Chapter 6- slide 1Copyright © 2009 Pearson Education, Inc.  Publishing as Prentice Hall

ILP108Week 5

Chapter Six

Business Markets and Business Buying Behavior

6-2Chapter 6- slide 2Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Learning ObjectivesAfter studying this chapter, you should be able to:1. Define the business market and explain how business

markets differ from consumer markets

2. Identify the major factors that influence business buyer behavior

3. List and define the steps in the business buying-decision process

4. Compare the institutional and government markets and explain how institutional and government buyers make their buying decisions

6-3Chapter 6- slide 3Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Chapter Outline1. Business Markets2. Business Buyer Behavior3. E-Procurement: Buying on the Internet4. Institutional and Government Markets

6-4Chapter 6- slide 4Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Markets• 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.

6-5Chapter 6- slide 5Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business MarketsBusiness markets differ from consumer markets in:• Market structure and demand• Nature of the buying unit• Types of decisions • The decision-making process

6-6Chapter 6- slide 6Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Market Structure and Demand• Fewer and larger buyers• Geographic concentration• Derived demand

• Inelastic demand• Fluctuating demand

• Buyer and seller dependency

Business Markets

6-7Chapter 6- slide 7Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Nature of the Buying Unit

• More decision participants• Buying center

• More professional purchasing effort• Trained purchasing agents • Understand constraints and requirements

Business Markets

6-8Chapter 6- slide 8Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Markets

Types of Decisions and the Decision Process• More complex buying decisions• More formalized

• Detailed product specifications, written purchase orders, careful supplier search, formal approval

• Buyer and sellers work closely, long-term relationship

6-9Chapter 6- slide 9Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Eg: IKEA

• Challenge: find enough of the right kinds of suppliers to help design and produce the billions of dollars of affordable goods.

• 1,800 suppliers in more than 50 countries

• need to double its supply network by 2010.

• IKEA doesn’t just buy from its suppliers. It involves them deeply in the process of designing and making stylish but affordable furniture.

•Buyer and sellers work closely, long-term relationship

6-10Chapter 6- slide 10Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business MarketsTypes of Decisions and the Decision Process

• 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.

6-11Chapter 6- slide 11Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

A Model of Business Buyer Behavior

Business Buyer Behavior

6-12Chapter 6- slide 12Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer Behavior• 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.

• Also included are retailing and wholesaling firms that acquire goods to resell or rent to others for profit.

6-13Chapter 6- slide 13Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Buyer Responses to Marketing Stimuli• Product or service choice• Supplier choice• Order quantities• Delivery• Service• Payment terms

Business Buyer Behavior

6-14Chapter 6- slide 14Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer BehaviorBuyer Responses to Marketing Stimuli• Marketers must understand what happens

within the organization and turn stimuli into purchase responses.

6-15Chapter 6- slide 15Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer BehaviorMajor Types of Buying Situations• Straight rebuy • Modified rebuy• New task

6-16Chapter 6- slide 16Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer BehaviorMajor Types of Buying Situations• Straight rebuy is a routine purchase decision such

as a 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.

6-17Chapter 6- slide 17Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer BehaviorMajor 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

6-18Chapter 6- slide 18Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer BehaviorParticipants in the Business Buying Process• The buying center is all of the individuals and

units that play a role in the purchase decision-making process:• Users• Influencers• Buyers• Deciders• Gatekeepers

6-19Chapter 6- slide 19Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer BehaviorParticipants 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.

6-20Chapter 6- slide 20Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer BehaviorParticipants in the Business Buying ProcessThe buying center provides a major challenge:• Who participates in the process• Their relative authority• What evaluation criteria each participant uses• Informal participants

6-21Chapter 6- slide 21Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer BehaviorMajor Influences on Business Buyers

Business

6-22Chapter 6- slide 22Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer BehaviorMajor Influences on Business Buyers

6-23Chapter 6- slide 23Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

• Technology• Culture• Politics• Competition

Business Buyer BehaviorMajor Influences on Business Buyers

Environmental factors:• Demand for product• Economic outlook• Cost of money• Resource availability

6-24Chapter 6- slide 24Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Major Influences on Business BuyersOrganizational factors:• Objectives• Policies• Procedures• Structure• Systems

Business Buyer Behavior

6-25Chapter 6- slide 25Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer BehaviorMajor Influences on Business BuyersInterpersonal factors:• Motives• Perceptions• Preferences• Age• Income• Education• Attitude toward risk

6-26Chapter 6- slide 26Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer BehaviorThe Buying Process1. Problem recognition2. General need description3. Product specification4. Value analysis5. Supplier search

6. Proposal solicitation7. Supplier selection8. Order-routine specifications9. Performance review

6-27Chapter 6- slide 27Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer BehaviorProblem 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

6-28Chapter 6- slide 28Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer BehaviorThe Buying Process• 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 determined if they can be redesigned, standardized, or made with less costly methods of production.

6-29Chapter 6- slide 29Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer BehaviorThe Buying Process• Supplier search involves compiling a list of

qualified suppliers.• Proposal solicitation is the process of

requesting proposals from qualified suppliers.

6-30Chapter 6- slide 30Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer BehaviorThe Buying Process• 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.

6-31Chapter 6- slide 31Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer BehaviorThe Buying ProcessPerformance review involves a critique of

supplier performance to the purchase terms.

6-32Chapter 6- slide 32Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer Behavior

• Online purchasing• Company-buying

sites• Extranets

E-Procurement

6-33Chapter 6- slide 33Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer BehaviorE-Procurement and Buying on the InternetAdvantages• Access to new suppliers• Lowers costs• Speed in order processing and delivery• Share information• Sales• Service and support

6-34Chapter 6- slide 34Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Business Buyer BehaviorE-Procurement and Buying on the InternetDisadvantages• Can erode relationships as buyers search for

new suppliers• Lack of security

6-35Chapter 6- slide 35Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

• Institutional markets consist of hospitals, nursing homes, and prisons that provide goods and services to people in their care.

• Characteristics• Low budgets• “Captive” audience

Institutional and Government Markets

6-36Chapter 6- slide 36Copyright © 2010 Pearson Education, Inc.  Publishing as Prentice Hall

Institutional and Government Markets• Government markets tend to favor domestic

suppliers and require suppliers to submit bids and normally award to the lowest bidder

• Carefully monitored• Affected by similar environmental factors• Good credit• Non-economic factors• Minority suppliers• Depressed suppliers• Small businesses