Business Markets and Business Buyer Behavior Chapter 7

Objectives Be able to define the business market and explain how business markets differ from consumer markets. Know the major factors that influence business buyer behavior. 1

Objectives Understand the steps in the business buying decision process. Understand institutional and government markets and how buyers in these markets make their buying decisions. 2

Gulfstreamc Aerospace Sells jets exclusively for corporate use 300 – 500 buyers worldwide Rational, objective, and human factors influence business Multiple people are involved in the decision Buying influences include the CEO, pilot, board members, even spouses Company has been 3

Definition Business Buyer Behavior: § The buying behavior of organizations that buy goods and services for use in the production of other products and services or for the purpose of reselling or renting them to others at a profit. 4

Business Markets Characteristics of Business Markets § Sales in the business market far exceed sales in consumer markets. 5

Business Markets Characteristics of Business Markets § Business markets differ from consumer markets in many ways. Marketing structure and demand v Nature of the buying unit v Types of decisions and the decision process v 6

Business Markets Characteristics Marketing Structure and Demand Nature of the Buying Unit Types of Decisions and the Decision Compared to consumer markets: § Business markets v have fewer but larger customers § Business customers v are concentrated geographically § Demand is different v Derived demand v Price inelastic 7

Discussion Question Think about derived demand in the context of vehicles. Which parts, components, or finished goods are most dependent upon the demand for new vehicle production? 8

Fujitsu promises more than just high-tech products: “Our technology helps keep you moving upward. And our people won’t let you down. ” 9

Business Markets Characteristics Marketing Structure and Demand Nature of the Buying Unit Types of Decisions and the Decision Compared to consumer purchases: § Business purchases involve more buyers in the decision process. § Purchasing efforts are undertaken by professional buyers. 10

Business Markets Characteristics Marketing Structure and Demand Nature of the Buying Unit Types of Decisions and the Decision In comparison to consumer purchases: § Business buyers face more complex buying decisions. § The buying process is more formalized. § Buyers and sellers work together closely and build long-term 11

Business. Now Nerve. Wire Video Clip Consultants work closely with their client companies. Click the picture above to play video What criteria might guide the selection of a firm such as Nerve. Wire? 12

Figure 7 -1: Model of Business Buyer Behavior 13

Business Buyer Behavior Major Types of Buying Situations § Straight rebuy Reordering without modification v § Modified rebuy v Requires modification to prior purchase § New task v First time purchase 14

Business Buyer Behavior Systems Selling: § Buying a packaged solution to a problem from a single seller. v Convenience is a major benefit § Often a key marketing strategy for businesses seeking to win and hold accounts. 15

Business Buyer Behavior Participants in the Buying Decision Process Users Buyers Influencers Deciders Gatekeepers 16

Emotions also play a role in business buying. Volvo stresses that the trucks’ benefits will make “drivers a lot more possessive”. 17

Figure 7 -2: Major Influences on Business Buyer Behavior 18

Major Influences on Business Buyers Key Factors Environmental Organizational Interpersonal Individual Economic trends Supply conditions Technological change Regulatory and political environments Competitive developments Culture and customs 19

Major Influences on Business Buyers Key Factors Environmental Organizational Interpersonal Individual Objectives Policies Procedures Organizational structure Systems 20

Major Influences on Business Buyers Key Factors Environmental Organizational Interpersonal Individual Authority Status Empathy Persuasiveness 21

Major Influences on Business Buyers Key Factors Environmental Organizational Interpersonal Individual Authority Age Education Job position Personality Risk attitudes 22

Figure 7 -3: Stages of the Business Buying Process 23

Business Buying Process Eight Stages: § Stage 1: Problem Recognition § Stage 2: General Need Description § Stage 3: Product Specification v Value analysis helps to reduce costs 24

Business Buying Process Eight Stages: § Stage 4: Supplier Search v Supplier development 25

Business Buying Process Eight Stages: § Stage 5: Proposal Solicitation 26

Business Buying Process Eight Stages: § Stage 6: Supplier Selection § Stage 7: Order-Routine Specification Blanket contracts are often used for maintenance, repair and operating items. v § Stage 8: Performance Review 27

Business Buying Process Business Buying on the Internet § E-procurement is growing rapidly. § Reverse auctions account for much of the online purchasing activity. § E-procurement offers many benefits: Access to new suppliers v Lower purchasing costs v Quicker order processing and delivery v 28

Institutional and Government Markets Institutional Markets § Consist of churches, schools, prisons, hospitals, nursing homes and other institutions that provide goods and services to people in their care. 29

Institutional and Government Markets Institutional Markets § Often characterized by low budgets and captive patrons. § Marketers may develop separate divisions and marketing mixes to service institutional markets. 30

Institutional Markets In Depth The Background: Institutional markets are often overlooked in B 2 B marketing The Potential: This market is somewhat recession-resistant; great target for hard economic times How To Sell Them: Catalogs are often the best method of contact Crossover Potential: Same consumer catalogue items could be targeted to institutions 31

Institutional Markets In Depth Timing is Important: Appropriate times to mail vary by institution. For example, August is a good month for schools, but often a poor time for other institutions due to worker vacations. Timing is Important: Understanding when government funding becomes available, or when the new budget year begins can help. Many institutions purchase early, then run low on funds. 32

Discussion Question Name some examples of goods or services that a catalogue marketer could target to your university, church, or hospital. Think beyond the obvious. 33

Institutional and Government Markets § Governmental units – federal, state, and local – that purchase or rent goods and services for carrying out the main functions of government. 34

Institutional and Government Markets § More than 82, 000 buying units. § Require suppliers to submit bids. § Favor domestic suppliers. § Extensive paperwork is required from suppliers. 35

Institutional and Government Markets § Government buyers often favor: Depressed business firms and areas v Small businesses v Minority-owned businesses v Firms which follow non-discriminatory practices v 36

Institutional and Government Markets § Most firms that sell to government buyers are not marketing-oriented. § Some companies have separate government marketing departments. § Much of government buying has migrated online. 37

Institutional and Government Markets Government buying online: Procurement Gateway allows authorized defense and civilian agencies to buy online. Procurement Gateway 38