MNM2604_Study Guide And Exam summary.

MNM2604_Study Guide And Exam summary. MNM2604 - Business-to-Business Marketing. Business markets: these are markets where one business sells its product(s) to other businesses, compared to “consumer markets” where a business or retailer sells its product(s) directly to final customers. • Business buyers: we call them organisational or business customers and customer or client firms who buy products for use in their own businesses when performing their business activities. These are the customers we are selling our product(s) to. • Business marketers: we call them business-to-business (B2B) marketers, marketing firms or organisations, or selling firms. Our vantage point or perspective is from this, the marketer’s side. Here is another example of a B2B and a B2C marketing firm: Pretoria Portland Cement (PPC) is a manufacturer of cement products. They sell to other companies like Marley Roofing (a manufacturer of roof tiles), Grinaker Ltd (a big construction company) and BHP Billiton (a mining company). These are different businesses and the way the products are packaged, priced, communicated and distributed to them are very much different from the product package (the 4 p’s) that is presented to final consumers through Cashbuild (a hardware store). Did you know that business-to-business transactions represent more than 50% of all economic activity in South Africa? Therefore, the chances are good that you are either already employed in a B2B organisation, or will be in your lifetime! Learning outcomes After completing this learning unit, you should be able to: y define what a B2B market entails y differentiate between the various types of B2B consumers/buyers y describe the difference between B2B marketing and B2C marketing y differentiate between the various business product classifications Key concepts The following concepts will be used in this learning unit. Make sure that you understand their meaning before you study the next section: y business-to-business marketing y business-to-consumer marketing y industrial marketing y consumers y customers y industrial markets y consumer markets 3 MNM2604/1 1.1 INTRODUCTION In order for you to come to grips with the domain of business-to-business marketing, and to understand the difference between B2B marketing and B2C marketing, we are going to discuss five areas of difference, namely (1) the difference between the types of buyers/ consumers of business and final products; (2) between the structure and characteristics of business markets and final consumer markets; (3) between the buying behaviour of business (organisational) customers and final consumers; (4) the difference between the marketing strategies of B2B marketers and organisations that sell to final consumers; and (5) between the types of products that business customers buy compared to final consumers. It is very important that you are able to distinguish B2B marketing and final consumer marketing in terms of these five criteria. Before we continue, let us define B2B marketing. 1.2 DEFINING B2B MARKETS AND B2B MARKETING Study Read section 1.1 in the prescribed book and then study the definition of B2B marketing below. Defining B2B marketing is useful to differentiate it from business-to-consumer (B2C) marketing. Cooke (1986) provides the following (slightly adapted) perspectives of industrial or B2B marketing: • B2B marketing entails the marketing of goods or services to commercial enterprises, governments, and non-profit institutions for resale to other industrial (sic business) consumers for use in the goods and services that they, in turn, produce. • B2B marketing entails all human activities directed toward satisfying wants and needs of professional buyers and other individuals influencing purchases in commercial, institutional, and governmental organisations through the exchange process. • B2B marketing represents the set of activities directed toward facilitating and expediting exchange involving customers in industrial markets and industrial products. Based on the perspectives above, B2B marketing can be defined as follows: B2B marketing involves all activities involved in the marketing and selling of products or services to other companies, the government, or other institutions. These organisations do not buy these products or services for final consumption, but for re-sale or for use in the production of other goods or services. You must make an attempt to memorise this definition. The marketing concepts of marketing research, market segmentation and targeting and the marketing mix (product, price, place and promotion) are utilised for both B2B and B2C marketing, but differ in the manner they are applied. Remember the five differentiation criteria that are mentioned in section 1 above. We will use them to differentiate between B2B and B2C marketing. Firstly, we will consider the type of products that are sold in B2B markets. 4 1.3 TYPES OF B2B CUSTOMERS OR BUYERS Study Study section 1.2 in the prescribed book. B2B customers are categorised into four types, namely resellers, producers, governments and institutions. 1.3.1 Resellers These are organisations who buy products and services from upstream suppliers to re-sell them to other businesses or organisations, or to final customers, or other parties facilitating the sales of products such as agents and wholesalers. For instance, wholesalers are also resellers that buy large quantities of products and sell them in smaller lots to other intermediaries and retailers. They normally act as an intermediary between manufactures and retailers in the distribution channel. In South Africa, Makro is a good example of a wholesaler. Please note: B2B marketers sell their products up to the retail level in the value chain and do not sell to final consumers. For instance, the company manufacturing Kreepy Krauly (a swimming pool cleaner) markets and sells their product to retailers such as Pick n Pay Hyper. In this case, Pick n Pay is regarded as a B2B customer. When Pick n Pay, in turn, sells this product to final consumers, it is regarded as a B2C marketing scenario. The prescribed book is not clear in this regard. 1.3.2 Producers Producers are those organisations that transform raw materials into finished goods. They transform materials from their original shape into a different form, usually called intermediary products or finished goods. For example, PPC mines lime (a raw material), then the limes goes through a manufacturing process to form cement (an intermediary product). The cement is then sold to Marley Roofing where the cement is used to manufacture roof tiles, among other products. Marley then sells their tiles (a finished product) to construction companies and retailers. You can see from the above example that the product started as raw stone, then became cement and, lastly, it became a tile. The process of adding value to this product is called a value chain. 1.3.3 The government In any country, the government is the biggest customer which every person wants to do business with. In South Africa, the government is divided into three spheres, namely national, provincial and local government. Government agencies purchase products and services such as paper, printers, weapons and buildings, and design and build dams. The government, in turn, also renders products and services to communities. 5 MNM2604/1 1.3.4 Institutions Institutions include organisations such as schools, hospitals, nursing homes, churches and charitable organisations. These organisations may use purchasing procedures similar to those utilised by private firms or government agencies, but they often follow less standardised procedures. These institutions usually sell services and, therefore, the principles of services marketing are applicable to businesses selling to them. 1.4 MARKET STRUCTURES AND CHARACTERISTICS OF B2B AND B2C MARKETS Study Study section 1.3 up to 1.3.2 and the market structure differences in table 1.1 in the prescribed book. There are six significant differences between industrial marketing and consumer marketing as discussed below: • Derived demand is a significant and exceptional aspect of the difference between business markets and consumer markets. Business purchases will not take place without final consumer demand. All B2B sales are made to companies, government, institutions or resellers that, in turn, sell these products or services to other organisations who will finally provide a finished product to their final customers. In the cement industry, this is applicable where the raw material supplier sells to a cement-based product manufacturer, who transforms it to an intermediary of final product, to be sold to construction companies and final (private) consumers. The astute marketer will, therefore, not only research the needs of its immediate business customers, but also the needs and requirements of the customer on all the other levels in the value chain. • Consumer markets are more widely spread and greater in number in comparison to business markets, which tend to be geographically concentrated to a particular area. • Factors influencing a B2B purchase are, in general, more rational than those affecting consumer purchases. Consumer products are purchased more frequently than business products. • Reciprocity buying is more common in industrial markets than consumer markets. Reciprocity is the practice of an organisation that buys goods and services from another business who, in turn, buys a product from them. • Business markets, as opposed to consumer markets, tend to establish long-term relationships between selling and buying firms, and once established, are difficult to break. • More buying influencers/influences exist in B2B purchases than in consumer buying, because more planning is required when purchasing expensive and technical/complex products. Business customers more often negotiate prices with suppliers, whereas consumer customers do not. The marketing strategy of B2B organisations is, obviously, influenced by the structure of its market. For instance, if the marketing organisation only has a few potential customer 6 firms, it will be unwise to make use of national advertising media. The needs of this organisation will be different and this may call more for a relationship marketing strategy to be launched. You will learn more on relationship marketing in later units.