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Chapter 7: Business Marketing

Business
(Industrial)
Marketing
Business marketing is the marketing of goods and services to individuals and organizations for purposes other than personal consumption. The sale of a personal computer to a college is an example of business marketing. If that same computer is purchased for personal or family consumption or as a gift, it is a consumer good.
Business Marketing on the Internet
-B2B e-commerce is the use of the Internet to facilitate the exchange of goods, services, and information between organizations.

-Many B-to-B marketers are experimenting with how to use social media to build successful relationships with business customers.

1. In 1995, there were few commercial Web sites, and those that did exist were static. Today, B-to-B sites look more like consumer sites with social media, valuable content, and community building applications.
2. A recent study found that, in 2012, 32 percent of marketers were “very” or “fully” engaged in marketing through social channels, compared with 21 percent in 2011.
3. Content marketing is becoming more and more important to B-to-B marketing.

Major Categories of Business Customers
The business market consists of four major categories of customers: producers, resellers, governments, and institutions.

*Producers*-include profit-oriented organizations that use purchased goods and services to produce or incorporate into other products. Examples of producers include construction, manufacturing, transportation, finance, real estate, and food service firms.

Producers are often called original equipment manufacturers, or OEMs.-

*Resellers*-market includes retail and wholesale businesses that buy finished goods to resell at a profit(Wholesalers , Retailers).

*Government organizations*- include thousands of federal, state, and local buying units. This may be the largest single market for goods and services in the world.

State and local buying agencies include school districts, highway departments, government-operated hospitals, housing agencies, and many other departments and divisions.

*Institutions*- do not have the standard business goals of profit, market share, and return on investment. Includes schools, hospitals, colleges and universities, churches, labor unions, fraternal organizations, civic clubs, foundations, and other nonbusiness organizations.

The fourth major segment of the business market consists of institutions that seek to achieve goals other than the standard business goals of profit, market share, and return on investment.

Company Characteristics
-Geographic location
-Volume of Purchase
-Company size
-Product use
Business versus Consumer Markets
The main differences between business and consumer markets are summarized on this slide.

The first characteristic demand is described on the next slide.

-Purchase volume: Business customers buy in larger quantities than consumers.

-Number of customers: Business marketers have fewer customers than consumer marketers. An advantage is that it is easier to identify buyers, monitor customer needs, and build personal relationships. A disadvantage is that each customer becomes crucial, especially for those manufacturers who have only one customer.

-Location of buyers: Business customers are more geographically concentrated than consumers.

-Distribution structure: Business products typically have shorter channels of distribution, and direct channels are common. On the other hand, consumer products pass through a distribution system that may include the producer, the wholesaler(s), and the retailers.

-Nature of buying: More people are involved in a business market purchase decision than in a consumer purchase. Representatives from quality control, marketing, finance, and purchasing may be grouped in a buying center.

-Nature of buying influence: Typically, more people are involved in a single business purchase decision than in a consumer purchase.

-Type of negotiations: Negotiation is more common in business marketing decisions and may take months to work out the final contracts.

-Use of reciprocity: Business purchasers often choose to buy from their own customers. It is not unethical or illegal unless the exchange is coerced.

-Use of leasing: Businesses commonly lease expensive equipment to reduce capital outflow, keep state of the art products, and gain tax advantages.

-Primary promotional method: Business marketers emphasize personal selling, especially for expensive, custom-designed products.

*See slide #7*

Types of Business Products
1. Major equipment: capital goods such as large or expensive machines, airplanes, buildings. Depreciated over time, often custom-designed. Personal selling is an important marketing strategy.

2. Accessory equipment: Less expensive and shorter-lived than major equipment, includes fax machines, personal computers, power tools. Often charged as an expense. Often standardized and purchased by more customers.

3. Advertising is an important promotional tool.
Raw materials: Unprocessed products, such as minerals, timber, wheat, corn, fish. Become part of finished products. Personal selling is the marketing mix component used, distribution channels usually direct from producer to business user.

4. Component parts: Finished items ready for assembly or that need very little processing. Examples are tires and electric motors. Two important markets for component parts: original equipment manufacturer (OEM) and replacement market.

5. Processed materials are used directly in manufacturing other products. Sheet metals, chemicals, and lumber. Do not retain their identity in final products. Price and service are important factors in choosing a supplier.

6. Supplies are consumable items that do not become part of the final product. Short lived and inexpensive. Generally fall into categories of maintenance, repair, or operating supplies (MRO), and include such items as detergents, pencils, paper, etc.

7. Business services are expense items that do not become part of the final product. This includes janitorial, advertising, legal, management consulting, marketing research, and maintenance services.

Roles in the Buying Center
Several people may play a role in the business purchase decision:

1. Initiator: the person who suggests the purchase.
2. Influencers: help define specifications and provide information for evaluating options.
3. Gatekeepers: group members who regulate the flow of information, often the purchasing agent.
4. Decider: the person with the power to choose or approve the selection.
5. Purchaser: the person who negotiates the purchase.
6. Users: members of the organization who actually use the product.

Buying Situations
New Buy-A situation requiring the purchase of a product for the first time.

Modified Rebuy-A situation where the purchaser wants some change in the original good or service.

Straight Rebuy-A situation in which the purchaser reorders the same goods or services without looking for new information or investigating other suppliers.

Evaluative Criteria for Business Buyers
Business buyers evaluate products and suppliers against the criteria of quality, service, and price—in that order.

1) Quality refers to technical suitability. Quality improvement should be part of every organization’s marketing strategy.

2) Service includes prepurchase as well as postpurchase service, along with dependability of supply. Services that help sell the finished products are especially appropriate when the seller’s product is an identifiable part of the end product.

3) Business buyers want to buy at low prices. However a buyer who pressures a supplier to cut prices to the point of money loss may force shortcuts on quality. It may force the supplier to quit selling to him/her.

Example of NAICS Hierarchy
See slide #6

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