Business Markets

&
Business Buying Behavior

Mukhtar Ahmed
Chapter Outline
1. Business Markets
2. Business Buyer Behavior
3. Institutional and Government Markets

6-2
 Organizational Buying
“Organizational buying is 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”.
Although no two companies buy in the same way, the
seller identify cluster of business firms that buy in
similar ways.

Frederick E. Webster, Jr, and yoram Wind, Organizational

buying behavior (Englewood Cliffs, NJ: Prentic Hall, 1972)
 Business Markets Vs Consumer Market
 Business markets consists of all the organizations that
acquire goods and services used in the production of
other products or services that are sold to others.
 More revenue and items are involved in sales to
business buyers than to consumer.
 Characteristics of Business Markets (1/3)

Fewer buyers (e.g. A tyre company depends on big automakers)

Larger buyers (e.g. Aircraft engines , weapons)
Close supplier-customer relationship
Smaller customer base
Importance & power of larger customers.
Suppliers customized offerings to individual customer needs.
Contracts go to the supplier who cooperate with the buyer on
technical specifications and delivery requirements.
Characteristics of Business Markets (2/3)
Geographically concentrated buyers:
 this geographically concentration of producers helps to reduce
selling cost.
Derived demand:
The demand for business goods is ultimately derived from the
demand for consumer goods. Business marketers must monitor the
buying patterns of ultimate consumers.
Inelastic demand:
Total demand of many business is not much affected by price
change. Demand is especially inelastic in the short run because
producers can not make quick changes in their production
methods.
Characteristics of Business Markets (3/3)
Fluctuating demand

Professional purchasing

Several buying influences

Direct purchasing.

Reciprocity

leasing
Buying situations
 Straight rebuy is a routine purchase decision (re-
ordering) without any modification.
 Modified rebuy is a purchase decision where the
buyer wants to modify the product specification,
price, terms, or suppliers.
 New task is a purchase decision that requires
thorough research such as a new product.
System buying & Selling

 Systems selling involves the purchase of a packaged

solution from a single seller.
 This practice originated with government purchases
of major weapons & communication systems.
 The prime contractors can bid out to second-tier
contractors.
 System selling is a key industrial marketing strategy
in bidding to build large scale industrial projects.
Participants in Business Buying Process
The buying center is all of the individuals and units that
play a role in the purchase decision-making process:
 Initiators
 Users
 Influencers:
 Deciders
 Approvers
 Buyers
 Gatekeepers
Model of Business Bayer Behavior
Major Influences on Business
Buyer Behavior
Purchasing/Procurement Process
Purchasing/Procurement Process

Problem recognition occurs when someone in the company

recognizes a problem or need.
 Internal stimuli e.g.
 Need for new product or production equipment
 Machinery breaks down and requires replacement
 External stimuli
 Idea from a trade show or advertising
 Receives offer of a lower price for a product
Purchasing/Procurement Process

General need description describes the characteristics

and quantity of the needed item.
Product specification describes the technical criteria.
 Purchasing/Procurement Process

Supplier search involves compiling a list of qualified

suppliers.

Proposal solicitation is the process of requesting proposals

from qualified suppliers.
Purchasing/Procurement Process

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.

Order-routine specifications is the final order with the

chosen supplier and lists all of the specifications and
terms of the purchase.
Purchasing/Procurement Process

Performance review involves a critique of supplier

performance to the purchase terms.
3. Institutional & Government
Markets
Institutional and Government Markets
Institutional markets consist of schools, hospitals,
nursing homes, prisons and other institutions that
provide goods and services to people in their care.

 Characteristics
 Low budgets
 “Captive” audience
Institutional and Government Markets
Government markets tend to favor domestic suppliers
and require suppliers to submit bids and normally award
to the lowest bidder
 Carefully monitored by outside publics – require
considerable paperwork
 Affected by similar environmental factors