7

Analyzing Business
Markets
 Chapter Questions

 What is the business market, and how does

it differ from the consumer market?

 What buying situations do organizational

buyers face?

 Who participates in the business-to-

business buying process?
 Chapter Questions
 How do business buyers make their
decisions?

 How can companies build strong

relationships with business customers?

 How do institutional buyers and

government agencies do their buying?
 What Is Organizational Buying?

Organizational buying refers to 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.
 Characteristics of Business Markets

 Fewer, Larger  Multiple sales calls

buyers  Derived demand
 Close supplier-  Inelastic demand
customer (shoe laces, salt)
relationships  Fluctuating
 Professional demand
purchasing  Geographically
 Many buying concentrated
influences buyers
 Direct purchasing
Buying Situation

Straight Rebuy

Modified Rebuy

New Task
 Buying Situation

 The business buyer faces many decisions in

making a purchase.

 How many depends on the complexity of the

problem being solved, newness of the buying
requirement, number of people involved, and
time required.

 Three types of buying situations are the

straight rebuy, modified rebuy, and new task.
 Buying Situation

 In a straight rebuy, the purchasing

department reorders supplies such as office
supplies and bulk chemicals on a routine basis
and chooses from suppliers on an approved
list.

 The buyer in a modified rebuy wants to

change product specifications, prices, delivery
requirements, or other terms.
 Buying Situation

 A new-task purchaser buys a product or

service for the first time (an office building, a
new security system).

 The greater the cost or risk, the larger the

number of participants, and the greater their
information gathering—the longer the time to
a decision.
The Buying Center

 Initiators  Approvers
 Users  Buyers
 Influencers(Tec  Gatekeepers
h per)
 Deciders
 The Buying Center
 The buying center consists 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.
 The buying center includes all members of the
organization who play any of the following
seven roles in the purchase decision process.
These roles are listed in the slide.
 The Buying Center
 Initiators are users or others in the
organization who request that something be
purchased.
 Users are those who will use the product or
service. In many cases, the users initiate the
buying proposal and help define the product
requirements.
 Influencers are people who influence the
buying decision, often by helping define
specifications and providing information for
evaluating alternatives.
 The Buying Center
 Deciders are people who decide on product
requirements or on suppliers.
 Approvers are people who authorize the proposed
actions of deciders or buyers.
 Buyers are people who have formal authority to
select the supplier and arrange the purchase terms.
 Buyers may help shape product specifications, but
they play their major role in selecting vendors and
negotiating.
 Gatekeepers are people who have the power to
prevent sellers or information from reaching members
of the buying center.
 Of Concern to Marketers
 Who are the major decision
participants?
 What decisions do they influence?
 What is their level of influence?
 What evaluation criteria do they use?
Stages in the Buying Process: Buyphases

1. Problem recognition
2. General need description
3. Product specification
4. Supplier search
5. Proposal solicitation
6. Supplier selection
7. Order-routine specification
8. Performance review
Table 6.1 Buygrid Framework
 Forms of Electronic Marketplaces
 Catalog sites (e Catalog or e procurement
software)
 Vertical markets or e hubs (Ex: Plastic.com)
 Pure play auction sites (Ex: eBay)
 Spot markets (Exchange Markets)
 Ex: ChemConnect.com for bulk chemicals
 Private exchanges (Ex: IBM, Wall Mart)
 Barter markets
 Buying alliances
Stages in the Buying Process: Buyphases

1. Problem recognition
 Internal Stimuli
 External Stimuli

2. General need description and Product

specification (3)
 Standard Quantity for simple item
 Reliability, Durability, and Price for complex
item
 PVA (Product Value Analysis) Team
 Stages in the Buying Process: Buyphases

4. Supplier search
 Trade Directories, Contact with other
companies, Trade advertisements, and trade
shows
 Internet
 Forms of Electronic Marketplace (refer slide17)
5. Proposal solicitation
 The buyer invite qualified supplier to submit
proposals
 Detailed written proposal from each supplier
 After evaluating suppliers, buyer invite them to
make formal presentations
 Stages in the Buying Process: Buyphases

6. Supplier selection

 The Buying center will specify desired attributes

 The Buying center often use Supplier –
Evaluation model
 After evaluation the buying center may bargain
on preferred criteria for better terms and prices
 How many suppliers to select
Table 6.2 An Example of
Vendor Analysis
 Stages in the Buying Process: Buyphases

7. Order-routine specification
 Negotiate the final order
 Listing of all technical specifications, the
quantity demanded, the expected time of
delivery, return policies, warranties, etc…
 In case of repair and maintenance , buyers are
moving towards Blanket Contract.
 A Blanket contract establishes a long term
relationship in which the supplier promises to
resupply the buyer as needed, as agreed upon
prices, over a specified period of time.
 Stages in the Buying Process: Buyphases

7. Order-routine specification
 Because the stock is held by seller, blanket
contract are sometimes called Stockless
Purchase Plans.
 Companies allow their supplier to share their
inventory records. Ex: Wall Mart and P&G
 This is called Vendor Managed Inventory.
 “OTIFNE” is a term summarizes three desirable
outcomes of a B-to-B transaction:
 OT – deliver on time
 IF – in full
 NE – no error
Stages in the Buying Process: Buyphases

8. Performance review
 Periodically reviews the performance of supplier
 Three methods
1. The Buyer may contact to end-user
2. The buyer may rate the supplier on various criteria
using weighted score method
3. The buyer may aggregate the cost of poor
performance to come
 The performance review may lead to continue,
modify, or end a supplier relationship.
 Methods for Researching
Customer Value
 Internal  Conjoint analysis
engineering  Benchmarks
assessment  Compositional
 Field value-in-use approach
assessment  Importance
 Focus-group value ratings
assessment
 Direct survey
questions
 Categories of Buyer-Seller Relationships

 Four relevant factors are availability of

alternatives, importance of supply, complexity
of supply, and supply market dynamism.

 Based on these we can classify buyer–supplier

relationships into eight categories.
 Stages in the Buying Process: Buyphases

1. Basic buying and selling—These are

simple, routine exchanges with moderate
levels of cooperation and information
exchange.
2. Bare bones—These relationships require
more adaptation by the seller and less
cooperation and information exchange.
3. Contractual transaction—These exchanges
are defined by formal contract and
generally have low levels of trust,
cooperation, and interaction.
 Stages in the Buying Process: Buyphases

4. Customer supply—In this traditional

custom supply situation, competition rather
than cooperation is the dominant form of
governance.
5. Cooperative systems—The partners in
cooperative systems are united in
operational ways, but neither demonstrates
structural commitment through legal
means or adaptation.
 Stages in the Buying Process: Buyphases

6. Collaborative—In collaborative exchanges,

much trust and commitment lead to true
partnership.
7. Mutually adaptive—Buyers and sellers
make many relationship-specific
adaptations, but without necessarily
achieving strong trust or cooperation.
8. Customer is king—In this close, cooperative
relationship, the seller adapts to meet the
customer’s needs without expecting much
adaptation or change in exchange.
 Institutional Markets

The institutional market consists of schools,

college and university hostels, hospitals and
nursing homes, and other institutions that
provide goods and services to people in their
care.

Ex: Hospital Service

For Review
 What is the business market, and
how does it differ from the
consumer market?
 What buying situations do
organizational buyers face?
 Who participates in the business-to-
business buying process?
For Review
 How do business buyers make their
decisions?
 How can companies build strong
relationships with business
customers?
 How do institutional buyers and
government agencies do their
buying?