Principles of Marketing

1. Principles of Marketing “ Business Markets and Business Buyer Behavior”

2. Who are business customers? Business customers are those that buy goods and services for use in producing their own products and services or for resale to others.

3. Business Buyer Behavior is the buying behavior of organizations that buy goods and services for use in the production of other products that are sold, rented or supplied to others. This also includes retailing and wholesaling firms that acquire goods for the purpose of reselling or renting them to others at a profit

4. The Business Buying Process: Through this decision process business buyers determine: • Which products and services their organization needs to purchase. • Evaluate and choose among alternative suppliers.

5. Business Markets (BM) Vs Consumer Markets (CM) Business markets are huge. They involve far more money and items than consumer markets do. The transaction nature is different, as many setsof business purchases were made for only one set of consumer purchases.

6. Business Markets (BM) Vs Consumer Markets (CM) Market Structure and Demand: • BM contains far fewer but far larger buyers than CM • Business customers are more geographically concentrated for the purpose of cost saving and convenience. • Demand for business goods is derived demand – it is ultimately derived from the demand of consumer goods. Henceforth B-to-B markets sometimes promote their products to final consumers in order to increase business demand. • Business Markets have inelastic demand; i.e. price changes do not affect the demand for many business products for e.g. If the price of cotton goes up textile manufacturers will not stop buying cotton, they require their raw material either way. • Business markets have fluctuating demand, as the demand for many business goods changes more and more quickly, a small percentage ruse in consumer goods can result in a large increase in the demand of consumer goods

7. Business Markets (BM) Vs Consumer Markets (CM) Nature of Buying Unit: • A business purchase contains more decision participants and more professional purchasing effort. For instance of a textile mill decided to purchase more looms, this decision would be taken by the top management in addition with the people who hold the technical expertise in the organization. Similarly purchase would be made by a trained manager/s. BMs must have well trained marketers and sales people to deal with the well trained buyers.

8. Business Markets (BM) Vs Consumer Markets (CM) Types of Decision and Decision Process: • The nature of the buying decision is more complex as it involves large sums of money, complex technical and economic considerations and interactions among many people at many levels of the organization. • The buying decision process is henceforth more formalized and calls for more time to get to a decision. • In this process the buyer and the seller are more dependent on each other , i.e. supplier performance can determine the organization's performance ( remember value delivery network) , henceforth supplier development is taking place now a days to ensure that the network can deliver an appropriate and dependable supply of products and materials . B-to-B marketers work with their customers during all the stages of the buying process.

9. The Business Buyer Behavior The environment Marketing Other Stimuli Stimuli Product Economic Price Technological Place Political Promotion Cultural Competitive The buying organization (organizational influences) Buyer responses Product or service choice Supplier choice Order quantities Delivery terms and times Service terms Payment The buying center (Interpersonal and individual influences) Buying- Decision process In order to design a good marketing mix the marketer must understand what happens within the organization to turn stimuli into purchase response. Within the organization the buying activity is influenced by the buying center and the buying decision process.

10. Business Buyer Behavior There are four important questions when it comes to business buyer behavior: • What buying decisions do business buyers make? ( Dependent on the kind of buying situation) • Who participates in the buying process? • What are the major influences on the buyers? • How do business buyers make their buying decisions?

11. What buying decisions do business buyers make?(Dependent on the kind of buying situation) Kinds of Buying Situations: • Straight Re-buy – Here the buyer routinely reorders something without any modifications • Modified Re-buy - Here the buyer wants to modify product specifications, prices, terms and suppliers • New Task – Here the buyer purchases a product or service for the first time.

12. Straight Re-buy – Here the buyer routinely reorders something without any modifications • The buyer makes the fewest decisions here. • It is usually handled on a routine basis by the purchasing department. • The buyer chooses its suppliers from past experiences. • Suppliers try to maintain quality standards. • A reordering system in usually put into place to save ordering time. • “Out” suppliers try to offer something new or work on their standards so that the buyer will consider them.

13. Modified Re-buy - Here the buyer wants to modify product specifications, prices, terms and suppliers • More decision participants are involved as compared to straight re-buy • New suppliers are pressured to put their best foot forward • “Out” suppliers see this situation as an opportunity to offer something new and gain more business.

14. New Task – Here the buyer purchases a product or service for the first time. • The decision participants are larger here due to the cost and the risk associated. • A lot of information and research is required to come to this decision.

15. Systems Selling • This is a two step process:- • The supplier sells a group of interlocking products. • The supplier sells a system of production, inventory, control, distribution and other services to meet the buyer’s need for a smooth running operation. This packaged solution from a single seller , thus avoiding all separate decisions involved in a complex buying situation is most preferred by buyers today

16. Who participates in the buying process? • Individuals and units that participate in the decision making are called the Buying center, these individual or units may play any of these five roles: • Users – they initiate the buying proposal and help define product specifications. • Influencers – Help define product specifications and provide info needed to evaluate alternatives • Buyers – they have the formal authority to select suppliers and their major role is selecting vendors and negotiating with them • Deciders – they have the formal or informal power to select or approve final suppliers • Gatekeepers – they control the flow of information to others.

17. What are the major influences on the buyers? • Environmental – economic developments, supply conditions, technological change, political and regulatory development, competitive developments, culture and customs. • Organizational – objectives, policies, procedures, organizational structure, systems • Interpersonal – authority, status, empathy, persuasiveness. • Individual – age, education, job position, personality, risk attitude

18. How do business buyers make their buying decisions? • The Business Buying Process Problem Recognition General need description Product Specification Supplier search Proposal solicitation Supplier selection Order-routine specification Performance review

19. Problem Recognition • Here someone recognizes a problem or a need that can be met by acquiring a good or service. This realization can be triggered by internal or external stimuli.

20. General Need Description • Here the company describes the general characteristics and quantity of a needed item. • For standard items this definition may come easy but for complex items the buyer may have to work with others.

21. Product Specification • Here the buying organization decides on and specifies the best technical product characteristics for a needed item. • Value analysis i.e. an approach to cost reduction is conducted here to see if a component can be redesigned or made by less costly methods of production

22. Supplier Search • Here the buyer tries to look for the best vendors. • The more complex or costly the item , the greater is the amount of time the buyer will spend searching for suppliers

23. Proposal Solicitation • The buyer invites qualified suppliers to submit proposals. • In response the suppliers will send only a catalog or sales person. In more complex products, the buyer will require a written proposal or formal presentation from each potential supplier • Business marketers henceforth should be good writers as well, as the proposal should be not only a technical document but also a marketing document.

24. Supplier Selection • Once the proposals have been reviewed the buyer now selects a supplier based on the attributes that are considered most important.

25. Order-Routine Specification • The buyer writes the final order to the chosen suppliers. • Sometimes buyers write ‘blanket contracts’ to create a long term relationship with suppliers, here the supplier promises to re-supply buyer as needed at an agreed price for a set time period. This kind of contract eliminates expensive renegotiation and allows buyers to write smaller purchase orders.

26. Performance Review • The stage of the business process where the buyer assess the performance of the supplier and decides to continue, modify or drop the arrangement

27. Marketers need to focus on the entire process instead of just focusing on the purchase decision

28. Business buying on the internet • It shaves transaction costs and results in more efficient purchasing for both buyers and suppliers • E-procurement reduces the time between order and delivery • This process frees purchasing people to focus on more strategic issues. The con is that there are potential security disasters attached to it.