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. and buying patterns in business markets Copyright © 2001 McGraw-Hill Ryerson Limited 7-2 . buying processes.

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 .

offices. territorial. consisting of firms that buy products from supplier organizations and resell these items to their customers. and military bases. hospitals. and local units buying for government institutions such as schools. consisting of farming. ‡ The reseller market. provincial. Copyright © 2001 McGraw-Hill Ryerson Limited 7-4 . food processing. federal. ‡ The government market including all market. and other farming-related businesses.Components of the Business Market ‡ The agriculture market.

‡ The ´nonbusinessµ business market. ‡ The export market. ‡ The international market including market. and museums. ‡ Overseas subsidiaries. Copyright © 2001 McGraw-Hill Ryerson Limited 7-5 . sell services to other organizations. colleges. universities. consisting of not-for-profit organizations such as churches.More Components ‡ The services market including firms that market.

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 .

the government has created the Standard Industrial Classification (SIC) system. Copyright © 2001 McGraw-Hill Ryerson Limited 7-7 . ‡ There is substantial regional concentration in many major industries. ‡ For statistical purposes. ‡ The business market is large in purchasing power and concentrated in a few firms.000 versus 30 million. ‡ A business market may be vertical or horizontal.Number and Types of Business Users ‡ The number of buyers in the business market is small when compared to the consumer market ³ 500. a useful tool for segmenting business markets.

United States.NAICS ‡ The North American Industry Classification System (NAICS) is a newer system adopted by Canada. 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: 2-DIGIT CODE 11 Agriculture 21 Mining 23 Construction 31-33 Manufacturing 42 Wholesale trade 44-45 Retail trade 51 Information 52-92 (Other industry) SUBGROUPS: 3-DIGIT CODE 513 Broadcast and Telecommunications SUBGROUPS: 4-DIGIT CODE 5133 Telecommunications SUBGROUPS: 5-DIGIT CODE 51332 Wireless Telecommunications Carrier SUBGROUPS: 6-DIGIT CODE 513321 Pagers Copyright © 2001 McGraw-Hill Ryerson Limited 7-9 .

‡ Intense quality and time pressure increases the need for reliable suppliers.10 .Reasons for Growth in Importance of Business Market ‡ Companies are making less and buying more. Copyright © 2001 McGraw-Hill Ryerson Limited 7 . ‡ Firms are choosing fewer suppliers and entering into long-term ´partneringµ relationships with them.

The Business Market BUYING MOTIVES ‡Organizational ‡Personal BUYING CENTRE ‡Users Influencers ‡Deciders Gatekeepers ‡Buyers TYPES OF DECISIONS ‡ New Task ‡Straight Rebuy ‡Modified Rebuy BUSINESS BUYING-DECISION PROCESS Need recognition Identification of alternatives Evaluation of alternatives Purchase and related decisions Postpurchase behaviour Copyright © 2001 McGraw-Hill Ryerson Limited BUYING PATTERNS ‡Direct ‡Frequency ‡Order Size ‡Negotiation ‡Reciprocity ‡Service ‡Leasing BUYER-SELLER RELATIONSHIP ‡Value chain ‡Loyalty 7 .11 .

credit. ‡ postpurchase decisions include evaluation of the supplier and of the product or service Copyright © 2001 McGraw-Hill Ryerson Limited 7 .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.12 . etc.

or modified rebuy ‡ each will likely require a different approach on the part of the business marketer Copyright © 2001 McGraw-Hill Ryerson Limited 7 . straight rebuy.13 .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.

‡ Modified rebuy The buying situation is rebuy.Buy Classes ‡ New-task buy (the most difficult and Newcomplex buying situation). ‡ Straight rebuy. Copyright © 2001 McGraw-Hill Ryerson Limited 7 . somewhere between the other two in terms of: ‡ The time and people involved. and the location of buying authority. the information needed.14 . which is the first-time purchase of a major product. This is a routine. lowinvolvement purchase.

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 actually process the purchase order buyers: Copyright © 2001 McGraw-Hill Ryerson Limited 7 .Multiple Buying Influences There are likely to be a number of people involved in most business buying decisions.15 .

Copyright © 2001 McGraw-Hill Ryerson Limited 7 . ‡ Trying to determine who does what in a buying centre is very important but can also be very difficult.In a Buying Centre ‡ Several people may play the same role or the same person may occupy more than one role. ‡ The challenges in a business buying-decision process suggest that co-ordination of the buying and selling activities would be beneficial to both firms.16 . ‡ The size and composition of a buying centre will vary among businesses.

17 .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 .

18 .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 .