CHAPTER 1

INTRODUCTION TO BUSINESS MARKETING

OUTLINE OF CHAPTER
I.

The Importance of Business Markets

A. Why Study Business Marketing?
1. Marketing Majors Begin in Business Marketing
2. Magnitude of Business Marketing
3. Business Marketing is Unique

II.

How Business Marketing is Unique

A. Buyer-Seller Relationships
1. Types of Business Relationships
B. Shorter Distribution Channels
C. Emphasis on Personal Selling
D. Unique Promotional Strategies

III.

Business Markets
A. Types of Business Customers
1. Original Equipment Manufacturer
2. Users
3. Government Agencies
4. Institutions
5. Industrial Distributors
B. Types of Products
C. Size and Location of Customers
D. Purchasing Standards and Processes
1. Strict Standards
2. Purchasing Processes
E. The Nature of Demand
1. Derived Demand
2. Joint Demand

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IV.

The Entire System

A. Understanding the Market
B. The Marketing Mix Creates Value
C. Marketing is an Integrative Process

TEACHING SUGGESTIONS
Begin the first class by asking students why theyve enrolled for this course. In most schools, this
class is not required. You will probably find that students will offer reasons such as an interest in a
business-marketing career or at least exploring that option. Of course, others will take the class
because it fit in their schedule or they heard it was easy (boy, is that wrong!). Ask specifically
what those students plan to do after they graduate or what industry they think they might want to
pursue. Then point out the number of business marketing positions possible.
Ask why they think there is a separate course on business marketing. This question does two
things: it brings up the differences between consumer markets and business markets and it also
helps you to identify the level of familiarity students have with the topic. The more familiar they
are, the more articulate their answers will be. One objective of the first class session is to help
motivate the students and creating recognition among the students that a) business marketing is
important and b) they may get a job doing business marketing can accomplish that objective.
Bring a product for which the students are very familiar; for example, you might bring with a Nike
sports shoe. (Try to use a product you can bring to class.) Then trace back all of the component
parts to the raw materials, discuss the specialized manufacturing equipment needed to make the
parts, etc. Keep a running tally of all of the transactions that had to occur before you could buy
the shoe. As you move through the channel backwards from consumer to raw materials, identify
each type of company involved (OEM, for example). An alternative is to use Exhibit 1-1 (also in
the PowerPoint file) which illustrates how salt is distributed. While salt is just one ingredient in
food and you could then expand the discussion to include all of the ingredients in a General Foods
product, the transparency does illustrate the number of business marketing transactions that are
required just to get salt to the consumer.
The Carleton-Bates video is a good one to use early because it describes what an industrial
distributor does. Carleton-Bates is an electronics components distributor; customers include
companies like Lucent Technologies (an AT&T manufacturing spin-off). You can use this video to
spur discussion concerning the various types of companies (OEMs, etc. who are Carleton-Bates
customers) and types of products. Keep in mind that many students find all of the jargon mind
numbing - what is more important is to discuss what each type of buyer wants, in general. For
example, are the general needs of an OEM the same as a distributor? What would Carleton-Bates
need from its suppliers that its customers dont need? These types of questions can help students
understand the differences rather than simply memorize the definitions.
An alternative is Exhibit 1-5, which illustrates how IBM is and OEM, a User, and a Distributor,
but also uses Distributors, etc. Exhibit 1-7, The Entire System, illustrates how raw materials
become manufactured materials put together into a sub-assembly, and so forth.
The first B2B Clinic can be used to start a discussion on business relationships. Begin with the
question of social relationships posed in the Clinic (Just how important are social relationships in
business?). Point out that in From the Field 1-1, CRI cut its client base in half yet doubled
revenue; the result of building stronger relationships (but were these social relationships?). Then
use From the Field 1-2 to illustrate that social relationships, while important, are not everything.
Here is an organization (the Federal government) who is using trade shows to find suppliers.
Clearly, no social relationship is needed. You may also want to talk about why the GSA needs to

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attract minority or small business suppliers and the need to not let social relationships influence
business decisions too much.
Volatility can be a difficult topic to understand. The second B2B Clinic asks about BASFs
products and the likelihood of volatility and from what demand is derived for a product that makes
fabrics brighter and longer lasting. Brighter, longer lasting fabrics may be needed by makers of
upholstered furniture, childrens clothing, linens and towels manufacturers, and many others. The
furniture business builds up inventories, whereas apparel companies tend to manufacture and move
products to market more quickly. Thus, furniture customers may cause more volatility. Shorter
purchase to market cycles, like apparel, mean less volatility because the derived demand can be
forecasted. Understanding volatility and derived demand enables marketers to forecast demand
better, anticipate changes in demand, and find new opportunities by watching the markets for the
products from which BASFs demand is derived. Students tend to forget that one marketing
function is that of getting the product to market, and anticipating demand so there will be product
available is a marketing function. Hence, understanding volatility is important.

SUGGESTED ANSWERS TO DISCUSSION QUESTIONS

1. Suppose that your company manufactures power tools used in sawmills to turn trees into
lumber. Demand for what consumer goods would influence the demand for your power tools?
Demand for furniture, homes and other buildings, pallets and other shipping crates, and other
products made from wood would influence demand for the tools. Paper would not influence
demand, as the tools used for processing wood into paper are different.
Would overall demand for your products be likely to be more or less volatile than that for the
salt production equipment discussed in the chapter? Why?
Answers would be based on students beliefs about the change in demand for those products above
and how that would trickle back. Demand for furniture, for example, has risen at a slower rate
than the rise in consumers disposable income, whereas demand for new homes has risen quickly as
mortgage rates have declined, then tapered off when the rates stabilized.
2. Identify three television advertisements you see regularly that appear to target a business
market. What benefits are they trying to sell? How does their advertising differ from beer
commercials, car commercials, and other consumer ads? Why do you think there is a
difference?
Of course, answers will depend greatly on what is on TV at any given time. Xerox, for example,
has a new set of ads now about the copier that thinks it is a printer. One big difference between
business and consumer advertising is that there is more lifestyle commercials (at least for beer and
cars) than there is for business products. Yet, we see, with commercials from companies like
Office Max, the occasional working lifestyle television commercial. Business commercials,
though, tend to be more benefits focused.
3. How would marketing long distance services to businesses be the same as marketing to
consumers? How would it be different and why?
Cost is always a concern, so marketing messages may tend to focus on cost for both markets.
Similarly, both print advertising and direct mail would be used. But business buyers have other
concerns, such as reliability, that have to be addressed, and are also concerned with issues such as
return on investment. Marketing messages and direct selling would need to consider these needs.
4. Across the top of the page, list each type of product (such as OEM product). Then list a
product that would fit each category and try to use products not mentioned as examples in the
chapter. Use BASF as your buying company.
Of course, student answers will vary greatly. For example, students could put copy paper or
packaging as a facilitating good, chemicals as raw materials, furniture polish as an MRO item, and

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a big stirring machine (for mixing chemicals) as a piece of capital equipment. The main purpose
here is to be able to illustrate an understanding of the various types of products.
5. How can derived demand cause volatility when, at the same time, distribution channels are
short and tend to be direct in business marketing?
With this question, we want students to reflect on how volatility occurs. While distribution
channels are short, and therefore manufacturers should be able to gauge demand rather accurately,
fluctuations in demand can occur particularly when the manufacturer sells capital equipment and
buyers can put off purchases in rough times or increase purchases in good times. When channels
are longer, volatility can occur simply due to inefficiencies in the channel that result in inventories
getting out of whack relative to demand. But even when information is more accurate, volatility
can occur.
6. Assume you work for Shaw Industries, a carpet and flooring manufacturer. How would your
marketing be different for the university market, the GSA (the General Services Administration of
the federal government), and commercial real estate developers?
The marketing would reflect different buying processes. All markets would need durable carpet at
a reasonable price, but the university and GSA would be more concerned about the total lifetime
cost of ownership (how long would it last and still look good?) whereas the developers would be
more interested in cash outlay. Plus, the GSA might make a decision using a more formalized
process than would developers, while universities may have greater variety in decision making
(public versus private, for example) that make marketing different.
7. What is the relationship between price and value? How does marketing provide value and
what are the types of value that marketing provides?
One way to state the relationship is to say that price is a reflection of value, but the marketing
exchange principle would say that the buyer must also profit in the exchange. Marketing
provides value by creating the right product and delivering it at the right time at the right price,
thereby satisfying needs. These needs werent being met by money so a profit was made when
there was an exchange.
8. One business marketing student said, "All this stuff on relationships just means that it is who
you know that counts; the good ol boy network is what is important." Based on what you've
read in this chapter, what would you say in response to that statement?
Who you know is important, but relationships are changing. In addition to knowing someone,
relationships are built on competence, trust, and other factors that minimize the impact of a good
ol boy network, or at least open up the network to professional, competent, and trustworthy
people.
9. Not all firms have moved into the partnering era. What might inhibit a firm's ability to shift
from one operating philosophy to another? What might enhance that ability? What value would
there be in moving earlier than competitors?
Corporate culture, the nature of the buyers profession or industry, the type of product
manufactured and its relative importance to buyers, and similar factors may inhibit a firms ability
to shift to partnering. Strong leadership, a culture that supports innovation and doesnt punish
failure, and similar characteristics can enhance the ability. Competitive advantage can be gained
by locking up market share, thereby raising barriers to entry or competition, and by gaining
technological advances due to closer relationships with suppliers and customers.
10. How would the firm's stage (e.g. production era, marketing era, etc.) influence the way the
firm implements the business marketing process? It might be helpful to create a matrix, with
stages of the process down the left column, and then a column created for each era.
In the production era, companies will focus on pricing, because the emphasis is on producing the
most for the lowest cost. Competitive advantage is gained by lowering costs and prices. In the
selling era, the obvious emphasis is on selling, but also on pricing and heavy promotion. The idea

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is to communicate product benefits as often and in as many venues as possible. In the marketing
era, the emphasis would be on product development, as the company tries to identify mass market
or market segment needs and create appropriate products. In the strategic partnering era, the
emphasis is on customer development. In this era, selling and production would be integrated in
order to create the appropriate products customized to the needs of the buyer.

WWW EXERCISE
Go to the BASF home page and answer the following questions:
1. Go to the BASF Corporation (North America) page, then to the Our Businesses, where you
should find a list of products offered. What products do they make?
BASF makes chemicals, plastics, colorants and finishing products, and health products.
2. Go to the plasticizer page. Describe their customers for plasticizers based on what you can
learn from the home page. Who would buy those products what position would they hold in
what types of companies? What types of companies (based on Exhibit 1-5) are the customers for
plasticizers? What type of product (based on the Exhibit) is a plasticizer?
A plasticizer is a clear liquid that softens hard resins. Manufacturers use plasticizers to turn vinyl
into upholstery, so plasticizers are a raw material, and customers would be OEMs.

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SUGGESTED ANSWERS TO CASE PROBLEMS

Ferguson Industries
1. Why would sales vary so greatly for Gabe's company?
One purpose of this case is to show volatility and to also show that sales for business marketers
can sometimes depend too heavily on one or two accounts. In this instance, sales varied greatly
due to the reliance on a couple of key accounts and assuming demand slowed for Apple, it affected
Ferguson. You can use Apples demand problems to relate volatility.
2. How can Ferguson Industries stabilize sales?
Sales can be stabilized by increasing the number of customers and by carefully selecting customers
that could represent a large portion of Fergusons sales. Ferguson may also want to implement size
limits on accounts. Some companies have set policies such as no account will represent more than
10% of the companys total sales in order to minimize the impact of any given account.

Magnusson Manufacturing
What are some alternatives that Sven should consider? Discuss the factors that should affect
their decision, paying particular attention to the factors influencing the types of organizations
they should sell to or through.
This caselet would be answered far differently later on in the course, after students have had the
channels chapter. For now, the issue is Svens decision to add salespeople. When discussing the
case, you may want to mention that it is much more common in Europe to write orders at trade
shows; in fact, a company may do all of its business at a show. So Magnussons over-reliance on
trade shows is due to their expectations based on their European experience. In the States, they
need to add some form of follow-up. They could use telemarketing and/or direct mail to follow up
after trade shows, or they could use manufacturers reps who represent a number of different lines.
However, given the type of product (manufacturing software) and its probable complexity, it may
make more sense to sell through a specialized distributor or use company reps.
Some of the factors to consider if choosing a distributor included the types of other products they
sell, who their customers are, how much service can they provide, and factors such as reputation.
These same factors should probably be considered for telemarketers and rep firms. Sven should
also examine what types of manufacturers are buying the software and not just consider geographic
concentration. If certain industries seem to be more receptive than others, Sven can then compare
that profile to the customer profile of potential distributors.

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