Course: Marketing Management- I (MKT 101) Session 12

Analyzing Business Markets

IN ST R U C TOR: D R . SH A ON SEN
EMAIL : s h a o n s e n .8 8@imth yd e r a b ad .e d u.in
What Is Organizational Buying?

Business market

◦ Consists of all the organizations that acquire

goods and services used in the production of
other products or services that are sold, rented, or
supplied to others
Understanding Business Markets
 Fewer, larger buyers
 Close supplier–customer relationships
 Professional purchasing
 Multiple buying influences
 Multiple sales calls
 Derived demand – rise in demand for mobile phones gave rise in demand for lithium batteries
 Inelastic demand – demand remains constant regardless of price changes
 Fluctuating demand – changes with changing economic conditions
 Geographically concentrated buyers
 Direct purchasing
Types of Buying Situations

 Straight Rebuy
 Modified Rebuy
 New Task
 Types of Buying Situations
 Straight Rebuy –

In a straight rebuy, the purchasing department reorders

items from suppliers on an approved list – happens with
in-suppliers

Example: office supplies, bulk chemicals on a routine

basis etc.

 The suppliers make an effort to maintain product and

service quality and often propose automatic reordering
systems to save time Source: google image
Searched on 12th August 2022

 Out-suppliers’ strategy – attempt to offer something new or exploit dissatisfaction with a

current supplier
 Even a small order is good to begin with – opportunity to enlarge their purchase share over
time
Types of Buying Situations
 Modified Rebuy –

The buyer wants to change product specifications,

prices, delivery requirements, or other terms.

This usually requires additional participants on both sides.

 The in-suppliers become nervous and want to protect

the account/business customer

 The out-suppliers see an opportunity to propose a

better offer to gain some business Source: google image
Searched on 12th August 2022

Example: A restaurant modifies menu – adds new items – needs new supplies – the supplier probably do
not change but the supply changes
 Excites out-suppliers, if in-supplier fails to meet the need – there is opportunity for the out-supplier to
grab the account
Types of Buying Situations
 New Task

A new-task purchaser buys a product or service

for the first time
Example: an office building, a new security
system etc.

 The greater the cost or risk, the larger the

number of participants – the greater their
information gathering – the longer the time to
take a decision
Source: google image
Searched on 12th August 2022
 The Buying Centre
 Initiators: Users or others in the organization who request that
something be purchased
 Users: Those who will use the product or service. In many cases, the
users initiate the buying proposal and help define the product
requirements
 Influencers: People who influence the buying decision, often by
helping define specifications and providing information for evaluating
alternatives
 Deciders: People who decide on product requirements or on suppliers
 Approvers: People who authorize the proposed actions of deciders or
buyers
 Buyers: People who have formal authority to select the supplier and
arrange the purchase terms – shape product specifications, but they
play their major role in selecting vendors and negotiating
 Gatekeepers: People who have the power to prevent sellers or Source: google image
information from reaching members of the buying center Searched on 12th August 2022

Example – purchasing agents, receptionists, and telephone

operators may prevent salespersons from contacting users or
deciders
The Buying Centre

https://www.youtube.com/watch?v=RvA2iP-99mc

Source: google image

Searched on 12th August 2022
What Is the Role of the Buying Center?

Seek the best value from fewer and better suppliers

Buying Canter Dynamics
 Participants with differing interests, authority, status, and susceptibility to persuasion, and
sometimes with very different decision criteria

 Purchasing decisions are ultimately made by individuals, not organizations.

 Individuals are motivated by their own needs and perceptions in attempting to maximize the
organizational rewards they earn (pay, advancement, recognition, and feelings of achievement)

So, organizational needs legitimize the buying process and its outcomes

 Businesspeople do not buy just “products”

 They buy solutions to problems
 Solution to majorly two problems:
 the organization’s economic and strategic problem and
 their own personal need for achievement and reward
Seller’s consideration: Selling to Buying Centers

Who are the major decision participants?

What decisions do they influence, and how deeply?
What evaluation criteria do they use?
Stages in the Business-Buying Process
Understanding the Buying Process

Problem recognition
◦ Someone in the company recognizes a problem or need that can be
met by acquiring a good or service – internal or external stimuli
◦ Internal – decision to develop a new product
◦ External – materials purchased turns out to be unsatisfactory
Need description
◦ Next, the buyer determines the needed item’s general characteristics
and the required quantity
◦ For standard items, this is simple. For complex items, the buyer will
work with others – engineers, users – to define characteristics such
as reliability, durability, or price
Understanding the Buying Process
Product specification
◦ The buying organization now develops the item’s technical
specifications

◦ Product value analysis – an approach to cost reduction that studies whether components
can be redesigned, standardized, or made by cheaper methods of production without
adversely affecting product performance
Understanding the Buying Process
Supplier search:

◦ Catalog sites – Companies can order thousands of items through electronic catalogs, such as W. W.
Grainger’s, distributed by e-procurement software

◦ Vertical markets – specific industry/niche market – search through specialized websites(e-hubs)

Example: plastic.com – allows plastics buyers to search the best prices among thousands of plastics sellers

◦ “Pure Play” auction – Ritchie Bros. Auctioneers is the world’s largest industrial auctioneer, with
44 auction sites worldwide. It sold $3.8 billion of used and unused equipment at more than 356
unreserved auctions in 2013
◦ Private exchanges – Hewlett-Packard, IBM and Walmart operate private exchanges to link with
specially invited groups of suppliers and partners over the Web

◦ Spot and barter markets – prices change by the minute – Intercontinental Exchange (ICE) is the
leading electronic energy marketplace and soft commodity exchange with billions in sales
Online Buying

Two types of e-hubs:

Vertical hubs – centered on industries
– plastics, steel, chemicals, paper etc.
Functional hubs – centered on specific
functions - logistics, media buying,
advertising, energy management etc.
Understanding the Buying Process

Proposal solicitation
◦ The buyer next invites qualified suppliers to submit written proposals
Supplier selection
◦ Before selecting a supplier, the buying center will specify and rank
desired supplier attributes
Supplier Selection

Evaluate vendors

Price
Reputation
Reliability
Agility
Understanding the Buying Process

Contract negotiation –

◦ the buyer negotiates the final order, which includes listing the
technical specifications, the quantity needed, the expected
time of delivery, return policies, and warranties
 Contract Negotiation: Blanket And Periodic
 Blanket Contracts – establishes a long-term relationship in which the supplier promises to
resupply the buyer as needed, at agreed-upon prices, over a specified period of time –
because the seller holds the stock, blanket contracts are sometimes called Stockless
purchase plans – Long-term contracts to ensure seamless supply
 Outcome – suppliers get locked in tighter bonds with the buyer and make it difficult for
out-suppliers to break in unless the buyer becomes dissatisfied

 Vendor-managed inventory – at a higher order relationship buyers often shift the ordering
responsibility to their suppliers, using systems called vendor-managed inventory
These suppliers are aware of the customer’s inventory levels and take responsibility
for continuous replenishment programs

 Periodic purchase orders – For maintenance, repair, and operating items – however these
days buyers are moving toward blanket contracts rather than periodic purchase orders
Understanding the Buying Process

Performance review
◦ The buyer periodically reviews the performance of the chosen
supplier(s)

◦ The performance review may lead the buyer to continue, modify,

or end a supplier relationship
Developing Effective Business Marketing Programs

Business-to-business marketers are using every marketing tool at their disposal to

attract and retain customers

 Systems selling

 Additional services

 Customer reference programs

 Online and offline communications and branding

 From Products to Solutions
 Systems buying
A total problem solution from one seller

Example: Government buying major weapons and communication systems from a

particular seller

 Systems selling as a marketing tool – the prime contractor are asked to put in the bid on
behalf of the buyer – if awarded with the contract, it becomes the prime contractor’s
responsibility to bid out for assembling the sub-components from second-tier contractors –
reducing stress of the buyer

Example: in government buying, the government solicits bids from prime contractors
that, if awarded the contract, became responsible for bidding out and assembling the
system’s subcomponents from second-tier contractors
Enhancing Services

 Adding high quality services to product offerings to provide value and

establish ties with customers – adding services to products is
becoming increasingly important for B2B firms that primarily sell
products

Bundle services to improve customer satisfaction and increase

profits
Building B2B Brands

 Business marketers are increasingly recognizing the

importance of their brands

 Brands give managers peace of mind by ensuring product

quality and thus make it easier to justify the purchase of
established brands to the company stakeholders
Overcoming Price Pressures
Despite moves toward strategic
sourcing, partnering, and
participation in cross-functional
teams, buyers still spend a large
chunk of their time haggling with
suppliers on price
Managing Communication
 Marketing communication plays an important role in business markets as in
consumer markets
Companies need to inform business customers about the benefits of their
offerings as well as coordinating their activities with collaborators

 Business communications are increasingly moving into the online space, using
search engine optimization (SEO) and search engine marketing (SEM) to connect
with buyers – inform customers through –

 Online presence
 Search engine optimization
 Social media
 Webinars and podcasts
Managing B2B Relationships
Relationship between supplier and customer

Loyalty – driven in part by supply chain management,

supplier involvement, and purchasing alliances
One-to-one marketing – more focused approaches to
attract and retain customers, homing in on their targets, and
developing one-to-one marketing approaches
Understanding the Buyer–Supplier Relationship

Relevant forces

 Availability of alternatives
 Importance of supply
 Complexity of supply
 Supply market dynamism
Trust, Credibility, and Reputation

Building trust

 Provide full, honest information

 Align employee incentives with customer needs

 Partner to create market value

 Offer valid product comparisons

Trust, Credibility, and Reputation
 Corporate credibility – the extent to which customers believe a
firm can design and deliver products and services that satisfy their
needs and wants

 Corporate trustworthiness – reflects the extent to which a

company is seen as motivated to be honest, dependable, and
sensitive to customer needs

 Corporate likeability – the extent to which a company is seen as

likable, attractive, prestigious, and dynamic
Risks and Opportunism
Risks
 Vertical coordination is risky! To both buyers and suppliers
 Stakes held are high
 When buyers cannot easily monitor supplier performance, the supplier might
shirk and not deliver the expected value
 A buyer may be vulnerable to holdup because of switching costs
 supplier may be more vulnerable because it has dedicated assets and/or
technology/knowledge at stake
 Specific investments—expenditures tailored to a particular company and value-
chain partner
Opportunism
 some form of undersupply relative to an implicit or explicit contract
 opportunism is a concern because firms must devote resources to control and
monitoring that they could otherwise allocate to more productive purposes
Managing Institutional Markets
 Institutional market
 Schools, hospitals, nursing homes, prisons, etc. that must provide
goods and services to people in their care
 Many institutions are characterized by low budgets and captive
clienteles

 Government organizations
 Are a major buyer of goods and services in most countries
 Government organizations typically require suppliers to submit
bids and often award the contract to the lowest bidder
 References &
Acknowledgements

• Kotler Keller, Marketing Management, 16th ed. Text Book And

Slides
• Prof. S. Ramachandran