Unlike consumer focused salespeople business focused salespeople

Week 8, "Special Topics in Marketing" was derived from Principles of Marketing, which was adapted by the Saylor Foundation under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported license without attribution as requested by the work's original creator or licensee. © 2015, The Saylor Foundation.

Week 8 Special Topics in Marketing

B2B Marketing, Marketing Information Systems, and Monitoring and Measuring Marketing Activities

This is special topics week, a compilation of three important issues in marketing.

Thus far, we have following the marketing process through planning and implementation for

business-to-consumer (B2C) consumers. Although we have touched on business-to-business

(B2B) markets throughout the course, this week we will note some of the unique details as they

relate to businesses selling to other businesses. Keep in mind that the marketing principles are

not different for B2B markets; everything we have been discussing is equally applicable to both

B2C and B2B marketing. The goal is still to create value, communicate value, deliver value, and

exchange value with the right customers, clients, or partners. But there are some unique

characteristics of B2B markets to discuss this week. If you are considering a career in marketing,

you likely will be starting your career in a B2B environment.

Our second objective this week is to introduce marketing information systems (MIS), the way

businesses in B2B and B2C manage vast amounts of information, both from their own marketing

research and other sources marketing professionals need to make good decisions. Technology has

greatly aided the development and sustainability of powerful information systems that if used

appropriately, can help companies create maximum value for the right customers.

We will end the week reviewing some of the more important metrics used to monitor and adjust

marketing activities. These are common key indicators most businesses use to take a snapshot at

how the firm and its marketing activities are contributing to profitability or other strategic goals.

Whether you pursue a marketing career or another business discipline, this is the common

language used throughout an organization, and it will benefit you to understand it.

8.1 The Characteristics of Business-to-Business Markets

LEARNING OBJECTIVES

1. Identify the ways in which business-to-business (B2B) markets differ from business-to-consumer

(B2C) markets. 2. Explain why business buying is acutely affected by the behavior of consumers.

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Business-to-business (B2B) markets differ from business-to-consumer (B2C) markets in many

ways. For one, the number of products sold in business markets dwarfs the number sold in

consumer markets. Suppose you buy a $500 computer from Dell. The sale amounts to a single

transaction for you. But think of all the transactions Dell had to go through to sell you that one

computer. Dell had to purchase parts from computer component makers. It also had to purchase

equipment and facilities to assemble the computers, hire and pay employees, pay money to create

and maintain its website and advertise, and buy insurance and accounting and financial services

to keep its operations running. Many transactions had to happen before yours could.

Business products can also be very complex. Some need to be custom-built or retrofitted for

buyers. The products include everything from high-dollar construction equipment to commercial

real estate and buildings, military equipment, and billion-dollar cruise liners used in the tourism

industry. There are few or no individual consumers in the market for many of these products.

Moreover, a single customer can account for a huge amount of business. Some businesses, like

those that supply the US auto industry around Detroit, have just a handful of customers—General

Motors, Chrysler, and/or Ford. Consequently, you can imagine why these suppliers become

worried when the automakers fall on hard times.

Not only can business products be complex, but so can figuring out the buying dynamics of

organizations. Many people within an organization can be part of the buying process and have a

say in ultimately what gets purchased, how much of it, and from whom. This is perhaps the most

complicated part of the business. It's a bit like a chess match. And because of the quantities each

business customer is capable of buying, the stakes are high. For some organizations, losing a big

account can be financially devastating, and winning one can be a financial bonanza.

How high are the stakes? Table 8.1, "Top Five Publicly Held Corporations Worldwide in Terms of

Their Revenues" shows a ranking of the top five corporations in the world in terms of the sales

they generate annually.

Believe it or not, these companies earn more in a year than all the businesses of some countries.

Imagine the windfall you could gain as a seller by landing an exclusive account with one of them.

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Table 8.1 Top Five Publicly Held Corporations Worldwide in Terms of Their Revenues

Company Sales (Billions of Dollars)

Royal Dutch Shell 458

ExxonMobil 426

Walmart 405

British Petroleum (BP) 361

Toyota Motor Company 263

Note: Numbers have been rounded to the nearest billion.

Generally, the more high-dollar and complex the item being sold is, the longer it takes for the sale

to be made. The sale of a new commercial jet to an airline can take literally years to be completed.

Sales such as these are risky for companies. The buyers are concerned about many factors, such as

the safety, reliability, and efficiency of the planes. They also generally want the jets customized in

some way. Consequently, a lot of time and effort is needed to close these deals.

Unlike many consumers, most business buyers demand that the products they buy meet strict

standards. Take, for example, the Five Guys burger chain, based in Virginia. The company taste-

tested 18 different types of mayonnaise before settling on the one it uses. Would you be willing to

taste 18 different brands of mayonnaise before buying one? Probably not (Steinberg, 2009).

Another characteristic of B2B markets is the level of personal selling that goes on. Personal selling

can become the dominant promotion mix tool used (see Week 7 regarding professional selling).

Salespeople personally call on business customers to a far greater extent than they do consumers.

Most of us have had door-to-door salespeople call on us. However, businesses often have multiple

salespeople call on them in person daily, and some customers even provide office space for key

vendors' salespeople. Table 8.2, "Business-to-Consumer Markets vs. Business-to-Business

Markets: How They Compare," outlines the main differences between B2C and B2B markets.

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Table 8.2 Business-to-Consumer Markets vs. Business-to-Business Markets: How They Compare

Consumer Market Business Market

Many customers, geographically dispersed

Fewer customers, often geographically concentrated, with a small number accounting for most of the company's sales

Smaller total dollar amounts due to fewer transactions

Larger dollar amounts due to more transactions

Shorter decision cycles Longer decision cycles

More reliance on mass marketing via advertising, websites, and retailing

More reliance on personal selling

Less-rigid product standards More-rigid product standards

The Demand for B2B Products Even though they don't sell their products to consumers, B2B sellers carefully watch general

economic conditions to anticipate consumer buying patterns. The firms do so because the

demand for business products is based on derived demand. Derived demand is demand that

springs from, or is derived from, a source other than the primary buyer of a product. When it

comes to B2B sales, that source is consumers. If consumers aren't demanding the products

produced by businesses, the firms that supply products to these businesses are in big trouble.

Fluctuating demand is another characteristic of B2B markets: a small change in demand by

consumers can have a big effect throughout the chain of businesses that supply all the goods and

services that produce it. Often, a bullwhip type of effect occurs. If you have ever held a whip, you

know that a slight shake of the handle will result in a big snap of the whip at its tip. Essentially,

consumers are the handle and businesses along the chain compose the whip—hence the need to

keep tabs on end consumers. They are a powerful purchasing force.

For example, Cisco makes routers, which are specialized computers that enable computer

networks to work. If Google uses 500 routers and replaces 10 percent of them each year, that

means Google usually buys 50 routers in a given year. What happens if consumer demand for the

Internet falls by 10 percent? Then Google needs only 450 routers. Google's demand for Cisco's

routers therefore becomes zero. Suppose the following year the demand for the Internet returns

to normal. Google now needs to replace the 50 routers it didn't buy in the first year plus the 50 it

needs to replace in the second year. So in year two, Cisco's sales go from zero to 100, or twice

normal. Thus, Cisco experiences a bullwhip effect, whereas Google's sales vary only by 10 percent.

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Because consumers are such a powerful force, some companies go so far as to try to influence

their B2B sales by directly influencing consumers even though they don't sell their products to

them. Intel is a classic case. Do you really care what sort of microprocessing chip gets built into

your computer? Intel would like you to, which is why it runs TV commercials. Commercials aren't

likely to persuade a computer manufacturer to buy Intel's chips. But the manufacturer might be

persuaded to buy them if it's important to you.

Derived demand is also the reason Intel demands that the buyers of its chips put a little "Intel

Inside" sticker on each computer they make—so you get to know Intel and demand its products. It

also engages in consumer advertising to convince consumers that computers using Intel chips are

better computers.

Figure 8.1

Although Intel sells only to other businesses, it engages in

consumer advertising such as this ad on a building.

Source: Photo by Rico Shen. (2008). Wikimedia Commons. Used under

the terms of the Creative Commons 3.0 Unported license.

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B2B buyers also keep tabs on consumers to look for patterns that could create joint

demand. Joint demand occurs when the demand for one product increases the demand for

another. For example, when a new video console like the Xbox comes out, it creates demand for a

whole new crop of video games. Many businesses rely on joint demand for their survival.

8 . 1 K E Y T A K E A W A Y

B2B markets differ from B2C markets in many ways. There are more transactions in B2B markets and more high-dollar transactions because business products are often costly and complex. There are also fewer buyers in B2B markets, but they spend much more than the typical consumer does and have more rigid product standards. The demand for business products is based on derived demand. Derived demand is demand that springs from, or is derived from, a secondary source other than the primary buyer of a product. For businesses, this source is consumers. Fluctuating demand is another characteristic of B2B markets: a small change in demand by consumers can have a big effect throughout the chain of businesses that supply all the goods and services that produce it.

8.2 Types of B2B Buyers

LEARNING OBJECTIVES

1. Describe the major categories of business buyers. 2. Explain why finding decision makers in business markets is challenging for sellers.

Business buyers can be either nonprofit or for-profit businesses. To help you get a better idea of

the different types of business customers in B2B markets, we've put them into four basic

categories: producers, resellers, governments, and institutions.

Producers Producers are companies that purchase goods and services that they transform into other

products. They include both manufacturers and service providers. Procter & Gamble, General

Motors, McDonald's, Dell, and Delta Airlines are examples. So are the restaurants around your

campus, your dentist, your doctor, and the local tattoo parlor. All these businesses have to buy

certain products to produce the goods and services they create. General Motors needs steel and

hundreds of thousands of other products to produce cars. McDonald's needs beef and potatoes.

Delta Airlines needs fuel and planes. Your dentist needs drugs such as Novocain, oral tools, and

X-ray machinery. Your local tattoo parlor needs special inks and needles and a bright neon sign

that flashes "open" in the middle of the night.

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Resellers Resellers are companies that sell goods and services produced by other firms without materially

changing them. They include wholesalers, brokers, and retailers. Walmart and Target are two big

retailers. Large wholesalers, brokers, and retailers have a great deal of market power. If you can

get them to buy your products, your sales can exponentially increase.

Every day, retailers flock to Walmart's corporate headquarters in Bentonville, Arkansas, to hawk

products. But would it surprise you that not everybody wants to do business with a powerhouse

like Walmart? Jim Wier, one-time CEO of the company that produces Snapper-brand mowers

and snow blowers, actually took a trip to Walmart's headquarters to stop doing business with the

company. Why? Snapper products are high-end, heavy-duty products. Wier knew that Walmart

had been selling his company's products for lower and lower prices and wanted deeper and

deeper discounts from Snapper. He believed Snapper products were too expensive for Walmart's

customers and always would be, unless the company started making cheaper-quality products or

outsourced its manufacturing overseas, something he didn't want to do.

"The whole visit to Wal-Mart's headquarters is a great experience," said Wier about his trip. "It's

so crowded, you have to drive around, waiting for a parking space. You have to follow someone

who is leaving, walking back to their car, and get their spot. Then you go inside this building, you

register for your appointment, they give you a badge, and then you wait in the pews with the rest

of the peddlers, the guy with the bras draped over his shoulder." Eventually, would-be suppliers

were taken into small cubicles where they had 30 minutes to make their case. "It's a little like

going to see the principal, really," he said (Fishman, 2009).

Governments Can you guess the biggest purchaser of goods and services in the world? It is the US government.

It purchases everything you can imagine, from paper and fax machines to tanks and weapons,

buildings, toilets for NASA (the National Aeronautics and Space Administration), highway

construction services, and medical and security services. State and local governments buy

enormous amounts of products, too. They contract with companies that provide citizens with all

kinds of services from transportation to garbage collection. (So do foreign governments,

provinces, and localities, of course.) Business-to-government (B2G) markets, or when

companies sell to local, state, and federal governments, represent a major selling opportunity,

even for smaller sellers. In fact, many government entities specify that their agencies must award

a certain amount of business to small businesses, minority- and women-owned businesses, and

businesses owned by disabled veterans.

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There is no one central department or place in which all these products are bought and sold.

Companies that want to sell to the US government should first register with the Central

Contractor Registry (CCR). They then consult the General Services Administration (GSA) that

helps more than 200 federal agencies buy a variety of products. The products can include office

supplies, information technology services, repair services, vehicles, and many other products

purchased by agencies on a regular basis. Consequently, it is a good starting point. However, the

GSA won't negotiate a contract for the NASA toilet or a fighter jet, which follow a much more

rigorous procurement process. It sticks to routine types of purchases.

The existence of the GSA doesn't mean the agencies it works with don't have any say over what is

purchased for them. The agencies themselves have a big say, so B2B sellers need to contact them

and aggressively market their products to them. After all, agencies don't buy products, people do.

Fortunately, every agency posts on the Internet a forecast of its budget, that is, what it is planning

on spending money on in the coming months. The agencies even list the names, addresses, and e-

mails of contact persons responsible for purchasing decisions. Many federal agencies are able to

purchase as much as $25,000 of products at a time by simply using a government credit card.

This fact makes them a target for small businesses.

It's not unusual for each agency or department to have its own procurement policies. Would-be

sellers are often asked to submit sealed bids that contain the details of what they are willing to

provide the government and at what price. But contrary to popular belief, it's not always the

lowest bid that's accepted. Would the United States want to send its soldiers to war in the

cheapest planes and tanks, bearing the lowest-cost armor? Probably not. Like other buyers,

government buyers look for the best value.

Institutions Institutional markets include nonprofit organizations such as the American Red Cross,

churches, hospitals, charitable organizations, private colleges, and civic clubs. Like government

and for-profit organizations, they buy a huge quantity of products and services. Holding costs

down is especially important. The lower their costs, the more people to whom they can provide

their services.

The businesses and products we have mentioned so far are broad generalizations to help you

think about the various markets in which products can be sold. In addition, not all products a

company buys are high-dollar or complex. Businesses buy huge quantities of inexpensive

products, too. McDonald's, for example, buys a lot of toilet paper, napkins, bags, and employee

uniforms. Pretty much any product you and I use is probably used for one or more business

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purposes (cell phones and cell-phone services, various types of food products, office supplies, and

so on). Some of us own real estate, and so do many businesses. But very few of us own many of

the other products businesses sell to one another: cranes, raw materials such as steel, and fiber-

optic cables.

That said, a smart B2B marketer will look at all the markets to see if they represent potential

opportunities. The Red Cross will have no use for a fighter jet, of course. However, a company

that manufactures toilet paper might be able to market it to both the Red Cross and the US

government. B2B opportunities abroad and online B2B markets can also be successfully pursued.

8 . 2 K E Y T A K E A W A Y

Business buyers can be either nonprofit or for-profit businesses. There are four basic categories of business buyers: producers, resellers, governments, and institutions. Producers are companies that purchase goods and services that they transform into other products. They include both manufacturers and service providers. Resellers are companies that sell goods and services produced by other firms without materially changing them. They include wholesalers, brokers, and retailers. Local, state, and national governments purchase large quantities of goods and services. Institutional markets include nonprofit organizations such as the American Red Cross, churches, hospitals, charitable organizations, private colleges, and civic clubs. Holding costs down is especially important to them because it enables them to provide their services to more people.

8.3 Buying Centers

LEARNING OBJECTIVES

1. Explain what a buying center is. 2. Explain who the members of buying centers are and describe their roles. 3. Describe the duties of professional buyers. 4. Describe the personal and interpersonal dynamics that affect the decisions buying centers make.

Buying centers are groups of people within organizations who make purchasing decisions.

Large organizations often have permanent departments that consist of the people who, in a sense,

shop for a living. They are professional buyers, in other words. Their titles vary. In some

companies, they are simply referred to as buyers. In other companies, they are referred to

as purchasing agents, purchasing managers, or procurement officers. Retailers often refer to

their buyers as merchandisers. Most of the people who do these jobs have bachelor's of science

degrees. Some undergo additional industry training to obtain an advanced purchasing

certification designation (US Bureau of Labor Statistics, 2009).

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Buyers can have a large impact on the expenses, sales, and profits of a company. Pier 1's

purchasing agents comb the world for products the company's customers want most. What

happens if the products the purchasing agents pick don't sell? Pier 1's sales fall, and people get

fired. This doesn't happen in B2C markets. If you pick out the wrong comforter for your bed, you

don't get fired. Your bedroom just looks crummy.

Consequently, professional buyers are shrewd. Their jobs depend on their choosing the best

products at the best prices from the best vendors. Professional buyers are well informed and less

likely to buy a product on a whim than consumers. The sidebar below outlines the tasks

professional buyers generally perform.

The Duties of Professional Buyers • Considering the availability of products, the reliability of the products' vendors, and the

technical support they can provide

• Studying a company's sales records and inventory levels

• Identifying suppliers and obtaining bids from them

• Negotiating prices, delivery dates, and payment terms for goods and services

• Keeping abreast of changes in the supply and demand for goods and services their firms need

• Staying informed of the latest trends so as to anticipate consumer buying patterns

• Determining the media (TV, radio, Internet, newspapers) in which ads will be placed

• Tracking ads in newspapers and other media to check competitors' sales activities

Increasingly, purchasing managers have become responsible for buying not only products but

also functions their firms want to outsource. The functions aren't limited to manufacturing. They

also include product innovation and design services, customer service and order fulfillment

services, and information technology and networking services. Purchasing agents responsible for

finding offshore providers of goods and services often take trips abroad to inspect the facilities of

the providers and get a sense of their capabilities.

Other Players Purchasing agents don't make all the buying decisions in their companies, though. As we

explained, other people in the organization often have a say. Purchasing agents frequently need

their feedback and help to buy the best products and choose the best vendors. The people who

provide their firms' buyers with input generally fall into one or more of the following groups:

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Users

Users are the people and groups within the organization that actually use the product.

Frequently, they initiated the purchase in an effort to improve what they produce or how they

produce it. Users often have certain specifications in mind for products and how they want them

to perform. An example of a user might be a professor at your school who wants to adopt an

electronic book and integrate it into his or her online course.

Influencers

Influencers are people who may or may not use the product but have experience or expertise

that can help improve the buying decision. For example, an engineer may prefer a certain

vendor's product platform and may try to persuade others that it is the best choice.

Gatekeepers

If you want to sell a product to a large company such as Walmart, you can't just walk into its

corporate headquarters and demand to see a purchasing agent. You will first have to get past a

number of gatekeepers, people who will decide if and when you get access to members of the

buying center. These are people such as buying assistants, personal assistants, and other

individuals who have some say about sellers.

Gatekeepers often need to be courted as hard as prospective buyers. They generally have a lot of

information about what's going on behind the scenes and a certain amount of informal power. If

they like you, you're in a good position as a seller. If they don't, your job is going to e much harder.

In the case of textbook sales, the gatekeepers are often faculty secretaries. They know in advance

which instructors will be teaching which courses and the types of books they will need. It is

common for faculty secretaries to screen the calls of textbook sales representatives.

Deciders

The decider is the person who makes the final purchasing decision. The decider might or might

not be the purchasing manager. Purchasing managers are generally solely responsible for

deciding upon routine purchases and small purchases. However, the decision to purchase a large,

expensive product that will have a major impact on a company is likely to be made by or with the

help of other people in the organization, perhaps even the CEO. Sellers, of course, pay special

attention to what deciders want. "Who makes the buying decision?" is a key question B2B sales

and marketing personnel are trained to quickly ask potential customers.

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The Interpersonal and Personal Dynamics of B2B Marketing We made it a point earlier in our discussion to explain how rational and calculating business

buyers are. So would it surprise you to learn that sometimes the dynamics that surround B2B

marketing don't lead to the best purchasing decisions? Interpersonal factors among the people

making the buying decision often have an impact on the products chosen. (You can think of this

phenomenon as "office politics.") For example, one person in a buying unit might wield a lot of

power and greatly influence the purchasing decision. However, other people in the unit might

resent the power he or she wields and insist on a different offering, even if it doesn't best meet the

needs. Savvy B2B marketers are aware of these dynamics and try to influence the outcome.

Personal factors can sometimes play a part. B2B buyers are overwhelmed with choices, features,

benefits, information, data, and metrics. They often have to interview dozens of potential vendors

and ask them hundreds of questions. No matter how disciplined they are in their buying

procedures, they will often find a way to simplify their decision making, either consciously or

subconsciously (Miller, 2007). For example, a buyer deciding upon multiple vendors might

decide to simply choose the vendor whose sales representative he or she likes the most.

Factors such as these can be difficult for a company to control. However, branding—how

successful a company is at marketing its brands—is a factor under a company's control, says

Kevin Randall of Movéo Integrated Branding, an Illinois-based marketing-consulting firm. Sellers

can use their brands to their advantage to help business buyers come to the conclusion that their

products are the best choice. IBM, for example, has long had a strong brand name when it comes

to business products. The company's reputation was so solid that for years the catchphrase

"Nobody ever got fired for buying IBM" was often repeated among purchasing agents—and by

IBM salespeople, of course (Miller, 2007).

In short, B2B marketing is very strategic. Selling firms try to gather as much information about

their customers as they can and use that information to their advantage. As an analogy, imagine if

you were interested in asking out someone you had seen at your office. You could simply try to

show up at the coffee machine or somewhere in the building in the hopes of meeting the person.

But if you were thinking strategically, you might try to find out everything about the person, what

he or she likes to do, and then try to arrange a meeting. That way when you did meet the person,

you would be better able to strike up a conversation and develop a relationship. B2B selling is

similarly strategic. Little is left to chance.

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Ethical Dimensions of B2B Buying Ethical situations will frequently arise for B2B buyers and sellers. For example: unlike B2C

markets, offering customers free dinners and rounds of golf is common in B2B settings. In many

foreign countries, business and government buyers not only expect perks such as these but also

actually demand that bribes be paid if you want to do business with them. And firms pay bribes,

even though some countries prohibit them. (The United States is one such country.) Which

countries have a penchant for bribery? In a report called the "Bribe Payers Index," Transparency

International, a watchdog organization, annually ranks the likelihood of firms from the world's

industrialized countries to bribe abroad

(http://issuu.com/transparencyinternational/docs/bribe_payers_index_2011/7?e=0).

Or take, for example, the straight-rebuy situation we discussed earlier. Recall that in a straight

rebuy, buyers repurchase products automatically. Dean Foods, which manufactures the Silk

brand of soy milk, experienced negative press after the company changed the word "organic" to

"natural" on the labels of its milk, and quietly switched to conventional soybeans, which are often

grown with pesticides. But Dean didn't change the barcode for the product, the packaging of the

product, or the price much. So stores kept ordering what they thought was the same product—

making a straight rebuy—but it wasn't. Many stores and consumers felt as though they had been

duped. Some grocers dropped some Silk products (Warner, 2010).

And remember Intel's strategy to increase the demand for its chips by insisting that PC makers

use "Intel Inside" stickers? Intel paid a competitor more than a billion dollars to settle a court

case contending that it strong-armed PC makers into doing business exclusively with Intel (Lohr

& Kanter, 2009). (Does that make you feel less warm about the "Intel Inside" campaign?)

What Dean Foods and Intel did might strike you as being wrong. However, what is ethical and

what is not is often not clear. Walmart has a reputation for using its market power to squeeze its

suppliers for the best deals, in some cases putting them out of business. Is that ethical? What

about companies that hire suppliers abroad, putting US companies and workers out of business?

Is that wrong? It depends on whom you ask. Some economists believe Walmart's ability to keep

costs low has benefited consumers far more than it has hurt product suppliers. Is it fair to

prohibit US companies from offering bribes when their foreign competitors can?

Clearly, people have different ideas about what's ethical and what's not. So how does a business

get its employees to behave a certain way? Laws and regulations—state, federal, and

international—are an obvious starting point for companies, their executives, and employees

wanting to do the right thing. The US Federal Trade Commission (FTC) often plays a role when it

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comes to B2B laws and regulations. The FTC regulates companies in an effort to prevent them

from engaging in unfair trade practices that can harm consumers and hamper competition.

Companies are also adopting ethics codes that provide general guidelines about how their

employees should behave. Many firms require employees to go through training so they know

what to do when they face ethical dilemmas. Large corporations have begun hiring "chief ethics

officers" to ensure ethics are properly implemented within their organizations. The Business

Marketing Association has also developed a code of ethics

(http://web.archive.org/web/20140705010939/http://www.marketing.org/i4a/pages/index.cfm

?pageid=3286#.VQyDRI4VjkU) that discourages bribery and unfairly disparaging a competitor's

products, and encourages treating one's suppliers equitably.

As for Walmart, you can't fault the company's procurement practices. Walmart's purchasing

agents aren't allowed to accept a lunch, dinner, round of golf, or so much as a cup of coffee from

potential vendors. Walmart is not the only company to have implemented such a policy. More and

more firms have followed suit because (1) they realize that perks such as these drive up product

costs and (2) they don't want their buyers making decisions based on what they personally can get

out of them rather than what's best for the company.

All things equal, companies want to do business with firms that are responsible. They don't want

to be associated with firms that are not. Why is this important? Because that's what consumers

are increasingly demanding. A few years ago, Nike and a number of other apparel makers were

lambasted when it came to light that the factories they contracted with were using child labor and

keeping workers toiling for long hours under terrible conditions. Nike didn't own the factories,

but it still got a bad rap. Today, Nike, Inc., uses a "balanced scorecard." When evaluating

suppliers, Nike looks at their labor-code compliance along with measures such as price, quality,

and delivery time. During crunch times, it allows some Chinese factories latitude by, for example,

permitting them to adjust when employees can take days off (Roberts et al., 2006)

Similarly, Walmart has developed a scorecard to rate its suppliers on how their packaging of

products affects the environment (Arzoumanian, 2008). Walmart does so because its customers

are becoming more conscious of environmental damage and see value in products that are

produced in as environmentally friendly a way as possible.

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8 . 3 K E Y T A K E A W A Y

Buying centers are groups of people within organizations who make purchasing decisions. The buying centers of large organizations employ professional buyers who, in a sense, shop for a living. They don't make all the buying decisions in their companies, though. The other people who provide input are users, or the people and groups within the organization that actually use the product; influencers, or people who may or may not use the product but have experience or expertise that can help improve the buying decision; gatekeepers, or people who will decide if and when a seller gets access to members of the buying center; and deciders, or the people who make the final purchasing decision. Interpersonal dynamics between the people in a buying center will affect the choices the center makes. Personal factors, such as how likeable a seller is, play a part because buyers are often overwhelmed with information and will find ways to simplify their decision making.

Ethics come into play in almost all business settings. Business-to-business markets are no different. For example, unlike B2C markets, offering customers perks is very common in B2B settings. In many foreign countries, government buyers demand bribes be paid if a company wants to do business with them. Understanding the laws and regulations that apply to their firms is an obvious starting point for companies, their executives, and employees in terms of knowing how to act ethically. Companies are also adopting ethics codes that provide general guidelines about how their employees should behave, requiring their employees to go through ethics training, and hiring chief ethics officers. Companies want to do business with firms that are responsible. They don't want to be associated with firms that are not. Why? Because they know ethics are important to consumers and that they are increasingly demanding firms behave responsibly.

8.4 Segmenting B2B Markets

LEARNING OBJECTIVE

1. Identify bases for segmenting B2B markets.

Many of the same bases used to segment consumer markets we discussed in Week 4 are also used

to segment B2B markets. Demographic criteria are used. For example, Goya Foods is a US food

company that sells different ethnic products to grocery stores, depending on the demographic

groups the stores serve—Hispanic, Mexican, or Spanish. Likewise, B2B sellers often divide their

customers by geographic areas and tailor their products to them accordingly. Segmenting by

behavior is common as well. B2B sellers frequently divide their customers based on their product

usage rates. Customers that order many goods and services from a seller often receive special

deals and are served by salespeople who call on them in person. By contrast, smaller customers

are more likely to have to rely on a firm's website, customer service people, and salespeople who

call on them by telephone.

However, researchers Paul Hague, Nick Hague, and Matthew Harrison have theorized that there

are fewer behavioral and needs-based segments in B2B markets than in business-to-consumer

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(B2C) markets for two reasons: (1) business markets are made up of a few hundred customers

whereas consumer markets can be made up of hundreds of thousands of customers, and (2)

businesses aren't as fickle as consumers. Unlike consumers, they aren't concerned about their

social standing, or influenced by their families and peers. Instead, businesses are concerned solely

with buying products that will ultimately increase their profits.

According to Hague, Hague, and Harrison (n.d.), the behavioral, or needs-based, segments in B2B

markets include the following:

• A price-focused segment composed of small companies that have low profit margins

and regard the good or service being sold as not being strategically important

• A quality and brand-focused segment composed of firms that want the best products

and are prepared to pay for them

• A service-focused segment composed of firms that demand high-quality products and

have top-notch delivery and service requirements

• A partnership-focused segment composed of firms that seek trust and reliability on the

part of their suppliers and see them as strategic partners

B2B sellers, like B2C sellers, are exploring new ways to reach their target markets using

marketing communications tools. Trade shows and direct mail campaigns are two traditional

ways of reaching B2B markets. Now, however, firms are finding they can target their B2B

customers more cost effectively via e-mail campaigns, search-engine marketing, and "fan pages"

on social networking sites such as Facebook. Companies are also creating blogs with cutting-edge

content about new products and business trends in which their customers are interested. And for

the fraction of the cost of attending a trade show to exhibit their products, B2B sellers are holding

webcasts and conducting online product demonstrations for potential customers.

8 . 4 K E Y T A K E A W A Y

Many of the same bases used to segment consumer markets are used to segment business-to-business (B2B) markets. However, there are generally fewer behavioral-based segments in B2B markets.

8.5 Types of Business-to-Business Offerings

LEARNING OBJECTIVES

1. Define the types of offerings marketed to businesses. 2. Identify some of the differences with regard to how the types of business offerings are marketed.

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Just as there are different types of consumer offerings, there are different types of business-to-

business (B2B) offerings as well. But unlike consumer offerings, which are categorized by how

consumers shop, B2B offerings are categorized by how they are used. The primary categories are

• capital equipment offerings

• raw materials offerings

• original equipment manufacturer (OEM) offerings

• maintenance, repair, and operations (MRO) offerings

• facilitating offerings

Capital Equipment Offerings A capital equipment offering is any equipment purchased and used for more than one year

and depreciated over its useful life. Machinery used in a manufacturing facility, for example,

would be considered capital equipment. Professionals who market capital equipment often have

to direct their communications to many people within the firms because the buying decisions can

be complex and involve many departments. From a marketing standpoint, deciding who should

get what messages and how to influence the sale can be challenging.

Raw Materials Offerings Raw materials offerings are materials firms offer other firms so they can make a product or

provide a service. Raw materials offerings are processed only to the point required to

economically distribute them. Lumber is generally considered a raw material, as is iron, nickel,

copper, and other ores. If iron is turned into sheets of steel, it is called a manufactured

material because it has been processed into a finished good but is not a stand-alone product; it

still has to be incorporated into something else to be usable. Both raw and manufactured

materials are then used in the manufacture of other offerings.

Raw materials are often thought of as commodities, meaning that there is little difference among

them. Consequently, the competition to sell them is based on price and availability. Natuzzi is an

Italian company that makes leather furniture. The wood Natuzzi buys to make its sofas is a

commodity. By contrast, the leather the company uses is graded, meaning each piece of leather is

rated based on quality. To some extent, the leather is still a commodity, because once a firm

decides to buy a certain grade of leather, every company's leather within that grade is virtually the

same.

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OEM Offerings or Components An original equipment manufacturer (OEM) is a manufacturer or assembler of a final

product. An OEM purchases raw materials, manufactured materials, and component parts and

puts them together to make a final product. OEM offerings or components, like an on/off

switch, are components, or parts, sold by one manufacturer to another that get built into a final

product without further modification. Dell's hard drives installed in computer kiosks such as the

self-service kiosks in airports that print boarding passes are an example of OEM components.

MRO Offerings Maintenance, repair, and operations (MRO) offerings refer to products and services used

to keep a company functioning. Janitorial supplies are MRO offerings, as is hardware used to

repair any part of a building or equipment. MRO items are often sold by distributors. However,

you can buy many of the same products at a retail store. For example, you can buy nuts and bolts

at a hardware store. A business buyer of nuts and bolts, however, will also need repair items that

you don't, such as strong solder used to weld metal. For convenience sake, the buyer would prefer

to purchase multiple products from one vendor rather than driving all over town to buy them. So

the distributor sends a salesperson to see the buyer. Most distributors of MRO items sell

thousands of products, set up online purchasing websites for their customers, and provide other

services to make life easier for them.

Facilitating Offerings Facilitating offerings include products and services that support a company's operations but

are not part of the final product it sells. Marketing research services, banking and transportation

services, copiers and computers, and other similar products and services fall into this category.

Facilitating offerings might not be central to the buyer's business, at least not the way component

parts and raw materials are. Yet to the person who is making the buying decision, these offerings

can be important. If you are a marketing manager who is selecting a vendor for marketing

research or choosing an advertising agency, your choice could be critical to your personal success.