A Global Perspective

Philip Kotler
Gary Armstrong
Swee Hoon Ang
6 Siew Meng Leong
Chin Tiong Tan
Oliver Yau Hon-Ming
Business Markets and
Business Buyer
Behavior

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Learning Objectives
After studying this chapter, you should be able to:
1. Define the business market and explain how business
markets differ from consumer markets
2. Identify the major factors that influence business buyer
behavior
3. List and define the steps in the business buying-decision
process
4. Compare the institutional and government markets and
explain how institutional and government buyers make their
buying decisions

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

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1. Business Markets

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Business Markets
• Business buying process is the process where
business buyers determine which products and
services are needed to purchase and then find,
evaluate, and choose among alternative brands.
• Business markets differ from consumer markets in:
– Market structure and demand
– Nature of the buying unit
– Types of decisions & the decision-making process

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Business Markets

Market Structure and Demand

• Fewer and larger buyers

• Geographic concentration

• Derived demand – It ultimately derives from the

demand of consumer goods
– Inelastic demand (not affected much by price changes)
– Fluctuating demand (change more & more quickly)

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Example: Derived Demand Simplified
You make headlamp assemblies for autos – Auto company’s demand
for headlamp is affected by the consumers’ demand for cars.

Consumers want
more cars Automobile
Need more of
manufacturers need
your company’s
more components
headlamp
and steel
assemblies

Consumers stop
buying cars Automobile
manufacturers stop You can’t sell
making cars headlamp
assemblies

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Business Markets
Nature of the Buying Unit
• A business purchase involves more decision
participants (buying center or DMU) & a more
professional purchasing effort.

• Many companies upgrade purchasing functions to

“supply management” or “supplier development”

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Business Markets
Types of Decisions & the Decision Process
• Business buyers usually face more complex buying
decisions
• More formalized
• Buyer and seller dependency

• Supplier development - the systematic

development of networks of supplier-partners to
ensure an appropriate and dependable supply of
products and materials that they will use in making
their own products or resell.
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2. Business Buyer Behavior

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Business Buyer Behavior
• Business buyer behavior refers to
– the buying behavior of the organizations that buy
goods and services for use in production of other
products and services that are sold, rented, or
supplied to others; for facilitating their daily
operations.

– Also included are retailing and wholesaling firms that

acquire goods to resell or rent to others for profit.

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Business Buyer Behavior
A Model of Business Buyer Behavior

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Business Buyer Behavior
Marketing Stimuli

Similar to consumer buying, business buying consists of

the four Ps:
• Product
• Price
• Place
• Promotion

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Business Buyer Behavior
Other Stimuli

Additional stimuli include major economic forces:

• Political
• Economic
• Technological
• Cultural
• Competitive

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Business Buyer Behavior
Buyer Responses to Marketing Stimuli

• Product or service choice

• Supplier choice
• Order quantities
• Delivery
• Service
• Payment terms

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Business Buyer Behavior
Black box of business buying

Marketers must understand what happens within the

organization to turn stimuli into purchase
responses.
• Major Types of Buying Situations
• Participants in the Business Buying Process
• Major Influences on Business Buyers
• The Business Buying Process
• E-Procurement

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Business Buyer Behavior
Major Types of Buying Situations

• Straight rebuy
• Modified rebuy
• New task

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Business Buyer Behavior
Major Types of Buying Situations

• Straight rebuy is a routine purchase decision such as a

reorder without any modification.
• Modified rebuy is a purchase decision that requires
some research 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.

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Business Buyer Behavior
Major Types of Buying Situations

• Systems selling involves the purchase of a packaged

solution from a single seller.
• Two-step process of selling:
• Interlocking products
• System of production, inventory control, distribution,
and other services to meet the buyer’s need for a
smooth-running operation

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Business Buyer Behavior
Participants in the Business Buying Process

• The buying center is all of the individuals and units

that play a role in the purchase 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.

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Match Game
Which buying center participant – a buyer, decider, gatekeeper, influencer, or
user – is most likely to make each of the following statements?

• “This bonding agent better be good, because I have to put this product
together.”
• “I specified this bonding agent on another job, and it worked for them.”
• “Without an appointment, no sales rep gets in to see Mr. Johnson.”
• “I don’t see any reason why we can’t use this bonding agent on the next
job.”
• “Okay, it is a deal – we’ll buy it.”
• “I’ll place the order first thing tomorrow.”

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Match Game
Which buying center participant – a buyer, decider, gatekeeper, influencer, or
user – is most likely to make each of the following statements?

• “This bonding agent better be good, because I have to put this product
together.” - user
• “I specified this bonding agent on another job, and it worked for them.” -
influencer
• “Without an appointment, no sales rep gets in to see Mr. Johnson.” -
gatekeeper
• “I don’t see any reason why we can’t use this bonding agent on the next
job.” - influencer
• “Okay, it is a deal – we’ll buy it.” - decider
• “I’ll place the order first thing tomorrow.” - buyer

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Business Buyer Behavior
Participants in the Business Buying Process

The 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
Buyer Behavior
• Economic factors
• Personal factors
• Environmental factors
• Organizational factors
• Interpersonal factors

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Major Influences on Business
Buyer Behavior

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Business Buyer Behavior

The Buying Process

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Business Buyer Behavior
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

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Business Buyer Behavior
The Buying Process

General need description describes the characteristics and

quantity of the needed item.
Product specification describes the technical criteria.
• 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 Buyer Behavior
The Buying Process

Supplier search involves compiling a list of qualified

suppliers.

Proposal solicitation is the process of requesting

proposals from qualified suppliers.

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Business Buyer Behavior
The Buying 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.

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Business Buyer Behavior
The Buying Process

Performance review involves a critique of supplier

performance to the purchase terms.

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Buygrid Framework: Major Stages (Buyphases) of the Industrial Buying Process in Relation
to Major Buying Situations (Buyclasses)

Buyclasses

New Modified Straight

Task Rebuy Rebuy

1. Problem recognition Yes Maybe Yes

2. General need description Yes Maybe No

3. Product specification Yes Yes No

Buyphases 4. Supplier search Yes Maybe No

5. Proposal solicitation Yes Maybe No

6. Supplier selection Yes Maybe No

7. Order-routine specification Yes Maybe No

8. Performance review Yes Yes Yes

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An Example of Vendor (Supplier) Analysis

Attributes Rating Scale

Importance Poor Fair Good Excellent

Weights (1) (2) (3) (4)
Price .30 x

Supplier reputation .20 x

Product reliability .30 x

Service reliability .10 x

Supplier Flexibility .10 x

Total score: .30(4) + .20(3) + .30(4) + .10(2) + .10(3) = 3.5

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Business Buyer Behavior
E-Procurement and Buying on the Internet

75% of business buyers indicated that they use the

Internet to make at least some of their purchases.

Online purchasing
• Company buying sites
• Extranets

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The e-hub Plastics.com home page offers buyers and
sellers of plastics a marketplace plus news and
information

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Covisint’s Web site offers both services and
information

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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 track
• Service and support

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Business Buyer Behavior
E-Procurement and Buying on the Internet

Disadvantages
• Can erode relationships as buyers search for new
suppliers
• Lack of security

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Business Buyer Behavior
– E-Procurement

Much online purchasing takes place through online

auctions and e-market-places:

 An intranet is an internal corporate computer network

that uses Internet technology to link company
departments, employees, and databases

 An extranet allows outsiders to the organization to

access its intranet

 A private exchange links invited groups of suppliers

and partners over the Web
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Business Buyer Behavior
- E-Procurement
Security
 Authentication - making sure only authorized
individuals are allowed to access a site

 Firewalls - combination of hardware and software

that ensures only authorized individuals gain entry

 Encryption - scrambling a message so that only

another individual has the right “key” for deciphering
it

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3. Institutional & Government
Markets

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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

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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 by outside publics – require
considerable paperwork
• Affected by similar environmental factors
• Good credit
• Non-economic factors – tend to favor
• Minority suppliers
• Depressed suppliers
• Small businesses

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Video Case: Eaton
Discussion Questions:
1. What is Eaton’s value proposition?
2. To which decision makers does Eaton market its
products and services?
3. How does Eaton add value to its products &
services?

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