Marketing Chapter 6 – Business to Business Marketing (B2B) – Flashcards

• Business-to-business (B2B) marketing: 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. • Involves manufacturers, wholesalers, retailers, and service firms that market goods and services to other businesses but not to the ultimate consumer. • The distinction between a B2B and a B2C transaction is not the product/service itself; rather, it is the ultimate purchaser and user of that product or service. • Ex: selling jeans to an industrial supply firm, which then sold them to a custodial firm whose employees would wear them on the job, the transaction would be a B2B transaction because the jeans are being purchased and used by a business rather than by an individual household consumer.

• Just like B2C orgs, B2B firms focus on serving specific types of customer markets to create value for those customers Ex: RBC maintains a dedicated group of account executives to service its small business and commercial banking clients. • Many firms find it more productive to focus their efforts on key industries or market segments rather than on ultimate consumers. • Manufacturers, resellers, institutions, and governments are all involved in B2B transactions

• Manufacturers/Producers: biggest B2B buyers. They buy raw materials, components, and parts that allow them to manufacture their own goods. They must manage suppliers and transportation intermediaries closely to minimize any inventory shortages or overages, as well as to ensure on-time. o Today, many B2B companies are demanding, as a condition for doing business, that suppliers demonstrate social responsibility by using policies and practices to reduce their carbon footprint. o You can save money while improving its corporate image by being more socially responsible

• Resellers: marketing intermediaries that resell manufactured products without significantly altering their form. Wholesalers, distributors, and retailers are all resellers

• Institutions, such as hospitals, educational organizations, prisons, religious organizations, and other nonprofit organizations, also purchase all kinds of goods and services for the people they serve.

• Government: in most countries, the central govt is one of the largest buyers of goods/services Canadian federal government spends about $240 billion annually on procuring goods and services o Info about government buying can be obtained from MERX: most complete source of Canadian public tenders, private tenders, U.S. tenders, and private-sector construction news available in Canada. MERX makes it possible for any-size businesses to have easy and affordable access to billions of dollars in contracting opportunities with the Government of Canada, participating provincial and municipal govts, U.S. govt, state and local governments, and the private sector

• For marketers to be effective and successful at B2B marketing, they must master three key challenges for each business customer they want to serve. 1) Identify the right persons/decision makers within the orgs who can authorize/influence purchases. 2) Understand the buying process of each of its potential clients. 3) Identify the factors that influence the buying process of potential clients. • B2B markets differ in varying degrees on these three dimensions so understand the challenges! • Ex: institutional buyers, such as nursing homes and universities, tend to have relatively small budgets and therefore seek the best value when buying stuff for their organizations. • Governments make much larger purchases, but their buying processes must not only satisfy strict policy guidelines and directives set by the government, but also meet WTO & NAFTA rules. • Government purchases are subject to public scrutiny and can be subjected to legal challenges or be cancelled or modified consider a wide range of factors in their purchases • 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. • Private sector companies (manufacturers, producers, resellers) rarely disclose their buying criteria or process. They engage in reciprocal buying: 2 companies agree to buy each other's products • To address the complexity of B2B markets, many companies have salespeople dedicated to specific clients. Ex: business-government relations experts or departments

• Market Characteristics: In B2C, consumers buy goods to satisfy their own individual/household needs and are heavily influenced by price, personal tastes, brand reputation, or recommendations. In B2B markets, demand for goods and services is derived from B2C sales in the same supply chain. o Derived demand is the linkage between consumers' demand for a company's output, and its purchase of necessary inputs to manufacture/assemble that particular output. -> ex: demand for raw denim used to make 7 Levi's jeans is derived from the sale of the jeans to consumers. o Demand for raw material/semi-finished goods purchased by business fluctuate o Demand is inelastic: total demand for goods is not affected much by price changes in short run. o # of business buyers is substantially fewer than in B2C markets o business buyers are more geographically concentrated in big cities, towns, and industrial areas o sizes of the orders are substantially larger than consumer purchases

• Product Characteristics: In B2B markets, the products ordered are primarily raw materials and semifinished goods that are processed/assembled into finished goods for the ultimate consumers. o In certain B2B markets (aerospace, medical, pharmaceutical, shipping, defence), the products are very technical/sophisticated and must conform to technical standards specified by the buyer -> raw materials, components, and semifinished goods undergo rigorous testing before shipping. o Orders must be delivered on the dates agreed to by both buyers and sellers. o Technical services and financing assistance are important aspects of B2B buying behaviour. o Vendor financing: provides its customer with a loan that is used to buy goods from the company. o In B2C markets, consumers buy finished goods for their own personal consumption.

• Buying Process Characteristics: for routine/small-dollar-value purchases, only a few people within a company may be responsible for the buying decision. However, for purchases of highly technical or complex products involving a lot of money, the buying effort is structured, formalized, professional. o B2C is more complex -> More people involved, that are technically trained & qualified professionals that represent different interests (managerial, technical, departmental) of the org o buying centre: group of people involved in the buying decision o Most companies have formal policies/procedures to guide buying decisions that must be closely followed by the buying centre -> rules governing competitive bidding, negotiated pricing, financial arrangements, buying criteria, objectives, procedures for evaluating competitive bids. o Another difference between B2B and B2C = nature of the relationship between the firm and its suppliers. In B2B markets, buyers/sellers strive to develop close relationships and so provide help to ensure a win-win situation for both parties. o Online buying and negotiations is common for B2B o Reciprocal buying arrangements—two firms agree to buy each other's products and services. -> Have negative/positive consequences for the buying/selling firms involved & suppliers. excludes other vendors from participating in the buying process limit the firms to each other's products, which may not be the best

• Marketing Mix Characteristics: role of the salesperson -> while salespeople are an important component of the communications mix for B2C transactions (real estate, insurance, jewellery), most fast-moving consumer goods (FMCG) (grocery and discount stores) are not sold with salespeople. In most B2B sales, the salesperson is an integral component of the transaction. o manufacturers provide trade and quantity discounts to resellers for carrying their products o direct selling is the primary form of selling and physical distribution is often essential o advertising is technical, and promotions emphasize personal selling o price is often negotiated, inelastic, often affected by trade and quantity discounts o price usually includes a service/maintenance component

• Stats Canada collects data about business activity in Canada through its classification scheme; categorizes all firms into a hierarchical set of 6-digit North American Industry Classification System (NAICS) codes. • NAICS was developed jointly by Canada, the US, and Mexico to provide comparable statistics about business activity in all of N. America • useful to B2B marketers for segmenting and targeting markets. Suppose that a high-tech telecommunications components manufacturer has developed a new product that will significantly speed data transmission. Which of the types of firms listed under NAICS classification 515111 (radio networks) would be the most worthwhile to pursue as customers? To answer this, the components manufacturer would research to determine which types of firms would find the new component most useful for their products. Then, using the NAICS data, the manufacturer could assess the number, size, and geographical dispersion of firms within each type

• Parallels the B2C process, though it differs in many ways: o Both start with need recognition, but the info search and alternative evaluation stages are more formal and structured in the B2B process. o B2B buyers specify their needs in writing & ask potential suppliers to submit formal proposals. B2C buying decisions are usually made by individuals/families& sometimes are unplanned. o B2B buying decisions often are made by committees after a great deal of consideration o B2C customers evaluate their purchase and sometimes experience post-purchase dissonance. o In B2C, formal performance evaluations of the vendor and the products sold generally do not occur, as they do in the B2B setting • not all B2B purchases go through each stage or go through each stage with the same intensity.

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

• buying organization recognizes, through internal/external sources, that it has an unfilled need. • Note that this is functional, and not psychological like for B2C

• Organization considers alternative solutions and comes up with potential specifications that suppliers might use to develop their proposals to supply the product.

• The request for proposals (RFP) is a common process through which buying organizations invite alternative suppliers to bid on supplying their required components. • The purchasing company may simply post its RFP needs on its website, work through various B2B linkages, or contact potential suppliers directly. • Responding to RFPs can be time-consuming and costly

• The buying organization, with its critical decision makers, evaluates all the proposals it receives in response to its RFP -> narrow the process to a few suppliers, often those which already have relationships, and discuss key terms of the sale (price, quality, delivery, and financing). • Some firms have a policy that requires them to negotiate with several suppliers -> keeps suppliers on their toes; they know that the buying firm can always shift to an alternative supplier

• Firm places its order with its preferred supplier (or suppliers) • Include a detailed description of the goods, prices, delivery dates, and, in some cases, penalties if the order is not filled on time • Supplier sends an acknowledgement that it has received the order and fill it by the specified date.

• Just like B2C, firms analyze their vendors' performance so they can make decisions about their future purchases. The difference is that, in a B2B setting, this analysis is more formal and objective.: 1. The buying team develops a list of important issues to consider in the evaluation of the vendor. 2. To determine how important each of these issues (in column 1) is, the buying team assigns an importance score to each (column 2). Importance scores must add up to 1 (high = important) 3. In the third column, the buying team scores how well the vendor performs. Using a 5-point scale, where 1 equals "Poor Performance" and 5 equals "Excellent Performance," 4. To get the overall performance of the vendor, in the fourth column, the team combines the importance of each issue and the vendor's performance scores by multiplying them together. • Although most B2B orgs utilize the buying process above as a way to ensure they get the best value, some organizations simply operate based on a sole source or on LT business relationships

• The 6-stage B2B buying process may be influenced by 3 factors within the purchasing organization Factor 1: The Buying Centre Factor 2: Organizational Culture Factor 3: Buying Situations

• Buying centre participants range from employees who have a formal role in purchasing decisions to members of the design team that is specifying the particular equipment or raw material needed, to employees who will be using a new machine that is being ordered. -> play different roles in the buying process, which vendors must understand and adapt to in their marketing and sales efforts. • 6 different buying roles within a buying centre. One or more people may take on one/more roles: (1) Initiator: first suggests buying the particular product or service; (2) Influencer: their views influence the buying centre in making the final decision (3) Decider: determines any part of/entire buying decision—whether/what /where/how to buy (4) Buyer: handles the paperwork of the actual purchase; (5) User: consumes or uses the product or service; (6) Gatekeeper: controls info or access, or both, to decision makers and influencers (ex: insurance)

• To illustrate how a buying centre operates, consider purchases made by a hospital. Where do hospitals obtain their X-ray machines, syringes, and bedpans? • Why are some medical procedures covered in whole or in part by insurance, whereas others are not? Why might your doctor recommend one type of allergy medication instead of another? 1. The Initiator—Your Doctor When you seek treatment from your physician, he or she initiates the buying process by determining the products and services that will best address and treat your illness or injury. For example, you shattered your elbow. You require surgery to mend the affected area, which includes the insertion of several screws. Your doctor promptly notifies the hospital to schedule a time for the procedure and specifies the brand of screws. 2. The Influencer—The Medical Device Supplier, the Pharmacy: empirical data and case studies, ElbowMed's sales rep effectively influenced your doctor's decision to use that screw. 3. The Decider—The Hospital ultimately is responsible for deciding whether to buy ElbowMed screws. The hospital supplies the operating room, instrumentation, and surgical supplies, and therefore, the hospital administrators must weigh a variety of factors 4. The Buyer—Hospital's Materials Manager The actual buyer of the screw will likely be the hospital's materials manager, who is charged with buying and maintaining inventory for the hospital in the most cost-effective manner. 5. The User—The Patient buying process for this procedure will be greatly affected by the user, namely, you and your broken elbow. If you are uncomfortable with the procedure, you may decide that ElbowMed screws are not the best treatment. 6. The Gatekeeper- Insurance Company Your insurer may believe that ElbowMed screws are too expensive and that other screws deliver equally effective results. Therefore, it might refuse to reimburse the hospital -> final purchase decision must consider every buying centre participant.

• Organizational culture: reflects the set of values, traditions, and customs that guides its managers' and employees' behaviour -> unspoken guidelines that employees share through work situations. • influence purchasing decisions • Corporate buying centre cultures might be divided into 4 general types. Knowing which buying centre culture is prevalent in a given org helps the seller decide how to approach that particular client, how and to whom to deliver pertinent info, and to whom to make sales presentations. 1) autocratic buying centre: there may be multiple participants, but 1 person makes the decision alone 2) democratic buying centre: majority rules 3) Consultative buying centres: one person decides, but he solicits input from others before. 4) consensus buying centre: whole team must reach a collective agreement to support that purchase • Culture = living, breathing entities that change and grow, just as organizations do. • Culture may vary by geography, division, or functional department. • Whether you are buying/selling, it is important to understand its culture and the roles of the key players in the buying process. -> Otherwise, you may waste time & alienate decision maker

• Building B2B Relationships: In B2B, there are many ways to enhance relationships, and these methods seem to be advancing and evolving by the minute -> social media can build awareness, provide search engine results, educate potential and existing clients about products or services o The LinkedIn social network is mainly used for professional networking in the B2B marketplace. Twitter is also valuable for B2B marketers, because they can communicate with other businesses as often as they want. Companies make it easier for companies using Twitter to manage their followers, update their posts, track analytics, and even schedule Tweets, just as they would to manage a traditional marketing campaign o Most B2B marketers use white papers for their marketing efforts. When execs confront an unfulfilled business need, they turn to white papers. Their B2B partner may have a technologically advanced solution, but buyers have to understand the solution before they can consider a purchase. A good white paper provides information about the industry and its challenges in an educational context, rather than a promotional sense, to avoid seeming like simply propaganda. -> Provide valuable info that a businessperson can easily understand and help the company address problems

• Most B2B buying situations can be categorized into three types • Working with key decision makers, the company maintains consistent contact with each account and maximizes every dollar it allocates toward technology spending 1) In a new buy situation, a customer purchases a good/service for the first time-> buying decision is quite involved because the buyer/org does not have any experience with the item. o In B2B, the buying centre is likely to proceed through all six steps in the buying process o most complex and difficult for marketing strategy because it changes in current practices o 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 2) In a modified rebuy, the buyer has purchased a similar product in the past but has decided to change some specifications )the desired price, quality level, customer service level, and options) o Current vendors are likely to have an advantage in acquiring the sale, as long as the reason for the modification is not dissatisfaction with the vendor/his products. o Buying centre spends more time at each stage of B2B buying process, similar to the extended decision making process in the B2C process. 3) A straight rebuy: buyer simply buys additional units of products that had previously been purchased. -> a lot of B2B are in this category. o buyer is often the only member of the buying centre involved in the process. o Similar to a consumer's habitual purchase, straight rebuys often enable the buyer to recognize the firm's need and go directly to the fifth step in the B2B buying process • These varied types of buying situations call for different marketing and selling strategies. • Regardless of the situation, more firms use the Internet to help facilitate buying for buyers/ sellers.

• Virtual trade shows: companies can set up "booths" inside a virtual space and engage in product demonstrations and conversations with potential clients -> host educational seminars and networking areas -> provide considerable savings, because the company has no need to fly a representative anywhere or purchase an expensive booth display. o Impressive ease of use for both the seller and the business customer o Buying centre can log on to the site whenever it is convenient o Sellers can update their products, inventory levels, and pricing

• Communications between businesses - through private exchanges and auctions. o Private exchange: specific firm (buyer/seller) invites others to participate in online info exchanges and transactions. -> help streamline procurement or distribution processes o Cost savings through the elimination of periodic negotiations and routine paperwork, as well as the ability to form a supply chain that can respond quickly to the buyer's needs

• Manufacturers and suppliers can work together to design better products. Manufacturers and retailers collect detailed info about their customers' preferences and market trends -> share with those key suppliers involved in product design -> result: products better match customer needs, • Private exchanges have also formed on the manufacturer-to-retailer side of the supply chain and, in service industries, between skilled workers and small- to medium-sized companies.

• B2B transactions turned to online auctions, whether English or reverse. o English auction: goods and services are simply sold to the highest bidder. o Reverse auction: buyer provides specifications to a group of sellers, who then bid down the price until the buyer accepts a specific bid.

• The constitution of the buying centre (initiator, influencer, decider, buyer, user, and gatekeeper), the culture of the purchasing firm (autocratic, democratic, consultative, or consensus), and the context of the buying situation (new buy, modified rebuy, straight rebuy) all influence B2B buying process in various ways -> sellers must be constantly aware of these factors