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MGMA01H3 (184)
Chapter 9

Chapter 9

9 Pages
80 Views

Department
Management (MGM)
Course Code
MGMA01H3
Professor
Ingrid L.Stefanovic

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INTRODUCTION
The consumer market consists of individuals who purchase goods and services for
personal use
The Business-to-Business market consists of firms that produce or acquire goods and
services to be used, directly or indirectly, in the production of other goods and services or
to be resold
oSometimes called the industrial market
oMarketing planning and the resulting marketing mix is different from those of
consumer marketing
DISTINCTIVE FEATURES OF THE BUSINESS MARKET
Geographic Market Concentration
Market for business goods is concentrated geographically
oLargest markets are Ontario and Quebec
Small Number of Buyers
The concentration of the business market greatly influences the strategy used in serving
this market
Advertising plays a much smaller role in this market
Business marketers can make more profitable use of a sales force to provide regular
personal contacts with a small, geographically concentrated market
Complex Purchase Decision Process
The business decision process is generally more complex
Magnitude is greater, more people are involved, and organizations set up more formal
procedures that have to be met
TYPES OF BUSINESS MARKETS
Business-to-business market can be divided into 3 categories
oProducers are those who transform goods and services through production into
other goods and services
in the production process, some products aid in producing another product
or service, others are physically used up in the production of a product,
and still others are routinely used in the day-to-day operations of a firm.
oTrade Industries are organizations(retailers/wholesalers) that purchase for resale
to others
goods that are marketed towards consumers
oGovernments at the federal, provincial and local level represent the final category
of business purchasers
Provide some form of public benefits, by having government purchases
SCOPE OF THE BUSINESS MARKET
The industrial market accounts for some 50 percent of purchases of manufactured goods
in Canada
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Value added is the increase in value of input material when transformed into semi
finished or finished goods.
oIts one measure of industrial output by manufacturing
MARKET DEMAND
Demand for goods and services is affected by many factors
Derived Demand
Derived Demand is the demand for a product used by business derived from demand for
a consumer good
oThe demand for cash registers is partly derived from a demand at the retail level
Joint Demand
Joint Demand is the demand for an industrial product that is related to the demand for
other industrial goods
oDemand for paper and printing ink in the manufacture of newspapers
Inventory Adjustments
Inventory adjustments are changes in the amounts of materials a manufacturer keeps on
hand
oIt is a major determinant of demand for products used by business
Demand Variability
Derived demand in the business market is related to and often creates immense variability
in the amount of products required
Demand Variability is, in the business market, the impact of a derived demand on the
demand for interrelated products used in producing consumer goods
Accelerator Principle is the disproportionate impact that changes in consumer demand
have on business market demand
Another effect on demand is the availability of substitutes
Theres a shifting demand (decrease) in the market for coal, in the future , technology will
increase the percentage of energy in coal that can be converted into electricity, which will
increase demand again.
BASIC CATEGORIES OF BUSINESS PRODUCTS
Two general categories of business products
oCapital Items are long-lived business assets that must be depreciated over time
Depreciation is the accounting concept of charging a portion of the cost
of a capital item as deduction against the companys annual revenue for
purposes of determining its net income
Involve major fund commitments and are thus subject to considerable
review by the purchaser’s personnel
oExpense Items are products and services that are used within a short period of
time
Bought routinely and with minimal delay
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Buying behaviour varies significantly depending on how a purchase is treated from an
accounting viewpoint
THE NATURE OF BUSINESS PURCHASES
Several Reasons why the purchasing process for business is more complex than consumer
decision process
oMany people may exert influence in business purchases, and considerable time
may be spent obtaining the input and approval of various organizational members
oOrganizational purchasing may be handled by committees with greater time
requirements for majority or unanimous approval
oMany organizations attempt to use several sources of supply as a type of insurance
against shortages
Firms employ professional buyers or purchasing managers, who are responsible for
handling the organizations purchases
Unlike the ultimate consumer, a firms purchasing department devotes all of its time and
effort to determining needs, locating and evaluating alternative sources of supply, and
making purchase decisions
The Complexity of Business Purchases
Major purchases can take several weeks or months
Since purchases can be made jointly by many departments in a buying firm, the selling
firm must be well versed in all aspects of the product or service and be capable of
interacting with the managers of the various departments
On average it takes 4.6 face-to-face interactions to make a sale
Average cost of sale is $1197.80
Many goods are purchased on contracts
oA manufacturing operation may require continuous supply for materials over years
Purchase decisions are made on the basis of service, certainty of supply, and efficiency of
the products
Purchasing a Capital Item
Discusses alternative types of utility poles
Develops specifications and forwards to Purchasing Department
Identifies alternative suppliers and materials and forwards to Engineering for approval
Requests salesperson to visit, and they visit
Discusses handling, installation and special preparations
Discusses residential and developer preferences for wood, metal, or Fiberglas poles
Memo to Engineering and Purchasing Departments with recommendation of Fiberglas
Pole
Testing and evaluation of Fiberglas pole
Approval of Fiberglas Pole
Requests bids by Suppliers A, B, and C
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Description
INTRODUCTION The consumer market consists of individuals who purchase goods and services for personal use The Business-to-Business market consists of firms that produce or acquire goods and services to be used, directly or indirectly, in the production of other goods and services or to be resold o Sometimes called the industrial market o Marketing planning and the resulting marketing mix is different from those of consumer marketing DISTINCTIVE FEATURES OF THE BUSINESS MARKET Geographic Market Concentration Market for business goods is concentrated geographically o Largest markets are Ontario and Quebec Small Number of Buyers The concentration of the business market greatly influences the strategy used in serving this market Advertising plays a much smaller role in this market Business marketers can make more profitable use of a sales force to provide regular personal contacts with a small, geographically concentrated market Complex Purchase Decision Process The business decision process is generally more complex Magnitude is greater, more people are involved, and organizations set up more formal procedures that have to be met TYPES OF BUSINESS MARKETS Business-to-business market can be divided into 3 categories o Producers are those who transform goods and services through production into other goods and services in the production process, some products aid in producing another product or service, others are physically used up in the production of a product, and still others are routinely used in the day-to-day operations of a firm. o Trade Industries are organizations(retailerswholesalers) that purchase for resale to others goods that are marketed towards consumers o Governments at the federal, provincial and local level represent the final category of business purchasers Provide some form of public benefits, by having government purchases SCOPE OF THE BUSINESS MARKET The industrial market accounts for some 50 percent of purchases of manufactured goods in Canada www.notesolution.com
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