Chapter 6 Business-to-Business Marketing

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Define business-to-business (B2B) marketing.
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The process of buying and selling goods or services to be used in the production of other goods and services, for consumption by the buying organization, or for resale by wholesalers and retailers. It involves manufacturers, wholesalers, retailers and services firms that market goods and services to other businesses but not the ultimate consumer.
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What is the distinction between a B2B and a B2C transaction?
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The distinction is not the product or service itself but rather the ultimate purchaser and user of that product or service.
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How do B2B firms focus their efforts?
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On serving specific types of customer markets to create value for those customers.
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What are the four B2B markets?
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Manufacturers, resellers, institutions and government.
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Explain how manufacturers or producers are B2B buyers.
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Manufacturers, for instance, buy raw materials, components and parts to manufacture their own goods.
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Use Burt’s Bees as an example of B2B buying.
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They use lots of input to create their beauty products. Their parent company must not only purchased products from other firms but work with its corporate partners (transportation companies and retailers) to facilitate the movement of the raw supplies to the factory and finished products to the stores.
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Define resellers.
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Marketing intermediaries that resell manufactured products without significantly altering their form.
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Explain how reselling happens with jeans.
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Wholesalers and distributors buy jeans from 7 For All Mankind and sell them to retailers (B2B transaction) and retailers in turn resell those jeans to the ultimate consumer (B2C transaction). Wholesalers, distributors and retailers are all resellers.
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How are institutions B2B buyers?
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Hospitals, educational organizations, prisons, religious organizations, and other nonprofit organizations, all purchase kinds of goods and services for the people they serve.
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Give an example of how government is a major B2B buyer.
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Consider municipal, provincial and federal and all of their expenditures on academic, health and social. The government also spends on science and technology and culture.
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Where can information about government buying be obtained?
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Business Access Canada or MERX (the most complete source of Canadian public tenders, private tenders, U.S. tenders, and private-sector construction news)
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What is the first key challenge to reaching B2B clients?
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To identify the right persons or decision makers within the organizations who can authorize or influence purchases.
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What is the second key challenge to reaching B2B clients?
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Marketers must understand the buying process of each of its potential clients.
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What is the third key challenge to reaching B2B clients?
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To identify the factors that influence the buying process of potential clients.
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Because of these challenges, how must marketers act?
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Since B2B markets differ in vary ing degrees on these three dimensions, marketers must invest the time and resources to understand these challenges.
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Explain the challenges of institutional buyers.
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They tend to have relatively small budgets and therefore seek the best value when buying products and services for their organizations. Thus, if two supplies have similar products, the organization might choose the lower prices one.
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Explain the challenges for governments.
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Although they make large purchases, their buying processes must satisfy strict policy guidelines and directives set by the government and meet trade rules set by the World Trade Organization or the North American Free Trade Agreement.
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Explain how government purchases face public scrutiny.
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Government purchases are subject to public scrutiny and can be subjected to legal challenges or be cancelled or modified. Governments consider a wide range of factors in their purchases and may not always purchase from the vendor with the lowest price.
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Explain how purchases by institutional organizations are under public scrutiny.
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Institutional organizations are not under such public scrutiny and rarely disclose their purchase decisions and practices, although they may try to make their buying processes transparent.
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Explain how private sector companies are under public scrutiny.
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Private sector companies, such as manufacturers, producers and resellers rarely, if ever, disclose their buying criteria or buying process. They are likely to engage in reciprocal buying, a situation where two companies agree to buy each other’s products as appropriate.
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How do companies address the complexity of B2B markets?
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Many companies have salespeople or a sales team dedicated to specific clients. Microsoft, for instance, has business-government relations experts or departments that sell to government.
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Explain the differences in market characteristics between B2B markets and B2C markets.
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In B2C markets, consumers buy goods to satisfy their own individual or household needs and are heavily influenced by price, personal tastes, brand reputation, or personal recommendations of friends and family. In B2B markets, demand for goods and services is derived from B2C sales in the same supply chain.
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Define derived demand.
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The linkage between consumers’ demand for a company’s output and its purchase of necessary inputs to manufacture or assembly that particular output.
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Explain derive demand in the jeans industry.
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For instance, the demand for raw denim used to make 7 For All Mankind jeans is derived from the sale of the jeans to consumers. Thus, demand for raw material and semifinished goods purchased by business firms tend to fluctuate more, and more frequently.
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Explain whether demand in many business markets is elastic or inelastic.
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In many business markets, demand is inelastic (the total demand for goods is not affected much by price changes in the short run).
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Give an example of the elasticity of demand in the jean industry.
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A small increase in the price for raw denim will not cause a huge drop in the demand for denim in the apparel industry in the short run.
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How does the the number of buyers in B2B markets compare to B2C markets?
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In B2B markets, the number of business buyers is substantially fewer than in B2C markets and the business buyers are more concentrated in big cities, towns and industrial areas.
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How do the size of purchases in B2B markets compare?
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The sizes of the orders are substantially larger than consumer purchases.
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How many people tend to get involved in small purchases?
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For routine purchases or small-dollar-value purchases, only one or a few individuals within a department or the company may be responsible for the buying decision.
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How many people tend to be involved in large purchases?
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THe buying effort is much more structure, formalized and professional. More people are usually involved and they are usually technically trained and qualified professionals. They often represent different interests (managerial, technical, departmental, etc…) within the organization.
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Define buying centre.
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The group of people involved in the buying decision.
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Give examples of formal policies and procedures to guide buying decisions.
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Rules governing competitive bidding, negotiated pricing, buying criteria, evaluating competitive bids, etc…
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What is a major difference in the nature of the relationship between the firm and its suppliers in a B2B market?
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THe buying decision is normally based on negotiations, which for complex purchases could be quite extended.
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What does the negotiated contract normally cover?
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A range of concerns including price, delivery, warranty, technical specifications and claim policies.
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What kind of behaviour is often exhibited in the buyer-seller relationship in a B2B market?
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Buyers and sellers strive to develop close relationships with each other and so will often provide help or advice to ensure a win-win situation for both parties. Some firms may engage in reciprocal buying arrangements (a practice where two firms agree to buy each other’s products and services).
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What are consequences of reciprocal buying?
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It excludes other vendors from participating in the buying process and may limit the firms to each other’s product (which may not be best).
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Describe the role of the salesperson in B2C markets.
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While salespeople are an important component of the communications mix for B2C transactions such as sales of real estate, insurance, jewellery, consumer electronics, and high-end apparel, most fast-moving consumer goods (FMCG) found in grocery and discount stores are not sold with the aid of salespeople.
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Describe the role of the salesperson in B2B markets.
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The salesperson is an integral component of the transaction.
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Explain how pharmaceutical manufacturers rely on sales.
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They rely primarily on sales representatives to promote their drugs to doctors. Many manufacturers provide trade and quantity discounts to resellers for carrying their products.
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Define North American Industry Classification System (NAICS) codes.
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A classification scheme that categorizes all firms into a hierarchical set of six-digit codes. It was developed jointly by Canada, the U.S. and Mexico to provide comparable statistics about business activity in all of North America.
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What did NAICS code replace?
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The Standard Industrial Classification system that had been in use since the 1930s.
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Explain what each digit in the code represents?
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The first two digits represents the sector in the economy (e.g., 51 is the information sector); the third digit represents the subsector (e.g., 515 is “Broadcasting except Internet”); the fourth digit represents the industry group; the fifth digit represents a specific subgroup within the industry; and the full six-digits refer to the country-level or national industry.
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Explain how the NAICS classification system can be useful to B2B marketers.
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IT can be useful for segmenting and targeting markets. A high-tech components manufacture (think radios) has a new product and wants to find customers. First, they do research to determine which types of firms would find the component useful. Then, through NAICS, they can assess firms within certain categories and use various criteria.
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What are six steps of the B2B buying process?
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Need recognition, product specification, RFP process, proposal analysis and supplier selection, order specification (purchase), and vendor performance assessment using metrics.
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Explain the need recognition step.
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The buying organization recognizes, through either internal or external sources, that it has an unfilled need.
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Give an example of a need for a car company.
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Toyota design terms have noticed an increase in the price of tires from their suppliers, customer complain and internal testing shows they are poor. Also, through external source the company is aware of the benefits of different manufacturers.
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Explain the product specification step.
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The organization considers alternative solutions and comes up with potential specifications that suppliers might use to develop their proposals to supply the product.
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How might Toyota handle the product specification step?
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Toyota’s designers and engineers will go to vendor plants to develop specifications for prototypes.
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Define request for proposals (RFP).
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A process through which buying organizations invite alternative suppliers to bid on supplying their required components.
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How do purchasing companies handle RFPs?
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The purchasing company may simply post its RFP needs on its website, work through B2B linkages or contact suppliers directly.
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Explain the proposal analysis and supplier selection step.
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The buying organization, in conjunction with its critical decision makers, evaluates all the proposals it receives in response to its RFP.
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How do firms come to a decision?
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They likely narrow the process to a few suppliers, often those with which they have existing relationships, and discuss key terms of the sale, such as price, quality delivery and financing.
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Do some firms have a policy for the analysis and selection stage?
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Some firms have a policy that requires them to negotiate with several suppliers, particularly if the product or service represent a critical component or aspect of the business. This policy keep suppliers on their toes as they know that the buying firm can always shift a greater portion of its business to alternative supplier with better terms.
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Explain negotiations between Toyota and tire suppliers.
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Since Toyota negotiates with other tire manufactures, Goodyear knows it can not slack on the benefits it offers. Ultimately, Toyota choose Goodyear for its combination of strength of brand, ability to delivery, product quality and other factors.
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Define order specification.
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The firm places its order with its preferred supplier.
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What will the order include?
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The order will include a detailed description of the goods, prices, delivery dates and in some cases, penalties if the order is not filled on time.
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What will the supplier do in response to the order?
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Send an acknowledgement that it has received the order and fill it by a specified date.
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What might an order look like for Toyota?
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It might describe the size and quantity of tires, the price that will be pays, the expected delivery date and the result if any of these criteria are not met.
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Define vendor performance assessment using metrics.
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Firms analyze their vendors’ performance so they can make decisions about their future purchases. This analysis is more formal and objective in a B2B setting.
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How might Toyota evaluate performance?
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Develop a list of issues important in the vendor evaluation. Then, they weigh each issue’s important and multiple that by the vendor’s performance in that issue.
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What three factors may influence the B2B buying process?
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The buying centre, the buying organization’s philosophy or corporate culture, and the buying situation.
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Define buying centre.
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The group of people typically responsible for the buying decisions in large organizations.
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Describe the members of a buying centre.
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Can range from employees who have a formal role in purchasing decisions to members of the design team specifying the things the need, to employees that will be using a new machine that is being ordered.
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Name the six different buying roles.
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Initiator, influencer, decider, buyer, user, gatekeeper.
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Define initiator.
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The buying centre participant who first suggests buying the particular product or service.
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Define influencer.
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The buying centre participant whose views influence other members of the buying centre in making the final decision.
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Define decider.
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The buying centre participant who ultimately determines any part of or the entire buying decision – whether to buy, what to buy, how to buy or where to buy.
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Define buyer.
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The buying centre participant who handles the paperwork of the actual purchase.
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Define user.
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The person who consumes or uses the product or service purchased by the buying centre.
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Define gatekeeper.
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The buying centre participant who control information or access to decision makers and influencers.
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Describe the initiator in the hospital.
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A physician initiates the buying process by determining the products and services that will best address and treat your illness or injury when you seek treatment. For your survey, you will need screws and thus the doctor notifies the hospital.
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Describe the influencer in the hospital.
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The medical device supplier or the pharmacy. A sales representative from the supplier convinces you to use their screws.
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Describe the decider.
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The hospital decides. They supply the operating room, instrumentation, surgical supplies. They must also consider whether insurance providers will cover the cost of the screws.
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Describe the buyer in a hospital.
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THe hospital’s material manager is the one charged with buying and maintaining the inventory for the hospital in the most cost-effective manner.
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Describe the user.
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The patient is the user and may ultimately decide that these screws are not best after reading about the procedure and alternatives.
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Describe the gatekeeper.
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An insurer can decide that these screws are too effective and others are just as good. It might refuse to reimburse the hospital for the cost.
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Define organizational culture.
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Reflects the set of values, traditions, and customs that guides a firm’s employees’ behaviour. The firm’s culture often comprises a set of unspoken guidelines that employees share with one another through various work situations.
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Give an example of the culture at FedEx?
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Showing up a minute late for a meeting is a fireable offence because being on time is a company value.
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What are the four types of corporate buying centre cultures?
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Autocratic, democratic, consultative and consensus.
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How should marketers be prepared for these culture differences?
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Knowing which buying centre culture is prevalent can help them decide how to approach a client, how and to whom to deliver information and to whom to make sales presentations.
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Define autocratic buying centre.
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A buying centre in which one person makes the decision alone, though there may be multiple participants.
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Define democratic buying centre.
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A buying centre in which the majority rules in making decisions.
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Define consultative buying centre.
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A buying centre in which one person makes the decision, but he or she solicits input from others before doing so.
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Define consensus buying centre.
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A buying centre in which all members of the team must reach a collective agreement that they can support a particular purchase.
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Give examples of ways to enhance relationship in B2B contexts.
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Through blogs and social media. An expert who offers advice and knowledge about products increases brand awareness.
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Explain the use of white papers in B2B marketing.
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Most B2B buyers reads white papers before making purchases. Good white papers provide information about the industry and its challenges in an educational context.
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List the three types of buying situations.
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New buys, modified rebuys, and straight rebuys.
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Define new buy.
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In a B2B setting, a purchase of a good or service for the first time; the buying decision is likely to be quite involved because the buyer or the buying organization does not have any experience with the item.
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What are typical new buys?
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Things range from capital equipment to components that the firm previously made itself but no has decide to purchase instead.
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Define modified rebuy.
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Refers to when the buyer has purchased a similar product in the past but has decided to change some specifications, such as the desired price, quality level, customer service level and options.
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Who is likely to have an advantage in acquiring the sale in a modified rebut situation?
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Current vendors are likely to have an advantage as long as the reason for the modification is not dissatisfaction with the vendor or its products.
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Define straight rebuy.
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Refers to when the buyer or buying organization simply buys additional units of products that had previously been purchased.
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What is the most complex buying situation to market and sell for and why?
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The new buy because it requires the buying organization to make changes in its current practice and purchases. As a result, several members of the buying centre will likely become involved, and the level of their involvement will be more intense than in the case of modified and straight rebuys.
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How do modified rebuys compare to new buys in regards to time.
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The buyers spend less time at each stage of the B2B buying process with modified rebuys.
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Describe the intensity of a straight rebuy.
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The buyer is often the only member of the buying centre involved in the process. Straight rebuys often enable the buyer to recognize the firm’s need and go directly to the firth step in B2B buying process.
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How might a salesperson use the Internet during a sales call?
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The salesperson can find information (product availability, order status) that is useful for negotiating points (price, discounts).
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Explain virtual trade shows.
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Companies set up “booths” inside a virtual space and engage in product demonstrations and conversations with potential clients. The virtual space can also host educational seminars and networking areas.
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What is the advantage of a virtual trade show?
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It provides considerable savings because there are no travel expensive and no expensive booth displays. Members of the buying centre can log in when convenient. Sellers can update heir product information immediately.
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Define private exchange.
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Occurs when a specific firm, either buyer or seller, invites others to join to participate in online information exchanges and transactions; can help streamline procurement or distribution processes.
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What are the advantages of private exchange?
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Some companies require suppliers to deal with them through these exchanges as it provides tremendous cost savings through the elimination of periodic negotiations and routine paperwork.
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How can private change align manufactures and suppliers?
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They can work together to design better products. Manufacturers and retailers collect detailed information about their customers’ preferences and other market trends, which they can share with those key suppliers involved in the product design. This process results in products that more closely match customer needs and create and deliver high customer value.
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Define English auction.
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Goods and services are simply sold to the highest bidder.
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Explain how a PC manufacturer can use an English auction.
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If they have unsold PCs, they can auction them through an exchange and sell them to the buyer that bids the highest price for them.
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Define reverse auction.
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The buyer provides specifications to a group of sellers, who then bid down the price until the buyer accepts a specific bid.

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