Chapter 8

Analyzing Business Markets and Business Buying Behavior

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Kotler on Marketing
Many businesses are wisely turning their suppliers and distributors into valued partners.

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Chapter Objectives
In this chapter, we focus on six 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 buying process? What are the major influences on organizational buyers? How do business buyers make their decisions? How do institutions and government agencies do their buying?
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What is Organizational Buying?

Organizational buying

The business market versus the consumer market

Business market
Fewer buyers Larger buyers Close supplier-customer relationship Geographically concentrated buyers
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What is Organizational Buying?

Derived demand Inelastic demand Fluctuating demand Professional purchasing

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What is Organizational Buying?

Several buying influences Multiple sales calls Directed purchasing Reciprocity Leasing

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If you were tasked with marketing a product or service to an organization, would you attempt to initially contact the purchasing department, or potential users of your companys offerings? Why? Would the product you were selling make a difference? Why?
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What is Organizational Buying?

Buying Situations
Straight rebuy Modified rebuy New Task

Systems Buying and Selling

Systems buying Turnkey solution Systems selling
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What are some of the benefits to an organization that can be derived from a single source solution, or a systems buying arrangement with a prime contractor? What are some of the potential pitfalls? What can the company do to protect itself from these hazards?
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Participants in the Business Buying Process

The Buying Center
Initiators Users Influencers Deciders Approvers Buyers Gatekeepers
Key buying influencers Multilevel in-depth selling
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Figure 8.1: Major Influences on Industrial Buying Behaviour

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Major Influences on Buying Decisions

Environmental Factors Organizational Factors
Purchasing-Department Upgrading Cross-Functional Roles Centralized Purchasing Decentralized Purchasing of Small-Ticket Items Internet Purchasing
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The e-hub Plastics.com home page offers buyers and sellers of plastics a marketplace plus news and information

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Major Influences on Buying Decisions

Other Organizational Factors
Long-Term Contracts
Vendor-managed inventory Continuous replenishment programs

Purchasing-Performance Evaluation and Buyers Professional Development Improved Supply Chain Management Lean Production
Just-in-time

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Major Influences on Buying Decisions

Interpersonal and Individual Factors Cultural Factors
France Germany Japan Korea Latin America
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The Purchasing/ Procurement Process

Incentive to purchase Three Company Purchasing Orientations
Buying Orientation
Commoditization Multisourcing

Procurement Orientation
Materials requirement planning (MRP)

Supply Chain Management Orientation

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The Purchasing/ Procurement Process

Types of Purchasing Processes
Routine products Leverage products Strategic products Bottleneck products

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The Purchasing/ Procurement Process

Stages in the Buying Process
Problem Recognition General Need Description and Product Specification
Product value analysis

Supplier Search
Vertical hubs Functional hubs Direct external links to major suppliers Buying alliances Company buying sites
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Request for proposals (RFPs)

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Table 8.1: Buygrid Framework: Major Stages (Buyphases) of the Industrial Buying Process in Relation to Major Buying Situations (Buyclasses)
Buyclasses New Task 1. Problem recognition 2. General need description 3. Product specification Buyphases 4. Supplier search Yes Yes Yes Yes Modified Rebuy Maybe Maybe Yes Maybe Straight Rebuy No No Yes No

5. Proposal solicitation
6. Supplier selection 7. Order-routine specification

Yes
Yes Yes

Maybe
Maybe Maybe

No
No No

8. Performance review

Yes

Yes

Yes
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The Purchasing/ Procurement Process

Proposal Solicitation Supplier Selection

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Table 8.2: An Example of Vendor Analysis

Attributes Importance Weights Price Supplier reputation Product reliability Service reliability .30 .20 .30 .10 x x x Poor (1) Rating Scale Fair (2) Good (3) Excellent (4) x

Supplier Flexibility

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Total score: .30(4) + .20(3) + .30(4) + .10(2) + .10(3) = 3.5

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The Purchasing/ Procurement Process

Customer value assessment Routine-order products Procedural-problem products Political-problem products

Order-Routine Specification
Blanket contract Stockless purchase plans

Performance Review
Buyflow map
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Figure 8.2: Organizational Buying Behaviour in Japan

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Institutional and Government Markets

Institutional market

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