Marketing Management

Chapter 7: Analyzing Business

Market
 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?
 Content
I. What is organizational
buying?

II. Participants in the

business buying process

III. Managing business-to-

business customer
relationships
I. What is organizational buying ?
What is business market?
 A business market is a group of profit making
organizations that buy goods and services for business
use.
 It consists of industries, distributors and retailers.
 This market has rational buying with and experiences
an inelastic demand.
 Characteristics of Business 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
 How does it differ from the
consumer market ?
Consumer Business
Every customer has equal value and There are a small number of big
represents a small % of revenue customers that account for a large %
of revenue
Sales are made remotely, the Sales are made personally, the
manufacturer doesn't meet the manufacturer gets to know the
customer customer
Products are the same for all Products are customized for
customers. The service element is different customers. Service is highly
low valued
Purchases are made for personal use Purchases are made for others to use
- image is important for its own sake - image is important where it adds
value to customers
Cont.
The purchaser is normally the The purchaser is normally an
user integrator, someone down the
supply chain is the user.

Costs are restricted to purchase Purchase costs may be a small

costs part of the total costs of use

The purchase event is not subject The purchase event is conducted

to tender and negotiation professionally and includes
tender and negotiation.

The exchange is one off The exchange is often one of

transaction. There is no long- strategic intent. There is the
time view (financial services potential for long term value
differ)
 Buying situations
• Reorders supplies (office supplies, bulk
chemicals) at a routine basis and chooses from
Straight
rebuy list of suppliers.

• The buyer want to modified products

Modified specs, prices, delivery requirements from
rebuy previous orders.

• Purchaser buys a products for the first time

New task
II. Participants in the business buying
process
 The buying center
1. Initiators • Those requesting the product

• Those who will you use the product or

2. Users service

3. Influencers • Those who influence the buying decisions

• Those who decide on products reqs &

4. Deciders suppliers

5. Approvers • Those authorizing actions of buyers

• Those who have authority to select supplier &

6. Buyers arrange purchase terms
•• Those
tho who prevent information from reaching
7. Gatekeepers members of buying center
 Of Concern to Business Marketers

 Who are the major decision participants?

 What decisions do they influence?
 What is their level of influence?
 What evaluation criteria do they use?
 Stages in Buying Process

Problem Supplier Order routine

recognition selection specification

General need Proposal Performance

description solicitation review

Product Supplier
specification search
 The buygrid framework
New Task Modified Straight Buy
Rebuy
Problem recognition
Maybe
General need description Maybe
Product specification
Supplier search
Maybe
Proposal solicitation Maybe
Supplier selection Maybe
Order-routine specification Maybe
Performance review
 Searching for suppliers
Catalog sites • Electronic catalogs

• Ordering raw materials from specialized

Vertical markets websites

Pure play auction sites • Online marketplaces (Ebay, Amazon)

• On spot electronic markets, prices change

Spot markets by the minute

• Private exchange to link groups of

Private exchanges suppliers over the web

• Participants offer to trade goods or

Barter markets services

• Companies buying the same goods join

Buying alliances together to form purchasing consortia
 Overcoming Price Pressures

 Limit quantity purchased

 Allow no refunds
 Make no adjustments
 Provide no services
 Researching Customer Value

 Internal engineering assessment

 Field value-in-use assessment
 Focus-group value assessment
 Direct survey questions
 Conjoint analysis
 Benchmarks
 Compositional approach
 Importance ratings
Order – routine specification
 The buyers negotiates: The final order; listing the
technical specifications; the quantity needed; the
expected time of delivery; return policies; warranties…
Performance review
Three methods:
1. The buyer may contact the end users and ask for
their evaluations
2. The buyer may rate the supplier on several criteria
using a weighted score method
3. The buyer might aggregate the cost of poor
performance to come up with adjusted costs of
purchase including price
III. Managing Business- to- Business
Customer Relationships
 The Benefits of Vertical
Coordination
• Create more value for both buying partners and sellers
partners

Establishing Corporate Trust and

Credibility
 The relationship between
advertising agencies and clients
Information asymmetry
At least one partner had
In the relationship between partnership
high barriers to entry that
formation stage, one would generate more
would prevent the other
partner experienced profit than if the partner
partner from entering the
substantial market growth. attempted to invade the
business
other firm’s area

Dependence asymmetry
existed such that one
partner was more able to
control or influence the
other’s conduct
One partner benefited
from economies of scale
related to the relationship
Factors of buyer-supplier
relationships

Availability
Importance
of
of supply
alternatives

Supply
Complexity
market
of supply
dynamism
Categories of Buyer-Supplier
Relationships
Basic buying Cooperative
and selling systems

Bare bones Collaborative

Contractual Mutually
transaction adaptive

Customer Customer is
supply king
 Business Relationship : Risks and
Opportunism

Opportunism is a concern

Vertical coordination can facilitate stronger customer – seller ties

but increase the risk to the customers and supplier specific
investment
 Institutional and Government
Markets
 Institutional market consists of schools
,hospitals, nursing home, prisons and other institutions
that provide goods and services to people in their care
 Institutional and Government
Markets ( Cont )
 Buyers for government organization 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
 Summary
Business markets differ from consumer markets
Business buyers make purchase decisions base on
different buying situations
The buying process consists of eight stages.
 sellers use different sales strategies according to their
size. One is to use e – marketplaces
There are also different strategies in handling price –
oriented customers
Business marketers must form strong bonds and
relationships with their customers and provide them
added value.