Principles of Marketing

CHAPTER 6: BUSINESS MARKETS AND

BUSINESS BUYING BEHAVIOR
 Business Markets and
Business Buying Behavior

• Business Markets
• Business Buyer Behavior
• The Business Buying Process
• E-Procurement: Buying on the Internet
• Institutional and Government Markets

Chapter 6- slide 2
 Business Markets

Business buyer behavior refers to the buying behavior of

the organizations that buy goods and services for use in
production of other products and services that are sold,
rented, or supplied to others.

Business buying process is the process where business

buyers determine which products and services are needed to
purchase, and then find, evaluate, and choose among
alternative brands.

Chapter 6- slide 3
 Business Markets
Market Structure and Demand

Fewer and larger buyers

Geographic concentration

Derived demand
• Inelastic demand
• Fluctuating demand

Buyer and seller

dependency
Chapter 6- slide 4
 Business Markets
Types of Decisions and the Decision
Process
Supplier development is the systematic
development of networks of supplier- partners to
ensure an appropriate and dependable supply of
products and materials that they will resell or use in
making their own products

E.g. Supplier-partners of IKEA assist in designing

process hence ensuring value-proposition across the
chain.

Chapter 6- slide 5
 Nature of Buying Unit

• More decision participants: More people

typically influence business buying decisions.
Well-trained technical buyers.
• More professional purchasing effort:
Business goods are often purchased by trained
purchasing agents, who must follow their organizations’
purchasing policies, constraints, and requirements.
requests for quotations, proposals, and purchase
contracts— are not typically found in consumer buying.
• Complex, formalized decisions

Chapter 6- slide 6
Business Buyer
Behaviour

Chapter 6- slide 7
Model: Business Buyer
Behaviour

01 02 03 04
What Buying Who What are the How do
decisions do participates in major influence business buyers
business buyers the buying factors for the make their
make? process? buyers? buying
decisions?
 Business Buyer Behavior

1- Major Types of Buying Situations

Straight rebuy is a routine purchase decision such

as reorder without any modification.

E.g. Office supply or Bulk Chemical

- ‘In-suppliers’ vs. ‘Out-suppliers’

Chapter 6- slide 9
  Modified rebuy is a purchase
decision that requires some
research where the buyer wants to
modify the product specification,
price, terms, or suppliers
- This usually requires additional
Major participant.
types of - Threat for in-suppliers, opportunity
buying for ‘out-suppliers’
situations New task purchaser buys a product
or service for the first time (an office
building, a new security system). The
greater the cost or risk, the larger the
number of participants, and the
greater their information gathering—
the longer the time to a decision
• Systems selling involves the purchase of a
packaged solution from a single seller.
• Systems selling is a key industrial marketing strategy
in bidding to build large-scale industrial projects such
as dams, steel factories, irrigation systems, sanitation
systems, pipelines, utilities, and even new towns
• Customers present potential suppliers with a list of
project specifications and requirements.
• Project engineering firms must compete on price,
quality, reliability.
• Example: Selling to Indonesian Government

Major types of buying situations

 Business Buyer Behavior
2- Participants in the Business Buying
Process
Buying center is all of the individuals and units that
participate in the business decision- making process
– Users
– Influencers
– Buyers
– Deciders
– Gatekeepers
 Business Buyer Behavior

Participants in the Business Buying

Process
Buying Center
• It consists of “all those individuals and groups who
participate in the purchasing decision-making
process, who share some common goals and the
risks arising from the decisions.
 Participants in the Business Buying
Process
Users are those that will use the product or service. Initiate
buying process by help defining product requirements

Influencers help define specifications and provide

information for evaluating alternatives. Example:
Technical personnel

Buyers have formal authority to select the supplier and arrange

terms of purchase. Selecting vendors and negotiating.

Deciders have formal or informal power to select and approve

final suppliers.
Gatekeepers control the flow of information. For example,
purchasing agents, receptionists, and telephone
operators may prevent salespersons from contacting users or deciders.
 Business Buyer Behavior

Influence Factors on Business Buyers

Chapter 6- slide 15
Business Buyer Behavior
Major Influences on Business Buyers

Economic Personal
Factors Factors

Price
E
m
o
t
Major Influences on Business Buyers
Environmental Factors

Demand for Economic Cost of

product outlook
money

Resource
availability Technology Culture
(scarce?)

Politics Competition
Major Influences on Business Buyers
Organizational Factors

Objectives
Policies
Procedures
Structure
Systems
 Major Influences on Business Buyers
Interpersonal Factors

Motives Perceptions Preferences

Age Income Education

Attitude
toward risk
Business Buyer Behavior
The Buying Process
 BusinessBuying Process
The Buying Process
Problem recognition occurs when someone in the
company recognizes a problem or need
• Internal stimuli
– Need for new product or production equipment

– The previous equipment was unsatisfactory, an

alternate required.
• External stimuli
– Idea from a trade show or advertising
 Business Buying Process

General Need Description: describes the characteristics

and quantity of the needed item.
 For complex items, the buyer will work with others—
engineers, users—to define characteristics such as
reliability, durability, or price
 Product specification describes the technical criteria
Product Value Analysis (PVA) is an approach to cost reduction
where components are studied to determine if they can be redesigned,
standardized, or made with less costly methods of production
 HP’s design for recycling award.
 Sellers can use PVA to get new accounts by showing buyers better way to produce a
product
 Supplier search involves compiling a list
of qualified suppliers via trade directories,
contacts with other companies, trade
advertisements, trade shows, and the
Internet.
§ Newer and costlier the buying task,
Business more complex the decision making
§ Salespersons must look for
Buying companies in their buying phase.
Process Proposal solicitation is the process of
requesting proposals from qualified
suppliers
§ 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.
Business
Buying
Process
S
upplier Selection is
the process when the
b
uying center creates a
list of desired supplier
at
tributes and negotiates
with preferred suppliers
for favorable terms and
conditions
-
May choose one or
more than one
suppliers
 Order-routine specifications is the final
order with the chosen supplier and lists
Business all of the specifications and terms of the
purchase
Buying
- Vendor-managed inventory may be used
Process
- Buyers share inventory information
directly with suppliers (Walmart)
 Business Buyer Behavior

The Buying Process

Performance review involves a critique of

supplier performance to the purchase terms
Business Buyer Behavior

E-Procurement

• Online purchasing (Ebay-via auction)

• Company-buying sites (GE, inviting
bids via its online trading site)
• Extranets (direct procurement
accounts for suppliers e.g. Dell)
 E-Procurement
• Advantages
– Access to new suppliers
– Lowers costs
– Speeds order processing and delivery
– Shares information
– Sales
– Service and support
• Disadvantages
– Can erode relationships as buyers search for new
suppliers
– Security
Institutional and Government Markets

Institutional markets consist of hospitals,

nursing homes, and prisons that provide
goods and services to people in their care
Characteristics
– Low budgets
– “Captive” audience
– E.g. Food for hospital
Institutional and Government Markets

Government markets tend to favor domestic

suppliers and require suppliers to submit
bids and normally award to the lowest
bidder
• Usually to local bidders