Marketing Management 2nd Edition By Marshall - Test Bank

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FALSE

The reality is that large consumer products companies purchase hundreds of billions of dollars of products and services every year. General Motors (GE), for example, spends over $60 billion a year on products and services. Everyone knows Hewlett-Packard (HP) and GE because of the products they sell to consumers, but these companies derive most of their revenue from selling to other businesses. Many companies that are primarily consumer oriented, such as Sharp Electronics Corp., sell in the business-to-business (B2B) market as well.

TRUE

While many companies serve business-to-consumer markets, all companies operate in a business-to-business market. From General Electric to Walmart, companies must understand and work with other companies as part of their business operations.

TRUE

See Exhibit 5.1.

FALSE

See Exhibit 5.1.

FALSE

See Exhibit 5.1.

TRUE

While the Internet allows people to live anywhere, the nature of business relationships means companies want to have a strong presence near their best customers.

TRUE

Many products are purchased so often that it is not necessary to evaluate every purchase decision. Companies use a wide range of products on a consistent basis (office supplies, raw materials) and simply reorder when needed. This type of purchase is called a straight rebuy. Increasingly, this is done automatically via secure Internet connections with approved or preferred suppliers.

FALSE

Business purchases are seldom made by just one person, particularly in modified rebuy and new purchase situations. A number of individuals with a stake in the purchase decision come together to form a buying center that manages the purchase decision process and ultimately makes the decision. Buying centers usually are not permanent groups but are convened to make the decision and then disband.

TRUE

A modified rebuy occurs when the customer is familiar with the product and supplier but is looking for additional information. Most often this need for change has resulted from one or more of three circumstances. First, the approved supplier has performed poorly or has not lived up to the customer’s expectations. Second, new products have come into the market triggering a reappraisal of the current purchase protocols. Third, the customer believes it is time for a change and wants to consider other suppliers.

FALSE

The initiator starts the buying decision process usually in one of two ways. In one scenario the initiator is also the user of the product, as in the secretary who reorders when office supplies run low.

TRUE

One of the toughest challenges facing salespeople in a new purchase or modified rebuy situation is getting access to the right people.

FALSE

Access to information and relevant individuals in the buying center is controlled by gatekeepers.

TRUE

The complexity of business markets rivals that of consumer markets with more than 20 million small businesses in the United States alone. The number grows dramatically when you include large corporations, nonprofit institutions, and government entities.

FALSE

The SIC codes were updated in the 1990s and are now called the North American Industrial Classification System (NAICS). The system has been expanded to include businesses in Mexico and Canada. NAICS defines 20 major business sectors based on a six-digit hierarchical code. The first five digits are standardized across Mexico, Canada, and the United States while the sixth digit enables countries to adjust the code to fit the country’s own unique economic structure.

FALSE

OEM customers purchase in large quantities to support their own product demand. Two important outcomes result from this purchase power. First, OEM customers seek the very “best” prices from sellers. Best does not always mean lowest; other factors play an important role. The assurance of product quality, ability to meet demand, just-in-time product delivery schedules, and other factors frequently figure into the final selection of product and vendor.

TRUE

See Exhibit 5.8.

TRUE

Once the company’s needs have been identified and production specifications have been outlined, business customers can identify potential suppliers. Two methods are commonly used to determine the list of vendors. First, companies create a list of preferred or approved suppliers and go to that list whenever a new purchase is being considered. A second, more complex method is to search for and identify potential suppliers. The Internet has become a valuable tool for companies in identifying potential suppliers.

TRUE

First, the proposal clearly specifies how the company’s products will meet the product specifications detailed in the RFP. Second, the proposal makes the case for selecting the company by presenting any additional information such as unique product features, service programs, or competitive pricing to help persuade the customer.

TRUE

B2B transactions have been growing at a phenomenal rate with online B2B commerce worldwide in excess of $1 trillion, a much larger amount than that generated by B2C online sales.

TRUE

A key for business marketers is to make sure the customer understands the proper operation and maintenance of the product. At the same time, buyers consider the level of support provided by the seller and expect follow-up after the sale to be sure there are no problems. Dealing with complaints, resolving customer problems, and making sure the company is meeting customer expectations are critical to ensuring customer satisfaction.

Large consumer products companies purchase hundreds of billions of dollars of products and services every year. General Motors spends over $60 billion a year on products and services.

Companies are selling products that end up as components in a finished product. Also, companies must purchase products to help them maintain their business.

In many cases, companies are selling products that end up as components in a finished product.

Everyone knows Hewlett-Packard (HP) and General Electric (GE) because of the products they sell to consumers, but these companies derive most of their revenue from selling to other businesses. Many companies that are primarily consumer oriented, such as Sharp Electronics Corp., sell in the business-to-business (B2B) market as well.

Business markets and consumer markets are not the same. Five distinct differences dramatically affect marketing strategy and tactics (see Exhibit 5.1). These differences create unique opportunities and challenges for marketing managers because success in consumer marketing does not translate directly to business markets and vice versa.

The nature of business markets requires a more personal relationship between buyer and seller. Every relationship takes on additional significance as the sales potential of each customer increases. A strong personal relationship is critical because business customers demand fast answers, good service, and, in general, want a close relationship with suppliers. As a result, companies selling in a B2B market invest more resources to foster and maintain personal contact with their customers than in a consumer market. In some cases, companies even invest in their suppliers to strengthen the relationship.

Technology plays a critical role in connecting buyer and seller. Integrating IT systems that enhance sales response times, provide better customer service, and increase information flow is now an accepted element in a successful B2B customer relationship.

Business markets are characterized by fewer but larger customers. Goodyear, for example, may sell one set of tires to a consumer over the course of three years, but every year the company sells millions of tires to Ford Motor Company. Add up all the major automobile companies, and there are fewer than 25 business customers for Goodyear.

See Exhibit 5.1.

See Exhibit 5.1.

The movement of goods through a channel to the ultimate consumer requires a high level of coordination among the participants. A supply chain is the synchronized movement of goods through the channel.

Demand for B2B products originates from the demand for consumer products, or put another way, demand for B2B products is derived demand.

Small changes in consumer demand can lead to considerable shifts in business product demand and is referred to as the acceleration effect.

Business products experience fairly inelastic demand, meaning changes in demand are not significantly affected by changes in price.

Environmental factors have long-term and short-term effects on consumer product choices. For example, long-term economic factors such as the rapid rise in the price of gasoline have had a significant negative effect on the sales of SUVs, and short-term factors like a hurricane in Florida or the Southeast can limit distribution and sale of products in those areas for a while. B2B sellers understand that business customer success frequently means finding ways to assist them in their consumer markets. This is a challenge for business marketers because, despite having a great product and providing great service at a competitive price, they may still not get the business because consumer demand for their business customer’s product is weak.

Demand for B2B products originates from the demand for consumer products, or put another way, demand for B2B products is derived demand.

Many products are purchased so often that it is not necessary to evaluate every purchase decision. Companies use a wide range of products on a consistent basis (office supplies, raw materials) and simply reorder when needed. This type of purchase is called a straight rebuy.

Many products are purchased so often that it is not necessary to evaluate every purchase decision. Companies use a wide range of products on a consistent basis (office supplies, raw materials) and simply reorder when needed. This type of purchase is called a straight rebuy.

Some decisions require little or no analysis before the purchase decision. Others require updating information or changing existing purchase orders before the purchase decision can be made. Finally, some decisions require an in-depth analysis of the product. These three scenarios are referred to as straight rebuys, modified rebuys, and new purchases (see Exhibit 5.3).

A modified rebuy occurs when the customer is familiar with the product and supplier but is looking for additional information.

A number of individuals with a stake in the purchase decision come together to form a buying center that manages the purchase decision process and ultimately makes the decision. The individuals included in the buying center may have direct responsibility over the decision (purchasing department) or financial control of the company (senior management). In other cases, the individuals might have a specific expertise helpful to the decision (engineer, consultant).

Users are the actual consumers of the product and play a critical role. While typically not the decision makers, they do have a lot of input at various stages of the process.

Users are the actual consumer of the product and play a critical role. While typically not the decision makers, they do have a lot of input at various stages of the process.

The initiator starts the buying decision process usually in one of two ways. In one scenario the initiator is also the user of the product, as in the secretary who reorders when office supplies run low. A second scenario occurs when senior executives make decisions that require new resources (manufacturing sites, product development, and information technology). In these situations the executives act as initiators to the purchase decision process.

Access to information and relevant individuals in the buying center is controlled by gatekeepers. Purchasing departments act as gatekeepers by limiting possible vendors to those approved by the company. Similarly, engineering, quality control, and service department personnel create product specifications that, in essence, limit the number of vendors. At the same time, basic access to key people is controlled by secretaries and administrative assistants.

Ultimately, the purchase decision rests with one or more individuals, deciders, in the buying center.

Users are the actual consumers of the product and play a critical role. While typically not the decision makers, they do have a lot of input at various stages of the process. They are the first to recognize the problem based on a need, and they help define the product specifications. Finally, they provide critical feedback after the product purchase.

Individuals, both inside and outside the organization, with relevant expertise in a particular area act as influencers, providing information that is used by the buying center in making the final decision.

See Exhibit 5.4.

See Exhibit 5.4.

See Exhibit 5.4.

See Exhibit 5.4.

See Exhibit 5.5.

The North American Industrial Classification System (NAICS) includes businesses in the United States, Mexico, and Canada.

The SIC codes were updated in the 1990s and are now called the North American Industrial Classification System (NAICS). The system has been expanded to include businesses in Mexico and Canada, in addition to the United States.

The North American Industrial Classification System (NAICS) defines 20 major business sectors based on a six-digit hierarchical code. The first five digits are standardized across Mexico, Canada, and the United States while the sixth digit enables countries to adjust the code to fit the country’s own unique economic structure.

See Exhibit 5.3.

Companies that buy products and then resell them to other businesses or consumers are called resellers. Home Depot, for example, buys home products and then resells them to consumers, building contractors, and other professionals in the construction industry.

Just as manufacturers need end user products, resellers also need equipment and supplies to run their businesses.

The single largest buyer of goods and services in the world is the U.S. government. Combined with state and local governments, the value of purchases is over $2 trillion.

Nonprofits have a limited number of resources. Even the largest NGOs, including the Red Cross, do not have access to the capital and resources of most large for-profit organizations.

See Exhibit 5.7.

See Exhibit 5.7.

The Internet has become a valuable tool for companies in identifying potential suppliers. General search engines and even dedicated supplier search websites, such as Thomas Global Register, are easy to use and enable customers to identify specific potential vendors.

As part of describing the need, product specifications should be defined so that everyone inside and outside of the company knows exactly what is needed to solve the problem. This serves two important purposes. First, individuals inside the organization can plan for the future. The second purpose is to guide potential suppliers.

Putting product specifications into a document for distribution is known as a request for proposal (RFP).

Product specifications as contained in the RFP become the starting point from which vendors put together their product solution.

Companies frequently solicit proposals from a number of vendors. One reason for this is that getting additional proposals helps in negotiating with the preferred vendor. When a vendor is aware that other proposals are under consideration, that vendor works harder to meet the expectations of the customer.

Numerous software packages can help create sophisticated sales proposal packages. Oracle, for example, includes a sales proposal module in its CRM solutions software. In addition, many companies have created their own proprietary software to aid salespeople in creating a sales proposal. Putting together a template that is used throughout the company helps unify the content and look of a sales proposal.

The sales proposal plays a critical role in marketing to businesses. Most of the time it is the first and best chance to impress the customer. In general, proposals accomplish two objectives. First, the proposal clearly specifies how the company’s products will meet the product specifications detailed in the RFP. Second, the proposal makes the case for selecting the company by presenting any additional information such as unique product features, service programs, or competitive pricing to help persuade the customer.

See Exhibit 5.9.

Business-to-business marketers understand that presenting a strong financial case for their products is an essential part of selling the product. As a result, many of these financial analysis are performed by the supplier and included in the sales proposal. Buyers then compare, and verify, the analysis across vendors.

Feedback: The actual purchase price is just one consideration in determining the real cost of a purchase. Maintenance and operating costs, repair charges, and supplies are all costs associated with ownership that can vary across product choices. These costs are then evaluated against the stated life of the product. This is important as some products with a higher initial price actually cost less over time because of the product’s longer life. Financial analysis also evaluates the time it takes to break even on the investment. A company considering new equipment designed to lower manufacturing costs will want to know how long it will take to recoup the investment given the projected savings.

Feedback: The actual purchase price is just one consideration in determining the real cost of a purchase. Maintenance and operating costs, repair charges, and supplies are all costs associated with ownership that can vary across product choices. These costs are then evaluated against the stated life of the product. This is important as some products with a higher initial price actually cost less over time because of the product’s longer life. Financial analysis also evaluates the time it takes to break even on the investment. A company considering new equipment designed to lower manufacturing costs will want to know how long it will take to recoup the investment given the projected savings.

Value is the relationship between price and quality and it is a significant facet of the purchase decision. B2B buyers are aware that the lowest-cost product may not be the right product, especially in critical OEM equipment where failure can mean customer dissatisfaction or in strategic purchases such as a new IT system where failure can cause serious business disruption.

Southwest flies only Boeing 737s in part because maintenance crews need to know only one plane, which makes it easier to maintain and service the 737.

The most fundamental criterion in vendor selection is reliability, which is the vendor’s ability to meet contractual obligations including delivery times and service schedules.

Supplier qualifications become part of the purchase decision. The most fundamental criterion in vendor selection is reliability. A judgment is made about the seller’s willingness to go above and beyond what is specified in the contract. The seller with the best reliability and intangibles, like a willingness to do a little more than required, usually gets the order.

The most fundamental criterion in vendor selection is reliability, which is the vendor’s ability to meet contractual obligations including delivery times and service schedules.

Individuals in the buying center come to the group with their own perspective of the decision. Engineers, for example, tend to focus on product performance and specifications. Accountants often concentrate on the cost and other financial considerations. Purchasing agents give attention to vendor quality and ease of ordering. One reason buying centers are effective is their ability to bring individuals with different perspectives together to evaluate possible product options.

Once the purchase decision is made, buyers begin the process of evaluation (see Exhibit 5.10) called post-purchase evaluation.

Another influence on the product and supplier choice is organizational factors. The primary organizational factor is risk tolerance. Individuals and companies all have a certain tolerance for risk. Their product decisions will be influenced by their aversion to or acceptance of risk.

Once the purchase decision is made, buyers begin the process of evaluation (see Exhibit 5.10) called post-purchase evaluation.

Losing a customer is disappointing; however, it also represents an opportunity. By using well-developed service recovery strategies, companies can reacquire customers.

Sophisticated programs manage inventories and automatically replenish supplies. By linking directly with electronic data interchange (EDI) customer computers communicate directly with supplier computers to reorder as needed.

B2B transactions have been growing at a phenomenal rate, with online B2B commerce worldwide in excess of $1 trillion, a much larger amount than that generated by B2C online sales.