MARKETING MANAGEMENT

Analyzing Business Markets

Chapter 7
 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.
Business market Vs Consumer Market
 The business market consists of all the organizations
that acquire goods and services used in the
production of other products or services that are
sold, rented, or supplied to others.
 Any firm that supplies components for products is in
the business-to-business marketplace.
 Some of the major industries making up the business
market are aerospace; agriculture, forestry, and fisheries;
chemical; computer; construction; defense; energy;
mining; manufacturing; construction; transportation;
communication; public utilities; banking, finance, and
insurance; distribution; and services.
Business market Vs Consumer Market
Business marketers contrast sharply with consumer markets in
some ways, They have
 Fewer, larger buyers. The business marketer normally deals
with far fewer and much larger buyers
 Close supplier–customer relationships. Because of the
smaller customer base and the importance and power of the
larger customers, suppliers are frequently expected to
customize their offerings to individual business customer
needs.
 Professional purchasing. Business goods are often
purchased by trained purchasing agents, who must follow
their organizations’ purchasing policies, constraints, and
requirements.
Business market Vs Consumer Market
 Multiple buying influences. More people typically
influence business buying decisions. Buying
committees that include technical experts and even
senior management are involved in the purchase.
Well-trained sales representatives and teams are
needed to deal with these equally well trained buyers.
 Multiple sales calls.
 Derived demand. The demand for business goods is
ultimately derived from the demand for consumer
goods. For this reason, Business buyers need to
closely monitor the buying patterns of end users.
Business market Vs Consumer Market
 Inelastic demand. The total demand for many
business goods and services is inelastic—that is,
not much affected by price changes.
 Fluctuating demand. The demand for business
goods and services tends to be more volatile than
the demand for consumer goods and services.
 Geographically concentrated buyers.
 Direct purchasing. Business buyers often buy
directly from manufacturers rather than through
intermediaries, especially items that are technically
complex or expensive such as servers or aircraft.
Buying situations
The business buyer faces many decisions in
making a purchase depending on the complexity
of the problem being solved, newness of the
buying requirement, number of people involved,
and time required.
Three types of buying situations
 Straight rebuy
 Modified rebuy
 New task
Buying situations
 Straight rebuy.
 The company reorders items on a routine basis and chooses from suppliers
on an approved list. The suppliers make an effort to maintain product and
service quality and often propose automatic reordering systems to save
time. The business buyer makes the fewest decisions in the straight rebuy
situation
 Modified rebuy.
 The buyer in a modified rebuy wants to change product specifications,
prices, delivery requirements, or other terms.
 New task.
 A new-task purchaser buys a product or service for the first time. The
business buyer makes the most decisions in the new-task situation. The
greater the cost or risk, the larger the number of participants, and the
greater their information gathering—the longer the time to a decision.
Over time, new-buy situations become straight rebuys and routine
purchase behavior.
Buying situations
New-task buying is the marketer’s greatest
opportunity and challenge. The buying process
passes through several stages:
 Awareness – Mass media
 Interest – Sales people
 Evaluation – Technical sources or experts
 Trial – Product demonstrations
 Adoption
Participants in the Business Buying
Process
 The buying center – consists of all those people and groups
who participate in the purchasing decision-making process, who
share some common goals and the risks arising from the
decisions.
 There are seven roles, group members in buying center can play
in any buying decision:
 Initiators
 Users
 Influencers – technical people
 Deciders - decide on product requirements or on suppliers.
 Approvers – senior management
 Buyers – they have formal authority to select the supplier and arrange
the purchase terms.
 Gatekeepers – purchasing agents, receptionists, and telephone operators
The Purchasing/Procurement Process
Companies have different purchasing orientations than
individuals:
 Buying Orientation: Focus on lowest price at a given
quality level. The buyer’s Tactics can be of
commodization: where the product is viewed as a
commodity thus only price matters, or of multisourcing:
where the suppliers are allowed to compete for their
purchases.
 Procurement Orientation: Focus on cost reductions,
quality improvements, improved relations with supplier.
(e.g. through longer term contracts, MRP)
 Supply Chain Management: Focus on improving the
entire value chain.
The Purchasing/Procurement Process
The Purchasing process varies according to different products:
 Routine products: products with low prices and low value. Suppliers
can offer blanket offers and facilities management e.g. routine
screws, office equipment etc
 Leverage products: products with high cost, high value and with
many sources for supply. Supplier can show own product as total cost
minimizer. e. g. raw material for bricks etc.
 Strategic products: products with high cost, high value and they
involves risk. Supplier can work on strategic alliances, co-
development programs, co-investment. E.g. the Qualcomm chipsets
for mobile phones
 Bottleneck products: low cost, low value, involves risk. Supplier
can decrease uncertainty by offering help desk, offer tracking system,
deliver-demand. E.g. an integral part of technology hardware, the
power pack for a laptop.
The Purchasing/Procurement Process
1. Problem Recognition
 The buying process begins when someone in the company
recognizes a problem or need that can be met by acquiring
a good or service.
 This recognition can result from internal or external stimuli.
 Internally, a company decides to launch a new product. To do
this, a company needs new raw materials, equipment, extra labor
and capital, new suppliers, and selects a person as a manager who
will look after the whole production.
 Externally, buyers may have some new experiences after
watching TV ads or sales calls, product reviews, or offering a
lower price. In showing advertising, marketers want to alert
customers about the problem and after then they also show how
their products solve the problem.
The Purchasing/Procurement Process
2. General needs description
 After recognizing a problem, general needs
description is the next step.
 For standard items, this is simple.
 For complex items, the buyer will work with others—
engineers, users—to define characteristics such as
reliability, durability, or price. The significance of
reliability, price, durability, and other features are ranked.
for the desired product or service by the team.
 Businessmarketers can help by describing how their
products meet or even exceed the buyer’s needs.
The Purchasing/Procurement Process
3. Product Specification
 The buying organization prepares a detailed list of the
technical specifications of the desired product through
product-value analysis conducted by the engineering
team.
 In value analysis, careful studies are made to determine
the cost reduction production process. Particularly for
the redesigning or standardization of the desired
product or service. So the professional team covers the
best features and characteristics required in purchasing
the product. Therefore the selling organizations can
also use this analysis to increase their sales
The Purchasing/Procurement Process
4. Supplier search
 The buyer next tries to identify the most
appropriate suppliers through trade directories,
contacts with other companies, trade
advertisements, trade shows, and the Internet.
 Companies are utilizing electronic marketplaces in
several forms such as, catalog sites, vertical
markets, online auctions, e-procurement websites,
which brings a revolutionary change in finding
information. Small suppliers also get facilities
having internet.
The Purchasing/Procurement Process
5. Proposal Solicitation
 In this stage, the suppliers are asked to submit
their proposals. In some cases, some suppliers
send only their salespersons or simple catalogs.
 However, when the desired product is more
expensive and complex, then proper formal
presentations and detailed written proposals are
required from the qualified suppliers. So the
marketers of business organizations should also be
skillful in writing as well as in presentation of
business proposals to the buying organizations.
The Purchasing/Procurement Process
6. Supplier Selection
 At this stage, the final supplier is selected from
the list of potential suppliers who have
submitted their proposals to the buying
organization. So the selection team of the
buying organization reviews the proposals of
all suppliers.
 Also lists the offered attributes on the basis of
the rank of importance to perform Customer-
Value Assessment (CVA).
The Purchasing/Procurement Process
7. Order-Routine Specification
 After selecting suppliers, the buyer negotiates the final
order, listing the technical specifications, the quantity
needed, the expected time of delivery, return policies,
warranties, and repair and maintenance services, etc.
8. Performance Review
 This is the last stage of the business buying process in
which the performance of the supplier is reviewed by
the buying organization. For this purpose the buying
organization contacts the customers as well as users of
the purchased product and asks them to provide their
experience of using that product.
Developing Effective Business-to-Business
Marketing Programs
 Business-to-business marketers are using every
marketing tool to attract and retain customers.
They are mainly using:
 systems selling
 adding valuable services to their product
offerings
 employing customer reference programs
 a wide variety of online and offline
communication and branding activities
Managing Business-to-Business Customer
Relationships
 B2B CRM stands for Business to Business
Customer Relationship Management and refers to
systems, technologies, strategies, and processes that
help B2B companies manage their relationships
with existing and potential customers.
 Loyalty is driven in part by supply chain management,
early supplier involvement, and purchasing alliances.
 Verticalcoordination between buying partners and
sellers so that they transcend mere transactions to
engage in activities that create more value for both
parties.
Managing Business-to-Business Customer
Relationships
 A number of forces influence the development
of a relationship between business partners.
Four relevant ones are
 availability of alternatives
 importance of supply
 complexity of supply
 supply market dynamism
Institutional and Government Markets
Major buyers of goods and services:
 Institutional market – consists of hospitals, nursing
homes, schools, prisons, and other institutions that are
obligated provide goods and services to people in their care.
 Companies produce, package, and price their products depending
to meet these institutions’ particular requirements, because they can
generate large income.
 Government organizations.
 Buyers for government organizations tend to require a great
deal of paperwork from their vendors and to favor open
bidding and domestic companies. Suppliers must be
prepared to adapt their offers to the special needs and
procedures found in institutional and government markets.