Chapter 7 Business Markets and Business Buyer Behaviour

Learning Goals 1. Define the business market and how it differs from consumer markets 2. Identify the major factors that influence business buyer behaviour 3. List and define the steps in the business buying decision process 4. Compare the institutional and government markets and explain how they make their buying decisions Copyright © 2008 Pearson Education Canada 2 Principles of Marketing, Seventh Canadian Edition

Case Study UPS Customer Needs Services • Consumers need fast, friendly, low-cost package delivery • Business needs are more complex – Shipping part of complex logistics process including purchasing, inventory, order status, invoices, payments, returns Copyright © 2008 Pearson Education Canada • Employs 407, 200 people, 88, 000 vehicles, and 600 aircraft worldwide • Helps customer navigate the complexities of international shipping • Offers a wide range of financial services • Provides consulting services to improve logistics operations 3 Principles of Marketing, Seventh Canadian Edition

Learning Goals 1. Define the business market and how it differs from consumer markets 2. Identify the major factors that influence business buyer behaviour 3. List and define the steps in the business buying decision process 4. Compare the institutional and government markets and explain how they make their buying decisions Copyright © 2008 Pearson Education Canada 4 Principles of Marketing, Seventh Canadian Edition

Definition • Business Buyer behaviour: – The buying behaviour of organizations that buy goods and services for use in the production of other products and services that are sold, rented, or supplied to others. – Also included are retailing and wholesaling firms that acquire goods for the purpose of reselling or renting them or others at a profit. Copyright © 2008 Pearson Education Canada 5 Principles of Marketing, Seventh Canadian Edition

Characteristics of Business Markets • Marketing Structure and Demand • Nature of the Buying Unit • Types of Decisions and the Decision Process • Business markets – have fewer but larger customers • Business customers – are more geographically concentrated • Demand is different – Demand is derived – Demand is price inelastic that can fluctuate quickly Copyright © 2008 Pearson Education Canada 6 Principles of Marketing, Seventh Canadian Edition

Characteristics of Business Markets • Marketing Structure and Demand • Nature of the Buying Unit • Types of Decisions and the Decision Process Copyright © 2008 Pearson Education Canada • Business purchases involve more buyers in the decision process • Business buying involves more professional purchasing effort 7 Principles of Marketing, Seventh Canadian Edition

Characteristics of Business Markets • Marketing Structure and Demand • Nature of the Buying Unit • Types of Decisions and the Decision Process Copyright © 2008 Pearson Education Canada • Compared to consumer purchases – More complex buying decisions – The buying process is more formalized – Buyers and sellers work more closely together and build long-term relationships 8 Principles of Marketing, Seventh Canadian Edition

Business Buyer Behaviour • Major Types of Buying Situations – Straight rebuy • Reordering without modification – Modified rebuy • Requires modification to prior purchase – New task • First-time purchase – Systems Selling • Buying a packaged solution to a problem from a single seller. • Often a key marketing strategy for businesses seeking to win and hold accounts. Copyright © 2008 Pearson Education Canada 9 Principles of Marketing, Seventh Canadian Edition

Business-to-Business Company Du. Pont Chemicals • Established in 1802 with gunpowder as its first product • In 1910 moved away from explosives with the first nonleather material, which was snatched up for upholstery and automobile parts • Today, the firm delivers science-based solutions that make real differences in people's lives around the world in areas such as food and nutrition, health care, apparel, safety and security, construction, electronics and transportation • Revenue of $27 billion Copyright © 2008 Pearson Education Canada 10 Principles of Marketing, Seventh Canadian Edition

Business-to-Business Company Du. Pont Chemicals • Examples of B 2 B markets and products: – Heath Care - Medical fabrics to provide comfort and safety to surgeons – Automobile – airbag fibers and engineering plastics for safety – Dental – filaments for toothbrushes – Glass – technology to reduce glare and noise, save energy, protect against breakage – Footware – flexibility for rubber, strength of plastic – Farming – pesticides – Guitar manufacturers – Du. Pont product give the look of vintage lacquer Copyright © 2008 Pearson Education Canada 11 Principles of Marketing, Seventh Canadian Edition

Participants in the Business Buying Process • Buying Center – The decision-making unit of a buying organization – Includes all individuals and units that participate in decision making • Users • Influencers • Buyers • Deciders • Gatekeepers Copyright © 2008 Pearson Education Canada 12 Principles of Marketing, Seventh Canadian Edition

Discussion Question Buyer Behaviour ? • You have just been reassigned from Coca-Cola’s consumer division to its Institutional Division. Your first assignment is to convince your former college to switch from Pepsi to Coca-Cola in their dining halls. Consider the following… • How will demand differ from the consumer market? • How does the buying process differ? Describe the members of they buying center. • Is this a new task, modified rebuy or straight rebuy? Copyright © 2008 Pearson Education Canada 13 Principles of Marketing, Seventh Canadian Edition

Learning Goals 1. Define the business market and how it differs from consumer markets 2. Identify the major factors that influence business buyer behaviour 3. List and define the steps in the business buying-decision process 4. Compare the institutional and government markets and explain how they make their buying decisions Copyright © 2008 Pearson Education Canada 14 Principles of Marketing, Seventh Canadian Edition

Major Influences on Business Buyers • • • Economic trends • Shortages of raw materials, rising costs, and political developments • Technological changes • Actions of competitors • Culture and customs Environmental Organizational Interpersonal Individual Copyright © 2008 Pearson Education Canada 15 Principles of Marketing, Seventh Canadian Edition

Major Influences on Business Buyers • • Environmental Organizational Interpersonal Individual Copyright © 2008 Pearson Education Canada Objectives Policies Procedures Organizational structure • Systems 16 Principles of Marketing, Seventh Canadian Edition

Major Influences on Business Buyers • • • Influence of members in the buying center Environmental Organizational Interpersonal Individual Copyright © 2008 Pearson Education Canada – – 17 Authority Status Empathy Persuasiveness Principles of Marketing, Seventh Canadian Edition

Major Influences on Business Buyers • • • Personal characteristics of members in the buying center Environmental Organizational Interpersonal Individual Copyright © 2008 Pearson Education Canada – – – 18 Age and income Education Job position Personality Risk attitudes Buying styles Principles of Marketing, Seventh Canadian Edition

Discussion Question Business Buyer Behaviour ? • Your job selling Coca-Cola to your old college has proven more difficult than you imagined. There seem to be many influences on your buyer’s behaviour that you did not expect. – What environmental factor might exist? – Organizational factors? – Interpersonal factors? – Individual factors? Copyright © 2008 Pearson Education Canada 19 Principles of Marketing, Seventh Canadian Edition

Learning Goals 1. Define the business market and how it differs from consumer markets 2. Identify the major factors that influence business buyer behaviour 3. List and define the steps in the business buying decision process 4. Compare the institutional and government markets and explain how they make their buying decisions Copyright © 2008 Pearson Education Canada 20 Principles of Marketing, Seventh Canadian Edition

Stages in the Business Buying Process • Problem recognition can result from internal or external stimuli • General need description: describing the general characteristics and quantity of a needed item or service – Part of the more formalized process of business buying; may need technical expertise to write this – This stage can be influenced by salespeople promoting the unique aspects of their products; helping to write the specification Copyright © 2008 Pearson Education Canada 21 Principles of Marketing, Seventh Canadian Edition

Stages in the Business Buying Process • Product specification: deciding on and specifying the best technical product characteristics for a needed item – The responsibility is on suppliers to meet the specifications demanded and provide the best value – Value analysis is an approach to cost reduction in which components are studied for redesign, standardization, or less costly methods of production Copyright © 2008 Pearson Education Canada 22 Principles of Marketing, Seventh Canadian Edition

Stages in the Business Buying Process • Supplier search: the buyer searches for the best vendors for the product or services needed – Sources: existing suppliers, contacts from new suppliers, supplier directories, or through Internet buying sites – Trend towards supplier development • Proposal solicitation: inviting qualified suppliers to submit proposals for the products specified; also known as RFQ, RFP, or tender documents Copyright © 2008 Pearson Education Canada 23 Principles of Marketing, Seventh Canadian Edition

Stages in the Business Buying Process • Supplier selection: reviewing the proposals submitted and choosing the supplier which best meets the specifications asked for – Political considerations may enter into this process, such as reciprocal buying agreements, local purchasing requirements, or past history – Factors other than price may be given consideration: availability, servicing capabilities, installation, training, location, or reputation Copyright © 2008 Pearson Education Canada 24 Principles of Marketing, Seventh Canadian Edition

Stages in the Business Buying Process • Order-routine specification: writing the final order for the goods to be purchased; can be a very specific, written document (purchase order or contract) to ensure accountability – Blanket contracts can be used for future repeat purchasing • Performance review: postpurchase rating of the supplier to decide if satisfactory value has been received and if the relationship should be continued Copyright © 2008 Pearson Education Canada 25 Principles of Marketing, Seventh Canadian Edition

Business Buying on the Internet • E-procurement is growing rapidly. • Online auctions and online trading exchanges (e-marketplaces) account for much of the online purchasing activity. • E-procurement offers many benefits: – Access to new suppliers – Lower purchasing costs – Quicker order processing and delivery Copyright © 2008 Pearson Education Canada 26 Principles of Marketing, Seventh Canadian Edition

Learning Goals 1. Define the business market and how it differs from consumer markets 2. Identify the major factors that influence business buyer behaviour 3. List and define the steps in the business buying decision process 4. Compare the institutional and government markets and explain how they make their buying decisions Copyright © 2008 Pearson Education Canada 27 Principles of Marketing, Seventh Canadian Edition

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. – Often characterized by low budgets and captive patrons. – Marketers may develop separate divisions and marketing mixes to service institutional markets. Copyright © 2008 Pearson Education Canada 28 Principles of Marketing, Seventh Canadian Edition

Institutional and Government Markets • Government Markets – The Government of Canada buys $14 billion in goods and services from thousands of suppliers – Public Works and Government Services Canada is the government’s largest purchasing organization averaging 60, 000 contracts annually. – Require suppliers to submit bids and often give job to lowest bidder – Favor domestic suppliers – Much “red tape” can exist Copyright © 2008 Pearson Education Canada 29 Principles of Marketing, Seventh Canadian Edition

Learning Goals 1. Define the business market and how it differs from consumer markets 2. Identify the major factors that influence business buyer behaviour 3. List and define the steps in the business buying decision process 4. Compare the institutional and government markets and explain how they make their buying decisions Copyright © 2008 Pearson Education Canada 30 Principles of Marketing, Seventh Canadian Edition