Ch. 5 Marketing to Organizations

Business Marketing (business-to-business)

The marketing of products to companies, governments, or non-profit organizations for use in the creation of goods and services that they then produce and market to others. Also referred to as business-to-business marketing. It differs greatly from consumer buying.

Organizational Buyers

Those manufacturers, wholesalers, retailers, and government agencies that buy goods and services for their own use or for resale for their own businesses.

• For example, these organizations buy computers and smartphones for their own use.

• Manufacturers buy raw materials and parts that they reprocess into the finished goods they sell, and wholesalers and retailers resell the goods they buy without reprocessing them.

• Organizational buyers include all buyers in a nation except ultimate consumers. 

• This includes the total purchases of organization buyers in a year are far greater than those of ultimate consumers.

Four Areas of Organizational Buyers

1.       Industrial

2.       Reseller

3.       Government

4.       Non-profit markets

Industrial Markets

These industrial firms in some way reprocess a product or service they buy before selling it again to the next buyer. The business market involves more purchases and dollars then the consumer market. This is because the inputs (parts that make up a product), are required to sell the finished product.

• Primary industries (e.g., agriculture, fishing, mining, and forestry), utilities, manufacturers, and construction firms sell physical products.

• The service market sells diverse services such as legal advice, auto repair, and dry cleaning, and includes organizations such as finance, insurance, and real estate businesses; transportation, communication, and public utility firms; and non-profit associations

Reseller Markets

Wholesalers and retailers that buy physical products and sell them again without any reprocessing are resellers. Resellers act as organizational buyers and make decisions on which products they choose to carry.

Government Markets

Government units are the federal, provincial, regional, and municipal agencies that buy goods and services for the constituents that they serve.

• At the federal government level, the bulk of the purchasing is done by Public Works and Procurement Canada.

• Provincial and municipal governments typically have government departments that do the buying for them. 

• Hundreds of government departments, agencies, and Crown corporations (owned by the government on behalf of the people of Canada) such as CBC, VIA Rail, and the Royal Canadian Mint purchase supplies and services they need to operate.

Non-profit Organizations

Organizations that do not have financial profit as a goal and that seek to provide goods and services for the good of society, are called non-profit organizations. As purchasers, this sector of business buys a wide array of goods and services to conduct their operations.

North American Industry Classification System (NAICS)

Provides common industry definitions for Canada, Mexico, and the United States, which facilitate the measurement of economic activity in the three member countries of the Canada-United States-Mexico Agreement (CUSMA).

• Groups economic activity to permit studies of market share, demand for goods and services, competition from imports in domestic markets, among others.

Content Marketing

A type of marketing that involves the creation and sharing of online material (such as videos, blogs and social media posts) that does not explicitly promote a brand but is intended to stimulate interest in its products or services.

• Content marketing keeps potential customers engaged by ensuring that relevant and valuable content is available at various touch points.

Key Characteristics of Organizational Buying

1. Market characteristics

2. Product or service characteristics

3. Buying process characteristics

4. Marketing mix characteristics

Derived demand

Means that the demand for industrial products and services is driven by, or derived from, demand for consumer products and services.

• Often based off expectations of future consumer demand.

• Consumer demand for products and services is affected by their price and availability, and by consumers’ personal tastes and discretionary income.

Inelastic Demand

Means that regardless of whether there is an increase or decrease of the price of a B2B product, customers will buy the same quantity.

• For example, if the price of brake pads goes up, a car manufacturer will still order the same quantity.

• A single business product, such as a brake pad, is only one of many parts that go into making the final product, and is only a minor portion of the price of the car.

Fluctuating Demand

Small changes in demand for consumer products can result in large increases or decreases in demand for the facilities and equipment needed to make the consumer product.

• This is referred to as fluctuating demand.

• A product’s life expectancy also has a bearing on this type of demand. For example, business products such as large machinery are purchased infrequently.

• Demand for such products can be high one year when they are wearing out but low in the following year if the old machinery is operating satisfactorily.

Size of Order or Purchase

The size of the purchase involved in organizational buying is typically much larger than that in consumer buying. The dollar value of a single purchase made by an organization often runs into the millions of dollar.

Organizational Buying Criteria

Detailed specifications for the products and services they want to buy and the characteristics of the suppliers that will supply them. When suppliers are selected, their products and their firm’s characteristics are evaluated using these criteria. The following lists some of the most commonly used criteria:

·       Price

·       Ability to meet the quality specifications required

·       Ability to meet the required delivery schedules

·       Technical capability

·       Warranties and claims policies

·       Past performance on previous contracts

·       Production facilities and capacity

Reverse Marketing

Many organizational buyers today are transforming their buying criteria into specific requirements that are communicated to suppliers.

This practice, called reverse marketing, means that organizational buyers are attempting to work with suppliers to make their products, services, and capabilities fit the buyer’s needs.

Supply Partnership

Exists when a buyer and its supplier adopt mutually beneficial objectives, policies, and procedures for the purpose of lowering the cost or increasing the value of products and services delivered to the ultimate consumer.

• For example, Sarmazian Brothers, an Ontario flooring retailer, partners with companies that are market leaders in flooring to enhance its offering.

Differences in Consumer and Organizational Buying

Organizational buying involves and has a higher stakes in the following:

1. Derived demand

2. Inelastic demand

3. Fluctuating demand

4. Size of the order or purchase

5. Number of potential buyers (thousands and millions)

6. Organizational buying objectives

7. Organizational buying criteria

8. Buyer-seller relationships and partnerships

Organizational Buying Behavior

The decision-making process that organizations use

• (1) to establish the need for products and services, and

• (2) to identify, evaluate, and choose among alternative brands and suppliers.

Stage in the Buying Decision Process (Organization)

1. Problem recognition:Marketing research and sales departments observe that competitors are improving the quality of cameras on their new models, which will be purchased from an outside supplier

2. Information search: Design and production engineers draft specifications for the camera. The purchasing department identifies suppliers of cameras.

3. Evaluation of alternatives: Purchasing and engineering personnel visit with suppliers and assess facilities, capacity, quality control, and financial status. They drop any suppliers not satisfactory on these factors.

4. Purchase decision: They use quality, price, delivery, and technical capability as key buying criteria to select a supplier. Then they negotiate terms and award a contract.

5. Post-purchase behavior: They evaluate the supplier using a formal vendor-rating system and notify the supplier if the camera does not meet their quality standard. If the problem is not corrected, they drop the firm as a future supplier.

It is the same process as consumer behavior, however, it uses a different approach.

Buying Centre

Group of people in an organization who participate in the buying process.

• They share common goals, risks, and knowledge important to purchase decisions. Researchers have identified five specific roles that an individual in a buying centre can play.

Buying Committee

For most large multistore chain resellers, such as 7-Eleven convenience stores, the buying centre is very formal and is called a buying committee.

• However, most industrial firms or government units use informal groups of people or call meetings to arrive at buying decisions.

Five Specific Roles in a Buying Centre

• Users: People who actually use the product or service.

• Influencers: Experts who shape what should be bought by setting specifications.

• Buyers: People with authority to choose suppliers and negotiate contracts.

• Deciders: Individuals who make or approve the final purchasing decision.

• Gatekeepers: Those who control what information and which salespeople reach decision-makers.

In some purchases, the same person may perform two or more of these roles.

Buy Classes

Three types of organizational buying situations: straight rebuy, modified rebuy, or new buy.

• Straight rebuy: Reordering the same product from approved suppliers with little or no review.

• Modified rebuy: Buying a familiar product but changing specs, price, supplier, or delivery, which involves more people.

• New buy: Purchasing a product or service for the first time; it’s the most complex, risky, and involves many decision-makers.

Traditional Auction

A seller puts an item up for sale and would-be buyers are invited to bid in competition with one another. As more potential buyers become involved, there is an upward pressure on bid prices.

• Prospective buyers observe the bids of others and decide whether to increase the bid price.

• The auction ends when a single bidder remains and “wins” the item with the highest bid.

• Traditional auctions are frequently used to dispose of excess merchandise

Reverse Auction

A buyer communicates a need for a product or service and would-be suppliers are invited to bid in competition with each other.

• As more would-be suppliers become involved, there is a downward pressure on bid prices for the buyer’s business

• Because bidding is sequential and prospective suppliers observe the bids of others and decide whether to decrease the bid price.

• The auction ends when a single bidder remains and “wins” the business with its lowest price.

• Reverse auctions benefit organizational buyers by reducing the cost of their purchases.

E-marketplaces

Online trading communities that bring together buyers and supplier organizations.

B2B Market Segmentation

In business markets, segmentation groups companies (not consumers) based on shared needs so marketers can tailor strategies.

• Business markets are segmented by:

  • Type of customer (industry)

  • Size of customer

  • Type of buying situation (new buy, modified rebuy, straight rebuy)

  • Customer location

  • Benefits sought (such as quality, service, or price)