CHAPTER 6 0

Business-to-Business (B2B) Marketing

Chapter Objectives
1 Explain each of the 4 Discuss the decision to 7 Classify organizational
components of the make, buy, or lease. buying situations.
business-to-business
(B2B) market. 5 Describe the major 8 Explain the buying center
influences on business concept.
2 Describe the major buying behavior.
Discuss the challenges of
approaches to segmenting
6 Outline the steps in the 9 and strategies for
business-to-business
organizational buying marketing to government,
(B2B) markets.
3 process. institutional, and
Identify the major international buyers.
characteristics of the
business market and its
demand.
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• Business-to-business (B2B) market is significantly larger than the

consumer market.
• Example: U.S. companies spend more than $300 billion annually just
for office and maintenance supplies.
• Example: Department of Defense budget in a recent year was over
$515 billion.
• Business-to-business (B2B) marketing Organizational sales and
purchases of goods and services to support production of other products, to
facilitate daily company operations, or for resale.
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NATURE OF THE BUSINESS MARKET

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NATURE OF THE BUSINESS MARKET

• Companies also buy services, such as law, accounting, office-cleaning, and
other services.
• Some firms focus entirely on business markets.
• Example: Caterpillar, which makes construction and mining
equipment.

COMPONENTS OF THE BUSINESS MARKET

• Commercial market Individuals and firms that acquire products to
support, directly or indirectly, production of other goods and services.
• Trade industries Retailers or wholesalers (resellers) that purchase
products for resale to others.
• Government.
• Public and private institutions.
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B2B MARKETS: THE INTERNET CONNECTION

• About 93 percent of all Internet sales are B2B transactions.
• Opens up foreign markets to sellers.
• Largest segment of the business market.

DIFFERENCES IN FOREIGN BUSINESS MARKETS

• May differ due to variations in regulations and cultural practices.
• Businesses must be willing to adapt to local customs and business practices
and research cultural preferences.
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SEGMENTING B2B MARKETS

• Segmentation helps marketers develop the most appropriate strategy.

SEGMENTATION BY DEMOGRAPHIC
CHARACTERISTICS
• Grouping by size based on sales revenues or number of employees.

SEGMENTATION BY CUSTOMER TYPE

• Grouping in broad categories, such as by industry.
• Customer-based segmentation Dividing a business-to-business market
into homogeneous groups based on buyers’ product specifications.
• North American Industry Classification System (NAICS)
Classification used by NAFTA countries to categorize the business
marketplace into detailed market segments.
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SEGMENTATION BY END-USE APPLICATION

• End-use application segmentation Segmenting a business-to-business
market based on how industrial purchasers will use the product.
• Example: A supplier of industrial gases that sells hydrogen to some
companies and carbon dioxide to others.

SEGMENTATION BY PURCHASE CATEGORIES

• Segmenting according to organizational buyer characteristics.
• Example: Whether a company has a designated central purchasing
department or each unit within the company handles its own purchasing.
• Businesses that have developed customer relationship management (CRM)
systems can segment customers in terms of the stage of the relationship
between the business and the customer.
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CHARACTERISTICS OF THE B2B MARKET

GEOGRAPHIC MARKET CONCENTRATION
• Business market more concentrated than consumer market.
• Example: Companies that sell to the federal government are often

located near Washington, D.C.

• Geographic concentration decreasing as Internet technology improves.

SIZES AND NUMBER OF BUYERS

• Business market has smaller number of buyers than consumer market.
• Many buyers are large organizations, such as Boeing, which buys jet
engines.
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THE PURCHASE DECISION PROCESS

• Often involves multiple decision makers, is more formal, and may require
bidding and negotiations.

BUYER-SELLER RELATIONSHIPS
• Often more complex than in consumer market with a greater reliance on
relationship marketing.

EVALUATING INTERNATIONAL BUSINESS MARKETS

• Business purchasing patterns differ from country to country.
• Global sourcing Purchasing goods and services from suppliers worldwide.
• Can bring significant cost savings but requires adjustments.
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BUSINESS MARKET DEMAND

• Demand characteristics vary from market to market.
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DERIVED DEMAND
• The linkage between demand for a company’s output and its purchases of
resources such as machinery, components, supplies, and raw materials.

VOLATILE DEMAND
• Derived demand creates volatility; for example, demand for gasoline
pumps may be reduced if demand for gasoline slows.

JOINT DEMAND
• Demand for two products used in combination with each other.

INELASTIC DEMAND
• Demand not significantly influenced by price changes.

INVENTORY ADJUSTMENTS
• Just-in-time (JIT) inventory policies boost efficiency by cutting inventory
and requiring vendors to deliver inputs as they are needed.
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THE MAKE, BUY, OR LEASE DECISION

• Firms acquiring needed products can get them in one of three ways:
• Make the good or provide the service in-house.
• Purchase it from another organization.
• Lease it from another organization.
• Producing the item may be cheapest route, but most firms cannot make all
of the products they need.
• Many companies purchase many of the goods they need.
• Companies can spread out costs through leasing.
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THE RISE OF OFFSHORING AND OUTSOURCING

• Offshoring Movement of high-wage jobs from one country to lower-cost
overseas locations.
• Nearshoring Moving jobs to vendors in countries close to the business’s
home country.
• Outshoring Using outside vendors to provide goods and services formerly
produced in-house.

PROBLEMS WITH OFFSHORING AND OUTSOURCING

• Cost savings may be less than expected.
• Can raise security concerns over proprietary technology or customer data.
• Can reduce flexibility, create conflicts with unions, or negatively affect
employee morale and loyalty.
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THE BUSINESS BUYING PROCESS

• More complex than the consumer decision process.
• Takes place within formal organization’s budget, cost, and profit
considerations.

INFLUENCES ON PURCHASE DECISIONS

• Environmental factors—economic, political, regulatory, competitive, and
technological considerations influence business buying decisions.
• Organizational factors—structures, policies, and purchasing systems,
which may be centralized in one office or delegated to units throughout the
organization.
• Interpersonal influences of all organizational members involved in the
buying decision.
• Concerns and procedures of professional buyers who implement
systematic buying procedures.
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STAGES IN THE B2B BUYING PROCESS

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CLASSIFYING BUSINESS BUYING SITUATIONS

• Business buying behavior involves degree of effort involved in the decision
and the levels within the organization in which these decisions are made.
• Straight rebuying—recurring purchase decision in which a customer
reorders a product that has satisfied needs in the past.
• Modified rebuying—purchaser willing to reevaluate available options.
• New-Task Buying—first-time or unique purchase situations that require
considerable effort by the decision makers.
• Reciprocity—practice of buying from suppliers that are also customers.

ANALYSIS TOOLS
• Value analysis—examines each component of a purchase in an attempt to
either delete the item or replace it with a more cost-effective substitute.
• Vendor analysis—ongoing evaluation of a supplier’s performance in a
variety of areas.
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THE BUYING CENTER CONCEPT

• Buying center Participants in an organizational buying action.

BUYING CENTER ROLES

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INTERNATIONAL BUYING CENTERS

• Two distinct characteristics differentiate international buying centers:
• Marketers may have trouble identifying members of foreign buying
centers because of cultural differences in decision-making methods.
• A buying center in a foreign company often includes more participants
than U.S. companies involve.
• International buying centers can change in response to political and
economic trends.
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DEVELOPING EFFECTIVE BUSINESS-TO-

BUSINESS MARKETING STRATEGIES
• Marketer must develop strategy based on particular organization’s buying
behavior and on the buying situation.

CHALLENGES OF GOVERNMENT MARKETS

• Purchases typically involve dozens of interested parties and may be
influenced by social goals.
• Contractual guidelines create another important influence in selling to
government markets.
• The government buys products under two basic types of contracts:
• Fixed-price contracts – seller and buyer agree to a set price before
finalizing the contract.
• Cost-reimbursement contracts – the government pays the vendor for
allowable costs, including profits, incurred during performance of the
contract.
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GOVERNMENTS PURCHASING PROCEDURES

• Many purchases go through Government Services Agency, a central

management agency.
• By law, most federal government purchases must go through a complex
bidding process governed by the Federal Acquisition Regulation.
• Recent reforms have sped purchasing and increased flexibility.
• State and local governments follow procedures similar to federal
government.

ONLINE WITH THE FEDERAL GOVERNMENT

• Government buyers often rely on electronic commerce.

• GSA Advantage allows government buyers to make purchases
online at preferred government prices.
• Many government units lag behind the private sector in electronic
procurement procedures.
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CHALLENGES OF INSTITUTIONAL MARKETS

• Include schools, hospitals, libraries, foundations, and others.
• Multiple buying influences can affect buying decisions, such as conflicts
between professional staff and purchasing departments.

CHALLENGES OF INTERNATIONAL MARKETS

• Marketers must consider buyers’ attitudes and cultural patterns.
• Local industries, economic conditions, geographic characteristics, and legal
restrictions must all be considered.
• Foreign governments are also an important market.