5.1: Business Markets
5.1.1: Defining Business Marketing
Business marketing includes all activities involved in communicating the value of a business’s products and services to another business.
Learning Objective
Define business marketing
Key Points
- Business marketing is often directed to individuals within an organization, who act on behalf of the needs of the organization.
- Business-to-business marketing involves any products or services a company purchases to resell, use as components in their own products or services, or to support their daily operations.
- Any given business-to-business transaction can involve years of complex marketing efforts, including online and offline promotions.
Key Terms
- customer relationship management
-
A widely implemented model for managing a company’s interactions with customers, clients, and sales prospects. It involves using technology to organize, automate, and synchronize business processes—principally sales activities, but also those for marketing, customer service, and technical support. Also known by the acronym “CRM. “
- trade show
-
An exhibition organized so that companies in a specific industry can showcase and demonstrate their latest products and services, study activities of rivals and examine recent market trends and opportunities.
- white paper
-
A factual write-up of something, specifically devoid of the appearance of marketing.
What is Business Marketing?
Business marketing is the practice of individuals or organizations (i.e., commercial businesses, governments, and institutions) promoting and selling products and/or services to other organizations. These organizations resell or use these products and services to support their operations. Companies that act as suppliers or manufacturers may also integrate other business products into their own product offering to improve performance and functionality. Unlike a consumer, who makes a purchase based on his or her individual needs and desires, businesses appoint individuals who act on behalf of the organization.
B2B Promotional Mix
Like business-to-consumer (B2C) marketing, business-to-business (B2B) marketing, or business marketing, relies on product, price, placement, and promotion to competitively position the product offerings, promote the brand, and efficiently use company resources. Similar to consumer marketers, business marketers must create an integrated marketing communications strategy to ensure products and promotional methods complement and support each other.
B2B marketing spans all types of businesses and industries. Because B2B sales tend to be much larger than consumer purchases, business marketers use different channels to reach their target audiences. Industry white papers, trade shows, corporate websites, and webcasts are often used as promotional tactics to build brand awareness and generate leads. A significant portion of B2B brands also employ social media, including podcasts, social networking, and blogging sites, to drive web traffic to their online channels and draw prospective customers to their brand.
Business Marketing
A trade show is a common promotional element in business marketing.
Measuring B2B Marketing Success
Customer relationship management (CRM) systems are often used to assess marketing performance in B2B organizations. B2B sales cycles can last more than several months and involve numerous stages before the sale is completed. Therefore, CRM systems help business marketers integrate metrics from different activities to accurately assess how marketing directly contributed to the transaction. For example, labels may be assigned to certain promotional elements (e.g., website, trade show) in the system to indicate where and how prospects converted to customers.
5.1.2: B2B vs. Consumer Marketing: Similarities and Differences
B2B markets to individuals acting on behalf of organizations, while consumer marketing targets single individuals who pay for their own transactions.
Learning Objective
Describe the main similarities and differences between B2B and B2C marketing
Key Points
- Whereas emotional factors play a large part in a consumer’s decision to purchase a product, B2B purchasing decisions are less emotional and more task-oriented.
- Lengthy and complex sales cycles help build strong B2B seller-buyer relationships and brand loyalty compared to B2C marketing.
- Business marketing generally entails shorter and more direct distribution channels to target audiences.
- B2C and B2B marketing objectives both reflect the fundamental principles of the marketing mix.
Key Term
- webcast
-
A video and or audio broadcast transmitted via the Internet.
B2B versus Consumer Marketing: Similarities and Differences
Consumer marketing, or business-to-consumer (B2C) marketing, sales are made to individuals who are the final decision makers, though they may be influenced by family members or friends. A business marketing, or business-to-business (B2B) marketing, sale is made to a business or firm.
Buyer Behavior
Whereas emotional factors play a large role in B2C purchases, B2B purchasing decisions tend to be less emotional and more task-oriented than consumer buyer markets. Business customers often look for specific product attributes such as economy in cost and use, productivity, and quality. Additionally, B2B purchasers generally spend more money, as the buying process tends to be more complex and lengthy.
Buyer-Customer Relationship
While consumer marketing is aimed at large groups through mass media and retailers, the negotiation process between the buyer and seller is more personal in business marketing. Sales representatives and marketers are often assigned to market to individuals who act as influencers or decision-makers in the customer organization. The bulk of a consumer’s interaction with a brand typically happens via an advertisement, promotion, or transaction. In contrast, B2B marketing can include numerous meetings between the seller and buyer before a transaction occurs.
For example, B2B marketers often present products and their benefits in private presentations to key decision-makers. The B2B organization may also invite prospects and customers to public or private events to facilitate further conversations. As a result, confidence and trust are gradually built between the seller and buyer over a period of time. Significant time and money are spent during the evaluation and selection process, resulting in strong brand loyalty among B2B customers.
Communications Channels
Although on the surface the differences between business and consumer marketing may seem obvious, there are more subtle distinctions between the two, with substantial ramifications. The evaluation and selling process for B2B purchases are longer and more complex than consumer purchases. However, business marketing generally entails shorter and more direct channels of distribution to target audiences. Different aspects of the promotional mix can be easily personalized due to the relationship between a B2B salesperson and the individual buyer.
Customer Event
Promotional channels such as events provide ways for B2B sellers to move prospects along the buying process.
Most business marketers commit only a small part of their promotional budgets to general advertising, usually through direct marketing efforts and trade publications. For example, a business marketer may allocate spending to banner advertising or paid search. Similar to consumer ads, these advertisements lead to landing pages, where marketing messaging aims to convince web visitors to submit a form, download a brochure, or register for a webcast. While business advertising is limited, it helps generate leads that marketing can pass along to sales representatives.
Similarities between B2C and B2B Marketing
Marketing to a business and marketing to an individual are similar in terms of the fundamental principles of marketing. Both B2C and B2B marketing objectives reflect the fundamental principles of the marketing mix, and in both situations, the marketer must always:
- Successfully match product or service strengths with the needs of a specific target market
- Position and price products or services to align products and service offerings with the market
- Communicate and sell products or services so that they effectively demonstrate value to the target market
5.1.3: Types of Businesses
Primary ownership types of businesses include corporations, cooperatives, LLPs, LLCs, and sole proprietorships.
Learning Objective
List the most common ownership types and industry classifications for organizations
Key Points
- Businesses vary depending on jurisdiction, ownership type, and industry or sector.
- Among the different ownership types for businesses are sole proprietorship, cooperatives, corporations, and partnerships.
- General classifications for businesses include: agriculture and mining, financial services, manufacturing, information technology, real estate, retail, distribution, transportation, and utilities.
Key Term
- capital
-
Money and wealth. The means to acquire goods and services, especially in a non-barter system.
Types of Businesses
American economist Milton Friedman once famously proclaimed that “the business of business is business. ” Capitalist economies such as the United States rely on businesses to legally produce capital from the trading of goods and services. There are many types of business entities defined in the legal systems of various countries. Moreover, the types of businesses that exist today can vary by jurisdiction. Primary ownership types of businesses include corporations, cooperatives, limited liability partnerships (LLPs), limited liability companies (LLCs) and sole proprietorships.
Business Ownership Types
The type of business a group or individual creates will influence the legal and tax structure of the entity. The following are some of the most common ownership types for organizations:
- Sole proprietorship: A sole proprietorship is a business owned by one person for-profit, though the owner may hire and manage employees. The business owner has unlimited liability for the debts incurred by the business.
- Partnership: A partnership is a business owned by two or more people. In most cases, each partner has unlimited liability for the debts incurred by the business. The three typical classifications under for-profit partnerships are general partnerships, limited partnerships, and limited liability partnerships.
- Corporation: A corporation is a government-owned, publicly-owned, or privately- owned limited liability business that contains a separate legal personality from its members. It can also be a for-profit or non-profit corporation. Public for-profit corporations are owned by shareholders who elect a board of directors to direct the corporation and hire its managerial staff.
- Cooperative: Often referred to as a “co-op”, a cooperative is a limited liability business that can organize as for-profit or not-for-profit. A cooperative differs from a for-profit corporation since members, as opposed to shareholders, share decision-making authority. Cooperatives are typically classified as either consumer cooperatives or worker cooperatives.
Business Industry Types
Businesses also vary by industry due to the wide variety of products and service they offer to the market. The following industry classifications are usually applied to businesses:
- Agriculture and mining businesses are concerned with the production of raw material, such as plants or minerals.
- Financial businesses include banks and other companies that generate profit through investment and management of capital.
- Information businesses generate profits primarily from the resale of intellectual property. This includes movie studios, publishers, and packaged software companies.
- Manufacturers create products from raw materials or component parts, which they then sell at a profit. Companies that make physical goods such as automobiles or pipes are considered manufacturers.
- Real estate businesses generate profit from the selling, renting, and development of properties comprising land, residential homes, and other kinds of buildings.
- Retailers and distributors such as consumer-oriented stores act as middlemen in transporting manufactured goods to consumers. They make a profit by providing sales or distribution services.
- Service businesses offer intangible goods or services and typically generate a profit by charging for labor or other services provided to government, other businesses, or consumers. Typical service businesses include consulting firms, restaurants, and house decorators.
- Transportation businesses deliver goods and individuals from location to location, generating a profit on the transportation costs.
- Utilities produce public services such as electricity or sewage treatment, usually under a government charter.
Skyscraper
For a business, the ownership structure determines its tax and legal liabilities.
5.2: Business Customers
5.2.1: Characteristics of Business-Customer Interactions
B2B customer interactions are influenced by what are typically long and complex buying processes and tend to be more relationship-based.
Learning Objective
Describe how B2B customer transactions differ from B2C customer transactions
Key Points
- B2B customer relationships generally feature high brand loyalty due to the amount of time and money invested during the sales cycle.
- During the selling process, B2B sellers may be required to meet with prospects and customers numerous times before the transaction is complete.
- Industry trade shows, exhibitions, conferences, and online communities are common places where B2B companies interact with both customers and prospects.
Key Terms
- customer relationship management
-
A widely implemented model for managing a company’s interactions with customers, clients, and sales prospects. It involves using technology to organize, automate, and synchronize business processes—principally sales activities, but also those for marketing, customer service, and technical support. Also known by the acronym “CRM. “
- Request for Proposal
-
A solicitation made, often through a bidding process, by an agency or company interested in procurement of a commodity or service, to potential suppliers to submit business proposals.
- webcast
-
A video and or audio broadcast transmitted via the Internet.
Characteristics of Business Customer Interactions
Business-customer interactions occur over a wide range of communication channels, such as phone, email, web, and text. These exchanges also happen outside of organizational control such as conversations on social media. Although business-to-business (B2B) companies use many of the same communication channels as business-to-consumer (B2C) companies, certain characteristics of B2B customer interactions differentiate them within the marketplace.
Business Customer Interaction
Conferences present opportunities for B2B businesses to interact with customers.
B2B vs. B2C Interactions
Whereas the main interactions between businesses and consumers primarily occur during the transaction stage of the buying process, relationships between organizations and their business customers often move beyond the transactional nature of the interaction. Because the sales cycle can extend much longer than in B2C sales cycles, B2B companies seek long-term relationships with other business brands. Consequently, brand loyalty is much higher than in the consumer goods market due to amount of time invested during the B2B sales cycle. Whether the relationship is between a manufacturer and wholesaler, or wholesaler and retailer, a B2B transaction is perceived as riskier than B2C purchases due to the average value of each transaction. Buying machinery can cost upwards of a million dollars or more. In comparison, a tube of toothpaste may cost a consumer three or four dollars.
The investment amounts in B2B purchases are also much higher than in B2C purchases. Since there are more people involved in the decision-making process and technical details may have to be discussed in length, the decision-making process for B2B products is usually much longer than in B2C interactions. Thus, purchasing the wrong product or service, the wrong quantity, the wrong quality, or agreeing to unfavorable payment terms may put an entire business at risk.
Evaluation and Selection Process
The evaluation and selection process between businesses and customers can last for several weeks, months, or even years depending on the level of cost and complexity of the selling process. Often, B2B sellers must submit a Request for Proposal (RFP) to be considered for projects involving high-priced items such as software systems, financial services, or office equipment. The seller may be required to meet with the buyer numerous times before the transaction is complete. In these meetings, B2B sellers will often send sales representatives and executives to present and demonstrate how their products and services are more competitive than similar brands. During this evaluation period, the buyer may ask for prototypes, samples, and mock-ups of the product. Such detailed assessment serves the purpose of eliminating the risk of buying the wrong product or service.
Post-purchase B2B Interactions
The relationship between a business seller and its business customer does not end after the transaction is finalized. Customer relationship management tactics are used to monitor and encourage repeat business and customer referrals. B2B brands often court customers with ongoing communications including newsletters, webcasts, seminars, and other events that add value to the business-customer relationship. Also, sales representatives responsible for overseeing customer accounts may offer discounts or other promotions to facilitate repeat sales from existing customers.
B2B brands often have specific target markets that can be reached using direct online and offline marketing activities. Industry trade shows, exhibitions, conferences, and online communities are common places where B2B companies interact with both customers and prospects. B2B brands also use these events as opportunities to meet with customers face-to-face, hear concerns, and collect feedback for improving products and services.
5.2.2: Customer Concerns
B2B companies typically implement client services or customer care processes to address customer concerns and enhance customer satisfaction.
Learning Objective
Give examples of the types of customer concerns faced by B2B companies, and the common methods used to address these concerns
Key Points
- Customer concerns may arise due to issues over product quality and functionality or a lack of corporate responsiveness to customer complaints.
- B2B companies may use customer care ticket systems, online blogs, or extranets to better capture customer feedback and respond to customer demands.
- Merging customer feedback with customer service Key Performance Indicators (KPIs) helps guide companies’ attention to areas where customer data can make a positive impact.
Key Terms
- extranet
-
A private computer network that uses Internet protocols and can be accessed by authorized individuals via the Internet.
- customer relationship management
-
A widely implemented model for managing a company’s interactions with customers, clients, and sales prospects. It involves using technology to organize, automate, and synchronize business processes—principally sales activities, but also those for marketing, customer service, and technical support. Also known by the acronym “CRM. “
- stakeholders
-
A person or organization with a legitimate interest in a given situation, action or enterprise. It can range from employees and investors of a company to the customers purchasing from the company.
Concerns of Customers
Nearly every brand must have a client service or customer care process in place to address customer concerns and enhance customer satisfaction. This is especially true for business-to-business (B2B) companies where stakeholders often provide constructive criticism to help marketing, sales, and technical departments adapt product offerings to meet changing customer needs.
Customer Service Brainstorming
B2B companies usually have customer service programs in place to quickly and adequately address customer concerns.
Types of Customer Concerns
Customer concerns may arise due to issues over product quality or functionality. Mass product recalls are examples of company efforts to limit liability or avoid costly legal penalties due to corporate negligence. In addition to addressing customer concerns over product quality and functionality, B2B companies such as manufacturing firms must reassure customers they can handle the high cost of incidents at their factories and in their supply chains. These include responding to customer and public concerns over sudden plant shutdowns, employee strikes, explosions, toxic spills, and other unplanned occurrences. Similar to business-to-consumer (B2C) companies, B2B brands must have quality control and crisis management programs in place to respond to events that can result in a loss of customers and revenue.
Corporate responsiveness and sensitivity to customer complaints also impact brand image. Account or sales managers are often a B2B company’s first line of defense when it comes to flagging and responding to customer complaints regarding service disruptions or product malfunctions. B2B brands often assign cross-functional teams – sales representatives, developers, product specialists, and call center professionals – to oversee individual client accounts. This is especially true for large business accounts that generate significant revenue for the company. Reassuring customers that their needs and concerns are the company’s top priority is reflective of B2B brands that use a customer-driven approach to ascertaining customer demands.
Methods for Addressing Customer Concerns
The Internet era has presented challenges in maintaining and enhancing the personal customer experience, while making use of the efficiencies of online commerce. B2B companies such as software firms may implement online ticket systems, which allow business customers to submit electronic tickets that are automatically routed to customer care professionals. Business customers are then assigned a ticket number that allows the company to track the entire history of the customer problem and determine whether the issue was satisfactorily resolved. It also allows customer care professionals to properly escalate customer issues to appropriate channels such as the sales or research and development team.
B2B brands are increasingly using web and social media channels such as community blogs, online forums, and extranets to capture customer feedback. These communication channels give customers the ability to give detailed explanations of both negative and positive experiences with an organization. Sales methodologies applied to customer relationship management (CRM) systems allow B2B organizations to accurately monitor, track, and measure this information. Merging this data with customer service Key Performance Indicators (KPIs) also helps direct the company’s attention to areas where customer feedback can make a positive impact (e.g., cost savings, service improvement) on the overall organization.
5.2.3: Purchase Behavior
Business customers – as compared to consumers – tend to be more rational, are more concerned with quality, and look to make lasting relationships.
Learning Objective
Identify the unique characteristics of B2B purchase behavior and how it influences B2B marketing tactics
Key Points
- Notable differences exist in the purchase behavior of B2B versus consumer marketing due to the length and complexity of B2B transactions.
- Business customers are more cautious and rational in their purchasing decisions than mass market consumers.
- Though challenging due to the complexity of the industrial market, purchase behavior analytics also allow B2B companies to segment target audiences.
Key Terms
- marketing mix
-
A business tool used in marketing products; often crucial when determining a product or brand’s unique selling point. Often synonymous with the four Ps: price, product, promotion, and place.
- supply side
-
In a market trade, the side where the supply comes from.
Purchase Behavior
Business-to-business or B2B marketing targets markets where the end users or customers are the purchasers of goods and services. These customers are individuals, companies, organizations or governments, and consume industrial rather than mass market goods. Business customers also purchase a wide variety of different services, depending on their business needs.
Purchase Behavior
Lengthy and complex sales cycles influence B2B purchase behavior.
Notable differences exist in the purchase behavior of B2B versus consumer marketing due to the length and complexity of B2B transactions. However, like consumer markets, business marketers monitor and analyze customer purchase behavior to develop segmentation strategies and customer intelligence.
Characteristics of B2B Purchase Behavior
Because B2B sales cycles can extend over months and even a few years, the business customers are more cautious and rational in their purchasing decisions than day-to-day consumers. Construction materials, office equipment or accounting services can cost organizations tens or even hundreds of thousands of dollars. Commitment times are also longer, as B2B buyer-seller relationships can extend over the lifetime of the product or service delivery period. For example, a company that purchases software products may also buy installation and training services to facilitate to help employees adopt the technology. The entire customer experience can extend from the close of the transaction to the expiration date of the service contract.
Some of the behavior characteristics unique to B2B purchase behavior:
- A trend towards more rational, rather than “impulse” buying behavior
- Greater value attributed to product or service features such as quality and cost-effectiveness
- Preference for partnering with reliable, cooperative and reputable organizations
B2B Customer Segmentation
Predicting customer purchase behavior also allows B2B companies to segment industrial markets. Companies and organizations face challenges in business market segmentation since B2B markets face greater complexity in buying processes, buying criteria and actual products and services. Additionally, measuring strategic data relevant to the buyer’s target audience and overall marketing strategy is challenging due to the long and complicated progress of doing B2B transactions.
Nevertheless, companies that segment groups of potential customers with similar wants and demands are able to customize a marketing mix that works for different audiences. B2B companies also potentially work with different suppliers. The goal for every industrial market segmentation scheme is to identify the most significant differences among current and potential customers and/or suppliers that will influence their purchase decisions or buying behavior, while keeping the segmentation approach as simple as possible. Thus, segmenting the supply side of an organization can also prove value to companies.
5.2.4: Purchase Influences
Purchase influences of B2B customers differ from those of the consumer market due to the high time and cost investments of B2B transactions.
Learning Objective
Differentiate between business-to-business customer influences versus consumer market purchase influences
Key Points
- Customer retention, customer relationship management, personalization, customization, and one-to-one marketing programs are instrumental in encouraging new and repeat purchases in B2B companies.
- Unlike consumer buyer markets, business customers are less emotional and more task-oriented during the buying and decision-making process.
- Quality, price, and delivery mechanisms heavily influence B2B buyer decisions.
Key Term
- lead
-
Potential opportunity for a sale or transaction, a potential customer.
Purchase Influences
Similar to consumers, B2B purchase influences encompass different variables that affect business customers’ buying behavior. The purchase influences of business-to-business (B2B) customers differ from those of the consumer market due to the high time and cost investments of B2B transactions. Customer behavior study, which is based on consumer behavior, is helpful in analyzing how B2B sales and marketing activities reinforce the purchasing behavior of B2B customers.
Service Delivery
Delivery of goods or service may not be enough to allow a business to recognize revenue on a sale if there is doubt that the customer will pay what is owed.
Influential Assets in B2B Purchase Behavior
Customer retention, customer relationship management, personalization, customization, and one-to-one marketing programs are instrumental in encouraging new and repeat purchases in B2B companies. For example, sales and marketing professionals may implement promotional initiatives such as appreciation events, product discounts, and free upgrades to prompt word-of-mouth referrals. Depending on the industry, customer referrals can generate significant leads for B2B businesses.
Personalized customer service and marketing programs are also influential during the B2B evaluation and selection process. Brands can incorporate personalization features with communication tools including product brochures, email newsletters, and social media to help prospects and existing customers evaluate product offerings.
The option of a straight “re-buy” can help to encourage customer retention. A straight “re-buy” occurs when a customer buys the same product, in the same quantity, from the same vendor.
Unlike consumer buyer markets, business customers are less emotional and more task-oriented during the buying and decision-making process. The potential risks that can result from a poorly executed B2B transaction often produce lengthy and complex sales cycles. To facilitate the evaluation and selection process, B2B customers specifically look for product attributes such as economy in cost and use, productivity, and functionality. Often, these variables are assessed during face-to-face, online meetings, or demonstrations with sales professionals.
Ultimately, B2B customers seek to partner with reliable, fair, consistent, responsive, and cooperative businesses. Quality, price, and delivery mechanisms, rather than emotional motives, tend to dominate the purchase decisions of B2B buyers. Customer testimonials, trade reviews, and industry analyst firms are all resources B2B buyers use to determine whether these factors are in line with the reputation and performance of B2B sellers.
5.2.5: Negotiating
B2B buyers and sellers use negotiating tactics to agree upon terms and pricing that benefit both the customer and the seller.
Learning Objective
Discuss the primary purpose of negotiation in B2B organizations
Key Points
- Typically, many departments and roles are involved in the decision-making process for business purchases.
- Client concerns and modification requests are often addressed during the contract stage to help guide the buyer-seller relationship throughout the life of the contract.
- Due to globalization and evolving business trends, more companies are adopting negotiation teams in order to take advantage of cross-departmental and cross-functional knowledge during the negotiation process.
Key Terms
- B2B
-
Acronym for commerce transactions between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer.
- information silos
-
A management system incapable of reciprocal operation with other, related information systems.
Negotiating
Negotiation is a dialogue between two or more parties, intended to reach an understanding, resolve differences, or gain advantages. It is also used to agree upon courses of action, bargain for individual or collective advantages, and satisfy the various interests of people or parties involved in the negotiation. “Negotiation” originates from the Latin expression negotiatus, the past participle of negotiare, which means “to carry on business. “
Relevance of Negotiation in B2B Organizations
The negotiation process is an important step during the business-to-business (B2B) buying process. Both buyers and sellers use negotiating tactics to agree upon terms and pricing that will benefit both the customer and service provider. Typically, many departments and roles are involved in the decision-making process for business purchases. This is particularly true at the contract stage, where client concerns and modification requests are addressed to help guide the buyer-seller relationship throughout the life of the contract. Buyers may be interested in modifying their purchase via enhanced product features, price adjustments, or other customer benefits. Management, sales, marketing, quality control, and legal personnel may all play a part in negotiating buyer-seller contracts and agreements.
Evolution of Negotiation Tactics
Due to globalization and evolving business trends, more companies are now using negotiation teams. Teams can effectively collaborate, pool resources, and brainstorm solutions to break down and manage complex negotiations. More knowledge and wisdom can be harnessed in cross-departmental and cross-functional teams than with individuals operating in information silos. Writing and noting customer specifications, listening to buyer concerns, and communicating specific actions are roles team members must satisfy during the negotiation process. The capacity base of a negotiation team can also reduce errors and strengthen the long-term buyer-seller relationship because of the improved accuracy and wider range of knowledge that can be brought to the negotiation.
Negotiating
Negotiating tactics in B2B transactions involve taking buyer and seller interests into account.
5.2.6: Leasing
In B2B transactions, leasing serves as an alternative financing method for customers looking to use high-priced products and services.
Learning Objective
Discuss the advantages and disadvantages of leasing in business-to-business transactions
Key Points
- One of the major benefits of business leasing is the ability for organizations to quickly take advantage of new products available on the market.
- Leasing can also help organizations manage their annual budgets, avoid dealing with depreciated and unusable equipment, and take advantage of the latest technologies available on the market.
- Some of the major disadvantages to leasing products include loss of control over the product, limited flexibility in contract modifications, and hidden fees and penalties for damaged products.
Key Terms
- lessee
-
An individual or a corporation who has the right of use of something of value, gained through a lease agreement with the real owner of the property.
- depreciation
-
The measurement of the decline in value of assets. Not to be confused with impairment, which is the measurement of the unplanned, extraordinary decline in value of assets.
Leasing
Leasing is a process by which a firm can obtain the use of certain fixed assets for which it must pay a series of contractual, periodic, or tax deductible payments. In business-to-business (B2B) transactions, leasing serves as an alternative method for customers looking to use high-priced products and services . For example, customers often lease software products. The process works similar to leasing a car, where customers pay a fee over time to use the technology without owning the equipment. At the end of the lease, the hardware is returned or purchased at a fair market price.
Leasing Sign
Leasing products is often a viable alternative for cash-strapped organizations.
Benefits Of Leasing
One of the major benefits of leasing is the ability for organizations to quickly take advantage of new products available on the market. Organizations such as schools and universities, which often rely on bonds to fund new hardware and software purchases, frequently take advantage of leasing programs. This keeps the hardware in schools current, and ensures that students are using the latest technology.
Leased Locomotive
A locomotive that Union Pacific Railroad leases. The locomotive is an ex-Long Island Railroad unit.
Business products also tend to depreciate quickly and have little value at the end of its life. Leasing allows organizations to avoid dealing with the depreciation of outdated products. When a piece of technology has reached the end of its life, the equipment is usually sent back to the vendor for disposal, saving the customer time and money. Organizations with smaller cash flows can also obtain technology at lower costs by leasing products rather than purchasing them.
Leasing can also help organizations manage their annual budgets. Depending on the organization, lease agreements are easier to administer and approve than purchasing agreements, since the cost of the equipment is spread out over the course of the lease. In contrast, organizational purchases require the availability of large sums of money within a single fiscal year. Leasing business products not only significantly reduces the length of the approval process for obtaining products, but makes it easier for organizations to balance their annual budget.
Additional advantages of B2B leasing agreements include flexible lease-to-own programs. A lease can be structured to allow the purchase of equipment at the end of the lease for fair market value of the hardware. Furthermore, lease agreements can be structured to include maintenance, installation, software, and other professional services. This can save the district time and money in the long run.
Potential Disadvantages Of Leasing
Without owning a product, organizations also lack full control over what can be done with the equipment. Whereas customers who purchase equipment wield influence over future product updates and modifications, leasing customers may have limited say in how products evolve for future releases.
Lease agreements are also set for a definite period of time, which locks organizations with certain vendors and equipment. If the needs of the lessee suddenly change, it might be difficult to modify the terms of the lease. However, some leases will allow product upgrades before the end of the lease.
In addition, lessees might not be able to return damaged products depending on the leasing conditions. Leasing terms sometimes include hidden fees and penalties at the conclusion of the lease, all of which can cost the organization extra money. Accounting and purchasing departments must be aware of both the pros and cons of the lease to avoid larger problems over the lifetime of the leasing contract.
5.2.7: Promotional Methods
B2B marketers use industry or trade publications, trade shows, private events, and social media to generate awareness about their products and services.
Learning Objective
Differentiate between the promotional methods and tools used in B2B versus B2C marketing
Key Points
- Business marketers generally avoid mass market broadcasts, preferring instead communication channels aimed at specific industries and business audiences.
- B2B marketing promotional methods differ from B2C brands due to the specific needs and variables comprising the industrial business market.
- Social media is fast becoming a promotional tool used to position B2B brands in the digital sphere.
Key Term
- white paper
-
A factual write-up of something, specifically devoid of the appearance of marketing.
Promotional Methods
Promotional methods in business-to-business (B2B) marketing differ from those of business-to-consumer (B2C) brands due to the specific needs and variables comprising the industrial business market. Since B2B customers are other companies and organizations, B2B brands avoid mass market broadcasts. Likewise, they generally use communication channels aimed at specific industries and business audiences. B2B companies also ensure their brands are represented at industry events where potential customers meet B2B sellers. Extensive research and budget analysis are conducted to determine if specific promotional elements will achieve short-term or long-term marketing goals and contribute to the financial performance of the organization.
Trade Show Exhibitors
B2B companies usually conduct research and assess budgetary requirements before taking part in trade shows.
Promotional Tools Used in the B2B Marketing Mix
B2B businesses use promotional methods unique to the industrial business market. For instance, marketers and sales professionals use white papers and product brochures to educate prospects and customers about products or services. These publications are also placed in industry and trade media to produce favorable publicity. If done strategically, media placement enforces messaging behind specific marketing activities across multiple communication channels.
In addition to trade shows and public conferences, seminars and workshops may also be held for potential and existing customers. Relationship building is a key aspect in B2B marketing, as brand loyalty and commitment tend to be higher among business customers compared to consumers. Hosting these seminars creates an aura of exclusivity and presents an intimate forum where individuals from B2B organizations can voice concerns, submit feedback, and view product demonstrations.
Social media is fast becoming a promotional tool used to position B2B brands in the digital sphere. Although B2B organizations tend to be more cautious than B2C brands in using social media, more and more B2B companies are using sites such as Facebook and LinkedIn to connect to customers. Moreover, B2B organizations also use social media for internal communications to increase collaboration and productivity among workers. Internal and external communications via social media can also work concurrently, as employees often share information on events, product releases, and industry developments with other colleagues.
5.3: Industrial Classification
5.3.1: Identifying Potential Business Customers
Market segmentation involves identifying the particular groups of people / organizations that benefit from your product and then selling to them.
Learning Objective
List the characteristics that marketers use to segment organizations
Key Points
- Organizations can be segmented by industry, size, function, level, and type of individuals within the organization.
- Industry classifications can assist in determining what specific industries potential customers are in.
- Preliminary research always saves time. Failing to analyze a prospect is the main reason for a great deal of wasted prospecting time spent on a customer who should have been promptly discarded after due research.
Key Terms
- market segmentation
-
The process of dividing a broad target market into subsets of consumers who have common needs or desires, as well as common applications for the relevant goods and services.
- channel
-
A distribution channel.
Identifying your customer begins with formulating a value proposition. You have to be able to answer this question: “To whom is this proposition of value? ” When trying to answer this question, it helps to simplify matters by breaking the market down into components. The role of the marketing team is to understand everything there is to know about given target groups, ensuring that needs are being identified and filled.
There are three broad categories of customers who could buy your product: individuals, channels (intermediaries), and organizations. Each of these categories can be further broken down into smaller segments. This is called market segmentation – picking out the particular groups of people or organizations that benefit from your product, so you can better sell to them. Organizations can be segmented by:
- Industry
- Size
- Function
- Level
- Type of individuals within the organization
Many segmentation schemes are combinations of the above list. For example, let’s say a venture developing an innovative digital storage product decides to sell only to organizations, not individuals. It segments its potential market by size of organization, size of data storage requirements, and need for speed of retrieval. This would occur during the periods of market analysis and customer research in the product development cycle . That leads, for example, to a focus on large financial institutions and large medical centers. Within those targeted organizations, the importance and cost of the purchase dictates that the venture focuses on selling only to “C-level” executives, such as the CIO or CFO. Finally, as the technology is very new, the venture team chooses to target the executives who are technology enthusiasts—people who love new technology for its own sake and are often willing to look at it in its preliminary form.
Product Innovation Approach
In the product development cycle, the market analysis and consumer research phases are used to identify customers.
Industry classifications can assist in determining market segmentation. The North American Industry Classification System (NAICS) is used by business and government to classify business establishments according to its primary type of economic activity (process of production) in Canada, Mexico, and the United States. Thus, if a company identifies a potential customer but is uncertain what industry that customer belongs to, using the industrial classification from the NAICS can provide more detailed information on the specific business activities of that potential customer.
Having decided on a specific market, the salesperson should try to limit his prospecting to remain within that market. The ideal customer who will buy as soon as the salesperson talks to him is probably nonexistent. Nonetheless, the closer a salesperson’s prospect matches that ideal customer, the fewer sales objections will be placed in his way. It therefore makes sense to ensure that his prospects at least resemble the specification as accurately as they can. This means identifying the potential of a prospect at the very outset.
In particular, the salesperson should know the requirements that a potential customer has set for his future, his priorities, and in all probability, his financial resources. Failing to analyze a prospect is the main reason for a great deal of wasted prospecting time spent on a customer who should have been promptly discarded after due research. Good prospecting does not necessarily dismiss those whose business appears to be static, but it is certainly improves the ability to select and concentrate one’s efforts where one is more likely to secure immediate success.
5.3.2: Estimating the Addressable Market
Total addressable market (TAM) is a term that is typically used to reference the revenue opportunity available for a product or service.
Learning Objective
Define total addressable market (TAM)
Key Points
- TAM helps to prioritize business opportunities by serving as a quick metric of the underlying potential of a given opportunity.
- TAM can be defined as a global total (even if a specific company could not reach some of it) or, more commonly, as a market that one specific company could serve (within realistic expansion scenarios).
- The market can be categorized into separate groups called segments.
Key Terms
- SAM
-
The percentage of the market that is already being served, either by that company or all providers.
- market share
-
The percentage of some market held by a company.
- TAM
-
A term that is typically used to reference the revenue opportunity available for a product or service.
Total Addressable Market
Total addressable market (TAM), also called total available market, is a term that is typically used to reference the revenue opportunity available for a product or service. The market consists of all prospective customers for a given product, service, or idea. Customers can be purchasers who intend to resell the product or end users who intend to use or consume the product.
Estimating TAM
TAM helps to prioritize business opportunities by serving as a quick metric of the underlying potential of a given opportunity. Few organizations track market share even though it is an important metric. Though absolute sales might grow in an expanding market, a firm’s share of the market can decrease which would bode ill for future sales when the market starts to drop. Where such market share is tracked, there may be a number of aspects that will be followed:
- Overall market share
- Share of a target segment
- Relative share in relation to the market leaders
- Annual fluctuation rate of market share
- An estimation of how much of the market you can gain if there were no competitors
- An estimation of the market size that could theoretically be served with a specific product or service
Competitor Profiling
The folio plot visualizes the relative market share of a portfolio of products versus the growth of their market. The circles differ in size by their sales volume.
TAM can be defined as a global total (even if a specific company could not reach some of it) or, more commonly, as a market that one specific company could serve (within realistic expansion scenarios). This focuses strategic marketing and sales efforts and addresses actual customer needs. Including competition and distribution issues then frames the strategy within realistic boundaries and allows a company to gauge served market share (SAM), the percentage of the market that is already being served, either by that company or all providers. The North American Industry Classification (NAICS) categorizes businesses and collects data within specific economic activities, thus assisting in measuring the SAM.
The market can be categorized into separate groups called segments. Any discrete variable is a segmentation. For instance, customers might be segmented by gender (“male” or “female”) or attitudes (“progressive” or “conservative”). Numeric variables may be used to create segments, such as age (“over 30” or “under 30”) or income (“The 99%” or “The 1%”).
Market Segmentation
Segments can be obtained by any number of approaches. Minimally, an existing discrete variable may be chosen as a segmentation, also called “a priori” segmentation. At the other extreme, a research project may be commissioned to collect data on many attributes that would then be used to conduct statistical analysis to derive a segmentation, also called “post-hoc” segmentation.
Qualitative knowledge of the market based on experience may also be used to identify divisions that are likely to be useful. When a producer appeals to a market or market segment, the producer must take into account the distinction between the end user or consumer and the purchaser or decision maker. This is especially true in B2B models. The market may be individuals or organizations that are able to purchase the organization’s product. Each entity in the delivery chain will have different needs, so a complete market needs analysis must include all potential segments and all entities within each segment.
5.3.3: Categories of Business Products
Business-to-business (B2B) transactions involve many classifications of business products.
Learning Objective
List the different categories for business products
Key Points
- Some categories of business products are products used to create other products (e.g., raw materials, component parts).
- Other categories of business products include products used to facilitate the creation of the products, but are not included in the product (e.g., equipment, services).
- Both the United States and Europe have lists which provide divisions and subdivisions of businesses.
- Manufacturers produce products, from raw materials to component parts, which they then sell at a profit. Companies that make physical goods, such as cars or pipes, are considered manufacturers.
Key Terms
- raw material
-
Manufacturing inputs in its unprocessed, natural state.
- business analysis
-
A research discipline of identifying needs and determining solutions to problems facing firms.
- intangible
-
Incorporeal property that is saleable though not material, such as bank deposits, stocks, bonds, and promissory notes.
- North American Industry Classification System
-
A system used by businesses and government to classify business establishments according to type of economic activity (process of production) in Canada, Mexico, and the United States.
- business-to-business
-
Of businesses selling to other businesses.
Business-to-business (B2B) describes commerce transactions between businesses, such as between a manufacturer and a wholesaler or a wholesaler and a retailer. B2B transactions involve many classifications of business products, including the following:
- Raw Materials: A raw material is the basic material from which a product is manufactured or made. Agriculture and mining businesses are concerned with the production of raw materials, such as plants or minerals. Additional examples include latex, iron ore, logs, and crude oil.
Collecting Raw Materials
Latex is a raw material that’s collected from rubber trees and used to manufacture other products.
- Component Parts: Manufacturers produce products, from raw materials to component parts, which they then sell at a profit. Companies that make physical goods, such as cars or pipes, are considered manufacturers.
- Equipment: Equipment includes products used in production activities and operational activities. Equipment includes large buildings that serve as places of business for other companies. Real estate businesses generate profit from the selling, renting, and development such of properties.
- Processed Materials: These products are created from raw materials and are used in the production of another product. Examples include food preservatives and industrial glue.
- Business Services: Service businesses offer intangible goods or services and typically generate a profit by charging for labor or other services provided to government, other businesses, or consumers. Organizations including house decorators, repair services, consulting firms, restaurants, financial businesses, janitorial services, and even entertainers are types of service businesses. ( )
- Supplies: These products facilitate both production and operations, but are not part of the final product. Examples include paper, pens, and cleaning agents. These items can be purchased from retailers and distributors and delivered by transportation businesses.
There are many other divisions and subdivisions of businesses. The authoritative list of business types for North America is generally considered to be the North American Industry Classification System (NAICS; pronounced “nakes”). The equivalent European Union list is the Statistical Classification of Economic Activities in the European Community (NACE).
5.4: The Business Buying Decision Process
5.4.1: Decision-Making Units
The group of individuals responsible for making a buying decision in a B2B context are labelled the decision making unit (DMU).
Learning Objective
Describe the roles and functions that comprise decision making units in B2B organizations
Key Points
- In a business setting, major purchases typically require input from various parts of the organization, including finance, accounting, purchasing, information technology management, and senior management.
- An economic buyer is a typical member of the DMU. The buyer is buying the product to achieve some sort of business advantage.
- The infrastructure buyer, another typical member of the DMU, influences the buying decision because he’s the guy that is going to make the purchase happen.
- The user buyer, another member of the DMU, influences the buying decision because he is one of the people through which the economic buying objective will be realized.
Key Term
- B2B
-
Business-to-business (B2B) describes commerce transactions between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer.
Decision Making Units
In the business-to-business (B2B) context (as opposed to B2C), buying decisions are made in groups. The group responsible for making the buying decision in companies is referred to as the decision making unit (DMU).
Within organizations, major purchases typically require input from various parts of the organization, including finance, accounting, purchasing, information technology management, and senior management. Highly technical purchases, such as information technology systems or production equipment, require the expertise of technical specialists. In some cases, the buying center acts as an informal ad hoc group. In other cases, the buying center is a formally sanctioned group with specific mandates, criteria, and procedures.
Purchases
The decision making unit is responsible for an organization’s buying decisions.
For example, in the hi-tech sector, the decision making unit generally comprises the following roles:
- The economic buyer – This individual is responsible for buying products that enable the company to achieve a business advantage. The economic buyer justifies the purchase by linking it to profit. The economic buyer’s position within the organization can range from the business unit manager level to as high as the CEO.
- The infrastructure buyer – This role influences the buying decision at the execution level. If a product poses challenges at the installation phase, then the infrastructure buyer and/or DMU steps in to decide whether the return on investment (ROI) is worth the time and money required to set up the infrastructure. The infrastructure buyer is typically someone in the IT department.
- The user buyer – This position influences the buying decision at the user level and decides whether the organization will achieve its financial objectives through the purchase. For instance, if end users provide negative feedback about the product, or demonstrate that the product is hard to use, then the economic buyer will determine whether the purchase will prevent the company from reaching its economic goals.
5.4.2: Buying Centers
A buying center is a group of people within an organization who make business purchase decisions.
Learning Objective
Describe the different functions and roles that comprise buying centers within B2B organizations
Key Points
- In a business setting, major purchases typically require input from various parts of the organization, such as finance, accounting, purchasing, information technology management, and senior management.
- The five main roles in a buying center are the users, influencers, buyers, deciders, and gatekeepers.
- In a generic situation, one could also consider the roles of the initiator of the buying process (who is not always the user) and the end users of the item being purchased.
Key Term
- Buying Center
-
A group of employees, family members, or members of any type of organization responsible for finalizing major purchase decisions.
Example
- The stock market is an example of a buying center. A stock market is a public entity (a loose network of economic transactions, not a physical facility or discrete entity) for the trading of company stock (shares) and derivatives at an agreed price. Many people are involved in the daily transactions and the purchase decisions both on the buying side and the selling side. Stock markets allow businesses to be publicly traded, or raise additional financial capital for expansion by selling shares of ownership of the company in a public market. Major purchases of stock typically require input from various parts of the organization, such as finance, accounting, and senior management.
Buying Centers
A buying center is a group of employees, family members, or members of any type of organization responsible for finalizing major purchase decisions. In a business setting, major purchases typically require input from various parts of the organization, such as finance, accounting, purchasing, information technology management, and senior management. Highly technical purchases, such as information systems or production equipment, also require the expertise of technical specialists. In some cases the buying center is an informal ad hoc group, but in other cases, it is a formally sanctioned group with specific mandates, criteria, and procedures. The employees that constitute the buying center will vary depending on the item being purchased.
In a generic sense, there are typically six roles within buying centers. These roles include:
- Initiators who suggest purchasing a product or service
- Influencers who try to affect the outcome decision with their opinions
- Deciders who have the final decision
- Buyers who are responsible for the contract
- End users of the item being purchased
- Gatekeepers who control the flow of information
Because of the specialized nature of computer and software purchases, many corporations use buying centers that are specialized for information technology acquisition. These specialized buying centers typically receive information about the technology from commercial sources, peers, publications, and experience. In this process, top management, the IT director, IT professionals, and other users collaborate to find a solution.
A better buying center for marketing might include:
- Users – The users will be the ones to use the product, initiate the purchase process, generate purchase specs, and evaluate product performance after the purchase.
- Influencers – The influencers are the tech personnel who help develop specs and evaluate alternate products. They are important when products involve new and advanced technology.
- Deciders – Deciders choose the products.
- Buyers – Buyers select suppliers and negotiate the terms of purchase.
- Gatekeepers – Gatekeepers are typically secretaries and tech personnel. They control the flow of information to and among others within the buying center. Buyers who deal directly with a vendor are gatekeepers.
Making Purchasing Decisions
The chairman of the Hong Kong Stock Exchange is an example of a member in an organization responsible for finalizing major purchase decisions.
5.4.3: Buying Situations
B2B buying situations are relationship-oriented, pragmatic, and negotiable compared to the average B2C exchange situation.
Learning Objective
Recognize the key differences in the buying situation between B2B and B2C sales
Key Points
- Selling to organizations is quite different (in most cases) than selling to consumers. This means the marketing approach will also be different.
- One of the main differences between B2B and B2C is the buying situation. Buying situations in a B2B exchange are likely to be customized specifically for the client, and strategically oriented.
- Some of the key differences between B2B and B2C buying situations include the importance of relationship building, price, volume, payment, promotions, and the level of negotiation.
- From a more general perspective, a B2B marketer must be aware that their buyers are going to consider the purchase strategically as a team, and come to a practical conclusion.
Key Term
- B2B
-
An abbreviation for business-to-business sales, in which both buyer and seller are organizations rather than individual consumers.
B2B v. B2C
When considering different buying situations as a marketing professional, one of the first questions to ask is whether the goods are being provided to customers (mass marketing B2C) or to other businesses (focused B2B). Selling to businesses usually requires a significantly different marketing approach, including differences in what the buying situation will be like.
B2B Opportunities
As a consumer base, businesses are a huge source of business in and of themselves. Selling to other businesses often has significantly higher transaction amounts (large volume), and the scale of the contracts can make marketing endeavors very cost-effective and profitable. Just as in B2C, attracting attention through advertising, marketing, and direct sales is central to a successful marketing strategy.
B2B consumers are often pursued quite differently than B2C consumers as a result of these different circumstances. In mass marketing, the goal is to identify channels where the organization can engage with thousands or millions of potential consumers at once. For B2B, this can also be effective but is much less common. Usually for B2B, the buying situations are a bit more personal, and the buying decision process involves much more strategic consideration.
Buying Situations
In order to understand how to market to another business, a simple first step is understanding how these types of clients approach the buying process. Business are quite different than single consumers in regards to buying strategies, often pursuing much larger contracts with much greater care. To understand the buying situations, it is useful to consider the decision-making process (spontaneity vs. strategy), differences in pricing, payment approaches, repeat purchases, relationships, and the role of a purchaser at an organization.
Spontaneity: B2B buying situations are less likely to be spontaneous, and more likely to be discussed carefully among various stakeholders. For example, a consumer may buy a soft drink without overthinking the price, manufacturer, or business relationships (e.g. just to satisfy their thirst). A grocery store, however, will carefully consider which types of soft drinks to stock, how many to buy, how to ship them, how to price them, etc.
Pricing: B2B buying situations are often less concrete in terms of overall (or per unit) pricing. Take the above example. An individual buying a soft drink will probably not barter the price down with the cashier. However, a store purchasing 10 cases each month will discuss price carefully with the soft drink producer, and will likely pay a different price per unit than other grocery stores (depending on volume, shipping, storage, etc.).
Payment: Payments between companies are generally predicated on monthly, quarterly, or annual invoices. Payments between consumers are immediate, or perhaps will rely on a credit card. This changes the buying situation, particularly when factoring in the time value of money.
Relationships: B2B purchasing situations often require the meeting of various groups in each organization. A relationship will be built on these meetings, creating trust, alignment, and agreement on how the buying process will be planned and executed. B2C purchasing situations are often much less personal, requiring little to no relationship between the organization and the consumer.
Promotions: Finally, it’s also worth noting that the method of promotion and the source of interactions between prospective buyers and sellers is often different for B2B and B2C exchanges. Trade shows, conferences, and meetings are actually forms of marketing communications and promotional strategy, as one-to-one interactions between buyers and sellers is necessary to build trust for high capital and high volume purchases.
B2B Buyer Decision Map
B2B exchanges are often practically driven. They consider what the business needs, how they can fulfill that need, and why the seller is the optimal fit to do so.
5.4.4: Stages of Business Buying
Understanding the stages of business buying is important to a marketing firm if it is to market its product properly.
Learning Objective
Describe the different stages within the business buying decision process
Key Points
- The stages of business buying includes recognizing the problem, developing product specs to solve the problem, searching for possible products, selecting a supplier and ordering the product, and finally evaluating the product and supplier performance.
- Buying B2B products is risky. Usually, the investment sums are high and purchasing the wrong product or service, the wrong quantity, the wrong quality or agreeing to unfavourable payment terms may put an entire business at risk.
- Making a riskier investment can yield to high returns. However, there is also a greater chance that they could lose their investment as well. This can be seen in this diagram. Those involved in the decision buying process need to weigh the risks against the expected returns.
- In order to entice and persuade a consumer to buy a product, marketers try to determine the behavioral process of how a given product is purchased. Understanding the nature of customers’ buying behavior is important to a marketing firm if it is to market its product properly.
Key Terms
- B2B
-
Business-to-business (B2B) describes commerce transactions between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer.
- B2C
-
The sale of goods and services from individuals or businesses to the end-user.
Stages of the Business Buying Decision Process
The main difference between B2B and B2C is who the buyer of a product or service is. The purchasing process is different in both cases and the following is a list of the stages involved in B2B buying:
Step 1: Recognize the Problem
- Machine malfunction, firm introduces or modifies a product, etc.
Step 2: Develop product specifications to solve the problem
- Buying center participants assess problem and need to determine what is necessary to resolve/satisfy it
Step 3: Search for and evaluate possible products and suppliers
- look in company files and trade directories, contact suppliers for information, solicit proposals from known vendors, examine websites, catalogs, and trade publications
- conduct a value analysis – an evaluation of each component of a potential purchase; examine quality, design, materials, item reduction/deletion to save costs, etc.
- conduct vendor analysis – a formal and systematic evaluation of current and potential vendors; focuses on price, quality, delivery service, availability and overall reliability
Step 4: Select product and supplier and order product
- This step uses the results from Step 3
- An organization can decide to use several suppliers, called multiple sourcing. Multiple sourcing reduces the possibility of a shortage by strike or bankruptcy.
- An organization can decide to use one supplier, called sole sourcing. This is often discouraged unless only one supplier exists for the product; however it is fairly common because of the improved communication and stability between buyer and supplier.
Step 5: Evaluate Product and supplier performance
- Compare products with specs
- Results become feedback for other stages in future business purchasing decisions
This 5 step process is mainly used with new-task purchases and several stages are used for modified rebuy and straight rebuy.
Understanding the stages of business buying and the nature of customers’ buying behavior is important to a marketing firm if it is to market its product properly. In order to entice and persuade a consumer to buy a product, marketers try to determine the behavioral process of how a given product is purchased.
Risks
Buying one can of soft drink involves little money, and thus little risk. If the decision for a particular brand of soft drink was not right, there are minimal implications. The worst that could happen is that the consumer does not like the taste and discards the drink immediately. Buying B2B products is much riskier. Usually, the investment sums are much higher. Purchasing the wrong product or service, the wrong quantity, the wrong quality or agreeing to unfavourable payment terms may put an entire business at risk. Additionally, the purchasing office / manager may have to justify a purchasing decision. If the decision proves to be harmful to the organization, disciplinary measures may be taken or the person may even face termination of employment.
Risk and Return
Less risky investments yield less returns. The riskier the investment, the higher the yield.
5.4.5: Measuring Vendor Performance
Firms can measure vendor quality, service, availability, and overall reliability to determine future engagement with the vendor.
Learning Objective
Describe the different tactics B2B companies use to search for and evaluate products and supplier performance
Key Points
- Supply managers evaluate suppliers utilizing the tools of value assessment and the fundamental value equation. They estimate the benefits and total costs paid to each vendor.
- Vendors play a role in two steps of the business buying decision process. Steps 3 and 5 both require researching new and current vendors and analyzing various factors to determine if they should be used again.
- Vendor analysis is a formal, systematic evaluation of current and potential vendors. This focuses on price, quality, service, availability and overall reliability.
Key Term
- fundamental value equation
-
Customer Perceived value of a product is the difference between the prospective customer’s evaluation of all the benefits and all the cost of an offering and the perceived alternatives. Formally, it may be conceptualized as the relationship between the consumer’s perceived benefits in relation to the perceived costs of receiving these benefits. It is often expressed as the equation : Value = Benefits / Cost.
Introduction
Decision makers complete five steps when making a business buying decision:
- Recognize the problem
- Develop product specifications to solve the problem
- Search for and evaluate possible products and suppliers
- Select product and supplier and order product
- Evaluate product and supplier performance
Vendor performance measurement plays a role in Steps 3 and 5.
Step 3: Search for and Evaluate Possible Products and Suppliers
Step 3 requires searching for and evaluating possible products and suppliers. This can be done in several ways:
- Looking in company files and trade directories, contacting suppliers for information, soliciting proposals from known vendors, and examining websites, catalogs and trade publications.
- Performing a value analysis (an evaluation of each component of a potential purchase). This examines the quality, design, and materials, with the intention of finding cost savings opportunities.
- Performing a vendor analysis (a formal, systematic evaluation of current and potential vendors). This focuses on price, quality, service, availability, and overall reliability.
Step 5: Evaluate Product and Supplier Performance
Step 5 of the business buying decision process involves evaluating product and supplier performance.
Firms need to compare products with specifications. The results become feedback for other stages in future business purchasing decisions. If a firm has any negative issues with a vendor, it is likely they will look for another one.
Business Feedback Loop
Firms need to compare products with specifications. The results become feedback for other stages in future business purchasing decisions.
Supplier performance evaluation teams are used to monitor activity and performance data, and to rate vendors. But supplier performance evaluation teams are just one of the many teams companies deploy to address tactical issues.
Supplier certification teams help selected suppliers reach desired levels of quality, reduce costs, and improve service. Specification teams select and write functional, technical, and process requirements for goods and services to be acquired.
Supply managers evaluate suppliers utilizing the tools of value assessment and the fundamental value equation. They estimate the benefits and total costs paid to each vendor. Consistent with supply management orientation, these evaluations can be complemented with the firm’s customer feedback. In this way, supply managers can better focus or redirect the efforts of the entire supply network toward the delivery of superior value to end-users.
5.4.6: Influences on Business Buying
Environmental, organizational, and interpersonal factors all impact the business buying decision process.
Learning Objective
Give examples of how environmental, organizational, interpersonal, and individual factors influence the business buying decision process
Key Points
- The personal characteristics of the people in the buying center can be influential. Age, education level, personality, tenure, and position within the company all play a role in how a person will influence the buying process.
- The company’s objectives, purchasing policies and resources can influence the buying process.
- Firms can suffer from strategic inertia, the automatic continuation of strategies unresponsive to changing market conditions.
Key Term
- Buying Center
-
A group of employees, family members, or members of any type of organization responsible for finalizing major purchase decisions.
Influences on Business Buying
Four main influences impact the business buying decision process: environmental factors, organizational factors, interpersonal factors, and individual factors.
Environmental Factors
Competitive conditions may enable a company’s short-term success, where the organization is able to operate irrespective of customer desires, suppliers, or other organizations in their market environment. Early entrants into emerging industries are likely to be internally focused due to few competitors. During these formative years, customer demand for new products will likely outstrips supply, while production problems and resource constraints represent more immediate threats to the survival of new businesses.
Nevertheless, as industries grow, these sectors become more competitive. New entrants are attracted to potential growth opportunities, and existing producers attempt to differentiate themselves through improved products and more efficient production processes. As a result, industry capacity often grows faster than demand and the environment shifts from a seller’s market to a buyer’s market. Firms respond to changes with aggressive promotional techniques such as advertising or price reductions to maintain market share and stabilize unit costs.
Different levels of economic development across industries or countries may favor different business philosophies. For example:
- Certain environmental and economic factors can lead to an apprehensive buying center.
- Firms can suffer from strategic inertia, or the automatic continuation of strategies unresponsive to changing market conditions.
Organizations that fall victim to strategic inertia believe that one way is the best way to satisfy their customers. Such strategic inertia is dangerous since customer needs as well as competitive offerings eventually change over time.
For example, IBM’s traditional focus on large organizational customers caused the company to devote too little effort to the much faster-growing segment of small technology start-ups. Meanwhile, IBM’s emphasis on computer technology and hardware like the IBM cell processor made the company slow to respond to the explosive growth in demand for Internet-based applications and services. Thus, in environments where such changes happen frequently, the strategic planning process needs to be ongoing and adaptive. All business participants, whether from marketing or other functional departments, must pay close attention to customer preferences and competitor activities.
IBM Cell Processor
IBM traditionally focused on large organizational customers. It did not put enough effort into small technology start-ups, which grew at a faster pace.
Organizational Factors
Organizational factors such as the company’s objectives, purchasing policies, and resources can influence the buying process.The size and composition of the buying center also plays a role in the business buying decision process.
Interpersonal Factors
The interpersonal relationships between people working in the company’s buying center can hinder the buying process. Buying center members need to trust each other and operate under full disclosure.
Individual Factors
The personal characteristics of people in the buying center can influence the buying decision process. Individual factors including age, education level, personality, job tenure, and position within the company all play a role in how a person influences the buying process.
5.4.7: Business Ethics in B2B
Marketers need to incorporate good ethics in their marketing campaigns as they are responsible for the image that a product portrays.
Learning Objective
List the pitfalls B2B companies face when ignoring ethics in market research and target marketing, and the advantages to incorporating ethics
Key Points
- Businesses are confronted with ethical decision making every day, and business leaders and managers need to reinforce the importance of using ethics as a guiding force when conducting business.
- Ethical danger points in market research include invasion of privacy and stereotyping.
- Ethical danger points in market audience include excluding potential customers from the market and targeting the vulnerable, such as children and the elderly.
Key Terms
- Market Research
-
The systematic collection and evaluation of data regarding customers’ preferences for actual and potential products and services.
- ethics
-
The moral principles that guide decision making and strategy.
- B2B
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Business-to-business (B2B) describes commerce transactions between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer.
Business Ethics in B2B
Ethics refers to the moral principles that guide decision-making and strategy. Business ethics are, therefore, encompassed in the actions of people and organizations that are considered to be morally correct. Ethical objectives may include increased recycling of waste materials or offering staff sufficient rest breaks during their work shift. Businesses that adopt an ethical stance gain from numerous advantages, including:
- Improved corporate image
- Increased customer loyalty
- Cost cutting
- Improved staff motivation
- Improved staff morale
In a B2B environment, the client is another business rather than the customer, which means more attention needs to be given to maintaining a two-way relationship between the two entities. Since business clients have more meticulous and specification-driven buying processes, and the company must ensure that needs are met at all times without taking actions that would be considered unethical.
Ethics in Market Research
Ethical danger points in market research include invasion of privacy and stereotyping. Stereotyping occurs because any analysis of real populations needs to make approximations and place individuals into groups. However, if conducted irresponsibly, stereotyping can lead to a variety of ethically undesirable results. .
Ethics in Market Research
Firms need to be careful not to use irresponsible stereotyping in the market research process.
Ethics in Market Audience
Ethical danger points in market audience include (1) excluding potential customers from the market; selective marketing is used to discourage demand from undesirable market sectors or disenfranchise them altogether; (2) targeting the vulnerable, such as children and the elderly. Examples of unethical market exclusion or selective marketing are past industry attitudes to the gay, ethnic minority and obese (“plus-size”) markets. Contrary to the popular myth that ethics and profits do not mix, the tapping of these markets has proved highly profitable. For example, 20% of US clothing sales is now plus-size. Another example is the selective marketing of health care, so that unprofitable sectors, such as the elderly, will not attempt to take benefits to which they are entitled. A further example of market exclusion is the pharmaceutical industry’s exclusion of developing countries from AIDS drugs.
Marketing ethics is the area of applied ethics that deals with the moral principles behind the operation and regulation of marketing. Ethics provides distinctions between right and wrong; businesses are confronted with ethical decision making every day, and whether or not employees decide to use ethics as a guiding force when conducting business is something that business leaders, such as managers, need to review and enforce. Marketers are ethically responsible for what is marketed, and for the image that a product portrays. With that said, marketers need to understand what constitutes good ethics and how to incorporate such practices into various marketing campaigns to better reach a targeted audience and gain trust from customers. When companies create high ethical standards upon which to approach marketing they are participating in ethical marketing. Ethical behavior should be enforced throughout company culture and through company practices.
5.4.8: Customer Service as a Supplement to Products
Customer service is provided before, during, and after the purchase of a product, and is meant to supplement and enhance customer experience.
Learning Objective
Give examples of how customer service supplement products and services
Key Points
- Customer service is an integral part of an organization’s ability to generate income and revenue, and should be included as part of an overall approach to systematic improvement.
- Customer service may be provided by a person, such as a sales and service representative, or by automated means.
- A challenge working with customer service is to ensure that you have focused your attention on the right key areas as measured by the correct Key Performance Indicator.
Key Terms
- customer satisfaction
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A measure of how products and services supplied by a company meet or surpass customer expectation.
- Key Performance Indicator
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Industry jargon for a type of performance measurement. They are commonly used by an organization to evaluate its success or the success of a particular activity in which it is engaged.
Customer Service to Supplement Products
Customer service is the provision of service to customers before, during and after a purchase. Customer support refers to a range of services including assisting clients to make cost effective product choices and getting the most from their purchases. The process includes assistance in planning, installation, training, trouble shooting, maintenance, upgrading, and disposal of a product. In the technology industry, where people buy mobile phones, televisions, computers, software products or other electronic or mechanical goods, customer service is called technical support.
Customer service is regarded as a supplement to the product, and not a replacement for any part of the product. For instance, if a product is faulty in one way, having good, responsive customer service may ameliorate to some degree the customer’s dissatisfaction, but will not make up for the deficiency in product quality. If a person buys a product that they are happy with, however, then good customer service can supplement this satisfaction.
The importance of customer service varies by product, industry and customer. Retail stores, for example, often have a desk or counter devoted to dealing with returns, exchanges and complaints, or will perform related functions at the point of sale ; the perceived success of such interactions are dependent on employees who can adjust themselves to the personality of the guest. From the point of view of an overall sales process engineering effort, customer service plays an important role in an organization’s ability to generate income and revenue. From that perspective, customer service should be included as part of an overall approach to systematic improvement; the customer service experience can change the entire perception a customer has of the organization.
Customer Service Desk
Retail stores and organizations usually have a customer service desk or counter devoted to dealing with returns, exchanges, and complaints.
Customer service may be provided by a person, such as a sales and service representative, or by automated means. An advantage with automated means is an increased ability to provide service 24-hours a day, which can complement in person customer service. Another example of automated customer service is touch-tone phone, which usually involves a main menu and the use of the keypad as options, for example “Press 1 for English, Press 2 for Spanish. “
A challenge working with customer service is to ensure that attention is focused on the right key areas as measured by the correct Key Performance Indicator. The challenge is not to come up with a lot of meaningful KPIs, of which there are many, but to select a few that reflect the company’s overall strategy. In addition to reflecting the firm’s strategy, customer service should also enable staff to limit their focus to the areas that really matter. The focus must be on those KPIs that will deliver the most value to the overall objective, for example, cost saving and service improvement. Customer service must also be delivered in such a way that staff sincerely believe they can make a difference.