Chapter 1
Introduction to Business-to-Business Marketing
Prepared by John T. Drea, Western Illinois University
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The Marketing Mix:
The “4 P’s” of Marketing
Place
Product
The
Marketing
Mix
Price
Promotion
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Marketing Mix: Product
+ Core Product
+ Financing Terms
+ Delivery Options
= “Total Offering”
The total offering is created by a
partnership between the buying
organization and the marketing
organization.
The process creates an
augmented product that is specific
to the buying unit’s needs and
maximizes the value creation
capabilities of the marketer.
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Marketing Mix: Price
Price…
•is the mutually agreed-upon
amount that satisfies both
sides in an exchange.
•often varies from fixed price,
with more special discounts
and allowances (in
comparison to consumer
markets).
•may involve things other than
a one-time price payment
(such as commissions).
Price is the
measure of value
exchanged and is
determined by the
market (not by
costs).
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Marketing Mix: Place
Place is about getting the product to the customer in
order to maximize economic utility.
Form Utility (having the product in the right
size package, quantity, etc.)
Economic
Utility
Time Utility (having product available at
useful times)
Place Utility (getting the product to the
customer where & when it is expected)
Possession Utility (making it easy to
transfer ownership to the buyer)
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Marketing Mix: Promotion
Business-to-business marketing requires a different
emphasis on different parts of the promotional mix
Consumer marketing
•Emphasis is
frequently on
advertising.
•Communication with
customers is often a
monologue.
•Relationship is often
brief.
Business-to-business
marketing
•Emphasis is frequently on
personal selling.
•Communication with
customers should be a
dialogue.
•Relationship is often longlasting.
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Business Markets and Business Marketing
• Business markets
– All organizations that purchase goods and
services to use in the creation of their own
goods and services.
• Business marketing
– The process of matching and combining
the capabilities of the supplier with the
desired outcomes of the customer to
create value for the “customer’s customer.”
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The
Marketing
Concept
1. Be contextually
market sensitive
For a
business-to-business
organization to
successfully practice
the marketing concept,
it should:
2. Understand customer needs
3. Meet customer
needs in a way that provides
value to the customer
4. Meet organizational goals
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Consumer Demand and Derived Demand
Business demand is
derived from
consumer demand.
Trees are demanded to make wood pulp
…because wood pulp is demanded to make paper
…because paper is demanded to produce books
…because the consumer demands books!
Because of this,
business-tobusiness demand
tends to be
Inelastic (short-run)
Volatile (leveraged)
Discontinuous
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The Bullwhip Effect
1. Suppliers forecast
their production on
existing order rates.
2. But, if consumer
demand drops, the
order rate also drops.
3. Supply chain members are then likely to overcompensate the difference between the old and new
forecasts, because…
A.
B.
C.
D.
Inventory levels can decline to fit new order rate,
Customers change orders frequently,
Minimum order quantities may exist, and/or
Trade promotions may influence buying patterns
(discontinuities of B2B demand add to the bullwhip effect)
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B2B demand is discontinuous –
it moves in large increments.
1. Consumers
increase their
demand for a
product.
2. To produce more, a consumer
goods manufacturer consumes
more raw materials, equipment,
and supplies.
3. Suppliers of raw materials,
equipment, and supplies are
pressured to expand capacity
and eventually do so.
4. Industry
capacity increases
in large
increments.
The industry capacity increases in a discontinuous manner.
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Business-to-business demand tends to be inelastic
Price elasticity:
•It is the change in the quantity
demanded relative to the change in
price.
•When the price changes by X% and
demand changes by less than X%,
demand is described as inelastic.
Demand tends to be inelastic for those components that
are differentiated from competitors.
Manufacturers often choose to absorb price increases
rather than alienate customers (the manufacturer may
choose to later eliminate the component by design).
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Outsourcing
Outsourcing is the purchasing of part of the
company’s continuing operations, such as
manufacturing, rather than producing the
same function internally.
Quantity Discounts
Complementary Products
Delivery Schedules
Outsourcing
Increases the
complexity of
business-to-business
marketing
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Value Chain
The Value Chain
•The chain of activities that creates
something of value for targeted customers.
The value chain
contains both
direct and
support
activities.
Direct activities
contribute directly
to the offering.
Support activities
makes it possible to
perform the direct
activities.
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The Value Chain and Offering
Perceives
Infrastructure
Human resources
Procurement
Technology &
technology development
Support activities
Offering:
Product
Service
Image
Availability
Quantity
Evaluated Price
Added value
Direct activities
Target
Customers
Creates
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Implications of the Value Chain
• The organization must understand its
prospective customers, what customers
perceive as valuable, and how prospects
might be persuaded to change their minds.
• Not all customers are alike. Customers can
be segmented on the basis of what they seek
and can afford.
• Direct and support activities are equally
important.
• The value chain extends from the customer
back thorough distribution channels,
manufacturers, suppliers and raw materials
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suppliers.
Trends and Changes in Business Marketing
• Hypercompetition: the rapid emergence
of new competitors and industries.
• Formation of partner networks (use of
ERP systems).
• Use of Internet technologies to reduce
costs and to improve communication
and customer service.
• Time compression: an increase in the
speed of doing business.
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