CHAPTER 1 : Introduction
The course is based on what companies will be doing in terms of contacting with each other as businesses.
Content
1. The importance of business markets
2. How business marketing is unique
3. Business markets
4. The entire system
Business markets are much more important than consumer markets, this because business markets are dealing
with 75% of market transactions. The big problem is that a lot of companies are involved in these business, since
we start with raw materials and end with finished products. The products we make are somewhere in the chain,
while others are at the end. We can have a lot of intermediate companies = production systems. You have services
all the way this production system. Most of the time services are an exchange of data and knowledge in regards
to the product. If you go to the telecom companies in the 90’s it started to become separated, since software was
more into the product content. Software was not charged separately, neither upgrades of software, this since the
product was of importance for the consumer and the consumer was important and extremely powerful. Because
of liberalization, customers tended to be less nationalised, and they asked for different prices for services and
products. So from then on, services and products were sold separately. Software was e.g. delivered by year, which
beforehand was integrated in the product. Nowadays products and services are really linked with together. The
industry is something that cannot exist without extremely cheap energy → energy transition : if the energy is
increased in price, there will be a lot of differences in the industry and the way there is lived. Energy increases
productivity.
1. Importance of business markets
Why study business marketing?
- Magnitude of business markets : 75% of all market transactions
- Business marketing is unique : because of standardization and privatization you create more and
more small business that work together -> we see that the customer of a business in a business
marketing value chain is another business
- Marketing starts with business marketing
You should be market driven as a company to be able to survive. Market driven = customer satisfaction and
operational efficiency are the order of the day for every department and individual employee or associate.
You have
- Business – consumer
- Business – business => most of these are not known by the consumers, some are known because
they are stock market related, or they make a lot of publicity to attract people, or they want to give
an image about the fact that they are environmental-friendly and green
- Business – government
Performance is really important in business. It is not about being nice, or being cool... It is about performance, as
well as cost...
Do you deliver what you say at the cost and time you say?
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,Volvo showed that these two enormous trucks can drive backwards at a fixed path no matter what happens. The
capabilities are shown, the technicities. They demonstrate that selling the product is really performant.
This is an example of the value chain that leads to an end-product and starts from a raw product.
In some countries there are multiple players in the business marketing chain, this is a simplification. In the telecom-
sector there are like 30.000 providers, so it is really complicated.
Marketing concept?
The Economic view (1920) : Mechanism to promote trade between industrial agents as a government policy
tool.
The Consumer view (1960) : Mechanism to promote sales by manipulation of buyer behaviour: 4P’s,
STP(Segment, Target, Position), PLC, 4C’s (Customer Value, Cost to Customer, Convenience, Communication)
The Transaction view (1970) : Increase the number, the volume and the value of transactions based on
customer needs.
The Relationship view (1980) : Creating, developing and maintaining a relationship (network) based on value
creation and distribution by solving customer problems.
The New Economy view (1995) : Create value on an individual basis (one-to-one) thru solutions based on the
information depth or information breadth of the products/services content.
1960 : this is very recent -> marketing became important as a new discipline. This because before this, the demand
of products was really high, so what you made could be sold. This because Japan was destroyed, so Europe and
America had to make their own products to rebuild everything (this because Japan was affected by the war, and
in that time it was a really big player, China only came later on from the ‘00s). But from the ‘60s the demand
lowered and there was an overproduction, so you had to praise your own product to the consumers and adapt
your product to the needs of the consumer. -> you entered a buyer-market and not a seller-market, so the buyer
was extremely powerful and you had to create competitive advantages from the view of the consumer. So
marketing was developed as a mechanism to grow sales. The 4 P’s is not about marketing, but about manipulating
the sales and promoting the sales (product needs, price, promotion, people). Later on this evolved to the 4 C’s,
which is a marketing technique! Consumer view is based on psychology.
In the ‘60s segmentation was also developed (there are 4 tools that are dominating the marketing : 4 P’s, STP, PLC
and 4C’s). Segmentation, targeting and positioning is important in the business marketing -> this way a
standardized way can be created. But later on, because of the flexibility of production, segmentation became less
important.
Transaction view is more business marketing. Consumer marketing was useless in the business environment. This
is based on transaction cost economy.
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, Consumer vs business marketing
Consumer marketing (classic 1960) Business marketing (1980)
Push products / services by manipulation : Relationship based
- 4 P’s / 4 C’s Value chain & creation = problem solving
- STP - product use
- PLC - process ads value
Active seller / passive customer - transformation process
Atomistic market Trust / credibility / reputation
Value chain / personal selling
Less to not applicable in business markets Growth = problem solving = performance / commitment / trust / loyalty
Business marketing is close to consumer marketing, but at the same time not. Business marketing is marketing
products or services to other companies, government bodies, institutions (such as hospitals), and other
organizations. Performance is very important and this is related to the relations you build, this since there are
limited customers in business.
You try to add value to the chain, this way you sell products. It is nearly always a transformation process, since
your product is used to create another product. If there is no trust, credibility of loyalty, you have to set a lot of
standards and you have to report a lot to why people should buy your product.
Personal selling is also really important, it is so complex that a person has to explain all the possibilities a product
has.
B2B Consumer
MARKET STRUCTURE
- Geographically concentrated - Geographically dispersed
- Relatively fewer buyers - Mass markets, many buyers
- Oligopolistic competition - Monopolistic competition
PRODUCTS
- Can be technically complex - Standardized
- Customized to user preference - Service, delivery and availability only somewhat important
- Service, delivery and availability very important - Purchased for personal use
- Purchased for other than personal use
BUYER BEHAVIOR
- Professionally trained purchasing personnel - Individual purchasing
- Functional involvement at many levels - Family involvement, influence
- Task motives predominate - Social / psychological motives predominate
BUYER-SELLER RELATIONSHIP EXPECTATIONS
- Technical expertise an asset - Less technical expertise
- Interpersonal relationships between buyers and sellers - Nonpersonal relationships
- Significant info exchanged between participants on a personal level - Little info exchanged between participants on a personal level
- Stable, long-term relationships encourage - Changing, short-term relationships encourage switching loyalty
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,CHANNELS
- Shorter, more direct - Indirect, multiple relationships
- Organization involvement as part - Little / no customer supply chain involvement
PROMOTION
- Emphasis on personal selling, dialogue - Emphasis on advertising, monologue
- Most communications invisible to the consumer - Companies compete for visibility and awareness by consumer
- Consumer seldom aware of B2B-brands and companies market
PRICE
- Complex, purchasing process or competitive bidding, depending on - Usually list or predetermined prices
purchase type
DEMAND
- Derived - Direct
- Inelastic (short run) - Elastic
- Volatile (leveraged) - Less volatile
- Discontinuous
Price, e.g. the negotiation about the price of the vaccines, it is a very complicated process and very secretive and
competitive. Derived demand and inelastic demand is very important!
2. How business marketing is unique
In business marketing channels of distribution are shorter and more direct, there is more emphasis on personal
selling and negotiation, the Web is fully integrated, and complex buying processes result in unique promotional
strategies.
Buyer Seller Relationships (complexity, $$)
In business marketing, there is a strategic importance of growing strong personal and business relationships,
because they need to make absolutely sure that the product fits their needs and that it will be available when
needed at the right cost.
Shorter distribution channels (direct shipping)
In most cases, distribution channels do not include anyone between the manufacturer and the customer who
uses the product, or user. Many manufacturers sell directly to the user, which reflects a large difference
between business marketing and consumer marketing. Shorter channels = closer relationship betwene
manufacturer and buyer -> buyer can have more direct input into the product planning process.
Emphasis on Personal Selling and long selling cycles
This because of stronger relationships and shorter channels. Salespeople are the members of the organization
responsible for coordinating their company’s efforts at satisfying their customers. Complex buying procedures
involving many members of the buying organization also require personal selling. A customer’s size and a
direct channel also increase the importance of negotiation.
Greater Web integration
The Web becomes the backbone of a supplier/customer communication network that enables customers to
track shipment information, order products at prices and terms agreed to by the salesperson and buyer, and
access other account information that helps manage the supply process. In consumer marketing the marketer
does not involve the consumer in the creation and development of the site, and therefore the marketer must
advertise to drive traffic to it.
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, Unique Promotional Strategies (complex buying)
When an organization makes a purchase, personnel from several different departments will togehter
determine what the organization needs. Each different department may have a separate set of needs and
interests, which may influence how marketers promote their products.
Additionally, consumers can go to shopping malls for their purchases. Few business shopping malls exist, so
trade shows or expositions are created.
Derived, fluctuating demand
Close and open working relationships with fewer well known customers
Importance of services and processes
Product is consumed by the customer’s process (Image issue)
Relationship marketing
“ In industrial markets, it is not the manipulation of the marketing mix which brings strategic advantage, but
effective ‘Relationship Management’. => Gummesson
This means creating, developing and maintaining a network based on value creation thru problem solving for the
customer.”
From the ’90s on relationship marketing became important. Because business all have a different need and
demand.
Price, publicity, place are not so important here. The product is the most important, of which the price and place
are derived. Promotion / publicity is not that important and will make no difference.
Your product will be consumed, so the solving the problems of the product will be value creation.
B2B definition
Marketing products and services to organizations (i.e. Producers, Institutions, Government) excluding
resellers to consumers
- OEM (Original Equipm. Manufac.), Users, Reseller
Products and services include:
- Materials, parts, components, capital equipment
- Facilitating services: consulting, shipping, payroll, etc.
- Installations: Buildings, golf course, heavy equipment
- MRO (Maintenance, Repair, Operations) supplies
Companies bought a product and then they had a maintenance contract, an operation contract... But nowadays
this is more integrated.
Lock-in position : where you can get money from someone every year again.
Definition business marketing
Business Marketing is creating value for a customer (organization) that uses professional buying procedures.
The difference with business marketing is not in the product but in the different buying procedures and
organizational behaviour compared to individual consumers. => D.P. Gosselin
An organization can buy a Coca Cola and a consumer can buy it. A consumer can buy it individually, but the business
will buy it with a buying procedure.
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,3. Business markets
A. Types of business customers
OEM Original Equipment Manufacturer: will integrate product/service/system in its product
This is when a company purchases a product or service to be included in its own final product.
Users (company use the product/S/S as a consumer)
It is interesting to know if the consumer uses the product or includes it in the manufacture of their product.
The user is the equivalent of the final consumer, though we typically think of a consumer as someone like you
and me. Users in organizations are more like consumers because satisfaction is determined through
consumption.
Government Agencies
Sometimes the government may be the only customer for some products (tanks, armoured weapon
systems...). The purchasing processes used by the government can be frustrating and complex, particularly
because the government seeks to accomplish social objectives through purchasing.
Institutions (hospitals, schools, colleges, churches, charitable organizations...)
Some may use purchasing procedures similar to those utilized by government agencies, whereas others may
follow less standardized procedures.
Industrial Distributors - Resellers
Industrial distributors are those organizations that supply industrial companies with products and services.
These distributors provide services similar to those delivered by wholesalers and retailers of consumer goods;
they make large purchases of certain products and then sell smaller quantities of individual products – within
a wide assortment of products – to industrial users or OEMs.
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, B. Types of Products
Products are generally classified on the basis of the type of organization purchasing the products and for what
purpose. Whether the product is part of the organization’s final product or facilitates the organization’s activities
is the primary difference in determining product type.
Products used in the final product
- Raw materials = materials processed only to the point required for economic handling and
distribution (e.g. gold and silver)
- Manufactured material = material which has been transformed from the raw material that requires
further processing.
- Component parts / OEM parts = parts assembled into the final product without further
transformation.
- Assemblies = a company may purchase OEM parts and assemble these to make a component for
installation into the final product by another company
Products that facilitate the company’s achievement of its objectives, but are not part of the final product =
facilitating products
- Accessory equipment = office equipment, hand tools, light tools...
- Capital equipment = installations = large equipment used in the production process that requires
significant financial investment -> more expensive, more members may be involved of the
organization in this purchasing process than for the purchase of accessory equipment
MRO items = maintenance, repair and operation products = products sold to users for use in the company’s
operations (e.g. copier paper)
- Operating supplies = facilitating supplies or facilitating services = they support company efforts but
are not part of the final product. E.g. banking services, marketing research services, advertising
services...
- Maintenance products = janitorial products, painting contractors, heating and air conditioning
services
- Repair products = repair of the manufacturing equipment and tools, so not repair of the facility
C. Size and Location of business customers
Larger than individual consumers -> each business customer is more important to the financial success of the
business marketer than in consumer marketing.
Fewer customers
More likely to be geographically concentrated. E.g. industries tend to arise around key resources.
More globally oriented -> because customers are fewer in number and tend to be larger and geographically
concentrated in various parts of the globe, competition for business tends to be more global. Also, the large-
scale operations and transportation systems that made steel an internationally traded commodity have made
other markets more global.
D. Purchasing Standards and Processes
Strict Standards
Business buyers have to apply strict performance standards to their purchases because their job is on the line.
Professional purchasers and multiperson buying teams have formal responsibility for product and vendor
evaluation. Inputs often must conform to design specifications, cost constraints, delivery windows & the like.
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