Chapter 6- MKT 300

Learn what functions and roles w/i organizations influence the purchase of a broad range of products.

- Background of Buying Center Members - Information Sources - Time and Risk Factors - Company Factors - Decisions and Conflict Resolution

Describe the Types of organizations and products involved in B2B marketing and understand the importance of this market.

- Business-to-business marketing (B-2-B) is the marketing of goods and services to other businesses, governments, and institutions. - It includes everything except direct sales to consumers. - Globally, it's the largest market by volume. - Unlike B-2-C, which has been historically transactional, B-2-B is relational. ~ Salespeople call on their customers for years. - Business-to-business marketing (B-2-B) selling efforts involve multiple buyers. ~ Selling a product takes time and involves several presentations - Key decision makers are from various departments the rep calls on and my have committee involved based on the product. - Most of the sales are made by bidding due to large dollar that purchases entail.

Types of Markets

- Commercial Markets ~ Organizations that acquire goods and services, which are then used to produce other goods and services (e.g., buy plastic resin and then manufacture plastic pipe). - Extractor Industries ~ Organizations that obtain and process raw materials (e.g., BP drills for oil). - Trade Industries ~ Organizations that acquire or distribute finished products to businesses or to consumers (e.g., retailers, wholesalers, and intermediaries). - Institutions ~ Public and private organizations that provide health, education, and welfare services to consumers. ~ Hospitals, Universities, Prisons, etc. Transportation and - - Telecommunications ~ Transportation is comprised of companies that provide passenger and freight service (e.g., CSX Railroad or United). ~ Telecommunications companies supply local and long distance telephone service as well as cable and broadcasting (e.g., CBS or Comcast). - Utilities ~ Companies that distribute gas, electricity, and water - Government ~ The subdivisions in the government market category are (1) the government, (2) 50 state governments, and (3) 8,700 local units.

Organizational Buying: The Make or Buy Decision

- Companies must decide whether to supply products or services in-house or buy them from other businesses.

Organizational Buying

- Competitive Bidding: Used by organizations that want to obtain the lowest price rather than establish long-term relationships with suppliers. - Web Auction: An online auction that match buyers and sellers around the world (Common in institutional buying).

The Make or Buy Decision: The Problems with Outsourcing and Offshoring

- Cost savings are less than expected - Can raise security concerns over proprietary technology or customer data - Can reduce company's ability to respond quickly to marketplace - Can create conflicts between nonunion outside workers and in-house union employees - Can negatively affect employee morale and loyalty

Understand the link b/w consumer demand and B2B marketing.

- Derived Demand: The amount of sales for business-to-business products depends ultimately on the demand for products by consumers. - Inelastic Demand: Products so necessary that a change in price has relatively little effect on the quantity demanded. - Fluctuating Demand—The Accelerator Principle: When a small fluctuation in consumer demand has a larger effect on business demand. - Volatile Demand: Derived Demand creates volatility in the marketplace. If gas sales slow down it might reduce the sale of gas pumps. - Joint Demand: Demand for a product that depends on the demand for another product used in combination with it. If enrollment decreases hiring new professors will decrease.

Ethics and Business Relationships

- Purchasing agents are often familiar with the trade secrets, production plans, and technologies of an organization. - Misuse of this information has both ethical and legal implications.

Business Market Linkages: The Supply Chain

- The supply chain links organizations involved in the creation and delivery of a product. LOOK at Slide 10 for automotive supply chain example!

Influences on Organizational Behavior

Background of the Buying Center Members - The background affects the buying process due to varying experiences by the members and role orientation. Information Sources - Internet most significant, but also salespeople, exhibitions, trade shows, journal advertisements, etc. Time and Risk Factors - Time it takes to purchase the product and the perceived risk of what can be lost through the purchase. Company Factors - Three factors influence the purchasing process: orientation, size, and degree of centralization. Joint Decisions and Conflict Resolution - Due to the large number of people influencing the purchase working together is important and resolving conflict is necessary.

The Buying Center

Gate Keeper- Controls flow outside info by screening commercial contacts w/other members of the buying center. Information Seeker- Locates data about product, competitors, and suppliers to be used during the purchasing process Advocate- Provides group leaderships to support or not support specific solutions and suppliers Linking Pin- establish contacts among functional areas involved in the buying center Decision Maker- authority to make or approve purchases User- actually uses the product, initiate purchasing changes and provide feedback

The Make or Buy Decision: Outsourcing

Outsourcing - Using outside vendors to provide goods and services formerly produced in-house - Reasons for outsourcing: ~ Cost reduction ~ Quality and speed of software maintenance and development ~Greater value ~Outside firm can produce the product more efficiently and at a lower cost than the parent company can

Functions Involved in Business Purchases

Purchasing Agents- Hired to help the organization buy a broad range of products most effectively. They establish and maintain purchase arrangements with all suppliers. They also establish and enforce purchasing procedures, negotiate, and interact with suppliers. Functional Managers- Hold a position in a specific operational area of the buying organization based on prior experience Buying Center- A group of people in the organization who make a purchase decision.

LOOK at B2B Market- Overview slide

SLIDE 5 of Ch. 6

Describe the organizational buying process.

Steps in the Organizational Buying Process: 1. Problem recognition 2. General need description 3. Product specifications 4. Supplier search 5. Proposal solicitation and supplier selection 6. Order routine specification 7. Purchase and use of product 8. Performance review

Know how buyer-seller relationships work, including informal and contractual partnerships.

The Courtship Phase Purchasers express their desires to sellers, who develop proposals designed to satisfy the buyers' needs The Relationship-Building Phase Buyers and sellers work together for the first time, which strengthens the bond between them. The Partnership Phase Begins after numerous purchases have been completed satisfactorily and long-term agreements are reached Courtship --> Relationship Building --> Partnership

More on the Make or Buy Decision:

The Rise of Offshoring and Outsourcing ~ Offshoring - Movement of high-wage jobs from one country to lower-cost overseas locations ~ Nearshoring - Moving jobs to vendors in countries close to the business's home country - Canada and Mexico are attractive nearshoring locations

Globalization of Business Markets

The growth of international business has provided companies with a number of business-to-business marketing opportunities overseas.

The Outsourcing Decision: Organizational Buying Situations

Types and people involved: - Straight Rebuy: Reorder from current supplier- one purchasing agent - Modified Rebuy: Evaluate alternative suppliers of a product purchased before or a new different product from a current supplier- purchasing agent plus one or a few others - New Task: first-time purchase of a product- many people from several areas of the organization