The Business Market

8/8/2019 The Business Market

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Copyright 2001 McGraw-Hill Ryerson Limited 7 - 2

Chapter Goals

To gain an understanding of:The nature and scope of the business

market

Components of the business market

Characteristics and determinants ofbusiness market demand

The buying motives, buyingprocesses, and buying patterns inbusiness markets


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Nature and Scope of Market

the business market consists of allorganizations that buy products and services:

to make other products and services

to resell to business users or to consumers to conduct the operations of the

organization

the business market is larger than the

consumer market because many businessessell to other businesses and many productschange hands several times before reachingthe end consumer


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Components of the

Business Market The agriculture market,agriculture market, consisting of

farming, food processing, and otherfarming-related businesses.

The reseller market,reseller market, consisting of firms thatbuy products from supplier organizations

and resell these items to their customers.

The government marketgovernment market, including all

federal, provincial, territorial, and localunits buying for government institutionssuch as schools, offices, hospitals, andmilitary bases.


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More Components

The services marketservices market, including firms thatsell services to other organizations.

The nonbusiness business market,nonbusiness business market,

consisting of not-for-profit organizationssuch as churches, universities, colleges,and museums.

The international marketinternational market, including The export market.

Overseas subsidiaries.


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Business Market Demand

the demand for a business product is oftenderivedderived from demand for a consumerproduct

demand for business products is generallyrelatively price inelasticprice inelastic

demand in the business market tends tofluctuatefluctuate more widely than that in consumer

markets buyers in the business market are generally

much better informedbetter informed than are endconsumers


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Number and Types of

Business Users The number of buyers in the business market

is small when compared to the consumermarket 500,000 versus 30 million.

For statistical purposes, the government has

created the Standard Industrial Classification(SIC) system, a useful tool for segmentingbusiness markets.

The business market is large in purchasing

power and concentrated in a few firms. There is substantial regional concentration in

many major industries.

A business market may be vertical orhorizontal.


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NAICS

The North American IndustryClassification System (NAICS) is a

newer system adopted by Canada,United States, and Mexico tosegment business markets

NAICS is a more detailedclassification scheme than SIC


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MAJOR GROUPS:2-DIGIT CODE

11 Agriculture

21 Mining

23 Construction

31-33 Manufacturing42 Wholesale trade

44-45 Retail trade

51 Information

52-92 (Other industry)

SUBGROUPS:3-DIGIT CODE

513 Broadcast and

Telecommunications

SUBGROUPS:4-DIGIT CODE

5133 Telecom-

munications

SUBGROUPS:

5-DIGIT CODE

51332 Wireless TelecommunicationsCarrierSUBGROUPS:

6-DIGIT CODE

513321 Pagers

The NAICS Coding Scheme


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Copyright 2001 McGraw-Hill Ryerson Limited 7 -10

Reasons for Growth inImportance of Business Market

Companies are making less andbuying more.

Intense quality and time pressureincreases the need for reliablesuppliers.

Firms are choosing fewer suppliers

and entering into long-termpartnering relationships withthem.

Companies are making less andbuying more.

Intense quality and time pressureincreases the need for reliablesuppliers.

Firms are choosing fewer suppliers

and entering into long-termpartnering relationships withthem.


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BUSINESS BUYING-DECISION

PROCESS

Need recognition

Identification of alternatives

Evaluation of alternatives

Purchase and related decisions

Postpurchase behaviour

TYPES OF

DECISIONS

New TaskStraight Rebuy

Modified Rebuy

BUYING

PATTERNS

Direct

Frequency

Order Size

Negotiation

Reciprocity

ServiceLeasing

BUYING CENTRE

Users Influencers

Deciders GatekeepersBuyers

BUYING MOTIVES

Organizational

Personal

BUYER-SELLER

RELATIONSHIP

Value chainLoyalty

The Business Market


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Buying-Decision Process

need recognition:need recognition: determine what needs aremost important to the buyer

identify alternativesidentify alternatives for buying the product evaluateevaluate those alternatives on certaincriteria

make the decisionmake the decision to buy and related

decisions pertaining to delivery, credit, etc. postpurchasepostpurchase decisions include evaluation

of the supplier and of the product or service


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Business Buying Motives

business buying motives are often differentfrom those that influence end consumers

business buyers are motivated by bothorganizational and personal goals

the business buying situation can fit into oneof three categories: new-task buy, straight

rebuy, or modified rebuy each will likely require a different approach

on the part of the business marketer


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Buy Classes

NewNew--task buytask buy (the most difficult andcomplex buying situation), which is thefirst-time purchase of a major product.

Straight rebuy.Straight rebuy. This is a routine, low-involvement purchase.

Modified rebuyModified rebuy. The buying situation issomewhere between the other two in

terms of: The time and people involved, the

information needed, and the location ofbuying authority.


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Multiple BuyingInfluences

There are likely to be a number of peopleinvolved in most business buying decisions. Abuying centre includes people playing the

following roles:users:users: those who will use the product/service

influencers:influencers: often set specifications to follow

deciders:deciders: make the actual decision to buygatekeepers:gatekeepers: control the flow of information

buyersbuyers: actually process the purchase order


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In a Buying Centre

Several people may play the same role or thesame person may occupy more than one role.

The size and composition of a buying centrewill vary among businesses.

Trying to determine who does what in abuying centre is very important but can alsobe very difficult.

T

he challenges in a business buying-decisionprocess suggest that co-ordination of thebuying and selling activities would bebeneficial to both firms.


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Business Buying Patterns often will buy directly from the producer suppliers will often establish long-term close

relationships with their customers

some products are bought very infrequently

average order is larger than in the consumermarket

negotiations often go on for months or years

sometimes there is reciprocityreciprocity involved

often considerable need for after-sale service

customers are very dependent on suppliers toguarantee a consistency of supply

growing tendency to lease instead of buy


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Segmenting BusinessMarkets

can use some of the same bases as usedto segment consumer markets

often segment business markets on the

type of customertype of customer or on industryclassification

segmentation by size of customersize of customer really

considers sales volume or potential can also consider segmenting on the

basis of the type of buying situationtype of buying situation thecustomer is in

Documents

The Business Market