Business Markets and Organizational Buying Behavior

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What is a Business Market?
 The

Business Market - all the organizations that buy goods and services to use in the production of other products and services that are sold, rented, or supplied to others.  Business markets involve many more dollars and items than Consumer markets.
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Business-to-Business Marketing

Sales to businesses rather than end-consumers Example: IBM personal computer Business-to-Business Example: Sale of a personal computer to a university for use in PC labs Consumer Marketing Example: Sale of a personal computer to a student for personal use

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Why Do Organizations Buy?
 Raw

Material for the goods produced  Supplies which help the employees run the operations of the organisation. Eg: Stationery  To sell to the consumers

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Types of Organizational Buyers
1. Business Buyers 2. Institutional Buyers
– Low Budgets – Captive Patrons

3. Government Markets
– Specialized Buying – Open Bids – Negotiated Contracts

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Basic Methods in Organizational Buying

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Characteristics of Business Markets

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Market Structure and Demand
 Fewer,

larger buyers (large orders)  Demand derived from consumers  Price-inelastic demand  Fluctuating demand

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Nature of the Buying Unit
 More

people involved in the process  More professional purchasing effort

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Product / Service Characteristics
 Frequently

technical /complex  Predominance of semi-finished goods and raw materials  Important: delivery time, technical assistance, post-sale service, financing assistance

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Marketing Mix
 Direct

selling  Price is often negotiated  Advertising is often technical in nature

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Types of Decisions & the Decision Process
 More

complex decisions  Process is more formalized  Buyer and seller are more dependent on each other  Build close long-term relationships with customers

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Differences between Business-to-Business and Consumer Buying Behavior Business – to – Business Business – to – Consumer
 Fewer people involved Many people involved  Many different goals to  Individual-level goals realize  Less formal process Formal decision process and  Decision is often implicit, info. gathering not always ‘rational’  Decision is explicit, rational  Psychological factors  Price/cost often most important important  Generally non-negotiable  Competitive bidding and prices negotiations often occur  Mass communications  Personal selling  Longer distribution channel  Shorter distribution channel 
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Model of Business Buyer Behavior

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Major Influences on Business Buying

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Stages in the Business Buying Process
1. Problem Recognition 4. Supplier Search 6. Supplier Selection 2. General Description of Need 3. Product Specifications 5. Acquisition and Analysis of Proposals 8. Performance Review

Organizational Buying Process
7. Selection of Order Routine
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Participants in the Business Buying Process: The Buying Center
 Initiators  Users  Influencers  Deciders  Buyers  Gatekeepers
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Types of Buying Situations

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Straight Rebuy
       

Product specifications are not modified Small DMU (decision-making unit) - generally one person Low perceived risk Routine / automated Often based on a minimum acceptable quality “In supplier” “Out suppliers” find it hard to get a “foot in the door” Pray for an “in supplier” to mess up, or requirements to change

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Modified Rebuy
 Intention

to modify specifications, prices, terms, suppliers, etc.  More participants than straight rebuy  A “mini” or “aging” version of new task  A window of opportunity for “out” suppliers

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New Task
       

Rarest, most glamorous type Big DMU - depending on cost and risk Lots of people involved, lots of indirect influence Gather and weigh lots of information Decide on product, suppliers, payment terms, delivery times etc. Slower-than-usual processes Opportunity and threat for marketers Performance matters a lot (not just price)

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Organizational Buyers Are Problem Solvers

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© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

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Buyer-Seller Relationships

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Buyer-Seller Relationships in Business Markets
Close Relationships Close Relationships May Produce May Produce Mutual Benefits Mutual Benefits Relationships May Relationships May Not Make Sense Not Make Sense

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Reliable source of supply Cost reductions Price stability or concessions Reduced uncertainty Joint problem solving Improved quality
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Reduced flexibility Some purchases are too small or infrequent Higher risk from greater purchase concentration

BUT

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© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

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Prominence of Online Buying in Organizational Markets

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Prominent for three major reasons
I.

– – – – –
I. II.

Technology provides timely supplier information product availability technical specifications application uses price delivery schedules. Technology substantially reduces buyer order processing costs. Technology can reduce marketing costs, particularly sales and advertising expense, and broaden their potential customer base for many types of products and services.

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e-marketplaces
 Bring

together buyers and supplier organizations.  Make possible the real-time exchange of information, money, products, and services  B2B exchanges

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Independent e-marketplaces
  

Charge a fee for service Small business use to expand customer base Exist in settings that have one or more of the following features
– Thousands of geographically dispersed buyers and sellers. – Volatile prices caused by demand and supply fluctuations. – Time sensitivity due to perishable offerings and changing technologies. – Easily comparable offerings from a variety of suppliers.

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Private exchanges
 Link

large companies with their network of qualified suppliers and customers.  They are not a neutral third party, but represent the interests of their owners

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Thank You
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