Analyzing Business

Markets
 e d
fin Organizational Buying

D e

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.

-- F. Webster Jr and Y. Wind

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 of 27

Business Markets

❑ 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
❑ Most valuable brands belong to business marketers: ABB, Caterpillar, DuPont,
FedEx, GE, Hewlett-Packard, IBM, Intel, and Siemens, to name a few

3
Business Markets

Transportation
& Distribution

Agriculture Construction

Forestry
Manufacturing

Communications
Banking & Finance
Challenges to Business Marketers

 Understanding deep customer needs

 Identify areas for Organic Business Growth
 Improving value management techniques
 Calculating better marketing metrics
 ROI (Return on Investment)
 CPA (Cost Per Action)
 ROAS (Return On Advertising Spend)
 CLV (Customer Lifetime Value)
 Customer Retention Rate
Challenges to Business Marketers

 Competing and growing in global markets

 Countering product commoditization
 Gain support for the marketing concept
Business Markets-Differences to the Consumer
Market
Geographically
Concentrated

Fewer, Larger
Buyers

Professional
Buyers

Multiple Personal
Sales Calls Relationships
Business Markets VS Consumer
Markets
❑ Fewer, Larger buyers
❑ Close-Supplier Customer Relationships
❑ Professional Purchasing
❑ Multiple Buying Influences
❑ Multiple Sales Calls
❑ Derived Demand
❑ Inelastic Demand
❑ Fluctuating Demand
❑ Geographically Concentrated Buyers
❑ Direct Purchasing 8
Business Markets-Differences to the Consumer
Market

Derived Demand

Inelastic Demand

Demand
•Derived
•Inelastic
•Fluctuating

Fluctuating Demand
Buying Situations

New Task
Straight Rebuy

Modified Rebuy
Buying Situations

1. Straight Rebuy-A straight rebuy is the purchasing or reordering of

supplies on a routine basis from a supplier who is on an approved list
e.g.: Office Stationary, Chemicals
2. Modified Rebuy-A buying situation in which an individual or
organization purchase goods that have been purchased previously but
changes either the supplier or some other elements of the previous
order
❏ In this the buyer wants to modify product specifications, terms, prices, suppliers

3. New Task-Buying a product or service for the first time (An office
building, new security system)
❏ High risk, large number of participants and information 11
Systems Buying and Selling

uye r
B

tra c tor
e Con
Prim

a c t ors
Co ntr
d-ti er
Seco n
Systems Buying and Selling
❑ Originated with the government awarding contracts for weapons and
communications systems
❑ The firm (buyer) solicits bids from prime contractors that, if awarded the
bid, would be responsible for assembling the sub-components of the
system from second-tier contractors
❑ Systems Contracting:The contractor (seller) approaches a potential buyer and
offers to provide all of the organizations MRO (maintenance, repair, and
operating) supplies
❏ Systems selling is a key strategy in bidding on large-scale industrial
projects such as dams, pipelines, factories, etc.

13
Business Buyer
Behavior
Participants in the Business Buying Process

Buying Center is all of the individuals and units that

participate in the business decision-making process

• Users
• Influencers
• Buyers
• Deciders
• Gatekeepers

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Business Buyer
Behavior
Participants in the Business Buying Process

Users: Are those that will use the product or service

Influencers: Help define specifications and provide information
for evaluating alternatives
Buyers: Have formal authority to select the supplier and arrange
terms of purchase
Deciders: Have formal or informal power to select and approve
final suppliers
Gatekeepers: Control the flow of information

6-17
Business Buyer
Behavior
Participants in the Business Buying Process

Buying center provides a major challenge

• Who participates in the process
• Their relative authority
• What evaluation criteria each participant uses
• Informal participants

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Business Buyer
Behavior
Major Influences on Business Buyers

• Economic factors
• Personal factors
• Environmental factors
• Organizational factors
• Interpersonal factors
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Business Buyer
Behavior
Major Influences on Business Buyers

1. Economic factors: 2. Personal factors:

• Price • Emotion
• Service

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Business Buyer
Behavior
Major Influences on Business Buyers
3. Environmental Factors

• Demand for product • Technology

• Economic outlook • Culture
• Cost of money • Politics
• Resource availability • Competition

6-21
Business Buyer
Behavior
Major Influences on Business Buyers

4. Organizational factors
• Objectives
• Policies
• Procedures
• Structure
• Systems

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Business Buyer Behavior

Major Influences on Business Buyers

5. Interpersonal factors
• Motives
• Perceptions
• Preferences
• Age
• Income
• Education
• Attitude toward risk
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Business Buying Process

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Business Buying
Process
The Business Buying Process
1. Problem recognition
2. General need description
3. Product specification
4. Value analysis
5. Supplier search
6. Proposal solicitation
7. Supplier selection
8. Order-routine specifications
9. Performance review

6-24
Business Buying
Process

1. Problem Recognition occurs when someone in the company

recognizes a problem or need
• Internal stimuli
• Need for new product or production equipment
• External stimuli
• Idea from a trade show or advertising

6-25
Business Buying
Process
2. General need description describes the characteristics
and quantity of the needed item
3. Product specification: describes the technical criteria
(Reliability, Durability and Price)
 Involves Engineering team
4. Value analysis is an approach to cost reduction where
components are studied to determined if they can be
redesigned, standardized, or made with less costly
methods of production

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Business Buying
Process

5. Supplier Search involves compiling a list of qualified suppliers

6. Proposal Solicitation is the process of requesting proposals from

qualified suppliers

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Business Buying
Process

7. 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

8. Order-Routine Specifications is the final order with the chosen

supplier and lists all of the specifications and terms of the
purchase

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Business Buying
Process

9. Performance Review involves a critique of supplier performance

to the purchase terms

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Business Buyer Behavior

E-Procurement and Buying on the Internet

Online purchasing
• Company buying sites
• Extranets
• Marketing Intelligence System

6-30
Business Buyer Behavior
E-Procurement and Buying on the Internet
Advantages
• Access to new suppliers
• Lowers costs
• Speed in order processing and delivery
• Share information
• Sales
• Service and support

6-31
Business Buyer Behavior

E-Procurement and Buying on the Internet

Disadvantages
• Can erode relationships as buyers search for new suppliers
• Security

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Institutional and
Government Markets
Institutional markets consist of hospitals, nursing homes, and prisons
that provide goods and services to people in their care
• Characteristics
• Low budgets
• “Captive” audience

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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
• Affected by similar environmental factors
• Good credit
• Minority suppliers
• Depressed suppliers
• Small businesses

6-34