Part 3 CUSTOMER BEHAVIOR AND E-MARKETING.

6: Consumer Buying Behavior 7: Business Markets and Buying Behavior 8: Reaching Global Markets 9: Digital Marketing and Social Networking

Chapter 7 Business Markets and Buying Behavior Professor Jason C. H. Chen, Ph.D. School of Business Administration Gonzaga University Spokane, WA 99258 chen@jepson.gonzaga.edu

Learning Objectives To distinguish among the various types of business markets To identify the major characteristics of business customers and transactions To understand several attributes of demand for business products To understand the buying center and the stages of the business buying decision process and the factors that affect this process To describe industrial classification systems, and explain how they can be used to identify and analyze business markets

Business Markets Business markets consist of individuals, organizations, or groups that purchase a specific kind of product for one of three purposes: ______ Direct use in producing other products Use in general daily operations Important structural and behavioral differences: A company that markets to another company must be aware of how its product will affect other firms in the marketing channel such as resellers and other manufacturers. Range of forms that business marketing takes From long-term buyer-seller relationships To quick exchanges of basic products at competitive market prices Resale

Categories of Business Markets 1. Producer 2. Reseller 3. ___________ 4. ___________ Government Institutional

Producer Markets Individuals and business organizations that purchase products to make profits by using them to produce other products. Producer markets include: Buyers of raw materials Purchasers of semi-finished and finished items, used to produce other products Broad array of industries such as agriculture, forestry, fisheries, mining, construction etc.

Reseller Markets Reseller markets consist of intermediaries (wholesalers and retailers) that buy finished goods and resell them for a profit Do not change the physical characteristics of the products they handle All products sold to consumer markets are first sold to reseller markets

Reseller Markets Intermediaries ____________– Purchase products for resale to: Retailers and other wholesalers Producers Governments Institutions _________- Purchase products and resell them to final consumers Intermediaries Wholesalers Retailers Level of demand – determine the quantity and the price at which the products can be resold Supplier’s ability to provide adequate quantities when and where needed Amount of space required to handle a product relative to its potential profit Ease of ________ orders Considerations in purchase decision making placing

Government Markets Federal, state, county, and local governments Accounts for more than 40 percent of the total gross domestic product (GDP) Accountable to the public Result in complex buying procedures Governments advertise purchase needs by releasing bids or negotiated contracts

Institutional Markets Organizations with charitable, educational, community, or other nonbusiness goals Have different goals and fewer resources than other type of organizations Marketers may use special efforts to serve them

Figure 7.1 - Dimensions of Business Customers and Business Transactions

D1 - Characteristics of Transactions with Business Customers Transactions between businesses differ from consumer sales in several ways Business orders tend to be much ______ Purchases tend to be made by ________ Discussions and negotiations can require considerable marketing time and selling effort Reciprocity is an arrangement unique to business markets in which two organizations agree to buy from each other Agreements that threaten competition are illegal but a certain amount still occurs larger committee Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

D2 - Attributes of Business Customers Business customers differ from consumers Better informed about the products they purchase Demand detailed information about: Product’s functional features Technical specifications Personal goals influence business buying behavior Partnerships - Suppliers and their customers build and maintain mutually beneficial relationships

D3 – Primary Concerns of Business Customer When making purchasing decisions, business customers take into account a variety of factors: ______ - Influences operating costs and costs of goods sold Affect selling price, profit margin, and the ability to compete Product quality - Firms establish standards for products and buy them on the basis of specifications Service - Influences buyers’ costs, sales, and profits Supplier ____________ - Buyers reduce their search efforts and uncertainty about prices by building trust with suppliers Price relationships

D4 - Methods of Business Buying Used when products are standardized such as agriculture products (their size, shape, weight and color) Description Used when products have unique characteristics and may vary with regard to condition They can differ depending on how they were used and for how long Inspection Used for homogeneous products when examining the entire lot is not feasible such as grain (not physically or economically feasible) Sampling Used commonly for one time projects and very large or expensive purchases Negotiation

D5 - Types of Business Purchases Initial purchase of an item to be used to perform a new job or solve a new problem New-task purchase Purchase of the same products routinely under approximately the same terms of sale Straight rebuy purchase New-task purchase that is changed on subsequent orders, or when requirements with a straight rebuy purchase are modified Modified rebuy purchase

Demand for Business Products Demand for business products that stems from demand for consumer products Derived demand Price increase or decrease does not significantly alter demand for a business product Inelastic demand Using two or more items in combination to produce a product Joint demand Because demand for business products is derived from consumer demand, it may fluctuate enormously Subject to fluctuations as business products are derived from consumer demand Fluctuating demand

Business Buying Decisions Business (organizational) buying behavior refers to the purchase behavior of producers, government units, institutions and resellers Some purchasing factors are the same as the consumer market but some are unique to business markets We will first look at the buying center which is a group of people within an organization who make business purchase decisions Then we will focus on the stages of the buying decision process and the factors that affect it Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

The Buying Center The people within an organization who make business purchase decisions are called the buying center and includes the following roles: Users – members who frequently initiate the purchase, use the product and evaluate the product Influencers – technical personnel who develop the specifications and evaluate alternative products Buyers – select suppliers and negotiate terms Deciders – actually choose the products Gatekeepers – control the flow of information to and among people who occupy other roles in the buying center Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Buying Center (cont.) Number and structure are affected by: Organization’s size and market position Volume and types of products being purchased Firm’s overall managerial philosophy Size is influenced by: Stage of the buying decision process Type of purchase New-task, straight rebuy, or modified rebuy The size is generally _______ for a new-task purchase than for a straight rebuy. larger

Buying Decision Process (or need) [1] [2] [3] [4] [5] (Details see next slides) Fig. 7.2 Business (Organizational) Buying Decision Process and Factors That May Influence It.

Stage 1: Problem Recognition recognize One or more individuals __________ a problem or need exists Could be individuals in the buying center such as users, influencers or buyers who recognize the need or problem Problems or needs could be identified by external sources such as sales representatives or advertisements May arise under a variety of circumstances When machines malfunction When an existing product is modified When introducing new products Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Stage 2: Develop Product Specifications to Solve Problem The development of product specifications requires the buying center participants ______ the problem or need and _________ what is necessary to resolve or satisfy it Users and influencers often provide information and advice By assessing and describing needs, the organization should be able to establish product specifications assess determine Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Stage 3: Searching for and Evaluating Potential Products and Suppliers Search activities Looking in company files and trade directories Contacting suppliers for information Soliciting proposals from known vendors Examining online and print publications ______ analysis is an evaluation of each component of the potential purchase Examines quality, design, materials etc ________ analysis is a formal, systematic evaluation of current and potential vendors Examines price, product quality, delivery service, product availability and overall reliability Value Vendor

Stage 4: Select Product and Supplier and Order Product The fourth stage is to select the product to be purchased and the supplier or suppliers Multiple Sourcing – when the buyer selects and uses several suppliers Sole Sourcing – when only one supplier is selected Which one is better and pros/cons? Sole sourcing has historically been discouraged except in the cases where a product is only available from one company. This stage is where the actual purchase takes place and the following details finalized Terms and credit arrangements Delivery dates and methods Technical assistance arrangements Sole sourcing has historically been discouraged except in the cases where a product is only available from one company. Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Stage 5: Evaluating the Performance of Product and Supplier Product is evaluated by comparing it with the _____________ Specifications must be adjusted if the performance fails to adequately solve the problem or satisfy the need, even if the product specifications are met Supplier's performance is evaluated Business purchaser seeks corrective action from the supplier or searches for a new one if the performance is inadequate These 5 steps are used primarily for _____-task purchases specifications new

Influences on the Business Buying Decision Process [1] [2] [3] [4] Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Environmental Factors Environmental factors that influence buying decisions include: Competitive and economic factors Political forces Legal and regulatory forces Technological changes (e.g., Intenet) Sociocultural issues These factors can generate considerable ___________ for an organization Changes in environmental forces can create opportunities and threats that affect purchasing decisions uncertainty

Organizational Factors Organizational factors that influence the buying decision process include: Company’s objectives Purchasing policies Resources Size and composition of the buying center A firm’s policies may mandate contract lengths that are __________ to many sellers. Special credit arrangements required by an organization’s financial resources might affect purchase decisions undesirable

Interpersonal Factors Interpersonal factors are the relationships among people in the buying center ______ is crucial in collaborative partnerships. When customized products are involve – the buyer may not see the product until it is finished and must trust that the producer is creating it to specifications. Trust and clear communication ensure that all parties are satisfied with the outcome Processes may get complicated within the buying center due to: Interpersonal dynamics Varying communication abilities Trust

Industrial Classification Systems Information about business customers is based on industrial classification systems Standard Industrial Classification (SIC) System was developed by the federal government but replaced by NAICS International Standard Industrial Classification (ISIC) is used mainly in Europe North American Industry Classification System (NAICS) An industry classification system that generates comparable statistics among the United States, Canada and Mexico among the three partners of NAFTA Copyright © 2014 South-Western, Cengage Learning. ALL RIGHTS RESERVED.

Difference between NAICS and SIC

Industrial Classification Systems Provide a uniform means of categorizing organizations into groups Best used in conjunction with other types of data to determine exactly: How many and which customers a marketer can reach Approaches to determine the identities and locations of organizations in specific groups Use state directories or commercial industrial directories Use commercial data service Useful in estimating the purchase potential Problems with the data include: Few industries do not have specific designations Double-counting of shipments may occur Data may be understated Significant lag exists between data-collection and the time when the information is released, therefore, currency of data may suffer

Video Case 7.1 Dale Carnegie Focuses on Business Customers

Summary   This case shows how a company that provides a valuable service thrives in the B2B market. Dale Carnegie was a successful entrepreneur and speaker famous for his book, How to Win Friends and Influence People. His self-named firm trains business people and members of the government on how to connect with customers and colleagues. Dale Carnegie focuses on helping companies to develop powerful business relationships by learning to listen and interact well, both face-to-face and through digital communications.

1. How would you apply Dale Carnegie’s methods if you were trying to make a sale to a company with a large buying center?   The buying center is the group of people involved in making such purchase decisions. Dale Carnegie’s philosophy is that a marketer trying to appeal to a large buying center should take the time to listen to the concerns of users, influencers, buyers, deciders, and gatekeepers, connect with all groups, and address all of their needs.

2. From a marketing perspective, why would people who work for the U.S. Department of Veteran Affairs be as interested in taking a Dale Carnegie course as people who work for American Express?   Government agencies such as the Department of Veterans affairs have customers too—the people that they serve. Because of this, it is important for members of the government to understand how to connect with their colleagues and with their constituencies.

3. Which concerns of business customers should Dale Carnegie’s marketers pay close attention to when selling training services to a company like American Express?   Although all four concerns (price, quality, service, and supplier relationships) may have a role, Dale Carnegie’s marketers should pay close attention to quality and service. They may be searching for a great long-term customer service experience. Companies want to get the best quality information and training and may want ongoing support when they deal with challenging situations and hire new employees.