Chapter 5/ Business-to-Business
Marketing
Business markets: buying and selling hwen the stakes are high
You might think most marketers spend their days dreaming up the best way to promote cutting-edge
web browsers or trendy shoes – not really. Many marketers know that the ‘real action’ more likely
lies in industrial products like Sash offers, or in office supplies, work safety shoes, group medical
isnureance, machine components or construction products that other companies sell to businesses
and origanisations.
Some of the most interesting and lucatrative jobs for young graduates are in industries you’ve
probably never heard of because these buisnesses don’t deal directly with consumers.
Like an end consumer, a business buyer makes decisions – but with an important difference: the
purchase may be worth millions of euros, and both the buyer and the seller have a lot at stake. A
consumer may decide to buy two or three t-shirts at one time.
Consider these transactions: IBM produces computer network servers to sell to its business
customer. Unilever has contracts with several advertising agencies to promote its brands at home
and around the globe. The London theatre company busy costumes, sets and programmes.the EU in
Brussels places orders for thousands of new computers.
All these exchanges have on thing in common: they’re part of business-to-business (b2b) marketing.
This is the marketing of goods and services that bvusinesses and other organistations buy for
puproses pother than personal consumption. Some firms resell these goods and servicvecs, so they
are part of a channel of distribution. Other firms use the goods and services they buy to produces
other goods and services that meet the neds of their customers or to support their own operations.
These b2b markets, or organisational markets, include manufacturers, wholesalers, retailers and va
variety of other oragnisations, such has hospitals, universities and governmental agencies.
Even a single purchase of the latsest style of Diesel jeans represents the culminiation of a series of
bying and seling activities among many organisations.
Characteristics that make a difference in business markets.
Int heory, the same basic marketing principles hold in both consumer and business markets – firms
identify customer needs and develop a marketing mix to satisfy those needs.
Although marketing to business customers doe shave a lot in common with consumer marketing,
there are differences that make this basic process more complex. See table 5.1 p. 188
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Large buyers
In business markets, prdoucts often have to do more than satisfy an individual’s needs. They must
meet the requirements of everyone involved in the company’s purchase decision, if you decide to
buy a new chair for your room or apartment, you’re not the only one who has to be satisfied.
number of customers
Organisational customers are few and far between compared with end consumers. In Europe, there
are several million consumer hosueholds but significantly fewer businesses or organisations. Dutch
giant Philips Medical, which markets sophisticated electrical products to hispitals health maintenance
organisations and other medical groups, has a limited number of potential customers compared with
its cosnumers electronics dividsion. This means that business marketing strategies may be quite
differenct from cosnuemr marketing strategies. For example, in consumer markets Philips may use tv
advertising, but in its business markets a strong slaes force is vital for promoting the product.
Size of purchases
Business-to-business producst can influence consumer purchases, both in the quanitity of items
orderered and in the price of individual purcahses. A company that hires out uniforms to other
businesses, for example, buys huge volumes of washing detergent each year to clean its uniforms.
Organisations purchasese many products such as highly sophisticated manufacturing equipment or
computer-based marketing information systems that can cost milions of euros. Recognizing such
differences in the size of purchases allows markters to develop effective marketing strategies.
Although it makes perfect sense to use mass-media advertising to sell laundtry detergent to
consumers, selling laundry detergent worth thousands of euros or a million-euro machine tool is
often best handled by a strong personal sales force.
Geographic concentration
Antoher difference between business markets and consumer markets is geographic concentration.
Business customers are often located in a small geographic area rather than being spread out across
a country. Whether they live in the heart of Paris or in a small fishing village in Greece, consumers
buy toothpaste and televisions. B2b customers may be almost exclusively located in a single region of
a country. Birmingham is home to a significant numver of companies that supply steel and
engineering components. For b2b marketers who wish to sell to these markets, thismeans that they
can concentrate their sales efforts and perhaps even locate distribution centres nearby.
Business-to-Business Demand
Demand in business markets differes form consumer demand. Most demand for business-tobusiness products is dericed, inelastic, fluctuating and joint. Understanding these differnces in
business-to-business demand important for marketers in forecasting sales and in planning effective
marketing strategies.
Derived demand
Consumer demand is based on a direct connection etween a need and the satisfaction of that need.
However, business customers don’t purchase goods and services to satisfy their own needs. B2b
demand is derived demand because a business’s demand for goods and services comes either
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directly or indirectly from consumer demand. Consider an airline carrier such as KLM. Demand for
the purchase of aircraft (boeing or Airbus) comes from the demand for air travel and holdays.
As a result of derived demand, the success of one company may depend on another company, and it
could be in a different industry. The derived nature of business demand means that marketers must
be constantly alert to changes in consumer trends that ultimately will have an effect on business-tobusiness sales.
Inelastic demand
Inelastic demand means that it usually doesn’t matter if the price of a business-to-business product
goes up or down – busness custoemrs still biy the same quantity. Demand in business-to business
markets is mostly inelastic because what is being sold is often just one of many part or materials that
go into producing the consumer product. It is not unusual for a large increase in a business product’s
price to have little effect on the final consumer product’s price.
But business-to-business demand isn’t always inelastic. Sometimes producing a consumer good or
service relies on only one or a few materials or component parts. If the price of the part increases,
demand may become elastic if the manufacturer of the consumer good passes the increase on to the
consumer.
Fluctuating demand
Business demand is also subject to greater fluctuations than consumer demand. There are two
reasons for this. First, even small changes in consumer demand can create large increases or
decreases in business demand.
A product’s life expectancy is another reason for fluctuating demand. Business customers tend to
purchase certain products infrequently. Some types of large machinery may need to be replaced
every 10 or 20 years. Thus, demand for such products fluctuates. It may be very high one year when
a lot of custoemrs machienery is wearing out, but low the following year because everyone’s old
machinery is working fine.
One solution for keeping production more constant is to use price reductions to encourage
companies to order product before they actually need them.
Joint demand
Joint demand occurs hwen two or more goods are necessary to create a product. For example, BMW
Z4 needs tyres, batteries, and spark plugs (a range of products). If the supply of one of these parts
decreases MBW may find it difficult to manufacture as many vehicles and the company may not buy
as many of the other items either.
Types of business-to-business markets
Producers
Producers purchase products for the production of other goods and services that they in turn sell to
make a profit. For this reason, they are customer for a vast number of products from raw materials
to goods manufactured by still other producers.
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Resellers
Resellers buy finished goods for the purpose of reselling, renting, or leasing to other businesses.
Although resellers do not actually produce goods, they do provide their customer with the time,
place and possession, by making goods available to consumers when and where they want thm.
Organisations
Governments may be the only customers for certain products – tornado figher jets for example. But
much governmental expenditure is for more familiar and less expensive items. In any one year, the
national governmentst in any one of the largets EU countires is likely to purchase a range of goods
and services, ranging from thousands of note pads and paintbrushes, to tail tickets, hotel rooms and
the like.
To inform possible vendors about purchases they are about to make, governemtns regularly make
information on forthcoming ourchases available to potential bidders. The EU government provides
information on business opportunities and tenders through the official journal of the European
union, and suppliers can easily seek opportunities through scanning the journal.
Not-for-profit institutions are organisations with educational, community and other public service
goals, such as hospitals, churches, universities, museums and charitable and lobby groups. These
institutions tend to operate on low budgets. Because non-professional part-time buyers who have
other duties often make purcahses, these customers may rely on marketers to privede more advice
and assistance before and after the sale.
The standard industry Classification (SIC) System
In addition to looking at business-to-business markets within these three general categories,
marketers can identify potential customers using the Standard industry Calssification system (SIC).
This is a numberical codign system whereby companies that operate within specific industrial sectors
(their SIC code) can be identitiefd. Firms my therefore use the SIC system to find new customers. A
marketer might first determine the SIC industry classification of his current customers and then
evaluate the sales potential of other firms occupying these categories.
The nature of Business buying
A successful business-to-business marketers needs to understand how his or her customers make
decisions.
The buying situation
Like end ocnsumers, business buyers spend more time and effort on some purchases than on others.
Devoting such effort to a purchase decisions usually depends ofn the complexitiy of the product and
how often the decision has to be made. A buy class framework identifies the degree of effort
required by the firm’s personnel to collect information and make a purchase decision. These classes,
which apply to three different buying situations, are called
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straight re-buys: A straight re-buy is the routine purchase of items that a business-tobusiness customer regularly needs.
Because straight re-buys often contribute the ‘bread and butter’ revenue a firm needs to
maintain a steady stream of income, many bisness marketers go to great lengths to cultivate
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and maintain relationships with customers whi subit reorders personally and to see if there
are additional prodcuts the cusomers needs. The gial ist to be sure that the customer doesn’t
even think twice about just buying the same products every time he or she is running low.
Re-buys keep a supplier’s sales volume up and selling costs down.
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modified re-buys; life would be sweet for companies whose customers automatically do
straight re-buys. Unfortunately, these situations do not last forever. A modified re-buy
occurs when a firm wants to shop around for suplliers with better prices, quality, or delivery
times. This situation can also occur when the organistation has new needs for products it
already buys. A buyers who has purchased many office printers in the past, for example, may
have to evaluate several lines of pritners if the firm has a new needs for office equipment.
Modified re-buys require more time and effort than straight re-buys. The buyer generally
knows the purchase requirements and a few potential suppliers. Marketers know that
modified re-buys can mean that some vendors get added to a buyer’s approved supplier list
while others may be dropped. Astute marketers routinely call on buyers to detect and define
problems that can lead to winning or losing in such situations.
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new-taks buys.
A first time purchase is a new-task buy. Uncertainty and risk characterize buying decisions in
this classification, and they need the most effort because the buyer has no previous
experience on which to base a decision.
In new-task buying situation, not only do buyers lack experience with the product, but they
also are often unfamiliar with firms that supply the product. Spupplier choice is critical, and
buyers gather much information about quality, pricing, delivery and service from several
potential suppliers.
A prospective customer’s new-task buying situation represent both a challenge and an
opportunity. Although a new-taks buy can be significant in itself, many times the chosen
supplier gaisn the added advantage of become an ‘in’ supplier for more routine purchases
that will follow.
Marketers know that to get the order in a new-buy situation, they muyst develipo a close
working relationship with the business buyer. Keep in mind mthat these relationshios aren’t
just important in industries like industrial glass. There are in fact many situations where
marketsr focus on selling their product or service through inspiring people to recommend
their products – over and above the end consumers who acutally buy them.
The professional buyer
Just as it is important for marketers of consumer goods and services to understand their customer, it
is essential that business-to-business marketers understand who handles the buying for business
customers. Trained professional buyers frequently carry out buying in business-to-business markets.
These people typically have title such as ‘purchasing manager’, ‘purchasing director’ or ‘head of
purchasing’.
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While some consumers like to shop till they drop alsomst every day, most of us spend far less time
roaming the aisles. However, professional purcahses dot it all day, every day. Thse individuals focus
on economic factors beyond the initial price of the product, including transportation and delivery
charges, accessory products or supplies, maintencance, and other costs. They are responsible for
selecting quality prodcuts and ensuring their timely delivery.
The buying centre
Many times in business buying situations, several people work together to reach a decisions.
Depending on what they need to purchase, these participants may be production workers,
supervisors, engineers, secretaries, shipping clerks or financial controllers. In a small organisisation,
everyone may have a voice in the decisions.
The groups of people in the organistation who participate in the decision-making process is referred
to as the buying centre. Although this term may conjure up an image of offices buzzing with
purchasing activity, a buying centre is not a place at all. Instead, it is a cross-functional team of
decision makers. Generally, the members of a buying centre have some expertise or interest in the
pariculear decision, and as a group they are able to make the best decision.
Depending on the complexity of the purchase and the size of the buying centre, a participant may
assume one, serveral, or all of the six roles;
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the initiator begint he buying process by first recognising that the firm needs to make a
purchase.
The user is themember of the buying centre who actually needs the producs. The uesr’s role
in the buying centre varies.
The gatekepper is the person who controls the flow of information to other members.
Typically the gatekepper is the purchasing agent who gathers information and materials form
salespeople, schedules sales presentations and controls suppliers’access to other participatns
in the buying process. For salespeople, developing and maintaining strong personal
relationships with gatekeppers is critical to being able to offer their products to the buying
centre.
An influences affects the buying decision by dispensing advise or sharing expertise. By virtue
of their expertise, engineers, wuality control specialists and other technical experts in the
firm generally have a great deal of influence in purchasing equipment, materials, and
component parts used in production. The influencers may or may not end up using the
products. Marketers need to identify key influencers in the buying centre and work to
persuade them of their product’s superiority.
The decider is the member of the buying centre who makes the final decision. This person
usually has the greats power within the buying centre. He or she often has power within the
organisation to authorise spending the company’s money. For a routine purchase, the
decider may be the purchasing officer. If the purchase is complex, a manager, director, or
chief executive may be the decider.
The decider is key to a marketer’s success and deserves a lot of attention in the selling
process.
The buyer is the person who has responisiblity for executing the purchase. Although the
buyer often has a role in identifying and evaluating alternative suppliers, this person’s
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primary funcation is handling the details of the purchase. The buyer obtains competing bids,
negoatias contracts, and arranges delivery datres and payment plans.
The buying decision process
See figure 5.4 p. 198.
Step 1 – problem recognition
as in consumer buying, the first step in the buisnes sbuying decision process occurs when someone
sees that a purchse can solve problem. For straight re-buy purcahses, this step may result because
the firm has run out of paper, pens or bin bags. In these cases, the buyer places the order, and the
decision-making process ends.
Recognition of the need for modified re-buy purchases often comes from wantin to replace outdated
equipment, from changes in technology, or from an ad, brochure or some other marketing
communication that offers the customer a better product or one at a lower price.
The need for new-task purcahses often occurs because the firm wants to enahcen its operation in
some way, or when a smart salesperson tells the business customer about a new product that will
increase the efficiency of the firm’s operations or improve the firm’s end products.
Step 2 – information search
In the second step of the decision process (for purchases other than straight re-buys) the buing
centre searches for inforamtiona bout products and suppliers. Members of the buying centre may
individually or collectively refer to reports in trade magazines and journals, seek advice from outside
consultants, and pay close attention to marketing communication from different manufactures and
suppliers. It’s the job of marketers to make sure that infroamtion is avaialbe when and where
business customers want it.
There are thousands of specialised publications out there that cater for just about any industry you
can think of, and each is bursting with information from competing companies that cater to a specific
niche.
Developing product specification business buyers often develop product specifications. That is a
written description of the quality, size, weight, colour, features, quanitity, training, warranty, service
terms and delivery requirements for the purchase.
Identifying potential suppliers and obtaining proposals once the product specifications are in hand,
the next step may be to identify potential suppliers and obtain written or verbal proposials, or bids,
from one or more of them.
Step 3 – evaluation of options
At this staggge of the business decision process, the buying centre assesses the proposals. Total
spending for goods and services can have a major impact on the firm’s profitability, so all other
things being equal, price is the primary consideration. Pricing evaluations must take into account
discount policies for certain quantities, returned-goods policies, the cost of repair and maintenance
services.
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For capital equipment – such as large machinery, cost ciretaria can also include the life expectancy of
the purchase, the expected re-sale value, as well as the disposal costs.
The more complex and colsty the purchase, the more time buyers will spend searching for the best
supplier (and themore marketers must try to win the order).
Marketers often make formal presenations and product demonstrations to the buying centre group.
In the case of installations and large equipment, marketers sometimes arrange for buyers to speak to
or even visist other customers to examine how the product performs.
Step 4 – product and supplier selection
Once buyers have assessed all proposals, the next step in the buying process is the purchase
decision, that is the selection of the best products and supplier to meet the firm’s needs. Reliability
and durability rank especially high for equipment and systems that keep the firm’s operations
running smoothly without interruption.
One of the most important decisions of a buyer is how many suppliers can best serve the firm’s
needs. Sometimes a single supplier is more beneficial to the organistiaon than having several
suppliers.
Single sourcing occuers when a buyer and seller work quite closely together. It is particularly
important when a firm needs frequent deliveries or specialised products. However, relaiacne on a
single source means that the firm is at the mercy of the chosen supplier to deliver the needed goods
or services without interruption.
Multiple sourcing means buying a product form several different suppliers. Under this system,
suppliers are more likely to remain price competitive.
sometimes supplier selection is based on reciprocity, which means that a buyer and seller agree to
be each other’s customers. Reciprocal agreements between firms often limit the effect of free
market competition. New suppliers simply don’t have a change against the preferred suppliers. In
certain less developed countries, reciprocity or counter trade is a practice that is common and ecen
expected in b2b marketing.
Outsourcing occurs when firms obtain outside suppliers to provide goods or services that might
otherwise be supplied in-house. Outsourcing is an increasingly popular strategy, but also
controversial one. Many critics object when companies contract with firms or individuals in remote
places like china or india to perform work that used to be done at home. These tasks range form
complicated jobs like writing computer code to fairly simple ones like manning reservation desk and
call centres for telohone sales. Controversy aside, many companies are finding that it may be both
cost-efficient and producte to call upon outsiders from around the world to provde such assistance.
Reverse marketing is instead of seller strying to identify potential cutomer and then ‘ptiching’ for
business. Buyers try to find suppliers capabale of producing specific needed products and them
attempt to ‘sell’the idea to the suplliers. The seller aims to satisfy the buying firm’s needs.
Step 5 – post – purchase evaluation
An organisational buyer assesses whether the performance of the product and the supplier is living
up to expectations. The buyer surveys users to determine their satisfaction with the product as well
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as the installation, delivery and service provided by the supplier. For producter of goods, this may
relate to the level of satisfaction of the final consumer of the buying firm’s product. Measuring up to
a customer’s expectations can mean winning or losing a big account.
Business-to-business e-Commerce
This refers to an online exchange between two or more businesses or organisations. B2B ecommerce includes the exchange of information, products, services and payment. It’s not as flashy as
consumer e-commerce, but it changed the way businesses operate.
Using e-commerce allows business marketers to link directly with suppliers, factories, distributors
and their customer. It radically reduces the time necessary to order and deliver goods, track sales,
and obtain customer feedback.
In the simplest form of B2B e-commerce, the internet provdes an online catalogue of products and
services that businesses need.
Intranets, extranets and private exhanges
Although the internet is the primary means of B2B e-commerce, many companies maintain intranets,
which provide a more secure means for conducting business.
Intranet is an internal corporate computer network that uses internet technology to link company
departments, employees and databases. Intranets give access only to authorised employees. They
allow companies to process internal transactions with greater control and consistency because of
stricter sequrity measures than those they can sue on the entire web.
Businesses use also intranets for videoconferencing, distributing internal documents, communicating
with geographically dispersed branches and training employees.
Extranet allows certain suppliers, customers and other outside the organisation to access a
company’s internal system. A business customer that a company authorises to use its extranet can
place orders online. Extranets can be especially useful for companies that need to have secure
communications between the company and its channel members like dealers, distributors and/or
franchisees.
Intranet and extranets can prove to be very cost efficient. Extranet allow business partners to
collaborate on projects (such as product design) and build relationships.
Some of the most interesting online activity in the B2B world is taking place on private exchanges.
These are systems that links a specially invisted group of suppliers and partners over the web.
it allows companies to collaborate with suppliers they trust – without sharing such sensitive
information with others.
Secutirty threats
There are several security threats related to B2B e-commerce.
When hackers break into company sites, they can destroy company records and steal trade secrets.
Both B2C and B2B e-commerce companies worry about authentication and ensuring that
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transactions are secure. This means making sure that only authorised individuals are allowed to
access a site and place an order.
To increase security of their websites and transactions, most ocmapnies now have safeguards in
place, firewalls and exncryption devices. These are the two most common methods.
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A firewall is a combination of hardware and software that ensures that only authorised
individuals gain entry into a computer system. The firewall monitors and contraols all traffic
between the internet and the intranet to restrict access.
Encryption means scrambling a message so that only another individual (or computer) that
has the right ‘key’ for deciphering it can unscramble it. The message is inaccessible without
the appropriate encryption software. Without encryption, it would be easy for unethical
people to get your credit card number by creating a ‘sniffer’ program that intercepts and
reads messages. A sniffer finds messages with four block of four numbers, copies the data
and voilà – someone else has your credit card number.
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