Chapter 7

The Business Market

Sommers  Barnes
Ninth Canadian Edition

Presentation by
Karen A. Blotnicky
Mount Saint Vincent University, Halifax, NS

Copyright © 2001 by McGraw-Hill Ryerson Limited

Chapter Goals

To gain an understanding of:

• The nature and scope of the business
market
• Components of the business market
• Characteristics and determinants of
business market demand
• The buying motives, buying
processes, and buying patterns in
business markets
Copyright © 2001 McGraw-Hill Ryerson Limited 7-2
Nature and Scope of Market
• the business market consists of all organizations
that buy products and services:
• to make other products and services
• to resell to business users or to consumers
• to conduct the operations of the organization
• the business market is larger than the consumer
market because many businesses sell to other
businesses and many products change hands
several times before reaching the end consumer

Copyright © 2001 McGraw-Hill Ryerson Limited 7-3

Components of the
Business Market
• The agriculture market, consisting of farming,
food processing, and other farming-related
businesses.
• The reseller market, consisting of firms that
buy products from supplier organizations and
resell these items to their customers.
• The government market,
market including all federal,
provincial, territorial, and local units buying
for government institutions such as schools,
offices, hospitals, and military bases.

Copyright © 2001 McGraw-Hill Ryerson Limited 7-4

More Components
• The services market,
market including firms that
sell services to other organizations.
• The “nonbusiness” business market,
consisting of not-for-profit organizations
such as churches, universities, colleges,
and museums.
• The international market,
market including
• The export market.
• Overseas subsidiaries.

Copyright © 2001 McGraw-Hill Ryerson Limited 7-5

Business Market Demand
• the demand for a business product is often derived
from demand for a consumer product
• demand for business products is generally
relatively price inelastic
• demand in the business market tends to fluctuate
more widely than that in consumer markets
• buyers in the business market are generally much
better informed than are end consumers

Copyright © 2001 McGraw-Hill Ryerson Limited 7-6

Number and Types of
Business Users
• The number of buyers in the business market is small when
compared to the consumer market — 500,000 versus 30
million.
• For statistical purposes, the government has created the
Standard Industrial Classification (SIC) system, a useful tool
for segmenting business markets.
• The business market is large in purchasing power and
concentrated in a few firms.
• There is substantial regional concentration in many major
industries.
• A business market may be vertical or horizontal.

Copyright © 2001 McGraw-Hill Ryerson Limited 7-7

NAICS
• The North American Industry
Classification System (NAICS) is a
newer system adopted by Canada,
United States, and Mexico to
segment business markets
• NAICS is a more detailed
classification scheme than SIC

Copyright © 2001 McGraw-Hill Ryerson Limited 7-8

 The NAICS Coding Scheme
MAJOR GROUPS: SUBGROUPS: SUBGROUPS:
2-DIGIT CODE 3-DIGIT CODE 4-DIGIT CODE
11 Agriculture 513 Broadcast and 5133 Telecom-
21 Mining Telecommunications munications
23 Construction
31-33 Manufacturing
42 Wholesale trade
44-45 Retail trade
51 Information SUBGROUPS:
52-92 (Other industry)
5-DIGIT CODE
51332 Wireless Telecommunications
Carrier
SUBGROUPS:
6-DIGIT CODE
513321 Pagers
Copyright © 2001 McGraw-Hill Ryerson Limited 7-9
Reasons for Growth in
Importance of Business Market
•• Companies
Companies areare making
making lessless and
and
buying
buying more.
more.
•• Intense
Intense quality
quality and
and time
time pressure
pressure
increases
increases the
the need
need for
for reliable
reliable
suppliers.
suppliers.
•• Firms
Firms are
are choosing
choosing fewer
fewer suppliers
suppliers
and
and entering
entering into
into long-term
long-term
“partnering”
“partnering” relationships
relationships with
with
them.
them.
Copyright © 2001 McGraw-Hill Ryerson Limited 7 - 10
 The Business Market BUYING CENTRE
BUYING MOTIVES •Users Influencers
•Deciders Gatekeepers
•Organizational •Buyers
•Personal
TYPES OF
DECISIONS BUYING
BUSINESS BUYING-DECISION PATTERNS
• New Task PROCESS
•Straight Rebuy •Direct
•Modified Rebuy •Frequency
Need recognition
•Order Size
•Negotiation
Identification of alternatives •Reciprocity
BUYER-SELLER
RELATIONSHIP •Service
Evaluation of alternatives •Leasing
•Value chain
•Loyalty Purchase and related decisions

Postpurchase behaviour
Copyright © 2001 McGraw-Hill Ryerson Limited 7 - 11
Buying-Decision Process

• need recognition: determine what needs are

most important to the buyer
• identify alternatives for buying the product
• evaluate those alternatives on certain
criteria
• make the decision to buy and related
decisions pertaining to delivery, credit, etc.
• postpurchase decisions include evaluation
of the supplier and of the product or service

Copyright © 2001 McGraw-Hill Ryerson Limited 7 - 12

Business Buying Motives
• business buying motives are often different
from those that influence end consumers
• business buyers are motivated by both
organizational and personal goals
• the business buying situation can fit into one
of three categories: new-task buy, straight
rebuy, or modified rebuy
• each will likely require a different approach
on the part of the business marketer

Copyright © 2001 McGraw-Hill Ryerson Limited 7 - 13

Buy Classes
• New-task buy (the most difficult and complex
buying situation), which is the first-time
purchase of a major product.
• Straight rebuy. This is a routine, low-
involvement purchase.
• Modified rebuy.
rebuy The buying situation is
somewhere between the other two in terms of:
• The time and people involved, the information
needed, and the location of buying authority.

Copyright © 2001 McGraw-Hill Ryerson Limited 7 - 14

Multiple Buying Influences
There are likely to be a number of people
involved in most business buying decisions. A
buying centre includes people playing the
following roles:
•users: those who will use the product/service
•influencers: often set specifications to follow
•deciders: make the actual decision to buy
•gatekeepers: control the flow of information
•buyers:
buyers actually process the purchase order
Copyright © 2001 McGraw-Hill Ryerson Limited 7 - 15
In a Buying Centre
• Several people may play the same role or the same
person may occupy more than one role.
• The size and composition of a buying centre will vary
among businesses.
• Trying to determine who does what in a buying centre
is very important but can also be very difficult.
• The challenges in a business buying-decision process
suggest that co-ordination of the buying and selling
activities would be beneficial to both firms.

Copyright © 2001 McGraw-Hill Ryerson Limited 7 - 16

Business Buying Patterns
• often will buy directly from the producer
• suppliers will often establish long-term close
relationships with their customers
• some products are bought very infrequently
• average order is larger than in the consumer market
• negotiations often go on for months or years
• sometimes there is reciprocity involved
• often considerable need for after-sale service
• customers are very dependent on suppliers to
guarantee a consistency of supply
• growing tendency to lease instead of buy

Copyright © 2001 McGraw-Hill Ryerson Limited 7 - 17

Segmenting Business
Markets
• can use some of the same bases as used to
segment consumer markets
• often segment business markets on the
type of customer or on industry
classification
• segmentation by size of customer really
considers sales volume or potential
• can also consider segmenting on the basis
of the type of buying situation the
customer is in
Copyright © 2001 McGraw-Hill Ryerson Limited 7 - 18