Analyzing Business Markets

The business market 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. The major industries making up the business market are agriculture, forestry, and fisheries; mining; manufacturing; construction; transportation; communication; public utilities; banking; finance, and insurance; distribution; and services.

Business marketers face many of the same challenges as consumer marketers. In particular, understanding their customers and what they value is of paramount important to both.

Institutional and Government Markets

The institutional market consists of schools, hospitals, nursing homes, and other institutions that provide goods and services to people in their care. Many of these organizations have low budgets and captive clienteles.

In most countries, government organizations are major buyers of goods and services. The U.S. government is the world's largest customer, buying goods and services valued at more than $220 billion. Government organizations typically require suppliers to submit bids and often award the contract to the lowest bidder, sometimes making allowances for superior quality or a reputation for on-time performance. Demonstrating useful experience and successful past performance through case studies, especially with other government organizations, can be influential.

Buying Situations

The business buyer faces many decisions in making a purchase. Three types of buying situations are the straight rebuy, modified rebuy, and new task.

1. Straight rebuy - the purchasing department reorders supplies such as bulk chemicals on a routine basis and chooses from suppliers on approved list. These suppliers make an effort to maintain product and service quality and often propose automatic reordering systems to save time. 
2. Modified rebuy - the buyer wants to change product specifications, prices, delivery requirements, or other terms. This usually requires additional participants on both sides.
3. New task - purchaser buys a product or service for the first time (an office building, a new security system). the greater the cost or risk, the larger the number of participants, and the greater their information gathering - the longer the time to a decision. The new-task buying passes through several stages: awareness, interest, evaluation, trial, and adoption.

Systems Buying and Selling

Many business buyers prefer to buy a total problem solution from one seller called system buying. Sellers have increasingly recognized that buyers like to purchase in this way, and many have adopted systems selling as a marketing tool. One variant of system selling is system contracting, in which a single supplier provides the buyer with its entire requirement of MRO (maintenance, repair and operating) supplies. The customer benefits from reduced procurement and management costs and from price protection during the contract period. The seller benefits from lower operating costs thanks to steady demand and reduced paperwork.

Participants in Business Buying Process

The Buying Center

Frederic Webster and Yoram Wind call the decision-making unit of a buying organization the buying center. The buying center includes all members of the organization who play any of the following seven roles in the purchase decision process.

1. Initiators - Users or others in the organization who request that something be purchased.
2. Users - Those who will use the product or service. In many cases, the users initiate the buying proposal and help define the product requirements.
3. Influencers - People who influence the buying decision (especially technical personnel) by helping define specifications and providing information for evaluating alternatives.
4. Deciders - People who decide on product requirements or on supplies.
5. Approvers - People who authorize the proposed actions of deciders or buyers.
6. Buyers - People who have formal authority to select the supplier and arrange the pruchase terms. Buyers may help shape product specifications, but they play their major role in selecting vendors and negotiating. In more complex purchases, buyers might include high-level managers.
7. Gatekeepers - people such as purchasing agents and receptionists who have the power to prevent sellers or information from reaching members of the buying center.

Buying Center Influences

Buying centers usually include several participants with differing interests, authority, status, and persuasiveness, and sometimes very different decision criteria. Business buyers also have personal motivations, perceptions, and preferences influenced by their age, income, education, job position, personality, attitudes toward risk, and culture. Webster cautions that ultimately individuals, not organizations, make purchasing decisions. Thus, businesspeople are actually buying solutions to two problems: the organization's economic and strategic problem and their own personal need for individual achievement and reward.

Targeting Firms and Buying Centers

Successful business-to-business marketing requires that business marketers know which types of companies to focus on in their selling efforts, as well as who to concentrate on within the buying centers in those organizations. Finding market segments with the greatest growth prospects, most profitable customers, and most promising opportunities is crucial. Also, marketers should remember that many business-to-business transactions involve products purchased as components or ingredients in products that companies sell to the ultimate end users.

Stages in the Buying Process

The business buying-decision process includes eight stages called buyphases, as identified by Patrick J. Robinson and his associates, in the buygrid framework. In modified-rebuy or straight-rebuy situations, some stages are compressed or bypassed.

Managing Business-to-Business Customer Relationships

 

Cultivating the right relationships with business is paramount for any holistic marketing program.

The Benefits of Vertical Coordination

 

Much research has advocated greater vertical coordination between buying partners and sellers, so they can go beyond transactions to engage in activities that create more value for both parties. Building trust is one prerequisite to healthy long-term relationships. Knowledge that is specific and relevant to a relationship partner is also an important factor in the strength of interfirm ties.

Four relevant factors are availability of alternatives, importance of supply, complexity of supply, and supply market dynamism. Based on these we can classify buyer-supplier relationships into eight categories:

1. Basic buying and selling - simple, routine exchanges with moderate levels of cooperation and information exchange.
2. Bare bones - relationships require more adaptation by the seller and less cooperation and information exchange.
3. Contractual transaction - exchanges are defined by formal contract and generally have low levels of trust, cooperation, and interaction.
4. Customer supply - competition rather than cooperation is the dominant form of governance.
5. Cooperative systems - the partners are united in operational ways, but neither demonstrates structural commitment through legal means or adaptation.
6. Collaborative - In collaborative exchanges, much trust and commitment lead to true partnership.
7. Mutually adaptive - Buyers and sellers make many realtionship-specific adaptations, but without necessarily achieving strong trust or cooperation.
8. Customer is king - The seller adapts to meet the customer's needs without expecting much adaptation or change in exchange.

Opportunism is "some form of cheating or undersupply relative to an implicit or explicit contract." A more passive form of opportunism might be a refusal or unwillingness to adapt to changing circumstances. Opportunism is a concern because firm must devote resources to control and monitoring that they could otherwise allocate to more productive purposes. A supplier with good reputation will try to avoid opportunism to protect this valuable asset. Finally, to start and strengthen relationships with business-to-business customer, top firms are redesigning Web sites, improving search results, exchanging e-mails, engaging in social media, and launching Webinars and podcasts.



SUMMARY

Business marketers face many of the same challenges as consumer marketers. In particular, understanding their customers and what they value is of paramount important to both. Business buyer faces many decisions in marking a purchase. Three types of buying situations are the straight rebuy, modified rebuy, and new task. Many business buyers prefer to buy a total problem solution from one seller called system buying. Sellers have increasingly recognized that buyers like to purchase in this way, and many have adopted systems selling as a marketing tool. Buying centers usually include several participants with differing interests, authority, status, and persuasiveness, and sometimes very different decision criteria. Business buyers also have personal motivations, perceptions, and preferences influenced by their age, income, education, job position, personality, attitudes toward risk, and culture. Webster cautions that ultimately individuals, not organizations, make purchasing decisions. Thus, businesspeople are actually buying solutions to two problems: the organization's economic and strategic problem and their own personal need for individual achievement and reward.

Much research has advocated greater vertical coordination between buying partners and sellers, so they can go beyond transactions to engage in activities that create more value for both parties. Building trust is one prerequisite to healthy long-term relationships. Knowledge that is specific and relevant to a relationship partner is also an important factor in the strength of interfirm ties. To start and strengthen relationships with business-to-business customer, top firms are redesigning Web sites, improving search results, exchanging e-mails, engaging in social media, and launching Webinars and podcasts.

Creating Long-term Loyalty Relationships

The Cornerstone of holistic marketing is strong customer relationships. Marketers must win customers by connecting with them - listening and responding to them, informing, and engaging them, and maybe even energizing them in the process.

Building Customer Value, Satisfaction, and Loyalty

 

Consumers are better educated and informed than ever, and they have the tools to verify companies claims and seek out superior alternatives. Effective competition depends largely on the company's ability to do a better job of providing value to customers and meeting or exceeding their expectations.

Customer Perceived Value (CPV)

Customer-perceived value (CPV) is the difference between the prospective customer's evaluation of all the benefits and all the costs of an offering and the perceived alternatives.

• Total customer benefit is the perceived monetary value of the bundle of economic, functional, and psychological benefits customers expect from a given market offering because of the product, service, people, and image.

• Total customer cost is the perceived bundle of cost customers expect to incur in evaluating, obtaining, using, and disposing of the given market offering, including monetary, time, energy, and psychological costs.

• Loyalty is a deeply held commitment to rebuy or repatronize a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behavior.

• Value delivery system is all the experiences the customer will have on the way to obtaining and using the offering.

Measuring Customer Lifetime Value (CLV)

The maximizing long-term customer profitability is captured in the concept of customer lifetime value. Customer Lifetime Value describes the net present value of the stream of future profits expected over the customer's lifetime purchases. The company must subtract from its expected revenues the expected costs of attracting, selling, and servicing the amount of that customer, applying the appropriate discount rate. 

Customer relationship management (CRM)

Customer relationship management (CRM) is the process of carefully managing detailed information about individual customers and all customer touch points to maximize loyalty. CRM enables companies to provide excellent real-time customer service through the effective use of individual account information. Based on what they know about each valued customer, companies can customize market offerings, services, programs, messages, and media. CRM is important because a major driver of company profitability is the aggregate value of the company's customer base.

Attracting and Retaining Customers

Companies seeking to expand their profits and sales must spend considerable time and resources searching for new customers. The main steps in attracting and retaining customers show in term of a funnel. The marketing funnel identifies the percentage of the potential target market at each stage in the decision process, from merely aware to highly loyal.  

 

 

Database Marketing

Database marketing is the process of building, maintaining, and using customer databases and other databases (products, suppliers, resellers) to contact, transact with and build relationship with customers.

The Downside of Database Marketing and CRM

Five main problems can prevent a frim fromeffectively using database marketing for CRM.

1. Some situations are not conductive to database management, such as when the product is a once-in-a-lifetime purchase or when the unit sale is very small. 
2. Building and maintaining a customer database requires a large investment in computer hardware, database software, analytical programs, communication links, and skilled staff.
3. Getting everyone in the company to be customer oriented and to use the available information for CRM can be a challenge.
4. Not all customers want a relationship with the company and may resent having their personal data collected and stored.
5. The assumptions behind CRM may not always hold true. 

High-volume customers often know their value to a company and can leverage it to extract premium service and/or price discounts, so that it may not cost the firm less to serve them. Loyal customers may expect and demand more and resent any attempt to charge full prices.

SUMMARY

The Cornerstone of holistic marketing is strong customer relationships. Marketers must win customers by connecting with them - listening and responding to them, informing, and engaging them, and maybe even energizing them in the process. Consumers are better educated and informed than ever, and they have the tools to verify companies claims and seek out superior alternatives. Customer-perceived value (CPV) is the difference between the prospective customer's evaluation of all the benefits and all the costs of an offering and the perceived alternatives. The maximizing long-term customer profitability is captured in the concept of customer lifetime value. Customer relationship management (CRM) is the process of carefully managing detailed information about individual customers and all customer touch points to maximize loyalty. Companies seeking to expand their profits and sales must spend considerable time and resources searching for new customers. The main steps in attracting and retaining customers show in term of a funnel. The marketing funnel identifies the percentage of the potential target market at each stage in the decision process, from merely aware to highly loyal. Database marketing is the process of building, maintaining, and using customer databases and other databases (products, suppliers, resellers) to contact, transact with and build relationship with customers. High-volume customers often know their value to a company and can leverage it to extract premium service and/or price discounts, so that it may not cost the firm less to serve them. Loyal customers may expect and demand more and resent any attempt to charge full prices.

 

 

Identifying Market Segments and Targets

A market segment consists of a group of customers who share a similar set of needs and wants. The marketer's task is to identify the appropriate number and nature of market segments and decide which one(s) to target.Whether using descriptive characteristics: geographic, demographic, and psychographic or using behavioral considerations:consumer responses to benefits, usage occasions, or brands, the key is adjusting the marketing program to recognize customer differences. The major segmentation variables - geographic, demographic, psychographic, and behavioral segmentation.

Geographic Segmentation

Geographic segmentation divides the market into geographical units such as nations, states, regions, counties, cities, or neighborhoods. The company can operate in one or a few areas, or it can operate in all but pay attention to local variations. In a growing trend called grassroots marketing, such activities concentrate on getting as close and personally relevant to individual customers as possible.

Demographic Segmentation

In demographic segmentation, we divide the market using variable such as age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality, and social class. Demographic variables (Age and life-cycle stage, Life stage, Gender, Income, Generation, Race and culture) are popular with marketers because they're often associated with consumer needs and wants and because they're easy to measure.

Psychographic Segmentation

Psychographics is the sience of using psychology and demorgraphics to better understand consumers. In psychographic segmentation, buyers are divided into different groups on the basis of psychological/personality traits, lifestyle, or values. People within the same demographic group can exhibit very different psychographic profiles.

One of the most popular commercially available classification systems based on psychographic measurements is Strategic Business Insight's VALS framework. VALS, signifying values and lifestyles, classifies U.S. adults into eight primary groups based on demographics and attitudes. The main dimensions of the VALS segmentation framework are consumer motivation and consumer resources.

Behavioral Segmentation

Marketers divide buyers into groups on the basis of their knowledge of, attitude toward, use of, or response to a product. Behavior variables can include needs or benefit, decision roles, or be user and usage-related.

Needs and Benefits - Not everyone who buys a product has the same needs or wants the same benefits from it. Needs-based or benefit-based segmentation is widely used because it identifies distinct segments with clear marketing implications.

Decision Roles - People can play five roles in a buying decision: Initiator, Influencer, Decider, Buyer, and User. Different people are playing different decision roles, but all are crucial in the decision process and ultimate consumer satisfaction.

User and Usage - Many marketers believe variables related to various aspects of users or usage - occassions, user status, usage rate, buyer-readiness stage, loyalty status, and attitude - are good starting points for constructing market segments.

Evaluating and Selecting Market Segments

In evaluating market segments, the firm must look at the segment's overall attractiveness and its own objectives and capabilities. Marketers have a range or continuum of possible levels of segmentation that can guide their target market decisions.

Full Market Coverage

The firm attempts to serve all customer groups with all the products they might need. Only very large firms such as Microsoft and Coca-cola can do this, covering a whole market through undifferentiated (mass marketing, the firm ignores segment differences and goes after the whole market with one offer) or differentiated marketing (the firm sells different products to all the different segments).

Multiple Segment Specialization

With selective specialization, a firm selects a subset of all the possible segments, each objectively attractive and appropriate. They may be little or no synergy among the segments, but each promises to be a moneymaker.

Single-Segment Concentration

With single-segment concentration, the firm markets to only one segment. Through concentrated marketing, it gain deep knowledge of the segment's needs and achieves a strong market presence. It also enjoys operating economics by specializing its production, distribution, and promotion. If it captures segment leadership, the firm can earn a high return on its investing.

A niche is a more narrowly defined customer group seeking a distinctive mix of benefits within a segment.

Individual Marketing

The ultimate level of segmentation leads to "segments of one", "customized marketing," or "one-to-one marketing."

 

SUMMARY

A company can divide a business market into geographic segmentation, Demographic segmentation, psychographic segmentation and behavioral segmentation. Business marketers generally identify segments through a sequential process. There are many statistical techniques for developing market segments. Once the firm has identified its market-segment opportunities, it must decide how many and which ones to target. Marketers are increasingly combining several variables in an effort to identify smaller, better-defined target groups. To be useful, market segments must rate favorably on five key criteria: measurable, substantial, accessible, differentiable, and actionable. Marketers use full market coverage where the firm attempts to serve all customer groups with all the products they might need, multiple segment specialization which a firm selects a subset of all the possible segments, each objectively attractive and appropriate, single-segment concentration where the firm markets to only one segment, niche is a more narrowly defined customer group seeking a distinctive mix of benefits and individual marketing is the ultimate level of segmentation.

Market targeting sometimes generates public controversy when marketers take unfair advantage of vulnerable groups (such as children) or disadvantaged groups (such as poor people) or promote potentially harmful products. Establishing ethical and legal boundaries in marketing to children online and offline continues to be a hot topic as consumer advocates decry the commercialism they believe such marketing engenders.

 

Analyzing Consumer Markets

Adopting a holistic marketing orientation means understanding customers - gaining a 360-degree view of both their daily lives and the changes that occur during their lifetimes so the right products are marketed to the right customers in the right way and at the right time.

Consumer behavior is the study of how individuals, groups, and organizations select, buy, use, and dispose of goods, services, ideas, or experiences to satisfy their needs and wants. Marketers must fully understand both the theory and reality of consumer behavior. A consumer's buying behavior is influenced by cultural, social, and personal factors. Among them, cultural factors exert the broadest and deepest influence.

 Fig. Consumer Behavior

 

Culture Factors

Culture, subculture, and social class are particularly important influences on consumer buying behavior. Culture is the fundamental determinant of a person's wants and behavior. Each culture consists of smaller subcultures that provide more specific identification and socialization for their members. Social classes are homogeneous and enduring divisions in a society, hierarchically ordered and with members who share similar values, interests, and behavior. 

Social Factors

Social factors such as reference groups, family , and social roles and status affect consumer buying behavior. Reference groups are all the groups that have a direct (face-to-face) or indirect influence on a customer's attitudes or behavior. Family is the most important consumer buying organization in society, and family members constitute the most influential primary reference group. Roles and Status can define a person's position in each group. A role consists of the activities a person is expected to perform. Each role in turn connotes a status.

Personal Factors

Personal characteristics that influences a buyer's decision include age and stage in the life cycle, occupation and economic circumstances, personality and self-concept, and lifestyle and values.

Key Psychological Processes

The marketer's task is to understand what happens in the consumer's consciousness between the arrival of the outside marketing stimuli and the ultimate purchase decisions. Five key psychological processes - motivation, perception, learning, emotions, and memory - fundamentally influence consumer responses.

  

The Buying Decision Process: The Five-Stage Model

Smart companies try to fully understand customers' buying decision process - all the experiences in learning, choosing, using, and even disposing of a product. The Five-Stage Model process includes: problem recognition, information search, evaluation of alternatives, purchase decision, and postpurchase behavior. Customers don't always pass through all five stages - they may skip or reverse some. 

Problem Recognition

The buying process starts when the buyer recognizes a problem or need triggered by internal stimuli (such as hunger or thirst) or external stimuli (such as seeing an ad). Marketers need to identify the circumstances that trigger a particular need by gathering information from a number of consumers.

Information Search

Information sources for consumers fall into four groups: personal (family, friends, neighbors, acquaintances), commerical (advertising, Web sites, salespersons, dealers, packaging, displays), public (mass media, consumer-rating organizations), and experiential (handling, examining, using the product). In the milder search state, heightened attention, a person simply becomes more receptive to information about a product. In an active information search, a person talks with friends, search online, and visits stores to learn about the product. Marketers should identify the consumer's information sources and evaluate their relative importance so it can prepare effective communications.

Evaluation of Alternatives

The consumer sees each product as a bundle of attributes with varying abilities to deliver the benefits. The attributes of interest to buyers vary by product. A belief is a descriptive thought that a person holds about something. An attitudes, a person's enduring favorable or unfavorable evaluations, emotional feelings, and action tendencies toward some object or idea. The consumer arrives at attitudes toward various brands through an attribute evaluation procedure, developing a set of beliefs about where each brand stands on each attribute. The expectany-value model of attitude formation posits that consumers evaluate products and services by combining their brand beliefs - the positives and negatives - according to importance.

Purchase Decision

In the evaluation stage, the consumer forms preferences among the brands in the choice set and may also form an intention to buy the most preferred brand. Even if consumers form brand evaluations, two general factors such as the attitudes of others and unanticipated situational factors can intervene between the purchase intention and the purchase decision. A consumer's decision to modify, postpone, or avoid a purchase decision is heavily influenced by one or more types of perceived risk. The degree of perceived risk varies with the amount of money at stake, the amount of attribute uncertainty, and the level of consumer self-confidence. Marketers must understand the factors that provoke a feeling of risk in consumers and then provide information and support to reduce perceived risk.

Postpurchase Behavior

After the purchase, the consumer might experience dissonance from noticing certain disquieting features or hearing favorable things about other brands and will be alert to information that supports his or her decision. The marketer's job doesn't end with the purchase. Marketers must monitor postpurchase satisfaction, postpurchase actions, and postpurchase product uses and disposal. A satisfied consumer is more likely to purchase the product again and will tend to say good things about the brand to others.

         
 

**Consumers don't always make buying decisions in a deliberate, rational manner.**

SUMMARY

Consumer behavior is the study of how individuals, groups, and organizations select, buy, use, and dispose of goods, services, ideas, or experiences to satisfy their needs and wants. Marketers must fully understand both the theory and reality of consumer behavior. A consumer's buying behavior is influenced by cultural, social, and personal factors. Among them, cultural factors exert the broadest and deepest influence.

Smart companies try to fully understand customers' buying decision process - all the experiences in learning, choosing, using, and even disposing of a product. The Five-Stage Model process includes: problem recognition, information search, evaluation of alternatives, purchase decision, and postpurchase behavior. Customers don't always pass through all five stages - they may skip or reverse some. 

The buying process starts when the buyer recognizes a problem or need triggered by internal stimuli (such as hunger or thirst) or external stimuli (such as seeing an ad). Information sources for consumers fall into four groups: personal (family, friends, neighbors, acquaintances), commercial (advertising, Web sites, salespersons, dealers, packaging, displays), public (mass media, consumer-rating organizations), and experiential (handling, examining, using the product). The consumer sees each product as a bundle of attributes with varying abilities to deliver the benefits. The attributes of interest to buyers vary by product. In the evaluation stage, the consumer forms preferences among the brands in the choice set and may also form an intention to buy the most preferred brand. Even if consumers form brand evaluations, two general factors such as the attitudes of others and unanticipated situational factors can intervene between the purchase intention and the purchase decision. After the purchase, the consumer might experience dissonance from noticing certain disquieting features or hearing favorable things about other brands and will be alert to information that supports his or her decision. The marketer's job doesn't end with the purchase. Marketers must monitor postpurchase satisfaction, postpurchase actions, and postpurchase product uses and disposal. A satisfied consumer is more likely to purchase the product again and will tend to say good things about the brand to others.