Part 3 CUSTOMER BEHAVIOR AND EMARKETING Dr Chen

Part 3 CUSTOMER BEHAVIOR AND E-MARKETING. Dr. Chen, Principle of Marketing

6: Consumer Buying Behavior 7: Business Markets and Buying Behavior 8: Reaching Global Markets 9: Digital Marketing and Social Networking Dr. Chen, Principle of Marketing

Chapter 7 Business Markets and Buying Behavior Professor Jason C. H. Chen, Ph. D. School of Business Administration Gonzaga University Spokane, WA 99258 chen@jepson. gonzaga. edu Dr. Chen, Principle of Marketing

Learning Objectives § To distinguish among the various types of business markets § To identify the major characteristics of business customers and transactions § To understand several attributes of demand for business products § To understand the buying center and the stages of the business buying decision process and the factors that affect this process § To describe industrial classification systems, and explain how they can be used to identify and analyze business markets Dr. Chen, Principle of Marketing 4

Business Markets § Business markets consist of individuals, organizations, or groups that purchase a specific kind of product for one of three purposes: Resale ______ v Direct use in producing other products v Use in general daily operations v § Important structural and behavioral differences: v A company that markets to another company must be aware of how its product will affect other firms in the marketing channel such as resellers and other manufacturers. § Range of forms that business marketing takes From long-term buyer-seller relationships v To quick exchanges of basic products at competitive market prices v Dr. Chen, Principle of Marketing 5

Categories of Business Markets 1. Producer 2. Reseller 3. Government ______ 4. Institutional ______ Dr. Chen, Principle of Marketing 6

Producer Markets § Individuals and business organizations that purchase products to make profits by using them to produce other products. § Producer markets include: v Buyers of raw materials v Purchasers of semi-finished and finished items, used to produce other products v Broad array of industries such as agriculture, forestry, fisheries, mining, construction etc. Dr. Chen, Principle of Marketing 7

Reseller Markets § Reseller markets consist of intermediaries (wholesalers and retailers) that buy finished goods and resell them for a profit § Do not change the physical characteristics of the products they handle § All products sold to consumer markets are first sold to reseller markets Dr. Chen, Principle of Marketing 8

Reseller Markets Intermediaries Wholesalers • ______– Purchase products for resale to: • Retailers and other wholesalers • Producers • Governments • Institutions Retailers • _____- Purchase products and resell them to final consumers Considerations in purchase decision making • Level of demand – determine the quantity and the price at which the products can be resold • Supplier’s ability to provide adequate quantities when and where needed • Amount of space required to handle a product relative to its potential profit placing • Ease of ____ orders Dr. Chen, Principle of Marketing 9

Government Markets § Federal, state, county, and local governments v Accounts for more than 40 percent of the total gross domestic product (GDP) § Accountable to the public v Result in complex buying procedures § Governments advertise purchase needs by releasing bids or negotiated contracts Dr. Chen, Principle of Marketing 10

Institutional Markets § Organizations with charitable, educational, community, or other nonbusiness goals § Have different goals and fewer resources than other type of organizations v Marketers may use special efforts to serve them Dr. Chen, Principle of Marketing 11

Figure 7. 1 - Dimensions of Business Customers and Business Transactions D 1 D 2 D 4 Dr. Chen, Principle of Marketing D 3 D 5 12

D 1 - Characteristics of Transactions with Business Customers § Transactions between businesses differ from consumer sales in several ways larger v Business orders tend to be much ______ committee v Purchases tend to be made by ____ v Discussions and negotiations can require considerable marketing time and selling effort v Reciprocity is an arrangement unique to business markets in which two organizations agree to buy from each other üAgreements that threaten competition are illegal but a certain amount still occurs Dr. © Chen, of Marketing Copyright 2014 Principle South-Western, Cengage Learning. ALL RIGHTS RESERVED. 8 -13

D 2 - Attributes of Business Customers § Business customers differ from consumers v Better informed about the products they purchase v Demand detailed information about: üProduct’s functional features üTechnical specifications v Personal goals influence business buying behavior v Partnerships - Suppliers and their customers build and maintain mutually beneficial relationships Dr. Chen, Principle of Marketing 14

D 3 – Primary Concerns of Business Customer When making purchasing decisions, business customers take into account a variety of factors: Price § ______ - Influences operating costs and costs of goods sold v Affect selling price, profit margin, and the ability to compete § Product quality - Firms establish standards for products and buy them on the basis of specifications § Service - Influences buyers’ costs, sales, and profits § Supplier ______ - Buyers reduce their search relationships efforts and uncertainty about prices by building trust with suppliers Dr. Chen, Principle of Marketing 15

D 4 - Methods of Business Buying Description § Used when products are standardized such as agriculture products (their size, shape, weight and color) Inspection • Used when products have unique characteristics and may vary with regard to condition • They can differ depending on how they were used and for how long Sampling • Used for homogeneous products when examining the entire lot is not feasible such as grain (not physically or economically feasible) Negotiation • Used commonly for one time projects and very large or expensive purchases Dr. Chen, Principle of Marketing 16

D 5 - Types of Business Purchases New-task purchase • Initial purchase of an item to be used to perform a new job or solve a new problem Straight rebuy purchase • Purchase of the same products routinely under approximately the same terms of sale Modified rebuy purchase • New-task purchase that is changed on subsequent orders, or when requirements with a straight rebuy purchase are modified Dr. Chen, Principle of Marketing 17

Demand for Business Products Derived demand • Demand for business products that stems from demand for consumer products Inelastic demand • Price increase or decrease does not significantly alter demand for a business product Joint demand • Using two or more items in combination to produce a product Fluctuating demand • Subject to fluctuations as business products are derived from consumer demand Dr. Chen, Principle of Marketing 18

Business Buying Decisions n Business (organizational) buying behavior refers to the purchase behavior of producers, government units, institutions and resellers Ø Some purchasing factors are the same as the consumer market but some are unique to business markets Ø We will first look at the buying center which is a group of people within an organization who make business purchase decisions Ø Then we will focus on the stages of the buying decision process and the factors that affect it Dr. © Chen, of Marketing Copyright 2014 Principle South-Western, Cengage Learning. ALL RIGHTS RESERVED. 8 -19

The Buying Center The people within an organization who make business purchase decisions are called the buying center and includes the following roles: n Ø Users – members who frequently initiate the purchase, use the product and evaluate the product Ø Influencers – technical personnel who develop the specifications and evaluate alternative products Ø Buyers – select suppliers and negotiate terms Ø Deciders – actually choose the products Ø Gatekeepers – control the flow of information to and among people who occupy other roles in the buying center Dr. © Chen, of Marketing Copyright 2014 Principle South-Western, Cengage Learning. ALL RIGHTS RESERVED. 8 -20

Buying Center (cont. ) § Number and structure affected by: v Organization’s size and market position v Volume and types of products being purchased v Firm’s overall managerial philosophy § Size is influenced by: v Stage of the buying decision process v Type of purchase üNew-task, straight rebuy, or modified rebuy larger for a new-task size is generally _______ purchase than for a straight rebuy. v The Dr. Chen, Principle of Marketing 21

Buying Decision Process (or need) [1] [2] [3] [4] [5] (Details see next slides) Fig. 7. 2 Business (Organizational) Buying Decision Process and Factors That May Influence It. Dr. Chen, Principle of Marketing 8 -22

Stage 1: Problem Recognition recognize § One or more individuals _____ a problem or need exists Ø Ø Could be individuals in the buying center such as users, influencers or buyers who recognize the need or problem Problems or needs could be identified by external sources such as sales representatives or advertisements § May arise under a variety of circumstances Ø Ø Ø When machines malfunction When an existing product is modified When introducing new products Dr. © Chen, of Marketing Copyright 2014 Principle South-Western, Cengage Learning. ALL RIGHTS RESERVED. 8 -23

Stage 2: Develop Product Specifications to Solve Problem § The development of product specifications assess requires the buying center participants ______ determine the problem or need and _____ what is necessary to resolve or satisfy it § Users and influencers often provide information and advice § By assessing and describing needs, the organization should be able to establish product specifications Dr. © Chen, of Marketing Copyright 2014 Principle South-Western, Cengage Learning. ALL RIGHTS RESERVED. 8 -24

Stage 3: Searching for and Evaluating Potential Products and Suppliers § Search activities Ø Ø § Looking in company files and trade directories Contacting suppliers for information Soliciting proposals from known vendors Examining online and print publications Value analysis is an evaluation of each component ______ of the potential purchase Ø Examines quality, design, materials etc § Vendor analysis is a formal, systematic evaluation ____ of current and potential vendors Ø Examines price, product quality, delivery service, product availability and overall reliability Dr. Chen, Principle of Marketing 25

Stage 4: Select Product and Supplier and Order Product § The fourth stage is to select the product to be purchased and the supplier or suppliers Ø Ø Ø Multiple Sourcing – when the buyer selects and uses several suppliers Sole Sourcing – when only one supplier is selected Which one is better and pros/cons? Ø Sole sourcing has historically been discouraged except in the cases where a product is only available from one company. § This stage is where the actual purchase takes place and the following details finalized Ø Ø Ø Terms and credit arrangements Delivery dates and methods Technical assistance arrangements Dr. © Chen, of Marketing Copyright 2014 Principle South-Western, Cengage Learning. ALL RIGHTS RESERVED. 8 -26

Stage 5: Evaluating the Performance of Product and Supplier § Product is evaluated by comparing it with the specifications _______ v Specifications must be adjusted if the performance fails to adequately solve the problem or satisfy the need, even if the product specifications are met § Supplier's performance is evaluated v Business purchaser seeks corrective action from the supplier or searches for a new one if the performance is inadequate § These 5 steps are used primarily for _____-task new purchases Dr. Chen, Principle of Marketing 27

Influences on the Business Buying Decision Process [1] [2] Dr. © Chen, of Marketing Copyright 2014 Principle South-Western, Cengage Learning. ALL RIGHTS RESERVED. [3] [4] 8 -28

Environmental Factors § Environmental factors that influence buying decisions include: Competitive and economic factors v Political forces v Legal and regulatory forces v Technological changes (e. g. , Intenet) v Sociocultural issues uncertainty v These factors can generate considerable ______ for an organization v § Changes in environmental forces can create opportunities and threats that affect purchasing decisions Dr. Chen, Principle of Marketing 29

Organizational Factors § Organizational factors that influence the buying decision process include: Company’s objectives v Purchasing policies v Resources v Size and composition of the buying center v § A firm’s policies may mandate contract lengths that are _____ to many sellers. undesirable § Special credit arrangements required by an organization’s financial resources might affect purchase decisions Dr. Chen, Principle of Marketing 30

Interpersonal Factors § Interpersonal factors are the relationships among people in the buying center Trust § ______ is crucial in collaborative partnerships. v When customized products are involve – the buyer may not see the product until it is finished and must trust that the producer is creating it to specifications. § Trust and clear communication ensure that all parties are satisfied with the outcome § Processes may get complicated within the buying center due to: Interpersonal dynamics v Varying communication abilities v Dr. Chen, Principle of Marketing 31

Industrial Classification Systems § Information about business customers is based on industrial classification systems Ø Ø Standard Industrial Classification (SIC) System was developed by the federal government but replaced by NAICS International Standard Industrial Classification (ISIC) is used mainly in Europe § North American Industry Classification System (NAICS) Ø An industry classification system that generates comparable statistics among the United States, Canada and Mexico among the three partners of NAFTA Dr. © Chen, of Marketing Copyright 2014 Principle South-Western, Cengage Learning. ALL RIGHTS RESERVED. 328 -32

Difference between NAICS and SIC Dr. Chen, Principle of Marketing 33

Industrial Classification Systems § Provide a uniform means of categorizing organizations into groups § Best used in conjunction with other types of data to determine exactly: v How many and which customers a marketer can reach § Approaches to determine the identities and locations of organizations in specific groups v v Use state directories or commercial industrial directories Use commercial data service § Useful in estimating the purchase potential § Problems with the data include: v v Few industries do not have specific designations Double-counting of shipments may occur Data may be understated Significant lag exists between data-collection and the time when the information is released, therefore, currency of data may suffer Dr. Chen, Principle of Marketing 34

Video Case 7. 1 § DALE CARNEGIE FOCUSES ON BUSINESS CUSTOMERS Dr. Chen, Principle of Marketing 35

§ Summary § § This case shows how a company that provides a valuable service thrives in the B 2 B market. Dale Carnegie was a successful entrepreneur and speaker famous for his book, How to Win Friends and Influence People. His self-named firm trains business people and members of the government on how to connect with customers and colleagues. Dale Carnegie focuses on helping companies to develop powerful business relationships by learning to listen and interact well, both face-to-face and through digital communications. Dr. Chen, Principle of Marketing 36

§ 1. How would you apply Dale Carnegie’s methods if you were trying to make a sale to a company with a large buying center? § § The buying center is the group of people involved in making such purchase decisions. Dale Carnegie’s philosophy is that a marketer trying to appeal to a large buying center should take the time to listen to the concerns of users, influencers, buyers, deciders, and gatekeepers, connect with all groups, and address all of their needs. Dr. Chen, Principle of Marketing 37

§ 2. From a marketing perspective, why would people who work for the U. S. Department of Veteran Affairs be as interested in taking a Dale Carnegie course as people who work for American Express? § § Government agencies such as the Department of Veterans affairs have customers too—the people that they serve. Because of this, it is important for members of the government to understand how to connect with their colleagues and with their constituencies. Dr. Chen, Principle of Marketing 38

§ 3. Which concerns of business customers should Dale Carnegie’s marketers pay close attention to when selling training services to a company like American Express? § § Although all four concerns (price, quality, service, and supplier relationships) may have a role, Dale Carnegie’s marketers should pay close attention to quality and service. They may be searching for a great long-term customer service experience. § Companies want to get the best quality information and training and may want ongoing support when they deal with challenging situations and hire new employees. Dr. Chen, Principle of Marketing 39