978-0134292663 Chapter 6 Lecture Notes Part 2

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Chapter 6: Understanding Consumer and Business Markets

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3.2 Social Influences on

Consumers’ Decisions

Families, friends, and classmates

often influence our decisions, as do

larger groups with which we identify,

such as ethnic groups and political

parties.

3.2.1 Culture

Culture is society’s personality. It is

values, beliefs, customs, and tastes,

produced or practiced by a group of

people. A consumer’s culture

influences his buying decisions.

3.2.2 Values (Again)

Cultural values are deeply held

beliefs about right and wrong ways to

live. Marketers who understand a

culture’s values can tailor their

product offerings accordingly.

Activity: What are the core values of

your culture? How do these core

values affect your behavior as a

consumer? What are the implications

for marketers?

3.2.3 Subcultures

A subculture is a group that coexists

with other groups in a larger culture

but whose members share a

distinctive set of beliefs or

characteristics—such as members of

a religious organization or an ethnic

group. Micro cultures are groups of

consumers who identify with a

specific activity or art form.

For marketers, some of the most

important subcultures are racial and

ethnic groups because many

consumers identify strongly with their

heritage and products that appeal to

this aspect of their identities appeal to

them.

Chapter 6: Understanding Consumer and Business Markets

3.2.4 Conscientious Consumerism:

An Emerging Lifestyle Trend

Powerful new social movements

within a society also contribute to

how we decide what we want and

what we don’t. One such influence is

consumerism, the social movement

directed toward protecting consumers

from harmful business practices.

Many consumers are becoming very

aware of the social and environmental

consequences of their purchases—and

making their decisions accordingly

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3.2.5 Social Class

Social class is the overall rank of

people in a society. People who are

within the same class work in similar

occupations, have similar income

levels, and usually share taste in

clothing, decorating styles, and

leisure activities. Class members also

share many political and religious

beliefs as well as preferences for

AIOs. Luxury goods often serve as

status symbols; visible markers that

provide a way for people to flaunt

their membership in higher social

classes (or at least to make others

believe they are members).

Mass-class term refers to the hundreds

of millions of global consumers who

now enjoy a level of purchasing

power that’s sufficient to let them

afford high-quality products offered

by well-known multinational

companies.

3.2.6 Group Membership

People act differently in groups than

they do on their own. With more

people in a group, it becomes less

likely that any one member will be

singled out for attention, and normal

restraints on behavior may be

reduced. In many cases, group

members show a greater willingness

Exhibit: Star Wars

Chapter 6: Understanding Consumer and Business Markets

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to consider riskier alternatives than

they would if each member made the

decision alone.

A reference group is a set of people a

consumer wants to please or imitate.

Consumers “refer to” these groups

when they decide what to wear,

where they hang out, and what brands

they buy.

3.2.7 Opinion Leaders

An opinion leader is a person who

influences others’ attitudes or

behaviors because they believe that

he possesses expertise about the

product. Opinion leaders usually

exhibit high levels of interest in the

product category. They continuously

update their knowledge as they read

blogs, talk to salespeople, or

subscribe to podcasts about the topic.

Because of this involvement, opinion

leaders are valuable information

sources.

3.2.8 Gender Roles

Some of the strongest pressures to

conform come from our gender roles,

society’s expectations regarding the

appropriate attitudes, behaviors, and

appearance for men and women.

These assumptions about the proper

roles of men and women, flattering or

not, are deeply ingrained in marketing

communications.

Men’s sex roles are changing too. For

one, men are concerned as never

before with their appearance. In fact,

appearance ranks as their

second-biggest worry (topped only by

money worries and weighing on them

more than worries about their family

and their health).

Exhibit: Roles for men and women

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4. BUSINESS MARKETS:

BUYING AND SELLING WHEN

THE CUSTOMER IS ANOTHER

ORGANIZATION

Business-to-business marketing is

the marketing of goods and services

that businesses and other

organizations buy for purposes other

than personal consumption. These

business-to-business markets or

organizational markets include

manufacturers, wholesalers, retailers,

and a variety of other organizations,

such as hospitals, universities, and

government agencies.

4.1 Types of Business-to-Business

Customers

Figure 6.6 looks at the three major

classes of B2B customers (producers,

resellers, and organizations).

4.1.1 Producers

Producers purchase products for the

production of other goods and

services that they in turn sell to make

a profit. They are customers for a vast

number of products from raw

materials to goods manufactured by

still other producers.

4.1.2 Resellers

Resellers buy finished goods for

reselling, renting, or leasing to

consumers and other businesses.

Although resellers do not actually

produce goods, they do provide their

customers with time, place, and

possession utility by making the

goods available to consumers when

and where they want them.

4.1.3 Government and

Not-for-Profit Organizations

Governments and not-for-profit

institutions are two other types of

organizations in the business

marketplace. Government markets

Figure 6.6

Snapshot:

The Business

Marketplace

Table 6.1: The North American

Industry Classification System: A Sample

Figure 6.7 Snapshot: Key Differences in Business

versus Consumer Markets

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make up the largest single business

and organizational market in the

United States.

Not-for-profit institutions are

organizations with educational,

community, and other public service

goals, such as hospitals, churches,

universities, museums, and charitable

and cause–related organizations such

as the Salvation Army and the Red

Cross.

4.1.4 The North American

Industry Classification System

Marketers can identify their

customers using the North American

Industry Classification System

(NAICS). This is a numerical coding

of industries developed by the United

States, Canada, and Mexico. The

NAICS reports the number of firms,

the total dollar amount of sales, the

number of employees, and the growth

rate for industries, all broken down by

geographic region. Firms may also

use the NAICS to find new

customers.

4.2 Factors That Make a Difference

in Business Markets

In theory, the same basic marketing

principles hold in both consumer and

business markets—firms identify

customer needs and develop a

marketing mix to satisfy those needs.

However, there are differences that

make business-to-business marketing

more complex. Some of the

differences are described next.

4.2.1 Multiple Buyers

In business markets, products often

have to do more than satisfy an

individual’s needs. They must meet

the requirements of everyone

Table 6.2:

Differences between Organizational and

Consumer Markets

Chapter 6: Understanding Consumer and Business Markets

involved in the company’s purchase

decision.

4.2.2 Number of Customers

Organizational customers are rare

compared to end consumers. In the

United States, there are about 100

million consumer households but less

than half a million businesses and

other organizations.

4.2.3 Size of Purchases

Business-to-business products can

dwarf consumer purchases both in the

quantity of items ordered and in the

price of individual purchases.

Recognizing such differences in the

size of purchases allows marketers to

develop effective marketing

strategies.

4.2.4 Geographic Concentration

Many business customers are located

in a small geographic area rather than

being spread out across the country.

Discussion: How do

business-to-business markets differ

from consumer markets? How do

these differences affect marketing

strategies?

Activity: Pick a product. Put the size

and complexity of the business

market into perspective by tracing

back all of the elements that had to

come together to make the product.

The text gives a good example of the

manufacture of jeans.

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4.3 B2B Demand

Demand in business markets differs

from consumer demand. Most

demand for B2B products is derived,

inelastic, fluctuating, and joint.

4.3.1 Derived Demand

Figure 6.8

Process: Derived Demand

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Business customers do not purchase

goods and services to satisfy their

own needs. Businesses instead

operate on derived demand, because a

business’s demand for goods and

services comes either directly or

indirectly from consumers’ demand

for what it produces. Because of

derived demand, the success of one

company may depend on another

company in a different industry. The

derived nature of business demand

means that marketers must constantly

be alert to changes in consumer trends

that ultimately will have an effect on

B2B sales.

4.3.2 Inelastic Demand

Inelastic demand means that it

usually does not matter if the price of

a business-to-business product goes

up or down—business customers still

buy the same quantity. Demand in

business-to-business markets is

mostly inelastic because what is being

sold is often just one of the many

parts or materials that go into

producing the consumer product. It is

not uncommon for a large increase in

a business product’s price to have

little effect on the final consumer

product’s price.

Business-to-business demand is not

always inelastic. Sometimes

producing a consumer good or service

relies on only one or a few materials

or component parts. If the price of the

part increases, demand may become

elastic if the manufacturer of the

consumer good passes the increase on

to the consumer.

4.3.3 Fluctuating Demand

Business demand also is subject to

greater fluctuations than is consumer

Chapter 6: Understanding Consumer and Business Markets

demand. There are two reasons for

this:

First, even modest changes

in consumer demand can

create large increases or

decreases in business

demand.

A product’s life

expectancy—some

machinery needs to be

replaced every 10 or 20

years and marketers have

to work hard to even out

production.

4.3.4 Joint Demand

Joint demand occurs when two or

more goods are necessary to create a

product.

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5. BUSINESS BUYING

SITUATIONS AND THE

BUSINESS BUYING DECISION

PROCESS

5.1 The Buyclass Framework

Like end user consumers, business

buyers spend more time and effort on

some purchases than on others. This

usually depends on the complexity of

the product and how often they need

to make the decision. A buyclass

framework identifies the degree of

effort required of the firm’s personnel

to collect information and make a

purchase decision. These classes,

which apply to three different buying

situations, are straight rebuys,

modified rebuys, and new-task buys.

5.1.1 Straight Rebuy

A straight rebuy refers to the routine

purchase of items that a B2B

customer regularly needs. The buyer

has purchased the same items many

times before and routinely reorders

them when supplies are low, often

Figure 6.9 Elements of the Buyclass Framework

Chapter 6: Understanding Consumer and Business Markets

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from the same suppliers. Reordering

the items takes little time.

5.1.2 Modified Rebuy

A modied rebuy occurs when a firm

decides to shop around for suppliers

with better prices, quality, or delivery

times. This situation also can occur

when the organization confronts new

needs for products it already buys.

Modified rebuys require more time

and effort than straight rebuys. The

buyer generally knows the purchase

requirements and she has a few

potential suppliers in mind.

5.1.3 New-Task Buy

A first-time purchase is a new-task

buy. Uncertainty and risk characterize

buying decisions in this classification,

and they require the most effort

because the buyer has no previous

experience on which to base a

decision.

A prospective customer’s new-task

buying situation represents both a

challenge and an opportunity.

Although a new-task buy can be

significant in and of itself, many

times the chosen supplier gains the

added advantage of becoming an “in”

supplier for more routine purchases

that will follow.

►Marketing Moment In-Class

Activity

Ask students to compare the various

B2B buying tasks with consumer

decision processes. What similarities

do they see? How might this affect

the sales process differ with each type

of purchase process? (Straight

Rebuy=Habitual; Modified

Rebuy=Limited; New-task

Chapter 6: Understanding Consumer and Business Markets

buy=Extended Decision Process)

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5.2 Professional Buyers and

Buying Centers

Trained professional buyers typically

carry out buying in

business-to-business markets. These

people typically have titles such as

purchasing agents, procurement

officer, or directors of materials

management. Professional purchasers

shop all day, every day. They are

responsible for selecting quality

products and ensuring their timely

delivery.

The buying center is the group of

people in the organization who

participate in the decision-making

process. Although this term may

conjure up an image of “command

central” buzzing with purchasing

activity, a buying center is not a place

at all. Instead, it is a cross-functional

team of decision makers. Generally,

the members of a buying center have

some expertise or interest in the

particular decision, and as a group,

they are able to make the best

decision. Depending on the

complexity of the purchase and the

size of the buying center a participant

may assume one, several, or all of the

following roles:

Initiator: begins the

buying process by first

recognizing that the firm

needs to make a purchase.

User: a member of the

buying center who

actually needs the product.

Gatekeeper: the person

who controls the flow of

Table 6.3

Roles in the Buying Center

Figure 6.10

Process: Steps in the Business Buying Process

Chapter 6: Understanding Consumer and Business Markets

information to other

members.

Influencer: the person(s)

who affects the buying

decision by dispensing

advice or sharing

expertise.

Decider: the member of

the buying center who

makes the final decision.

Buyer: the person who has

responsibility for

executing the purchase.

5.3 The Business Buying

Decision Process

The following is a description of the

five steps involved in the business

buying decision process.

5.3.1 Step 1: Recognize the

Problem

The first step occurs when someone

sees that a purchase can solve a

problem. Two events may occur in the

problem recognition step. First, a

request or requisition, usually written,

is made. Then, depending on the

complexity of the purchase, a buying

center may be formed.

►Marketing Moment Activity

Have students identify and think about family decisions

in which all members of the family participated (New

home? Relocation? Family pet? Family vacation?).

How do the corporate roles compare to the roles

individual family members play? In their family, who

tends to play which roles? (i.e., Dad maintains the cars;

Mom ‘screens’ phone calls, etc.)

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5.3.2 Step 2: Search for

Information

The buying center searches for

information about products and

suppliers in this second step.

Members of the buying center may

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individually or collectively refer to

reports in trade magazines and

journals, seek advice from outside

consultants, and pay close attention to

marketing communications from

different manufacturers and suppliers.

The job of marketers is to make sure

the information is available when and

where business customers want it.

Business buyers often develop

product specications, that is, a

written description of the quality,

size, weight, color, features, quantity,

training, warranty, service terms, and

delivery requirements for the

purchase. Once the product

specifications are in hand, the next

step is to identify potential suppliers

and obtain written or verbal

proposals, or bids, from one or more

of them.

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5.3.3 Step 3: Evaluate the

Alternatives

The buying center assesses the

proposals in this stage of the buying

decision process. Total spending for

goods and services can have a major

impact on the firm’s profitability. All

things being equal, price is the

primary consideration. Pricing

evaluations must take into account

discount policies for certain

quantities, return-goods policies, the

cost of repair and maintenance

services, terms of payment, and the

cost of financing large purchases. For

capital equipment, cost criteria also

include the life expectancy of the

purchase, the expected resale value,

and disposal cost for the old

equipment.

Although a bidder is often selected

because it offers the lowest price,

Chapter 6: Understanding Consumer and Business Markets

there are times when the buying

decision is based on other factors.

The more complex and costly the

purchase, the more time buyers spend

searching for the best supplier—and

the more marketers must do to win

the order. In some cases, a company

may even ask one or more of its

current customers to participate in a

customer reference program. In these

situations, customers formally share

success stories and actively

recommend products to other

potential clients, often as part of an

online community composed of

people with similar needs.

Marketers often make formal

presentations and product

demonstrations to the buying center

group.

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5.3.4 Step 4: Select the Product

and Supplier

The next step in the buying process is

the purchase decision—the selection

of the best product and supplier to

meet the firm’s needs. Reliability and

durability rank especially high for

equipment and systems that keep the

firm’s operations running smoothly

without interruption. For some

purchases, warranties, repair service,

and regular maintenance after the sale

are important.

One of the most important decisions

for a buyer is how many suppliers can

best serve the firm’s needs.

Sometimes one supplier is more

beneficial to the organization than

multiple suppliers are. Single

sourcing, in which a buyer and seller

work quite closely, is particularly

important when a firm needs frequent

deliveries or specialized products.

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Multiple sourcing means buying a

product from several different

suppliers. Under this system,

suppliers are more likely to remain

price competitive.

Sometimes supplier selection is based

on reciprocity, which means that a

buyer and seller agree to be each

other’s customers by saying

essentially, “I’ll buy from you, and

you buy from me.” The U.S.

government frowns on these types of

agreements and often determines that

the agreements are illegal, limiting

free competition.

Outsourcing, also known as

offshoring, occurs when firms obtain

outside vendors to provide goods or

services that might otherwise be

supplied in-house.

Reverse marketing occurs when

buyers try to find suppliers that can

produce specifically needed products

and then attempt to “sell” the idea to

the suppliers. The seller aims to

satisfy the buying firm’s needs.

Discussion: The practice of buying

business products based on sealed

competitive bids is popular among all

types of business buyers. What are

the advantages and disadvantages of

this practice to buyers? What are the

advantages and disadvantages to

sellers? Should companies always

give the business to the lowest

bidder? Why or why not?

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5.3.5 Step 5: Evaluate

Postpurchase

An organizational buyer assesses

whether the performance of the

Chapter 6: Understanding Consumer and Business Markets

product and the supplier is living up

to expectations. The buyer surveys

the users to determine their

satisfaction with the product as well

as with the installation, delivery, and

service provided by the supplier.

Activity: List the five steps of the

business buying decision process.

Explain the activities that occur in

each. Pick a product. Explain what

might happen as the business buyer

moves through this process.

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5.4 B2B E-Commerce and Social

Media

Business-to-business (B2B)

e-commerce refers to the Internet

exchanges between two or more

businesses or organizations. B2B

e-commerce includes exchanges of

information, goods, services, and

payments.

Using the Internet for e-commerce

allows business marketers to link

directly to suppliers, factories,

distributors, and their customers,

radically reducing the time necessary

for order and delivery of goods,

tracking sales, and getting feedback

from customers.

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5.4.1 Intranets and Extranets

Many companies maintain intranets,

which provide more secure means of

conducting business. An intranet is an

internal corporate computer network

that uses Internet technology to link

company departments, employees,

and databases. Intranets give access

only to authorized employees.

When a company allows certain

suppliers, customers, and others

outside the organization to access its

intranet, the system is known as an

Chapter 6: Understanding Consumer and Business Markets

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extranet. A business customer who

has been authorized to use a

supplier’s extranet can place orders

online. Extranets can be especially

useful for companies that need to

have secure communications between

the company and its dealers,

distributors, and/or franchisees.

Intranets and extranets are very cost

efficient. They allow business

partners to collaborate on projects and

to build relationships.

5.4.2 The Dark Side of B2B

E-Commerce

There are several security issues that

impact B2B e-commerce. When

hackers break into company sites,

they can destroy company records

and steal trade secrets. Both B2C and

B2B e-commerce companies worry

about authentication and ensuring

that transactions are secure. This

means making sure that only

authorized individuals are allowed to

access a site and place an order.

Maintaining security also requires

firms to keep the information

transferred as part of a transaction,

such as a credit card number, from

criminals’ hard drives.

They can give out unauthorized

access to company computer systems

by being careless about keeping their

passwords into the system a secret.

Malware is software designed

specifically to damage or disrupt

computer systems.

A firewall is a combination of

hardware and software that ensures

that only authorized individuals gain

entry into a computer system. The

Chapter 6: Understanding Consumer and Business Markets

firewall monitors and controls all

traffic between the Internet and the

intranet to restrict access.

Encryption means scrambling a

message so that only another

individual (or computer) that has the

right “key” can unscramble it.

5.4.3 B2B and Social Media

Although most of us associate

business use of social media such as

Facebook, LinkedIn, and Twitter with

consumer marketing, B2B

organizations are increasing their use

of and their budgets for social media.

Social media sites:

identify target audiences.

identify with which potential

customers your competitors

interact.

monitor what customers say

about your product, firm, and

competitors.

provide platforms for

conversations, answers to

questions, and shared

experiences.

Real People, Real Choices: Here’s

My Choice…

Dondeena chose option #2.

Doondeena chose option 2.