Name : Adissa Maura S.

SIN : 12010121190105

Marketing Management

CHAPTER 4
Analyzing Business Markets
The organizational buying process involves how formal organizations make decisions to purchase
goods and services. Business markets encompass various industries and involve substantial
transactions. A significant challenge in business-to-business marketing is commoditization, which
erodes profit margins. To address this, marketers must establish and communicate meaningful
differences between their offerings and those of competitors.

Business markets differ from consumer markets in several ways, such as having fewer, larger buyers,
close supplier-customer relationships, and professional purchasing. Multiple factors influence buying
decisions in business markets, including derived demand and fluctuating demand.

There are three primary types of business-buying situations: straight rebuy, modified rebuy, and new
buy, each with its complexities.

The buying center, comprising individuals and groups within an organization, plays a crucial role in
purchase decisions. These roles include initiators, users, influencers, deciders, approvers, buyers, and
gatekeepers, with varying degrees of importance.

In recent years, companies have elevated their purchasing departments to strategic positions,
emphasizing the importance of procurement and supply chain management in achieving value from
fewer, high-quality suppliers.

In the business buying process, various factors come into play within the buying center, where
individuals have differing interests, authority, status, and persuasibility. Engineers, production staff,
financial personnel, and union representatives may emphasize different aspects when evaluating
purchases. Personal factors such as age, income, education, job position, and personality also
influence buying center dynamics. Some buyers prioritize simplicity, expertise, quality, or
comprehensive solutions.

Ultimately, purchasing decisions are made by individuals driven by their personal needs and
perceptions, even though organizational needs legitimize the buying process. Business buyers aim to
solve both the organization's economic and strategic problems and fulfill their own need for
achievement and reward.

To sell effectively to buying centers, marketers must identify the key participants, understand their
influence on decisions, and comprehend their evaluation criteria. Team efforts and interpersonal
dynamics often shape buying decisions. Smaller sellers may focus on key influencers, while larger
ones engage extensively with multiple participants. Understanding customers' customers (end users)
can also provide valuable insights.
The business-buying process involves several stages, including problem recognition, need
description, product specification, supplier search, proposal solicitation, supplier selection, contract
negotiation, and performance review. Each stage requires tailored marketing strategies, with a focus
on emphasizing the value and benefits offered by the supplier's products or services.

Online buying has become increasingly important, with electronic marketplaces, catalog sites,
vertical markets, and private exchanges playing vital roles. Suppliers need to adapt to these digital
trends while maintaining customer loyalty and addressing security concerns.

Business-to-business marketers are utilizing a wide range of marketing strategies to attract and retain
customers. These strategies include transitioning from selling products to providing solutions,
enhancing services, building strong business-to-business brands, and dealing with price pressures.

1. **Transitioning to Solutions**: Many business buyers prefer to purchase comprehensive solutions

from a single seller. This approach, known as systems buying, simplifies the procurement process for
buyers. Sellers are adapting to this preference, with technology companies like HP, IBM, Oracle, and
Dell offering end-to-end solutions as businesses transition to the cloud.

2. **Enhancing Services**: Services are becoming increasingly important for business-to-business

firms that primarily sell products. Companies are adding high-quality services to their product
offerings to provide greater value to customers. For example, Rolls-Royce offers long-term repair and
maintenance contracts in addition to selling engines and replacement parts, resulting in higher profit
margins.

3. **Building Business-to-Business Brands**: Business marketers are recognizing the significance of

their brands in building trust and ensuring product quality. Brands provide peace of mind to both
managers and stakeholders. Companies like ABB have undertaken extensive rebranding projects to
strengthen their global market positions.

4. **Overcoming Price Pressures**: Negotiating prices remains a significant aspect of business

transactions, despite efforts to focus on strategic sourcing and partnering. Marketers employ various
tactics to counter price-oriented buyers, including framing, demonstrating total cost of ownership,
and highlighting the value of services and support. Collaboration and economic value analysis (EVA)
are also used to address price pressures by focusing on delivering value to customers.

Managing business-to-business (B2B) relationships involves several key factors, including supply
chain management, supplier involvement, purchasing alliances, understanding buyer-supplier
dynamics, building trust and credibility, managing risks, and addressing unique considerations in
institutional and government markets.

1. **Loyalty through Supply Chain Management**: Loyalty in B2B relationships is influenced by

effective supply chain management. Companies strive to create value for both parties by
coordinating and optimizing their supply chain processes.

2. **Understanding Buyer-Supplier Relationships**: Four major forces shape buyer-supplier

relationships: availability of alternatives, importance of supply, complexity of supply, and supply
market dynamism. Depending on these forces, relationships can range from basic buying and selling
to more collaborative partnerships.
3. **Managing Trust, Credibility, and Reputation**: Trust is a crucial element in B2B relationships. It
depends on factors like perceived competence, integrity, honesty, and benevolence. Companies build
trust by providing honest information, aligning employee incentives with customer needs, and
offering valid product comparisons. Corporate credibility is also essential and depends on expertise,
trustworthiness, and likability.

To summarize:

1. Organizational buying is the process by which formal organizations establish the need for
purchased products and services, and then identify, evaluate, and choose among alternative brands
and suppliers. The 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.

2. Compared with consumer markets, business markets generally have fewer and larger buyers, a
closer customer–supplier relationship, and more geographically concentrated buyers. Demand in the
business market is derived from demand in the consumer market and fluctuates with the business
cycle. Nonetheless, the total demand for many business goods and services is quite price inelastic.

3. The buying center is the decision-making unit of a buying organization. It consists of initiators,
users, influencers, deciders, approvers, buyers, and gatekeepers. To influence these parties,
marketers must consider environmental, organizational, interpersonal, and individual factors. 4.
Successful business-to-business marketing requires that marketers determine not only the types of
companies on which to focus their selling efforts but also whom to concentrate on within the buying
centers in those organizations. In developing selling efforts, business marketers can also consider
their customers’ customers, or end users. 5. The buying process consists of eight stages: problem
recognition, need description, product specification, supplier search, proposal solicitation, supplier
selection, contract negotiation, and performance review. Business marketers must ensure that the
value of their offerings comes through at each stage of the buying process. 6. Business-to-business
marketers are using a variety of marketing tools to attract and retain customers. They are
strengthening their brands and using technology and other communication tools to develop effective

4. **Managing Risks and Opportunism**: B2B relationships involve managing risks related to specific
investments tailored to a particular partner. Specific investments can lock firms into relationships and
involve sharing sensitive information. Opportunism, which includes cheating, undersupply, or
negligence, can occur when one party fails to meet expectations. Joint ventures may be formed to
reduce opportunism in highly specific investments.

5. **Managing Institutional Markets**: Institutional markets, such as schools, hospitals, and prisons,
have unique buying criteria. Quality, cost, and reputation are essential factors. Vendors often create
specialized divisions to cater to the specific needs of institutional buyers. In government markets,
suppliers must navigate complex regulations, bidding processes, and paperwork requirements.
Emphasis is often placed on cost justification, and businesses must demonstrate their ability to meet
government requirements.

6. **Government Procurement**: Government procurement involves extensive paperwork,

regulations, and public review. Suppliers need to follow guidelines and demonstrate the bottom-line
impact of their products or services. The government has been working to simplify procurement
processes, encourage off-the-shelf purchases, and improve communication with vendors through
online platforms. They are also using systems selling and are adding services to provide customers
added value.

7. Business marketers must form strong bonds and relationships with their customers. Building trust
is one prerequisite to enjoying healthy long-term relationships. Trust depends on factors such as the
firm’s perceived competence, integrity, honesty, and benevolence. Business marketers need to be
aware of the role of professional purchasers and their influencers, the need for multiple sales calls,
and the importance of direct purchasing, reciprocity, and leasing. 8. The institutional market consists
of schools, hospitals, retirement communities, nursing homes, prisons, and other institutions that
provide goods and services to people in their care. Buyers for government organizations tend to
require a great deal of paperwork from their vendors and to favor open bidding and domestic
companies. Suppliers must be prepared to adapt their offers to the special needs and procedures
found in institutional and government markets.