Business Markets and Business Buyer Behavior Chapter 7

Business Markets and Business Markets and Business Buyer Business Buyer

BehaviorBehavior

Chapter 7Chapter 7

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Objectives

Be able to define the business Be able to define the business market and explain how market and explain how business markets differ from business markets differ from consumer markets. consumer markets.

Know the major factors that Know the major factors that influence business buyer influence business buyer behavior.behavior.

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Objectives

Understand the steps in the Understand the steps in the business buying decision business buying decision process.process.

Understand institutional and Understand institutional and government markets and how government markets and how buyers in these markets make buyers in these markets make their buying decisions.their buying decisions.

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Sells jets exclusively Sells jets exclusively for corporate usefor corporate use

300 – 500 buyers 300 – 500 buyers worldwideworldwide

Rational, objective, Rational, objective, and human factors and human factors influence business influence business buyer’s decisionsbuyer’s decisions

Multiple people are Multiple people are involved in the involved in the decisiondecisionBuying influences Buying influences include the CEO, pilot, include the CEO, pilot, board members, even board members, even spousesspousesCompany has been Company has been highly successfulhighly successful

cGulfstream AerospaceGulfstream Aerospace

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Definition

Business Buyer Behavior:Business Buyer Behavior: The buying behavior The buying behavior

of organizations that of organizations that buy goods and buy goods and services for use in services for use in the production of the production of other products and other products and services or for the services or for the purpose of reselling purpose of reselling or renting them to others at a profit.or renting them to others at a profit.

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Characteristics Characteristics of Business of Business MarketsMarkets Sales in the Sales in the

business market business market far exceed sales far exceed sales in consumer in consumer markets.markets.

Business Markets

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Characteristics of Business MarketsCharacteristics of Business Markets Business markets differ from consumer Business markets differ from consumer

markets in many ways.markets in many ways. Marketing structure and demandMarketing structure and demand Nature of the buying unitNature of the buying unit Types of decisions and the decision Types of decisions and the decision

process process

Business Markets

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Business Markets

Marketing Marketing Structure and Structure and DemandDemandNature of the Nature of the Buying UnitBuying UnitTypes of Types of Decisions and the Decisions and the Decision ProcessDecision Process

Compared to consumer Compared to consumer markets:markets: Business markets Business markets

have fewer but larger customershave fewer but larger customers Business customers Business customers

are concentrated geographicallyare concentrated geographically Demand is differentDemand is different

Derived demandDerived demand Price inelasticPrice inelastic Fluctuates more, and changes Fluctuates more, and changes

more quicklymore quickly

CharacteristicsCharacteristics

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Think about derived Think about derived demand in the context demand in the context of vehicles. Which of vehicles. Which parts, components, or parts, components, or finished goods are finished goods are mostmost dependent upon dependent upon the demand for new the demand for new vehicle production?vehicle production?

Discussion Question

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Fujitsu promises more than just high-tech products: “Our technology helps keep you moving upward. And our people won’t let you down.”

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Business Markets

Marketing Marketing Structure and Structure and DemandDemandNature of the Nature of the Buying UnitBuying UnitTypes of Types of Decisions and the Decisions and the Decision ProcessDecision Process

Compared to Compared to consumer purchases:consumer purchases: Business purchases Business purchases

involve more buyers in involve more buyers in the decision process.the decision process.

Purchasing efforts are Purchasing efforts are undertaken by undertaken by professional buyers.professional buyers.

CharacteristicsCharacteristics

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Business Markets

Marketing Marketing Structure and Structure and DemandDemandNature of the Nature of the Buying UnitBuying UnitTypes of Types of Decisions and the Decisions and the Decision ProcessDecision Process

In comparison to In comparison to consumer purchases:consumer purchases: Business buyers face Business buyers face

more complex buying more complex buying decisions.decisions.

The buying process is The buying process is more formalized.more formalized.

Buyers and sellers work Buyers and sellers work together closely and build together closely and build long-term relationships.long-term relationships.

CharacteristicsCharacteristics

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NerveWire Video Clip

Consultants work closely with their client companies.

What criteria might guide the selection of a firm such as NerveWire?

BusinessNow

Click the picture above to play video

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Figure 7-1: Model of Business

Buyer Behavior

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Major Types of Buying SituationsMajor Types of Buying Situations Straight rebuyStraight rebuy

Reordering without Reordering without modificationmodification

Modified rebuyModified rebuy Requires modification Requires modification

to prior purchase to prior purchase New taskNew task

First time purchaseFirst time purchase

Business Buyer Behavior

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Systems Selling:Systems Selling: Buying a packaged solution to a problem Buying a packaged solution to a problem

from a single seller.from a single seller. Convenience is a major Convenience is a major

benefit benefit Often a key marketing Often a key marketing

strategy for businesses strategy for businesses seeking to win and hold seeking to win and hold accounts.accounts.

Business Buyer Behavior

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Business Buyer Behavior

Participants in the Participants in the Buying Decision ProcessBuying Decision Process

UsersUsers

BuyersBuyers

InfluencersInfluencers

DecidersDeciders

GatekeepersGatekeepers

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Emotions also play a role in business buying. Volvo stresses that the trucks’ benefits will make “drivers a lot more possessive”.

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Figure 7-2: Major Influences on

Business Buyer Behavior

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Major Influences on Business Buyers

EnvironmentalEnvironmental

OrganizationalOrganizational

InterpersonalInterpersonal

IndividualIndividual

Economic trendsEconomic trends

Supply conditionsSupply conditions

Technological changeTechnological change

Regulatory and political Regulatory and political environmentsenvironments

Competitive Competitive developmentsdevelopments

Culture and customsCulture and customs

Key FactorsKey Factors

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Major Influences on Business Buyers

EnvironmentalEnvironmental

OrganizationalOrganizational

InterpersonalInterpersonal

IndividualIndividual

ObjectivesObjectives

PoliciesPolicies

ProceduresProcedures

Organizational Organizational structurestructure

SystemsSystems

Key FactorsKey Factors

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Major Influences on Business Buyers

EnvironmentalEnvironmental

OrganizationalOrganizational

InterpersonalInterpersonal

IndividualIndividual

AuthorityAuthority

StatusStatus

EmpathyEmpathy

PersuasivenessPersuasiveness

Key FactorsKey Factors

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Major Influences on Business Buyers

EnvironmentalEnvironmental

OrganizationalOrganizational

InterpersonalInterpersonal

IndividualIndividual

AuthorityAuthority

AgeAge

EducationEducation

Job positionJob position

PersonalityPersonality

Risk attitudesRisk attitudes

Key FactorsKey Factors

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Figure 7-3: Stages of the

Business Buying Process

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Eight Stages:Eight Stages: Stage 1:Stage 1: Problem Problem

RecognitionRecognition Stage 2:Stage 2: General General

Need DescriptionNeed Description Stage 3:Stage 3: Product Product

Specification Specification Value analysis Value analysis

helps to reduce helps to reduce costs costs

Business Buying Process

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Eight Stages:Eight Stages: Stage 4:Stage 4:

Supplier Supplier SearchSearch Supplier Supplier

development development

Business Buying Process

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Eight Stages:Eight Stages: Stage 5:Stage 5:

Proposal Proposal SolicitationSolicitation

Business Buying Process

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Eight Stages:Eight Stages: Stage 6:Stage 6: Supplier Selection Supplier Selection Stage 7:Stage 7: Order-Routine Order-Routine

Specification Specification Blanket contracts are often used for Blanket contracts are often used for

maintenance, repair and operating maintenance, repair and operating items. items.

Stage 8:Stage 8: Performance Review Performance Review

Business Buying Process

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Business Buying on the InternetBusiness Buying on the Internet E-procurement is growing rapidly.E-procurement is growing rapidly. Reverse auctions account for much of Reverse auctions account for much of

the online purchasing activity.the online purchasing activity. E-procurement offers many benefits:E-procurement offers many benefits:

Access to new suppliersAccess to new suppliers Lower purchasing costsLower purchasing costs Quicker order processing and deliveryQuicker order processing and delivery

Business Buying Process

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Institutional MarketsInstitutional Markets Consist of churches, schools, Consist of churches, schools,

prisons, hospitals, prisons, hospitals, nursing homes and nursing homes and other institutions other institutions that provide goods that provide goods and services to and services to people in their care.people in their care.

Institutional and Government Markets

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Institutional and Government Markets

Institutional MarketsInstitutional Markets Often characterized by Often characterized by

low budgets and captive low budgets and captive patrons.patrons.

Marketers may develop Marketers may develop separate divisions and separate divisions and marketing mixes to marketing mixes to service institutional service institutional markets.markets.

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The Background:The Background: Institutional markets are Institutional markets are often overlooked in B2B often overlooked in B2B marketingmarketing

The Potential:The Potential: This This market is somewhat market is somewhat recession-resistant; recession-resistant; great target for hard great target for hard economic timeseconomic times

Institutional Markets In Depth

How To Sell Them:How To Sell Them: Catalogs are often Catalogs are often the best method of the best method of contactcontact

Crossover Potential:Crossover Potential: Same consumer Same consumer catalogue items catalogue items could be targeted to could be targeted to institutionsinstitutions

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Timing is Important:Timing is Important: Appropriate times to Appropriate times to mailmail vary by institution. vary by institution. For example, August For example, August is a good month for is a good month for schools, but often a schools, but often a poor time for other poor time for other institutions due to institutions due to worker vacations.worker vacations.

Institutional Markets In Depth

Timing is Important:Timing is Important: Understanding when Understanding when government funding government funding becomes available, or becomes available, or when the new budget when the new budget year begins can help. year begins can help. Many institutions Many institutions purchase early, then purchase early, then run low on funds.run low on funds.

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Discussion Question

Name some examples Name some examples of goods or services of goods or services that a catalogue that a catalogue marketer could target marketer could target to your university, to your university, church, or hospital.church, or hospital.

Think beyond the obvious.Think beyond the obvious.

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Government MarketsGovernment Markets Governmental units – federal, Governmental units – federal,

state, and local – that purchase state, and local – that purchase or rent goods and services for or rent goods and services for carrying out the main functions carrying out the main functions of government.of government.

Institutional and Government Markets

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Government MarketsGovernment Markets More than 82,000 buying More than 82,000 buying

units.units. Require suppliers to Require suppliers to

submit bids.submit bids. Favor domestic suppliers.Favor domestic suppliers. ExtensiveExtensive paperwork paperwork

is required from suppliers.is required from suppliers.

Institutional and Government Markets

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Government MarketsGovernment Markets Government buyers often favor:Government buyers often favor:

Depressed business firms and areasDepressed business firms and areas Small businessesSmall businesses Minority-owned Minority-owned

businesses businesses Firms which Firms which

follow non-discriminatory practices follow non-discriminatory practices

Institutional and Government Markets

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Government MarketsGovernment Markets Most firms that sell to government Most firms that sell to government

buyers are not marketing-oriented.buyers are not marketing-oriented. Some companies have separate Some companies have separate

government marketing departments.government marketing departments. Much of government Much of government

buying has migrated buying has migrated online.online.

Institutional and Government Markets

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Government buying online: Procurement Gateway allows authorized defense and civilian agencies to buy online.

Procurement Gateway

Institutional and Government Markets