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Chapter 6 BUSINESS MARKETS AND BUSINESS BUYER BEHAVIOR MARKETING STARTER: CHAPTER 6 GE: Partnering Strategically with Business Customers Synopsis Few brands are more familiar than GE. For more than 130 years, we’ve packed our homes with GE products bearing the familiar script GE logo. Surprisingly, GE’s consumer products contribute only about one-third of the company’s total $147 billion in annual sales. Most of GE’s business comes from commercial and industrial customers across a wide range of industries. GE sells everything from medical imaging technologies and water processing systems to power generation equipment and aircraft engines. Marketing to business customers requires a deep understanding of customer needs and customer-driven marketing strategies that create superior customer value. In its business markets, rather than selling to large numbers of small buyers, GE sells to a relative few very large buyers. Losing a single sale to a large business customer can mean the loss of hundreds of millions of dollars in revenues. Also, with GE’s business customers, buying decisions are much more complex. People throughout the entire GE organization know that success in business-to-business markets involves more than just developing and selling superior products and technologies. Business customer buying decisions are made within the framework of a strategic, problemsolving partnership.

Discussion Objective The GE story is perfect for highlighting the unique characteristics of business markets and the differences between consumer buying behavior and business buying behavior. It also demonstrates that marketing to business customers requires a deep understanding of customer needs and customer-driven marketing strategies that create superior customer value. To succeed in its business-to-business markets, GE must build day in, day out, year in, and year out customer partnerships based on superior products, close collaboration, and trust.

Starting the Discussion Set up the discussion by visiting the GE Capital Rail Services Web site at http://www.ge.com/railservices/services/ Explore the various links at the top, including products, services, industries, and resources. Look for information on each that underscores the basic promise that GE must deliver on each day: to create partnerships with business customers to help them move their passengers and freight more efficiently and reliably. With students, discuss the similarities and differences between selling to final consumers and selling to business customers. Students should understand that working in business markets is exponentially more complex, and that closing a single sale may take years of advance work. Use the questions below to guide the discussion on GE’s efforts to sell the Evolution Series locomotives to B-to-B customers and the impact on customer relationships.

Discussion Questions 1.

What are GE’s business customers looking for when buying a new locomotive? How do GE products fill the bill? Customers are certainly looking at the characteristics of the locomotive itself [cost, reliability, fuel efficiency,] and how the locomotive will enable them to deliver better value to their own customers. But more than just a superior product, they want a trusted partner that delivers on its promises. Business customers must be able to rely on GE as a strategic partner they can count on to help the company solve its problems and win new customers of its own. As this case demonstrates, purchasing issues can even involve international economics and politics.

2.

How does GE’s marketing and sales to business customers differs from working with its end consumers. Selling and marketing in either sector requires a deep understanding of customer needs and customerdriven marketing strategies that create superior customer value. However, in business markets, rather than selling to large numbers of small buyers, GE sells to a relatively few very large buyers. Losing a single sale to a large business customer can mean the loss of hundreds of millions of dollars in revenues. Also, with Copyright© 2014 Pearson Education

GE’s business customers, buying decisions are much more complex. Buying a batch of jet engines, for example, involves a tortuously long buying process, dozens or even hundreds of decision makers, and layer upon layer of subtle and not-so-subtle buying influences. To succeed in these business-to-business markets, GE must do more than just design and distribute good products. It must work closely and deeply with its business customers to become a strategic, problem-solving partner. 3.

How does the GE story relate to the major concepts of Chapter 6 on business buyer behavior? The GE story shows the complexities of business-to-business transactions and relationships relative to final consumer buying. It provides an excellent vehicle for exploring the nature of business markets, types of buying situations, buying participants and influences on business buyers, and the business buying process.

CHAPTER OVERVIEW Use Power Point Slide 6-1 Here This chapter examines business customers—those that buy goods and services for use in producing their own products and services or for resale to others. As with firms selling to final buyers, firms marketing to business customers must build profitable relationships with business customers by creating superior customer value.

CHAPTER OBJECTIVES Use Power Point Slide 6-2 Here 1. 2. 3. 4.

Define the business market and explain how business markets differ from consumer markets. Identify the major factors that influence business buyer behavior. List and define the steps in the business buying decision process. Compare the institutional and government markets and explain how institutional and government buyers make their buying decisions.

CHAPTER OUTLINE p. 166

INTRODUCTION Considering our familiarity with GE’s consumer products, it is somewhat surprising that they contribute only about onethird of the company’s total $147 billion in annual sales. Most of GE’s business comes from commercial and industrial customers across a wide range of industries. GE sells everything from medical imaging technologies and water processing systems to power generation equipment and aircraft engines. In its business markets, rather than selling to large numbers of small buyers, GE sells to a relatively few very large buyers. Buying decisions are much more complex. People throughout the entire GE organization know that Copyright© 2014 Pearson Education

p. 166 Photo:GE locomotive

success in business-to-business markets involves more than just developing and selling superior products and technologies. Business customer buying decisions are made within the framework of strategic, problem-solving partnerships.  Opening Vignette Questions 1. Discuss several ways in which marketing to business customers is different from marketing to final consumers. 2. As a sales representative for GE, how would you describe the advantages of working with your company to a potential locomotive customer? 3. As the president of KTZ, which considerations would be most important to you in selecting a locomotive vendor? Explain. PPT 6-3

Business buyer behavior refers to the buying behavior of the organizations that buy goods and services for use in the production of other products and services that are sold, rented, or supplied to others. It also includes the behavior of p. 168 retailing and wholesaling firms that acquire goods for the Key Terms: purpose of reselling or renting them to others at a profit. Business Buyer Behavior, Business In the business buying process, business buyers determine Buying Process which products and services their organizations need to purchase, and then find, evaluate, and choose among alternative suppliers and brands. Business-to-business (B-to-B) marketers must do their best to understand business markets and business buyer behavior.  Assignments, Resources Use Discussion Question 1 here Use Think-Pair-Share 1 here Use Web Resource 1 here Business Markets

p. 168 PPT 6-4

Chapter Objective 1 The business market is huge. In fact, business markets involve far more dollars and items than do consumer markets. p. 169 The main differences between consumer and business markets are in market structure and demand, the nature of Copyright© 2014 Pearson Education

the buying unit, and the types of decisions and the decision process involved. Market Structure and Demand p. 169 PPT 6-5

The business marketer normally deals with far fewer but far larger buyers than the consumer marketer does. Even in large business markets, a few buyers often account p. 169 for most of the purchasing. Key Term: Derived Demand Business demand is derived demand. It ultimately derives from the demand for consumer goods. B-to-B marketers sometimes promote their products directly to final consumers to increase business demand. Many business markets have inelastic demand; that is, total demand for many business products is not affected much by price changes, especially in the short run. Business markets have more fluctuating demand. The demand for many business goods and services tends to change more—and more quickly—than the demand for consumer goods and services does. p. 168 Ad: Gore-Tex Nature of the Buying Unit

p. 169 PPT 6-5

Compared with consumer purchases, a business purchase usually involves more decision participants and a more professional purchasing effort. Often, business buying is done by trained purchasing agents who spend their working lives learning how to buy better. The more complex the purchase, the more likely that multiple people will participate in the decision-making process.

p. 169

Types of Decisions and the Decision Process Business buyers usually face more complex buying decisions than do consumer buyers. Purchases often involve large sums of money, complex technical and economic considerations, and interactions among many people at many levels of the buyer’s organization.

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The business buying process also tends to be longer and p. 170 more formalized than the consumer buying process. Photo: Dow Plastics

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In the business buying process, buyer and seller are often p. 170 much more dependent on each other. Key Term: Supplier Development Many customer companies are now practicing supplier development, systematically developing networks of supplier-partners to ensure an appropriate and dependable supply of products and materials that they will use in making their own products or reselling to others.  Assignments, Resources Use Real Marketing 6.1 here Use Critical Thinking Exercise 1 here Use Video Case here Use Think-Pair-Share 2 here Use Outside Example 1 and 2 here  Troubleshooting Tip The first major barrier to learning in this chapter comes from the fact that most students have had no experience with the business market or its buying processes. To aid in the student’s understanding, it is necessary to first carefully explain exactly what the business market is (see Key Terms) and how it is different from the consumer market. The text provides ample material with which to accomplish this objective.

p. 171

Business Buyer Behavior

Chapter Objective 2

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At the most basic level, marketers want to know how p. 171 business buyers will respond to various marketing stimuli. Figure 6.2: A Model of Business Buyer Within the organization, buying activity consists of two Behavior major parts: the buying center and the buying decision process.

p. 171

Major Types of Buying Situations

p. 171 Ad: Six Flags

There are three major types of buying situations: PPT 6-8

In a straight rebuy, the buyer reorders something without p. 171 any modifications. It is usually handled on a routine basis by Key Terms: Straight the purchasing department. Rebuy, Modified Rebuy, New Task, Copyright© 2014 Pearson Education

In a modified rebuy, the buyer wants to modify the product Systems Selling specifications, prices, terms, or suppliers. The modified (Solutions Selling) rebuy usually involves more decision participants than does the straight rebuy. A company buying a product or service for the first time faces a new task situation. In such cases, the greater the cost or risk, the larger the number of decision participants and the greater their efforts to collect information will be. Many business buyers prefer to buy a complete solution to a problem from a single seller. Instead of buying and putting all the components together, the buyer may ask sellers to supply the components and assemble the package or system. Thus, systems selling is often a key business marketing strategy for winning and holding accounts.  Assignments, Resources Use Discussion Question 2 here Use Critical Thinking Exercise 2 here Use Web Resource 2 here p. 172

Participants in the Business Buying Process

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The decision-making unit of a buying organization is called p. 172 its buying center: all the individuals and units that Key Terms: Buying participate in the business decision-making process. Center, Users, Influencers, Buyers, The buying center includes all members of the organization Deciders, who play any of five roles in the purchase decision process. Gatekeepers

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    

Users are members of the organization who will use the product or service. Influencers often help define specifications and also provide information for evaluating alternatives. Buyers have formal authority to select the supplier and arrange terms of purchase. Deciders have formal or informal power to select or approve the final suppliers. Gatekeepers control the flow of information to others.

The buying center is not a fixed and formally identified unit within the buying organization. It is a set of buying roles assumed by different people for different purchases.

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Within the organization, the size and makeup of the buying center will vary for different products and for different buying situations.

PPT 6-11

The buying center concept presents a major marketing challenge. The business marketer must learn who participates in the decision, each participant’s relative influence, and what evaluation criteria each decision participant uses. The buying center usually includes some obvious participants who are involved formally in the buying process. It may also involve less obvious, informal participants, some of whom may actually make or strongly affect the buying decision. Sometimes, even the people in the buying center are not aware of all the buying participants. p. 173 Ad: Citrix Major Influencers on Business Buyers

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p. 172 PPT 6-13

Business buyers are subject to many influences when they make their buying decisions. Business buyers respond to both economic and personal factors. They react to both reason and emotion. When suppliers’ offers are very similar, business buyers have little basis for strictly rational choice. Because they can meet organizational goals with any supplier, buyers can allow personal factors to play a larger role in their decisions. When competing products differ greatly, business buyers are more accountable for their choice and tend to pay more attention to economic factors.

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Business buyers are heavily influenced by factors in the current and expected economic environment, such as the level of primary demand, the economic outlook, and the cost of money. An increasingly important environmental factor is supply of key materials. Many companies are now more willing to buy and hold larger inventories of scarce materials to ensure adequate supply. Business buyers also are affected by technological, political, and competitive developments in the environment.

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p. 173 Figure 6.2: Major Influences on Business Buyer Behavior

Culture and customs can strongly influence business buyer reactions to the marketer’s behavior and strategies, especially in the international marketing environment. PPT 6-15

Organizational factors are also important. Each buying organization has its own objectives, policies, procedures, structure, and systems, and the business marketer must understand those factors as well. The buying center usually includes many participants who influence each other; so interpersonal factors also influence the business buying process. It is often difficult to assess such interpersonal factors and group dynamics.

PPT 6-16

Each participant in the business buying-decision process brings in personal motives, perceptions, and preferences. p. 174 These individual factors are affected by personal Ad: Kwintessential characteristics such as age, income, education, professional identification, personality, and attitudes toward risk.

 Assignments, Resources Use Real Marketing 6.2 here Use Discussion Questions 3 and 4 here Use Additional Projects 1 and 2 here Use Small Group Assignment 1 here Use Individual Assignment 1 here Use Web Resource 3 here  Troubleshooting Tip One area of concern deals with students understanding a buying center. The easiest way to overcome this is by asking the students to form their own buying center. Who at the university or college would be involved in buying computers for the computer lab, athletic equipment for the gym, textbooks for the class, and shrubs for the campus? Be sure to explain that it is not always the most obvious people that might be involved in the process. How many committees (people) did they come up with? After one illustration, students usually catch on to how the process works. Finish the discussion by Copyright© 2014 Pearson Education

asking how the marketing person in a supplier organization should use or gain knowledge about the buying center process of a future sales client (use the examples above if necessary to make a connection). p. 175

The Business Buying Process

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Buyers who face a new task buying situation usually go p. 175 through all stages of the buying process. Buyers making Ad: Quill.com modified or straight rebuys may skip some of the stages. p. 176 Figure 6.3: Stages Problem Recognition of the Business Problem recognition can result from internal or external Buying Process stimuli. Internally, the company may decide to launch a new product that requires new production equipment and materials. Externally, the buyer may get some new ideas at a trade show, see an ad, or receive a call from a salesperson who offers a better product or a lower price. p. 175 Key Terms: Problem General Need Description Recognition, The buyer next prepares a general need description that General Need describes the characteristics and quantity of the needed item. Description

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PPT 6-19

Chapter Objective 3

For standard items, this process presents few problems. For complex items, however, the buyer may have to work with others—engineers, users, and consultants—to define the p. 176 item. Key Terms: Problem Specification, Product Specification Supplier Search, The buying organization next develops the item’s technical Proposal product specifications, often with the help of a value Solicitation, analysis engineering team. Supplier Selection Product value analysis is an approach to cost reduction in which components are studied carefully to determine if they can be redesigned, standardized, or made by less costly methods of production. The team decides on the best product characteristics and specifies them accordingly.

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PPT 6-20

Supplier Search The buyer now conducts a supplier search to find the best vendors. The buyer can compile a small list of qualified suppliers by reviewing trade directories, doing a computer search, or phoning other companies for recommendations. Today, more and more companies are turning to the Internet to find suppliers. The newer the buying task, the more complex and costly the item, and the greater the amount of time the buyer will spend searching for suppliers. Proposal Solicitation In the proposal solicitation stage of the business buying process, the buyer invites qualified suppliers to submit proposals. When the item is complex or expensive, the buyer will usually require detailed written proposals or formal presentations from each potential supplier.

PPT 6-21

Supplier Selection During supplier selection, the buying center often will draw up a list of the desired supplier attributes and their relative importance. Buyers may attempt to negotiate with preferred suppliers for better prices and terms before making the final selections. In the end, they may select a single supplier or a few suppliers. Many buyers prefer multiple sources of suppliers to avoid being totally dependent on one supplier and to allow p. 177 comparisons of prices and performance of several suppliers Key Terms: Orderover time. Routine Specification, Performance Order-Routine Specification Review The buyer now prepares an order-routine specification. It includes the final order with the chosen supplier or suppliers and lists items such as technical specifications, quantity needed, expected time of delivery, return policies, and warranties. Copyright© 2014 Pearson Education

p. 177

In the case of maintenance, repair, and operating items, buyers may use blanket contracts rather than periodic purchase orders. A blanket contract creates a long-term relationship in which the supplier promises to resupply the buyer as needed at agreed prices for a set time period.

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Performance Review The performance review may lead the buyer to continue, modify, or drop the arrangement. The eight-stage model provides a simple view of the business buying-decision process. The actual process is usually much more complex.  Assignments, Resources Use Web Resource 4 here Use Video Case here  Troubleshooting Tip It is often difficult for students to draw a parallel between business buying and consumer buying even though the students will have just covered consumer buying in the previous chapter. One way to overcome this difficulty is to have students discuss the differences in how they buy clothes for themselves, versus how Macy’s or another department store would buy clothes to resell.

p. 177 PPT 6-23

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E-Procurement: Buying on the Internet

p. 177 Key Term: EElectronic purchasing, or e-procurement, has grown rapidly Procurement in recent years. It is now standard procedure in most companies. E-procurement gives buyers access to new suppliers and lower purchasing costs, and hastens order processing and delivery. In turn, business marketers can connect with customers online to share marketing information, sell products and services, provide customer support services, and maintain ongoing customer relationships. Companies can conduct reverse auctions or engage in online trading exchanges. Companies can also conduct e-procurement by setting up Copyright© 2014 Pearson Education

p. 177

their own company buying sites or by setting up extranet links with key suppliers. E-procurement reduces the time between order and delivery. p. 178 Time savings are particularly dramatic for companies with Ad: Shaw Floors many overseas suppliers. Beyond the cost and time savings, e-procurement frees purchasing people to focus on more strategic issues. The use of e-procurement also presents some problems. At the same time that the Web makes it possible for suppliers and customers to share business data and even collaborate on product design, it can also erode decades-old customersupplier relationships. E-procurement also can create potential security concerns.

p. 179 Ad: Makino

 Assignments, Resources Use Marketing Ethics here Use Think-Pair-Share 3 here p. 180

Institutional and Government Markets

Chapter Objective 4

Much of this discussion also applies to the buying practices of institutional and government organizations. However, these two non-business markets have additional characteristics and needs. PPT 6-25

Institutional Markets

p. 180 Key Term: Institutional Market

The institutional market consists of schools, hospitals, nursing homes, prisons, and other institutions that provide goods and services to people in their care. Institutions differ p. 181 from one another in their sponsors and in their objectives. Photo: Procter & Gamble Many institutional markets are characterized by low budgets and captive patrons. Many marketers set up separate divisions to meet the special characteristics and needs of institutional buyers. PPT 6-26

Government Markets The government market offers large opportunities for many Copyright© 2014 Pearson Education

p. 181

companies, both big and small.

Key Term: Government Market

In most countries, government organizations are major buyers of goods and services. In the United States alone, federal, state, and local governments contain more than 88,000 buying units. Government organizations typically require suppliers to submit bids, and normally they award the contract to the lowest bidder. In some cases, the government unit will make allowance for the supplier’s superior quality or reputation for completing contracts on time. p. 182 Government organizations tend to favor domestic suppliers Photo: Lockheed over foreign suppliers. Martin Government buyers are affected by environmental, organizational, interpersonal, and individual factors. One unique thing about government buying is that it is carefully watched by outside publics, ranging from Congress to a variety of private groups interested in how the government spends taxpayers’ money. Because their spending decisions are subject to public review, government organizations require considerable paperwork from suppliers, who often complain about excessive paperwork, bureaucracy, regulations, decisionmaking delays, and frequent shifts in procurement personnel. Most governments provide would-be suppliers with detailed guides describing how to sell to the government. Non-economic criteria also play a growing role in government buying. 

  

Government buyers are asked to favor depressed business firms and areas; small business firms; minority-owned firms; and business firms that avoid race, gender, or age discrimination. Many firms that sell to the government have not been marketing oriented. Total government spending is determined by elected officials rather than by any marketing effort to develop this market. Government buying has emphasized price, making Copyright© 2014 Pearson Education

 

suppliers invest their effort in technology to bring costs down. When the product’s characteristics are specified carefully, product differentiation is not a marketing factor. Nor do advertising or personal selling much matter in winning bids on an open-bid basis.

Several companies have established separate government marketing departments. These companies anticipate government needs and projects, participate in the product specification phase, gather competitive intelligence, prepare bids carefully, and produce stronger communications to describe and enhance their companies’ reputations.  Assignments, Resources Use Discussion Question 5 here Use Small Group Assignment 2 here Use Individual Assignment 2 here Use Think-Pair-Share 4 here Use Web Resources 5 and 6 here Use Company Case here

END OF CHAPTER MATERIAL Discussion Questions 1. Explain how the market structure and demand differ for business markets compared to consumer markets. (AACSB: Communication; Reflective Thinking) Answer: The business marketer normally deals with far fewer but far larger buyers than the consumer marketer does. Further, business demand is derived demand—it ultimately derives from the demand for consumer goods. Many business markets have inelastic demand; that is, total demand for many business products is not affected much by price changes, especially in the short run. Finally, business markets have more fluctuating demand. The demand for many business goods and services tends to change more—and more quickly—than the demand for consumer goods and services does. 2. Name and describe the three types of business buying situations. (AACSB: Communication) Copyright© 2014 Pearson Education

Answer: There are three major types of buying situations. At one extreme is the straight rebuy, which is a fairly routine decision. At the other extreme is the new task, which may call for thorough research. In the middle is the modified rebuy, which requires some research. In a straight rebuy, the buyer reorders something without any modification. It is usually handled on a routine basis by the purchasing department. A company buying a product or service for the first time faces a new-task situation. In such cases, the greater the cost or risk, the larger the number of decision participants and the greater their efforts to collect information will be. The buyer makes the fewest decisions in the straight rebuy and the most in the new-task decision. In the new-task situation, the buyer must decide on product specifications, suppliers, price limits, payment terms, order quantities, delivery times, and service terms. 3. Name and describe the roles played by buying center participants in the business buying process. (AACSB: Communication; Reflective Thinking) Answer: The buying center includes all members of the organization who play any of five roles in the purchase decision process: 

Users are members of the organization who will use the product or service. In many cases, users initiate the buying proposal and help define product specifications.



Influencers often help define specifications and also provide information for evaluating alternatives. Technical personnel are particularly important influencers.



Buyers have formal authority to select the supplier and arrange terms of purchase. Buyers may help shape product specifications, but their major role is in selecting vendors and negotiating. In more complex purchases, buyers might include high-level officers participating in the negotiations.

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Deciders have formal or informal power to select or approve the final suppliers. In routine buying, the buyers are often the deciders, or at least the approvers.



Gatekeepers control the flow of information to others. For example, purchasing agents often have authority to prevent salespersons from seeing users or deciders. Other gatekeepers include technical personnel and even personal secretaries.

4. Explain what is meant by systems selling and discuss why it is a preferred approach to buying for many organizations. (AACSB: Communication; Reflective Thinking) Answer: Many business buyers prefer to buy a complete solution to a problem from a single seller rather than buying separate products and services from several suppliers and putting them Copyright© 2014 Pearson Education

together. The sale often goes to the firm that provides the most complete system for meeting the customer’s needs and solving its problems. Such systems selling (or solutions selling) is often a key business marketing strategy for winning and holding accounts. 5. Compare the institutional and government markets and explain how institutional and government buyers make their buying decisions. (AACSB: Communication) Answer: The institutional market consists of schools, hospitals, prisons, and other institutions that provide goods and services to people in their care. These markets are characterized by low budgets and captive patrons. The government market, which is vast, consists of government units—federal, state, and local—that purchase or rent goods and services for carrying out the main functions of government. Government buyers purchase products and services for defense, education, public welfare, and other public needs. Government buying practices are highly specialized and specified, with open bidding or negotiated contracts characterizing most of the buying. Government buyers operate under the watchful eye of the U.S. Congress and many private watchdog groups. Hence, they tend to require more forms and signatures and respond more slowly and deliberately when placing orders.

Critical Thinking Exercises 1. Business buying occurs worldwide, so marketers need to be aware of cultural factors influencing business customers. In a small group, select a country and develop a multimedia presentation on proper business etiquette and manners, including appropriate appearance, behavior, and communication. Include a map showing the location of the country as well as a description of the country in terms of its demographics, culture, and economic history. (AACSB: Communication; Multicultural and Diversity) Answer: There are several sources on the Internet where students can get information for this exercise. One good site is www.cyborlink.com. Instructors may want to assign groups to different countries to give students a better understanding of the world. 2. The U.S. government is the world’s largest purchaser of goods and services, spending more than $425 billion per year. By law, 23 percent of all government buying must be targeted to small firms. Visit http://archive.sba.gov/contractingopportunities/index.html to learn how small businesses can take advantage of government contracting opportunities. Develop a brochure explaining the process to small business owners. (AACSB: Communication; Reflective Thinking; Use of IT)

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Answer: Students’ brochures will vary. This Web site provides information in easy-to-understand terms and organizing it into a brochure format should make this learning assignment more interesting for students. Instructors might want to assign students to different types of businesses, such as agricultural, manufacturing, professional services, wholesale and retail trade, travel agencies, janitorial services, and so on so that students can be creative in developing brochures specific to that type of business. Marketing Technology: Apple’s Supply Chain How many parts go into Apple’s iPhone? Of course there are the case, screen, camera, processor, and battery, but have you ever considered all the other parts, such as screws and switches? There are 40-50 screws alone in an iPhone, and each of the parts—including the screws—must be sourced from suppliers. Apple’s list of primary contractors includes more than 20 companies scattered around the globe. Apple’s current CEO, Tim Cook, was brought on by co-founder, the late Steve Jobs, to streamline Apple’s supply chain. Cook cut component suppliers from 100 to 24 and shut down 19 Apple warehouses, resulting in a reduction of parts inventory from one month to just six days. Most of this is possible through technology, and as a result, Apple’s supply chain has been ranked number one in the world three years in a row by Gartner’s and Apple is achieving record-setting profits. 1. Go to www.gartner.com/DisplayDocument?doc_cd=234062, select another company on Gartner’s Supply Chain Top 25, and describe that company’s supply chain. Discuss the role technology plays in that company’s purchasing. (AACSB: Communication; Reflective Thinking; Use of IT) Answer: Students’ answers will vary. The report for 2012 can be found at www.gartner.com/DisplayDocument?doc_cd=234062, but more current years may be available from the company’s Web site. Instructors may want to assign specific companies on the list, such as Amazon, McDonald’s, Dell, P&G, and so on so that a variety of companies can be covered. Students will be able to find information by searching the Internet (for example, ―Amazon’s supply chain management system‖). 2. Discuss possible negative consequences of using technology to gain competitive advantage through purchasing and vendor relationship activities. (AACSB: Communication; Reflective Thinking) Answer: The chapter discusses disadvantages of e-procurement. For example, at the same time that the Web makes it possible for suppliers and customers to share business data and even collaborate on product design, it can also erode decades-old customer–supplier relationships. Many buyers now use the power of the Web to pit suppliers against one another and to search Copyright© 2014 Pearson Education

out better deals, products, and turnaround times on a purchase-by-purchase basis. Eprocurement can also create potential security disasters. Other potential drawbacks are resistance from vendors and employees. Vendors have to invest resources in technology, and initial start-up costs can be very high. There must be considerable trust between them and the customer before they are willing to set up the necessary systems. Employees are often reluctant to adopt new technologies, especially if those technologies can make their work more complicated, or worse, replace them.

Marketing Ethics: Pink Slime In the early 1990s, Eldon Roth figured out a way to profit from slaughterhouse meat trimmings, by-products that were once used only in pet food and cooking oil. This cheap and safe beef product is called ―lean, finely textured beef‖ (LFTB). The fatty bits of beef are heated and treated with a puff of ammonium hydroxide gas to kill bacteria. You’ve probably eaten many hamburgers that included LFTB prepared by fast-feeders, at school cafeterias, or even in your own kitchen. LFTB makes ground beef leaner and cheaper. Shortly after it was developed, a health safety inspector dubbed LFTB ―pink slime,‖ but the name didn’t become public until the major ―pink slime‖ media brouhaha erupted in 2012. Consumers were repulsed to learn that they were eating unappealing beef parts that were ―soaked in ammonia.‖ Sales of ground beef fell 11 percent in one month. Ground beef producer AFA Foods sought bankruptcy protection and Cargill lost 80 percent of its customers. The industry’s leading LFTB manufacturer, Beef Products, Inc., shuttered 75 percent of its processing plants and laid off 650 workers. McDonald’s and other fast-feeders, supermarkets, and institutional buyers such as schools and hospitals discontinued using beef products containing LFTB, even though the safe and inexpensive product has been around for many years. 1. Was the uproar over LFTB warranted, given the fact that it is a product deemed safe for consumption by the U.S. Food and Drug Administration? Research other types of products that are included in consumer products that could face a similar fate if consumers were aware of them. (AACSB: Communication; Reflective Thinking; Ethical Reasoning) Answer: Students’ responses will vary. Some students might argue that it is warranted given the fact that an expert in the industry came up with the negative name ―pink slime.‖ However, the other side of the argument is that there are probably worse ingredients in the food supply and that this product was treated unfairly. An example of another product that could be considered repulsive by consumers is Premarin which is a drug made from the urine of pregnant mares. Other repulsive food additives can be found at www.buzzfeed.com/daves4/10-everyday-foods-with-disgusting-ingredients and http://webecoist.momtastic.com/2009/05/08/10-weird-and-gross-ingredients-in-processedfood/.

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2. Explain the type of buying situation faced by the companies that dropped the use of LFTB. Describe the buying decision process they likely went through to find a replacement product. (AACSB: Communication; Reflective Thinking) Answer: There are three major types of buying situations. At one extreme is the straight rebuy, which is a fairly routine decision. At the other extreme is the new task, which may call for thorough research. In the middle is the modified rebuy, which requires some research. In a straight rebuy, the buyer reorders something without any modification. It is usually handled on a routine basis by the purchasing department. A company buying a product or service for the first time faces a new-task situation. In such cases, the greater the cost or risk, the larger the number of decision participants and the greater their efforts to collect information will be. The buyer makes the fewest decisions in the straight rebuy and the most in the new-task decision. In the new-task situation, the buyer must decide on product specifications, suppliers, price limits, payment terms, order quantities, delivery times, and service terms. In this situation, customers, such as grocery stores, restaurants, and institution food service providers need to find a new supplier of ground beef products, so it is not an entirely new task buying situation and is best described as a modified rebuy decision. The business buying process consists of eight stages:  Problem recognition: recognition of a problem or need that can be met by acquiring a specific product or service.  General need description: describes the characteristics and quantity of the needed item.  Product specification: decide on the best product characteristics and specifies them accordingly.  Supplier search: search to find the best vendors.  Proposal solicitation: buyer invites qualified suppliers to submit proposals.  Supplier selection: review the proposals and select a supplier or suppliers.  Order-routine specification: the final order with the chosen supplier or suppliers and lists items such as technical specifications, quantity needed, expected time of delivery, return policies, and warranties.  Performance review: buyer may contact users and ask them to rate their satisfaction. This review may lead the buyer to continue, modify, or drop the arrangement. Most buyers will have already gone through these stages and now just need to find an alternative product that does not include the ―pink slime‖ filler. However, a search for new vendors is likely. Marketing by the Numbers: fMRI Market Potential Functional magnetic resonance imaging technology (fMRI) is making its way into the marketing research field, opening up a new market for this high-tech medical equipment. Using functional MRI technology, or fMRI, marketing researchers can literally see a brain in action when consumers view an advertisement or sample a product. A study in 2004 revealed that different Copyright© 2014 Pearson Education

parts of consumers’ brains were activated when sampling a product with or without knowing the brand. When consumers tasted a soft drink without knowing the brand, their brains showed activity related to taste and they preferred Brand A. However, when subjects were shown the brands, a different area of the brain was activated and more consumers preferred Brand B, suggesting that advertising and marketing can activate different areas of consumers’ brains and cause them to prefer specific brands. Several large marketing research firms such as Nielsen now offer neuroscience marketing research services. 1. Research the marketing research industry to identify research companies that would be in the target market for fMRI equipment. How many companies make up this market? (AACSB: Communication; Reflective Reasoning) Answer: Students’ answers will vary depending on how they define the target market. Some will find information on the entire marketing research industry, while others will define the market as comprised of just neuromarketing companies. For example, see www.neurosciencemarketing.com/blog/companies for a list of 23 neuromarketing companies. However, another source lists several more (see http://neurorelays.wordpress.com/2012/05/08/neuromarketing-companies-worldwide/). Another source of marketing research companies is The Green Book (see www.greenbook.org/), which lists thousands of marketing research companies. 2. Refer to Appendix 2, Marketing by the Numbers, and use the chain-ratio method to estimate the market potential for fMRI machines among marketing research firms. What factors would you consider when determining the potential number of buyers (that is, research firms) that are willing and able to purchase fMRI machines? Assume a firm purchases one machine at an average price of $1 million in your market potential estimation. (AACSB: Communication; Analytical Reasoning) Answer: Market potential estimation is based on the number of buyers, the quantity purchased per buyer, and the average price for the product (Market potential = B x Q x P). Because students are given the quantity purchased per buyer (1 per buyer) and the average price ($1 million per fMRI machine), the only variance among students’ estimates will be based on the number of buyers identified in the potential market. For example, using the 23 neuromarketing companies from one of the sources identified above gives a market potential estimation of $23 million (Market potential = 23 companies x 1 machine per company x $1 million per machine = $23 million). However, the market potential may be higher than that because this estimate only considers neuromarketing companies. The number of potential buyers could be much larger if one considers companies in the entire marketing research industry as the target market. However, it’s likely that only the larger companies will have the resources needed expand into neuromarketing, so the total number should be reduced based on a variable such as company revenues. The key point is that the market potential Copyright© 2014 Pearson Education

calculation is an estimate and that judgment is necessary to make reasonable assumptions when identifying the elements of the equation.

Company Case Notes Cisco Systems: Solving Business Problems Through Collaboration Synopsis Cisco sells stuff to end-user consumers like you and me. It makes Linksys wireless routers that are in so many homes. It also makes the trendy Flip video cameras. However, most of what Cisco sells is never seen by regular folks. Cisco is a tried and true business-to-business company. This case brings out the type of product that Cisco sells to businesses. But more importantly, it highlights the fact that Cisco transitioned from a manufacturer of hard goods to a leadership consultancy. The driving force behind Cisco’s own organizational behavior as well as its customer relationships is collaboration. Cisco has a culture that fosters, recognizes, and rewards collaboration within and without. Cisco collaborates with customers in order to help those clients better collaborate with their employees, suppliers, partners, and customers. This culture and execution of collaboration breaks down communication barriers. It has moved Cisco into the business of teaching other businesses to do what it has mastered. This has also helped Cisco to become a service provider in addition to the hardware products that it sells. Result, Cisco is emerging for a major global recession stronger and more flexible than it was before. With innovative new products and services, growing revenues, cash on hand, and competency in the bursting collaboration market, Cisco is a leader that many are turning to.

Teaching Objectives The teaching objectives for this case are to: 1. Allow students to understand and appreciate the differences between consumer and business markets. 2. Identify real-world examples for the different buying situations. 3. Help students understand the differences between consumer and business buyer behavior. 4. Provide an opportunity for students to analyze product features and benefits that result for commercial customers.

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Discussion Questions 1. Discuss the nature of the market structure and demand for Cisco’s products. Information from page 169 provides the foundation for discussing this question. The implications for any and all of these points may be discussed. Suggestions for the points that are most relevant to this case are given below.

Implications for Cisco

Implications for clients

Business markets contain few but larger buyers.

There is a great deal of pressure on Cisco to maintain strong customer relationships and deliver on promises.

Clients should understand how important they are to Cisco and take advantage of the sales force attention.

Business buyer demand is derived from final customer.

It is essential that Cisco understand the needs, wants, and desires of the end user, not just the corporation. Also, Cisco must keep an eye on sales trends in collaboration market.

It is essential that the client understand its own customer in order to communicate customer requirements to Cisco.

Demand is more inelastic.

Coming up with the exact “right price” may not be as important as providing the right features and benefits to customers.

The client must accurate forecast the number of units that it needs. It should also maintain strong procurement resources in order to ensure that benefits are delivered as promised.

Demand fluctuates more and more quickly.

Cisco needs to maintain flexibility in order to adjust to downturns and spikes in demand.

Clients need to consider means of spreading demand out in order to create a more level structure in terms of its own costs.

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2. Given the industries in which Cisco competes, what are the implications for the major types of buying situations? Straight rebuys – Because Cisco deals in high-tech, there may be few truly straight rebuys. This is due to the fact that as purchase cycles come up, technology has changed. As a result, corporate buyers are looking a slightly different to extremely different products to replace the ones that they have. Straight rebuys are likely to occur when a company buys a set of routers or switches that shortly after purchasing the same items. This may be due to a gradual rollout replacement or an expansion. Modified rebuy – Many of Cisco’s products will fall in to this situation. Clients replace existing routers and switches with new spec models. Cisco’s services may also fall in to this classification if this is something that a client has previously purchased. New-task – Many of Cisco’s products and most of its services fall in to this classification. For example, when Gale International, the construction company for New Songdo City, contracted Cisco to supply the technology needs for the city, this was an all-new venture. From the architecture to the hardware to the services, these represented new-tasks. Many companies getting in to collaboration consulting services are doing so for the first time in a similar manner.

3. What specific customer benefits likely result from the Cisco products mentioned in the case?    

Routers and switches – keeps data flowing efficiently. Cybersecurity devices – protects proprietary information from being hacked or stolen. Videoconferencing tools – allows employees to interact across distances without incurring the expense and time required to travel. Collaboration services – helps clients better collaborate with employees, suppliers, partners, and customers. Some resulting benefits are reduced time in bringing products and services to market, reduced expenses, and strong customer relationships.

4. Discuss the customer buying process for one of Cisco’s products. Discuss the selling process. In what ways do these processes differ from those found in buying and selling a broadband router for home use? Based on points discussed in questions 1 and 2, it should already be apparent that Cisco buying situations are much more complex than consumer buying processes. Therefore, it is important that students recognize that customers involved will go through a very extensive buying process. Not only are there more steps involved in the business buying process than there are in the consumer buying process, but for a complex modified rebuy,

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the customer is certainly going to go through each of these steps from a very analytical perspective. 5. Is the relationship between Cisco’s own collaborative culture and the products and services it sells something that could work for all companies? Consider this issue for a consumer products company like P&G. Corporate culture is not something that can simply be plugged in. However, if management is open to it, most any company should be able to adopt some of Cisco’s best practices in order to achieve some of the benefits. For a consumer products company like P&G, adoption of Cisco’s collaborative tools and services should result in reduced communication barriers as described above. Similar to the benefits achieved by the scientist working on solar technology in the case, P&G should achieve benefits of accelerated new product development. This reduces costs and makes P&G more competitive by bringing new products to market before other companies.

Teaching Suggestions The case talks a lot about collaboration. But as a concept, students may have a hard time wrapping their heads around just what that means. Prior to the discussion of this case, have students conduct some research on what the ―collaboration industry‖ is. Who are the competitors? What are they selling? What are the trends? Have them report on this prior to discussing the case. This case goes well with the product chapters (Chapters 8 and 9) as well as with Chapters 1 and 2.

ADDITIONAL PROJECTS, ASSIGNMENTS, AND EXAMPLES Projects 1. Identify a product that is bought and sold in a business-to-business context. Identify individuals within the buying organization who fulfill the different roles of the buying center. Identify as many for each role as possible, doing research where necessary. Point out how some individuals might play more than one role. Is there a relationship between some of the roles? Is that relationship always present? (Objective 2) 2. Interview a purchasing agent from a company with regard to the major types of buying situations. Have him or her identify at least one example for each of the three major types. What are the main differences for them in these types of buys? (Objective 2)

Small Group Assignments 1. Form students into groups of three to five. Each group should read the Real Marketing 6.1: International Marketing Manners. Then, answer the following questions and share their answers with the class (Objective 3). Copyright© 2014 Pearson Education

a. What can be done to keep us all from becoming ―ugly Americans‖? b. What does the saying ―When in Rome, Do As the Romans Do‖ mean to American businesses? Provide an example or two. c. Go online and further research business customs for any of the countries mentioned in Real Marketing 6.1. What else did you discover about their practices that Americans should know? 2. Form students into groups of three to five. Each group should read Real Marketing 6.2: B-to-B Social Marketing: The Space to Engage Business Customers. Then, answer the following questions and share their answers with the class. (Objective 3) a. Try to imagine the profile of the typical business buyer. How might that person differ from the social media users you know at your college or university? How could these differences affect the content and messaging you create on social media sites designed for business customers? b. Does it surprise you that the business community has embraced social media on such a large scale? Why or why not? c. Discuss a few the marketing tasks for which social media is particularly well suited to serve the business market.

Individual Assignments 1. Read Real Marketing 6.1: International Marketing Manners, and then answer the following questions (Objective 3). a. What is the ―ugly American‖? b. How has American business gotten to the point where we believe everything should be ―American‖ when we travel? What does this say about us as a society? c. Find a classmate from another country and speak with him or her about their country’s customs. Which ones translate to business settings? What else did you learn from this exercise? 2. Read Real Marketing 6.2: B-to-B Social Marketing: The Space to Engage Business Customers. Then, answer the following questions. (Objective 3) a. When customers choose Makino Machine Tools, what are they purchasing beyond an actual piece of equipment? What does it mean to be an ―industry thought leader?‖ b. Analyze the quote, ―We are selling business-to-people.‖ What does it mean for anyone engaged in B-to-B marketing? c. Do you believe that digital and social marketing are passing B-to-B fads, or are they here to stay? Explain your answer.

Think-Pair-Share Consider the following questions, formulate an answer, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor. 1. What are the primary differences between the consumer market and the business market? (Objective 1) Copyright© 2014 Pearson Education

2. What are the roles in the business purchase decision process? Can these same roles be applied in the consumer decision process? Give a detailed example. (Objective 2) 3. What are the advantages to business buying on the Internet? (Objective 3) 4. How might a government buyer differ from a non-government institutional buyer? (Objective 4) Outside Examples 1. Intel microprocessors power just about all of the personal computers on the planet. Take a look at Intel’s homepage and go to the section pertaining to the company (www.intel.com/intel/company/index.htm?iid=about_intel+cr_faq). See what you can find that gives you an idea of the scope of their market. Remember, business marketers sell products to others for inclusion in that company’s product. If you were a company wanting to use Intel chips in your products, how would you go about it? (Objective 1) Possible Solution: A review of this Web site provides a substantial amount of information regarding Intel’s clients. Specifically, students will find that Intel does not sell to resellers directly. Intel has made a practice of selling only to a limited number of distributors. Any company wishing to use Intel microprocessors is encouraged to contact and work through the authorized distributor. 2. Walmart goes to great lengths to develop suppliers. Imagine you are a small manufacturer of a new product and you want to sell to Walmart. How would you accomplish this feat? (Go to http://walmartstores.com/Suppliers/ for information to assist your work.) (Objective 1) Possible Solution: This Web site gives potential suppliers everything they need to know to submit a successful proposal to Walmart. Given that the students are to imagine themselves as a small manufacturer, they will most likely make the decision to try and become a ―local supplier.‖ (Information regarding this is supplied at: http://walmartstores.com/Suppliers/257.aspx). It is important for students to gain an understanding of the complexity involved in business marketing. Additionally, it is just as important for them to realize that even a small company has the potential to compete for business with a major national organization.

Web Resources 1. http://247.prenhall.com This is the link to the Prentice Hall support link. 2. http://www.ge.com/railservices/products/locomotive.html

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From the GE Capital Rail Services homepage, you can explore how they partner with their customers. 3. www.ikea.com If you are not familiar with the type of products IKEA has to offer, take a look at their Web site. 4. www.peterbilt.com Take a look at how Peterbilt uses emotion in its ads to reach potential buyers. 5. www.fbo.gov This is the Federal Business Opportunities Web site. 6. http://business.usa.gov/ Go here to learn how small businesses can find, bid, and win government contracts.

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