Hamidul Islam

Marketing Management
Summer 2011-2012
 MARKETING MANAGEMENT
12th edition
7
Analyzing
Business Markets

Kotler Keller
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?
 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?
What is Organizational Buying?

Organizational buying refers to the 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.
 For instance: Buying procedures and
behaviors of Corporate or Institutional purchase
and Government purchases.

VS.
What is Business Market?
Business market consists of all the
organizations that acquire goods and services
used in the production of other products and
services that are sold, rented or supplied to
others.
 The major industries making up the business market
are agriculture, constructions, manufacturing,
transport, communication, public utilities, banking,
insurance, and other services.

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Characteristics of Business Markets

 Fewer, larger buyers  Multiple sales calls

 Close supplier-  Derived demand
customer  Inelastic demand
relationships  Fluctuating demand
 Professional  Geographically
purchasing concentrated buyers
 Several buying  Direct purchasing
influences
Characteristics of Business Markets

 Fewer, larger buyers: The number of the

buyers is less but the volume of individual
buyer’s purchase is very high. So the ultimate
sales volume of seller is very high.
Example: B2B Marketing – Dunlop Tires to
Automobile manufacturers, Aircraft Engines to
BOEING, or other etc.
Characteristics of Business Markets

 Close supplier-customer relationships:

Because of smaller customer base, continuous
communication and the importance of the
customers; suppliers maintain very close
relationship with them. And business buyers often
select suppliers who also buy product from them.
Example: Sometimes business organization
can go for long term agreement with their
suppliers to ensure better profit and thus
suppliers can provide customized products to
make it perfect for the buyers. (so its a win-win situation).

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Characteristics of Business Markets
 Professional purchasing: Business goods are
often purchased by some trained purchasing
agents and they must follow purchasing policies
and procedures of their principal company.
Example: Like Buying Houses for the Garments
Sector. They follow the sequence;
- Request for quotation
- Receive proposals
- Evaluate offerings
- Issue purchase orders
- Receive products
Characteristics of Business Markets

 Several buying influences: Buying

committees consists of different functional
managers, technical experts and even senior
management in purchase of major goods. So
sometimes they try to influence the purchase.
Example: People from different departments try
to influence the buying process to serve their
interest. And some special interest groups
outside the company can also interfere in
business buying.
Different Influencers in Business buying…

Government Authorities
Supplier Financial Institutions Customer
Other Influencers

CEO
CEO
Marketing & Sales dept
Purchasing dept
R&D
Design dept
Design dept
Planning dept
Factories
Quality inspection
Installation dept
Installation dept
Finance/Accounts
Finance/Accounts
Legal dept

People of different levels both from Buyer and Supplier and

some outsiders can influence business buying decisions for
their benefits…
Characteristics of Business Markets
 Multiple sales calls: Several sales calls (offer,
communication & influence) and time is needed to
satisfy all the possible queries of the business
customers from bottom to top level of buyer.

 Derived demand: The demand for business goods

is ultimately resulted from the demand of consumer
goods. So economic condition, consumer spending,
interest rate are important.
Example: TOYOTA buys steel because consumers buy cars.
If consumer demand for cars drops, so will the demand for steel and all
other products used to make cars.
Characteristics of Business Markets
 Inelastic demand: Sometimes demand of some
business goods & services are not highly affected
by price changes. Consumer will show similar
type of demand all most all the time. That is why
marketers of those products will demand one
standard quantity of raw materials always.
Example: Demand for Raw materials of salt and medicine
manufacturers. No matter how the final price
(Increase/decrease) of products is; Consumer will use
these products according to their regular need. So the
manufacturers need a consistent level supply all the time.
Characteristics of Business Markets
 Fluctuating demand: Though business buyers
demand products according to consumer’s need;
but sometimes the demand for business goods
and services tends to become unstable than the
demand of consumer goods & services.
Example: A given percentage increase in consumer
demand can lead to a much larger percentage increase
in the demand for plant and equipment necessary
to produce the additional output.
Characteristics of Business Markets
 Geographically concentrated buyers: Sometimes
business buyers are located in some selective areas.
So it is effective to target those selected areas to sell
business products.
Example: Motijheel is prominent for corporate offices, again Dhanmondi &
Banani areas are for private universities. So it is profitable for marketers to
send their sales representatives to the respective areas.

 Direct purchasing: Usually business customers

purchase products directly from manufacturers without
using the intermediaries.
Example: Developer company (Asset, Domino) purchase building materials
like steel, cement and others directly from the manufacturer (Basundhara,
Abul Khair Co).
Business Buyer Behavior

Major Types of Buying Situations

The business buyers faces many decisions in

making purchase. The number of decisions
depends on the buying situations like:
• Straight rebuy
• Modified rebuy
• New task
Major Types of Buying Situations

Straight rebuy : The buyer reorders

something without any modifications. Based
on past buying satisfaction, the buyer simply
chooses from the approved supplier’s list.
- It usually handled on a routine basis
(for example Office supplies, bulk chemicals)
by the purchasing department.
- In this cases; the in-suppliers make an effort to
maintain product and service quality and often
propose automatic re-ordering systems to save time.
So the out suppliers gets less opportunities to sale
their products.
Major Types of Buying Situations

Modified rebuy : The buyer wants to modify product

specifications, prices, delivery requirements or other
terms. End of purchase contract, change of purpose
and strong marketing effort from the competitors are
the possible reasons for modified rebuy situation.
- The modified rebuy usually involves more decision
participants than does the straight rebuy. Because it
is Customized solution to the customers.
- In this cases; the in-suppliers may become nervous and
have to protect their account. The out-suppliers see
an opportunity to propose a better offer to gain
some business.
Major Types of Buying Situations

New task : When purchaser buys the product or service

for the first time. It is a purchase decision by the
customers that requires thorough research.
- The greater the cost or risk, the larger the number of
decision participants and greater their efforts to collect
information and therefore the longer the time to make
a decision.

- E.g. New computer system, security instrument etc .

Over time, new buying situations become straight
rebuy and routine purchase behaviour based on
satisfaction and relationships in between buyer and
seller.
Business Buyer Behavior
System Buying and Selling
System Buying involves the purchase of a
packaged solution to a problem from a single
seller or supplier.
Example: A bank is buying all of their software solution
from a particular system provider company.
• This practice originated from with government purchase
of major defense weapons, govt. security,
communication systems and others.
• It reduces procurement and management costs of
customers and operational cost of suppliers.
Business Buyer Behavior
Participants in the Business Buying Process
Buying center is all of the individuals and units
that participate in the business buying
decision-making process such as:
• Initiators
• Users
• Influencers
• Deciders
• Approvers
• Buyers
• Gatekeepers
 Initiators

 Users
 Influencers

 Deciders
 Approvers

 Buyers
 Gatekeepers
Types of Business Customers

 Price-oriented Customer: Price is everything for

them. They always wait and look for the lowest
possible price.
- It is also called Transactional selling (single
dealings) like purchasing any product from
auction, exhibitions and trade fairs etc.
 Solution-oriented Customers: They want low
price but will respond to arguments about more
dependable supply or service.
- It is also called Consultative selling like buyer for
computer and technology related products.
Types of Business Customers
 Gold-standard Customers: They want the best
performance in terms of product quality, assistance,
delivery reliability and so on.
- It is also called Quality selling like selling to Brand
Cars, Brand Watches manufacturers.

 Strategic-value Customers: They want a fairly

permanent and sole-supplier relationship with their
supplier companies.
- It is also called Enterprise selling like strategic
partnership between customer and supplier;
Partnership between AIUB and OTOBI.
Types of Product in Business
Purchasing Processes
 Routine products: These products have low value
and cost to the customer and involve little risk of supply.
So Business customers will seek the lowest price and
emphasize routine ordering. Suppliers will offer to
standardize products.
Example: Office Supplies – Paper, File Folders, Clips.
 Leverage products : These products have high
value and cost to the customer but involve little risk of
supply because many companies make them. The
supplier knows that the customer will compare market
offerings and costs with other sellers.
Example: Tier for car, Computer accessories, building
materials and office furniture.
Types of Product in Business
Purchasing Processes
 Strategic products: These products have high
value and the cost to the customer also involve high
risk of supply. The customer will want a well known and
trusted supplier and be willing to pay more than the
average price. The supplier should seek strategic
alliances.
Example: Complex Computer software and Security
Systems, Special technical support for operation etc.

 Bottleneck products: These products have low

value and cost to the customer but they involve some
risk of supply. The customer will want a supplier who
can give guarantee a stable supply of reliable products.
Example: Spare parts for Automobile and Electronic
product producers.
Stages in the Business Buying Decision Process

General
Problem Product
Need
Recognition Specification
Description

Supplier
Search

Proposal
Solicitation

Order
Performance Supplier
Routine
Review Selection
Specification
Stages in Buying process

Problem recognition occurs when someone in the

company recognizes a problem or need for a
business product or services.
 Internal sources:
• Need for new product or production equipment from
the internal operations of the organization.
 External sources:
• Idea from some external activities like
trade show, advertising campaign or
competitors activities.
Stages in Buying process
General need description describes the
characteristics and quantity of the needed item.
- For standard items the process is simple, but for
complex items, the buyer will work with others –
engineers, users to define characteristics like utility,
reliability, durability or price.

Product specification describes all the technical

criteria and details of the product. The company can
assign a product-value analysis team to the
project to determine the cost and the standard of
that product.
Stages in Buying process
Supplier search involves searching for the most appropriate
suppliers through trade directories, contacts with other
companies, trade advertisements and trade shows. Company
may collect information about the multiple suppliers.

Proposal solicitation is the process of requesting proposals

from qualified suppliers. After evaluating the proposals, finally
the buyer will invite a few suppliers to make formal presentation
or discussion.

Supplier selection is the process when the buying center

creates a list of desired supplier attributes and negotiates with
preferred suppliers for favorable terms and conditions.
Stages in Buying process
Order-routine specifications After selecting supplier(s),
buyer place the final order to the supplier by listing all the
technical specifications, quantity needed, the expected
time of delivery, return policies, warranties, payment
mode and so on.

Performance review involves a evaluation of supplier’s

performance to the purchase terms.
- This is the most important stage for future sales
development and relationship. Because performance
review may lead the buyer
to continue, modify or end a supplier
relationship.
Institutional and Government Markets
Institutional and Government markets consist
of all the private and public schools,
hospitals, nursing homes, prisons and
others that provide goods and services to
people in their care.
Special Characteristics:
• Look for standard quality products
• Allocate low budgets
• Different interest groups are related
• Government market specially tend to favor
domestic supplier and require to submit bids and
normally award to the lowest bidder.
END of CHAPTER : 7