CH-7 Business Markets and Buying Behavior – Foundations of Marketing : Book Guide

Chapter 7 Business Markets and Buying Behavior TEACHING RESOURCES QUICK REFERENCE GUIDE Resource Location Purpose and Perspective IRM, p. 153 Lecture Outline IRM, p. 154 Discussion Starters IRM, p. 164 Class Exercises IRM, p. 166 Chapter Quiz IRM, p. 168 Semester Project IRM, p. 169 Answers to Issues for Discussion and Review IRM, p. 170 Answers to Marketing Applications IRM, p. 173 Answers to Internet Exercise IRM, p. 175 Answers to Developing Your Marketing Plan IRM, p. 176 Comments on Video Case 7 IRM, p. 177 PowerPoint Slides Instructor’s website Note: Additional resources may be found on the accompanying student and instructor websites at www.cengagebrain.com. PURPOSE AND PERSPECTIVE This chapter, first describes the major types of business markets, including producer, reseller, government, and institutional markets. Next, the major characteristics of business customers and transactions with those customers are described. The chapter also examines the attributes of business customers and some of their primary concerns in making purchase decisions, business buying methods, and the major types of business purchases. Then, attributes of demand for business products are discussed. It also covers the business (organizational) buying decision process. The major participants in business buying decision processes are analyzed through an examination of the buying center. The stages of the business buying decision process and the factors that affect that process are examined. Finally, the chapter discusses industrial classification systems and their usefulness to business marketers in planning marketing strategies. LECTURE OUTLINE I. Business Markets A. A business market (also called a business-to-business or B2B market) consists of individuals, organizations, or groups that purchase a specific kind of product for one of three purposes: 1. Resale 2. Direct use in producing other products 3. Use in general daily operations B. Marketing to businesses employs the same concepts—defining target markets, understanding buying behavior, and developing effective marketing mixes—as marketing to ultimate consumers. However, there are important structural and behavioral differences in business markets: 1. A company that markets to another company must be aware of how its product will affect other firms in the marketing channel, such as resellers and other manufacturers. 2. Business products can be technically complex, and the market often consists of sophisticated buyers. 3. Market segment can be as small as a few customers because the business market consists of relatively smaller customer populations. 4. Business marketing is often based on long-term mutually profitable relationships across members of the marketing channel. C. For most business marketers, the goal is to understand customer needs and provide a value-added exchange that shifts the focus from attracting customers to retaining customers and developing relationships. D. The four categories of business markets are producer, reseller, government, and institutional. E. Producer Markets 1. Individuals and business organizations that purchase products for the purpose of making a profit by using them to produce other products or using them in their operations are classified as producer markets. a. Producer markets include a broad array of industries ranging from agriculture, forestry, fisheries, mining, construction, transportation, communications, and utilities. F. Reseller Markets 1. Reseller markets consist of intermediaries, such as wholesalers and retailers, which buy finished goods and resell them for a profit. a. Aside from making minor alterations, resellers do not change the physical characteristics of the products they handle. b. Wholesalers purchase products for resale to retailers, other wholesalers, producers, governments, and institutions. (1) Wholesalers can also be geographically concentrated. c. Retailers purchase products and resell them to final consumers. d. When making purchase decisions, resellers consider several factors. (1) They evaluate the level of demand for a product to determine the quantity and the price levels at which the product can be resold. (2) They assess the amount of space required to handle a product relative to its potential profit. (3) Because customers often depend on resellers to have products available when needed, resellers typically appraise a suppliers’ ability to provide adequate quantities when and where they are needed. (4) They also take into account the ease of placing orders and whether producers offer technical assistance or training programs. (5) Before resellers buy a product for the first time, they will try to determine whether the product competes with or complements products they currently handle. G. Government Markets 1. Federal, state, county, and local governments make up government markets. a. These markets spend billions of dollars annually for a wide range of goods and services, ranging from office supplies and health-care services to vehicles, heavy equipment, and weapons, to support their internal operations and provide citizens with such products as highways, education, energy, and national defense. 2. Because government agencies spend public funds to buy the products needed to provide services, they are accountable to the public. a. This need for accountability explains their complex buying procedures. 3. Governments advertise their purchase needs through releasing bids or negotiated con-tracts. a. To make a sale under the bid system, firms must apply and be approved for placement on a list of qualified bidders. b. The government unit is usually required to accept the lowest-priced bid. 4. When buying nonstandard or highly complex products, a government unit often uses a negotiated contract. a. Under this procedure, the government unit selects only a few firms and then negotiates specifications and terms. H. Institutional Markets 1. Organizations with charitable, educational, community, or other nonbusiness goals constitute institutional markets. a. Members of institutional markets include churches, some hospitals, fraternities and sororities, charitable organizations, and private colleges, b. Because institutions often have different goals and fewer resources than other types of organizations, marketers may use special efforts to serve them. II. Dimensions of Business Customers and Business Transactions A. Characteristics of Transactions with Business Customers 1. Transactions between businesses differ from consumer sales in several ways. a. Orders by business customers tend to be much larger than individual consumer sales. b. Suppliers of large, expensive, or complex goods often must sell products in large quantities to make profits; they may prefer not to sell to customers who place small orders. 2. Some business purchases involve expensive items, such as computer systems. a. Other products, such as raw materials and component items, are used continuously in production, and their supply may need frequent replenishing. 3. Discussions and negotiations associated with business purchases can require considerable marketing time and selling effort. a. Purchasing decisions are often made by committee, orders are frequently large and expensive, and products may be custom built. b. Several people or departments in the purchasing organization are often involved. 4. One practice unique to business markets is reciprocity, an arrangement in which two organizations agree to buy from one another. a. Reciprocal agreements that threaten competition are illegal. b. The Federal Trade Commission and the Justice Department monitor and take actions to stop anticompetitive reciprocal practices, particularly among large firms. c. Because reciprocity influences purchasing agents to deal only with certain suppliers, it can lower morale among agents and lead to less than optimal purchases. B. Attributes of Business Customers 1. Business customers also differ from consumers in their purchasing behavior because they are generally better informed about the products they purchase. a. They typically demand detailed information about a product’s functional features and technical specifications to ensure that it meets their needs. 2. Most purchasing agents seek the psychological satisfaction that comes with organizational advancement and financial rewards. a. Agents who consistently exhibit rational business buying behavior are likely to attain these personal goals because they help the organization achieve its objectives. 3. Today, many suppliers and their customers build and maintain mutually beneficial relationships, sometimes called partnerships. C. Primary Concerns of Business Customers 1. When making purchasing decisions, business customers take into account a variety of factors; their chief considerations are: a. Among their chief concerns are price, product quality, service, and supplier relationships. 2. Price is an essential consideration for business customers because it influences operating costs and costs of goods sold, which in turn affect the selling price, profit margin, and ultimately the organization’s ability to compete. a. When purchasing major equipment, a business customer views price as the amount of investment necessary to obtain a certain level of return or savings on business operations. 3. Most business customers try to maintain a specific level of quality in the products they buy. a. To achieve this goal, most firms establish standards (usually stated as a percentage of defects allowed) for these products and buy them on the basis of a set of expressed characteristics, commonly called specifications. b. A customer evaluates the quality of the products being considered to determine whether they meet specifications. c. If a product fails to meet specifications or malfunctions for the ultimate consumer, the customer may switch to a different supplier. d. Business customers are also likely to be cautious about buying products that exceed minimum required specifications because they often cost more than is necessary, which drives up the cost of goods and services. e. Because their purchases tend to be large and may be complicated, business buyers value service. f. Services offered by suppliers directly and indirectly influence customers’ costs, sales, and profits. (1) Offering quality customer service can be means of gaining a competitive advantage over other firms, which leads some businesses to seek out ways to improve their customer service. g. Typical services desired by business customers from suppliers include market information, inventory maintenance, on-time delivery, and repair services. (1) Business buyers may need technical product information, data regarding demand, information about general economic conditions, or supply and delivery information. h. Maintaining adequate inventory is critical to quality customer service, customer satisfaction, and managing inventory costs and distribution efficiency. (1) Furthermore, on-time delivery is crucial to ensuring that products are available as needed. i. Customer expectations about quality of service have increased and broadened over time. (1) Marketers should develop customer service objectives and monitor customer service programs, striving for uniformity of service, simplicity, truthfulness, and accuracy. (2) Spending the time and effort to ensure that customers are satisfied can greatly benefit marketers by increasing customer retention. 4. Business customers are concerned about the costs of developing and maintaining relationships with their suppliers. a. By building trust with a particular supplier, buyers can reduce their search efforts and uncertainty about prices. D. Methods of Business Buying 1. Although no two business buyers do their jobs the same way, most use one or more of the following purchase methods—description, inspection, sampling, and negotiation. a. The most straightforward is description. (1) When products are standardized and graded according to characteristics such as size, shape, weight, and color, a business buyer may be able to purchase simply by specifying quantity, grade, and other attributes. (2) Commodities and raw materials may be purchased this way. b. Certain products, such as industrial equipment, used vehicles, and buildings, have unique characteristics and may vary with regard to condition. (1) Consequently, business buyers of such products must base purchase decisions on inspection. c. Sampling entails evaluating a portion of the product on the assumption that its characteristics represent the entire lot. (1) This method is appropriate when the product is homogeneous—for instance, grain—and examining the entire lot is not physically or economically feasible. d. Some business purchases are based on negotiated contracts. (1) In these instances, buyers describe exactly what they need and ask sellers to submit bids; they then negotiate with the suppliers that submit the most attractive bids. (2) This approach is generally used for very large or expensive purchases, such as with commercial vehicles. (3) This is frequently how the federal government conducts business. (4) In some cases, a buyer and seller might negotiate a contract that specifies a base price and provides for the payment of additional costs and fees. (a) These contracts are most commonly used for onetime projects such as buildings, capital equipment, and special projects. E. Types of Business Purchases 1. Most business purchases are one of three types—new-task, straight rebuy, or modified rebuy. a. For a new-task purchase, an organization makes an initial purchase of an item to be used to perform a new job or solve a new problem. (1) A new-task purchase may require development of product and vendor specifications and procedures for future product purchases. (2) To make the initial purchase, the business buyer usually needs to acquire a lot of information. (3) New-task purchases are important to suppliers because they can result in a long-term buying relationship if customers are satisfied. 2. A straight rebuy purchase occurs when buyers purchase the same products routinely under approximately the same terms of sale. a. Buyers require little information for routine purchase decisions and tend to use familiar suppliers that have provided satisfactory service and products in the past. b. These marketers may set up automated systems to make reordering easy and convenient for business buyers. c. A supplier may even monitor the business buyer’s inventories and communicate to the buyer what should be ordered and when. 3. For a modified rebuy purchase, a new-task purchase is altered after two or three orders, or requirements associated with a straight rebuy purchase are modified. a. A business buyer might seek faster delivery, lower prices, or a different quality level of product specifications. b. A modified rebuy situation may cause regular suppliers to compete to keep the account. III. Demand for Business Products A. Demand for business products (also called industrial demand) can be characterized in different ways, either as derived, inelastic, joint, or fluctuating. B. Derived Demand 1. Because business customers, especially producers, buy products for direct or indirect use in the production of goods and services to satisfy consumers’ needs, the demand for business products derives from the demand for consumer products, it is therefore called derived demand. a. The derived nature of demand is usually multilevel in that business marketers at different levels are affected by a change in consumer demand for a product. C. Inelastic Demand 1. With inelastic demand, a price increase or decrease does not significantly alter demand for a business product. a. A product has inelastic demand when the buyer is not sensitive to price or when there are no ready substitutes. b. Because many business products are more specialized than consumer products, buyers will continue to make purchases even as the price goes up. c. Because some business products contain many different parts, price increases that affect only one or two parts may yield only a slightly higher per-unit production cost. d. Inelasticity of demand in the business market applies at the industry level, while demand for an individual firm’s products may fluctuate. D. Joint Demand 1. Joint demand occurs when two or more items are used in combination to produce a product. a. Understanding the effects of joint demand is particularly important for a marketer that sells multiple jointly demanded items. b. Such a marketer realizes that when a customer purchases one of the jointly demanded items, an opportunity exists to sell related products. E. Fluctuating Demand 1. Because the demand for business products is derived from consumer demand, it is subject to dramatic fluctuations. a. In general, when consumer products are in high demand, producers buy large quantities of raw materials and components to ensure that they can meet long-run production requirements. b. Conversely, a decline in demand for certain consumer goods reduces demand for business products used to produce those goods. c. Sometimes, price changes lead to surprising temporary changes in demand. d. Fluctuations in demand can be substantial in industries in which prices change frequently. IV. Business Buying Decisions A. Business (organizational) buying behavior refers to the purchase behavior of producers, government units, institutions, and resellers. B. Although several factors that affect consumer buying behavior also influence business buying behavior, a number of factors are unique to businesses. C. The Buying Center 1. The buying center is the group of people within the organization, including users, influencers, buyers, deciders, and gatekeepers, who make business purchase decisions. 2. Users are the organizational members who will actually use the product being acquired. a. They frequently initiate the purchase process and/or generate purchase specifications. 3. Influencers often are technical personnel, such as engineers, who help develop product specifications and evaluate alternatives. a. Technical personnel are especially important influencers when the products being considered involve new, advanced technology. 4. Buyers select the suppliers and negotiate the terms of the purchases. a. They may also be involved in developing specifications. b. Buyers are sometimes called purchasing agents or purchasing managers. 5. Deciders actually choose the products. a. For routinely purchased items, buyers are commonly deciders. 6. Gatekeepers, such as secretaries and technical personnel, control the flow of information to and among the different roles in the buying center. a. Buyers who deal directly with vendors also may be gatekeepers because they can control information flows. D. The number and structure of an organization’s buying centers are affected by the organization’s size, its market position, the volume and types of products purchased, and the firm’s overall managerial philosophy on who should make purchase decisions. 1. A marketer attempting to sell to a business customer should first determine the people and the roles they play in the buying center and which individuals are most influential in the decision process. E. Stages of the Business Buying Decision Process 1. Like consumers, businesses follow a buying decision process (Figure 7.2). a. First stage—one or more individuals in the business recognize that a problem or need exists. (1) It may be individuals in the buying center or other individuals in the firm who initially recognize that a problem exists. b. Second stage—this stage involves the development of product specifications which requires that buying center participants assess the problem or need and determine what is necessary to resolve or satisfy it. (1) Users and influencers, such as engineers, provide information and advice for developing product specifications. c. Third stage—this stage involves searching for and evaluating potential products and suppliers. (1) Some organizations engage in value analysis, an evaluation of each component of a potential purchase; value analysis examines quality, design, materials, and possibly item reduction or deletion, in order to acquire the product in the most cost-effective way. (2) Some vendors may be deemed unacceptable because they are not large enough to supply needed quantities; others may be excluded because of poor delivery and service records. (3) A number of firms employ vendor analysis, a formal, systematic evaluation of current and potential vendors, focusing on such characteristics as price, product quality, delivery service, product availability, and overall reliability. d. Fourth stage—the results of deliberations and assessments in the third stage are used to select the product to be purchased and the supplier. (1) In some cases, the buyer selects and uses several suppliers, a process known as multiple sourcing. (2) At times, only one supplier is selected, a situation called sole sourcing. (a) Sole sourcing has historically been discouraged except in the cases where a product is only available from one company. (b) While still not common, more organizations now choose sole sourcing, partly because the arrangement means better communications between buyer and supplier, stability and higher profits for suppliers, and often lower prices for buyers. e. Fifth stage—the product’s performance is evaluated by comparing it with specifications. (1) The supplier’s performance is also evaluated at this stage. F. The business buying decision process is used in its entirety primarily for new-task purchases. 1. Several stages, but not necessarily all, are used for modified rebuy and straight rebuy situations. G. Influences on the Business Buying Decision Process 1. The four major factors that influence business buying decisions are environmental, organizational, interpersonal, and individual (Figure 7.2). a. Environmental factors include competitive and economic factors, political forces, legal and regulatory factors, technological changes, and sociocultural issues. (1) Changes in one or more environmental forces, such as new government regulations or increased competition, can create opportunities and threats that affect purchasing decisions. b. Organizational factors that influence the buying decision process include the company’s objectives, purchasing policies, resources, and the size and composition of its buying center. (1) An organization may also have certain buying policies to which buying center participants must conform that limit buying decisions. c. Interpersonal factors are the relationships among people within the buying center. (1) Trust and clear communication ensure that all parties are satisfied with the outcome, however interpersonal dynamics and varying communication abilities within the buying center may complicate processes. d. Individual factors are the personal characteristics of participants in the buying center, such as age, personality, education level, and tenure and position in the organization. (1) To be effective, marketers must know customers well enough to be aware of these individual factors and their potential effects on purchase decisions. V. Industrial Classification Systems A. Marketers have access to a considerable amount of information about potential business customers through government and industry publications and websites. 1. Marketers use this information to identify potential business customers and to estimate their purchase potential. B. Much information about business customers is based on industrial classification systems. 1. In the United States, marketers historically relied on the Standard Industrial Classification (SIC) system, which the federal government developed to classify selected economic characteristics of industrial, commercial, financial, and service organizations. 2. The SIC system was replaced by the North American Industry Classification System (NAICS) when the U.S. joined the North American Free Trade Agreement (NAFTA). a. NAICS is a single industry classification system used by the United States, Canada, and Mexico to generate comparable statistics among the three partners of NAFTA. b. The NAICS classification is based on production activities. c. NAICS is similar to the International Standard Industrial Classification (ISIC) system used in Europe and other parts of the world. (1) Whereas the older SIC system divided industrial activity into 10 divisions, NAICS divides it into 20 sectors. (2) NAICS is more comprehensive and up-to-date, and it provides considerably more information about service industries and high-tech products. C. Industrial classification systems provide a uniform means of categorizing organizations into groups based mainly on such factors as the types of goods and services provided. 1. Although an industrial classification system is a vehicle for segmentation, it is best used in conjunction with other types of data to determine exactly how many and which customers a marketer can reach. D. A marketer can take several approaches to determine the identities and locations of organizations in specific groups. 1. One approach is to use state or commercial industrial directories, such as Standard & Poor’s Register and Dun & Bradstreet’s Million Dollar Database. a. These sources contain information about a firm, including its name, industrial classification, address, phone number, and annual sales. b. By referring to one or more of these sources, marketers isolate business customers by industrial classification numbers, determine their locations, and develop lists of potential customers by desired geographic area. 2. A more expedient, although more expensive, approach is to use a commercial data service. a. A commercial data company can provide, for every company on an industrial classification list, its name, location, sales volume, number of employees, types of products handled, names of chief executives, and other pertinent information. C. To estimate the purchase potential of business customers or groups of customers, a marketer must find a relationship between the size of potential customers’ purchases and a variable available in industrial classification data, such as the number of employees. 1. Once this relationship is established, it can be applied to customer groups to estimate the size and frequency of potential purchases. a. After deriving these estimates, the marketer is in a position to select the customer groups with the most sales and profit potential. D. Despite their usefulness, industrial classification data pose several problems. 1. A few industries do not have specific designations. 2. Because transferring products from one establishment to another is counted as a shipment, double-counting may occur when products are shipped between two establishments within the same firm. 3. Because the Census Bureau is prohibited from providing data that identify specific business organizations, some data, such as value of total shipments, may be understated. 4. Because government agencies provide industrial classification data, a significant lag usually exists between data-collection and the time when the information is released. DISCUSSION STARTERS Discussion Starter 1: Sustainable Marketing This discussion starter focuses on sustainable marketing (use the Going Green box in the text). ASK: Why do you think more companies are “going green?” Businesses generally make decisions based on profit potential. Many businesses are producing more environmentally sustainable products than ever before, in spite of higher production costs, because consumers demand them. Many consumers will even pay higher prices for products they know are “green.” Businesses also understand that going green now will save them money in the long-term as regulations become stricter and resources become ever scarcer. Discussion Starter 2: The Products You Depend on from the Firms You Have Never Heard of ASK: Have you ever thought about where the products you consume come from? Many of us will purchase a loaf of bread or a candy bar and never think about how it was made or the origination of the ingredients. Yet, each product we purchase contains a variety of input goods. Cargill supplies product ingredients that are common in processed foods you consume every day. It is perhaps the largest company you may never have heard of. http://www.cargill.com/ Cargill is one of the world’s largest producers and marketers of food, agricultural, financial and industrial products and services. Cargill’s products and services include the following: 1. Animal Nutrition & Feed 2. Agricultural Commodity Trading & Processing 3. Energy, Transportation & Metals 4. Farmer Services 5. Financial & Risk Management 6. Food & Beverage Ingredients 7. Foodservice 8. Industrial/Bio Industrial 9. Personal Care 10. Pharmaceutical 11. Salt Discussion Starter 3: Government Purchasing ASK: What types of goods and services do governments purchase? Governments, being extremely large institutions, require a wide variety of goods and services. Governments must purchase everything from food and clothing, to aircraft parts, to education and training services. All of these products and services must be purchased and distributed to the various government agencies and entities. The purchasing power of a government agency may be greatly increased through cooperative purchasing agreements. These agreements may include local entities, agencies, or other buying groups determined by the government. Organizations like U.S. Communities (http://www.uscommunities.org/) help facilitate those agreements. Discussion Starter 4: Business-to-Business Marketing and Universities Recommended as a group activity: In this chapter we examined the world of business-to-business marketing and learned that all types of organizations engage in marketing, even if they do not directly market to consumers. In this exercise we will look at how universities acquire goods and services to deliver their product to the marketplace. Step 1: Visit http://www.yale.edu/procurement/ Step 2: Explore the list of products and services (see the drop-down option) from the website. Are you surprised by any of the items on the list? Step 3: If your organization wanted to market to universities, what recommendations would you make? Step 4: Increasingly, sustainability is a challenge on campuses. How is Yale addressing sustainability through its purchasing practices? CLASS EXERCISES Class Exercise 1: Business Buying Behavior vs. Consumer Buying Behavior The objective of this class exercise is to show students that business buying behavior has many similarities to consumer buying behavior. Prompt for Students: Although business buying behavior might seem quite different from your buying behavior, the two are more similar than you may think. As you answer the following questions, think about how similar or dissimilar the business buying process is to your own. 1. When you buy a new shirt, hair dryer, MP3 player, television, or car, which of the following criteria is important to you? Quality Service Product information Repair services Product availability Credit On-time delivery Price 2. Give examples of products that you buy (or may buy) based on: Description Inspection Sampling Negotiation 3. Match the business purchase situation with the consumer goods buying situation. How or why are they related? New-task purchase Limited decision making Modified rebuy Routine decision making Straight rebuy Extended decision making 4. How is the buying center of a business similar to the following purchasing roles that family members play? Users Influencers Buyers Deciders Gatekeepers Answers: 1. If you ask enough students, you will eventually have all of these criteria listed. Although businesses are more likely to develop formal written specifications about these concerns, final consumers also find these to be important concerns for nearly any high-involvement product category. 2. Examples might include the following: • Description—mail-order products (clothing, personal computers) • Inspection—car, furniture, house, or any used item • Sampling—grocery food items, mail samples, ice cream • Negotiation—onetime projects such as, commercial vehicles, buildings, capital equipment, and special projects 3. The situations roughly match as follows: • New-task purchase—extended decision making • Modified rebuy—limited decision making • Straight rebuy—routine decision making 4. You might want to ask “Who plays what roles in the family when a Wii video game console is purchased?” Children (and perhaps their parents) are the users and influencers. The mother may be the decider and the father the buyer. Older children may be the gatekeepers who control the flow of information to the parents. Grandparents might also be the buyers, while the parents may play the roles of deciders and gatekeepers. The point is that, to be successful, marketers must target the entire buying center (or family). Focusing an entire sales presentation on the user may not be effective if the decider is not persuaded. Class Exercise 2: Inspection Methods The purpose of this exercise is to allow students to demonstrate their understanding of different purchasing methods. Each product is typically purchased by the following methods: Business purchases can be made by several methods, including description, inspection, sampling, and negotiation. Which method is most often used for each of the following products? Question Answer 1. Grain Sampling 2. Used vehicles Inspection 3. Office space Inspection, negotiation 4. Oranges Description, sampling 5. Bulldozer Negotiation 6. Computer and printer Inspection 7. Office furniture Inspection 8. Pens and pencils Description 9. Eggs Description 10. Assembly line equipment Inspection, negotiation CHAPTER QUIZ 1. Reseller markets consist mainly of __________. a. consumers b. retailers c. wholesalers and retailers d. manufacturers e. industrial users 2. Abbott’s Office Supplies buys furniture and filing cabinets from Craine Furniture. Craine buys paper, pens, and folders from Abbott’s. The two firms are engaged in __________. a. cross-selling b. tying agreements c. producer marketing d. reciprocity e. competitive bidding 3. If a business owner buys parts by specifying the quantity, grade, and other attributes, which buying method is he or she using? a. Description b. Sampling c. Negotiation d. Ordering e. Inspection 4. Administrative assistants that control the flow of information to other people in the organization often play the __________ role in the buying center. a. gatekeeper b. user c. influencer d. buyer e. controller Answers to Chapter Quiz: 1. c; 2. d; 3. a; 4. a. SEMESTER PROJECT Chapter 7 explains that different types of organizations market to each other. Business-to-business marketing offers a wealth of career opportunities to marketing students. In this exercise, explore the opportunities within this field. Step 1: A frequent position within B2B marketing is purchasing manager. In this step, research the position of purchasing manager. What types of firms hire purchasing managers? Step 2: Many students do not consider the U.S. Government as a source for marketing positions, yet both the Federal and State governments hire marketers. In this step, explore opportunities in the U.S. Government. Visit http://www.usajobs.gov/. Step 3: Write a brief description about the position of purchasing manager. Describe the training you would need to become a purchasing manager. Also, list three potential job sources for purchasing managers. ANSWERS TO ISSUES FOR DISCUSSION AND REVIEW 1. Identify, describe, and give examples of the four major types of business markets. The four major types of business markets are: • Producer market—consists of individuals and business organizations that purchase products to make profits by using them to produce other products or by using them in their operations. Farmers are part of producer markets because they purchase farm machinery, fertilizer, seed, and livestock to carry out their tasks. • Reseller market—consists of intermediaries, such as wholesalers and retailers, who buy finished goods and resell them to make a profit. Sears is an example of a reseller. • Government markets—consist of federal, state, county, and local governments which, taken together, annually spend billions of dollars for goods and services to support their internal operations and provide citizens with such products as highways, education, energy, and national defense. • Institutional markets—these are organizations which seek to achieve charitable, educational, community, or other nonbusiness goals. 2. Why might business customers generally be considered more rational in their purchasing behavior than ultimate consumers? Business customers usually seek and obtain more information about the product before purchasing than do ultimate consumers. They may give special attention to information about the product’s functional features, specifications, and technical attributes. Most business customers seek advancement within the organization and greater financial and psychological rewards. Business buyers attain personal goals by performing the purchasing function in a way which helps their organization achieve its objectives. 3. What are the primary concerns of business customers? A business customer’s primary considerations when making purchasing decisions fall within the areas of price, product quality, service, and supplier relationships. Price influences operating costs and costs of goods sold, which affect the selling price and profit margin. Quality level is maintained by purchasing a product which meets a set of delineated characteristics called specifications. Products which exceed specifications may cost more without providing an offsetting benefit. A supplier’s service to business customers influences these customers’ costs, sales, and profits. Some of the most commonly desired services include market information, maintaining an inventory, on-time delivery, repair services, and replacement parts. Open communication channels are also important. Finally, business customers are concerned about the costs of developing and maintaining relationships with their suppliers. 4. List several characteristics that differentiate transactions involving business customers from consumer transactions. Business-customer transactions differ from consumer transactions in several ways. Orders tend to be larger, there are longer negotiation periods, reciprocity sometimes plays a role in the process, and business customers tend to be more informed about the products they purchase. 5. What are the commonly used methods of business buying? Most business customers use one or more of the following methods: • Description—standardized products may be purchased on the basis of a description of desired characteristics. • Inspection—certain products, especially those which are large, expensive, and have unique characteristics, require inspection by the purchasers before a decision is reached. • Sampling—when buying decisions are based on sampling, the purchaser assumes the sample product taken from the lot is representative of the entire lot. • Negotiation—negotiated contracts occur when sellers submit bids and the buyer discusses terms with those who submit the most attractive bids. 6. Why do buyers involved in straight rebuy purchases require less information than those making new-task purchases? The straight rebuy purchase is a routine procedure. The specifications and terms are set and all major problems are resolved. Conversely, a new-task purchase requires the business to develop product specifications, vendor specifications, and procedures for future purchases before an initial purchase. 7. How does demand for business products differ from consumer demand? Demand for business products differs from consumer demand in that it is derived, inelastic, joint, or fluctuating. 8. What are the major components of a firm’s buying center? The major components or roles of a buying center are users, influencers, buyers, deciders, and gatekeepers. One person may perform several of these roles. 9. Identify the stages of the business buying decision process. How is this decision process used when making straight rebuys? The stages of the business buying decision process are: • Recognizing the problem • Establishing product specifications to solve the problem • Searching for products and suppliers and evaluating products with respect to specifications • Selecting and ordering the most appropriate product • Evaluating product and supplier performance. This decision process is not used for routine, straight rebuy purchases. 10. How do environmental, business, interpersonal, and individual factors affect business purchases? The influence of the environmental, business, interpersonal, and individual factors varies depending on different factors such as different buying situations; the type of product being purchased; and whether the purchase is new-task, modified rebuy, or straight rebuy. 11. What function does an industrial classification system help marketers perform? An industrial classification system provides a uniform means of categorizing organizations into groups based on the types of goods and services provided. ANSWERS TO MARKETING APPLICATIONS 1. Using the prompt in the text, rank each of the following variables from 1–5 when making the choice to produce and sell genetically modified (GMO) or non-GMO corn. Think of 1 as the most important variable and 5 as the least important. Based on health, environment, and dependency on foreign energy sources, what would you do as a farmer purchasing seed for next year’s crop? Rate the decision of whether to use genetically modified or non-genetically modified seed based on the following considerations: a. Safety to the environment b. Ability to control production costs c. Impact on food prices d. Overall health concerns e. Contribution to reducing dependence on foreign energy sources This question helps students to understand the complexity of making business buying decisions. Their answers will vary based on their personal values and their analysis of the different business costs and societal costs. Students could make an argument for producing either kind of corn based on any or all of the five factors, which could inspire lively class debates. 2. Identify organizations in your area that fit each business market category: producer, reseller, government, and institutional. Explain your classifications. Students’ answers will vary, but they should fit the following general classifications described in the text: • Producer markets purchase products to use them to produce other products. • Reseller markets buy finished goods and resell them for profit. • Government markets include federal, state, county, and local governments that buy goods and services to support internal operations and provide products to their constituencies. • Institutional markets are organizations with non-business goals. 3. Indicate the method of buying (description, inspection, sampling, or negotiation) an organization would be most likely to use when purchasing each of the following items. Defend your selections. a. A building for the home office of a light bulb manufacturer b. Wool for a clothing manufacturer c. An Alaskan cruise for a company retreat, assuming a regular travel agency is used d. One-inch nails for a building contractor a. Negotiation b. Inspection c. Description d. Sampling 4. Purchases by businesses may be described as new-task, modified rebuy, or straight rebuy. Categorize the following purchase decisions and explain your choices. a. Bob has purchased toothpicks from Smith Restaurant Supply for 25 years and recently placed an order for yellow toothpicks rather than the usual white ones. b. Jill’s investment company has been purchasing envelopes from AAA Office Supply for a year and now needs to purchase boxes to mail year-end portfolio summaries to clients. Jill calls AAA to purchase these boxes. c. Reliance Insurance has been supplying its salespeople with small personal computers to assist in their sales efforts. The company recently agreed to begin supplying them with faster, more sophisticated computers. a. This is a modified rebuy purchase because the purchase is changed on subsequent orders or the requirements of a straight-rebuy purchase have been modified. b. This is a straight rebuy purchase because it is a routine purchase of the same products with approximately the same contract terms. c. This is a new-task purchase because it is an initial purchase of an item to be used to perform a new job or solve a new problem. 5. Identifying qualified customers is important to the survival of any organization. NAICS provides helpful information about many different businesses. Find the NAICS manual at the library or online at www.naics.com and identify the NAICS code for the following items. a. Chocolate candy bars b. Automobile tires c. Men’s running shoes a. 311320 or 311330 b. 423130 c. 316211 (which is difficult to find because athletic shoes are separate from men’s shoes) 6. Develop your analytical and communication skills using the Role-Play Exercises Online at www.cengagebrain.com. Students can visit the website and develop their analytical and communication skills. ANSWERS TO INTERNET EXERCISE Boeing Boeing is the second largest aerospace and defense contractor in the world, manufacturing commercial and military aircraft. Visit the company’s website at www.boeing.com. a. At what types of business markets are Boeing’s products targeted? Boeing targets several B2B markets. With its commercial airplanes, it targets producer markets because commercial airlines companies use the airplanes in day-to-day operations. With its defense, space, and security products, Boeing targets government markets. b. How does Boeing address some of the concerns of business customers? The four primary concerns of business customers are price, quality, service, and supplier relationships. Boeing has developed business units that help to reduce the concerns of business customers. One business unit, Boeing Capital Corporation, “arranges, structures, and/or provides financing to facilitate the sale and delivery of Boeing commercial and military aircraft, satellites and launch vehicles.” This helps its customers to deal with the high price of its product. To mitigate quality and service concerns, Boeing provides “a broad range of services to support its aircraft—from the time the airplane is delivered to the customer until the airplane goes out of service. These services help our customers improve fleet utilization, reduce costs, manage information, upgrade or reconfigure their airplanes, and ensure passenger well-being.” Boeing is also transparent and shares information about its suppliers directly on the website. c. What environmental factors do you think affect demand for Boeing products? Demand for Boeing products could be influenced by several environmental factors. Students’ answers may include the following: • Political—government spending, debates over the role of aerospace, debates over government support and/or management of commercial airline industry • Economic—changes to the economy, business spending, consumer spending on travel • Sociocultural—consumer support of the defense industry • Technological—new technologies • Legal and Regulatory—government support and/or management of the commercial airline industry, pollution regulations, consumer safety regulations • Environmental—pollution, airline efficiency ANSWERS TO DEVELOPING YOUR MARKETING PLAN The information obtained from the following questions should assist you in developing various aspects of your marketing plan found in the Interactive Marketing Plan exercise at www.cengagebrain.com. 1. What are the primary concerns of business customers? Could any of these concerns be addressed with the strengths of your company? Marketing to business customers involves the same groups and the same purposes, but there are some key differences. A company that markets to another company must understand how its product will affect other firms in the marketing channel, such as resellers and other manufacturers. Business products can also be technically complex, and the market often consists of sophisticated buyers. Because the business market consists of relatively smaller customer populations, a segment of the market could be as small as a few customers. The first question also asks students if any of these concerns can be addressed with strengths of their companies. Students’ responses will vary on this question. 2. Determine the type of business purchase your customer will likely be using when purchasing your product. How would this impact the level of information required by the business when moving through the buying decision process? Students’ answers will vary based on the products they select. 3. Discuss the different types of demand that the business customer will experience when purchasing your product. Students’ answers will vary based on the products they select. Students can refer to Figure 7.1 when seeking to answer this question. COMMENTS ON VIDEO CASE 7: DALE CARNEGIE FOCUSES ON BUSINESS CUSTOMERS Summary This case shows how a company that provides a valuable service thrives in the B2B market. Dale Carnegie was a successful entrepreneur and speaker famous for his book, How to Win Friends and Influence People. His self-named firm trains business people and members of the government on how to connect with customers and colleagues. Dale Carnegie focuses on helping companies to develop powerful business relationships by learning to listen and interact well, both face-to-face and through digital communications. Questions for Discussion 1. How would you apply Dale Carnegie’s methods if you were trying to make a sale to a company with a large buying center? Students’ answers may vary. The buying center is the group of people involved in making such purchase decisions. Dale Carnegie’s philosophy is that a marketer trying to appeal to a large buying center should take the time to listen to the concerns of users, influencers, buyers, deciders, and gatekeepers, connect with all groups, and address all of their needs. 2. From a marketing perspective, why would people who work for the U.S. Department of Veteran Affairs be as interested in taking a Dale Carnegie course as people who work for American Express? Government agencies such as the Department of Veterans affairs have customers too—the people that they serve. Because of this, it is important for members of the government to understand how to connect with their colleagues and with their constituencies. 3. Which concerns of business customers should Dale Carnegie’s marketers pay close attention to when selling training services to a company like American Express? Although all four concerns (price, quality, service, and supplier relationships) may have a role, Dale Carnegie’s marketers should pay close attention to quality and service. They may be searching for a great long-term customer service experience. Companies want to get the best quality information and training and may want ongoing support when they deal with challenging situations and hire new employees. Solution Manual for Foundations of Marketing William M. Pride, O. C. Ferrell 9781305361867, 9781305405769, 9780357033760