CHAPTER BUSINESS

MARKETS AND
BUYING
BEHAVIOR
5
 Scope of Business Markets

The business market consists of all individuals and

organizations that buy goods and services for one or more
of the following purposes:
• To make other goods and services

• To resell to other business users or to consumers

• To conduct the organization’s operations

 Nature and Scope of Business
Markets
• Any good or service purchased for a reason other than
personal or household consumption is part of the business
market.
• Each buyer within this market is termed a business user.

• The activity of marketing goods and services to business

users, rather than to ultimate users, is business marketing.
• A firm performing the activity is a business marketer.
• The distinction of whether a good or service is a consumer
or business product depends on the reason it is purchased,
not on the item itself!
 Business Markets

Characteristics of Business Markets

 Sales in the business market far exceed sales in
consumer markets.
 Business markets differ from consumer markets in many
ways.
 Marketing structure and demand
 Nature of the buying unit
 Types of decisions and the decision process

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 Components of the Business
Market

The Agriculture Market

The Reseller Market
The Government Market
The Services Market
The “Nonbusiness” Business Market
The International Market
 Business Markets

Characteristics Compared to consumer

markets:
 Marketing Structure  Business markets
and Demand  have fewer but larger
customers
 Nature of the  Business customers
Buying Unit  are more geographically
 Types of Decisions and concentrated
the Decision Process  Demand is different
 Demand is derived
 Demand is price inelastic
 Demand fluctuates more, and
changes more quickly
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 Business Markets

Characteristics Compared to consumer

purchases:
 Marketing Structure  Business purchases
and Demand involve more buyers in
 Nature of the the decision process.
Buying Unit  Purchasing efforts are
 Types of Decisions and undertaken by
the Decision Process professional buyers.

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 Business Markets

Characteristics Compared to consumer

purchases:
 Marketing Structure  Business buyers face more
and Demand complex buying decisions.
 Nature of the  The buying process is
more formalized.
Buying Unit
 Buyers and sellers work
 Types of Decisions more closely together and
and the Decision build long-term
Process relationships.

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 Organizational Buying

 The Business Market Includes For-Profit

Companies and Two Specialized Groups:
 The institutional market
 Schools, hospitals, prisons, etc. with captive audiences
 Cost and quality standards drive purchases
 The government market
 Bidding process awards contracts

To accompany A Framework for Marketing Management, 2nd Edition Slide 9 in Chapter 7

 Business Buyer Behavior

 The buying behavior of organizations that

buy goods and services for use in the
production of other products and services
or for the purpose of reselling or renting
them to others at a profit.

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Differences Between Organizational and Consumer Buying Behavior

 Business, government and institutions each have their own

patterns of buying behavior.
 The broadly defined organizational buying process differs from
the consumer buying process in a number of ways.
 In general an organization’s external buyer-seller relationship are
based on derived demand.
 In contrast consumers and households buy for their own use,
engage in a less complex process than organizations and represent
a diverse group of customers.
 In contrast to final consumers organizational buyers tend to buy
more technical products, with less standardization.
 Organizational buyers have more opportunities to negotiate prices
and to purchase direct from the manufacturer or through shorter
distribution channels
In terms of characteristics organizational buyers
differ from consumers in that they generally
 Are more specialized in the types of goods and services they
purchase,
 Function as a member of a team or buying center,
 Purchase goods and services for use in providing good and services
for their own customers,
 Are more professional and better trained,
 Buy in larger quantities,
 Purchase from fewer sellers,
 Use shorter distribution channels,
 Negotiate price and other term of sale,
 Form long-term relationships with key suppliers,
 Emphasize specifications and performance,
 Require more services with their purchases,
 Business vs Consumer Markets
Characteristic Business Market Consumer Market
Demand Organizational Individual
Volume Larger Smaller
% of Customers Fewer Many
Location Concentrated Dispersed
Distribution More Direct More Indirect
Nature of Buy More Professional More Personal
Buy Influence Multiple Single
Negotiations More Complex Simpler
Reciprocity Yes No
Leasing Greater Lesser
Promotion Personal Selling Advertising
HOW BUSINESSES CHOOSE A VENDOR
 Characteristics of Business Market Demand
Four demand characteristics differentiate the business market from
the consumer market:
1. Buyers are well informed
– Typically, business buyers are better informed about what
they are buying than ultimate consumers.
2. Demand is derived
a. The demand for business products is generated from the
demand for the consumer products in which that
business product is used.
b. Implications are: to estimate the demand for a product, a
business marketer must be very familiar with how it is
used; the producer of a business product may find it
worthwhile to engage in marketing efforts to encourage
the sale of its buyers’ products.
3. Demand is inelastic
a. Elasticity of demand refers to how responsive demand is to a
change in the price of a product.
b. The industry demand for many business products is relatively
inelastic, which means that the total demand for all producers of the
product responds very little to changes in its price.
4. Demand fluctuates
a. Although the demand for many business goods does not change
much in response to price changes, it does respond to other factors.
b. Market demand for most classes of business goods fluctuates
considerably more than the demand for consumer products.

5. Joint Demand
a. Demand involving two or more items in combination to produce a
product.
Steps in the Buying Process
 Evaluate Products and Suppliers

1. Value Analysis
• An evaluation of each component of a potential purchase.
2. Vendor Analysis
• A formal, systematic evaluation of current and potential vendors.
3. Multiple sourcing
• An organization’s decision to use several suppliers.
4. Sole sourcing
• An organization’s decision to use only one supplier.
Organizational Differences

There are four categories of Business Market

Business
Markets

Product Reseller Government Institutional

Market Market Market Market
 Producer Market

 Individuals or business that purchase products

to make profit by using them to produce other
products or using the in their operations.
 Reseller Market

 Intermediaries who buy finished goods and

resell them for a profit.
 Factors reseller consider
 Level of demand
 Space required relative to potential profit
 Ease of placing order
 Availability of technical assistance
 Institutional and Government
Market
Institutional Markets
 Consist of churches, schools, prisons, hospitals,
nursing homes and other institutions that
provide goods and service to people in their
care.
 Often characterized by low budgets and
captive pattern.
 Marketers may develop separate divisions and
marketing mixes to service institutional
markets.
Government Markets
 Governmental units- federal, state and local-
that purchase or rent good and services for
carrying out the main functions of government.
 Require suppliers to submit bids.
 Favor domestic suppliers.
 Extensive paperwork is required from
suppliers.
Government Markets
 Most firm that sells to government buyers are
not marketing-oriented.
 Some companies have separate government
marketing departments.
 Much of government buying has migrated
online (ex. Procurement Gateway.).
 Organization Structure and Buyer
Characteristics
 Many business-to-business buying situations requires
close relationships between the buyer and seller.
 Marketers who desire to sell their goods and services to
organizational customers must recognize not only the
need to deliver value and quantity but also the need to
pay attention to the human aspect of the transaction.
 They also need to understand the implications of
organizational structure for the organizational buyer as
well as his or her role in the buying center.
The changing role of organizational
buyers
Changes in purchasing by businesses and other organizations include

 More emphasis on profitability

 Increased use of the computer
 Improved technology
 Consolidation, mergers, acquisitions
 Distribution factors, relative channel power
 Dynamic/changing global market place
 Organizational structure
 Buying Center

A buying center is the group of people in

an organization who participate in the
buying process and share common goals,
risks, and knowledge important to a
purchase decision.
Model of Business Buyer Behavior
Key Players in in the Buying Center
Users are those that will use the product or
service
Influencers help define specifications and
provide information for evaluating
alternatives
Buyers have formal authority to select the
supplier and arrange terms of purchase
Deciders have formal or informal power to
select and approve final suppliers
Gatekeepers control the flow of information
Dimensions of Marketing to Business
Customers
 Types of Business Purchase Decisions

Buying Situations  Routine reorders

from approved
 Straight rebuy vendor list
 Low involvement,
 Modified rebuy
minimal time
 New task commitment
 Example: copier
paper
 Organizational Buying

 Specifications, prices,
Buying Situations
delivery terms or other
aspects require
 Straight rebuy modification
 Moderate level of
 Modified rebuy involvement and time
 New task commitment
 Example: desktop
computers

To accompany A Framework for Marketing Management, 2nd Edition Slide 33 in Chapter 7

 Organizational Buying

Buying Situations  Purchasing a product or

service for the first time
 Straight rebuy  High level of
involvement and time
 Modified rebuy commitment; multiple
 New task influences
 Example: selecting a
web site design firm or
consultant
To accompany A Framework for Marketing Management, 2nd Edition Slide 34 in Chapter 7
How the buying situation affects buying
center behavior
 Major Influences on Business Buyers

Key Factors  Economic trends

 Supply conditions
 Environmental  Technological change
 Organizational  Regulatory and political
environments
 Interpersonal  Competitive developments
 Individual  Culture and customs

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 Major Influences on Business Buyers

Key Factors  Objectives

 Policies
 Environmental
 Procedures
 Organizational
 Organizational
 Interpersonal
structure
 Individual
 Systems

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 Major Influences on Business Buyers

Key Factors Influence of members

in the buying center
 Environmental  Authority
 Organizational  Status
 Interpersonal  Empathy
 Individual  Persuasiveness

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 Major Influences on Business Buyers

Key Factors Personal characteristics of

members in the buying center
 Authority
 Environmental
 Age
 Organizational  Education
 Job position
 Interpersonal
 Personality
 Individual  Risk attitudes

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Characteristics of Organizational Buying Behavior
 ONLINE BUYING IN
ORGANIZATIONAL MARKETS

• Online Auctions in Organizational Markets

 Traditional Auction –looking for buyers

 Reverse Auction- looking for sellers
How buyer and seller participants and price
behavior differ by type of online auction
 Supply Partnership

A supply partnership exists when a

buyer and its supplier adopt mutually
beneficial objectives, policies, and
procedures for the purpose of lowering
the cost or increasing the value of
products and services delivered to the
ultimate consumer.
 E-Marketplaces

E-marketplaces are online trading

communities that bring together buyers
and supplier organizations to make
possible the real time exchange of
information, money, products, and
services.
 Relationship Marketing

 Buyer and seller relationship.

 The highest level of customer satisfaction are obtain from a
series of relationship between buyer and their supplier
throughout entire channel of distribution.
 Quality, satisfaction and long-term relationship.
 Organizational buyer develop loyalty to suppliers who provide
them with quality, value, and service that meet or exceed their
expectations.
B2B Distribution Channels
Thank you