Chapter 7 Business Markets and Buying Behavior 2019

Learning Objectives 7– 1 Distinguish among the four types of business markets. 7– 2 Describe the North American Industry Classification System and how it can be used to identify and analyze business markets. 7– 3 Identify the major characteristics of business customers and transactions. 7– 4 Describe the buying center, stages of the business buying decision process, and the factors that affect this process. 7– 5 Explore how the Internet facilitates business buying and marketing. © 2019 Cengage. All rights reserved.

Business Markets Producer Reseller Government Institutional © 2019 Cengage. All rights reserved.

Producer Markets Producer markets – individuals and business organizations that purchase products to make profits by using them to produce other products or using them in their operations Number of businesses is enormous. © 2019 Cengage. All rights reserved.

Reseller Markets (1 of 2) Reseller markets – intermediaries that buy finished products and resell them for a profit Aside from minor alterations, resellers do not change the physical characteristics of the products. Except for items producers sell directly to consumers, all products sold to consumer markets are first sold to reseller markets. Wholesalers help producers get their products to customers. © 2019 Cengage. All rights reserved.

Reseller Markets (2 of 2) Wholesalers sell products to: Factors in purchase decision making:

Government Markets Government markets – federal, state, county, or local governments that buy goods and services to support their internal operations and provide products to their constituencies 36% of the total gross domestic product (GDP) Accountable to the public because purchases are made with public funds, which results in complex buying procedures Governments advertise product needs by releasing bids or negotiated contracts. © 2019 Cengage. All rights reserved.

Institutional Markets Institutional markets – organizations with charitable, educational, community, or other nonbusiness goals Often have different goals and fewer resources than other type of organizations, so marketers may use special efforts to serve them © 2019 Cengage. All rights reserved.

Industrial Classification Systems (slide 1 of 2) North American Industry Classification System (NAICS) – an industry classification system that generates comparable statistics among the United States, Canada, and Mexico Classification is based on production activities Divides industrial activity into 20 sectors with 1, 170 industry classifications © 2019 Cengage. All rights reserved.

Industrial Classification Systems (slide 2 of 2) Commercial data service Alternative to NAICS More expedient but more expensive than NAICS To estimate the purchase potential of a business, a marketer must find a relationship between the size of a potential customer’s purchases and a variable in the data. © 2019 Cengage. All rights reserved.

Figure 7. 1 – Dimensions of Business Customers and Business Transactions © 2019 Cengage.

Characteristics of Transactions with Business Customers Orders are larger than individual consumer sales. Some business purchases involve expensive items. Negotiations can require much marketing time and selling effort. Purchasing decisions are often made by committee. Products may be custom built. Several people or departments in the purchasing organization are often involved. Reciprocity – an arrangement unique to business marketing in which two organizations agree to buy from each other © 2019 Cengage. All rights reserved.

Attributes of Business Customers Better informed about the products they purchase Demand detailed information about: Product’s functional features Technical specifications Personal goals influence business buying behavior. Partnerships – suppliers and their customers build and maintain mutually beneficial relationships © 2019 Cengage. All rights reserved.

Primary Concerns of Business Customers Concerns: Concerns are related to each other. © 2019

Primary Concerns of Business Customers: Price influences operating costs and costs of goods sold, which affects selling price, profit margin, and the ability to compete. Business customers evaluating price consider: © 2019 Cengage. All rights reserved.

Primary Concerns of Business Customers: Product Quality Product quality should meet firms’ standards. Product specifications – written statements describing a product’s necessary characteristics, standards of quality, and other information essential to identifying the best supplier for the needed product Customer may switch suppliers if product fails to meet specifications or malfunctions. © 2019 Cengage. All rights reserved.

Primary Concerns of Business Customers: Services affect customers’ costs, sales, and profits. Typical services: Can provide a competitive advantage Expectations have increased. © 2019 Cengage. All rights reserved.

Primary Concerns of Business Customers: Supplier Relationships Cost is a primary concern. Build trust with suppliers. Reduce search efforts and uncertainty about prices. Consider overall fit of a supplier and its products with marketing objectives, including distribution and inventory-maintenance costs and efficiency. © 2019 Cengage. All rights reserved.

Methods of Business Buying Four purchase methods are used. © 2019 Cengage. All rights

Types of Business Purchases Three types of business purchases: New-task purchase – an organization’s initial purchase of an item to be used to perform a new job or solve a new problem Straight rebuy purchase – a routine purchase of the same products under approximately the same terms of sale by a business buyer Modified rebuy purchase – a new-task purchase that is changed on subsequent orders or when the requirements of a straight rebuy purchase are modified © 2019 Cengage. All rights reserved.

Demand for Business Products Four types of demand: Derived demand – demand for business products that stems from demand for consumer products Inelastic demand – demand that is not significantly altered by a price increase or decrease Joint demand – demand involving the use of two or more items in combination to produce a product Fluctuating demand – demand that fluctuates dramatically because the demand for business products is derived from consumer demand © 2019 Cengage. All rights reserved.

Business Buying Decisions Business (organizational) buying behavior – the purchase behavior of producers, government

The Buying Center (1 of 2) Buying center – the people within an organization

The Buying Center (2 of 2) Number and structure affected by: Organization’s size and market position Volume and types of products being purchased Firm’s overall managerial philosophy on who should make purchases Size is influenced by: Stage of the buying decision process Type of purchase © 2019 Cengage. All rights reserved.

Figure 7. 2 – Business (Organizational) Buying Decision Process and Factors that May Influence

Stage 1: Problem Recognition One or more individuals recognize that a problem or need exists. Arises under a variety of circumstances: Machines malfunction Firm modifies an existing product Firm introduces a new product Recognized by people in the buying center or other people in the firm © 2019 Cengage. All rights reserved.

Stage 2: Development of Product Specifications Buying center participants assess the problem or need and determine what is necessary to resolve or satisfy it. Users and influencers provide information and advice to develop product specifications. Assessing and describing needs should enable the organization to establish product specifications. © 2019 Cengage. All rights reserved.

Stage 3: Searching for and Evaluating Potential Products and Suppliers Search activities: Look at company files, trade directories, and websites. Contact suppliers for information. Solicit proposals from known vendors. Examine online and print publications. Value analysis – an evaluation of each component of a potential purchase Vendor analysis – a formal, systematic evaluation of current and potential vendors © 2019 Cengage. All rights reserved.

Stage 4: Select the Product to Be Purchased and the Supplier Choose one or more suppliers. Multiple sourcing – an organization’s decision to use several suppliers Sole sourcing – an organization’s decision to use only one supplier Order the product. Finalize specific details. Credit arrangements Delivery dates and methods Technical assistance © 2019 Cengage. All rights reserved.

Stage 5: Evaluate Product and Supplier Performance Evaluate product by comparing it with the specifications. Adjust specifications if the product fails to solve the problem or satisfy the need. Evaluate supplier's performance. Seek corrective action from the supplier or search for a new supplier if the performance is inadequate. © 2019 Cengage. All rights reserved.

Influences on the Business Buying Decision Process Environmental Organizational Interpersonal Individual © 2019 Cengage.

Environmental Factors Include: Changes in environmental forces can create opportunities and threats that affect

Organizational Factors Include: Buying policies might limit buying decisions. Financial resources might require special credit arrangements, affecting purchase decisions. © 2019 Cengage. All rights reserved.

Interpersonal Factors Include: Especially important for customized products Trust and clear communication ensure satisfaction. Processes may get complicated due to: Interpersonal dynamics Varying communication abilities © 2019 Cengage. All rights reserved.

Individual Factors Include participants’: Influence depends on: Buying situation Type of product Type of

Promotion targeted to individuals in the buying center: Trade publications Trade shows Personal selling Most important influence of trust On social media, marketers should focus on content to develop: Information Trust © 2019 Cengage. All rights reserved.

Reliance on the Internet and Other Technology The Internet is the first resource for solutions. Efficient Purchase items directly from a firm’s website B 2 B e-commerce sites – online marketplaces where buyers and sellers from around the world can exchange information, goods, services, ideas, and payments Online auctions Highest bidder buys the item. Popular for unsold, returned, and used items © 2019 Cengage. All rights reserved.