Principles of Marketing, Chapter 7, unit 4

Nature of Buying, B2B
Usually approach purchasing rather formally.
Businesses use professionally trained purchasing agents or buyers
Who spend their entire career purchasing a limited number of items.
Professional Buyers get to
Know the items and the sellers well in their careers.
Use of Leasing, Consumers
They normally dislike this and perfer to buy products.
Use of Leasing, B2B
Common to do with computers, construction equipment and vehicles, and automobiles.
Leasing Allows Firms
To reduce capital outflow, acquire a seller’s latest product, receive better services, and gain tax advantages.
Benefits of Leasing, to lessor
Greater total revenue from this compared to selling and an opportunity to do business with customers who cannot afford to buy.
Business Product Categories, depending on their use
Major Equipment, Accessory equipment, raw materials, component parts, processed materials, supplies and business services.
Major Equipment
Capital goods such as large or expensive machines, mainframe computers, blast furnaces, generators, airplanes, and buildings. AKA Installations
Installations
Capital goods such as large or expensive machines, mainframe computers, blast furnaces, generators, airplanes, and buildings. AKA Major Equipment
Major equipment is depreciated
Over time rather than charged as an expense the year it’s purchased.
Often custom-designed
Major equipment for each customer
Personal selling is important for major equipment
Because distribution channels are almost always directed from the producer to the business user.
Accessory Equipment
Goods that are less expensive and shorter-lived than major equipment, include portable tools and office equipment.
Accessory equipment is often charged as an expense
In the year and it’s bought rather than depreciated over its useful life.
Compared to major equipment, accessory equipment
Is more often standardized and are usually bought by more customers.
Customers for accessory equipment
Are more widely dispersed, and in larger number than they are for major equipment.
Wholesalers
Local industrial distributors
Wholesalers (local industrial distributors) play an important marketing role
Of accessory equipment because business buyers often purchase accessories from them
Regardless of where accessory equipment is bought
Advertising is a more vital promotional tool for this than it is for major equipment.
Raw Materials
Unprocessed extractive or agricultural products, such as mineral ore, timber, wheat, corn, fruits, vegetables, and fish.
Raw Materials become
A part of finished products.
No seller can greatly influence price or supply of raw materials
Because there is often a large number of relatively small sellers in this market.
Marketing and Price for Raw Materials
This often tends to set the price of these, and individual producers have little pricing flexibility.
Promotion of raw materials
Almost always done via personal selling, and distribution channels are usually direct from producer to business user.
Component Parts
Either finished items ready for assembly or products that need very little processing before becoming part of some other product.
Examples of Component Parts
Caterpillar diesel engines used in heavy-duty trucks. As well as spark plugs, tires, and electric motors for automobiles.
Component parts retain their identity
Even after they have become part of the final product
Because component parts often wear out
They may need to be replaced several times during the life of the final product.
2 Markets for Component Parts
Original equipment manufacturer (OEM), and the replacement market.
Profits can be substantial because of volume buying in the OEM market
Even though the difference between unit costs and selling prices is often small.
Because component parts often retain their identity in final products
Users may choose to replace a component part with the same brand used by the manufacturer.
Difference between replacement market and OEM for component parts
Whether replacement buyers are organizations or individuals, they tend to demonstrate the characteristics of consumer markets.
Replacement Market for Component Parts, Automobile Example
Purchase volume is usually small and there are many customers, geographically dispersed, who typically buy from car dealers/part stores. Negotiations don’t occur, and reciprocity and leasing usually don’t either.
Cooper Tire and Rubber
Makes and markets component parts-automobile and truck tires-for the replacement market only
General Motors and Component Parts
Along with other car makers, will compete with independent firms in the market for replacement automobile parts.
Processed Materials
Products used directly in manufacturing other parts.
Processed materials have some processing
Which is unlike raw materials which have no processing.
Examples of Processed Materials
Sheet metal, chemicals, specialty steel, lumber, corn syrup and plastics
Unlike component parts, processed materials
Do not retain their identity in the final products they are put in.
Most processed materials are marketed to
OEMs or to distributors servicing the OEM market.
Processed materials are generally bought
According to customer specifications or to some industry standard, like with steel and plywood.
In choosing a vendor, proceed materials
Need to market price and service, as these are most important to their buyers.
Supplies
Consumable items that don’t become part of the final product.
Supplies Include
Lubricants, detergents, paper towels, pencils, and paper which don’t become part of the final product.
Supplies are normally
Standardized items that purchasing agents routinely buy with short lives and are inexpensive compared to other business goods.
Supplies generally fall into one of 3 categories
Maintenance, Repair, or Operating supplies, so they are often referred to as MRO items.
MRO
short for maintenance, repair or operating and describes supplies.
Bic and Paper Mate
Two MRO companies that have intense competition for business purchases of inexpensive ballpoint pens.
Business Services
Expense items that do not become part of a final product.
Businesses often retain outside providers to perform
Janitorial, advertising, legal, management consulting, market research, maintenance, and other services.
Hiring an outside provider for Business Services
Makes sense when it costs less than hiring or assigning an employee to perform the task and when an outside provider is needed for particular expertise.