Analyzing_Business_Markets

ANALYZING BUSINESS MARKETS Organizational buying is the decision-making process by which formal organizations establish the need for purchased products and services, then identify, evaluate, and choose among alternative brands and suppliers. 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, or supplied to others. Compared to consumer markets, business markets generally have fewer and larger buyers, a closer customer-supplier relationship, and more geographically concentrated buyers. Demand in the business market is derived from demand in the consumer market and fluctuates with the business cycle. Nonetheless, the total demand for many business goods and services is quite price inelastic. Business marketers need to be aware of the role of professional purchasers and their influencers, the need for multiple sales calls, and the importance of direct purchasing, reciprocity, and leasing. The buying center is the decision-making unit of a buying organization. It consists of initiators, users, influencers, deciders, approvers, buyers, and gatekeepers. To influence these parties, marketers must be aware of environmental, organizational, interpersonal, and individual factors. The buying process consists of eight stages called buyphases: (1) problem recognition, (2) general need description, (3) product specification, (4) supplier search, (5) proposal solicitation, (6) supplier selection, (7) order-routine specification, and (8) performance review. Business marketers must form strong bonds and relationships with their customers and provide them added value. Some customers, however, may prefer more of a transactional relationship. The institutional market consists of schools, hospitals, nursing homes, prisons, and other institutions that provide goods and services to people in their care. Buyers for governmental organizations 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. How Different Is Business-to-Business Marketing' Many business-to-business marketing executives lament the challenges of business-to-business marketing, maintaining that many traditional marketing concepts and principles do not apply. For a number of reasons, they assert that selling products and services to a company is fundamentally different from selling to individuals. Others disagree, claiming that marketing theory is still valid and only involves some adaptation in the marketing tactics. Take a position: Business-to-business marketing requires a special, unique set of marketing concepts and principles versus business-to-business marketing is really not that different and the basic marketing concepts and principles apply. Pro: Business-to business marketing requires a unique set of marketing concepts and principles versus consumer marketing. The special set of concepts and skills needed in business-to-business marketing include professional salespeople; products that meet specific and sometimes specially engineered needs of a set of a few customers; marketing promotional aspects that deemphasize price in exchange for services; delivery terms; special financing arrangements; and other traditional “non-marketing” considerations. Finally, the other major difference between consumer and business-to-business marketing usually involves the amount of people involved in the sale: from both the sellers firm and the purchasing firm. In consumer selling, the user is generally the purchaser. In the business-to-business, marketing both the selling firm and the buying firm includes members of other disciplines (engineering, transportation, warehousing, finance, and others) from the beginning of the process to the time of actual purchase. The addition of these people fosters strong ties between the two firms but also lengthens the time and complexity of the sale. Con: Business-to-business marketing does not really differ from the consumer market in ones approach. The major differences between the two is not in “delivering value to the consumer” but in the implementation and time phase. Buyers still buy to “solve problems” and business-to-business marketing and consumer marketing still has to solve the buyers’ problems. Time and attention to detail may be extended for business-to-business marketers but the accepted marketing principles of price, place, promotion, and product still apply it is just their implementation and application(s) that differ. MARKETING DISCUSSION Consider some of the consumer behavior topics from Chapter 6. How might you apply them to business-to-business settings' For example, how might noncompensatory models of choice work' Suggested Response: From Chapter 6 we have learned that consumer behavior is influenced by cultural factors, social factors, and personal factors. These are individual considerations that apply to the business-to-business market as well as to the consumer market. The difference is that all of the members of the buying center will possess different sets of these considerations and that the business-to-business marketer must try to appeal to all of these simultaneously. In addition, there are four main psychological processes: motivation, perception, learning, and memory apply as well to the business-to-business market. Again, in business-to-business marketing, each member of the buying center will exhibit different degrees of each of these processes. Finally, in the business-to-business buying situation, problem recognition, information search, evaluation of alternatives, purchase decisions, and post-purchase behavior will differ from the consumer market. The difference(s) lie in the amount of time involved, the degree of research expended, the decision-maker’s role and the evaluation of the product or service. In the business-to-business market, more attention is paid to information search, purchase decisions, the evaluation of alternatives, and the fact that the “user” may not be the final decision maker. In the business-to-business market, there are seven roles demonstrated by people within the company (initiators, users, influencers, deciders, approvers, buyers, and gatekeepers), each of which must be considered as a factor in the selling process. In the consumer market, many of these roles are included in the single role as buyer. Noncompensatory choice models and other “impartial” decision-making tools receive a greater degree of importance as the business-to-business buying center tries to remove personal choice options from the equation. WHAT IS ORGANIZATIONAL BUYING' Webster and Wind define organizational buying as the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers. A) 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, or supplied to others. B) More dollars and items are involved in sales to business buyers than to consumers. Business markets have several characteristics that contrast sharply with those of consumer markets: 1) Fewer, larger buyers 2) Close supplier-customer relationship 3) Professional purchasing 4) Several buying influences 5) Multiple sales call 6) Derived demand 7) Inelastic demand 8) Fluctuation demand 9) Geographically concentrated buyers 10) Direct purchasing Marketing Insight: Big sales to small business Illustrates how some very large companies (IBM, Microsoft, and others are reaching the small businesses in the US (defined as having fewer than 500 employees). * * Buying Situations The business buyer faces many decisions in making a purchase. The number of decisions depends on the buying situation: complexity of the problem being solved, newness of the buying requirement, number of people involved, and time required. There are three types of buying situations: the straight rebuy, modified rebuy, and new task. A) Straight rebuy is when the purchasing department reorders on a routine basis and chooses from suppliers on an “approved lists.” B) Modified rebuy is when the buyer wants to modify product specifications, prices, delivery requirements, or other items. C) New task is when the purchaser buys a product or service for the first time. 1) The business buyer makes the fewest decisions in the straight rebuy situation and the most in the new-task situation. 2) In the new-task situation, the buyer has to determine product specifications, price limits, delivery terms and times, service terms, payment terms, order quantities, acceptable suppliers, and the selected supplier. This situation is the marketer’s greatest opportunity and challenge. 3) Because of the complicated selling involved, many companies use a missionary sales force consisting of their most effective salespeople for new-task situations. Marketing Memo: Maximizing customer relations Lists the five common mistakes in developing customer reference stories and the seven keys to successfully developing customer reference stories. * Systems Buying and Selling Many business buyers prefer to buy a total solution to a problem from one seller. Called systems buying, this practice originated with the government. It consists of: A) Prime contractors B) Second-tier contractors C) One variant of systems selling is systems contracting where a single supplier provides the buyer with his or her entire requirements of maintenance, repair, and operating (MRO) supplies. * * PARTICIPANTS IN THE BUSINESS BUYING PROCESS Purchasing agents are influential in straight-rebuy and modified-rebuy situations, where as engineering personnel usually have a major influence in selecting product components, and purchasing agents dominate in selecting suppliers. * * The Buying Center Webster and Wind call the decision-making unit of a buying organization the buying center. It is composed of “all those individuals and groups who participate in the purchasing decision-making process, who share some common goals and the risks arising from the decisions.” There are seven roles in the purchase decision process: A) Initiators—requests the product B) Users—will use the product C) Influencers—influence the buying decision D) Deciders—makes the decision of what to purchase E) Approvers—authorize the proposal F) Buyers—have the formal authority to purchase G) Gatekeepers—have the power to prevent seller information from reaching members of the buying center Buying Center Influences Buying centers usually include several participants with differing interests, authority, status, and persuasiveness. A) Each member of the buying center is likely to give priority to very different decision criteria. B) Business buyers also respond to many influences when they make their decisions. C) Each buyer has personal motivations, perceptions, and preferences that are influenced by the buyers: 1) Age 2) Income 3) Education 4) Job position 5) Personality 6) Attitudes toward risk 7) Culture D) Individuals are motivated by their own needs and perceptions in an attempt to maximize the rewards. E) Personal needs “motivate” the behavior of individuals. F) Organizational needs “legitimate” the buying decision process and its outcomes. G) People are not buying “products”; they are buying solutions to two problems: 1) The organization’s economic and strategic problem 2) Their own personal “problem” of obtaining individual achievement and reward * Buying Center Targeting To target their efforts properly, business marketers have to figure out: Who are the major decision participants' What decisions do they influence' What is their level of influence' What evaluation criteria do they use' A) Small sellers concentrate on reaching the key buying influencers. B) Large sellers go for multilevel in-depth selling to reach as many participants as possible. * THE PURCHASING/PROCUREMENT PROCESS Business buyers seek to obtain the highest benefit package (economic, technical, services, and social) in relation to a market offering’s costs. A business buyer’s incentive to purchase will be greater in proportion to the ratio of perceived benefits to costs. The marketer’s task is to construct a profitable offering that delivers superior customer value to the target buyers. Purchase Department Perceptions Today’s purchasing departments are more strategically orientated and have a mission to seek the best value from fewer and better suppliers. Purchasing Organization and Administration The upgrading of purchasing means that business marketer’s must upgrade their sales personnel to match the high caliber of the business buyer. * A) Most purchasing professionals describe their jobs as more strategic, technical, team-orientated, and involving more responsibility than ever before. * * B) In multi-divisional companies, most purchasing is carried out by separate divisions STAGES IN THE BUYING PROCESS Robinson and Associates have identified eight stages and called them buyphases. A) Problem recognition B) General need description C) Product specification D) Supplier search E) Proposal solicitation F) Supplier selection G) Order-routine specification H) Performance review Problem Recognition The buying process begins when someone in the company recognizes a problem or need. The recognition can be triggered by internal or external stimuli. General Need Description and Product Specification Next, the buyer determines the needed item’s general characteristics and requirements. Supplier Search * The buyer next tries to identify the most appropriate suppliers through trade directories, contacts with other companies, trade advertisements, and trade shows. Companies that purchase over the Internet are utilizing electronic marketplaces in several forms: A) Catalog sites B) Vertical markets C) “Pure Play” auction sites D) Spot or (exchange ) markets E) Private exchanges F) Barter markets G) Buying alliances Online buying offers several advantages: A) Shaves transaction costs B) Reduces time between order and delivery C) Consolidates purchasing systems D) Forges closer relationships On the downside, online ordering may: A) Helps to erode supplier-buyer loyalty B) Create security issues E-Procurement Web sites are organized around two types of e-hubs: vertical hubs centered on industries and functional hubs. A) In addition to using these Web sites, companies can do e-procurement in other ways: 1) Direct extranet links to major suppliers 2) Buying alliances 3) Company buying sites B) Moving into e-procurement involves more than acquiring software; it requires changing purchasing strategy and structure. C) The supplier’s task is to get listed in major online catalogs or services, develop a strong advertising and promotion program, and build a good reputation in the marketplace. D) This often means creating a well-designed and easy-to-use Web site. Lead Generation The supplier’s task is to ensure it is considered when customers are in the market searching for a supplier. * Proposal Solicitation The buyer invites qualified suppliers to submit proposals. If the item is complex, the buyer will require a detailed written proposal from each qualified supplier. A) Business marketers must be skilled in researching, writing, and presenting proposals. Supplier Selection Before selecting a supplier, the buying center will specify desired supplier attributes and indicate their relative importance. To rate and identify the most attractive suppliers, buying centers often use a supplier-evaluation model.