Chapter 6: Analyzing Business Market Marketing Management Chapter 6: Analyzing Business Market Reported By: Eulisan J. Florague

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? 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?

Content III. Managing business-to-business customer relationships I. What is organizational buying? II. Participants in the business buying process III. Managing business-to-business customer relationships

I. What is organizational buying ? What is business market? A business market is a group of profit making organizations that buy goods and services for business use. It consists of industries, distributors and retailers. This market has rational buying with and experiences an inelastic demand.

Characteristics of Business Markets Fewer, larger buyers Close supplier-customer relationships Professional purchasing Multiple buying influences Multiple sales calls Derived demand Inelastic demand Fluctuating demand Geographically concentrated buyers Direct purchasing

How does it differ from the consumer market ? Business Every customer has equal value and represents a small % of revenue There are a small number of big customers that account for a large % of revenue Sales are made remotely, the manufacturer doesn't meet the customer Sales are made personally, the manufacturer gets to know the customer Products are the same for all customers. The service element is low Products are customized for different customers. Service is highly valued Purchases are made for personal use - image is important for its own sake Purchases are made for others to use - image is important where it adds value to customers

Cont. The purchaser is normally the user The purchaser is normally an integrator, someone down the supply chain is the user. Costs are restricted to purchase costs Purchase costs may be a small part of the total costs of use The purchase event is not subject to tender and negotiation The purchase event is conducted professionally and includes tender and negotiation. The exchange is one off transaction. There is no long-time view (financial services differ) The exchange is often one of strategic intent. There is the potential for long term value

Buying situations Straight rebuy Modified rebuy Reorders supplies (office supplies, bulk chemicals) at a routine basis and chooses from list of suppliers. Modified rebuy The buyer want to modified products specs, prices, delivery requirements from previous orders. New task Purchaser buys a products for the first time

II. Participants in the business buying process

The buying center 1. Initiators 2. Users 3. Influencers 4. Deciders Those requesting the product 2. Users Those who will you use the product or service 3. Influencers Those who influence the buying decisions 4. Deciders Those who decide on products reqs & suppliers 5. Approvers Those authorizing actions of buyers tho 6. Buyers Those who have authority to select supplier & arrange purchase terms 7. Gatekeepers Those who prevent information from reaching members of buying center

Of Concern to Business 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 Buying Process Problem recognition General need description Product specification Supplier search Proposal solicitation Supplier selection Order routine specification Performance review

The buygrid framework New Task Modified Rebuy Straight Buy Problem recognition General need description Product specification Supplier search Proposal solicitation Supplier selection Order-routine specification Performance review Maybe Maybe Maybe Maybe Maybe Maybe

Searching for suppliers Catalog sites Electronic catalogs Vertical markets Ordering raw materials from specialized websites Pure play auction sites Online marketplaces (Ebay, Amazon) Spot markets On spot electronic markets, prices change by the minute Private exchanges Private exchange to link groups of suppliers over the web Barter markets Participants offer to trade goods or services Buying alliances Companies buying the same goods join together to form purchasing consortia

Overcoming Price Pressures Limit quantity purchased Allow no refunds Make no adjustments Provide no services

Researching Customer Value Internal engineering assessment Field value-in-use assessment Focus-group value assessment Direct survey questions Conjoint analysis Benchmarks Compositional approach Importance ratings

Order – routine specification The buyers negotiates: The final order; listing the technical specifications; the quantity needed; the expected time of delivery; return policies; warranties… Performance review Three methods: The buyer may contact the end users and ask for their evaluations The buyer may rate the supplier on several criteria using a weighted score method The buyer might aggregate the cost of poor performance to come up with adjusted costs of purchase including price

III. Managing Business- to- Business Customer Relationships

The Benefits of Vertical Coordination Create more value for both buying partners and sellers partners Establishing Corporate Trust and Credibility

The relationship between advertising agencies and clients In the relationship formation stage, one partner experienced substantial market growth. Information asymmetry between partnership would generate more profit than if the partner attempted to invade the other firm’s area At least one partner had high barriers to entry that would prevent the other partner from entering the business Dependence asymmetry existed such that one partner was more able to control or influence the other’s conduct One partner benefited from economies of scale related to the relationship

Factors of buyer-supplier relationships Availability of alternatives Importance of supply Complexity of supply Supply market dynamism

Categories of Buyer-Supplier Relationships Basic buying and selling Bare bones Contractual transaction Customer supply Cooperative systems Collaborative Mutually adaptive Customer is king

Business Relationship : Risks and Opportunism Opportunism is a concern Vertical coordination can facilitate stronger customer – seller ties but increase the risk to the customers and supplier specific investment

Institutional and Government Markets Institutional market consists of schools ,hospitals, nursing home, prisons and other institutions that provide goods and services to people in their care

Institutional and Government Markets ( Cont ) Buyers for government organization tend to require a great deal of paperwork from their vendors and to favor open bidding and domestic companies Suppliers must be prepared to adapt their offers to the special needs and procedures found in institutional and government markets

Summary Business markets differ from consumer markets Business buyers make purchase decisions base on different buying situations The buying process consists of eight stages. sellers use different sales strategies according to their size. One is to use e – marketplaces There are also different strategies in handling price – oriented customers Business marketers must form strong bonds and relationships with their customers and provide them added value.