Chapter 6 Understanding Organizations as Customers I The Nature and Size of Organizational Markets a Business Marketing B2B marketing involves the marketing of goods and services to companies governments or not for profit organizations for use in the creation of goods and services that they can produce and market to others b Business Markets and services to include individuals and organizations that buy goods i Make OTHER goods and services e g manufacturing ii RESELL that product to others e g wholesalers and distributors iii Conduct the organization s operations iv In the past business markets were calling Industrial Markets c Six Components of the Business Market i Agriculture The Challenge Increase efficiency through Precision Agriculture ii Resellers who buy and sell products in essentially the same form However they create various utilities for other businesses including 1 Time 2 Place 3 Information 4 Possession utility iii Services which are GROWING rapidly iv The Government a HUGE component it makes up 35 of the GNP 1 Unique competitive bidding system and bureaucratic obstacles v International Trade a 1 trillion plus business opportunity The gov has many programs to help http www census gov foreign trade statistics highlights top top0912yr html Canada China Mexico Japan are top 4 trade partners in 2009 vi Non business Charities Not for profit Organizations These firms do everything a for profit does and so requires professional management 55 iii Where they can deliver value and which are growing d Video Muller on the Industries Timken serves i Growth for Timken ii Focused on Heavy Industries 1 Steel 2 Power Generation 3 Cement Production 4 Aggregate 5 Wind Energy 1 Iron Ore 2 Coal 3 Oil in the future a Industrial business markets b Reseller markets c Government markets iv Compared to Automotive which may NOT be a good industry for them II Type and Number of Organization Establishments in the U S III Measuring Domestic And Global Industrial Reseller And Government Markets a North American Industry Classification System NAICS http www census gov epcd www naics html Provides common industry definitions for Canada Mexico and the US which makes it easier to measure economic activity b North American Product Classification System NAPCS http www census gov eos www napcs napcs htm Provides classification system for products and services that is consistent across Canada Mexico and US and international classification systems IV Characteristics Of Organizational Buying a Demand Characteristics i Derived Demand or derived from demand for consumer products and services the demand for industrial products and services is driven by Example What influences the demand for steel the demand for cars 56 1 The Implications of Derived Demand a Business Marketers must understand final consumer demand and b Often they need to find ways to encourage sales of their buyer s products Intel Example Your Rock Stars Our Rock Stars ii Elasticity of Demand 1 Inelastic Demand for many Industries 2 Demand does not change much if price changes so the price does not affect how much is sold a Occurs when Cost is a small percent of the finished product and b When there are no close substitutes Example Airplanes engine vs small rivets Paper catalogs and internet 3 Demand can be more elastic a For a single firm which changes price i The demand curve for a single firm may be quite elastic b When demand is viewed from a Long term Perspective i E g cost of cloth c If the cost of the business product is a SIGNIFICANT portion of the cost of the finished good b Size of the Order or Purchase and the Number of Buying Units 57 i Number of Business users 20 million ii Number of Ultimate Consumers 307 million iii However while there are a smaller number of organizations they have a LARGE purchasing power 60 iv Plus they are Concentrated in geographical areas 4 firms produce i Businesses buy from other businesses to help them achieve their 78 of all lead pencils c Organizational Buying Objectives objectives such as 1 Reduce costs 2 Increase Revenues 3 Social Responsibilities d Organizational Buying Criteria like Consumer s Evaluative Criteria i In deciding among suppliers buyers must consider a variety of factors such as 1 Price 2 Delivery Schedules 3 Past Performance 4 Production Facilities Capacity 5 Warranty Claim Policies 6 Technical Capability 7 Quality Specifications a ISO 9000 standards for registration and certification of a manufacturer s quality management and assurance system based on an on site audit of practices and procedures developed by the International Standards Organization ISO ii It s Importance Firms MUST buy the right product at the right time and the right price because a Companies are making less and buying more from suppliers b Firms cannot tolerate defective parts or supplies 58 Cannot tolerate defective parts and supply Just in Time JIT and Just in Sequence JIS c SO firms need to work with fewer suppliers and develop long term relationships with them i Work together to develop new products share information on inventories production and costs e Buyer Seller Relationships and Supply Partnerships i Supplier development is the deliberate effort by organizational buyers to build relationships that shape suppliers products services and capabilities to fit a buyer s needs and those of its customers 1 Just in Time 2 Just in Sequence f The buying center consists of a group of people in an organization who participate in the buying process and share common goals risks and knowledge important to a purchase decision i It is a Cross Functional Group ii People in the Buying Center each will play a different role iii Roles in the Buying Center 1 Gatekeepers controls the flow of info in buying center secretary 2 Influencers affects buying decision usually define specifications 3 Users people who actually use it 4 Buyers has authority and responsibility to purchase 5 Deciders selects or approve supplier that receives contract g Buy Classes represent the type of buying situation see Text Figure 6 3 i Straight Rebuy buyer reorders an existing product or service from the list of acceptable suppliers office supplies ii Modified Rebuy Users influencers or deciders want to change the product specifications price delivery schedule or supplier Something has changed ex textbook publisher iii New Buy The org is a first time buyer of the product or service Involves a lot of risk iv See Figure 6 3 text page 149 for the ways