Analyzing Business Markets and Business Buying Behavior

Chapter 8Analyzing Business

Markets and Business Buying Behavior

Organizational Buying• This is the decision-making process by which formal

organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers.

• For example, rather than manufacturing the parts themselves, computer manufacturers often buy

computer parts and put them together to create a finished product.

• (Lenovo Product with Intel Processor)

The Business Market Versus The Consumer Market

• For use in the operation of a

business or organization.

• To manufacture other products

• For resale to others

Organizational Product

For personal or household use Consumer

Product

Business Market

• consists of all the organizations that acquire goods and services used in the production of other products or services that are sold, rented, or supplied to others.• Example: • Mattel buys everything from plastic to paints to

produce toys.

Fewer Buyers, larger Buyers

Fewer buyers: Business marketers normally deal with far fewer buyers than do consumer marketers.

Larger buyers: Buyers for a few large firms do most of the purchasing in many industries.

Close Supplier-customer Relationship• Business Market relationship is often are more

complex than consumer relationships, and they require superior communication among the organizations’ personnel. • Basic aim here is long term relationship. • primary goal of business market relationship is to

provide advantages( lower price, quicker delivery, better quality and reliability, customized product features, more favorable financing terms and so on).

Geographically Concentrated Buyers

• Certain industries locate in particular areas to be close to customers.• concentrated buyers Geographical

concentration of producers helps to reduce selling cost.• Business marketers need to closely monitor

regional shifts of certain industries. Selling costs are reduced with the geographical concentration of the producers.

Derived Demand

• Derived Demand refers to the linkage between demand for a company’s output and its purchases of resources such as machinery, components, suppliers and raw materials. • Ex. The demand for computer microprocessor chips derived

from the demand for personal computer.

Inelastic Demand

• Demand throughout an industry will not change significantly due to the price change.• Example: • If the price of lumber drops, a construction firm will not

necessarily buy more lumber from its supplier unless another factor – such as low mortgage inteterest rates – causes more consumers to purchase new homes.

Fluctuating DemandDerived demand creates volatility in business market demand.

This happens when the demand for business goods and services tends to be more volatile than the demand for consumer goods and services.• Example: Assume the sales volume for a gasoline retailer is

increasing at an annual rate of 5%. Now supposed the demand for this gasoline brand slows to a 3% annual increase. This slow down might persuade the firm to keep its current gasoline pumps and replace them only market conditions improve.

Professional Purchasing• In the business market, the purchases are often made by trained

purchasing officials. Purchasing policies, constraints, requirements etc are to be followed.• Some companies designate centralized purchasing departments to

serve the entire firm, and others allow each unit to handle its own buying. A supplier may deal with one purchasing agent or several decision makers at various levels. Each of these structures results in different buying behavior.

Example :request for quotation, proposals, and purchase contacts.

Several Buying Influences• More people typically influence business buying

decisions. Buying committees are common in the purchase of major goods; marketers have to send well-trained sales reps and often sales teams to deal with these well-trained buyers.• Example: Metal supplier Phelps Dodge uses an

“account management approach” to reach all the key people who influence business buying decisions in customer organizations.

Multiple Sales Calls• Large sale cycles (often measured in years)

for large projects. Average industrial sale takes four sales calls to close.• In case of capital equipment sale for large

projects,it may take many attempts to fund a project, and the sales cycle-between quoting a job and delivering a product.

Directed Purchasing

•Business buyers often buy directly from the manufacturers rather than through intermediaries. •Example: mainframes, aircrafts etc.

Reciprocity•Business buyers often select suppliers who

also buy from them.•A practice of Buying from suppliers who are

also customers – is a controversial practice in a number of procurement situations. •An office manufacturer may favor a particular

supplier of component parts if the supplier has recently made a major purchase of the manufacturer’s products.

Leasing• Leasing is a process by which a firm can obtain the use

of certain fixed assets for which it must pay a series of contractual, periodic, or tax deductible payments. • leasing serves as an alternative method for customers

looking to use high-priced products and services . • For example, customers often lease software products.

The process works similar to leasing a car, where customers pay a fee over time to use the technology without owning the equipment. At the end of the lease, the hardware is returned or purchased at a fair market price .

Buying Situations

•Buying behavior also involves the degree of effort the purchase decision demands and the levels within the organization where it is made. • 1) straight rebuying 2) modified rebuying 3)

new -task buying

Systems Buying and SellingSystems Buying• A single provider provides the total package for

the buyer’s needs• practice originated with government purchases of

major weapons and communications systems.• May involve turnkey solutions

Systems Selling• Manufacturers sell entire systems• Supplier provides all MRO items (maintenance,

repair, operating)

Turnkey Solution

• is a type of project that is constructed so that it could be sold to any buyer as a completed product. This is contrasted with build to order, where the constructor builds an item to the buyer's exact specifications, or when an incomplete product is sold with the assumption that the buyer would complete it.

Participants in the Business Buying Process

(The Buying Center)

1.Initiators2.Users3.Influencers4.Deciders

5.Approvers6.Buyers7.Gatekeepers

The Buying Center•A company’s buying center encompasses everyone involved in any aspect of its buying activity.•Buying center participants in any purchase

seek to satisfy personal needs, such as participation or status, as well as organizational needs. A buying center is not part of a firm’s formal organizational structure. It is an informal group whose composition and size vary among purchase situations and firms.

7 Members of the Buying Centre

• Those who request that something be purchased. They may be users of others in the organization• These people who

“initiate” or start the buying process are called initiators. Initiators


•People in the organization who actually use the product or service. Users

7 Members of the Buying

Centre

•affect the buying decision, usually by helping define the specifications for what is bought.

Influencers


Centre

• have the formal authority and responsibility to select the supplier and negotiate the terms of the contract.

Decider


Centre•People who authorize the proposed actions of deciders or buyers are approvers. •They could also be personnel from top management or finance department or the users.Approver

s


•Buyers select suppliers and negotiate the terms of purchase.•They are people who have formal authority to select the supplier and arrange the purchase terms. They play a very important role in selecting vendors and negotiating and sometimes help to shape the product specifications.

Buyers


•A gatekeeper is like a filter of information. He is the one the marketer has to pass through before he reaches the decision makers.• control the flow of

information to other members of the buying center.

Gatekeepers

Figure 8-1:Major influences on industrial buying behaviorEnvironmen

talLevel of demand•Economic outlook• Interest rate• Rate of

technological change

• Political and regulatory

developments• Competitive developments

• Social responsibility

concerns

Organizational

• Objectives• Policies

• Procedures•Organizational structures

systems

Interpersonal

• Interest• Authority• Status• Empathy•Persuasive

-ness

Individual

AgeIncome

EducationJob positionPersonality

Risk attitudesculture

Business

buyer

Lean Production

• Enables the company to produce a more high-quality product at lower cost, in less time, using less labor. Lean production incorporates just-in-time (JIT) production, stricter quality control, frequent and reliable supply delivery, suppliers locating closer to customers, computerized purchasing, stable production schedules made available to suppliers, and single sourcing with early supplier involvement.

Just In Time (JIT)

An inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs.

Three company purchasing orientations (Buying Orientation)

the purchaser’s focus is short term and tactical(Procurement orientation)buyers simultaneously seek quality

improvements and cost reductions(Supply Chain Management Orientation)purchasing’s role is further broadened to

become a more strategic, value-adding operation

The Purchasing/ Procurement Process

Problem Recognition

General need

description

Product Specificatio

nSupplier Search

Proposal solicitation

Supplier Selection

Order Routine

Specification

Performance Review

Institutional And Government Markets

• Institutional Market•Larger buyers (Consists of schools, hospitals, nursing homes, prisons, and other institutions that must provide goods and services to people in their care.)

Institutional And Government MarketsGovernment Market

•government market is a market where the consumers are federal, state, and local governments. Governments purchase both goods and services from the private sector. Governments buy the same types of products and services as private sector consumers, plus some more exotic products such as aircraft carriers, fighter jets, tanks, spy satellites, and nuclear weapons

Reference • Marketing Management by

Philip Kotler (11th Edition)• Marketing Management: A

South Asian Perspective by Kotler, Keller Koshy, Jha (13th Edition)• Marketing Management by

Kotler, Keller (14th Edition)• Marketing Management by

Philip Kotler (Millenium Edition)

• Principles of Contemporary Marketing by David L. Kurtz (15th Edition)• www.slidshare.com• www.investopedia.com• www.wikipedia.com• www.cunsomerhandbook.co

m• www.learntechnicaltrading.

com