ZeePedia buy college essays online


Principles of Marketing

<<< Previous BUSINESS MARKETS AND BUYING BEHAVIOR:Market structure and demand Next >>>
 
img
Principles of Marketing ­ MGT301
VU
Lesson ­ 16
Lesson overview and learning objectives:
In last Lesson we discussed the Consumer Buying behavior. Today
We will discuss business buyer behaviour, types of buying situations, participants in the business
buying process, and major influences on business buyers so our today's topic is:
BUSINESS MARKETS AND BUYING BEHAVIOR
The business market includes firms that buy goods and services in order to produce products and
services to sell to others. It also includes retailing and wholesaling firms that buy goods in order to
resell them at a profit. Because aspects of business-to-business marketing apply to institutional
markets and government markets, we group these together. The business marketer needs to know the
following: Who are the major participants? In what decisions do they exercise influence? What is
their relative degree of influence? What evaluation criteria does each decision participant use? The
business marketer also needs to understand the major environmental, interpersonal, and individual
influences on the buying process.
A. What is a Business Market?
The business market comprises all the organizations that buy goods and services for use in the
production of other products and services that are sold, rented, or supplied to others. It also
includes retailing and wholesaling firms that acquire goods for the purpose of reselling or renting
them to others at a profit. In the business buying process business buyers determine which
products and services their organizations need to purchase, and then find, evaluate, and choose
among alternative suppliers and brands. Companies that sell to other business organizations must
do their best to understand business markets and business buyer behavior.
B. Characteristics of Business Markets
In some ways, business markets are similar to consumer markets. Both involve people who assume
buying roles and make purchase decisions to satisfy needs. However, business markets differ in
many ways from consumer markets. The main differences, are in the market structure and demand,
the nature of the buying unit, and the types of decisions and the decision process involved.
Business markets also have their own characteristics. In some ways, they are similar to consumer
markets, but in other ways they are very different. The main differences include:
1. Market structure and demand.
Business markets typically deal with far fewer but far larger buyers. They are more geographically
concentrated. Business markets have derived demand (business demand that ultimately comes from
or derives from the demand for consumer goods). Many business markets have inelastic demand; that
is, total demand for many business products is not affected much by price changes, especially in
the short run. A drop in the price of leather will not cause shoe manufacturers to buy much more
leather unless it results in lower shoe prices that, in turn, will increase consumer demand for shoes.
Finally, business markets have more fluctuating demand. The demand for many business goods and
services tends to change more--and more quickly--than the demand for consumer goods and
services does. A small percentage increase in consumer demand can cause large increases in
business demand. Sometimes a rise of only 10 percent in consumer demand can cause as much as a
200 percent rise in business demand during the next period.
74
img
Principles of Marketing ­ MGT301
VU
2.
Nature of the Buying Unit:
Compared with consumer purchases, a business purchase usually involves more decision
participants and a more professional purchasing effort. Often, business buying is done by trained
purchasing agents who spend their working lives learning how to make better buying decisions.
Buying committees made up of technical experts and top management are common in the buying
of major goods. Companies are putting their best and brightest people on procurement patrol.
Therefore, business marketers must have well-trained salespeople to deal with well-trained buyers.
3.
Types of Decisions and the Decision Process
Business buyers usually face more complex buying decisions than do consumer buyers. Purchases
often involve large sums of money, complex technical and economic considerations, and
interactions among many people at many levels of the buyer's organization. Because the purchases
are more complex, business buyers may take longer to make their decisions. The business buying
process tends to be more formalized than the consumer buying process. Large business purchases
usually call for detailed product specifications, written purchase orders, careful supplier searches,
and formal approval. The buying firm might even prepare policy manuals that detail the purchase
process.
Finally, in the business buying process, buyer and seller are often much more dependent on each
other. Consumer marketers are often at a distance from their customers. In contrast, business
marketers may roll up their sleeves and work closely with their customers during all stages of the
buying process--from helping customers define problems, to finding solutions, to supporting
after-sale operation. They often customize their offerings to individual customer needs. In the
short run, sales go to suppliers who meet buyers' immediate product and service needs.
C. Business Buyer Behavior
The model in Figure suggests four questions about business buyer behavior: What buying
decisions do business buyers make? Who participates in the buying process? What are the major
influences on buyers? How do business buyers make their buying decisions?
a. A Model of Business Buyer Behavior
At the most basic level, marketers want to know how business buyers will respond to various
marketing stimuli. Figure shows a model of business buyer behavior. In this model, marketing and
other stimuli affect the buying organization and produce certain buyer responses. As with
consumer buying, the
marketing  stimuli  for
M a rrk e ttiin g a n d
M a ke ng and
business buying consist
P ro d u c t
O tth e rr S ttiim u llii
E c o n o m ic
O he  S  m u
of the four Ps: product,
P ric e
T e c h n o lo g i c a l
P la c e
P o lit ic a l
price,
place,
and
P r o m o t io n
C u lt u r a l
promotion.
Other
stimuli  include  major
T h e B u y iing O rr ga n iiza tt ion
T h e B u y n g O g a n z a io n
In t e r p e r s o n a l
O r g a n iz a t io n a l
forces
in
the
T h e B u y in g C e n te r
a n d In d iv id u a l
In f lu e n c e s
B u y in g D e c is io n
In f lu e n c e s
environment: economic,
P ro c e s s
technological,  political,
cultural,
and
D e liv e r y T e r m s
competitive.
These
P ro d u c t o r S e r v ic e
B u y e rr''s R e s p o n s e
B uye  s R esponse
a n d T im e s
C h o ic e
stimuli
enter
the
S e r v ic e T e r m s
S u p p lie r C h o ic e
organization  and  are
P a ym en t
O r d e r Q u a n t it ie s
turned
into
buyer
responses: product or service choice; supplier choice; order quantities; and delivery, service, and
payment terms. In order to design good marketing mix strategies, the marketer must understand
what happens within the organization to turn stimuli into purchase responses.
75
img
Principles of Marketing ­ MGT301
VU
Within the organization, buying activity consists of two major parts: the buying center, made up of
all the people involved in the buying decision, and the buying decision process. The model shows
that the buying center and the buying decision process are influenced by internal organizational,
interpersonal, and individual factors as well as by external environmental factors.
b. Major Types of Buying Situations
There are three major types of buying situations. At one extreme is the straight rebuy, which is a
fairly routine decision. At the other extreme is the new task, which may call for thorough research.
In the middle is the modified rebuy, which requires some research.
In a straight rebuy the buyer reorders something without any modifications. It is usually handled
on a routine basis by the purchasing department. Based on past buying satisfaction, the buyer
simply chooses from the various suppliers on its list. "In" suppliers try to maintain product and
service quality.
In a modified rebuy, the buyer wants to modify product specifications, prices, terms, or suppliers.
The modified rebuy usually involves more decision participants than the straight rebuy. The in
suppliers may become nervous and feel pressured to put their best foot forward to protect an
account. Out suppliers may see the modified rebuy situation as an opportunity to make a better
offer and gain new business.
A company buying a product or service for the first time faces a new-task situation. In such cases,
the greater the cost or risk, the larger the number of decision participants and the greater their
efforts to collect information will be. The new-task situation is the marketer's greatest opportunity
and challenge. The marketer not only tries to reach as many key buying influences as possible but
also provides help and information.
The buyer makes the fewest decisions in the straight rebuy and the most in the new-task decision.
In the new-task situation, the buyer must decide on product specifications, suppliers, price limits,
payment terms, order quantities, delivery times, and service terms. The order of these decisions
varies with each situation, and different decision participants influence each choice.
c. Participants in the Business Buying Process
The decision-making unit of a buying organization is called its buying center: all the individuals and
units that participate in the business decision-making process. The buying center includes all
members of the organization who play any of five roles in the purchase decision process.
 Users are members of the organization who will use the product or service. In many cases,
users initiate the buying proposal and help define product specifications.
 Influencers often help define specifications and also provide information for evaluating
alternatives. Technical personnel are particularly important influencers.
 Buyers have formal authority to select the supplier and arrange terms of purchase. Buyers
may help shape product specifications, but their major role is in selecting vendors and
negotiating. In more complex purchases, buyers might include high-level officers
participating in the negotiations.
 Deciders have formal or informal power to select or approve the final suppliers. In
routine buying, the buyers are often the deciders, or at least the approvers.
 Gatekeepers control the flow of information to others. For example, purchasing agents
often have authority to prevent salespersons from seeing users or deciders. Other
gatekeepers include technical personnel and even personal secretaries.
The buying center is not a fixed and formally identified unit within the buying organization. It is a
set of buying roles assumed by different people for different purchases. Within the organization,
the size and makeup of the buying center will vary for different products and for different buying
situations. Business marketers working in global markets may face even greater levels of buying
center influence. The buying center concept presents a major marketing challenge. The business
marketer must learn who participates in the decision, each participant's relative influence, and what
76
img
Principles of Marketing ­ MGT301
VU
evaluation criteria each decision participant uses. The buying center usually includes some obvious
participants who are involved formally in the buying decision.
d.
Major Influences on Business Buyers
Business buyers are subject to many influences when they make their buying decisions. Some
marketers assume that the major influences are economic. They think buyers will favor the supplier
who offers the lowest price or the best product or the most service. They concentrate on offering
strong economic benefits to buyers. However, business buyers actually respond to both economic
and personal factors. Far from being cold, calculating, and impersonal, business buyers are human
and social as well. They react to both reason and emotion.
Today, most business-to-business marketers recognize that emotion plays an important role in
business buying decisions. When suppliers' offers are very similar, business buyers have little basis
for strictly rational choice. Because they can meet organizational goals with any supplier, buyers
can allow personal factors to play a larger role in their decisions. However, when competing
products differ greatly, business buyers are more accountable for their choice and tend to pay more
attention to economic factors. Figure lists various groups of influences on business buyers--
environmental, organizational, interpersonal, and individual.
Major Influences on Business Buyers
 Environmental Factors
Business buyers are influenced heavily by factors in the current and expected economic environment,
such as the level of primary demand, the economic outlook, and the cost of money. As economic
uncertainty rises, business buyers cut back on new investments and attempt to reduce their
inventories.
An increasingly important environmental factor is shortages in key materials. Many companies now
are more willing to buy and hold larger inventories of scarce materials to ensure adequate supply.
Business buyers also are affected by technological, political, and competitive developments in the
environment. Culture and customs can strongly influence business buyer reactions to the
marketer's behavior and strategies, especially in the international marketing environment. The
business marketer must watch these factors, determine how they will affect the buyer, and try to
turn these challenges into opportunities.
Organizational Factors
Each buying organization has its own objectives, policies, procedures, structure, and systems. The
business marketer must know these organizational factors as thoroughly as possible. Questions such
77
img
Principles of Marketing ­ MGT301
VU
as these arise: How many people are involved in the buying decision? Who are they? What are their
evaluative criteria? What are the company's policies and limits on its buyers?
Interpersonal Factors
The buying center usually includes many participants who influence each other. The business
marketer often finds it difficult to determine what kinds of interpersonal factors and group dynamics
enter into the buying process. Participants may have influence in the buying decision because they
control rewards and punishments, are well liked, have special expertise, or have a special
relationship with other important participants. Interpersonal factors are often very subtle.
Whenever possible, business marketers must try to understand these factors and design strategies
that take them into account.
Individual Factors
Each participant in the business buying decision process brings in personal motives, perceptions,
and preferences. These individual factors are affected by personal characteristics such as age,
income, education, professional identification, personality, and attitudes toward risk. Also, buyers
have different buying styles. Some may be technical types who make in-depth analyses of
competitive proposals before choosing a supplier. Other buyers may be intuitive negotiators who
are adept at pitting the sellers against one another for the best deal.
D. The Business Buying Process
There are eight stages of the business buying process. Buyers who face a new-task buying situation
usually go through all stages of the buying process. Buyers making modified or straight rebuys may
skip some of the stages. We will examine these steps for the typical new-task buying situation.
a. Problem Recognition
The buying process begins when someone in the company recognizes a problem or need that can
be met by acquiring a specific product or service. Problem recognition can result from internal or
external stimuli. Internally, the company may decide to launch a new product that requires new
production equipment and materials. Or a machine may break down and need new parts. Perhaps
a purchasing manager is unhappy with a current supplier's product quality, service, or prices.
Externally, the buyer may get some new ideas at a trade show, see an ad, or receive a call from a
salesperson who offers a better product or a lower price. In fact, in their advertising, business
marketers often alert customers to potential problems and then show how their products provide
solutions.
b. General Need Description
Having recognized a need, the buyer next prepares a general need description that describes the
characteristics and quantity of the needed item. For standard items, this process presents few
problems. For complex items, however, the buyer may have to work with others--engineers,
users, consultants--to define the item. The team may want to rank the importance of reliability,
durability, price, and other attributes desired in the item. In this phase, the alert business marketer
can help the buyers define their needs and provide information about the value of different
product characteristics.
c. Product Specification
The buying organization next develops the item's technical product specifications, often with the
help of a value analysis engineering team. Value analysis is an approach to cost reduction in which
components are studied carefully to determine if they can be redesigned, standardized, or made by
less costly methods of production. The team decides on the best product characteristics and
specifies them accordingly. Sellers, too, can use value analysis as a tool to help secure a new
account. By showing buyers a better way to make an object, outside sellers can turn straight rebuy
situations into new-task situations that give them a chance to obtain new business.
d. Supplier Search
The buyer now conducts a supplier search to find the best vendors. The buyer can compile a small
list of qualified suppliers by reviewing trade directories, doing a computer search, or phoning other
companies for recommendations. Today, more and more companies are turning to the Internet to
78
img
Principles of Marketing ­ MGT301
VU
find suppliers. For marketers, this has leveled the playing field--smaller suppliers have the same
advantages as larger ones and can be listed in the same online catalogs for a nominal fee:
The newer the buying task, and the more complex and costly the item, the greater the amount of
time the buyer will spend searching for suppliers. The supplier's task is to get listed in major
directories and build a good reputation in the marketplace. Salespeople should watch for
companies in the process of searching for suppliers and make certain that their firm is considered.
e. Proposal Solicitation
In the proposal solicitation stage of the business buying process, the buyer invites qualified
suppliers to submit proposals. In response, some suppliers will send only a catalog or a
salesperson. However, when the item is complex or expensive, the buyer will usually require
detailed written proposals or formal presentations from each potential supplier.
Business marketers must be skilled in researching, writing, and presenting proposals in response to
buyer proposal solicitations. Proposals should be marketing documents, not just technical
documents. Presentations should inspire confidence and should make the marketer's company
stand out from the competition.
f. Supplier Selection
The members of the buying center now review the proposals and select a supplier or suppliers.
During supplier selection, the buying center often will draw up a list of the desired supplier
attributes and their relative importance. In one survey, purchasing executives listed the following
attributes as most important in influencing the relationship between supplier and customer: quality
products and services, on-time delivery, ethical corporate behavior, honest communication, and
competitive prices. Other important factors include repair and servicing capabilities, technical aid
and advice, geographic location, performance history, and reputation. The members of the buying
center will rate suppliers against these attributes and identify the best suppliers.
As part of the buyer selection process, buying centers must decide how many suppliers to use. In
the past, many companies preferred a large supplier base to ensure adequate supplies and to obtain
price concessions. These companies would insist on annual negotiations for contract renewal and
would often shift the amount of business they gave to each supplier from year to year.
Increasingly, however, companies are reducing the number of suppliers. There is even a trend
toward single sourcing, using one supplier. With single sourcing there is only one supplier to
handle and it is easier to control newsprint inventories. Using one source not only can translate
into more consistent product performance, but it also allows press rooms to configure themselves
for one particular kind of newsprint rather than changing presses for papers with different
attributes.
Many companies, however, are still reluctant to use single sourcing. They fear that they may
become too dependent on the single supplier or that the single-source supplier may become too
comfortable in the relationship and lose its competitive edge. Some marketers have developed
programs that address these concerns.
g. Order-Routine Specification
The buyer now prepares an order-routine specification. It includes the final order with the chosen
supplier or suppliers and lists items such as technical specifications, quantity needed, expected time
of delivery, return policies, and warranties. In the case of maintenance, repair, and operating items.
h. Performance Review
In this stage, the buyer reviews supplier performance. The buyer may contact users and ask them
to rate their satisfaction. The performance review may lead the buyer to continue, modify, or drop
79
img
Principles of Marketing ­ MGT301
VU
the arrangement. The seller's job is to monitor the same factors used by the buyer to make sure
that the seller is giving the expected satisfaction.
We have described the stages that typically would occur in a new-task buying situation. The eight-
stage model provides a simple view of the business buying decision process. The actual process is
usually much more complex. In the modified rebuy or straight rebuy situation, some of these
stages would be compressed or bypassed. Each organization buys in its own way, and each buying
situation has unique requirements. Different buying center participants may be involved at
different stages of the process. Although certain buying process steps usually do occur, buyers do
not always follow them in the same order, and they may add other steps. Often, buyers will repeat
certain stages of the process.
E. Institutional and Government Markets
So far, our discussion of organizational buying has focused largely on the buying behavior of
business buyers. Much of this discussion also applies to the buying practices of institutional and
government organizations. However, these two nonbusiness markets have additional
characteristics and needs. In this final section, we address the special features of institutional and
government markets.
a. Institutional Markets
The institutional market consists of schools, hospitals, nursing homes, prisons, and other
institutions that provide goods and services to people in their care. Institutions differ from one
another in their sponsors and in their objectives. Many institutional markets are characterized by
low budgets and captive patrons. For example, hospital patients have little choice but to eat
whatever food the hospital supplies. A hospital-purchasing agent has to decide on the quality of
food to buy for patients. Because the food is provided as a part of a total service package, the
buying objective is not profit. Nor is strict cost minimization the goal--patients receiving poor-
quality food will complain to others and damage the hospital's reputation. Thus, the hospital-
purchasing agent must search for institutional-food vendors whose quality meets or exceeds a
certain minimum standard and whose prices are low. Many marketers set up separate divisions to
meet the special characteristics and needs of institutional buyers.
b. Government Markets
The government market offers large opportunities for many companies, both big and small. In
most countries, government organizations are major buyers of goods and services. Government
buying and business buying are similar in many ways. But there are also differences that must be
understood by companies that wish to sell products and services to governments. To succeed in
the government market, sellers must locate key decision makers, identify the factors that affect
buyer behavior, and understand the buying decision process.
Government organizations typically require suppliers to submit bids, and normally they award the
contract to the lowest bidder. In some cases, the government unit will make allowance for the
supplier's superior quality or reputation for completing contracts on time. Many companies that
sell to the government have not been marketing oriented for a number of reasons. Total
government spending is determined by elected officials rather than by any marketing effort to
develop this market. Government buying has emphasized price, making suppliers invest their
effort in technology to bring costs down. When the product's characteristics are specified carefully,
product differentiation is not a marketing factor. Nor do advertising or personal selling matter
much in winning bids on an open-bid basis.
80
img
Principles of Marketing ­ MGT301
VU
Key Terms
Business Markets:
The business market includes firms that buy goods and services in order to
produce products and services to sell to others.
Straight Re-buy
the buyer reorders something without any modifications.
Modified Re-buy
the buyer wants to modify product specifications, prices, terms, or
suppliers.
New Task Buying
A company buying a product or service.
Users are members of the organization who will use the product or service. In many cases, users
initiate the buying proposal and help define product specifications.
Influencers
Often help define specifications and also provide information for evaluating
alternatives. Technical personnel are particularly important influencers.
Buyers
have formal authority to select the supplier and arrange terms of purchase.
Deciders
have formal or informal power to select or approve the final suppliers.
Gatekeepers control the flow of information to others.
81
Table of Contents:
  1. PRINCIPLES OF MARKETING:Introduction of Marketing, How is Marketing Done?
  2. ROAD MAP:UNDERSTANDING MARKETING AND MARKETING PROCESS
  3. MARKETING FUNCTIONS:CUSTOMER RELATIONSHIP MANAGEMENT
  4. MARKETING IN HISTORICAL PERSPECTIVE AND EVOLUTION OF MARKETING:End of the Mass Market
  5. MARKETING CHALLENGES IN THE 21st CENTURY:Connections with Customers
  6. STRATEGIC PLANNING AND MARKETING PROCESS:Setting Company Objectives and Goals
  7. PORTFOLIO ANALYSIS:MARKETING PROCESS,Marketing Strategy Planning Process
  8. MARKETING PROCESS:Analyzing marketing opportunities, Contents of Marketing Plan
  9. MARKETING ENVIRONMENT:The Companyís Microenvironment, Customers
  10. MARKETING MACRO ENVIRONMENT:Demographic Environment, Cultural Environment
  11. ANALYZING MARKETING OPPORTUNITIES AND DEVELOPING STRATEGIES:MIS, Marketing Research
  12. THE MARKETING RESEARCH PROCESS:Developing the Research Plan, Research Approaches
  13. THE MARKETING RESEARCH PROCESS (Continued):CONSUMER MARKET
  14. CONSUMER BUYING BEHAVIOR:Model of consumer behavior, Cultural Factors
  15. CONSUMER BUYING BEHAVIOR (CONTINUED):Personal Factors, Psychological Factors
  16. BUSINESS MARKETS AND BUYING BEHAVIOR:Market structure and demand
  17. MARKET SEGMENTATION:Steps in Target Marketing, Mass Marketing
  18. MARKET SEGMENTATION (CONTINUED):Market Targeting, How Many Differences to Promote
  19. Product:Marketing Mix, Levels of Product and Services, Consumer Products
  20. PRODUCT:Individual product decisions, Product Attributes, Branding
  21. PRODUCT:NEW PRODUCT DEVELOPMENT PROCESS, Idea generation, Test Marketing
  22. NEW PRODUCT DEVELOPMENT:PRODUCT LIFE- CYCLE STAGES AND STRATEGIES
  23. KEY TERMS:New-product development, Idea generation, Product development
  24. Price the 2nd P of Marketing Mix:Marketing Objectives, Costs, The Market and Demand
  25. PRICE THE 2ND P OF MARKETING MIX:General Pricing Approaches, Fixed Cost
  26. PRICE THE 2ND P OF MARKETING MIX:Discount and Allowance Pricing, Segmented Pricing
  27. PRICE THE 2ND P OF MARKETING MIX:Price Changes, Initiating Price Increases
  28. PLACE- THE 3RD P OF MARKETING MIX:Marketing Channel, Channel Behavior
  29. LOGISTIC MANAGEMENT:Push Versus Pull Strategy, Goals of the Logistics System
  30. RETAILING AND WHOLESALING:Customer Service, Product Line, Discount Stores
  31. KEY TERMS:Distribution channel, Franchise organization, Distribution center
  32. PROMOTION THE 4TH P OF MARKETING MIX:Integrated Marketing Communications
  33. ADVERTISING:The Five Mís of Advertising, Advertising decisions
  34. ADVERTISING:SALES PROMOTION, Evaluating Advertising, Sales Promotion
  35. PERSONAL SELLING:The Role of the Sales Force, Builds Relationships
  36. SALES FORCE MANAGEMENT:Managing the Sales Force, Compensating Salespeople
  37. SALES FORCE MANAGEMENT:DIRECT MARKETING, Forms of Direct Marketing
  38. DIRECT MARKETING:PUBLIC RELATIONS, Major Public Relations Decisions
  39. KEY TERMS:Public relations, Advertising, Catalog Marketing
  40. CREATING COMPETITIVE ADVANTAGE:Competitor Analysis, Competitive Strategies
  41. GLOBAL MARKETING:International Trade System, Economic Environment
  42. E-MARKETING:Internet Marketing, Electronic Commerce, Basic-Forms
  43. MARKETING AND SOCIETY:Social Criticisms of Marketing, Marketing Ethics
  44. MARKETING:BCG MATRIX, CONSUMER BEHAVIOR, PRODUCT AND SERVICES
  45. A NEW PRODUCT DEVELOPMENT:PRICING STRATEGIES, GLOBAL MARKET PLACE