CHAPTER 5: Business-to-Business Marketing

Business-to-Business (B2B) Marketing

the process of buying and selling goods of services to be used in the production of other goods and services, for the consumption by the buying organization or for resale by wholesalers and retailers

B2B marketing involves

- manufacturers
- wholesalers
- retailers
- service firms that market goods and services to other businesses
(- not the ultimate consumer)

B2B Markets

- Manufacturers
- Resellers
- Institutions
- Government

Manufacturers

buy raw materials, components and parts that allow them to manufacture their own goods

Resellers

intermediaries that resell manufactured goods without significantly altering their form
- wholesalers
- distributors
- retailers

Institutions

purchase goods and services for the people they serve
- hospitals
- educational organizations
- prisons
- religious organizations
- nonprofit organizations

Government

- make large purchases
- buying processes must satisfy strict policies and meet international trade rules set by WTO and NAFTA
- subject to public scrutiny and legal challenges
- can

challenges of reaching B2B clients

- identify the right people or decision makers within the organizations who can authorize or influence purchases
- understand the buying process of each potential client
- identity the factors that influence the buying process of potential clients

Market characteristics

- demand for products is derived from B2C sales in the same supply chain
- demand fluctuates more and more frequently
- demand is more inelastic
- fewer customers, larger orders
- more geographically concentrated

Derived Demand

the linkage between consumers' demand for a company's output and its purchase of necessary inputs to manufacture or assemble the output

Product characteristics

- technical and purchased based on specifications
- mainly raw and semifinished goods
- focus on delivery time, technical assistance, after-sale service and financing assistance

Buying Process characteristics

- more complex
- competitive bidding, negotiated pricing
- qualified professional buyers
- specified criteria and objectives
- lone-term relationships between buyers and sellers
- online buying

Marketing mix characteristics

- direct selling
- physical distribution
- technical advertising
- promotions emphasize personal selling
- price is often negotiated, inelastic, affected by trade & quantity discounts and includes a service or maintenance component

North American Industry Classification System (NAICS)

categorizes all firms into a hierarchical set of 6-digit NAICS codes

NAICS codes

first two digits: sector
third digit: subsector
fourth digit: industry group
fifth digit: specific subgroup

B2B Buying Process

1) Need Recognition
2) Product Specification
3) RFP Process
4) Proposal Analysis and Supplier Selection
5) Order Specification (Purchase)
6) Vendor Performance Assessment Using Metrics

1) Need Recognition

buying organization recognizes though either internal or external sources that it has an unfilled need

2) Product Specification

buying organization creates a list of potential specifications that vendors might use to develop their proposals

3) Request For Proposals (RFP) Process

- buying organizations invite alternative suppliers to bid on supplying their required components
- may post its RFP needs on its website, work through various B2B web portals or contact potential supplier directly

4) Proposal Analysis and Supplier Selection

buying organization evaluates all the proposals it receives in response to its RFP
- narrow down to a few supplier (often those with which they have existing relationships) and discuss key terms of sale (price, quality, delivery)
- some firms have a policy that requires them to negotiate with several suppliers

5) Order Specification (Purchase)

buying organization places its order with its preferred supplier(s)
... the order will includes
- description of goods
- prices
- delivery dates
- penalties if the order is not filled on time

supplier sends an acknowledgment that it has received the order then fills it by the specified date

6) Vendor Performance Assessment Using Metrics

buying organization analyzes the suppliers performance to they make make decisions about future purchases (more formals and objective in B2B than in B2C)

Metrics in Vendor Performance Assessment

- delivery
- quality
- customer service
- issue resolution

factors within the buying organization that influence the B2B buying process

- the buying centre
- the organization's philosophy or corporate culture
- the buying situation

Buying Centre

the group of people that is typically responsible for buying decisions in large organizations
- initiator
- influencer
- decider
- buyer
- user
- gatekeeper

initiator

the person who first suggests buying the particular product

influencer

the person whose view influence other members of the buying centre in making the final decision

decider

the person who ultimately determines any part of or the entire buying decision
- whether to buy
- what to buy
- how to buy
- where to buy

buyer

the person who handles the paperwork of the actual purchase

user

the person(s) who uses the product

gatekeeper

the person(s) who controls information or access or both to decision makers and influencers

Corporate Culture

the set of values, traditions and customs that guides an organization's managers' and employees' behaviour

types of corporate cultures

(knowing which culture is prevalent helps the seller decide how to approach that particular client, how and whom to deliver information and whom to make sales presentations)
- Autocratic
- Democratic
- Consultative
- Consensus

Autocratic corporate culture

one person makes the decision alone though there may be multiple participnts

Democratic corporate culture

majority rules in decision making

Consultative corporate culture

one person makes the decision, but he/she solicits input from other before doing so

Consensus corporate culture

all members of the team must reach a collective agreement that they can support a particular purchase

types of buying situations

- new buys
- modified rebuys
- straight rebuys

new buys

product is purchased for the first time
- buying centre is likely to proceed through all 6 steps of the buying process and involve many people in the buying decision

modified rebuys

similar product purchased in the past, but some specifications have been changed
- current suppliers have an advantage (as long as the reason for the modification is not dissatisfaction with the supplier)

straight rebuys

purchase of additional units of products that have been purchased previously
- most common B2B buying situation
- the buyer is often the only member of the buying centre involved
- enable the buyer to go from need recognition straight to purchase (skipping product specification, RFP process and proposal analysis & supplier selection)