Chapter 07 Business Marketing (7-7)

Component parts often...

Wear out and need to be replaced several times during the life of the final product.

What 7 categories do business products generally fall into?

1. Major Equipment 2. Accessory Equipment 3. Raw Materials 4. Component Parts 5. Processed Materials 6. Supplies 7. Business Services

How do PROCESSED MATERIALS differ from RAW MATERIALS?

They have had some processing.

Supplies generally fall into _______ categories: _______, ______, ______. What is this referred to as?

1.) 3 2.) Maintenance, Repair, Operating 3.) MRO items

Definition: MAJOR EQUIPMENT; what are these items commonly called?

1.) Capital goods such as large or expensive machines, mainframe computers, blast furnaces, generators, airplanes, and buildings 2.) These items are commonly called INSTALLATIONS

What are some examples of business services? Who generally performs these services?

1.) Janitorial, advertising, legal, management consulting, marketing research, maintenance, and other services. 2.) Outside providers hired by businesses.

In contrast to major equipment, accessories are... What do these customers tend to be?

1.) More standardized and are usually bought by more customers. 2.) These customers tend to be widely dispersed. Example: all types of businesses buy microcomputers.

What are the 2 different important markets for many component parts?

1.) OEM market 2.) Replacement market

When it comes to RAW MATERIALS, promotion is always via _________ and distribution channels are....

1.) Personal Selling 2.) Direct from producer to business user.

When it comes to PROCESSED MATERIALS what 2 factors are important in choosing a vendor?

1.) Price 2.) Service

Who tends to set the price of raw materials? What do producers have as a result?

1.) The market tends to set the price of raw materials. 2.) Individual producers have little pricing flexibility.

Fluff pulp, a soft, white absorbent material, is produced from loblolly pine timber by mills such as International Paper Co. The fluff pulp becomes part of a number of different products, including product packaging, paper, disposable diapers, and bandages, among other things. What is this an example of?

A PROCESSED MATERIAL

What are PROCESSED MATERIALS bought according to?

According to customer specifications or to some industry standard (as is the case with steel and plywood).

What is a more vital promotional tool for accessory equipment than for major equipment?

Advertising

What is accessory equipment charged as?

An expense in the year that it is bought rather than depreciated over its useful life.

Who battle for business purchases of inexpensive ballpoint pens?

Bic and Papermate

Give an example of component parts used in heavy-duty trucks.

Caterpillar diesel engines.

Because components often retain their identity in final products, users may...

Choose to replace a component part with the same brand used by the manufacturer. Example: same brand of automobile tires or battery.

Definition: SUPPLIES

Consumable items that do not become part of the final product

Major equipment is often _________ for each customer.

Custom designed

(Related to last question) Why did BMW have to stop production of several models in 2017?

Due to a shortage of steering gears from their supplier, Bosch. BMW practices "just-in-time" production, so they order parts only when they need them, and Bosch is their only source of steering components. Therefore, the shortage by Bosch caused a major delay in production for and shipments from BMW.

Definition: COMPONENT PARTS

Either finished items ready for assembly or products that need very little processing before becoming part of some other product.

Definition: BUSINESS SERVICES

Expense items that do not become part of a final product

Who generally buy large amounts of RAW MATERIALS?

Extensive users, such as steel or lumber mills and food canners.

Definition: ACCESSORY EQUIPMENT

Goods, such as portable tools and office equipment, that are less expensive and shorter-lived than major equipment

What role do local industrial distributors (wholesalers) play an important role in?

In the marketing of accessory equipment because business buyers often purchase accessories from them.

Rather than charged as an expense the year it is purchased, what happens to major equipment?

It is depreciated over time.

Compared to MAJOR EQUIPMENT's price and lifespan, what is ACCESSORY EQUIPMENT?

It is generally less expensive and shorter-lived than major equipment.

What are some examples of SUPPLIES?

Lubricants, detergents, paper towels, pencils, and paper.

Competition in __________ market is intense.

MRO

Give some examples of RAW MATERIALS

Mineral ore, timber, wheat, corn, fruits, vegetables, and fish.

Because there is a large number of relatively small sellers of raw materials, what is the case?

None can influence the price or supply.

What are most processed materials marketed to?

OEMs or to distributors servicing the OEM market.

What is the replacement market composed of?

Organizations and individuals buying component parts to replace worn-out parts.

What do RAW MATERIALS become?

Part of finished products.

What is an important part of the marketing strategy for major equipment? Why?

Personal selling b/c distribution channels are almost always direct from the producer to the business user.

What are some examples of ACCESSORY EQUIPMENT?

Portable drills, power tools, microcomputers, and computer software.

Definition: PROCESSED MATERIALS

Products used directly in manufacturing other products.

Timber, harvested from forests, is a ______________.

Raw Material

What are some examples of PROCESSED MATERIALS?

Sheet metal, chemicals, specialty steel, treated lumber, corn syrup, and plastics.

What are some other examples of COMPONENT PARTS?

Spark plugs, tires, and electric motors for automobiles.

What is a key factor in the ability of OEMs to meet their production deadlines?

The availability of component parts.

What are SUPPLIES normally?

They are normally standardized items that purchasing agents routinely buy.

What is a special feature of component parts?

They can retain their identity after becoming part of the final product. Example: automobile tires are clearly recognizable as part of a car.

Unlike component parts, what do process materials not retain?

They do not retain their identity in final products.

Compared to other business goods, what are SUPPLIES?

They have relatively short lives and are inexpensive.

Definition: RAW MATERIALS

Unprocessed extractive or agricultural products

When does contracting an outside provider make sense (3 scenarios)?

When it costs less than hiring or assigning an employee to perform the task, when an outside provider is needed for particular expertise, or when the need is infrequent.

How does the replacement market operate differently from the OEM market?

Whether replacement buyers are organizations or individuals, they tend to demonstrate the characteristics of consumer markets. Example: a replacement part for a piece of construction equipment such as a bulldozer or a crane. When a piece of equipment breaks down, it is usually important to acquire a replacement part and have it installed as soon as possible. Purchasers typically buy from local or regional dealers. Negotiations do not occur, and neither reciprocity nor leasing is usually an issue.