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Lamb, Hair, and McDaniel

Chapter 7

Business Marketing

Chapter 7 Business Marketing

Describe business marketing

What Is

Business Marketing?

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Chapter 7 Business Marketing

What Is Business Marketing?

The marketing of goods and services to individuals and organizations for purposes other than personal consumption.

The sale of a PC to a college or university is an example of business marketing.

Chapter 7 Business Marketing

Business Products

Are used to manufacture other products

Become part of another product

Aid the normal operations of an organization

A product that is purchased for personal use is considered a consumer good. If the same product is purchased for use in a business, it is a business product.

The key is intended use.

Chapter 7 Business Marketing

Notes:

The size of the business market in the U.S. and most other countries substantially exceeds that of the consumer market.
Some large firms that produce goods such as steel, computer memory chips, or production equipment market exclusively to business customers.

Describe trends in B-to-B Internet marketing

Trends in B-to-B

Internet Marketing

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Chapter 7 Business Marketing

Over the past decade, marketers have become more and more sophisticated in their use of the Internet
Social media usage has been the most pervasive B-to-B and B-to-C marketing trend of the past five years

Trends in B-to-B Internet Marketing

Chapter 7 Business Marketing

Notes:

B-to-B companies are increasingly leveraging the Internet as an effective sales and promotion platform (much like B-to-C companies have done for decades). B-to-B companies use the Internet in three major ways.

First, they use their Web sites to facilitate communication and orders.
Second, they use digital marketing to increase brand awareness.
Third, they use digital marketing—primarily in the form of content marketing—to position their businesses as thought leaders and therefore generate sales leads.

Trends in B-to-B Internet Marketing

Content marketing is a strategic marketing approach focused on creating and distributing valuable, relevant, and consistent content
As platforms such as mobile and streaming video grow, marketers must develop new ways to measure campaign effectiveness

Chapter 7 Business Marketing

Notes:

LinkedIn, Facebook, and Twitter are used by the majority of B-to-B marketers. LinkedIn is the most used social media tool overall (chosen by 94 percent of survey respondents). Runners up are Twitter (89 percent), Facebook (77 percent), YouTube (77 percent), and Google+ (61 percent).

The reviews on social media are mixed.
Many B-to-B marketers are experimenting with how to use social media to build successful relationships with business customers.
Some companies are using social media listening tools to determine strategic topics to include in newsletters and videos.

Business-to-Business

and Social Media

Chapter 7 Business Marketing

Notes:

1. The tools most commonly used by B-to-B marketers are blogs, social networking sites, Twitter, video streaming sites, e-newsletters and mobile marketing.

2. Listening tools are used primarily to gauge what topics are trending and to estimate consumer sentiment on social media platforms. There are many tools—some free or quite inexpensive, others larger and more expensive. The key to making social media effective is to combine it with other digital assets such as e-mail marketing and content marketing.

The tools most commonly used by B-to-B marketers are blogs, social networking sites, Twitter, video streaming sites, e-newsletters and mobile marketing.
Listening tools are used primarily to gauge what topics are trending and to estimate consumer sentiment on social media platforms. There are many tools—some free or quite inexpensive, others larger and more expensive. The key to making social media effective is to combine it with other digital assets such as e-mail marketing and content marketing.

Business-to-Business

and Social Media

Chapter 7 Business Marketing

Measuring Online Success

A measure of a Web site’s
effectiveness; calculated by multiplying the frequency of visits by the duration of a visit by the number of pages viewed during each visit.

Stickiness = Frequency x Duration x Site Reach

For marketers today, three of the most important measurements of Web site hits are recency, frequency, and monetary value.

Stickiness

Chapter 7 Business Marketing

Discuss the role

of relationship marketing and strategic alliances in

business marketing

Relationship Marketing
and Strategic Alliances

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Chapter 7 Business Marketing

Relationship Marketing

Relationship marketing has become an important business marketing strategy as customers have become more demanding and competition has become more intense
Building long-term relationships with customers offers a way to build competitive advantage

Chapter 7 Business Marketing

Discussion/Team Activity:

Go to FedEx’s Website at www.fedex.com. Review the different products available to meet varying customer needs, and discuss how these products/services can establish long-term relationships and customer loyalty for FedEx.

Strategic Alliances

Licensing or distribution agreements

Joint ventures

Research and development consortia

Partnerships

Alliances succeed with

commitment and trust.

Businesses form strategic alliances to leverage the assets they have (such as technology, financial resources, market access) by combining these assets with those of other firms. Another rationale behind the formation of strategic alliances is to achieve economies of scale. Sometimes alliance partners are fierce competitors.

Chapter 7 Business Marketing

Relationships
in Other Cultures

Keiretsu relationships are highly integrated. Companies:

Have executives sitting on each others’ boards

Maintain dedicated trade efforts

Utilize joint development, finance, and marketing

Chapter 7 Business Marketing

Notes:

The concept of strategic alliances has been used in foreign cultures, such as Mexico, China, Japan, Korea, and much of Europe for a long time.
For example, in Japan the basis of exchange between firms is personal relationships that are developed through indulgent dependency. Relationships between companies can develop into a keiretsu—a network of interlocking corporate affiliates.
Members of a keiretsu trade with each other and often engage in joint product development, finance, and marketing activity.
Many American firms have found the best way to compete in Asian countries is to form relationships with Asian firms.

Identify the four major

categories of business market customers

Major Categories of
Business Customers

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Chapter 7 Business Marketing

Major Categories of
Business Customers

• OEMs

• Wholesalers
• Retailers

• Federal
• State
• Local

• Schools • Hospitals • Colleges
• Churches • Unions • Fraternal
• Civic Clubs • Foundations groups
• Nonbusiness organizations

Producers

Resellers

Governments

Institutions

Chapter 7 Business Marketing

Notes:

The business market consists of four major categories of customers: producers, resellers, governments, and institutions.
Producers include profit-oriented organizations that use purchased goods and services to produce or incorporate into other products.
The reseller market includes retail and wholesale businesses that buy finished goods to resell at a profit.
Government organizations include thousands of federal, state, and local buying units. This may be the largest single market for goods and services in the world.
Institutions do not have the standard business goals of profit, market share, and return on investment. Includes schools, hospitals, colleges and universities, churches, labor unions, fraternal organizations, civic clubs, foundations, and other nonbusiness organizations.

Discussion/Team Activity:

Access the Web site http://www.cbd-net.com. Discuss the information provided on this Web site that helps organizations do business with the federal government.

Major Categories of Business Customers

Producers include profit-oriented organizations that use purchased goods and services to produce or incorporate into other products.

The reseller market includes retail and wholesale businesses that buy finished goods to resell at a profit.

Government organizations include thousands of federal, state, and local buying units. This may be the largest single market for goods and services in the world.

Institutions do not have the standard business goals of profit, market share, and return on investment. Includes schools, hospitals, colleges and universities, churches, labor unions, fraternal organizations, civic clubs, foundations, and other nonbusiness organizations.

Chapter 7 Business Marketing

Explain the North American Industry
Classification System

North American Industry

Classification System

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Chapter 7 Business Marketing

North American
Industry Classification System

A detailed numbering system developed by the U.S., Canada, and Mexico to classify North American business establishments by their main production processes.

(NAICS)

The North American Industry Classification Systems (NAICS), introduced in 1997, is a joint development by the United States, Canada, and Mexico to provide a common industry classification system for NAFTA partners.

Chapter 7 Business Marketing

Example of NAICS Hierarchy

NAICS Level	Sector	Subsector	Industry Group	Industry	Industry Subdivision
NAICS Code	51	513	5133	51332	513321
Description	Information	Broadcasting and telecoms	Telecoms	Wireless telecoms carriers, except satellite	Paging

Chapter 7 Business Marketing

NAICS

Provides a common industry classification system
Valuable tool for marketers in analyzing, segmenting, and targeting markets
Data can be used to determine:
Number, size, and geographic dispersion of firms
Market potential / market share estimates
Sales forecasts
New customer identification

Chapter 7 Business Marketing

Explain the major differences between business and consumer markets

Business versus
Consumer Markets

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Chapter 7 Business Marketing

Notes:

The basic philosophy and practice of marketing are the same whether the customer is a business organization or a consumer. Business markets do, however, have characteristics different from consumer markets.

Business versus Consumer Markets

Characteristic

Demand

Volume

# of Customers

Location

Distribution

Nature of Buying

Buy Influence

Negotiations

Reciprocity

Leasing

Promotion

Business Market

Organizational

Larger

Fewer

Concentrated

More Direct

More Professional

Multiple

More Complex

Yes

Greater

Personal Selling

Consumer Market

Individual

Smaller

Many

Dispersed

More Indirect

More Personal

Single

Simpler

Lesser

Advertising

Chapter 7 Business Marketing

Notes:

The main differences between business and consumer markets are summarized on this slide.

The first characteristic, demand, is described on the next slide.
Purchase volume: Business customers buy in larger quantities than consumers.
Number of customers: Business marketers have fewer customers than consumer marketers. An advantage is that it is easier to identify buyers, monitor customer needs, and build personal relationships. A disadvantage is that each customer becomes crucial, especially for those manufacturers who have only one customer.
Location of buyers: Business customers are more geographically concentrated than consumers.
Distribution structure: Business products typically have shorter channels of distribution, and direct channels are common. On the other hand, consumer products pass through a distribution system that may include the producer, the wholesaler(s), and the retailers.
Nature of buying: More people are involved in a business market purchase decision than in a consumer purchase. Representatives from quality control, marketing, finance, and purchasing may be grouped in a buying center.
Nature of buying influence: Typically, more people are involved in a single business purchase decision than in a consumer purchase.
Type of negotiations: Negotiation is more common in business marketing decisions and may take months to work out the final contracts.
Use of reciprocity: Business purchasers often choose to buy from their own customers. It is not unethical or illegal unless the exchange is coerced.
Use of leasing: Businesses commonly lease expensive equipment to reduce capital outflow, keep state of the art products, and gain tax advantages.
Primary promotional method: Business marketers emphasize personal selling, especially for expensive, custom-designed products.

Demand in Business Markets

Demand is...

Description

Derived

Inelastic

Joint

Fluctuating

Demand for business products results from demand for consumer products.

A change in price will not significantly affect the demand for product.

Multiple items are used together in final product. Demand for one item affects all.

Demand for business products is more volatile than for consumer products.

Chapter 7 Business Marketing

Notes:

Business demand is different from consumer demand in the following areas:

The demand for business products is derived demand, meaning that organizations buy products to be used in producing customer products. As a result, business marketers must carefully monitor trends and patterns in final consumer markets as well as customers’ forecasts.
Inelastic demand is demand without regard to price. An increase or decrease in the product price will not significantly affect the demand for the product.
Joint demand occurs when multiple items are used together in a final product.
Fluctuating demand: The demand for business products tends to be more unstable than the demand for consumer products. A small increase or decrease in consumer demand can produce a much larger change in demand for the facilities and manufacturing equipment needed to make the consumer product. This is known as the multiplier effect.

Discussion/Team Activity:

Discuss examples of products that describe each of the demand differences in business markets.

Describe the seven types of business goods and services

Types of

Business Products

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Chapter 7 Business Marketing

Types of Business Products

Major Equipment

Accessory Equipment

Raw Materials

Component Parts

Processed Materials

Supplies

Business Services

Chapter 7 Business Marketing

Types of Business Products

Major equipment: Capital goods such as large or expensive machines, mainframe computers, airplanes, and buildings. Depreciated over time, often custom-designed. Personal selling is an important marketing strategy.

Accessory equipment: Less expensive and shorter-lived than major equipment, includes fax machines, personal computers, power tools. Usually not depreciated. Often standardized and purchased by more customers. Advertising is an important promotional tool.

Raw materials: Unprocessed products, such as minerals, timber, wheat, corn, fish. Become part of finished products. Personal selling is the marketing mix component used, distribution channels usually direct from producer to business user.

Chapter 7 Business Marketing

Types of Business Products

Component parts: Finished items ready for assembly or that need very little processing. Two important markets for component parts: original equipment manufacturer (OEM) and replacement market.

Processed materials: Used directly in manufacturing other products. Sheet metals, chemicals, and lumber. Do not retain their identity in final products. Price and service are important factors in choosing a supplier.

Supplies: Consumable items that do not become part of the final product. Short lives and inexpensive. Generally fall into categories of maintenance, repair, or operating supplies (MRO).

Business services: Expense items that do not become part of the final product. This includes janitorial, advertising, legal, management consulting, marketing research, and maintenance services.

Chapter 7 Business Marketing

Types of Business Goods and Services

Chapter 7 Business Marketing

Discuss the unique aspects of business buying behavior

Business Buying Behavior

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Chapter 7 Business Marketing

Business Buying Behavior

Customer Service

Business Ethics

Buying Situations

Evaluative Criteria

Buying Centers

Aspects of
Business
Buying

Behavior

Chapter 7 Business Marketing

Notes:

Understanding how purchase decisions are made in organizations is a first step in developing a business selling strategy. Business buying behavior has five important aspects, as shown on this slide.

All those people in an organization who become involved in the purchase decision.

Number of people involved varies with each purchase decision

Buying Centers

Buying centers do not appear on formal organization charts

Chapter 7 Business Marketing

Roles in Buying Centers

Initiator

Influencers

Gatekeepers

Decider

Purchaser

Users

Chapter 7 Business Marketing

Notes:

Several people may play a role in the business purchase decision:

Initiator: The person who suggests the purchase.
Influencers/Evaluators: Help define specifications and provide information for evaluating options.
Gatekeepers: Group members who regulate the flow of information, often the purchasing agent.
Decider: The person with the power to choose or approve the selection.
Purchaser: The person who negotiates the purchase.
Users: Members of the organization who actually use the product.

Roles in Buying Centers

Initiator: The person who suggests the purchase.

Influencers/Evaluators: Help define specifications and provide information for evaluating options.

Gatekeepers: Group members who regulate the flow of information, often the purchasing agent.

Decider: The person with the power to choose or approve the selection.

Purchaser: The person who negotiates the purchase.

Users: Members of the organization who actually use the product.

Chapter 7 Business Marketing

Evaluative Criteria

Quality - technical suitability. Quality improvement should be part of every organization’s marketing strategy.

Service - includes prepurchase as well as postpurchase service, along with dependability of supply. Services that help sell the finished products are especially appropriate when the seller’s product is an identifiable part of the end product.

Price - Business buyers want to buy at low prices. However, a buyer who pressures a supplier to cut prices to the point of money loss may force shortcuts on quality. It may force the supplier to quit selling to him/her.

Chapter 7 Business Marketing

Buying Situations

Should I Make It or Buy It?

Chapter 7 Business Marketing

Business Ethics

Although we have heard a lot about corporate misbehavior in recent years, most people, and most companies, follow ethical practices.

Chapter 7 Business Marketing

Customer Service

Divide customers into groups based on their value.

Create policies that govern how service will be allocated among groups.

Chapter 7 Business Marketing

Notes:

Business marketers are increasingly recognizing the benefits of developing a formal system to monitor customer opinions and perceptions of the quality of customer service.