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Marketing Management

Chapter-07

Analyzing Business Markets

Part : 03

Connecting with

Customers

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MARKETING MANAGEMENT12th edition

7 Analyzing

Business Markets

Kotler Keller

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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?

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Business Market

The Business Market consists of all the organizations that acquire goods and services used in the production of other products or services that are sold, rented and supplied to others.

The major industries making up the business market are agriculture, forestry, fisheries, mining, manufacturing, construction, transportation, communication, banking, finance, insurance and distribution.

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Business Market

German Software Company, SAP has become a leading seller to Business Market by specializing

in software applications to automate business functions

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Characteristics of Business Markets

Fewer, larger buyers Close supplier-customer

relationships Professional purchasing Many buying influences Multiple sales calls

Derived demand Inelastic demand Fluctuating demand Geographically

concentrated buyers Direct purchasing

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Business Markets vs Consumer Markets Business Markets have several characteristics that

contrast sharply with those of consumer markets.

i. Fewer but Larger Buyersii. Close Supplier-Customer Relationship

iii. Professional Purchasing (Business goods are often purchased by trained purchasing agents who must follow their organization’s purchasing policies, constraints and requirements)

iv. Several Buying Influencesv. Multiple Sales Calls

vi. Derived Demand (The demand for business goods is ultimately derived from the demand for consumer goods, therefore the business marketer must closely monitor the buying patterns of ultimate consumers)

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Business Markets vs Consumer Markets

vii. Inelastic Demand (The total demand for many business goods/services is not much affected by price changes)

viii. Fluctuating Demand (The demand for business goods and services tends to be more volatile than consumer products/services)

ix. Geographically Concentrated Buyers (Business buyers are normally geographically concentrated which helps them to reduce selling costs)

x. Direct Purchasing (Business buyers often buy directly from manufacturers rather than through intermediaries, especially for technically complex and expensive items)

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Business Buying Situations

There are three types of Buying Situations.

a. Straight Rebuyb. Modified Rebuyc. New Task

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Business Buying Situations

a. Straight Rebuy : Routine reordering e.g. office supplies etc. The suppliers are chosen from the “approved list”. The In-suppliers make an effort to maintain product and service quality, while Out-suppliers attempt to offer something new or to exploit dissatisfaction with a current supplier.

b. Modified Rebuy : The buyer wants to modify product specifications, prices, delivery requirements or other terms. This involves an opportunity for Out-suppliers to propose a better offer to gain some business.

c. New Task : A purchaser buys a product or service for the first time. e.g. office building new security system.

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Business Buying Situations

Note : The business buyer makes the fewest decisions in the Straight Rebuy situation and the most in New-Task situation.

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Systems Buying and Selling

Systems Buying : Many business buyers prefer to buy a total solution to a problem from one seller, it is also called ‘Turnkey Solution’.

Sellers have increasingly recognized that buyers like to purchase in this way and many have adopted systems selling as a marketing tool.

One variant of systems selling is Systems Contracting where a single supplier provides the buyer with his/her entire requirement of MRO (maintenance, repair, operating) supplies.

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Systems Buying and Selling

Systems Selling is a key industrial marketing strategy in bidding to build large-scale industrial projects, such as dams, steel factories, irrigation systems, pipelines, utilities, new towns etc.

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Participants in the Business Buying Process

Who buys the trillions of dollars’ worth of goods and services needed by business organizations? The decision-making unit of a buying organizations is called “The Buying Centre”.

The Buying Centre is composed of all those individuals or groups who participate in the purchase decision-making process.

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Participants in the Business Buying Process

The Buying Centre includes all members of the organization who play any of seven roles in the purchase decision process (Initiators, Users, Influencers, Deciders, Approvers, Buyers, Gatekeepers).

Several individuals can occupy a given role (e.g. there may be many users or influencers), and the individual may occupy multiple roles (e.g. a purchasing manager occupies the roles of buyer, the influencer and gatekeeper simultaneously)

The typical buying centre has a minimum of five or six members and often has dozens.

The buying centre may include people outside the organization, like consultants, technical advisors etc.

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The Buying Center Roles

InitiatorsInitiators

UsersUsers

InfluencersInfluencers

DecidersDeciders

ApproversApprovers

BuyersBuyers

GatekeepersGatekeepers

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Purchase Orientations

In the past, purchasing departments occupied a low position in the management hierarchy, in spite of often managing more than half of company’s costs; however recent competitive pressures have led many companies to upgrade their purchasing departments.

We can distinguish three company purchase orientations.

a) Buying Orientation b) Procurement Orientationc) Supply-Chain Management Orientation

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Purchase Orientations

Buying

Procurement

Supply Chain Management

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Purchase Orientations

a) Buying Orientation : The purchaser’s focus is short-term and tactical. Buyers use two tactics : Commoditization and Multi-Sourcing.

b) Procurement Orientation : The buyers simultaneously seek quality improvements and cost reductions. They develop collaborative relationships with major suppliers and negotiate long-term contracts with them.

c) Supply-Chain Management Orientation : Here purchaser role is further broadened and they work with marketing and other company executives to build supply chain management system from the purchase of raw materials to the on-time arrival of finished goods to the end users.

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Organizational Buying Behavior in Japan

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Product-Related Purchasing Processes

Routine productsRoutine products

Leverage productsLeverage products

Strategic productsStrategic products

Bottleneck productsBottleneck products

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Types of Purchase Processes

The purchasing departments purchase many types of products and the purchasing process will vary depending upon the types of products involved. There are four product-related purchasing processes.

a. Routine Products (Low value, low cost products to the customer with little risk involved, e.g. office supplies)

b. Leverage Products (High value, high cost products to the customer with little risk of supply involved, e.g. engine pistons)

c. Strategic Products (High value, high cost products to the customer with high risk involved, e.g. mainframe computers)

d. Bottleneck Products (Low value, low cost products to the customer with some risk involved, e.g. spare parts)

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Stages in the Business Buying Process

Robinsons and Associates have identified eight stages and called them buyphases. These stages describe the buying stages involved in a new-task buying situation. In modified-rebuy or straight rebuy situations, some stages are compressed or bypassed.

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Stages in the Business Buying Process

Eight Stage Model

a. Problem Recognitionb. General Need Description and Product Specificationc. Supplier Searchd. E-Procurement (Web Sites, Direct Extranet Links to

major suppliers, Buying Alliances, Company Buying Sites) (See Next Slide)

e. Proposal Solicitationf. Supplier Selection (See Next Slide)g. Order-Routine Specificationh. Performance Review

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Stages in the Business Buying Processd. E-Procurement

i. Web Sites (Web sites are organized around two types of e-hubs : vertical hubs centred on industries like plastics, steel, chemicals, paper; and functional hubs like logistics, media buying, advertising, energy management)

ii. Direct Extranet Links to major suppliers

iii. Buying Alliances

iv. Company Buying Sites (General Electric formed the Trading Process Network (TPN) where it posts requests for proposals (RFPs), negotiate terms and places orders.

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Stages in the Business Buying Processd. E-Procurement

Moving into E-Procurement involves more than acquiring software; it requires changing purchasing strategy and structure; however the benefits are many, like volume discounts, less buying of substandard goods and a smaller purchasing staff is required.

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Stages in the Buying Processf. Supplier Selection

Before selecting a supplier, the buyer or buying centre will specify desired supplier attributes and indicate their relative importance.

Then suppliers are evaluated.

The buying centre may attempt to negotiate with preferred suppliers for better prices and terms before making the final selection.

Furthermore, the buying centres must decide how many suppliers to use. The companies are increasingly reducing the number of suppliers. There is even a trend toward “Single-Sourcing”.

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Stages in the Buying Processf. Supplier Selection

The companies that use multiple sources often cite threat of a labour strike as the biggest deterrent to Single Sourcing. Another reason companies may be reluctant to use a single source they fear they will become comfortable in the relationship and will lose their competitive edge.

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Stages in the Buying Processh. Performance Review

The buyer periodically reviews the performance of the chosen supplier(s). Several methods can be used such as the buyer may contact end-users and ask for their evaluations. Also weighted score method can be used.

The performance review may lead the buyer to continue, modify or end a supplier relationship.

Many companies have set up incentive systems to reward purchasing managers for good buying performance.

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Institutional and Government Markets

The Institutional Market consists of schools, hospitals, nursing homes, prisons and other institutions that must provide goods and services to people in their care. These are characterized by low budgets and captive clienteles.

In most countries, Government Organizations are a major buyer of goods and services. Government organizations typically require suppliers to submit bids and normally they award the contracts to the lowest bidder, however in some cases, the government unit will make allowance for the supplier’s superior quality or reputation for completing contracts on time.

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Institutional and Government Markets

Aramark successfully services Institutional and Government Markets

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Activity