Copyright John Wiley & Sons 2007 Presentation prepared by Robin Roberts, Griffith University and Mike Spark, Swinburne University of Technology

Copyright John Wiley & Sons 2007 Chapter 7 Business markets and buying behaviour

Copyright John Wiley & Sons 2007 Chapter 7 Chapter Objectives 1.Discuss the various types of business markets 2.Identify the major characteristics of business customers and transactions 3.Understand several attributes of demand for business products 4.Recognise the major components of a buying centre

Copyright John Wiley & Sons 2007 Chapter 7 Chapter Objectives 5.Understand the stages of the business buying decision process and the factors that affect this process 6. Describe industrial classification systems and explain how they can be used to identify and analyse business markets

Copyright John Wiley & Sons 2007 Chapter 7 B2B marketing in the manufacturing sector Simon Bottomley, General Manager, HaveStock Manufacturing Dial-UpBroadband

Copyright John Wiley & Sons 2007 Chapter 7 Business Markets Business Markets consist of individuals or groups that purchase a specific kind of product for resale, direct use in producing other products, or use in general daily operations The four categories of business markets are: 1.Producer 2.Reseller 3.Government 4.Institutional

Copyright John Wiley & Sons 2007 Chapter 7 Business markets (cont’d) Producer Markets Individuals and business organisations that purchase products to make profits by using them to produce other products or using them in operations

Copyright John Wiley & Sons 2007 Chapter 7

Copyright John Wiley & Sons 2007 Chapter 7 Business markets (cont’d) Reseller Markets Intermediaries who buy finished goods and resell them for profit Wholesalers purchase products for resale to retailers Retailers purchase products and resell them to final consumers Many factors affect resellers’ purchase decisions including level of demand, profit potential, suppliers ability to provide goods

Copyright John Wiley & Sons 2007 Chapter 7 B2B reseller markets for a tourism product Tony Coates, Director of Sales, Story Bridge Adventure Climb Dial-UpBroadband

Copyright John Wiley & Sons 2007 Chapter 7 Business Markets (cont’d) Government Markets Commonwealth (or Federal), State and local governments Purchase a broad variety of goods and services Public accountability results in complex buying procedures requiring formal tenders, public bids and negotiated contracts

Copyright John Wiley & Sons 2007 Chapter 7 Business Markets (cont’d) Institutional Markets Organisations with charitable, educational, community, or other non-business goals Churches, some hospitals, sporting and social clubs, charitable organisations, and private colleges

Copyright John Wiley & Sons 2007 Chapter 7 Dimensions of marketing to business customers Characteristics of Transactions with Business Customers –Orders are much larger and more costly/expensive –Purchase deliveries - more frequent –Terms of sales contracts are longer –Several people (or committees) may be involved in the purchase decision –A buyer and a seller purchase from each other (reciprocity)

Copyright John Wiley & Sons 2007 Chapter 7 Dimensions of Marketing to Business Customers (cont’d) Attributes of Business Customers –Typically better informed about the products they purchase –Demand detailed product information about functional features and technical specifications –Personal goals may influence buying behaviour –Often become partners in new product developments

Copyright John Wiley & Sons 2007 Chapter 7 Dimensions of Marketing to Business Customers (cont’d) Primary Concerns of Business Customers –Price of goods affects the buyer’s ability to compete –Buyers look for return on investment (ROI) from the product or cost savings –Price of the product is compared to the benefits it provides –Quality of the product, and meeting client specifications, is paramount –Quality offered is valued highly

Copyright John Wiley & Sons 2007 Chapter 7 Dimensions of Marketing to Business Customers (cont’d) Methods of Business Buying Description — products are standardised and specified by certain characteristics Inspection — products with particular characteristics must be inspected Sampling — used where a product is homogenous Negotiation — sellers are asked to bid on specified product characteristics, and purchasers negotiate with bidders

Copyright John Wiley & Sons 2007 Chapter 7 Dimensions of Marketing to Business Customers (cont’d) Types of Business Purchases New-task purchase — an initial item purchase to be used to perform a new job or solve a new problem Straight rebuy purchase — the routine purchase of the same products Modified rebuy purchase — a new-task purchase that is changed on subsequent orders, or when the requirements of a straight rebuy are modified

Copyright John Wiley & Sons 2007 Chapter 7 Dimensions of Marketing to Business Customers (cont’d) Demand for Business Products Derived demand — the demand for industrial products stems from demand for consumer products Inelastic demand — demand that is not significantly altered by a price change Joint demand — demand involving the use of two or more items in combination to produce a product. Fluctuating demand — demand that varies as consumer demand varies

Copyright John Wiley & Sons 2007 Chapter 7 Business Buying Decisions Business (Organisational) Buying Behaviour –The purchase behaviour of producers, government units, institutions and resellers Buying Centre –The people within an organisation who make business purchase decisions. Users, Influencers, Approvers, Buyers, Deciders and Gatekeepers

Copyright John Wiley & Sons 2007 Chapter 7 Business Buying Decisions (cont’d) Stages of the Business Buying Decision Process include: 1.Problem Recognition — arises under a variety of circumstances, both internal and external 2.Development of Product Specifications — buying centre participants assess the problem or need and determine what is necessary to resolve or satisfy it

Copyright John Wiley & Sons 2007 Chapter 7 Business Buying Decisions (cont’d) 3.Search for and Evaluation of Potential Products and Suppliers — looking at all available sources of information. This can involve: Value Analysis: An evaluation of each component of a potential purchase Vendor Analysis: A formal systematic evaluation of current and potential vendors

Copyright John Wiley & Sons 2007 Chapter 7 Business Buying Decisions (cont’d) 4.Selection of Product and Supplier Multiple Sourcing: An organisation’s decision to use several suppliers Sole Sourcing: An organisation’s decision to use only one source 5.Evaluation of Product and Supplier Performance: may result in adjustment of product specifications, corrective action from the supplier, or search for a new supplier

Copyright John Wiley & Sons 2007 Chapter 7 Business Buying Decisions (cont’d) Influences on the Business Buying Decision Process –Environmental Factors (Macro factors) –Organisational Factors (Buying process and procedures, and buying centre composition) –Interpersonal Factors (People factors) –Individual Factors (Personal traits of the buying centre participants)

Copyright John Wiley & Sons 2007 Chapter 7 Similarities with Consumer Markets –Group influence — can impact both B2B and family purchase decisions –Types of business purchase align closely with consumer types –Market segmentation can be similar for B2B and B2C markets –Close relationships can be just as critical in both markets –Reliance on brands can be similar and used to simplify purchasing processes

Copyright John Wiley & Sons 2007 Chapter 7 Industrial Classification Systems ANZSIC – Australian and New Zealand Standard Classification system –17 industry groups –53 subdivisions –Assist easy segmentation –Commercial industrial directories are often used –Not always accurate or timely!

Copyright John Wiley & Sons 2007 Chapter 7 Is elite level sport a B2B or B2C product? Dial-UpBroadband

Copyright John Wiley & Sons 2007 Chapter 7