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Chapter 7

Analyzing Business
Markets
Li Xiaoming (Jerry)

2003 Prentice Hall, Inc.

Objectives
Understand the nature of the business
market and how it differs from the
consumer market.
Learn how institutions and government
agencies buy.
Identify the different buying situations
faced by organizational buyers.
2003 Prentice Hall, Inc.

Objectives
Identify the participants in the
business buying process and the
various influences impacting
business buying decisions.
Understand how business buyers
make their decisions.
2003 Prentice Hall, Inc.

Organizational Buying
Organizational buying is:
the decision-making process by
which formal organizations
establish the need for purchased
products and services and identify,
evaluate, and choose among
alternative brands and suppliers.
2003 Prentice Hall, Inc.

Organizational Buying
Compared to Consumer Markets,
Business Markets have . . .
Fewer buyers
Larger buyers
Geographically concentrated buyers
Close relationships with their
supplier-customers
2003 Prentice Hall, Inc.

Organizational Buying
Other Business Market Characteristics
Fluctuating
demand

Multiple buying
influences

Derived demand

Multiple sales calls

Inelastic demand

Direct purchasing

Professional
purchasing

Reciprocity

2003 Prentice Hall, Inc.

Leasing

Organizational Buying
The Business Market Includes For-Profit
Companies and Two Specialized Groups:
The institutional market
Schools,

hospitals, prisons, etc. with captive


audiences
Cost and quality standards drive purchases

The government market


Bidding
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process awards contracts

Organizational Buying
Buying Situations
Straight rebuy
Modified rebuy
New task

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Routine reorders
from approved
vendor list
Low involvement,
minimal time
commitment
Example: copier
paper

Organizational Buying
Buying Situations
Straight rebuy
Modified rebuy
New task

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Specifications,
prices, delivery
terms or other
aspects require
modification
Moderate level of
involvement and
time commitment
Example: desktop
computers

Organizational Buying
Buying Situations
Straight rebuy
Modified rebuy
New task

2003 Prentice Hall, Inc.

Purchasing a
product or service
for the first time
High level of
involvement and
time commitment;
multiple influences
Example: selecting a
web site design firm
or consultant

Organizational Buying
Systems Buying
A single provider provides the total
package for the buyers needs
May involve turnkey solutions

Systems Selling
Manufacturers sell entire systems
Supplier provides all MRO items
2003 Prentice Hall, Inc.

Participants in Business
Buying
Buying center members fill one or more
roles in the purchase decision process:
Initiators

Deciders

Users

Approvers

Influencers

Buyers

Gatekeepers
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Influences on Business
Buyers
Major Influences
Environmental
Organizational
Interpersonal
Individual
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Demand level
Economic outlook
Interest rates
Technological change
Politics/regulations
Competition
Concerns for social
responsibility

Influences on Business
Buyers
Major Influences

Objectives
Policies

Environmental
Organizational

Procedures

Interpersonal

Organizational
structures

Individual

Systems

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Influences on Business
Buyers
Major Influences

Interests
Authority

Environmental
Organizational
Interpersonal
Individual
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Status
Empathy
Persuasiveness

Influences on Business
Buyers
Major Influences

Age
Income

Environmental

Education

Organizational

Job position

Interpersonal

Personality

Individual
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Risk attitudes
Culture

The Purchasing/
Procurement Process
Three Company Purchasing
Orientations
Buying

Orientation

Commoditization
Multisourcing
Procurement

Orientation

Materials requirement planning (MRP)


Supply
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Chain Management Orientation

The Purchasing/
Procurement Process
Types of Purchasing
Processes
Routine products
Leverage products
Strategic products
Bottleneck products
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The Purchasing/
Procurement Process
Stages in the Buying Process
Problem Recognition
General Need Description and
Product Specification

Product value analysis

Supplier Search
Vertical hubs
Functional hubs
Direct external links to major suppliers
Buying alliances

Company buying sites


Request for proposals (RFPs)
2003 Prentice Hall, Inc.

Table 1: Buygrid Framework: Major Stages (Buyphases) of the


Industrial Buying Process in Relation to Major Buying
Situations (Buyclasses)
Buyclasses

Buyphases

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New

Modified

Straight

Task

Rebuy

Rebuy

1. Problem recognition

Yes

Maybe

No

2. General need description

Yes

Maybe

No

3. Product specification

Yes

Yes

Yes

4. Supplier search

Yes

Maybe

No

5. Proposal solicitation

Yes

Maybe

No

6. Supplier selection

Yes

Maybe

No

7. Order-routine specification

Yes

Maybe

No

8. Performance review

Yes

Yes

Yes

The Purchasing/
Procurement Process
General Need Description and
Product Specification
Product value analysis
Supplier Search
Vertical hubs
Functional hubs
Direct extranet links to
major suppliers
Buying alliances
Company buying sites
Request for proposals (RFPs)
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The Purchasing/
Procurement Process
Proposal Solicitation
Supplier Selection

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Table 2: An Example of Vendor Analysis

Attributes

Rating Scale
Importance
Weights

Price

.30

Supplier reputation

.20

Product reliability

.30

Service reliability

.10

Supplier Flexibility

.10

Poor
(1)

Fair
(2)

Total score: .30(4) + .20(3) + .30(4) + .10(2) + .10(3) = 3.5

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Good
(3)

Excellent
(4)
x

x
x
x
x

The Purchasing/
Procurement Process
Customer

value assessment
Routine-order products
Procedural-problem products
Political-problem products
Order-Routine Specification
Blanket contract
Stockless purchase plans
Performance Review
Buyflow map
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Thank you!

2003 Prentice Hall, Inc.