AECP 223 – Agricultural Marketing

Chapter 6
Business markets and business buyer behaviour

Ernst Idsardi
Chapter 6: Business markets and business buyer behaviour

Learning outcomes:

• Define the business market and explain how business markets differ from

consumer markets

• Identify the major factors that influence business buyer behaviour

• List and define the steps in the business buying decision process

• Compare the institutional and government markets, and explain how

institutional and government buyers make their buying decisions.

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Chapter 6: Business markets and business buyer behaviour

Key topics:

1. Business markets
o Characteristics of business markets
o Business buyer behaviour
o Major types of buying situations
o Participants in the business buying process
o Major influences on business buyers
o The business buying process
o E-procurement: Buying on the Internet

2. Institutional and government markets

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Business markets
• Most large firms sell to other businesses, for example food producers sell to
grocery stores, such as Clover selling their dairy products to Pick n Pay.

Business buyer behaviour: the buying behaviour of the firms that buy products
and services for use in the production of other products and services or for the
purpose of reselling or renting them to others at a profit.
• Business-to-business (B2B) marketers must aim to understand business markets
and buyer behaviour, and build profitable relationships by creating value.

Business buying process: the decision process by which business buyers

determine which products and services their firms need to purchase, and then
find, evaluate and choose among alternative suppliers and brands.

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Characteristics of business markets
1. Market structure and demand
• Far fewer but far larger buyers

For example – Weber’s final consumers include millions of braai enthusiasts

but the firm must sell its braais through selected, appropriate retailers, such as Makro.
• More geographically concentrated – more than half of South Africa’s business
buyers are concentrated in the four major metropolitan areas (Gauteng, Cape Town,
Durban/Pinetown and PE/Uitenhage).
• Business demand is derived demand – it comes from the demand for consumer
goods, which is why B2B marketers sometimes promote their products directly to
final consumers.

For example - Ultra Mel advertises their delicious custard made with real milk
in the mass media.

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Characteristics of business markets (2)

1. Market structure and demand

• Inelastic demand – price changes do not have a significant impact on demand,

especially over the short term.

For example – a drop in the price of yellowwood will not necessarily cause

dining-room furniture manufacturers to buy a lot more wood unless there is a

significant increase in demand.

• Fluctuating demand – demand changes more often and more quickly than demand

for consumer goods and services, and a small increase in consumer demand can

cause large increases in business demand.

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Characteristics of business markets (3)

2. Nature of the buying unit

• Business buying involves more decision participants and a more professional

purchasing effort.

• Buying is done by trained purchasing agents and several people are often

involved in the decision-making process (in the form of a buying committee).

• Many firms also have ‘supply management’ and ‘supplier development’

functions, with well-trained buyers who know a lot about the supplier firms.

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Characteristics of business markets (4)

3. Types of decisions and the decision process

• Buying decisions are more complex – involving large sums of money, complex

technical and economic considerations, and interactions among many people.

• Decision-making may therefore take longer.

• The process may be more formalised – with detailed product specifications,

written purchase orders, careful supplier searches and formal approval.

• The buyer and seller are more dependent on each other – B2B marketers often

work closely with customers during all stages of the buying process and customise

their offerings to individual customer needs.

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Characteristics of business markets (5)

3. Types of decisions and the decision process

• Relationships between customers and suppliers have grown to be quite close, with

many firms practising supplier development.

Supplier development: systematic development of networks of supplier-

partners to ensure an appropriate and dependable supply of products and

materials for use in making products or reselling them to others.

For example – hosting dedicated events for suppliers where buyers have the

opportunity to strengthen relationships with their suppliers.

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Business buyer behaviour

A model of business buyer behaviour:

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Business buyer behaviour (2)

• Revolves around the question – how do business buyers respond to various

marketing stimuli?

• To design effective marketing-mix strategies, the marketer must understand what

happens within the firm to turn stimuli into purchase responses.

• The model suggests four questions:

o What buying decisions do business buyers make?

o Who participates in the buying process?

o What are the major influences on buyers?

o How do business buyers make their buying decisions?

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Major types of buying situations
1. Straight re-buy
• Reordering without any modifications – based on past buying satisfaction, the
buyer simply chooses from various suppliers on its list.
• ‘In’ suppliers will try to maintain quality; ‘out’ suppliers will try to find new
ways to add value or exploit dissatisfaction.

2. Modified re-buy
• This is when the firm modifies the product and/or service specifications, prices,
terms or suppliers.
• It usually involves more decision participants than straight re-buy.
• ‘In’ suppliers may feel pressured to put their best foot forward to protect the
relationship; ‘out’ suppliers may use the opportunity to make a better offer to gain
new business.

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Major types of buying situations (2)
3. New task

• This applies when a firm buys a product or service for the first time.

• The greater the cost or risk, the more decision-makers involved and the greater

the effort to collect information.

• Involves the most decisions – product or service specifications, suppliers, price

limits, payment terms, order quantities, delivery times and services terms

• Because of the complexity of all these decisions, many businesses prefer a single

solution in the form of systems selling, instead of buying and putting all the

components together.

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Major types of buying situations (3)

Systems selling: buying a packaged solution to a problem from a single seller,

thus avoiding all the separate decisions involved in a complex buying situation.

• Systems selling is a two-step process:

o The supplier sells a group of interlocking products. For example, an agribusiness sells

both maize seed and a supporting spraying programme.

o Then the supplier sells a system of production, inventory control, distribution and

other services to ensure the complete operation runs smoothly.

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Participants in the business buying process
Buying centre: all the individuals and units that play a role in the purchase
decision-making process.

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Participants in the business buying process (2)
• The buying centre is not a fixed and formally identified unit – it’s a set of
buying roles assumed by different people for different buying situations.

For example – a single buyer may assume all the roles for a simple routine
purchase.
• The challenge? The business marketer must learn who participates in the decision
process, each participant’s relative influence and what evaluation criteria each
decision participant uses.

For example – for a catering company that provides meals to an old- age home,
the old-age home owner may decide on whether the pricing is in budget; the kitchen
manager may assess the level of variety; the medical staff may analyse the nutritional
value; and the residents will report back on whether they were satisfied with the
meals or not.

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Major influences on business buyers
Major influences on business buyer behaviour:

• Some marketers assume the major influences on business buyers are economic –
but business buyers are human and social as well.

For example – when suppliers’ offers are very similar, personal factors play a
larger role than rational factors, and vice versa.

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Major influences on business buyers (2)
1. Environmental factors
• Different environmental factors include:
o Economic environment, for example the economic outlook
o Shortages in key materials, especially scarce materials

o Technological, political and competitive developments

o Culture and customs, especially in an international environment.

• The business buyer should try to change challenges into opportunities.

2. Organisational factors
• The objectives, policies, procedures, structure and systems of the buying firm.

For example – the number of people involved in the buying process and what
roles they fulfil.

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Major influences on business buyers (3)
3. Interpersonal factors
• It may be difficult to assess interpersonal factors and group dynamics of all the
people in the buying centre.

For example – those that have the most influence are not necessarily those
with the highest rank; they may instead be those who are well- liked or have special
expertise (perhaps a very subtle distinction).

4. Individual factors
• The personal motives, perceptions and preferences of everyone involved in the
buying decision process.
• Affected by personal characteristics, for example age, income, personality and
attitudes towards risk.
• Includes different buying styles, for example those who prefer technical analysis
versus those who act on intuition 19
The business buying process
Stages of the business buying process

• In a new-task buying scenario, buyers would usually go through all the stages of
the buying process.
• With straight re-buys or modified buying, buyers may skip some of the stages.

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The business buying process (2)
1. Problem recognition
• When the firm recognises a problem or need that can be met by acquiring a
product or service.
• This can result from stimuli that are internal (for example, launching a new
product that requires new equipment to produce the product) or external (for
example, seeing a new idea at a trade show).

2. General need description

• The characteristics and quantity of the needed item.
• This is a simple process for standard items, but may require collaboration for
describing complex items.
• The business marketer can help buyers define their needs and provide
information about different product characteristics.

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The business buying process (3)
3. Product specification
• Deciding on and specifying the best technical product characteristics for a
needed item.
• This often includes value analysis – an approach to cost reduction in which
components are studied carefully to determine if they can be redesigned,
standardised or made by less costly methods of production (sellers can also use this
approach to secure a new account).

4. Supplier search
• Finding the best suppliers of product and services.

For example – reviewing trade directories, following recommendations,

searching online.
• The newer the task, and the more complex and costly the item, the more time the
buyer will spend searching for suppliers.
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The business buying process (4)
5. Proposal solicitation
• Inviting qualified suppliers to submit proposals.
• When the item is complex or expensive, the proposal or presentation will be more
detailed and formal (e.g. quotation)
• Proposals should be marketing documents, not just technical documents.

6. Supplier selection
• Reviewing proposals and selecting a supplier.
• This can involve drawing up a list of the desired supplier attributes and their
relative importance, for example quality, on-time delivery and honest
communication.
• Buyers may negotiate for better prices and terms and may select a single supplier
or several suppliers (to avoid being dependent on only one supplier).
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The business buying process (5)
7. Order-routine specification
• Writing the final order with the chosen supplier(s), listing the technical
specifications, quantity needed, expected time of delivery, return policies and
warranties.
• For maintenance, repair and operating items, buyers may use blanket contracts
in which the supplier promises to resupply the buyer as needed at agreed prices for
a set time period.
• Vendor-managed inventory is common among large buyers – buyers share sales
and inventory information directly with key suppliers and the suppliers take on the
ordering and inventory responsibilities.

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The business buying process (6)
8. Performance review
• Reviewing supplier performance and deciding whether to continue, modify or
end the arrangement.
• Sellers must monitor the same factors used by buyers to make sure they provide
the expected satisfaction.

In summary
• This eight-stage model provides a simple view of the buying process for a new-
task buying situation, but the process is usually a lot more complex:
o Some steps may be compressed or bypassed, other steps may be re-ordered or repeated,
or new steps may be added.
o Buying centre participants may be involved at different stages of the process.
o Many types of purchases may be ongoing at the same time

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E-procurement: Buying on the Internet
• Different ways firms can do online purchasing:
o Set up a business buying site – for example, post which products and services are needed,
and invite suppliers to bid.
o Create extranet links with key suppliers – for example, create direct procurement
accounts.

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Institutional and government markets
Institutional markets
• These markets include schools, hospitals, nursing homes, prisons and other
institutions that provide products and services to people in their care.

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Institutional and government markets (2)
Government markets
• Governmental units (national, provincial and local) that purchase or rent products
and services for carrying out the main functions of government.

For example - purchasing vehicles that police officers can use when on duty.
• To succeed in the government market, sellers must:
o Locate key decision-makers.
o Identify the factors that affect buying behaviour.

o Understand the buying decision process.

• Suppliers must usually submit bids or tenders, and the contract normally goes to
the lowest bidder.

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Institutional and government markets (3)
Government markets
• Characteristics of government markets:
o Tend to favour domestic suppliers over foreign suppliers.
o Buyers are also affected by environmental, organisational, interpersonal and individual
factors.
o Carefully watched by outside public parties, for example political parties.
o The buying process requires considerable paperwork, because of the public scrutiny.

o Often favour depressed, small and minority-owned firms, as well as firms that avoid
race, gender or age discrimination (e.g. BEE).

• The benefit to sellers? The government is the largest buyer, which means it’s
unlikely to default on its payment for products or services.

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Institutional and government markets (3)
Government markets
• Most governments provide detailed guides describing how to sell to them, for
example the Tender Bulletin from the South African government.
• Suppliers must master the system.
• Suppliers are not marketing-oriented, because:
o Government buying emphasises price, so sellers focus on bringing down costs.
o When the product specifications are very specific, product differentiation is not a
marketing factor.

• Some firms set up separate government departments or customised government

marketing programmes.
• Online buying eliminates a lot of the hassle.

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Homework:
• Complete the Pre-Class eFundi Quiz: Ch 5 & 6

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