Learning Objectives

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

3. Chapter Outline • Business Markets • Business Buyer Behavior • Institutional and Government Markets

4. Business Markets

5. Business Markets • Business buying processis 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

6. 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)

7. 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 manufacturers need more components and steel Need more of your company’s headlamp assemblies Consumers stop buying cars Automobile manufacturers stop making cars You can’t sell headlamp assemblies

8. 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”

9. 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.

10. Business Buyer Behavior

11. Business Buyer Behavior • Business buyer behaviorrefers 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.

12. Business Buyer Behavior A Model of Business Buyer Behavior

13. Business Buyer Behavior Marketing Stimuli Similar to consumer buying, business buying consists of the four Ps: • Product • Price • Place • Promotion

14. Business Buyer Behavior Other Stimuli Additional stimuli include major economic forces: • Political • Economic • Technological • Cultural • Competitive

15. Business Buyer Behavior Buyer Responses to Marketing Stimuli • Product or service choice • Supplier choice • Order quantities • Delivery • Service • Payment terms

16. 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

17. Business Buyer Behavior Major Types of Buying Situations • Straight rebuy • Modified rebuy • New task

18. Business Buyer Behavior Major Types of Buying Situations • Straight rebuyis a routine purchase decision such as a reorder without any modification. • Modified rebuyis a purchase decision that requires some research where the buyer wants to modify the product specification, price, terms, or suppliers. • New taskis a purchase decision that requires thorough research such as a new product.

19. Business Buyer Behavior Major Types of Buying Situations • Systems sellinginvolves 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

20. 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

21. 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.

22. 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.”

23. 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

24. 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

25. Business Buyer Behavior Major Influences on Business Buyer Behavior • Economic factors • Personal factors • Environmental factors • Organizational factors • Interpersonal factors

26. Major Influences on Business Buyer Behavior

27. Business Buyer Behavior The Buying Process

28. Business Buyer Behavior Problem recognitionoccurs 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

29. 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.

30. Business Buyer Behavior The Buying Process Supplier search involves compiling a list of qualified suppliers. Proposal solicitationis the process of requesting proposals from qualified suppliers.

31. 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 specificationsis the final order with the chosen supplier and lists all of the specifications and terms of the purchase.

32. Business Buyer Behavior The Buying Process Performance reviewinvolves a critique of supplier performance to the purchase terms.

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

34. An Example of Vendor (Supplier) Analysis

35. 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

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

37. Covisint’s Web site offers both services and information

38. 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

39. Business Buyer Behavior E-Procurement and Buying on the Internet Disadvantages • Can erode relationships as buyers search for new suppliers • Lack of security

40. 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

41. 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

42. Institutional & Government Markets

43. Institutional and Government Markets Institutional marketsconsist of schools, hospitals, nursing homes, prisons and other institutions that provide goods and services to people in their care. • Characteristics • Low budgets • “Captive” audience

44. Institutional and Government Markets • Government marketstend 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

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