CHAPTER 5: Analyzing Business Markets

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?

Chapter Questions 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?7-3

Organizational Buying
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.

Types of Business Customers

Price-Oriented (transactional selling, price is everything)
Solution-Oriented (consultative selling)
Gold-Standard (quality selling)
Strategic-Value (enterprise selling)

Top Business Marketing Challenges

Expand understanding of customer needs
Compete globally as China and India reshape markets
Master analytical tools and improve quantitative skills
Reinstate innovation as an engine of growth
Create new organizational models and linkages
Characteristics of Business Markets
Inelastic demand (e.g., price change)
Fluctuating demand (e.g., % increase in consumer demand lead to much larger increase in demand for plant
equipment—acceleration effect)
Geographically concentrated buyers
Direct purchasing
Fewer, larger buyers
Close supplier-customer relationships
Professional purchasing
Many buying influences
Multiple sales calls
Derived demand

Buying Situation Straight re-buy—routine

Modified rebuy—modify product specification, prices, delivery requirements, or other terms)
New task—purchase of new product or service

Of Concern to Business Marketers

Who are the major decision participants?
What decisions do they influence?
What is their level of influence?
What evaluation criteria do they use?

The Buying Center Initiators--request Users—who use

Approvers—authorized proposed actions of deciders or buyers
Buyers—formal authority to select the supplier and arrange the purchase terms
Gatekeepers—power to prevent sellers or information from reaching member of the buying center
Initiators—request
Users—who use
Influencers—help define specification
Deciders—choose the product requirements

Stages in the Buying Process: Buy phases

Problem recognition
General need description
Product specification
Supplier search
Proposal solicitation
Supplier selection
Order-routine specification
Performance review

Forms of Electronic Marketplaces

Catalog sites—order through electronic catalog distributed by e-procurement software, such as Grainger’s
(industrial products)

Forms of Electronic Marketplaces

Vertical markets—e-hubs, such as plastics, steel, or chemicals—Plastic.com (best prices among thousands of
plastic sellers)

Forms of Electronic Marketplaces

Pure play auction sites—eBay
Forms of Electronic Marketplaces
Spot markets—prices change by the minute—ChemConnect.com (exchange for buyers and sellers of bulk
chemicals such asbenzene)

Forms of Electronic Marketplaces

Private exchanges—suppliers—Hewlett –Packard, IBM, and Wal-Mart (invited groups of suppliers and partners
over the web)

Forms of Electronic Marketplaces

Barter markets—trade goods & service

Forms of Electronic Marketplaces

Buying alliances—several companies buying the same goods join together to form purchasing consortia such as
Transora and Covisant to gain deeper discounts on volume purchases Covisint is an online automotive trading
and communication exchange that was formed initially by a consortium of General Motors, Ford, and
DaimlerChrysler AG, and later included Renault S.A. and Nissan Motor Co. The consortium has also formed a
strategic alliance with technology partners Oracle and Commerce One Inc. This industry marketplace created
a single automotive-parts exchange for the thousands of suppliers and dealers that serve the auto companies.

Methods of e-Procurement
Websites organized using vertical hubs
Centered on industries such as plastics, steel, chemicals, paper

Websites organized using functional hubs

Centered on functions logistics, media buying, advertising, energy management

Direct extranet links to major suppliers

Dell, Office Depot

Buying alliances (several companies combine to buy in volume to obtain lower prices)
Transora—Coca-Cola, Sara Lee, Kraft, PepsiCo, P&G, and several other companies
Diageo, Kraft, P&G and Others Launch Major Online Business Marketplace

Company buying sites

For example, General Electric formed the Trading Process Network where requests are posted for proposals,
negotiates terms, and orders can be placed.

Purchasing Orientations
Buying (short term and tactical, lowest price for a given level of quality, commoditization, multi-sourcing)
Procurement (quality improvement and cost reductions)
Supply Chain Management (seamless from purchase of raw materials to the on-time arrival of finished goods to
end users)

Handling Price-Oriented Customers

Limit quantity purchased
Allow no refunds
Make no adjustments
Provide no services

Product-Related Purchasing Processes

Routine products (low value and cost to the customer—office supplies)
Leverage products (high value and costs to the customer—engine pistons)
Strategic products (high value and costs and involve in high risks—mainframe computers)
Bottleneck products (low value and cost and low risks—spare parts)

Methods for Researching Customer Value

Conjoint analysis rank preference for alternative market offering or concepts and then estimate the implicit value
placed on each attribute.

Benchmarks Compare a “benchmark” offerings and new-market offering and then asked how much more they
would pay if new features were offered or how much less if certain features were removed

Compositional approach attaches a monetary value to each of 3 alternative levels of given attribute and
repeated for other attributes. The values are then added together for any product configuration.

Importance ratings rate the importance of different attributes and the supplier firms’ performance on these
attributes

Internal engineering assessment determine product performance characteristics

Field value-in-use assessment customer evaluate elements of new product

Focus-group value assessment determines value of potential marketing offering

Direct survey questions place a direct dollar value on one or more changes in the market offering
Order Routine Specification and Inventory
Stockless purchase plans
Vendor-managed inventory
Continuous replenishment

Establishing Corporate Trust and Credibility

Expertise—Able to make and sell products
Trustworthiness--Honest and dependable, sensitive to customer needs
Likability--Attractive, prestigious, dynamic

Product/Service Quality Incentive Partnering Cooperating design

Trust Dimensions
Transparent Product/Service Quality
Incentive
Partnering
Cooperating design
Product comparison
Supply chain

Categories of Buyer-Seller Relationships

Basic buying and selling
Simple routine exchanges with moderately high levels cooperation and information exchange
Bare bones
Adaptation by the seller and less cooperation and information exchange
Contractual transaction
Generally low levels of trust, cooperation, and interaction; exchange is defined by formal contract
Customer supply
Competition rather than cooperation is the dominant form of governance
Cooperative systems
Coupled closely in operational ways, although not legally binding
Collaborative
Much trust and commitment leading to true partnerships
Mutually adaptive
Much relationship-specific adaptation for buyer and seller, but without necessarily strong trust or cooperation
Customer is king
The seller adapts to meet the customer’s needs without expecting much adaptation or change on the part of
the customer in exchange

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