Week 4 Learning Material

Key Concepts
Reading: Principals of Marketing 17 edition: Chapter 6 Business Marketing & Business
Buying Behavior

Business Markets

The business market is huge. In fact, business markets involve far more dollars and items than
do consumer markets.

The main differences between consumer and business markets are in market structure and
demand, the nature of the buying unit, and the types of decisions and the decision process
involved. (See Table 6.1)

Market Structure and Demand

The business marketer normally deals with far fewer but far larger buyers than the consumer
marketer does.

Even in large business markets, a few buyers often account for most of the purchasing.

Business markets are more geographically concentrated. More than half the business buyers are
concentrated in eight states.

Business demand is derived demand—it ultimately derives from the demand of consumer
goods. B2B marketers sometimes promote their products directly to final consumers to increase
business demand.

Many business markets have inelastic demand; that is, total demand for many business products
is not affected much by price changes, especially in the short run.

Business markets have more fluctuating demand. The demand for many business goods and
services tends to change more—and more quickly—than the demand for consumer goods and
services does.
Nature of the Buying Unit

Compared with consumer purchases, a business purchase usually involves more decision
participants and a more professional purchasing effort.

Often, business buying is done by trained purchasing agents who spend their working lives
learning how to buy better.

The more complex the purchase, the more likely that several people will participate in the
decision-making process.

Types of Decisions and the Decision Process

Business buyers usually face more complex buying decisions than do consumer buyers.
Purchases often involve large sums of money, complex technical and economic considerations,
and interactions among many people at many levels of the buyer’s organization.

The business buying process also tends to be more formalized than the consumer buying
process.

In the business buying process, buyer and seller are often much more dependent on each other.

Many customer companies are now practicing supplier development, systematically

developing networks of supplier-partners to ensure an appropriate and dependable supply of
products and materials that they will use in making their own products or reselling to others.

Business Buyer Behavior

At the most basic level, marketers want to know how business buyers will respond to various
marketing stimuli.

Within the organization, buying activity consists of two major parts: the buying center and the
buying decision process.

Major Types of Buying Situations

There are three major types of buying situations.

In a straight rebuy, the buyer reorders something without any modifications. It is usually
handled on a routine basis by the purchasing department.

In a modified rebuy, the buyer wants to modify the product specifications, prices, terms, or
suppliers. The modified rebuy usually involves more decision participants than does the straight
rebuy.
A company buying a product or service for the first time faces a new task situation. In such
cases, the greater the cost or risk, the larger the number of decision participants and the greater
their efforts to collect information will be.

Many business buyers prefer to buy a packaged solution to a problem from a single seller.
Instead of buying and putting all the components together, the buyer may ask sellers to supply
the components and assemble the package or system. Thus, systems selling is often a key
business marketing strategy for winning and holding accounts.

Participants in the Business Buying Process

The decision-making unit of a buying organization is called its buying center: all the
individuals and units that participate in the business decision-making process.

The buying center includes all members of the organization who play any of five roles in the
purchase decision process.

 Users are members of the organization who will use the product or service.
 Influencers often help define specifications and also provide information for evaluating
alternatives.
 Buyers have formal authority to select the supplier and arrange terms of purchase.
 Deciders have formal or informal power to select or approve the final suppliers.
 Gatekeepers control the flow of information to others.

The buying center is not a fixed and formally identified unit within the buying organization. It is
a set of buying roles assumed by different people for different purchases.

Within the organization, the size and makeup of the buying center will vary for different
products and for different buying situations.

The buying center concept presents a major marketing challenge. The business marketer must
learn who participates in the decision, each participant’s relative influence, and what evaluation
criteria each decision participant uses.

The buying center usually includes some obvious participants who are involved formally in the
buying process. It may also involve less obvious, informal participants, some of whom may
actually make or strongly affect the buying decision. Sometimes, even the people in the buying
center are not aware of all the buying participants.

Major Influencers on Business Buyers

Business buyers are subject to many influences when they make their buying decisions.
Business buyers respond to both economic and personal factors. They react to both reason and
emotion.
When suppliers’ offers are very similar, business buyers have little basis for strictly rational
choice. Because they can meet organizational goals with any supplier, buyers can allow
personal factors to play a larger role in their decisions.

When competing products differ greatly, business buyers are more accountable for their choice
and tend to pay more attention to economic factors.

Environmental Factors

Business buyers are heavily influenced by factors in the current and expected economic
environment, such as the level of primary demand, the economic outlook, and the cost of
money.

An increasingly important environmental factor is shortages in key materials. Many companies

are now more willing to buy and hold larger inventories of scarce materials to ensure adequate
supply. Business buyers also are affected by technological, political, and competitive
developments in the environment.

Culture and customs can strongly influence business buyer reactions to the marketer’s behavior
and strategies, especially in the international marketing environment.

Organizational Factors

Each buying organization has its own objectives, policies, procedures, structure, and systems,
and the business marketer must understand those factors as well.

Interpersonal Factors

The buying center usually includes many participants who influence each other; so
interpersonal factors also influence the business buying process. It is often difficult to assess
such interpersonal factors and group dynamics.

Individual Factors

Each participant in the business buying-decision process brings in personal motives,

perceptions, and preferences. These individual factors are affected by personal characteristics
such as age, income, education, professional identification, personality, and attitudes toward
risk.
The Business Buying Process

Buyers who face a new-task buying situation usually go through all stages of the buying
process. Buyers making modified or straight rebuys may skip some of the stages.

Problem Recognition

Problem recognition can result from internal or external stimuli. Internally, the company may
decide to launch a new product that requires new production equipment and materials.
Externally, the buyer may get some new ideas at a trade show, see an ad, or receive a call from
a salesperson who offers a better product or a lower price.

General Need Description

The buyer next prepares a general need description that describes the characteristics and
quantity of the needed item.

For standard items, this process presents few problems. For complex items, however, the buyer
may have to work with others—engineers, users, and consultants—to define the item.

Product Specification

The buying organization next develops the item’s technical product specifications, often with
the help of a value analysis engineering team.

Product value analysis is an approach to cost reduction in which components are studied
carefully to determine if they can be redesigned, standardized, or made by less costly methods
of production.

The team decides on the best product characteristics and specifies them accordingly.

Supplier Search

The buyer now conducts a supplier search to find the best vendors. The buyer can compile a
small list of qualified suppliers by reviewing trade directories, doing a computer search, or
phoning other companies for recommendations.

Today, more and more companies are turning to the Internet to find suppliers.

The newer the buying task, the more complex and costly the item, and the greater the amount of
time the buyer will spend searching for suppliers.

Proposal Solicitation

In the proposal solicitation stage of the business buying process, the buyer invites qualified
suppliers to submit proposals.

When the item is complex or expensive, the buyer will usually require detailed written
proposals or formal presentations from each potential supplier.

Supplier Selection

During supplier selection, the buying center often will draw up a list of the desired supplier
attributes and their relative importance.

Buyers may attempt to negotiate with preferred suppliers for better prices and terms before
making the final selections. In the end, they may select a single supplier or a few suppliers.

Many buyers prefer multiple sources of suppliers to avoid being totally dependent on one
supplier and to allow comparisons of prices and performance of several suppliers over time.

Order-Routine Specification

The buyer now prepares an order-routine specification. It includes the final order with the
chosen supplier or suppliers and lists items such as technical specifications, quantity needed,
expected time of delivery, return policies, and warranties.

In the case of maintenance, repair, and operating items, buyers may use blanket contracts rather
than periodic purchase orders. A blanket contract creates a long-term relationship in which the
supplier promises to resupply the buyer as needed at agreed prices for a set time period.

Performance Review

The performance review may lead the buyer to continue, modify, or drop the arrangement.

The eight-stage model provides a simple view of the business buying-decision process. The
actual process is usually much more complex.
E-Procurement: Buying on the Internet

Electronic purchasing (E-procurement) has grown rapidly in recent years. It is now standard
procedure in most companies.

E-procurement gives buyers access to new suppliers and lower purchasing costs, and hastens
order processing and delivery. In turn, business marketers can connect with customers online to
share marketing information, sell products and services, provide customer support services, and
maintain ongoing customer relationships.

Companies can conduct reverse auctions or engage in online trading exchanges.

Companies can also conduct e-procurement by setting up their own company buying sites or by
setting up extranet links with key suppliers.

E-procurement reduces the time between order and delivery. Time savings are particularly
dramatic for companies with many overseas suppliers.

Beyond the cost and time savings, e-procurement frees purchasing people to focus on more
strategic issues.

The use of e-procurement also presents some problems.

At the same time that the Web makes it possible for suppliers and customers to share business
data and even collaborate on product design, it can also erode decades-old customer-supplier
relationships.

E-procurement can create potential security disasters.

Institutional and Government Markets

Much of this discussion also applies to the buying practices of institutional and government
organizations. However, these two non-business markets have additional characteristics and
needs.

Institutional Markets

The institutional market consists of schools, hospitals, nursing homes, prisons, and other
institutions that provide goods and services to people in their care. Institutions differ from one
another in their sponsors and in their objectives.

Many institutional markets are characterized by low budgets and captive patrons.

Many marketers set up separate divisions to meet the special characteristics and needs of
institutional buyers.

Government Market

The government market offers large opportunities for many companies, both big and small.

In most countries, government organizations are major buyers of goods and services. In the
United States alone, federal, state, and local governments contain more than 82,000 buying
units.

Government organizations typically require suppliers to submit bids, and normally they award
the contract to the lowest bidder. In some cases, the government unit will make allowance for
the supplier’s superior quality or reputation for completing contracts on time.

Government organizations tend to favor domestic suppliers over foreign suppliers.

Government buyers are affected by environmental, organizational, interpersonal, and individual

factors.

One unique thing about government buying is that it is carefully watched by outside publics,
ranging from Congress to a variety of private groups interested in how the government spends
taxpayers’ money.

Because their spending decisions are subject to public review, government organizations require
considerable paperwork from suppliers, who often complain about excessive paperwork,
bureaucracy, regulations, decision-making delays, and frequent shifts in procurement personnel.

Most governments provide would-be suppliers with detailed guides describing how to sell to the
government.

Non-economic criteria also play a growing role in government buying.

 Government buyers are asked to favor depressed business firms and areas; small
business firms; minority-owned firms; and business firms that avoid race, gender, or age
discrimination.
 Many firms that sell to the government have not been marketing oriented.
 Total government spending is determined by elected officials rather than by any
marketing effort to develop this market.
 Government buying has emphasized price, making suppliers invest their effort in
technology to bring costs down.
 When the product’s characteristics are specified carefully, product differentiation is not
a marketing factor.
 Nor do advertising or personal selling much matter in winning bids on an open-bid
basis.

Several companies have established separate government marketing departments.

These companies anticipate government needs and projects, participate in the product
specification phase, gather competitive intelligence, prepare bids carefully, and produce
stronger communications to describe and enhance their companies’ reputations.