Chapter 7 [SUMMARY] | Analyzing Business Markets

ORGANIZATIONAL BUYING the 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.
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.
o Major Industries: Agriculture, forestry and fisheries, Mining,
Manufacturing, Construction, Communication, Public Utilities, Banking,
finance and insurance, Distribution, Services
COMMODITIZATION biggest enemy to marketers
it eats away margins and weakens customer loyalty. It
can be overcome only if target customers are convinced that meaningful
differences exist in the marketplace, and that the unique benefits of the firms
offerings are worth the added expenses.

time. Out-suppliers attempt to offer something new or exploit dissatisfaction

with a current supplier. Their goal is to get a small order and then enlarge their
purchase share over time.
o Business buyer makes FEWER decisions
Modified Rebuy the buyer wants to change product specifications, prices,
delivery requirements, or other terms. This usually requires additional
participants on both sides. The in-suppliers become nervous and want to protect
the account. The out-suppliers see an opportunity to propose a better offer to
gain some business.
New task A 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 gatheringthe longer
the time to a decision.
o Business buyer makes MOST decisions
o Stages of Process: awareness, interest, evaluation, trial, and adoption

SYSTEMS BUYING AND SELLING

*The critical step in business marketing is to create and communicate relevant

differentiation from competitors.

CHALLENGES FACED BY TOP BUSINESS FIRMS (per survey):

1. Understanding deep customer needs in new ways;
2. Identifying new opportunities for organic business growth;
3. Improving value management techniques and tools;
4. Calculating better marketing performance and accountability metrics;
5. Competing and growing in global markets, particularly China;
6. Countering the threat of product and service commoditization by bringing innovative
offerings to market faster and moving to more competitive business models; and
7. Convincing C-level executives to embrace the marketing concept and support robust
marketing programs.
BUSINESS MARKETERS IN CONTRAST WITH CONSUMER MARKETS:
Fewer, larger buyers
Close supplier-customer relationship
Professional purchasing
Multiple buying influences
Multiple sales calls
Derived demand
Inelastic demand
Fluctuating demand
Geographically concentrated buyers
Direct purchasing
3 TYPES OF BUYING SITUATIONS:
Straight Rebuy reordering supplies on a routine basis and chooses from
suppliers on an approved list. The suppliers make an effort to maintain product
and service quality and often propose automatic reordering systems to save

Systems Buying buying a total problem solution from one seller. It is done by
soliciting bids from prime contractions that, if awarded the contract, would be
responsible for bidding out and assembling the systems subcomponents from
second-tier contractors. The prime contractor thus provided a turnkey solution,
so-called because the buyer simply had to turn one key to get the job done.
Systems Contracting one variant of systems selling which a single supplier
provides the buyer with its entire requirement of MRO supplies. During the
contract period, the supplier also manages the customers inventory.

PARTICIPANTS IN THE BUSINESS BUYING PROCESS

THE BUYING CENTER decision-making unit of a buying organization. It consists of all
those individuals and groups who participate in the purchasing decision-making process,
who share some common goals and the risks arising from the decisions. It has a
minimum of five or six members and often has dozens, some may be outside the
organization.
Seven Roles in the Purchase Decision Process
1. InitiatorsUsers or others in the organization who request that something be
purchased.
2. UsersThose who will use the product or service. In many cases, the users initiate
the buying proposal and help define the product requirements.
3. InfluencersPeople who influence the buying decision, often by helping define
specifications and providing information for evaluating alternatives. Technical personnel
are particularly important influencers.
4. DecidersPeople who decide on product requirements or on suppliers.

5. ApproversPeople who authorize the proposed actions of deciders or buyers.

6. BuyersPeople who have formal authority to select the supplier and arrange the
purchase 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. GatekeepersPeople who have the power to prevent sellers or information from
reaching members of the buying center. For example, purchasing agents, receptionists,
and telephone operators may prevent salespersons from contacting users or deciders.
BUYING CENTER INFLUENCES
* Buying centers usually include several participants with differing interests, authority,
status, and persuasiveness, and sometimes very different decision criteria.

STAGES IN BUYING PROCESS Buyphases / Buygrid Framework

* Business buyers also have personal motivations, perceptions, and preferences

influenced by their age, income, education, job position, personality, attitudes toward
risk, and culture. Buyers definitely exhibit different buying styles.

1. Problem Recognition begins when someone in the company recognizes a

problem or need that can be met by acquiring a good or service that can be
triggered by internal or external stimuli.
2. General Need Description the buyer determines the needed items general
characteristics and required quantity.
3. Product Specification the buying organization now develops the items
technical specifications. Often, the company will assign a product-value-analysis
engineering team to the project.
Product Value Analysis (PVA) - an approach to cost reduction that
studies whether components can be redesigned or standardized or made
by cheaper methods of production without adversely impacting product
performance.
4. Supplier Search the buyer tries to identify the most appropriate suppliers
through trade directories, contacts with other companies, trade advertisements,
trade shows, and the Internet.
Forms of Electronic Marketplaces:
o Catalog sites, Vertical markets, Pure Play auction sites, Spot (or
exchange) markets, Private exchanges, Barter markets, Buying
alliances

*Individuals, not organizations, make purchasing decisions. Individuals are motivated by

their own needs and perceptions in attempting to maximize the rewards (pay,
advancement, recognition, and feelings of achievement) offered by the organization.
Personal needs motivate their behavior, but organizational needs legitimate the buying
process and its outcomes.
*Businesspeople are not buying products. They are buying solutions to two problems:
(1) the organizations economic and strategic problem, and;
(2) 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.
THE PURCHASING/PROCUREMENT PROCESS

FRAMING occurs when customers are given a perspective or point of view that
allows the firm to put its best foot forward.
can be as simple as making sure customers realize all the benefits
or cost savings afforded by the firms offerings, or becoming more involved and
influential in the thought process behind how customers view the economics of
purchasing, owning, using, and disposing product offerings.

Online business buying

Advantages: - Shaves transaction costs for both buyers and suppliers
- Reduces time between order and delivery
- Consolidates purchasing systems
- Forges more direct relationships between partners and buyers
Disadvantage: it may help to erode supplierbuyer loyalty and create potential
security problems
E-PROCUREMENT
Two Types of E-Hubs:
Vertical Hubs centered on industries (plastics, steel, chemicals, paper)

Functional Hubs (logistics, media buying, advertising, energy

managemenwayst)
Other Ways to Use E-Procurement:
Set-up direct extranet links to major suppliers
Form buying alliances
Set up company buying sites
5. Proposal Solicitation the buyer invites qualified suppliers to submit proposal.
If the item is complex or expensive, the proposal will be written and detailed.
After evaluating the proposals, the buyer will invite a few suppliers to make
formal presentations.
6. Supplier Selection - before selecting a supplier, the buying center will specify
and rank desired supplier attribute, often using a supplier-evaluation model.
Developing Compelling Customer Value Propositions
Some Productive Research Methods:
1. Internal engineering assessmentHave company engineers use laboratory
tests to estimate the products performance characteristics.
Weakness: Ignores the fact that the product will have different economic value in
different applications.
2. Field value-in-use assessmentInterview customers about how costs of
using a new product compare to those of using an incumbent. The task is to
assess how much each cost element is worth to the buyer.
3. Focus-group value assessmentAsk customers in a focus group what value
they would put on potential market offerings.
4. Direct survey questionsAsk customers to place a direct dollar value on
one or more changes in the market offering.
5. Conjoint analysisAsk customers to rank their preferences for alternative
market offerings or concepts. Use statistical analysis to estimate the implicit
value placed on each attribute.
6. BenchmarksShow customers a benchmark offering and then a new
market offering. Ask how much more they would pay for the new offering or
how much less they would pay if certain features were removed from the
benchmark offering.
7. Compositional approachAsk customers to attach a monetary value to
each of three alternative levels of a given attribute. Repeat for other
attributes, then add the values together for any offer configuration.
8. Importance ratingsAsk customers to rate the importance of different
attributes and their suppliers performance on each.
*Some companies handle price-oriented buyers by setting a lower price
but establishing restrictive conditions: (1) limited quantities, (2) no
refunds, (3) no adjustments, and (4) no services.
Solution Selling:
Solutions to Enhance Customer Revenue
Solutions to Decrease Customer Risks
Solutions to Reduce Customer Costs

7. Order-Routine Specification - After selecting suppliers, the buyer negotiates

the final order, listing the technical specifications, the quantity needed, the
expected time of delivery, return policies, warranties, and so on.
Blanket Contract establishes a long-term relationship in which
the supplier promises to resupply the buyer as needed, at agreed-upon
prices, over a specified period of time. Sometimes called stockless
purchase plans.
8. Performance Review - The buyer periodically reviews the performance of the
chosen supplier(s) using one of three methods. The buyer may contact end users
and ask for their evaluations, rate the supplier on several criteria using a
weighted-score method, or aggregate the cost of poor performance to come up
with adjusted costs of purchase, including price. The performance review may
lead the buyer to continue, modify, or end a supplier relationship.

MANAGING BUSINESS-TO-BUSINESS CUSTOMER RELATIONSHIPS

THE BENEFITS OF VERTICAL COORDINATION
8 Categories of Buyer-Supplier Relationships:
1. Basic buying and sellingThese are simple, routine exchanges with
moderate levels of cooperation and information exchange.
2. Bare bonesThese relationships require more adaptation by the seller and
less cooperation and information exchange.
3. Contractual transactionThese exchanges are defined by formal contract
and generally have low levels of trust, cooperation, and interaction.
4. Customer supplyIn this traditional custom supply situation, competition
rather than cooperation is the dominant form of governance.
5. Cooperative systemsThe partners in cooperative systems are united in
operational ways, but neither demonstrates structural commitment through
legal means or adaptation.
6. CollaborativeIn collaborative exchanges, much trust and commitment lead
to true partnership.
7. Mutually adaptiveBuyers and sellers make many relationship-specific
adaptations, but without necessarily achieving strong trust or cooperation.
8. Customer is kingIn this close, cooperative relationship, the seller adapts to
meet the customers needs without expecting much adaptation or change in
exchange.
Establishing Corporate Trust, Credibility, and Reputation
CORPORATE CREDIBILITY - the extent to which customers believe a firm can
design and deliver products and services that satisfy their needs and wants. It
reflects the suppliers reputation in the marketplace and is the foundation for a
strong relationship.
3 Factors:
o Corporate expertisethe extent to which a company is seen as able to
make and sell products or conduct services.
o Corporate trustworthinessthe extent to which a company is seen as
motivated to be honest, dependable, and sensitive to customer needs.

Corporate likabilitythe extent to which a company is seen as likable,

attractive, prestigious, dynamic, and so on.
TRUST - the willingness of a firm to rely on a business partner. It depends on a
number of interpersonal and interorganizational factors, such as the firms
perceived competence, integrity, honesty, and benevolence.

equipment, and operating procedures or systems). They help firms grow profits
and achieve their positioning.
OPPORTUNISM - is some form of cheating or undersupply relative to an implicit
or explicit contract. It may entail blatant self-serving and deliberate
misrepresentation that violates contractual agreements.
INSTITUTIONAL AND GOVERNMENT MARKETS
Institutional Market - consists of schools, hospitals, nursing homes, prisons,
and other institutions that must provide goods and services to people in their
care.

BUSINESS RELATIONSHIPS: RISK AND OPPORTUNISM

SPECIFIC INVESTMENTS - are those expenditures tailored to a particular
company and value chain partner (investments in company-specific training,