Business Markets and Business Buying Behavior Mag. Maria Peer

What is organizational buying? The decision-making process by which formal organizations establish the needs for purchased procucts and services and identify, evaluate and choose among alternative brands and suppliers. What is organizational buying?

all organizations that acquire goods and services used in the production of other poducts or services that are sold, rented or supplied to others. Major industries: agriculture, forestry and fisheries, mining, manufacturing, construction, transportation, communication, public utilities, banking, finance, insurance, distribution and services Business market

Characteristics of Business Markets Fewer buyers Larger buyers Close supplier-customer relationship Geographically concentrated buyers Derived demand Inelastic demand Fluctuating demand Professional purchasing Several buying influences Multiple sales calls Direct purchasing Reciprocity Leasing Close supplier-customer relationship: because of the smaller customer base and the importance and power of the larger customers, suppliers are frequently expected to customize their offering to individual business customer needs. Sometimes the buyers require the sellers to change their practices and performance. Geographically concentrated buyers: helps to reduce selling costs Derived demand: demand for business goods is derived from the demand for consumer goods. For this reason the business marketer must closely monitor the buying patterns of ultimate consumers. Inelastic demand: not much affected by price changes Fluctuating demand: the demand for business goods tends to be more volatile than the demand for consumer goods – economist call this the acceleration effect – a rise of only ten percent in consumer demand can cause a rise of 200 percent in business demand in the next period. A ten percent fall in consumer demand can cause a complete collapse in business demand. Professional purchasing: business goods are purchased by trained purchasing agents, who must follow the organization‘s purchasing policies, constraints and requirements. Many of the buying instruments – requests for quotations, proposals , and purchasing contracts- are not typically found in consumer buying. Professional buyers spend their professional lives learning how to buy better – marketers have to provide better technical data. Several buying influences: more people typically influence buying decisions. Buying committees consisting of technical experts and even senior management are common in the purchase of major goods. Business marketers have to send well-trained sales representatives and often sales teams to deal with the well-trained buyers. Multiple sales calls: because more people are involved it takes multiple sales calls to win business orders, and the sales cycle can take years. Direct purchasing: business buyers often buy directly from manufacturers. Reciprocity: business buyers often select suppliers who also buy from them. Leasing: Leasing provides a number of advantages – conserving capital, getting the latest products, receiving better service, and gaining some tax advantages.

Straight rebuy: the purchasing department reorders on a routine basis Modified rebuy: the buyer wants to modify product specifications, prices, delivery requirements, or other terms. New task: A purchaser buys a product or service for the first time. The greater the cost or risk, the larger the number of decision participants and the greater the information gathering Buying situations

Systems Buying and Selling Business buyers prefer to buy a total solution of their problem from one seller (major weapons and communication systems) Sellers have adopted systems selling as a marketing tool. Auto parts manufacturers sell whole systems such as the seating system, the braking system or the door system Systems contracting – is a variant of system selling – a single supply source provides the buyer with his entire requirement of MRO supplies (maintenance, repair, operating) Systems Buying and Selling

The Buying Center Initiators Users Influencers Deciders Approvers Buyers gatekeepers The Buying Center

Major influences Environmental factors Organizational factors Interpersona factors Individual factors Cultural factors Major influences

The Purchasing Procurement Process - Buyphases Problem Recognition General Need Description Product Specification Supplier search Proposal solicitation Supplier selection Order routine specification Performance review The Purchasing Procurement Process - Buyphases

Institutional Markets Consists of schools, hospitals, nursing homes, prisons and other institutions that provide goods and services for people in their care. Suppliers must be prepared to adapt their offers to the special needs and procedures found in institutional and government markets Institutional Markets