1. Copyright © 2011 Pearson Education
Ch 6 -0
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2. CHAPTER SIX Business Markets and Business Buyer Behavior
Lecturer: Insert your name here
Ch 6 -1
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3. Chapter Learning Outcomes
Topic Outline
6.1 Business Markets
6.2 Business Buyer Behavior
6.3 The Business Buying Process
6.4 E-Procurement: Buying on the Internet
6.5 Institutional and Government Markets
Ch 6 -2
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4. Copyright © 2011 Pearson Education
Business Markets
Business Buyer Behavior and Business Buying Process
Business buyer behavior refers to the buying behavior of the organizations that buy goods and services for use in production of other products and services that are sold, rented, or supplied to others.
Business buying process is the process where business buyers determine which products and services are needed to purchase, and then find, evaluate, and choose among alternative brands.
Ch 6 -3
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Business Markets
Market Structure and Demand
Fewer and larger buyers
Geographic concentration
Derived demand
Inelastic demand
Fluctuating demand
Buyer and seller dependency
Ch 6 -4
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6. Copyright © 2011 Pearson Education
Business Markets
Nature of the Buying Unit
More decision participants
More professional purchasing effort
Ch 6 -5
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Business Markets
Types of Decisions and the Decision Process
Business buying is usually more complex, longer, more formalized and the buyer and seller are more dependent on each other.
Supplier development is the systematic development of networks of supplier-partners to ensure an appropriate and dependable supply of products and materials that they will use in making their own products or resell.
Note to Instructor
The IKEA example in the text is excellent on understanding the importance of supplier development:
IKEA’s challenge is finding enough of the right kinds of suppliers to help design and produce the billions of dollars of affordable goods. IKEA currently relies on about 1,800 suppliers in more than 50 countries to stock its shelves.
IKEA doesn’t just buy from its suppliers. It involves them deeply in the process of designing and making stylish but affordable furniture.
Ch 6 -6
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8. Business Buyer Behavior
Ch 6 -7
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9. Business Buyer Behavior
Major Types of Buying Situations
Straight rebuy is a routine purchase decision such as reorder without any modification.
Modified rebuy is a purchase decision that requires some research where the buyer wants to modify the product specification, price, terms, or suppliers.
New task is a purchase decision that requires thorough research such as a new product.
Ch 6 -8
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10. Business Buyer Behavior
Major Types of Buying Situations
Systems selling involves the purchase of a packaged solution from a single seller.
Two-step process of selling:
Interlocking products
System of production, inventory control, distribution, and other services to meet the buyer’s need for a smooth-running operation
Note to Instructor
In Real Marketing 6.1, we can see that the transportation and logistics giant Aramex does more than just ship packages for its business customers, it actually develops entire solutions to customers’ transportation and logistics problems; it simply asks them “How can we develop tailor-made solutions for you?”. Its client base exceeds 50,000 companies, based mainly in the Arab world, Europe, India, and America, and includes trading .companies, banks, service and information companies, manufacturing, regional distribution companies, and express companies.
Ch 6 -9
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11. Business Buyer Behavior
Participants in the Business Buying Process
Buying center is all of the individuals and units that participate in the business decision-making process.
It provides a major challenge as to who participates in the process:
Their relative authority
What evaluation criteria each participant uses
Informal participants
Ch 6 -10
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12. Business Buyer Behavior
Participants in the Business Buying Process
Users are those that will use the product or service.
Influencers help define specifications and provide information for evaluating alternatives.
Buyers have formal authority to select the supplier and arrange terms of purchase.
Deciders have formal or informal power to select and approve final suppliers.
Gatekeepers control the flow of information.
Ch 6 -11
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13. Business Buyer Behavior
Major Influences on Business Buyers
Economic Factors
Price
Service
Personal Factors
Emotion
Ch 6 -12
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14. Business Buyer Behavior
Note to Instructor
Discussion Question
How would the purchase of a chair like the one you are sitting in be different for the University versus an end consumer like yourself buying a chair for your desk?
It may be difficult for students with no business buying experience to grasp the difference between business and consumer buying. Students will note how the university needs to buy more, that they need to ask users about the chairs, that they will organize more intricately for the buying effort, that they will work with the vendors for reduced prices for bulk purchases. In addition, this can tie directly to the major types of buying situations.
Discussion Questions
How could the chair be a straight rebuy versus a modified rebuy. What implications would the different situation make on the process?
Ch 6 -13
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15. Business Buyer Behavior
Major Influences on Business Buyers
Environmental Factors
Demand for product
Economic outlook
Cost of money
Resource availability
Technology
Culture
Politics
Competition
Note to Instructor
Culture and customs can strongly influence business buyer reactions to the marketer’s behavior and strategies, especially in the international marketing environment. Real Marketing 6.2 presents some examples of the differences in culture. Business buyers must watch these cultural differences, determine how they will affect the buyer, and try to turn these challenges into opportunities.
“When doing business in a foreign country and a foreign culture— particularly a non-Western culture—assume nothing,” advises an international business specialist. “Take nothing for granted. Turn every stone. Ask every question. Dig into
every detail. Because cultures really are different, and those differences can have a major impact.” So the old advice is still good advice: When in Rome, do as the Romans do.
Ch 6 -14
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16. Business Buyer Behavior
Major Influences on Business Buyers
Organizational Factors
Objectives
Policies
Procedures
Structure
Systems
Ch 6 -15
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17. Business Buyer Behavior
Major Influences on Business Buyers
Interpersonal Factors
Authority
Status
Empathy
Persuasiveness
Ch 6 -16
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18. Business Buyer Behavior
Major Influences on Business Buyers
Individual Factors
Motives
Perceptions
Preferences
Age
Income
Education
Attitude toward risk
Ch 6 -17
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19. The Business Buying Process
Ch 6 -18
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20. The Business Buying Process
Problem Recognition
Problem recognition occurs when someone in the company recognizes a problem or need.
Internal stimuli
Need for new product or production equipment
External stimuli
Idea from a trade show or advertising
Note to Instructor
Sharp uses ads like this one to alert customers to potential problems and then provide solutions. In this ad it states that a multifunction printer can present data security problems and asks “Is your MFP a portal for identity theft?” The solution? Sharp’s data security kits “help prevent sensitive information from falling into the wrong hands.”
Ch 6 -19
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21. The Business Buying Process
General Need Description and Product Specifications
General need description describes the characteristics and quantity of the needed item.
Product specification describes the technical criteria.
Value analysis is an approach to cost reduction where components are studied to determine if they can be redesigned, standardized, or made with less costly methods of production.
Ch 6 -20
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22. The Business Buying Process
Supplier Search and Proposal Solicitation
Supplier search involves compiling a list of qualified suppliers.
Proposal solicitation is the process of requesting proposals from qualified suppliers.
Note to Instructor
This Web link brings the class to IDES which is a search engine for suppliers. The current page shows the vast number of plastics suppliers.
Ch 6 -21
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23. Business Buyer Behavior
Supplier Selection and Order Routine Specifications
Supplier selection is the process when the buying center creates a list of desired supplier attributes and negotiates with preferred suppliers for favorable terms and conditions.
Order-routine specifications is the final order with the chosen supplier and lists all of the specifications and terms of the purchase.
Ch 6 -22
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24. The Business Buying Process
Performance Review
Performance review involves a critique of supplier performance to the purchase terms.
Ch 6 -23
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25. E-Procurement: Buying on The Internet
Online purchasing (reverse auctions or trading exchanges)
Company-buying sites
Extranets
Note to Instructor
Online-buying: This Sun Microsystems site helps customers who want to purchase online by providing deep information on its thousands of complex products and services. Users who still need help can take advantage of the site’s interactive features to request an immediate phone call, an , or a live online chat with a Sun representative.
Ch 6 -24
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26. The Business Buying Process
E-Procurement
Advantages
Disadvantages
Access to new suppliers
Lowers costs
Speeds order processing and delivery
Shares information
Sales
Service and support
Can erode relationships as buyers search for new suppliers
Security
Ch 6 -25
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27. Institutional and Government Markets
Institutional markets
Institutional markets consist of hospitals, nursing homes, and prisons that provide goods and services to people in their care.
Characteristics
Low budgets
“Captive” audience
Note to Instructor
Institutional markets are larger than the students initially may believe. An example is the Saudi health insurance market provided in the book. The Saudi government is working on expanding the health insurance sector, which in 2009 was valued at around SR5 billion (US$1.3 billion). This is expected to increase by a further SR2 billion (US$533 million) in the short term with new regulations introduced in January 2009 that will further expand the insurance scheme to Saudi nationals working
in small and medium enterprises in the private sector.
Ch 6 -26
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28. Institutional and Government Markets
Government markets tend to favor domestic suppliers and require suppliers to submit bids and normally award to the lowest bidder.
Noneconomic criteria play a role:
Depressed business firms and areas
Small business firms
Minority-owned firms
Business firms that avoid race, gender or age discrimination
Note to Instructor
Given all the red tape, why would any firm want to do business with the government? The reasons are quite simple: Purchases by governments are huge. For example, the Saudi government’s spending on e-transactions is currently around Dh 3.6 billion (US$1 billion). That country’s Knowledge Economy City (KEC) in Medina is an SR 30 billion (US$8 billion) development by the Saudi General Investment Authority. It covers 4.8 million square meters and is expected to create 20,000 new jobs in knowledge-based industries.
Ch 6 -27
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29. Copyright © 2011 Pearson Education
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Ch 6 -28
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