CHAPTER 6Business-to-Business Markets:

How and Why Organizations Buy

M A R K E T I N GReal People, Real Choices

Fourth Edition

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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

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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)

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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

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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.

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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

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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

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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

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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

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The Nature of Business Buying

• The Buying Situation

• The Professional Buyer

• The Buying Center

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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

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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

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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

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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

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Considerations in Supplier Selection

• On-time deliveries

• Single sourcing vs. multiple sourcing

• Outsourcing

• Reverse marketing

• Reciprocity

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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

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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

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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