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.