Analyzing Business Markets 7 Analyzing Business Markets Marketing Management, 13th ed

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? 7-2

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? 7-3

Organizational Buying 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.

Types of Business Customers Price- Oriented (transactional selling, price is everything) Solution- Oriented (consultative selling) Gold- Standard (quality selling) Strategic- Value (enterprise selling)

Top Business Marketing Challenges Expand understanding of customer needs Compete globally as China and India reshape markets Master analytical tools and improve quantitative skills Reinstate innovation as an engine of growth Create new organizational models and linkages 7-6

Characteristics of Business Markets Inelastic demand (e.g., price change) Fluctuating demand (e.g., % increase in consumer demand lead to much larger increase in demand for plant equipment—acceleration effect) Geographically concentrated buyers Direct purchasing Fewer, larger buyers Close supplier-customer relationships Professional purchasing Many buying influences Multiple sales calls Derived demand 7-7

Buying Situation Straight re-buy—routine Modified rebuy—modify product specification, prices, delivery requirements, or other terms) New task—purchase of new product or service

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? 7-9

The Buying Center Initiators--request Users—who use Approvers—authorized proposed actions of deciders or buyers Buyers—formal authority to select the supplier and arrange the purchase terms Gatekeepers—power to prevent sellers or information from reaching member of the buying center Initiators--request Users—who use Influencers—help define specification Deciders—choose the product requirements 7-10

Stages in the Buying Process: Buy phases Problem recognition General need description Product specification Supplier search Proposal solicitation Supplier selection Order-routine specification Performance review 7-11

Forms of Electronic Marketplaces Catalog sites—order through electronic catalog distributed by e-procurement software, such as Grainger’s (industrial products) 7-12

Forms of Electronic Marketplaces Vertical markets—e-hubs, such as plastics, steel, or chemicals—Plastic.com (best prices among thousands of plastic sellers) 7-13

Forms of Electronic Marketplaces Pure play auction sites—eBay 7-14

Forms of Electronic Marketplaces Spot markets—prices change by the minute—ChemConnect.com (exchange for buyers and sellers of bulk chemicals such as benzene) 7-15

Forms of Electronic Marketplaces Private exchanges—suppliers—Hewlett –Packard, IBM, and Wal-Mart (invited groups of suppliers and partners over the web) 7-16

Forms of Electronic Marketplaces Barter markets—trade goods & service 7-17

Forms of Electronic Marketplaces Buying alliances—several companies buying the same goods join together to form purchasing consortia such as Transora and Covisant to gain deeper discounts on volume purchases Covisint is an online automotive trading and communication exchange that was formed initially by a consortium of General Motors, Ford, and DaimlerChrysler AG, and later included Renault S.A. and Nissan Motor Co.  The consortium has also formed a strategic alliance with technology partners Oracle and Commerce One Inc. This industry marketplace created a single automotive-parts exchange for the thousands of suppliers and dealers that serve the auto companies. 7-18

Methods of e-Procurement Websites organized using vertical hubs Centered on industries such as plastics, steel, chemicals, paper

Methods of e-Procurement Websites organized using functional hubs Centered on functions logistics, media buying, advertising, energy management

Methods of e-Procurement Direct extranet links to major suppliers Dell, Office Depot

Methods of e-Procurement Buying alliances (several companies combine to buy in volume to obtain lower prices) Transora—Coca-Cola, Sara Lee, Kraft, PepsiCo, P&G, and several other companies Diageo, Kraft, P&G and Others Launch Major Online Business Marketplace

Methods of e-Procurement Company buying sites For example, General Electric formed the Trading Process Network where requests are posted for proposals, negotiates terms, and orders can be placed.

Purchasing Orientations Buying (short term and tactical, lowest price for a given level of quality, commoditization, multi-sourcing) Procurement (quality improvement and cost reductions) Supply Chain Management (seamless from purchase of raw materials to the on-time arrival of finished goods to end users)

Handling Price-Oriented Customers Limit quantity purchased Allow no refunds Make no adjustments Provide no services

Product-Related Purchasing Processes Routine products (low value and cost to the customer—office supplies) Leverage products (high value and costs to the customer—engine pistons) Strategic products (high value and costs and involve in high risks—mainframe computers) Bottleneck products (low value and cost and low risks—spare parts)

Methods for Researching Customer Value Conjoint analysis rank preference for alternative market offering or concepts and than estimate the implicit value placed on each attribute. Benchmarks Compare a “benchmark” offerings and new-market offering and then asked how much more they would pay if new features were offered or how much less if certain features were removed Compositional approach Attach a monetary value to each of 3 alternative levels of given attribute and repeated for other attributes. The values are then added together for any product configuration. Importance ratings Rate the importance of different attributes and the supplier firms’ performance on these attributes Internal engineering assessment determine product performance characteristics Field value-in-use assessment customer evaluate elements of new product Focus-group value assessment determine value of potential marketing offering Direct survey questions place a direct dollar value on one or more changes in the market offering

Order Routine Specification and Inventory Stockless purchase plans Vendor-managed inventory Continuous replenishment

Establishing Corporate Trust and Credibility Expertise—Able to make and sell products Trustworthiness--Honest and dependable, sensitive to customer needs Likability--Attractive, prestigious, dynamic 7-29

Product/Service Quality Incentive Partnering Cooperating design Trust Dimensions Transparent Product/Service Quality Incentive Partnering Cooperating design Product comparison Supply chain 7-30

Categories of Buyer-Seller Relationships Basic buying and selling Simple routine exchanges with moderately high levels cooperation and information exchange Bare bones Adaptation by the seller and less cooperation and information exchange Contractual transaction Generally low levels of trust, cooperation, and interaction; exchange is defined by formal contract Customer supply Competition rather than cooperation is the dominant form of governance Cooperative systems Coupled closely in operational ways, although not legally binding Collaborative Much trust and commitment leading to true partnerships Mutually adaptive Much relationship-specific adaptation for buyer and seller, but without necessarily strong trust or cooperation Customer is king The seller adapts to meet the customer’s needs without expecting much adaptation or change on the part of the customer in exchange

Some form of cheating or undersupply relative to an Opportunism Some form of cheating or undersupply relative to an implicit or explicit contract.

Study Question 1 The ________ consists of all the organizations that acquire goods and services used in the production of other products or services that are sold, rented, or supplied to others. business market consumer market e-commerce market global market supplier market   7-33

All of the following would be among the Study Question 2 All of the following would be among the major industries that make up the business market EXCEPT ________. agriculture, forestry, and fisheries Manufacturing Construction banking, finance, and insurance the Internet   7-34

Study Question 3 Ultimately, the amount of steel sold to General Motors depends on the consumer’s demand for GM cars and trucks. From the standpoint of the steel manufacturer, which of the following demand forms is most pertinent? Derived demand Inelastic demand Geographic demand Relational demand Static demand 7-35

The purchasing department buys office Study Question 4 The purchasing department buys office supplies on a routine basis. This type of purchase is classified as a ________. straight rebuy modified rebuy new task secondary purchase preordained purchase 7-36

Study Question 5 ________ is composed of all parties who participate in the purchasing decision-making process and share common goals and risks associated with their decisions. The buying center The marketing sales team Strategic management Engineering support The logistics center 7-37