Chapter One

Introduction to Business Marketing

Objectives of the Chapter:
At the end of this chapter, students will be able to:
Define business marketing.
Describe the concepts of business marketing,
Identify who are business customers,
Differentiate between business products and consumer
products.
Describe classification of business products.
Identify the components of business marketing system.
Distinguish the difference between bm and cm.

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1.1. Overview of Business Marketing
An activity directed towards satisfying need and wants of
professional buyers and other individuals influencing purchases
in business organization, public organizations, and not for
profit institutions of all kinds, large or small, through the
process of exchange.
Consists of all activities involved in the marketing of products
and services to organizations that used in the production of
consumer or industrial goods and services or to facilitate
the operation of enterprises.
Deals with business buyers and provides goods/ services which
satisfy their needs and wants.
Describes all marketing activities not directed towards the
household or ultimate consumer.
Market the products and services to business organizations
such as manufacturing companies, private/public institutions:
educational institutions, hospitals, distributors, dealers, and so
forth.
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Business marketing is also called:
• Business to Business Marketing (B2B)
• Industrial Marketing
• Commercial Marketing
• Institutional Marketing
Duties for Industrial Marketing Manager
Stimulation for research and development of new
products.
Exploit and develop markets for new products
Define methods for promoting products to customers.
Innovate in distribution and other areas to keep up with
changing requirements of industrial customers.
Meet stiff competition through modernized business.
Refine and modify product positioning.
Approach problems in the modern ways.
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1.2. Business Marketing Terminologies
• Marketing: creation and adaptation of products and services
to provide greater utility or value to consumers than do
competing products and services.
• Consumer: individual who purchases goods and services for
self-gratification.
• Business/Industrial Marketer: an individual or an organization
that sells goods and services to other business, institutions or
organizations.
• Business Marketing: the marketing of products and services to
organizations rather than to households or ultimate
consumers.
• Business buyer: who buys for reasons other than self-
gratification.

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Industrial Marketing Management
The analysis, planning, implementation and control of
programs designed to create, build and maintain mutual
beneficial exchange relationship with target market
(industrial market customer) for the purpose of achieving
organizational objectives.
Its focus:
 Deciding the target markets
 Finding out the needs and wants of the target markets
 Developing products and services to meet the requirements
markets
 Evolving marketing programs or strategies to reach and
satisfy target customers in a better and faster way than
competitors apply to both consumer and industrial
marketing.

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Why purchasing: Reasons to buy
• To incorporate the product or service into the products or
services that the organization produces (E.g., General motors‟
purchases laminated safety glass for auto windshields).
• To facilitate the operation of the organization (E.g. Gondar
university purchases service buses for its employees).
• To resell the product or services (E.g. Showa supermarket
purchases packed food products to resell immediately,
without any modifications to consumers).

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1.3. Who are Business Customers?
* Commercial enterprises/profit making organizations:
purchasing business goods and services for use.
* Institutional Customers: For facilities. For instance:
Universities, Colleges, Hospitals, Churches, Not for Profit
Foundations etc.
* Government agencies/organizations: federal state or local
agencies that buy goods and services for the public service
and constitutions
Great Variations:
 Buying pattern
 Purchasing Procedures and
 Volume Purchasing

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1.4. Classification of Business Products
Based on how the goods are used,
1. Materials and parts
2. Component parts
3. Capital items
4. Supplies and services

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1. Materials and Parts
Become a part of the buyer‟s product, through further
processing or as components.
They are raw materials and manufactured materials & parts.
A. Raw Materials
 Farm Products (wheat, cotton, livestock, fruits, vegetables)
 Natural Products (fish, timber, crude petroleum, iron ore).
B. Manufactured Materials & Parts
 Component Materials: processed further:- pig iron is made
into steel, and yarn is woven into cloth.
 Component Parts: enter the finished product complete with
no further change in form

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2. Component Parts
They are manufactured items, subassemblies, or completely
assembled units that are Incorporated Into Buyer‟s Final Product.
Original Equipment Manufacturing: the purchaser that uses
component parts in some large, final product.
Example: Automotive business, Toyota is an OEM, and the
component parts purchased by Toyota (windshields, tires, door
handles, and so forth.
After-market/Replacement Market: products subject to
degradation or wear and present a sizable market.
Where such components do not lose their identity in the final
product, it is possible to establish brands.
These are:
A. Standardized Components
B. Custom Components
C. Processed Materials

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A. Standardized Components: conform to industry accepted
dimensions and performance specifications/ inventory by distributors
and sold “off-the- shelf”
Example: batteries, tires and headlights in the vehicle market.
B. Custom Components
Elaborate and designed specifications of the buyers.
Example: forgings, castings, automotive windshields, and timing
motors.
C. Process Materials
Materials that tend to lose their identity and may even be
indistinguishable in the final product .
Example:
 Sheet metals,
 Textiles,
 Cements, and
 Chemicals

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3. Capital Items: for production or operations.
a. Installations: Capital Equipment and Investment
Financial expenditure (marketers have to arrange credit, assist
in securing funds or loan, or offer leasing agreements)
Top executives are involved
These are:
I. Land, Buildings, and Other Companies
 Involve lengthy negotiations and are the largest investments
a firm will make.
Associated professional business services purchased:
 Environmental impact studies,
 Architectural design, and
 Financial intermediations

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ii. Single Purpose Equipment
Custom made only for one company or industry
Because of its specialized nature, it is difficult to find buyers
for used single-purpose equipment
iii. Multi Purpose Equipment
Such equipment has a horizontal market- market extending
across many industries
The product life cycle tends to be quite long, resulting in
lower risk of obsolescence and longer replacement
B. Buildings: Factories, Offices
• Fixed Equipment: (Generators, Drill Presses, Large Computer
Systems, Lifts).

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C. Accessory Equipment
Readily movable items.
Standardized, and their marketing involves routine selling and
negotiation.
High-level executive approval not required .
i. Portable Factory: equipment and tools] hand tools, lift
trucks
ii. Office Equipment: Fax Machines, Computers, Desks
• Do not become part of the finished product.
• They have a shorter life than installations.
• Simply aid in the production process.

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4. Supplies and Services
 Do not enter the finished product at all.
A. Supplies
 Used to facilitate operation of the organization but do not become part of
the final product in the way that component parts and process materials
do.
 Characterized as having extensive horizontal markets and are relatively
low cost, current-expense items
Example:
Cleaning agents and tools, paints, and light bulbs
Operating Supplies: Lubricants, Coal, Computer Paper, Pencils
Repair and Maintenance Items: Paint, Nails, Brooms
B. Business Services: usually supplied under contract
 Maintenance and Repair Services: Window Cleaning, Computer Repair
 Business Advisory Services: Legal, Management Consulting, Purchase of
Marketing Research Consultant, hiring part-time/full time trainer,
Advertising

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1.5. Business vs Consumer Market
The difference can be explained with respect to:
1. Market Structure
2. Marketing Philosophy
3. Buyer Behavior
4. Purchasing Decision
5. Marketing Research
6. Product/Service Mix
7. Promotion
8. Distribution Mix
9. Price
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1. Market Structure
 Competition
 Demand
 Price elasticity
 Market
 Buyer size
 Location

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Competition:
CM: Monopolistic (many buyers and sellers with differentiated goods
among competing products). Example: Retail Trade Activities
such as clothing, shoes, soap,
BM: Oligopolistic (fewer sellers and fewer buyers with uniform or
differentiated goods. Example: Ethiopian Beer and Water
distribution
Demand
CM:
 Direct demand with their purchases.
 Less volatile/fluctuating.
BM
 Derived demand (second-or third hand, or more demand).
 Fluctuates (more volatile or changing) more and more
quickly/fluctuating
 Derived from any related goods, services, or intermediate goods or
services.
Example:
1. If consumer demand for computer drops so will the demand for
microprocessors.
2. A small percentage change in consumer demand can cause large
change in business demand
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Price Elasticity
CM
 Less frequently occurred.
 Inverse relationship between price and quantity demanded.
 Less degree of cross-price elasticity of demand.
BM
 Frequently happened.
 Positive relationship between price and quantity demanded.
 High degree of cross-price elasticity of demand in the industrial
marketing.
 The demand for goods is influenced by the price of other
goods.
Example: the demand for Steel is related to the price of its close
substitute Aluminum.

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Cross-price Elasticity: the relationship of price and quantity
demanded of two or more products.
Two goods may be related to each other in two ways:
A. Complements: goods are used together; -ve cross-elasticity of
DD.
B. Substitute Products: goods used in place of the other; +ve cross-
elasticity of DD.
Total Market Size
CM: many but smaller buyers
BM: fewer but larger buyers.
Market Geography
CM: more diffuse/spread out according to population location.
BM: geographically concentrated: reach/nearest to the supplier
availability, and marketers travel significant distances from one
cluster of customers to another.

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Size of Buying Unit
CM: individual or family members.
BM: organizational or group buying unit.
The organizational buying unit called as:
• Central Buying Unit (CBU)
• Decision Making Unit (DMU)
• Multiple Buying Influences (MBI)
• Buying Center (BC) usually involves several individuals
composed of different departments of the organization.

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2. Market Philosophy
 Marketing Segmentation
 Investment Requirements
 Market Perspectives
 Tactical Marketing Emphasis
 Innovation
 Buyer/Seller Interaction
 Reciprocity
 Key Accounts
 Customer Education

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Market Segmentation
CM: Demographics: age, income, location and socio-
psychological dimensions: attitudes, preferences,
personality, and lifestyle.
BM: Emporographics or organizational demographics:
 Type of industry
 Company size
 Location
 End market served
 Level of technology, and ownership
 SIC (standard industrial classification) codes
 Characteristics of the buying units (number of influences, ad
hoc versus standing committees, centralized versus
decentralized organization, annual volume of purchase) to
segment the markets.

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Classification of goods
CM: based on how they are purchased
A. Convenience
B. Shopping
C. Specialty
D. Unsought goods
BM: based on their use or buying situations (task) or degree of
customization:
A. Natural materials & parts
B. Manufactured materials and parts
C. Capital items
D. Supplies & business services.

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Investment Requirements
CM: more tactical, directed toward marketing activities or researching their
huge customer base and promoting to mass markets.
BM: higher strategic investments in capital equipment and Research and
Development.
Market Perspective
CM: seek regional or national markets, sufficient sales volumes.
BM: less dependent on regional tasks and preferences; more global
perspective of market in terms of both customers and competitors.
Tactical Marketing Emphasis
CM: seeking market share and sales volume.
BM: sizable share of highly segmented, smaller, specialized markets, in more
restricted sales volume focused on profit performance and
improvements in the short run.

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Innovation
CM: Pull innovation or new product as a result of assessment of consumer
needs and wants.
BM: Push: new product/idea through research & development and radical
breakthrough developments that may revolutionize entire industries.
Buyer-Seller Interaction
CM: Transactional: distanced by long, indirect channels of distribution and
are reduced to a mass transactions made at „‟arm‟s length‟‟.
BM: Relationship marketing:
 deal frequently on a face-to-face basis
 more sensitive and responsive to customers‟ requirements.
 far more customer oriented than are consumer markets.

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Reciprocity: exchanging things with others for mutual benefit,
especially privileges granted by one country or
organization to another:
CM: rarely occurred.
BM: two organizations are buyers of each other‟s products or
services („‟I will buy from you if you buy from me.‟‟
Key Account/Education
CM: nonexistent or customer education is weak.
BM:
 more complete instruction manuals, specification sheet, and
repair and maintenance books.
 customer education is strongly important.

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3. Buyer Behavior
1. Customer/prospect mix
2. Order size and frequency
3. Purchasing motives and skills
4. Contractual penalties
5. Buying power
6. Vendor loyalty
7. Purchase involvement

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Customer/Prospect Mix:
CM: customers are large in number.
BM: customers range from as few as one major buyer to a few
thousand (small in number).
Order Size and Frequency
CM: small quantities and frequently.
BM: large quantities but infrequently.
Purchasing Motives and Skills
CM: more emotionally based, self-gratifying underlying
consumer purchases.
BM: rational, economic, objective, and profit or efficiency
oriented.

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Contractual Penalties
CM: never practiced.
BM: substantial penalties for nonperformance in to contracts with their
suppliers.
Buying Power
CM: weak.
BM: strong
 Reverse marketing: aggressively encourage or persuade a supplier to sell a
product that more closely meets the buyers‟ particular.
Vendor Loyalty: the strong interdependence between organizational buyers
and their suppliers.
CM: weak.
BM: strong: buyer who changes vendors faces high switching costs.
Purchase Involvement
CM: smaller and frequent.
BM: greater and less frequent.

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4. Purchasing Decisions
CM: Simple, Short, and Non-observable.
BM: complex and lengthy and usually involves several people
in the buying organization
1. Complex: BM
2. Lengthy: BM
3. Observable: BM
4. Purchase risk: BM

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5. Marketing Research
1. Population
2. Respondent Accessibility
3. Sample Size
4. Market Interviewers
5. Respondent Definition
6. Study Cost

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Population
CM: larger in interest.
BM: small interest.
Sample Size
CM: as large as required for statistical confidence.
BM: the statistical confidence is equal due to the relationship of
the sample to the total population.
Orientation
CM: less focused.
BM: strategically focused. Example: economic forecasting and
value analysis
Research approach
CM: depends on inferential statistical techniques
BM: empirical studies and personal contact; possible to survey
the entire group.

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Decision Making Process
CM: simple
BM: complex involving several functional areas of the buying organization,
each with different points of view.
Accounting and/Tax considerations
BM: the way purchases are accounted for and the tax implication of the
purchases will affect what is purchased, the timing of the purchases,
and how the goods and services are bought.
Purchase Risk
BM: high in new buy situation; least in straight re buy: delivery risk
Questionnaire Terminology: knowledge of specialized terminology of the
business and knowledgeable about relevant technologies and
products.
Precision of Data: tend to seek rough estimates through unstructured
interview; consumer research structured questionnaire yielding precise
measurement.
Cost of projects: low cost compared with consumer research.

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6. Product/Service Mix
Product Life Cycle: shorter than consumer products
Product Specification: more customization to the customer‟s
technical requirements than consumer products.
Branding: corporate family brand; consumer products are
identified by individual product brands.
Purchase Timing:
CM: buy for personal consumption.
BM: buy products to fit a requirement planning sequence.
Degree of Fabrication: materials and components that must
undergo further value adding stages.
Types of Packaging: the protection aspect is more business
product; the promotion aspect is in consumer product.

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Services: organizational customer demands and receives more
services.
Equipment Compatibility: business buyers expect various pieces
of equipment they purchase to match and work well
together.
Consistency of Quality: more prevalent in business products.
Industrial Design: the product, to be aesthetically pleasing and
ergonomically sound in CM than BM.
System Selling: offering a complete package of products and
services; available to organizational buyers.

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7. Promotion
Business promotion focus on rational, economic themes
Personal selling, BM and advertising, CM.
8. Distribution Mix
 Business channels are shorter but more complex.
 Channel members have greater product knowledge more direct, selective,
or exclusive channels are used, and delivery reliability is crucial
9. Price
 More meticulous analysis for BM than CM.
BM: competitive bidding and negotiation to arrive at agreement
CM: going rate.
 Leasing to avoid large capital outlays in BM.
 Cost and benefits of the purchase through out the product‟s lifecycle

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 Consumer Markets Business Markets
 Equal value and represents a small  A small number of big customers account
% of revenue for a large % of revenue
 Sales are made remotely, the  Sales are made personally, the manufacturer
manufacturer doesn‟t meet the gets know the customer
customer
 Products are the same for all  Products are customized for different
customers. The service element is customers‟ service is highly valued.
low.
 Purchases are made for personal use  Purchases are made for others to use- image
–image is important for its own is important where it adds value to
sake customers
 The purchaser is normally the user  The purchaser is an integrator; someone
down the supply chain is the user.
 Costs are restricted to purchase  Purchase costs may be a small part of the
costs total costs of use
 The purchase event is not subject to  The purchase event is conducted
tender and negotiation professionally and includes tender and
negotiation.
 The exchange is one of transaction.  The exchange is often one of strategic
There is no long-time view intent. There is the potential for long term
(financial
9/27/2024 services differ) value.
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Thank You!!

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