Marketing

Manageme
nt
Chapter 6: Analyzing
Business Market

Chapter questions

What is the business market, and how does it differ from the
consumer market?

What buying situations do organizational buyers face?

Who participates in the business-to-business buying process?

How do business buyers make their decisions?

How can companies build strong relationships with business

customers?

How do institutional buyers and government agencies do their

buying?

Content
I. What is organizational buying?

II. Participants in the business

buying process

III. Managing business-tobusiness customer relationships

I. What is organizational
buying ?
What is business market?

A business market is a group of profit making

organizations that buy goods and services for business
use.

It consists of industries, distributors and retailers.

This market has rational buying with and experiences

an inelastic demand.

How does it differ from the consumer

Consumer
Business
market
?
Every customer has equal value and
There are a small number of big customers that
represents a small % of revenue

account for a large % of revenue

Sales are made remotely, the manufacturer

doesn't meet the customer

Sales are made personally, the manufacturer

gets to know the customer

Products are the same for all customers. The Products are customized for different
service element is low
customers. Service is highly valued
Purchases are made for personal use - image Purchases are made for others to use - image is
is important for its own sake
important where it adds value to customers
The purchaser is normally the user

The purchaser is normally an integrator,

someone down the supply chain is the user.

Costs are restricted to purchase costs

Purchase costs may be a small part of the total

costs of use

The purchase event is not subject to tender

and negotiation

The purchase event is conducted

professionally and includes tender and
negotiation.

The exchange is one off transaction.

There is no long-time view (financial

The exchange is often one of strategic

intent. There is the potential for long term

Characteristics of Business Markets

Fewer, larger buyers

Close supplier-customer relationships

Professional purchasing

Multiple buying influences

Multiple sales calls

Derived demand

Inelastic demand

Fluctuating demand

Geographically concentrated buyers

Direct purchasing

Buying situations
Reorders supplies (office supplies, bulk
Straigh chemicals) at a routine basis and chooses
t rebuy from list of suppliers.
The buyer want to modified products specs,
Modifie prices, delivery requirements from previous
d rebuy orders.
New
task

Purchaser buys a products for the first time

Systems Buying and Selling

Many business buyers prefer to buy a total problem solution from
one seller. Called systems buying , this practice originated with
government purchases of major weapons and communications
systems . The government solicited bids from prime contractors
that, if awarded the contract, would be responsible for bidding out
and assembling the systems subcomponents from second-tier
contractors. The prime contractor thus provided a turnkey
solution, so-called because the buyer simply had to turn one key
to get the job done.
Sellers have increasingly recognized that buyers like to purchase
in this way, and many have adopted systems selling as a
marketing tool. One variant of systems selling is systems
contracting, in which a single supplier provides the buyer with its

II. Participants in the business

buying process
Who buys the trillions of dollars worth of goods and services needed by
business organizations? Purchasing agents are influential in straight-rebuy
and modified-rebuy situations, whereas other department personnel are
more influential in new-buy situations. Engineering personnel usually have
a major influence in selecting product components, and purchasing agents
dominate in selecting suppliers.

The buying center

1. Initiators

Those requesting the product

2. Users

Those who will you use the product or service

3. Influencers

Those who influence the buying decisions

4. Deciders

Those who decide on products reqs & suppliers

5. Approvers

Those authorizing actions of buyers

6. Buyers

Those who have authority to select supplier & arrange

purchase terms

7. Gatekeepers

tho who prevent information from reaching

Those
members of buying center

Stages in Buying Process

Problem
recognition

Supplier
selection

Order
routine
specificatio
n

General
need
description

Proposal
solicitation

Performanc
e review

Product
specificatio
n

Supplier
search

Problem Recognition
The buying process begins when someone in the company
recognizes a problem or need that can be met by acquiring a
good or service.
General Need Description and Product Specification
Next, the buyer determines the needed items general
characteristics and required quantity.
Proposal Solicitation
The buyer next invites qualified suppliers to submit proposals. If
the item is complex or expensive, the proposal will be written
and detailed. After evaluating the proposals, the buyer will invite
a few suppliers to make formal presentations.
Supplier Search
The buyer next tries to identify the most appropriate suppliers
through trade directories, contacts with other companies, trade

Searching for suppliers

Catalog sites
Vertical markets
Pure play auction
sites
Spot markets
Private exchanges
Barter markets
Buying alliances

Electronic catalogs
Ordering raw materials from specialized websites
Online marketplaces (Ebay, Amazon)
On spot electronic markets, prices change by the
minute
Private exchange to link groups of suppliers over the
web
Participants offer to trade goods or services
Companies buying the same goods join together to
form purchasing consortia

Supplier Selection

Before selecting a supplier, the buying center will specify

and rank desired supplier attributes, often using a supplierevaluation model such as the one in

Overcoming Price Pressures

Limit quantity purchased

Allow no refunds

Make no adjustments

Provide no services

The Buy grid Framework

New Task
Problem recognition
General need description

Modified Rebuy

Maybe
Maybe

Product specification
Supplier search

Maybe

Proposal solicitation

Maybe

Supplier selection

Maybe

Order-routine specification
Performance review

Maybe

Straight Buy

Researching Customer Value

Internal engineering assessment

Field value-in-use assessment

Focus-group value assessment

Direct survey questions

Conjoint analysis

Benchmarks

Compositional approach

Importance ratings

Order routine specification

The buyers negotiates: The final order; listing the technical

specifications; the quantity needed; the expected time of delivery;
return policies; warranties

Performance review
Three methods:
1.

The buyer may contact the end users and ask for their evaluations

2.

The buyer may rate the supplier on several criteria using a

weighted score method

3.

The buyer might aggregate the cost of poor performance to come

up with adjusted costs of purchase including price

III. Managing Business- to- Business

Customer Relationships

The Benefits of Vertical Coordination

Create more value for both buying partners

and sellers partners

Establishing Corporate Trust and

Credibility

Factors of buyer-supplier
relationships
Availabili
ty of
alternativ
es

Importan
ce of
supply

Complexi
ty of
supply

Supply
market
dynamis
m

Categories of Buyer-Supplier
Relationships
Basic
buying
and
selling

Cooperati
ve
systems

Bare
bones

Collaborati
ve

Contractu
al
transactio
n

Mutually
adaptive

Customer
supply

Customer
is king

The Benefits of Vertical Coordination

1. Basic buying and sellingThese are simple, routine exchanges with
moderate levels of cooperation and information exchange.
2. Bare bonesThese relationships require more adaptation by the seller and
less cooperation and information exchange.
3. Contractual transactionThese exchanges are defined by formal contract
and generally have low levels of trust, cooperation, and interaction.
4. Customer supplyIn this traditional custom supply situation, competition
rather than cooperation is the dominant form of governance.
5. Cooperative systemsThe partners in cooperative systems are united in
operational ways, but neither demonstrates structural commitment through
legal means or adaptation.
6. CollaborativeIn collaborative exchanges, much trust and commitment
lead to true partnership.
7. Mutually adaptiveBuyers and sellers make many relationship-specific
adaptations, but without necessarily achieving strong trust or cooperation.

The relationship between

advertising agencies and clients
In the relationship
formation stage, one
partner experienced
substantial market
growth.

Information
asymmetry between
partnership would
generate more profit
than if the partner
attempted to invade
the other firms area

Dependence
asymmetry existed
such that one partner
was more able to
control or influence the
others conduct

At least one partner

had high barriers to
entry that would
prevent the other
partner from entering
the business

One partner benefited

from economies of
scale related to the
relationship

Business Relationship : Risks and Opportunism

Opportunism is a
concern

Vertical coordination can facilitate stronger customer

seller ties but increase the risk to the customers and

Institutional and Government

Markets

Institutional market consists of schools ,hospitals, nursing

home, prisons and other institutions that provide goods and
services to people in their care

Institutional and Government Markets

( Cont )

Buyers for government organization 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

Summary
Business

markets differ from consumer markets

Business

buyers make purchase decisions base on different buying

situations
The

buying process consists of eight stages.

sellers use different sales strategies according to their size. One is to

use e marketplaces

There

are also different strategies in handling price oriented

customers
Business

marketers must form strong bonds and relationships with

their customers and provide them added value.