company grows cotton. That company sells it to a factory where they spin the cotton, and turn it into fabric and thread. A t-shirt company buys some of thier cotton fabric and thread. They also buy dyes and print (with it's own trail of transactions behind it). The t-shirt company sells those t-shirts to Topshop. Topshop sold the t-shirt to you- only, of course, after a hefty mark and and putting it's own label in. 
Inbetween each of these transactions transportation companies have been hired to ship around these goods. All the companis in each stage of this process has will probably have bought a property from an estate agency, furniture from IKEA, electricity from EDF, hired staff from a temp agency or through a newspaper, bought computers from Currys, pens and pencils out of a Viking catalogue, put new windows in from Velux, had local painters in to re-decorate, hired a repairman when the coffee machine stopped working, calamity, I know, hired a solicitor, an accountant and a cleaner and had so many other transaction with many other businesses. And for what? So that You could buy a t-shirt from Topshop.
B
usiness to business (B2B) transactions are much more likely to be of a higher value,but fewer, than B2C transations. Most companies are buying to create something else to sell on, and therefore buy in bulk. This means that you cannot afford to lose any of your customers. An example that was given in class was the comparison between a company selling MRI scanners (B2B) and Coke (B2C).
usiness to business (B2B) transactions are much more likely to be of a higher value,but fewer, than B2C transations. Most companies are buying to create something else to sell on, and therefore buy in bulk. This means that you cannot afford to lose any of your customers. An example that was given in class was the comparison between a company selling MRI scanners (B2B) and Coke (B2C). Focusing on the UK, Coca-Cola has millions of customers. A company selling MRI scanners probably has very few, probably only the NHS. However, Coke has hundreds of compititors, other soft drinks, hot drinks, squash at home, water, alcoholic drinks, all from different companies. There probably aren't many retailers of MRI scanners in the UK. This means B2B retailers must work much harder at building a relationship with the customer. This is why personal selling is much more efficient than advertising and many other types of marketing that are widely used in the B2C sector.
Because there are often fewer substitutes in B2B markets the demand
for products and services is more likely to be inelastic- "A situation in which a cut in price yields such a small increase in quantity taken by the market that total revenue decreases". This means two things for marketers. Firstly, it is harder to stimulate sales through price cuts and promotional offers. Secondly, the marketer is, often, able to set the price because if cutting the price doesn't increase sales it is likely that raising the price will not decrease sales. The cause for this, in many cases, is that if a business needs a product, it needs the product. An example given for this in class was financial software, but the same could be true for communications solutions, farm machinery and hospital beds. There are three core causes of price elasticity, "a measure of the sensitivity of demand to changes in price" ; 1. the availabilty of substitutes 2. the amount of budget available to spend 3. time.
for products and services is more likely to be inelastic- "A situation in which a cut in price yields such a small increase in quantity taken by the market that total revenue decreases". This means two things for marketers. Firstly, it is harder to stimulate sales through price cuts and promotional offers. Secondly, the marketer is, often, able to set the price because if cutting the price doesn't increase sales it is likely that raising the price will not decrease sales. The cause for this, in many cases, is that if a business needs a product, it needs the product. An example given for this in class was financial software, but the same could be true for communications solutions, farm machinery and hospital beds. There are three core causes of price elasticity, "a measure of the sensitivity of demand to changes in price" ; 1. the availabilty of substitutes 2. the amount of budget available to spend 3. time. The availability of substitutes probably has biggest influence of price and demand elasticity, as has been discussed earlier. Budget affects elasticity as a rise in the price of a product without a rise in the alloted budget for the product would mean that the company would not buy the product.
There are three main types of organisations (Fill & Fill, 2005):
- Government Organisations- eg. Health, NHS, and Policing, London Metropolitain Police
- Institutional Organisations- eg. Not-For-Profit, Cancer Research UK, Community Based Projects, Watford Women's Centre
- Commercial Organisations- eg. Distributors, Eddie Stobbart, Retailers, Zara
The main method of marketing in B2B is personal selling. Salesmen and women have a lot of pressure on them to make sales, and a lot of time and money is put into training them. Earlier in the module we were shown Kotler's Buyer Decision Process. Quickly we realised that this was not always how consumers bought products, especially FMCGs and impulse buys. But his model is much more applicable in B2B buyer behaviour.Problem Recognition > Information Search > Evalutation > Purchase > Postpurchase Evaluation
In the B2C market this might translate into something like:
I'm Hungry > What's Available? > Ice-Cream or Cake > Ben&Jerry's > Should have had Cake
In the B2B market it might look quite different and involve many more people, especially in a larger organisation. The Marketing Department might decide that their sales team need some extra training, so they go to the Finance Department to see if there is any funding. The Finance says there is. So the Marketing Department look for what type of training is available. They then take this to the CEO, or who ever needs to sign it off, and the R&D Department want to see what type of course it is, to see if it will be effective for what they are working on. The CEO and R&D agree. So the salesteam go off for training. Then the sales figures speak for themselves. This might look something like:
Sales needs training > What training is available? > B2B or B2C? > B2B > Good choice, most of our clients are Businesses
Randy Shattuck, of the Shattuck Group, summerizes corporate buying as the following things:
- Methodical
Complex - Budgeted
- High-risk
- Analytical
- Coordinated
Shattuck states that B2B buyers are motivated to spend because they know that if they don't spend their budget they will probably lose it. He emphasizes that the desired effect of the product is what creates the risk. "The bigger the desired effect, the bigger the risk". Shattuck's version of the B2B buyer decision process differs slighlty from Kotler's:
Identify the Problem > Create Criteria > Search for Providers > Evaulate the Options > Test the Options > Procure the Solution
The main difference is the lack of post purchase analysis. With most B2B purchases there is no option to get it wrong, this is why the solution must be tested. When you are the driver behind a big purchase decision it is often the case that your position, or at least credibility, in the company is at stake.
To improve sales and build inter-business relationships many companies use reciprocity, "A buying arrangement in which two organizations agree to purchase one another's products". They enter into an agreement that, for example, a mobile phone company will provide phones for a car company in return for a company car. Another option is leasing. Companies often make the decision to lease a product rather than buy it out right. This may be because it is an expensive product and they do not have the budget for it, or maybe they feel that because it will become obsolete soon.
Wow!
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