Week 04

Week 04 · Introduction to Marketing

Business-to-Business (B2B) Marketing

Davood Wadi, PhD

Welcome to Week 4 of Introduction to Marketing.

Today we will explore Business-to-Business, or B2B, marketing.

We will cover B2B market characteristics, buying centers, and relationship marketing.

Part 1: Characteristics of B2B Markets

B2B marketing involves selling products and services to other organizations.

These organizations use them to produce other goods, or for their own operations.

A selling company ships a package of products and services to another organization, lit. From there one path leads to a factory turning out three packed goods, labelled produce other goods; the other leads to an office desk with a computer and printer, labelled own operations.products and servicesPRODUCE OTHER GOODSOWNOPERATIONS

The scale and complexity of B2B transactions differ significantly from B2C.

Buyers and demand

Market Structure and Demand

B2B markets typically have fewer, but much larger, buyers than B2C markets.

Demand in B2B markets is derived demand, meaning it comes from consumer demand.

B2B demand is also more inelastic and fluctuates more rapidly than consumer demand.

A split lane in three columns. Buyers: the B2C lane holds a crowd of small people, the B2B lane three large company buildings. Source of demand: a consumer in the B2C lane, with an arrow down into a B2B company, labelled derived demand. Demand over time: a gently wavering B2C line above a sharply zigzagging B2B line that fluctuates more rapidly.B2CB2BCONSUMER DEMANDDERIVED DEMANDfluctuates more rapidly
Exercise · Which one is it?

Each case shows one way B2B markets differ from B2C markets. Which one is it?

A jet engine maker sells to only a handful of aircraft makers, and each order is worth hundreds of millions of dollars.

Which concept does this case show?

More people, more formality

Nature of the Buying Unit

A B2B purchase involves more decision participants.

B2B buying involves a more professional and formalized purchasing effort.

Buyers and sellers work more closely together and build long term relationships.

Left, under B2C purchase: one person alone. Right, under B2B purchase: a purchase order with five people listed, four of them already signed and ticked, one still to sign.B2C PURCHASEB2B PURCHASEPURCHASE ORDER
Complex, formal, dependent

Types of Decisions and the Decision Process

  1. B2B buyers face more complex purchasing decisions.

    A branching decision tree with many possible paths, one of them traced through to a decision.

  2. The B2B buying process is highly formalized.

    A clipboard checklist with every step ticked and an approved stamp.APPROVED

  3. Buyers and sellers are highly dependent on each other in B2B markets.

    Two interlocking rings, one labelled buyer and one labelled seller, linked so they cannot be pulled apart.BUYERSELLER
Exercise · Sort into groups

Sort each purchase: does it show the traits of a B2B purchase or of a B2C purchase?

      Tap a card, then tap the group it belongs to.

      Discussion: Derived Demand

      Discussion: If consumer demand for electric vehicles drops, how does this derived demand cascade through the B2B supply chain to affect battery manufacturers and raw material suppliers?

      A staircase stepping down to the right. On the top step, a consumer with a falling-demand badge, labelled consumer demand for electric vehicles. The drop runs down the stairs to an electric car, then to a battery, labelled battery manufacturers, then to a heap of raw material rocks, labelled raw material suppliers. The last two carry question marks.CONSUMER DEMANDfor electric vehiclesBATTERYMANUFACTURERSRAW MATERIALSUPPLIERS??

      Part 2: The Organizational Buying Center

      The buying center is the decision-making unit of a buying organization.

      It consists of all the individuals and units that play a role in the purchase decision.

      It is not a fixed or formal department, but a set of buying roles.

      An organization chart: a company building at the top over three departments, finance, operations and IT, each with three people. People from different departments are pulled together into the buying center, which cuts across the formal structure.FINANCEOPERATIONSITBUYING CENTER
      Users, influencers, buyers

      Roles in the Buying Center

      Users are members of the organization who will actually use the product.

      Influencers affect the buying decision by providing information or specifications.

      Buyers have formal authority to select the supplier and arrange terms.

      Five spokes radiate from the buying center. Three are lit, each a circle with its icon: users (a wrench), influencers (a pencil and ruler) and buyers (a signature). Two more circles on the right are empty and dashed, still to come.USERSINFLUENCERSBUYERSBUYINGCENTER
      Exercise · Which one is it?

      A restaurant chain is buying new kitchen ovens. Which buying center role does each person play?

      Lina is a line cook who will bake with the new ovens every shift.

      Which concept does this case show?

      Approval and access

      Deciders and Gatekeepers

      Deciders have formal or informal power to select or approve the final suppliers.

      Gatekeepers control the flow of information to others.

      Five spokes radiate from the buying center. Users (a wrench), influencers (a pencil and ruler) and buyers (a signature) are drawn in grey; deciders (a seal with a check) and gatekeepers (a funnel) are lit.USERSINFLUENCERSBUYERSDECIDERSGATEKEEPERSBUYINGCENTER

      A single person can play multiple roles, or multiple people can play the same role.

      Top: one person tied to two roles, decider (a seal with a check) and buyer (a signature). Bottom: three people tied to the same role, influencer (a pencil and ruler).DECIDERBUYERINFLUENCER
      Rebuy to new task

      Types of Buying Situations

      A straight rebuy is a routine purchase where the buyer reorders without modifications.

      A modified rebuy is a situation where the buyer wants to modify product specifications, prices, or suppliers.

      A new task is a situation where the buyer purchases a product or service for the first time.

      Three panels in columns. Straight rebuy: a buyer and a supplier's factory joined by an order loop that goes round unchanged. Modified rebuy: the same loop with a pencil on it, editing the order. New task: a buyer's single first arrow to a dashed, unknown supplier marked with a question mark.?
      Exercise · Which one is it?

      Each case is a business purchase. Which buying situation is it?

      An office reorders the same printer paper from the same supplier, as it does every month.

      Which concept does this case show?

      Discussion: Buying Center Dynamics

      Discussion: In a 'new task' buying situation for an enterprise software system, which buying center role do you think wields the most actual power, and why?

      An empty three-step podium with a question mark over each step, and the five buying-center roles waiting in a row below, each a circle with its icon: users, influencers, buyers, deciders and gatekeepers.123???USERSINFLUENCERSBUYERSDECIDERSGATEKEEPERS

      Part 3: Relationship Marketing and Key Account Management

      B2B marketing relies heavily on building and maintaining strong relationships.

      Transactions are often just the beginning of a long term partnership.

      Trust and mutual benefit are the foundation of B2B success.

      A single thread starting at the first transaction gains strands with each new transaction until it becomes a thick long term partnership, resting on a foundation of trust and mutual benefit.FIRST TRANSACTIONLONG TERM PARTNERSHIPTRUSTMUTUAL BENEFIT
      Lifetime value

      Relationship Marketing Focus

      The focus shifts from single transactions to customer lifetime value.

      A row of purchases over time. One bar alone is a single transaction; a bracket over all of them is customer lifetime value.CUSTOMER LIFETIME VALUESINGLE TRANSACTIONTIME

      Marketers aim to become strategic partners with their business customers.

      Top: a seller's building and a customer's building far apart, joined by a single one-way arrow. An arrow leads down to the same two buildings standing side by side, lit, under a handshake, labelled strategic partners.STRATEGIC PARTNERS

      This requires deep understanding of the customer's business and industry.

      A box labelled industry holding a row of small grey company buildings and, in the middle, the larger customer's business. A magnifying lens held over the customer's building shows a bar chart of what is inside.INDUSTRYCUSTOMER'S BUSINESS
      The most valuable customers

      Key Account Management (KAM)

      Key Account Management is the process of building long term relationships with the company's most valuable customers.

      The Key Account Management process as a loop around a core of the most valuable customers: dedicated team, customized solutions, exceptional service, and long term relationship, repeating.MOSTVALUABLECUSTOMERSDEDICATED TEAMCUSTOMIZED SOLUTIONSEXCEPTIONAL SERVICELONG TERM RELATIONSHIP

      Key accounts contribute disproportionately to the company's revenue and profit.

      Two bars. Key accounts fill a small share of the customers bar but a large share of the revenue and profit bar, labelled key accounts, with a dashed line joining the two shares.CUSTOMERSREVENUE AND PROFITKEY ACCOUNTS

      KAM involves dedicated teams providing customized solutions and exceptional service.

      Knowledge Check

      A packaging firm earns most of its profit from three large retailers, so it gives each one a dedicated team and custom solutions. What is the firm practicing?

      Why relationships pay

      Benefits of Strong B2B Relationships

      1. Strong relationships lead to higher customer retention and loyalty.

        A supplier and its business customer side by side under a handshake. A time line runs from them to the right, with a ticked calendar page for each period, the customer staying on every one.

      2. They create barriers to entry for competitors.

        A supplier and its business customer under a handshake on the left, behind a brick wall. On the right, two grey competitor buildings send arrows that stop at the wall.

      3. Collaborative relationships often result in joint innovation and cost reductions.

        A supplier and its business customer side by side, with a lit lightbulb over their handshake. On the right, three stacks of coins get shorter step by step, with an arrow pointing down.

      Discussion: Strategic Partnerships

      Discussion: What are the potential risks for a supplier if they become too dependent on a single key account, and how can they mitigate these risks?

      Left: a supplier's building on a tilting plank that rests on one tall, cracked customer building, labelled single key account. Right: the same supplier on a level plank over four dashed, undecided supports with a question mark between them, labelled how to mitigate these risks?SINGLE KEY ACCOUNT?HOW TO MITIGATE THESE RISKS?

      Conclusion: B2B Marketing

      1. B2B marketing is characterized by complex decisions, derived demand, and multiple stakeholders.

      2. Understanding the buying center is crucial for targeting the right individuals.

      3. Long term relationship building and Key Account Management are essential for sustained B2B success.