Comprehensive Notes on Business Markets and Business Buyer Behavior

Business Markets and Business Buyer Behavior

KarmSolar's Approach

  • KarmSolar collaborates closely with its customers.

  • They offer training, support, and education to foster mutually beneficial partnerships.

Learning Objectives

  • Objective 1: Define the business market and differentiate it from consumer markets.

  • Objective 2: Identify key factors influencing business buyer behavior.

  • Objective 3: List and define the steps in the business buying decision process.

  • Objective 4: Compare institutional and government markets and explain their buying decisions.

Business Buyer Behavior

  • Business buyer behavior is the purchasing activities of organizations acquiring goods and services.

  • These goods and services are used to produce other products/services, which are then sold, rented, or supplied.

  • The business buying process involves determining needed products/services, then finding, evaluating, and choosing among alternatives.

Business Markets: Market Structure and Demand

  • Fewer but larger buyers compared to consumer markets.

  • Derived demand: Demand is ultimately derived from consumer goods demand. For example, demand for Intel processors depends on demand for PCs, tablets, and smartphones.

  • Inelastic demand: Price changes have limited impact on demand, especially in the short run.

  • Fluctuating demand: Demand changes more rapidly compared to consumer goods/services.

Nature of the Buying Unit

  • Business buying decisions are more complex than consumer decisions.

  • They involve:

    • More decision participants.

    • More professional purchasing effort.

    • More interaction between buyer and seller.

Characteristics of Business Purchases

  • Complex buying decisions.

  • Large sums of money are involved.

  • Complex technical and economic factors.

  • Interactions among various levels of the buying organization.

  • Longer and more formalized processes.

  • Detailed product specifications and extensive supplier searches.

  • Written purchase orders and formal approvals.

  • Greater dependence between buyer and seller.

B-to-B Marketing Approach

  • Requires well-trained marketers and salespeople to deal with highly skilled buyers.

  • Involves close collaboration with customers during all buying process stages.

  • Includes helping customers define problems, finding solutions, and providing after-sale support.

  • Often involves customizing offerings to meet individual customer needs.

  • Focuses on meeting current needs and partnering to solve long-term problems.

Supplier Development

  • Supplier development is the systematic development of networks of supplier-partners.

  • This network aims to ensure a dependable supply of products/materials for production or resale.

Model of Business Buyer Behavior

  • Marketing and other stimuli influence the buying organization, leading to buyer responses.

  • Buying activity involves two key aspects:

    • The buying center: individuals involved in the buying decision.

    • The buying decision process.

  • These are influenced by organizational, interpersonal, individual, and environmental factors.

Key Questions About Business Buyer Behavior

  • What buying decisions do business buyers make?

  • Who participates in the business buying process?

  • What are the major influences on buyers?

  • How do business buyers make their buying decisions?

Major Types of Buying Situations

  • Straight rebuy: Routine reordering without modifications.

  • Modified rebuy: Buyer wants to change product specifications, prices, terms, or suppliers.

  • New task: First-time purchase of a product or service.

  • Systems selling (or solutions selling): Buying a complete solution from a single seller.

System Selling Example: IBM and Six Flags

  • Six Flags uses IBM's Maximo Asset Management software to manage park assets.

  • IBM provides software and a set of services to ensure the software is running correctly.

  • IBM customizes the application and provides training and planning workshops.

  • IBM sells a complete solution to Six Flags' asset management needs.

Participants in the Business Buying Process: The Buying Center

  • The buying center includes all individuals and units involved in the business purchase decision.

  • Roles include: Users, Influencers, Deciders, Purchasers, and Gatekeepers.

  • The buying center isn't a fixed unit; membership changes based on the purchase.

Buying Center Roles

  • Users: Use the product/service; initiate buying proposals and define specifications.

  • Influencers: Define specifications and provide evaluation information; technical personnel are key.

  • Buyers: Have formal authority to select suppliers and arrange purchase terms.

  • Deciders: Have power to select and approve final suppliers.

  • Gatekeepers: Control information flow; purchasing agents, technical personnel, and secretaries can be gatekeepers.

Challenges

  • Identifying participants, their influence, and their evaluation criteria poses a marketing challenge.

Informal Participants

  • Buying decisions involve both formal and informal participants.

  • Informal participants can significantly influence the decision.

  • Sometimes buying center members aren't aware of all participants.

Major Influences on Business Buyers

  • Influences include environmental, organizational, interpersonal, and individual factors.

Economic and Personal Factors

  • Both economic and personal factors influence buyers.

  • Business buyers are human and social, not just cold and calculating.

Environmental Factors

  • Demand for product.

  • Economic outlook.

  • Cost of money.

  • Supply of materials.

  • Technology.

  • Culture.

  • Politics.

  • Competition.

  • Business buyers must monitor these factors.

Organizational Factors

  • Objectives.

  • Strategies.

  • Structure.

  • Systems.

  • Procedures.

  • Business marketers need to understand these organizational factors.

Interpersonal Factors

  • Influence.

  • Expertise.

  • Authority.

  • Dynamics.

  • Difficult to assess interpersonal factors and group dynamics.

Individual Factors

  • Motives.

  • Perceptions.

  • Preferences.

  • Age.

  • Income.

  • Education.

  • Attitude toward risk.

  • Personal characteristics affect buying styles.

Stages of Business Buying Behavior

  • Buyers in new task situations go through all stages; modified/straight rebuys may skip stages.

Stages

  1. Problem Recognition

  2. General Need Description

  3. Product Specification

  4. Supplier Search

  5. Proposal Solicitation

  6. Supplier Selection

  7. Order-Routine Specification

  8. Performance Review

Problem Recognition

  • Can originate from internal or external stimuli.

Internal Stimuli example:

  • Need for new product or production equipment.

External Stimuli example:

  • Idea from a trade show or advertising.

General Need Description

  • Describes characteristics and quantity of needed items.

Product Specification

  • Describes the technical criteria.

  • Buyers may work with engineers, users, and consultants for complex items.

Value Analysis

  • Value analysis is an approach to cost reduction where components are studied to determine if they can be redesigned, standardized, or made with less costly methods of production.

Supplier Search

  • Compiling a list of qualified suppliers.

  • Internet has leveled the playing field for smaller suppliers.

Proposal Solicitation

  • Requesting proposals from qualified suppliers.

  • Proposals should be marketing documents, not just technical ones.

Supplier Attributes

  • Desired attributes include product/service quality, reputation, on-time delivery, ethical behavior, communication, and prices.

  • Buyers negotiate with preferred suppliers.

  • Many prefer multiple sources to reduce dependence and allow comparisons.

Supplier Selection

  • The buying center creates a list of desired supplier attributes and negotiates with preferred suppliers for favorable terms and conditions.

Order-Routine Specifications

  • Includes the final order with chosen supplier and lists all specifications and terms.

Performance Review

  • Critique of supplier performance against order-routine specifications.

  • May lead to continuing, modifying, or dropping the arrangement.

  • Sellers must monitor the same factors used by buyers.

Blanket Contracts

  • Used for maintenance, repair, and operating items.

  • Creates a long-term relationship for resupply at agreed prices.

Vendor-Managed Inventory

  • Buyers turn over ordering and inventory responsibilities to suppliers.

  • Suppliers monitor inventories and replenish stock automatically.

E-Procurement

  • E-procurement is the purchasing through electronic connections between buyers and sellers—usually online.

  • Online purchasing is standard for most companies.

Methods:

  • Reverse auctions.

  • Trading exchanges.

  • Company-buying sites.

  • Extranets.

Advantages of E-Procurement

  • Access to new suppliers.

  • Lowers costs.

  • Speeds processing and delivery.

  • Enhances information sharing.

  • Improves sales.

  • Facilitates service and support.

Disadvantages of E-Procurement

  • Erodes relationships as buyers search for new suppliers.

Digital and Social Marketing

  • B-to-B marketers use websites, blogs, apps, and social networks.

  • Digital and social marketing is a key space for engaging business customers.

Institutional Markets

  • Schools, hospitals, nursing homes, and prisons.

  • Provide goods/services to people in their care.

Characteristics:

  • Low budgets.

  • Captive patrons.

Government Markets

  • Tend to favor domestic suppliers.

  • Require bids and award contracts to the lowest bidder.

Affected by:

  • Environmental factors.

  • Non-economic factors (minority firms, depressed firms, small businesses).