Chapter 8

Business Markets and Buying Behavior

  1. Business Markets (B2B Markets)
      1. “consists of individuals, organizations or groups that purchase a specific kind of product for resale, direct use in producing other products, or use in general daily operations”
      2. similar to consumer markets but there are structural/behavioral differences in B2B markets
        1. must understand how product will affect other FIRMS in the marketing channel (resellers, manufacturers, etc...)
        2. products can be technically complex
        3. buyers more sophisticated
          • know about the products
          • have specific tech/spec questions relating to product
      3. relationships often based on long term mutually profitable relationships across members of marketing channel
    1. Producer Markets
      1. “individuals and business organizations that purchase products to make profits by using them to produce other products or using them in their operations”
      2. include buyers of raw materials, and purchasers of finished/semifinished items used to produce other products
    2. Reseller Markets
      1. “consist of intermediaries, such as wholesalers and retailers, that buy finished goods and resell them for a profit”
      2. do not change physical characteristics of the products they handle
      3. all consumer products (except direct sellers) go through resellers
      4. wholesalers purchase products for resale to retailers, other wholesalers and producers, governments and institutions
      5. retailers resell to final consumer
      6. when purchasing, retailers
        1. evaluate level of demand
          • determines quantity/price
        2. asses amount of space needed w/in store
        3. appraise supplier's ability to restock when needed
        4. ease of placing order
        5. availability of tech assistance/training programs
        6. new products: how it competes with/compliments currently stocked products
    3. Government Markets
      1. “federal, state, county or local governments that buy goods and services to support their internal operations and provide products to their constituencies”
        1. ex: office supplies, health care services, vehicles, heavy equipment, weapons
      2. provide highways, education, water, energy, national defense, etc...
      3. Types/quantity of products reflect social demands on government agencies
      4. accountable to public → relatively complex set of buying procedures
      5. make purchases through bids or negotiated contracts
        1. bids (bidding system)
          • firms must apply/be approved for placement on list of qualified buyers
          • government unit sends out detailed description of products to qualified bidders
          • businesses submit bids to government
          • government unit (usually) required to accept lowest bid
        2. negotiated contract
          • used when buying nonstandard or highly complex products
          • government selects only a few firms
      6. advantage: very lucrative contracts
      7. disadvantage: intimidating requirements/red tape
    4. Institutional Markets
      1. “organizations with charitable, educational, community or other nonbusiness goals”
      2. members: churches, hospitals, frats/sororities, charitable organizations, private colleges
      3. have different goals/fewer resources → marketers use special marketing efforts to serve them
  2. Dimensions of Marketing to Business Customers
    1. Characteristics of Transactions with Business Customers
      1. big purchases (quantity and price)
      2. long-term agreements
      3. take lots of marketing time/effort
        1. collaboration of many departments
        2. departments need for product, develops specs, sets max expenditures, places order
      4. reciprocity
        1. “an arrangement unique to business marketing in which two organizations agree to buy from each other”
        2. agreements with threaten competition are illegal
        3. can lead to lower morale among agents and lead to less than optimal purchases
    2. Attributes of Business Customers
      1. better informed
      2. demand detailed info/specs about product
      3. psychological satisfaction that comes from organizational advancement and financial rewards
    3. Primary Concerns of Business Customers
      1. consider: price, product quality, service and supplier relationship
      2. likely to compare price of product vs. benefits product will yield to the organizations, often over a period of years
      3. quality
        1. standards (% of defects)
        2. specifications (set of characteristics)
          • drop suppliers who have product that does not meet specs
          • don't often buy from those that exceed specs since pricey/extra features may be considered wasteful
      4. service
        1. desired
          • market info
          • inventory maintenance
          • can resupply customer easily/quickly
          • on-time delivery
          • business buyers responsible for timely product output
          • repair services
        2. need
          • tech product info
          • data regarding demand
          • info about general economic conditions or
          • supply and delivery info
        3. quality
          • customer service (complaints/questions/orders)
        4. costs of developing/maintaining relationship with suppliers
          • reduce search efforts/expenses → loyalty
    4. Methods of Business Buying
      1. description
        1. can choose product/seller by describing if products are standardized (size, shape, weight, color, etc...)
          • can specify quantity, grade and other attributes
          • common between pre-existing B2B relationships
      2. inspection
        1. condition, faulty parts, age, used, etc..
      3. sampling
        1. take section of product from lot to test, assuming all product is represented by the sample
        2. appropriate when product is homogeneous and examining entire lot is not feasible
      4. negotiation
        1. buyers submit specs, sellers submit bids
        2. most often used for onetime projects
          • buildings, capital equipment, special projects
    5. Types of Business Purchases
      1. new-task purchase
        1. “an organization makes an initial purchase of an item to be used to perform a new job or solve a new problem”
        2. may require development of product specs, vendor specs, and procedures for future purchases of that product
        3. important-can mean future, consistent sales
      2. straight rebuy purchase
        1. “a routine purchase of the same products under approximately the same terms of sale by a business buyer”
        2. use same suppliers, terms of sale, specs
        3. try to set up automatic reorder systems
      3. modified rebuy purchase
        1. “a new task purchase that is changed on subsequent orders or when the requirement of a straight rebuy purchase are modified”
        2. seeking faster delivery, lower prices, different quality level
        3. may cause suppliers to be more competitive
        4. change in terms of service counts as modified rebuy
    6. Demand for Business Products
      1. Derived demand
        1. “demand for industrial products that stems from demand for consumer products”
        2. no B2B demand is free from consumer demand
      2. Inelastic Demand
        1. “demand that is not significantly altered by a price increase/decrease”
        2. applies only to industry demand for business products, not to the demand an individual firm faces
      3. Joint Demand
        1. “demand involving the use of two or more items in combination to produce a product”
        2. especially for raw materials
      4. Fluctuating Demand
        1. tied to consumer demand/consumer purchasing → fluctuates greatly without warning
  3. Business Buying Decisions
      1. business (organizational) buying behavior
      2. “refers to the purchase behavior of producers, government units, institutions, and resellers
    1. The Buying Center
      1. “the groups of people within the organizations who make business purchase decisions”
      2. users
        1. will be the ones to use the product
        2. usually initiate purchase process/generate purchase specs
        3. after, evaluate product performance
      3. influencers
        1. tech personnel
        2. help develop specs and evaluate alternate products
        3. important when product involved new/advanced technology
      4. buyers
        1. select suppliers and negotiate terms of purchase
        2. may be involved in developing specs
        3. “purchasing agents” or “purchasing managers”
        4. straight relay-major rule in vendor selection/negotiations
      5. deciders
        1. choose products
        2. for routinely purchased items, buyers=deciders
      6. gatekeepers
        1. secretaries, tech personnel
        2. control flow of info to/among others within buying center
        3. buyers who deal directly with vendors=gatekeepers
      7. size of buying center
        1. bigger for new-task than straight rebuy
    2. Stages of the Business Buying Decision Process
      1. Step 1: Recognize the Problem
        1. machine malfunction, firm modifies/introduces product, etc...
        2. users, influncers, buyers
      2. Step 2: Develop Product Specifications to solve the problem
        1. buying center participants assess problem/need to determine what is necessary to resolve/satisfy it
        2. users, influencers
      3. Step 3: Search for and Evaluate possible products and suppliers
        1. look in company files and trade directories, contact suppliers for info, solicit proposals from known vendors, examine websites, catalogs and trade publications
        2. value analysis
          • “an evaluation of each component of a potential purchase”
          • examines quality, design, materials, possibly item reduction/deletion to save costs
        3. vendor analysis
          • “a formal, systematic evaluation of current and potential vendors”
          • focuses on price, quality, deliver service, availability and overall reliability
      4. Step 4: Select product and supplier and order product
        1. this stage uses results from 3rd stage
        2. multiple sourcing
          • “an organization's decision to use several suppliers”
        3. sole sourcing
          • “an organizations decision to use only one supplier”
        4. firms with federal government contracts required to have several sources for item
        5. sole sourcing discouraged except when only one supplier exists for the product
        6. however, sole sourcing common because better communications between buyer and supplier, stability, seller price up and buyer price down
        7. multiple sourcing reduces possibility of shortage by strike, shortage, or bankruptcy
      5. Step 5: Evaluate product and supplier performance
        1. compare product with specs
        2. results become feedback for other stages in future business purchasing decisions
      6. 5 step process used primarily with new-task purchases & several (but not necessarily all) stages used for modified rebuy and straight rebuy
    3. Influences on the business buying decision process
      1. Environmental
        1. competitive and economic factors, political forces, legal/regulatory forces, technological changes, sociocultural issues
        2. factors → uncertainty → apprehensive buying center
      2. Organizational
        1. company's objective, purchasing policies, and resources, size and composition of buying center
      3. Interpersonal
        1. relationship among people in buying center
        2. trust needed
        3. dynamics often hidden, making it difficult for marketers to assess
      4. Individual factors
        1. personal characteristics of people in buying center
          • age, education level, personality, tenure, position in organization
  4. Using Industrial Classification Systems
    1. Identify Potential Business Customers
      1. SIC (Standard Industrial Classification) system
        1. developed by federal government to classify selected economic characteristics of industrial, commercial, financial and service organizations
      2. NAICS (North American Industry Classification System)
        1. “an industry classification system that generates comparable statistics among the US, Canada and Mexico”
        2. replaced SIC
        3. generate comparable stats among NAFTA countries
        4. classification based on types of production activities performed
        5. similar to ISIC (Europe)
        6. SIC: 10 divisions, NAICS: 20 divisions
        7. industry classification: NAICS>SIC
        8. industry classification systems enable marketers to categorize organizations into groups based on types of goods/services provided
        9. Input-outputs works well with ICS's (industry classification systems)
          • based on assumption that output (sales) of one industry is input (purchases) of others
      3. Input-output data
        1. “information that identifies what types of industries purchase the products of a particular industry”
        2. survey of current business (major source of data)
      4. Output data → find industrial classifications #s for those industries
      5. IC #s → find # of organizations that are potential buyers
    2. Estimating Purchase Potential
      1. marketer must find relationship between size of customers' purchases and variable available in IC data
        1. IC variable = example: # of employees
        2. once relationship established → applied to customer groups to estimate potential purchases
        3. then select customer groups with most sales and profit potential
      2. problems with IC data
        1. a few industries don't have specific designations
        2. transfer of products from one establishment to another is counted as part of total shipments
          • may be double counted when transferred within the same firm
        3. some data (such as value of total shipments) may be understated
        4. lags exist between data collection time and release of information