Marketing Management
Chapter 7: Analyzing Business
Market
Chapter questions
What is the business market, and how does it differ
from the consumer market?
What buying situations do organizational buyers face?
Who participates in the business-to-business buying
process?
How do business buyers make their decisions?
How can companies build strong relationships with
business customers?
How do institutional buyers and government agencies
do their buying?
Content
I. What is organizational
buying?
II. Participants in the
business buying process
III. Managing business-to-
business customer
relationships
I. What is organizational buying ?
What is business market?
A business market is a group of profit making
organizations that buy goods and services for business
use.
It consists of industries, distributors and retailers.
This market has rational buying with and experiences
an inelastic demand.
Characteristics of Business Markets
Fewer, larger buyers
Close supplier-customer relationships
Professional purchasing
Multiple buying inf luences
Multiple sales calls
Derived demand
Inelastic demand
Fluctuating demand
Geographically concentrated buyers
Direct purchasing
How does it differ from the
consumer market ?
Consumer Business
Every customer has equal value and There are a small number of big
represents a small % of revenue customers that account for a large %
of revenue
Sales are made remotely, the Sales are made personally, the
manufacturer doesn't meet the manufacturer gets to know the
customer customer
Products are the same for all Products are customized for
customers. The service element is different customers. Service is highly
low valued
Purchases are made for personal use Purchases are made for others to use
- image is important for its own sake - image is important where it adds
value to customers
Cont.
The purchaser is normally the The purchaser is normally an
user integrator, someone down the
supply chain is the user.
Costs are restricted to purchase Purchase costs may be a small
costs part of the total costs of use
The purchase event is not subject The purchase event is conducted
to tender and negotiation professionally and includes
tender and negotiation.
The exchange is one off The exchange is often one of
transaction. There is no long- strategic intent. There is the
time view (financial services potential for long term value
differ)
Buying situations
• Reorders supplies (office supplies, bulk
Straight chemicals) at a routine basis and chooses from
rebuy list of suppliers.
• The buyer want to modified products
Modified specs, prices, delivery requirements from
rebuy previous orders.
• Purchaser buys a products for the first time
New task
II. Participants in the business buying
process
The buying center
1. Initiators • Those requesting the product
• Those who will you use the product or
2. Users service
3. Inf luencers • Those who inf luence the buying decisions
• Those who decide on products reqs &
4. Deciders suppliers
5. Approvers • Those authorizing actions of buyers
• Those who have authority to select supplier &
6. Buyers arrange purchase terms
• • Those
tho who prevent information from reaching
7. Gatekeepers members of buying center
Of Concern to Business Marketers
Who are the major decision participants?
What decisions do they inf luence?
What is their level of inf luence?
What evaluation criteria do they use?
Stages in Buying Process
Problem Supplier Order routine
recognition selection specification
General need Proposal Performance
description solicitation review
Product Supplier
specification search
The buygrid framework
New Task Modified Straight Buy
Rebuy
Problem recognition
Maybe
General need description Maybe
Product specification
Supplier search
Maybe
Proposal solicitation Maybe
Supplier selection Maybe
Order-routine specification Maybe
Performance review
Searching for suppliers
Catalog sites • Electronic catalogs
• Ordering raw materials from specialized
Vertical markets
websites
Pure play auction sites • Online marketplaces (Ebay, Amazon)
• On spot electronic markets, prices change
Spot markets
by the minute
• Private exchange to link groups of
Private exchanges
suppliers over the web
• Participants offer to trade goods or
Barter markets
services
• Companies buying the same goods join
Buying alliances
together to form purchasing consortia
Overcoming Price Pressures
Limit quantity purchased
Allow no refunds
Make no adjustments
Provide no services
Researching Customer Value
Internal engineering assessment
Field value-in-use assessment
Focus-group value assessment
Direct survey questions
Conjoint analysis
Benchmarks
Compositional approach
Importance ratings
Order – routine specification
The buyers negotiates: The final order; listing the
technical specifications; the quantity needed; the
expected time of delivery; return policies; warranties…
Performance review
Three methods:
1. The buyer maycontact the end users and ask for
their evaluations
2. The buyer may rate the supplier on several criteria
using a weighted score method
3. The buyer might aggregatethe cost of poor
performance to come up with adjusted costs of
purchase including price
III. Managing Business- to- Business
Customer Relationships
The Benefits of Vertical
Coordination
• Create more value for both buying partners and sellers
partners
Establishing Corporate Trust and
The relationship between
advertising agencies and clients
Information asymmetry
At least one partner had
In the relationship between partnership
high barriers to entry that
formation stage, one would generate more
would prevent the other
partner experienced profit than if the partner
partner from entering the
substantial market growth. attempted to invade the
other firm’s area business
Dependence asymmetry
existed such that one One partner benefited
partner was more able to from economies of scale
control or inf luence the related to the relationship
other’s conduct
Factors of buyer-supplier
relationships
Availability
of Importance
alternatives of supply
Supply
Complexity
market
of supply
dynamism
Categories of Buyer-Supplier
Relationships
Basic buying Cooperative
and selling systems
Bare bones Collaborative
Contractual Mutually
transaction adaptive
Customer Customer is
supply king
Business Relationship : Risks and
Opportunism
Opportunism is a concern
Vertical coordination can facilitate stronger customer – seller ties
but increase the risk to the customers and supplier specific
Institutional and Government
Markets
Institutional market consists of schools
,hospitals, nursing home, prisons and other institutions
that provide goods and services to people in their care
Institutional and Government
Markets ( Cont )
Buyers for government organization tend to
require a great deal of paperwork from their
vendors and to favor open bidding and
domestic companies
Suppliers must be prepared to adapt their
offers to the special needs and procedures
found in institutional and government markets
Summary
Business markets differ from consumer markets
Business buyers make purchase decisions base on
different buying situations
The buying process consists of eight stages.
sellers use different sales strategies according to their
size. One is to use e – marketplaces
There are also different strategies in handling price –
oriented customers
Business marketers must form strong bonds and
relationships with their customers and provide them
added value.
