© 2002 Pearson Education Canada Inc. 6-1 principles of MARKETING Chapter 6 Business Markets and Business Buyer Behaviour

© 2002 Pearson Education Canada Inc. 6-2 Chapter Objectives Define business markets and explain the difference from consumer markets Identify business buyer behaviour influences Understand the business buying process Compare institutional and government markets

© 2002 Pearson Education Canada Inc. 6-3 Business Markets All of the organizations that buy goods and services to use in the production of other products and services or for the purpose of reselling or renting them to others at a profit Business Buying Process –The decision-making process by which business buyers establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers

© 2002 Pearson Education Canada Inc. 6-4 Business Markets Questions similar to consumer questions –Who are the buyers? –How are buying decisions made? –What factors influence these decisions?

© 2002 Pearson Education Canada Inc. 6-5 Business Markets: Marketing Structure and Demand Fewer but far larger buyers Geographically concentrated Derived demand Inelastic short-run demand Frequent and large fluctuations in demand

© 2002 Pearson Education Canada Inc. 6-6 Business Markets: Nature of the Buying Unit Involves more buyers More professional purchasing effort

© 2002 Pearson Education Canada Inc. 6-7 Business Markets: Types of Decisions and Process More complex buying decisions More formalized buying process More interdependent Buyers and sellers build close, long-term relationships

© 2002 Pearson Education Canada Inc. 6-8 Business Markets: Other Characteristics Buy directly from producers Reciprocity with suppliers Often lease equipment rather than purchase

© 2002 Pearson Education Canada Inc. 6-9 Business Buyer Behaviour Product or service choice Supplier choice Order quantities Delivery terms and times Service terms Payment Product or service choice Supplier choice Order quantities Delivery terms and times Service terms PaymentMarketingstimuli Product Price Place Promotion The Environment Otherstimuli The Buying Organization Economic Techno- logical Political Cultural Competi- tive Buying decision process The Buying Center (Interpersonal and individual influences) (Organizational influences) BuyerResponses

© 2002 Pearson Education Canada Inc Business Markets: Major Types of Buying Situations Straight rebuy –Buyer routinely reorders something without modifications Modified rebuy –Buyer modifies product specs, prices, terms or suppliers New task –Buyer purchases for the first time

© 2002 Pearson Education Canada Inc Business Markets: Major Types of Buying Situations Systems buying –Buy a group of interlocking products –Buy system of services –Enables functioning as a system –Key strategy for winning business today

© 2002 Pearson Education Canada Inc Business Markets: Participants in the Buying Process Buying Centre Participants –Users Actually use the product or service –Influencers or Technical Personnel Provide information for evaluation Set specifications

© 2002 Pearson Education Canada Inc Business Markets: Participants in the Buying Process Buying Centre Participants –Buyers Set terms and conditions Make the actual purchase Vendor selection –Deciders Power to select or approve purchase and supplier –Gatekeepers Control access and flow of information

© 2002 Pearson Education Canada Inc Business Buying Influences Level of primary demand Economic outlook Cost of money Supply conditions Rate of techno- logical change Political, regulatory developments Competitive developments Objectives Policies Procedures Organizational structure Systems Authority Status Empathy Persuasive- ness Age Education Occupation Personality Risk attitudes Environmental Buyers Interpersonal Organizational Individual

© 2002 Pearson Education Canada Inc Source: Adapted from Patrick J. Robinson, Charles W. Faris, and Yoram Wind, Industrial Buying and Creative Marketing (Boston: Allyn and Bacon, 1967), p.14. Stages of Business Buying Table 6-2 NewModified Straight Task Rebuy Rebuy Problem recognitionYes Maybe No General need descriptionYes Maybe No Product specificationYes Yes Yes Supplier searchYes Maybe No Proposal solicitationYes Maybe No Supplier selectionYes Maybe No Order routing specificationYes Maybe No Performance review Yes Yes Yes Stages of the buying process Buying Situations

© 2002 Pearson Education Canada Inc Business Buying Process: Problem Recognition Internal stimuli –New product requirement –Unhappy with supplier External stimuli –Supplier advertising and promotion –Competitive product or technology

© 2002 Pearson Education Canada Inc Business Buying Process: General Need Description Standard items –Issue existing specifications New or complex items –Technical experts develop requirements –Establish performance criteria –Rank criteria in importance

© 2002 Pearson Education Canada Inc Business Buying Process: Product Specification Develop technical specifications –Best technical product characteristics for a needed item Value analysis –Study product components and processes –Evaluate performance-cost trade-off –Decide on preferred concept

© 2002 Pearson Education Canada Inc Business Buying Process: Supplier Search Determine qualified suppliers Review trade directories Computer search Referrals Online catalogues Reputation

© 2002 Pearson Education Canada Inc Business Buying Process: Proposal Solicitation Qualified suppliers invited to submit proposals (RFP or RFQ) Detailed written proposals Formal presentation of proposals Proposal as a marketing tool –Inspire confidence –Differentiate from competition

© 2002 Pearson Education Canada Inc Business Buying Process: Supplier Selection Evaluate proposals Select supplier based on desired attributes Most important attributes: –Product and service quality –Delivery performance record –Communication and integrity –Competitive price

© 2002 Pearson Education Canada Inc Business Buying Process: Order-routine Specification Final written order and specifications Quantity Delivery time Return policies Warranty Blanket contract

© 2002 Pearson Education Canada Inc Business Buying Process: Performance Review Review supplier performance Leads to continuation, modification, or termination

© 2002 Pearson Education Canada Inc Business Buying on the Internet: Benefits Shave transaction costs for both buyers and suppliers Reduce time between order and delivery Create more efficient purchasing systems Forge more intimate relationships Level the playing field between large and small suppliers

© 2002 Pearson Education Canada Inc Business Buying on the Internet: Problems Cut purchasing jobs Erode supplier-buyer loyalty Create potential security disasters

© 2002 Pearson Education Canada Inc Institutional Markets Schools, hospitals, nursing homes Prisons and other institutional service providers Low budgets Captive patrons Cost-quality trade-off

© 2002 Pearson Education Canada Inc Government Markets Federal, provincial and municipal Purchase or lease goods and services Needed for providing government functions To succeed: –Locate key decision makers –Identify buying factors –Understand process

© 2002 Pearson Education Canada Inc Government Markets Competitive bids Negotiated contracts Domestic preference Affected by environmental, organizational, interpersonal, and individual factors Detailed guides

© 2002 Pearson Education Canada Inc Chapter Review What is a business market? What are the key factors influencing business buyer behaviour? List and define the steps in the business buying process Evaluate institutional and government markets and explain how they make their buying decisions