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Chapter 8Chapter 8Analyzing Business Markets Analyzing Business Markets and Business Buying and Business Buying BehaviorBehaviorbyby

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Kotler on Marketing Many businesses Many businesses

are wisely are wisely turning their turning their suppliers and suppliers and distributors into distributors into valued partners.valued partners.

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Chapter Objectives In this chapter, we focus on six questions:In this chapter, we focus on six questions:

What is the business market, and how does it What is the business market, and how does it differ from the consumer market?differ from the consumer market?

What buying situations do organizational buyers What buying situations do organizational buyers face?face?

Who participates in the business buying process?Who participates in the business buying process? What are the major influences on organizational What are the major influences on organizational

buyers?buyers? How do business buyers make their decisions?How do business buyers make their decisions? How do institutions and government agencies do How do institutions and government agencies do

their buying?their buying?

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What is Organizational Buying?

Organizational buyingOrganizational buying

The business market versus the The business market versus the consumer marketconsumer market Business marketBusiness market

Fewer buyersFewer buyers Larger buyersLarger buyers Close supplier-customer relationshipClose supplier-customer relationship Geographically concentrated buyersGeographically concentrated buyers

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What is Organizational Buying?

Derived demandDerived demand Inelastic demandInelastic demand Fluctuating demandFluctuating demand Professional purchasingProfessional purchasing

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Blue Shield of California’s mylifepathBlue Shield of California’s mylifepath

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What is Organizational Buying?

Several buying influencesSeveral buying influences Multiple sales callsMultiple sales calls Directed purchasingDirected purchasing ReciprocityReciprocity LeasingLeasing

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If you were tasked with marketing a If you were tasked with marketing a product or service to an organization, product or service to an organization, would you attempt to initially contact the would you attempt to initially contact the purchasing departmentpurchasing department, or , or potential potential usersusers of your company’s offerings? Why? of your company’s offerings? Why? Would the product you Would the product youwere selling make a were selling make a difference? Why?difference? Why?

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What is Organizational Buying?

Buying SituationsBuying Situations Straight rebuyStraight rebuy Modified rebuyModified rebuy New TaskNew Task

Systems Buying and SellingSystems Buying and Selling Systems buyingSystems buying Turnkey solutionTurnkey solution Systems sellingSystems selling

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What are some of the benefits to an What are some of the benefits to an organization that can be derived organization that can be derived from a from a single source solutionsingle source solution, or a , or a systems buyingsystems buying arrangement with a arrangement with a prime contractor? What are some of prime contractor? What are some of the potential pitfalls? What the potential pitfalls? What can the company do to can the company do to protect itself from protect itself from these hazards?these hazards?

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Participants in the Business Buying Process

The Buying CenterThe Buying Center InitiatorsInitiators UsersUsers InfluencersInfluencers DecidersDeciders ApproversApprovers BuyersBuyers GatekeepersGatekeepers

Key buying influencersKey buying influencers Multilevel in-depth sellingMultilevel in-depth selling

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Figure 8-1: Major Influences on Industrial Buying Behavior

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Major Influences on Buying Decisions

Environmental FactorsEnvironmental Factors Organizational FactorsOrganizational Factors

Purchasing-Department UpgradingPurchasing-Department Upgrading Cross-Functional RolesCross-Functional Roles Centralized PurchasingCentralized Purchasing Decentralized Purchasing of Small-Ticket Decentralized Purchasing of Small-Ticket

ItemsItems Internet PurchasingInternet Purchasing

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The e-hub Plastics.com home page offers buyers and The e-hub Plastics.com home page offers buyers and sellers of plastics a marketplace plus news and sellers of plastics a marketplace plus news and informationinformation

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Covisint’s Web site offers both services and Covisint’s Web site offers both services and informationinformation

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Major Influences on Buying Decisions

Other Organizational FactorsOther Organizational Factors Long-Term ContractsLong-Term Contracts

Vendor-managed inventoryVendor-managed inventory Continuous replenishment programsContinuous replenishment programs

Purchasing-Performance Evaluation and Buyers’ Purchasing-Performance Evaluation and Buyers’ Professional DevelopmentProfessional Development

Improved Supply Chain ManagementImproved Supply Chain Management Lean ProductionLean Production

Just-in-timeJust-in-time

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Major Influences on Buying Decisions

Interpersonal and Individual FactorsInterpersonal and Individual Factors Cultural FactorsCultural Factors

FranceFrance GermanyGermany JapanJapan KoreaKorea Latin AmericaLatin America

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The Purchasing/ Procurement Process Incentive to purchaseIncentive to purchase

Three Company Purchasing OrientationsThree Company Purchasing Orientations Buying OrientationBuying Orientation

CommoditizationCommoditization MultisourcingMultisourcing

Procurement OrientationProcurement Orientation Materials requirement planning (MRP)Materials requirement planning (MRP)

Supply Chain Management OrientationSupply Chain Management Orientation

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The Purchasing/ Procurement Process

Types of Purchasing ProcessesTypes of Purchasing Processes Routine productsRoutine products Leverage productsLeverage products Strategic productsStrategic products Bottleneck productsBottleneck products

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The Purchasing/ Procurement Process Stages in the Buying ProcessStages in the Buying Process

Problem RecognitionProblem Recognition General Need Description and General Need Description and

Product SpecificationProduct Specification Product value analysisProduct value analysis

Supplier SearchSupplier Search Vertical hubsVertical hubs Functional hubsFunctional hubs Direct external links to major suppliersDirect external links to major suppliers Buying alliancesBuying alliances

Company buying sitesCompany buying sites Request for proposals (RFPs)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)

BuyclassesBuyclasses

NewNew ModifiedModified StraightStraight

TaskTask RebuyRebuy RebuyRebuy

1. Problem recognition1. Problem recognition YesYes MaybeMaybe NoNo

2. General need description2. General need description YesYes MaybeMaybe NoNo

3. Product specification3. Product specification YesYes YesYes YesYes

BuyphasesBuyphases 4. Supplier search4. Supplier search YesYes MaybeMaybe NoNo

5. Proposal solicitation5. Proposal solicitation YesYes MaybeMaybe NoNo

6. Supplier selection6. Supplier selection YesYes MaybeMaybe NoNo

7. Order-routine specification7. Order-routine specification YesYes MaybeMaybe NoNo

8. Performance review8. Performance review YesYes YesYes YesYes

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The Purchasing/ Procurement Process

General Need Description and General Need Description and Product SpecificationProduct Specification Product value analysisProduct value analysis

Supplier SearchSupplier Search Vertical hubsVertical hubs Functional hubsFunctional hubs Direct extranet links to Direct extranet links to

major suppliersmajor suppliers Buying alliancesBuying alliances

Company buying sitesCompany buying sites Request for proposals (RFPs)Request for proposals (RFPs)

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The Purchasing/ Procurement Process

Proposal SolicitationProposal Solicitation Supplier SelectionSupplier Selection

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Table 8-2: An Example of Vendor Analysis

AttributesAttributes Rating ScaleRating Scale

ImportanceImportance

WeightsWeights

PoorPoor

(1)(1)

FairFair

(2)(2)

GoodGood

(3)(3)

ExcellentExcellent

(4)(4)

PricePrice .30.30 xx

Supplier reputationSupplier reputation .20.20 xx

Product reliabilityProduct reliability .30.30 xx

Service reliabilityService reliability .10.10 xx

Supplier FlexibilitySupplier Flexibility .10.10 xx

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

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The Purchasing/ Procurement Process Customer value assessmentCustomer value assessment Routine-order productsRoutine-order products Procedural-problem productsProcedural-problem products Political-problem productsPolitical-problem products

Order-Routine SpecificationOrder-Routine Specification Blanket contractBlanket contract Stockless purchase plansStockless purchase plans

Performance ReviewPerformance Review Buyflow mapBuyflow map

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Figure 8-2: Major Influences on Industrial Buying Behavior

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Institutional and Government Markets Institutional marketInstitutional market