Principles of Marketing - Business Markets & Business Buyer Behavior

Business Markets and Business Buyer

Behavior

A Global A Global PerspectivePerspective

Philip KotlerPhilip KotlerGary ArmstrongGary ArmstrongSwee Hoon AngSwee Hoon Ang

Siew Meng LeongSiew Meng LeongChin Tiong TanChin Tiong Tan

Oliver Yau Hon-Oliver Yau Hon-MingMing

PowerPoint slides adapted by Peggy Su

Learning Objectives

After studying this chapter, you should be able to:

1. Define the business market and explain how business markets differ from consumer markets

2. Identify the major factors that influence business buyer behavior

3. List and define the steps in the business buying-decision process

4. Compare the institutional and government markets and explain how institutional and government buyers make their buying decisions

Chapter Outline

1. Business Markets

2. Business Buyer Behavior

3. Institutional and Government Markets

Business Markets

• Business buying process is 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

Business markets differ from consumer markets in:

• Market structure and demand

• Nature of the buying unit

• Types of decisions and the decision-making process

Market Structure and Demand

• Fewer and larger buyers

• Geographic concentration

• Derived demand

• Inelastic demand

• Fluctuating demand

• Buyer and seller dependency

Business Markets

Market Structure and Demand

• Supplier development is 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.

A Model of Business Buyer Behavior

Business Buyer Behavior

Marketing Stimuli

• Similar to consumer buying, business buying consists of the four Ps:

• Product

• Price

• Place

• Promotion

• Business buyer behavior refers 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.

• Also included are retailing and wholesaling firms that acquire goods to resell or rent to others for profit.

Marketing Stimuli

Additional stimuli include major economic forces:

• Political

• Economic

• Technological

• Cultural

• Competitive

Buyer Responses to Marketing Stimuli

• Product or service choice

• Supplier choice

• Order quantities

• Delivery

• Service

• Payment terms

Buyer Responses to Marketing Stimuli

• Marketers must understand what happens within the organization and turn stimuli into purchase responses.

Major Types of Buying Situations

• Straight rebuy

• Modified rebuy

• New task

• Straight rebuy is a routine purchase decision such as a reorder without any modification.

• Modified rebuy is a purchase decision that requires some research where the buyer wants to modify the product specification, price, terms, or suppliers.

• New task is a purchase decision that requires thorough research such as a new product.

• Systems selling involves 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

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

• 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.

The buying center provides a major challenge:

• Who participates in the process

• Their relative authority

• What evaluation criteria each participant uses

• Informal participants

• Economic factors

• Personal factors

• Environmental factors

• Organizational factors

• Interpersonal factors

Economic factors:

• Price

• Service

Personal factors:

• Emotion

Major Influences on Business Buyers

• Technology

• Culture

• Politics

• Competition

Environmental factors:

• Demand for product

• Economic outlook

• Cost of money

• Resource availability

Organizational factors:

• Objectives

• Policies

• Procedures

• Structure

• Systems

Interpersonal factors:

• Motives

• Perceptions

• Preferences

• Age

• Income

• Education

• Attitude toward risk

The Buying Process

1. Problem recognition

2. General need description

3. Product specification

4. Value analysis

5. Supplier search

6. Proposal solicitation

7. Supplier selection

8. Order-routine specifications

9. Performance review

Problem recognition occurs 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

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.

The Buying Process

• Supplier search involves compiling a list of qualified suppliers.

• Proposal solicitation is the process of requesting proposals from qualified suppliers.

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

The Buying Process

Performance review involves a critique of supplier performance to the purchase terms.

E-Procurement and Buying on the Internet

Online purchasing

• Company buying sites

• Extranets

Advantages

• Access to new suppliers

• Lowers costs

• Speed in order processing and delivery

• Share information

• Sales

• Service and support

Disadvantages

• Can erode relationships as buyers search for new suppliers

• Lack of security

• Institutional markets consist of hospitals, nursing homes, and prisons that provide goods and services to people in their care.

• Characteristics

• Low budgets

• “Captive” audience

Institutional and Government Markets

Institutional and Government Markets• Government markets tend to favor domestic

suppliers and require suppliers to submit bids and normally award to the lowest bidder

• Carefully monitored

• Affected by similar environmental factors

• Good credit

• Non-economic factors

• Minority suppliers

• Depressed suppliers

• Small businesses

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