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Chapter 5

Chapter 5 Textbook Notes.docx

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McMaster University
Stephen Charko

Chapter 5: Business-to-Business (B2B) Marketing • Business-to-Business (B2B) Marketing: Organizational sales and purchases of goods and services to support production of other product, for daily company operations, or for resale o Advertising plays a much smaller role in this market o Personal selling plays a much bigger role o Distribution channels are shorter o Customer relationships tend to last longer o Purchase decisions involve many decision makers Business-to-Business Consumer Market Market Product Relatively technical in nature, Standardized form, exact form often variable, service important but less accompanying services very than for business products important Promotion Emphasis on personal selling Emphasis on advertising Customer Relatively enduring and Comparatively infrequent Relations complex contact, relationship of relatively short duration Decision- Diverse group of organization Individual or household Making members make decision unit makes decision Process Price Competitive bidding for unique List prices items, list prices for standard items o Four major categories define the business market: 1. The Commercial Market: individuals and firms that acquire products to support, directly or indirectly, production of other goods and services 1. Trade Industries: retailers or wholesalers that purchase products for resale to others  Resellers: marketing intermediaries that operate in the trade sector 1. Government Organizations 1. Institutions o 93% of all internet sales are B2B Segmenting B2B Markets… • Major ways of segmentation include: o Demographic • Based on size or sales revenue o Customer Type • Customer-Based Segmentation: dividing a business-to-business market into homogeneous groups based on buyers' product specifications  North American Industry Classification System (NAICS): classification used by NAFTA countries to categorize the business marketplace into detailed market segments • Preceded by the Standard Industrial Classification (SIC) o End-Use Application • End-Use Application Segmentation: segmenting a business-to-business market based on how industrial purchasers will use the product o Purchase Categories • Customer-Relationship Management (CRM): combination of strategies and tools that drives relationship programs, reorienting the entire organization to a concentrated focus on satisfying customers Characteristics of the B2B Market… •Several characteristics distinguish the business market from the consumer market: 1. Geographic Market Concentration • Suppliers may be located close to or within a geographic "cluster" of its industry 1. Sizes and Numbers of Buyers • Limited number of buyers 1. Purchase Decision Process • Work with many buyers • Decision makers at various levels influence decisions • Purchasers require a longer time frame because decisions are more complex 1. Buy-Seller Relationships • More complex than consumer relationships  Require superior communications among the organizations' personnel •Global Sourcing: purchasing goods and services from suppliers worldwide Business Market Demand… •Capital Items are items that are long-lived business assets that must be depreciated over time •Expense Items are items consumed within short time periods •Derived Demand: demand for a resource that results from demand for the goods and services that are produced by that resource o The demand for computer microprocessor chips is derived from the demand for personal computers o Affects both capital and expense items •Volatile Demand o A cause of derived demand •Joint Demand: demand for a product that depends on the demand for another product used in combination with it •Inelastic Demand: demand that, throughout an industry, will not change significantly due to a price change •Inventory Adjustments o Just-in-Time (JIT): inventory practices that seek to boost efficiency by cutting inventories to absolute minimum levels • JIT II: inventory practice in which suppliers' representatives work at the customer's facility • Sole Sourcing: purchasing a firm's entire stock of an item from just one vendor The Make, Buy, or Lease Decision… •A firm considering the acquisition of a finished good, component part, or service has three basic options: 1. Make the good or provide the service in-house • If possible, the least costly way (no extra overhead charge) 1. Purchase it from another organization • Most common choice • "Lump sum" expense 1. Lease it from another organization • Spreads out costs • Outsourcing and Offshoring: o Offshoring: movement of high-wage jobs from Canada to lower-cost overseas locations o Nearshoring: moving jobs to vendors in countries close to the business's home country o Outsourcing: using outside vendors to produce goods and services formerly produced in-house • Businesses outsource for several reasons i. They need to r
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