6 Reviewing and Extending the Concepts

Objectives Review and Key Terms

Objectives Review

Business markets and consumer markets are alike in some key ways. For example, both include people in buying roles who make purchase decisions to satisfy needs. But business markets also differ in many ways from consumer markets. For one thing, the business market is huge, far larger than the consumer market. Within the United States alone, the business market includes organizations that annually purchase trillions of dollars’ worth of goods and services.

Objective 6-1 Define the business market and explain how business markets differ from consumer markets. (pp 164166)

The business market comprises all organizations that buy goods and services for use in the production of other products and services or for the purpose of reselling or renting them to others at a profit. As compared to consumer markets, business markets usually have fewer but larger buyers. Business demand is derived demand, which tends to be more inelastic and fluctuating than consumer demand. The business buying decision usually involves more, and more professional, buyers. Business buyers usually face more complex buying decisions, and the buying process tends to be more formalized. Finally, business buyers and sellers are often more dependent on each other.

Objective 6-2 Identify the major factors that influence business buyer behavior. (pp 166171)

Business buyers make decisions that vary with the three types of buying situations: straight rebuys, modified rebuys, and new tasks. The decision-making unit of a buying organization—the buying center—can consist of many different persons playing many different roles. The business marketer needs to know the following: Who are the major buying center participants? In what decisions do they exercise influence and to what degree? What evaluation criteria does each decision participant use? The business marketer also needs to understand the major environmental, organizational, interpersonal, and individual influences on the buying process.

Objective 6-3 List and define the steps in the business buying decision process. (pp 171173)

The business buying decision process itself can be quite involved, with eight basic stages: problem recognition, general need description, product specification, supplier search, proposal solicitation, supplier selection, order-routine specification, and performance review. Buyers who face a new task buying situation usually go through all stages of the buying process. Buyers making modified or straight rebuys may skip some of the stages. Companies must manage the overall customer relationship, which often includes many different buying decisions in various stages of the buying decision process.

Objective 6-4 Discuss how new information technologies and online, mobile, and social media have changed business-to-business marketing. (pp 173175)

Recent advances in information and digital technology have given birth to “e-procurement,” by which business buyers are purchasing all kinds of products and services online. The internet gives business buyers access to new suppliers, lowers purchasing costs, and hastens order processing and delivery. Business marketers also are increasingly connecting with customers online and through digital, mobile, and social media to engage customers, share marketing information, sell products and services, provide customer support services, and maintain ongoing ­customer relationships.

Objective 6-5 Compare the institutional and government markets and explain how institutional and government buyers make their buying decisions. (pp 175179)

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.

Key Terms

Objective 6-1

Objective 6-2

Objective 6-3

Objective 6-4

Objective 6-5

Discussion and Critical Thinking

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Discussion Questions

  1. A blue star icon. 6-1 Explain how the market structure and demand differ for business markets compared with consumer markets. (AACSB: Communication; Reflective Thinking)

  2. A blue star icon. 6-2 Describe the tools B-to-B marketers use to engage customers. What are the challenges with B-to-B social media marketing? (AACSB: Communication; Reflective Thinking)

  3. A blue star icon. 6-3 Briefly discuss the straight rebuy and modified rebuy strategies. What are the similarities and differences? When might it be beneficial to use one approach over the other? (AACSB: Communication, Reflective Thinking)

  4. 6-4 List the participants in the business buying process. What factors influence the buying decision? (AACSB: Communication; Reflective Thinking)

  5. 6-5 Compare the institutional and government markets and explain how institutional and government buyers make their buying decisions. (AACSB: Communication)

Critical Thinking Exercises

  1. 6-6 Business buying can be a very involved process. Many companies employ procurement or purchasing experts dedicated to managing the firm’s buying process. Visit www.glassdoor.com/salaries and www.indeed.com/salary to conduct a search of the salary ranges for “procurement specialists” and similar positions in purchasing. Present your findings. Can e-procurement help to streamline the buying process? Might it eventually replace employees in these careers? Discuss if it is possible for all buying functions to be performed through e-procurement. (AACSB: Communication, Reflective Thinking, Use of IT)

  2. 6-7 Interview a businessperson to learn how purchases are made in his or her organization. Ask this person to describe a straight rebuy, a modified rebuy, and a new-task buying situation that took place recently or of which he or she is aware (define them if necessary). Did the buying process differ based on the type of product or purchase situation? Ask the businessperson to explain the role he or she played in a recent purchase and to discuss the factors that influenced the decision. Write a brief report of your interview by applying the concepts you learned in this chapterregarding business buyer behavior. (AACSB: Communication; Reflective Thinking)

  3. 6-8 The U.S. government is the world’s largest purchaser of goods and services, spending more than $460 billion per year. By law, 23 percent of all government buying must be targeted to small firms. In a small group, visit the Small Business Administration’s Government Contracting Classroom at www.sba.gov/content/government-contracting-classroom to learn how small businesses can take advantage of government contracting opportunities. Complete one of the self-paced online courses and develop a brochure explaining the process to small business owners. (AACSB: Communication; Reflective Thinking; Use of IT)

Applications and Cases

Online, Mobile, and Social Media Marketing E-procurement and Mobile Procurement

Gone are the days of tedious, paper-laden, and labor-intensive procurement duties. E-procurement is changing the way buyers and sellers do business, specifically via mobile procurement that offers cloud-based platforms that reduce the search, order, and approval cycle. Most large companies have adopted some form of e-procurement. A recent study found that almost 70 percent of companies utilize some form of e-procurement, mobile procurement, or supply chain management applications. A leading industry platform, Coupa, provides a suite of cloud-based applications for finance, including accounts payable, sourcing, procurement, and expense management that allows customers full functionality from their mobile devices. Employees now enjoy the flexibility and time savings of viewing, approving, or denying requisitions, purchase orders, and invoices. One of Coupa’s large retail clients claimed a reduction from 10 days to 5 hours in their requisition-approval-process cycle by implementing Coupa’s mobile procurement platform. Talk about savings! Visit www​.coupa.com/software/procurement/to learn more about how this company is revolutionizing the e-procurement and mobile procurement environments.

  1. A blue star icon.  6-9 Discuss the advantages of e-procurement to both buyers and sellers. What are the disadvantages? (AACSB: Communication; Reflective Thinking)

  2. 6-10 Research mobile procurement and discuss the roles in the buying center that are affected most by this technology. (AACSB: Communication; Reflective Thinking)

Marketing Ethics What Are Our Kids Eating?

Many institutional markets are characterized by low budgets and captive patrons. One institutional food program that has gotten much recent attention is the National School Lunch Program. Although the federal government mandates that schools receiving federal money serve free lunches to children from low-income families, the funds don’t cover the entire cost of the meal. The difference comes out of school budgets and that means fewer dollars for the classroom.

According to one study (www.cnn.com/2010/HEALTH/09/29/school.food.investigation/), the number-one meal served to children in U.S. schools is chicken fingers and French fries. Processed food is much cheaper to serve than fresh produce. Another study published in the Journal of the American Dietetic Association found that 94 percent of school lunches failed to meet the U.S. Agriculture Department’s regulatory standards. Purchasing agents for school systems must search for institutional food vendors whose quality meets or exceeds a minimum standard while offering low prices.

The goal of the federal Healthy, Hunger-Free Kids Act of 2010 is to improve the overall nutritional quality of what students eat at school. The law, which is being implemented over a five-year period, affects several parts of school food. It changes what’s in vending machines and how much food students get, rules out fried food, and makes all milk low-fat or fat-free. But it’s also changing the way lunches are priced. These changes have dieticians and food service directors facing significant challenges.

  1. 6-11 Research what constitutes a healthy lunch in a public school system. Should food companies selling to school systems take responsibility for working with buyers to address this issue? Why or why not?

  2. 6-12 How can food marketers go about helping schools to meet the national guidelines for healthy school lunches? What are the benefits of doing so?

Marketing by the Numbers NAICS

The North American Industry Classification System (NAICS) code is very useful for marketers. It replaces the old product-based Standard Industrial Classification (SIC) system introduced in the 1930s. The NAICS system classifies businesses by production processes, better reflecting changes in the global economy, especially in the service and technology industries. It was developed jointly by the United States, Canada, and Mexico in 1997 in concert with the North American Free Trade Agreement (NAFTA), providing a common classification system for the three countries and better compatibility with the International Standard Industrial ­Classification (ISIC) system. This six-digit number (in some cases, seven or ten digits) is very useful for understanding business markets.

  1. 6-13 What do the six digits of the NAICS code represent? What industry is represented by the NAICS code 721110? How many businesses comprise this code? (AACSB: Communication)

  2. 6-14 How can marketers use NAICS codes to better deliver customer satisfaction and value? (AACSB: Communication; Reflective Thinking)

Video Case Eaton

With approximately 70,000 employees in more than 150 countries and annual revenues of nearly $12 billion, Eaton is one of the world’s largest suppliers of diversified industrial goods. Eaton has been known for products that make cars peppier and 18-wheelers safer to drive. But a recent restructuring has made Eaton a powerhouse in the growing field of power management. In short, Eaton is making electrical, hydraulic, and mechanical power systems more accessible to and more efficient for its global customers. But Eaton isn’t successful only because of the products and services that it sells. It is successful because it works closely with its business customers to help them solve their problems and create better products and services of their own. Eaton is known for high-quality, dependable customer service and product support. In this manner, Eaton builds strong relationships with its clients.

After viewing the video featuring Eaton, answer the following questions:

  1. 6-15 What is Eaton’s value proposition?

  2. 6-16 Who are Eaton’s customers? Describe Eaton’s customer relationships.

  3. 6-17 Discuss the different ways that Eaton provides value beyond that which customers can provide for themselves.

Company Case Procter & Gamble: Treating Business Customers as Strategic Partners

For decades, Procter & Gamble has been at the top of almost every expert’s A list of outstanding marketing companies. The experts point to P&G’s stable of top-selling consumer brands or to the fact that year in and year out P&G is the world’s largest advertiser. Consumers seem to agree. You’ll find at least one of P&G’s blockbuster brands in 99 percent of all American households; in many homes, you’ll find a dozen or more familiar P&G products. But P&G is also highly respected for something else—maintaining strategic partnerships with business buyers.

P&G recognizes that building enduring relationships between consumers and its category leading brands starts with building enduring relationships with its large retail clients. On the front lines of this effort is P&G’s iconic sales force. When it comes to selecting, training, and managing salespeople, P&G sets the gold standard. The company employs a massive sales force of more than 5,000 salespeople worldwide. But at P&G, it isn’t just “sales”—it’s “Customer Business Development” (CBD). This might seem trivial, but at P&G the distinction goes to the very core of the company’s customer relationship strategy.

Developing the Customer’s Business

P&G understands that if its business customers don’t do well, neither will the company. To grow its own business, therefore, P&G must first grow the business of the retailers that sell its brands to final consumers. In P&G’s own words, “CBD is more than mere ‘selling’—it’s a P&G-specific approach which enables us to grow our business by working as a ‘strategic partner’ (as opposed to just a supplier) with those who ultimately sell our products to consumers.” Says one CBD manager, “We depend on them as much as they depend on us.” By partnering with each other, P&G and its customers create “win-win” relationships that help both to prosper.

Most P&G customers are huge and complex businesses—such as Walmart, Walgreens, or Dollar General—with thousands of stores and billions of dollars in revenues. Working with and selling to such customers can be a very complex undertaking, more than any single salesperson or regular sales team could accomplish. Instead, P&G assigns a full CBD team to every large customer account. Each CBD team contains not only salespeople but also a full complement of specialists in every aspect of selling P&G’s consumer brands at the retail level.

Teams vary in size depending on the customer. For example, it takes a team of 350 P&G specialists to properly serve Walmart, far and away its biggest customer. By contrast, the P&G Dollar General team consists of about 30 people. Regardless of size, every team constitutes a complete, multifunctional customer service unit. Each team includes a manager and several account executives (each responsible for a specific P&G product category), supported by specialists in marketing strategy, product development, operations, information systems, logistics, finance, and human resources.

To deal effectively with large accounts, P&G salespeople must be smart, well trained, and strategically grounded. They deal daily with high-level retail category buyers who may purchase hundreds of millions of dollars’ worth of P&G and competing brands annually. It takes a lot more than a friendly smile and a firm handshake to interact with such buyers. Yet individual P&G salespeople can’t know everything. And because of the nature of P&G’s B-to-B interactions, they don’t have to. Instead, P&G salespeople have at hand all the resources they need to resolve even the most challenging customer problems. “I have everything I need right here,” says a household care account executive. “If my customer needs help from us with in-store promotions, I can go right down the hall and talk with someone on my team in marketing about doing some kind of promotional deal. It’s that simple.”

The multifunctional nature of the CBD team also means that collaboration extends far beyond internal interactions. Each time a team member contacts the customer, he or she represents the entire team. For example, if during a customer call an account executive receives a question about a promotional, logistical, or financial matter, the account executive acts as the liaison with the appropriate specialist. So, although not each CBD member has specialized knowledge in every area, the CBD team as a unit does.

Competitors have attempted to implement some aspects of P&G’s multifunctional approach. However, P&G pioneered the CBD structure. And it has built in some unique characteristics that have allowed it to leverage more power from its team structure than its rivals can, giving it real competitive advantage.

A Competitive Edge

One of the things that gives P&G an edge when it comes to maintaining deep relationships with its business customers is a CBD structure that is broader and more comprehensive, making it more multifunctional than similar team structures employed by other companies. But perhaps more important, P&G’s structure is designed to accomplish four key objectives. These objectives are so important that they are referred to internally as the “core work” of customer development. These four objectives are:

  • Align strategy: Create opportunities for both P&G and the ­customer to benefit by collaborating in strategy development.

  • Create demand: Build profitable sales volume for P&G and the customer through consumer value and shopper satisfaction.

  • Optimize supply: Maximize the efficiency of the supply chain from P&G to the point of purchase to optimize cost and ­responsiveness.

  • Enable the organization: Develop capabilities to maximize business results by creating the capacity for frequent ­breakthrough.

More than just corporate catchphrases jotted down in a P&G employee handbook, for sales personnel, these are words to live by. P&G trains sales staff in methods of achieving each objective and evaluates their effectiveness relative to each. In fact, P&G’s customer relationship strategy came about through the recognition that to develop true win-win relationships with each customer, P&G would need to accomplish the first objective. As one account executive puts it, “The true competitive advantage is achieved by taking a multi-functional approach from basic selling to strategic customer collaboration!” If the CBD team can effectively accomplish the first objective of aligning strategy and collaborating on strategic development, accomplishing the other three objectives will follow more easily.

Building such strategic partnerships creates shopper value and satisfaction and drives profitable sales at the store level. When it comes to profitably moving Tide, Pampers, Gillette, or other P&G brands off store shelves and into consumers’ shopping carts, P&G reps and their teams often know more than the retail buyers they advise. In fact, P&G’s retail partners often rely on CBD teams to help them manage not only the P&G brands on their shelves but also entire product categories, including competing brands.

Giving advice on the stocking and placement of competitors’ brands as well as its own might seem unwise. But believe it or not, it happens all the time at P&G. In fact, it isn’t uncommon for a P&G rep to tell a retail buyer to stock fewer P&G products and more of a competing brand. Although that may seem like retail suicide, keep in mind that a CBD team’s primary goal is to help the customer win in each product category. Sometimes, analysis shows that the best solution for the customer is “more of the other guy’s product.” For P&G, that’s OK. The company knows that creating the best situation for the retailer ultimately pulls in more customer traffic, which in turn will likely lead to increased sales for other P&G products in the same category. Because most of P&G’s brands are market-share leaders, it stands to benefit more from the increased traffic than competitors do. Again, what’s good for the customer is good for P&G—it’s a win-win situation.

Honest and open dealings also help to build long-term customer relationships. P&G salespeople become trusted advisors to their retailer-partners, a status they work hard to maintain. “It took me four years to build the trust I now have with my buyer,” says a veteran P&G account executive. “If I talk her into buying P&G products that she can’t sell or out-of-stocking competing brands that she should be selling, I could lose that trust in a heartbeat.”

At P&G, collaboration is usually a two-way street—P&G gives and customers give back in return. “We’ll help customers run a set of commercials or do some merchandising events, but there’s usually a return-on-investment,” explains another CBD manager. “Maybe it’s helping us with distribution of a new product or increasing space for fabric care. We’re very willing if the effort creates value for us as well as for the customer and the final consumer.”

It’s Better to Give…Then to Receive

As a result of collaborating with customers, P&G receives as much or more than it gives.

For starters, P&G receives information that helps it to remain innovative and create better products. The collaborative nature of its customer relationships also allows for optimizing the product mix, which also optimizes revenue. And the kind of transparency that results from strategic partnerships enables P&G to remain efficient and keep costs low. Indeed, during the first decade of this millennium, P&G was flying high as revenues, profits, and stock price all maintained healthy growth.

But P&G’s strong performance flattened out as its vast portfolio of brands began showing a major weakness. Despite holding top positions in many product categories, many of P&G’s brands were small, poor performers, or both. This limited the growth and profitability of its stronger brands. So P&G undertook a major restructuring of its product portfolio. Over the past few years, P&G has sold off about 100 brands (including Duracell, Aleve, Noxema, Iams, Clairol, Wella, and Covergirl) in order to focus on the 65 strongest-performing brands (such as Crest, Bounty, Tide, Gillette, and Dawn, to name just a few). Although it may sound like P&G dumped a big chunk of the company, the 65 remaining brands have long been responsible for about 90 percent of total revenues and 95 percent of profits.

The now-leaner brand portfolio is also a much better fit with P&G’s approach to strategic customer partnerships. Of the 65 remaining brands, 18 bring in more than $1 billion a year each, whereas another 17 account for at least $500 million annually. Last year, P&G sold more than $10 billion worth of diaper products under the Pampers brand alone. Eliminating the weaker brands not only relieves P&G of a heavy financial burden, but the stronger portfolio also enables P&G to better meet the needs of its customers. The company expects that there will be far fewer occasions where the best solution for the customer will be to recommend a competing brand.

P&G’s approach to maintaining customer relationships is much, much more than “selling.” “It’s a P&G-specific approach [that lets us] grow business by working as a ‘strategic partner’ with our accounts, focusing on mutually beneficial business-building opportunities,” states the CBD website. “All customers want to improve their businesses; it’s [our] role to help them identify the biggest opportunities.” At P&G, building and maintaining enduring customer relationships involves working with customers to solve their problems for mutual gain. The company knows that if customers succeed, it succeeds.

Questions for Discussion

  1. 6-18 Compare and contrast the nature of the business market structure and demand relative to consumer market structure and demand for a specific P&G product.

  2. 6-19 For the same product, discuss the differences in the types of decisions and the decision process for business and consumer markets.

  3. 6-20 This case covers the various members of a P&G Customer Business Development team. For a P&G corporate client, illustrate how the different roles of the buying center might interact with that CBD team. Be specific.

  4. 6-21 Discuss some ways that P&G’s CBD structure is more effective than a single sales rep.

  5. 6-22 Why have P&G’s competitors not been able to duplicate its customer relationship strategy?

  6. 6-23 Will P&G’s divestment of 100 brands pay off? Why or why not?

Sources: Based on information from numerous P&G managers, with additional information from Demitrios Kalogeropoulos, “The Procter & Gamble Company’s Best Product in 2015,” Motley Fool, December 27, 2015, www.fool.com/investing/general/2015/12/27/the-procter-gamble​-companys-best-product-in-2015.aspx; Penny Morgan, “Why Procter & Gamble Is Selling Some of Its Brands,” Market Realist, March 8, 2016, www.marketrealist.com/2016/03/pgs-sale-brands-johnson-johnson​-kimberly-clark/; Phil Whaba, “Procter & Gamble Selling Beauty Brands Like Clairol,” Fortune, July 9, 2015, www.fortune.com/2015/07/09/procter-gamble-coty/; and www.us.pgcareers.com/career-areas-find-your​-fit/sales/and www.pg.com/vn/careers/our_functions/customer_business​_development.shtml, accessed June 2016.

MyMarketingLab

Go to mymktlab.com for Auto-graded writing questions as well as the following Assisted-graded writing questions:

  1. 6-24 What is supplier development and why are companies practicing it?

  2. 6-25 Describe how online purchasing has changed the business-to-business marketing process and discuss the advantages and disadvantages of electronic purchasing.

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