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

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.

I. What is organizational buying ?

Fewer, larger buyersClose supplier-customer relationshipsProfessional purchasingMultiple buying influencesMultiple sales callsDerived demandInelastic demandFluctuating demandGeographically concentrated buyersDirect purchasing

Characteristics of Business Markets

Consumer Business

Every customer has equal value and represents a small % of revenue

There are a small number of big customers that account for a large % of revenue

Sales are made remotely, the manufacturer doesn't meet the customer

Sales are made personally, the manufacturer gets to know the customer

Products are the same for all customers. The service element is low

Products are customized for different customers. Service is highly valued

Purchases are made for personal use - image is important for its own sake

Purchases are made for others to use - image is important where it adds value to customers

How does it differ from the consumer market ?

Cont.The purchaser is normally the user

The purchaser is normally an integrator, someone down the supply chain is the user.

Costs are restricted to purchase costs

Purchase costs may be a small part of the total costs of use

The purchase event is not subject to tender and negotiation

The purchase event is conducted professionally and includes tender and negotiation.

The exchange is one off transaction. There is no long-time view (financial services differ)

The exchange is often one of strategic intent. There is the potential for long term value

Straight rebuy •Reorders supplies (office supplies, bulk chemicals) at a routine basis and chooses from list of suppliers.

Modified rebuy •The buyer want to modified products specs, prices, delivery requirements from previous orders.

New task •Purchaser buys a products for the first time

Buying situations

II. Participants in the business buying process

The buying center

• Those requesting the product1. Initiators

• Those who will you use the product or service 2. Users

• Those who influence the buying decisions3. Influencers

• Those who decide on products reqs & suppliers4. Deciders

• Those authorizing actions of buyers • tho5. Approvers

• Those who have authority to select supplier & arrange purchase terms6. Buyers

• Those who prevent information from reaching members of buying center7. Gatekeepers

Who are the major decision participants?What decisions do they influence?What is their level of influence?What evaluation criteria do they use?

Of Concern to Business Marketers

Stages in Buying Process

Problem recognition

General need description

Product specification

Supplier search

Proposal solicitation

Supplier selection

Order routine

specification

Performance review

The buygrid framework

New Task Modified Rebuy

Straight Buy

Problem recognition

General need description

Product specification

Supplier search

Proposal solicitation

Supplier selection

Order-routine specification

Performance review

Maybe

Maybe

Maybe

Maybe

Maybe

Maybe

Searching for suppliers• Electronic catalogsCatalog sites• Ordering raw materials from

specialized websitesVertical markets

• Online marketplaces (Ebay, Amazon)Pure play auction sites

• On spot electronic markets, prices change by the minuteSpot markets

• Private exchange to link groups of suppliers over the webPrivate exchanges

• Participants offer to trade goods or services Barter markets

• Companies buying the same goods join together to form purchasing consortia

Buying alliances

Limit quantity purchasedAllow no refundsMake no adjustmentsProvide no services

Overcoming Price Pressures

Internal engineering assessmentField value-in-use assessmentFocus-group value assessmentDirect survey questionsConjoint analysisBenchmarksCompositional approachImportance ratings

Researching Customer Value

Order – routine specificationThe buyers negotiates: The final order; listing the

technical specifications; the quantity needed; the expected time of delivery; return policies; warranties…

Performance reviewThree methods:1. The buyer may contact the end users and ask for

their evaluations2. The buyer may rate the supplier on several

criteria using a weighted score method3. The buyer might aggregate the 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 Credibility

The relationship between advertising agencies and clients

In the relationship formation stage, one partner experienced substantial market

growth.

Information asymmetry between partnership would generate more

profit than if the partner attempted to invade the

other firm’s area

At least one partner had high barriers to entry that would prevent the

other partner from entering the business

Dependence asymmetry existed such that one

partner was more able to control or influence

the other’s conduct

Factors of buyer-supplier relationships

Availability of

alternatives

Importance of supply

Complexity of supply

Supply market

dynamism

Categories of Buyer-Supplier Relationships

Basic buying and selling

Bare bones

Contractual transaction

Customer supply

Business Relationship : Risks and Opportunism

Vertical coordination can facilitate stronger customer – seller ties but increase the risk to the customers and supplier specific investment

Opportunism is a concern

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

SummaryBusiness markets differ from consumer marketsBusiness buyers make purchase decisions base on different buying situationsThe buying process consists of eight stages. sellers use different sales strategies according to their size. One is to use e – marketplacesThere are also different strategies in handling price – oriented customersBusiness marketers must form strong bonds and relationships with their customers and provide them added value.