Real Decisions
The Buying Centre
• Buying centre: the group of people in an organization who
influence and participate in purchasing decisions. The most difficult
thing for a sales person to find out is who is the true decision maker.
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Marketing: Real People, Real Decisions
Electronic Commerce
• Electronic commerce: the buying and selling of products
electronically, usually via the Internet. The vast majority of ecommerce is business-to-business selling, and it provides buyers with
the opportunity to auction off their supply requirements.
• Intranet: the internal computer
connections that organizations use to
distribute information among their
different offices and locations.
• Buying group: the coordination of
purchasing among member organizations
to realize economies of scale and other
efficiencies.
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Marketing: Real People, Real Decisions
Problem recognition
Steps
in the
Buying
Decision
Process
(Figure 7.6)
•Purchase requisition or request made
•Buying centre formed if needed
Information search
•Product specifications developed
•Potential suppliers identified
•Proposals and quotations obtained
Evaluation of alternatives
•Proposals evaluated
•Samples obtained or evaluated
Product and supplier selection
•Purchase order issued
Post-purchase evaluation
•Users surveyed
•Performance documented
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Marketing: Real People, Real Decisions
Stages of the
organizational
buying process
New
Task
Problem recognition
General need description
Product specification
Supplier search
Proposal solicitation
Supplier selection
Order routing specification
Performance review
The buying
situation
Modified
Rebuy
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Straight
Rebuy
Maybe
Maybe
Yes
Maybe
Maybe
Maybe
Maybe
Yes
No
No
Yes
No
No
No
No
Yes
Source: Adapted from Patrick J. Robinson, Charles W. Faris, and Yoram Wind, Industrial Buying
and Creative Marketing (Boston: Allyn & Bacon, 1967), p.14.
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Marketing: Real People, Real Decisions
Business Market Characteristics
• Just in time (JIT): inventory management and purchasing
processes that manufacturers and resellers use to reduce inventory to
very low levels and ensure that deliveries from suppliers arrive only
when needed.
• Single sourcing: the business
practice of buying a particular product
from only one supplier.
• Multiple sourcing: the business
practice of buying a particular product
from many suppliers.
• Businesses must balance the synergies
to be gained from single sourcing
against the risk of having only one
source of supply.
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Marketing: Real People, Real Decisions
Business Market Characteristics
• Reciprocity: a trading partnership in which two firms agree to
buy from one another. While many companies practice this, it is
illegal to demand it of a business partner as a condition of doing
business.
• Outsourcing: the business buying
process of obtaining outside vendors to
provide goods or services that otherwise
might be supplied in-house.
• MERX is an example of this, click the link
below for more information.
• Reverse marketing: a business
practice in which a buyer firm shapes a
supplier’s products and operations to
satisfy its needs.
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Marketing: Real People, Real Decisions
Famous Last Words…
• Business-to-business
marketing is just like consumer
marketing, only different!
• All of the differences relate to
the higher degree of risk
associated with making a bad
purchase decision.
©Copyright 2003 Pearson Education Canada Inc.
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