1. Part 3 CUSTOMER BEHAVIOR AND E-MARKETING.

2. 6: Consumer Buying Behavior
7: Business Markets and Buying Behavior
8: Reaching Global Markets
9: Digital Marketing and Social Networking

3. Chapter 7 Business Markets and Buying Behavior
Professor Jason C. H. Chen, Ph.D.
School of Business Administration
Gonzaga University
Spokane, WA 99258

4. Learning Objectives
To distinguish among the various types of business markets
To identify the major characteristics of business customers and transactions
To understand several attributes of demand for business products
To understand the buying center and the stages of the business buying decision process and the factors that affect this process
To describe industrial classification systems, and explain how they can be used to identify and analyze business markets

5. Business Markets
Business markets consist of individuals, organizations, or groups that purchase a specific kind of product for one of three purposes:
______
Direct use in producing other products
Use in general daily operations
Important structural and behavioral differences:
A company that markets to another company must be aware of how its product will affect other firms in the marketing channel such as resellers and other manufacturers.
Range of forms that business marketing takes
From long-term buyer-seller relationships
To quick exchanges of basic products at competitive market prices
Resale

6. Categories of Business Markets
1. Producer
2. Reseller
3. ___________
4. ___________
Government
Institutional

7. Producer Markets
Individuals and business organizations that purchase products to make profits by using them to produce other products.
Producer markets include:
Buyers of raw materials
Purchasers of semi-finished and finished items, used to produce other products
Broad array of industries such as agriculture, forestry, fisheries, mining, construction etc.

8. Reseller Markets
Reseller markets consist of intermediaries (wholesalers and retailers) that buy finished goods and resell them for a profit
Do not change the physical characteristics of the products they handle
All products sold to consumer markets are first sold to reseller markets

9. Reseller Markets Intermediaries
____________– Purchase products for resale to:
Retailers and other wholesalers
Producers
Governments
Institutions
_________- Purchase products and resell them to final consumers
Intermediaries
Wholesalers
Retailers
Level of demand – determine the quantity and the price at which the products can be resold
Supplier’s ability to provide adequate quantities when and where needed
Amount of space required to handle a product relative to its potential profit
Ease of ________ orders
Considerations in purchase decision making
placing

10. Government Markets Federal, state, county, and local governments
Accounts for more than 40 percent of the total gross domestic product (GDP)
Accountable to the public
Result in complex buying procedures
Governments advertise purchase needs by releasing bids or negotiated contracts

11. Institutional Markets
Organizations with charitable, educational, community, or other nonbusiness goals
Have different goals and fewer resources than other type of organizations
Marketers may use special efforts to serve them

12. Figure 7.1 - Dimensions of Business Customers and Business Transactions

13. D1 - Characteristics of Transactions with Business Customers
Transactions between businesses differ from consumer sales in several ways
Business orders tend to be much ______
Purchases tend to be made by ________
Discussions and negotiations can require considerable marketing time and selling effort
Reciprocity is an arrangement unique to business markets in which two organizations agree to buy from each other
Agreements that threaten competition are illegal but a certain amount still occurs
larger
committee
Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

14. D2 - Attributes of Business Customers
Business customers differ from consumers
Better informed about the products they purchase
Demand detailed information about:
Product’s functional features
Technical specifications
Personal goals influence business buying behavior
Partnerships - Suppliers and their customers build and maintain mutually beneficial relationships

15. D3 – Primary Concerns of Business Customer
When making purchasing decisions, business customers take into account a variety of factors:
______ - Influences operating costs and costs of goods sold
Affect selling price, profit margin, and the ability to compete
Product quality - Firms establish standards for products and buy them on the basis of specifications
Service - Influences buyers’ costs, sales, and profits
Supplier ____________ - Buyers reduce their search efforts and uncertainty about prices by building trust with suppliers
Price
relationships

16. D4 - Methods of Business Buying
Used when products are standardized such as agriculture products (their size, shape, weight and color)
Description
Used when products have unique characteristics and may vary with regard to condition
They can differ depending on how they were used and for how long
Inspection
Used for homogeneous products when examining the entire lot is not feasible such as grain (not physically or economically feasible)
Sampling
Used commonly for one time projects and very large or expensive purchases
Negotiation

17. D5 - Types of Business Purchases
Initial purchase of an item to be used to perform a new job or solve a new problem
New-task purchase
Purchase of the same products routinely under approximately the same terms of sale
Straight rebuy purchase
New-task purchase that is changed on subsequent orders, or when requirements with a straight rebuy purchase are modified
Modified rebuy purchase

18. Demand for Business Products
Demand for business products that stems from demand for consumer products
Derived demand
Price increase or decrease does not significantly alter demand for a business product
Inelastic demand
Using two or more items in combination to produce a product
Joint demand
Because demand for business products is derived from consumer demand, it may fluctuate enormously
Subject to fluctuations as business products are derived from consumer demand
Fluctuating demand

19. Business Buying Decisions
Business (organizational) buying behavior refers to the purchase behavior of producers, government units, institutions and resellers
Some purchasing factors are the same as the consumer market but some are unique to business markets
We will first look at the buying center which is a group of people within an organization who make business purchase decisions
Then we will focus on the stages of the buying decision process and the factors that affect it
Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

20. The Buying Center
The people within an organization who make business purchase decisions are called the buying center and includes the following roles:
Users – members who frequently initiate the purchase, use the product and evaluate the product
Influencers – technical personnel who develop the specifications and evaluate alternative products
Buyers – select suppliers and negotiate terms
Deciders – actually choose the products
Gatekeepers – control the flow of information to and among people who occupy other roles in the buying center
Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

21. Buying Center (cont.) Number and structure are affected by:
Organization’s size and market position
Volume and types of products being purchased
Firm’s overall managerial philosophy
Size is influenced by:
Stage of the buying decision process
Type of purchase
New-task, straight rebuy, or modified rebuy
The size is generally _______ for a new-task purchase than for a straight rebuy.
larger

22. Buying Decision Process
(or need)
[1]
[2]
[3]
[4]
[5]
(Details see next slides)
Fig. 7.2 Business (Organizational) Buying Decision Process and Factors That May Influence It.

23. Stage 1: Problem Recognition
recognize
One or more individuals __________ a problem or need exists
Could be individuals in the buying center such as users, influencers or buyers who recognize the need or problem
Problems or needs could be identified by external sources such as sales representatives or advertisements
May arise under a variety of circumstances
When machines malfunction
When an existing product is modified
When introducing new products
Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

24. Stage 2: Develop Product Specifications to Solve Problem
The development of product specifications requires the buying center participants ______ the problem or need and _________ what is necessary to resolve or satisfy it
Users and influencers often provide information and advice
By assessing and describing needs, the organization should be able to establish product specifications
assess
determine
Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

25. Stage 3: Searching for and Evaluating Potential Products and Suppliers
Search activities
Looking in company files and trade directories
Contacting suppliers for information
Soliciting proposals from known vendors
Examining online and print publications
______ analysis is an evaluation of each component of the potential purchase
Examines quality, design, materials etc
________ analysis is a formal, systematic evaluation of current and potential vendors
Examines price, product quality, delivery service, product availability and overall reliability
Value
Vendor

26. Stage 4: Select Product and Supplier and Order Product
The fourth stage is to select the product to be purchased and the supplier or suppliers
Multiple Sourcing – when the buyer selects and uses several suppliers
Sole Sourcing – when only one supplier is selected
Which one is better and pros/cons?
Sole sourcing has historically been discouraged except in the cases where a product is only available from one company.
This stage is where the actual purchase takes place and the following details finalized
Terms and credit arrangements
Delivery dates and methods
Technical assistance arrangements
Sole sourcing has historically been discouraged except in the cases where a product is only available from one company.
Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

27. Stage 5: Evaluating the Performance of Product and Supplier
Product is evaluated by comparing it with the _____________
Specifications must be adjusted if the performance fails to adequately solve the problem or satisfy the need, even if the product specifications are met
Supplier's performance is evaluated
Business purchaser seeks corrective action from the supplier or searches for a new one if the performance is inadequate
These 5 steps are used primarily for _____-task purchases
specifications
new

28. Influences on the Business Buying Decision Process
[1]
[2]
[3]
[4]
Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

29. Environmental Factors
Environmental factors that influence buying decisions include:
Competitive and economic factors
Political forces
Legal and regulatory forces
Technological changes (e.g., Intenet)
Sociocultural issues
These factors can generate considerable ___________ for an organization
Changes in environmental forces can create opportunities and threats that affect purchasing decisions
uncertainty

30. Organizational Factors
Organizational factors that influence the buying decision process include:
Company’s objectives
Purchasing policies
Resources
Size and composition of the buying center
A firm’s policies may mandate contract lengths that are __________ to many sellers.
Special credit arrangements required by an organization’s financial resources might affect purchase decisions
undesirable

31. Interpersonal Factors
Interpersonal factors are the relationships among people in the buying center
______ is crucial in collaborative partnerships.
When customized products are involve – the buyer may not see the product until it is finished and must trust that the producer is creating it to specifications.
Trust and clear communication ensure that all parties are satisfied with the outcome
Processes may get complicated within the buying center due to:
Interpersonal dynamics
Varying communication abilities
Trust

32. Industrial Classification Systems
Information about business customers is based on industrial classification systems
Standard Industrial Classification (SIC) System was developed by the federal government but replaced by NAICS
International Standard Industrial Classification (ISIC) is used mainly in Europe
North American Industry Classification System (NAICS)
An industry classification system that generates comparable statistics among the United States, Canada and Mexico among the three partners of NAFTA
Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

33. Difference between NAICS and SIC

34. Industrial Classification Systems
Provide a uniform means of categorizing organizations into groups
Best used in conjunction with other types of data to determine exactly:
How many and which customers a marketer can reach
Approaches to determine the identities and locations of organizations in specific groups
Use state directories or commercial industrial directories
Use commercial data service
Useful in estimating the purchase potential
Problems with the data include:
Few industries do not have specific designations
Double-counting of shipments may occur
Data may be understated
Significant lag exists between data-collection and the time when the information is released, therefore, currency of data may suffer

35. Video Case 7.1
Dale Carnegie Focuses on Business Customers

36. Summary
This case shows how a company that provides a valuable service thrives in the B2B market. Dale Carnegie was a successful entrepreneur and speaker famous for his book, How to Win Friends and Influence People. His self-named firm trains business people and members of the government on how to connect with customers and colleagues. Dale Carnegie focuses on helping companies to develop powerful business relationships by learning to listen and interact well, both face-to-face and through digital communications.

37. 1. How would you apply Dale Carnegie’s methods if you were trying to make a sale to a company with a large buying center?
The buying center is the group of people involved in making such purchase decisions. Dale Carnegie’s philosophy is that a marketer trying to appeal to a large buying center should take the time to listen to the concerns of users, influencers, buyers, deciders, and gatekeepers, connect with all groups, and address all of their needs.

38. 2. From a marketing perspective, why would people who work for the U.S. Department of Veteran Affairs be as interested in taking a Dale Carnegie course as people who work for American Express?
Government agencies such as the Department of Veterans affairs have customers too—the people that they serve. Because of this, it is important for members of the government to understand how to connect with their colleagues and with their constituencies.

39. 3. Which concerns of business customers should Dale Carnegie’s marketers pay close attention to when selling training services to a company like American Express?
Although all four concerns (price, quality, service, and supplier relationships) may have a role, Dale Carnegie’s marketers should pay close attention to quality and service. They may be searching for a great long-term customer service experience.
Companies want to get the best quality information and training and may want ongoing support when they deal with challenging situations and hire new employees.