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INTRODUCTION

Considering our familiarity with UPS’s consumer services, it is somewhat surprising that most of UPS’s business is for the business customers who send the packages consumers associate with the brown truck.

Most of UPS’s business comes from commercial and industrial customers across a wide range of industries. UPS provides services ranging from distribution and transportation management to supplier management to supply chain design and planning services.  

In its business markets, rather than selling to large numbers of small buyers, GE sells to a relatively few very large buyers. Buying decisions are much more complex.

People throughout the entire UPS organization know that success in business-to-business markets involves more than just developing and selling superior products and technologies.

Business customer buying decisions are made within the framework of strategic, problem-solving partnerships.

p. 173

Photo: UPS

Ø Opening Vignette Questions

1. Discuss several ways in which marketing to business customers is different from marketing to final consumers.

2. As a sales representative for UPS, how would you describe the advantages of working with your company to a potential customer?   

3. As the president of Zappos.com, which considerations would be most important to you in selecting a logistics vendor? Explain.

p. 174

PPT 6-5

Business buyer behavior refers to the buying behavior of the organizations that buy goods and services for use in the production of other products and services that are sold, rented, or supplied to others. It also includes the behavior of retailing and wholesaling firms that acquire goods for the purpose of reselling or renting them to others at a profit.

In the business buying process, business buyers determine which products and services their organizations need to purchase, and then find, evaluate, and choose among alternative suppliers and brands.

Business-to-business (B-to-B) marketers must do their best to understand business markets and business buyer behavior.

p. 174

Key Terms: Business Buyer Behavior, Business Buying Process

Ø Assignments, Resources

Use Discussion Question 6-1 here

Use Think-Pair-Share 1 here

PPT 6-6

p. 174

p. 175

PPT 6-7

p. 176

PPT 6-8

p. 176

PPT 6-9

PPT 6-10

Define the business market and explain how business markets differ from consumer markets.

Business Markets

The business market is huge. In fact, business markets involve far more dollars and items than do consumer markets.

The main differences between consumer and business markets are in market structure and demand, the nature of the buying unit, and the types of decisions and the decision process involved.

Market Structure and Demand

The business marketer normally deals with far fewer but far larger buyers than the consumer marketer does.

Even in large business markets, a few buyers often account for most of the purchasing.

Business demand is derived demand. It ultimately derives from the demand for consumer goods. B-to-B marketers sometimes promote their products directly to final consumers to increase business demand.

Many business markets have inelastic demand; that is, total demand for many business products is not affected much by price changes, especially in the short run.

Business markets have more fluctuating demand. The demand for many business goods and services tends to change more—and more quickly—than the demand for consumer goods and services does.

Nature of the Buying Unit

Compared with consumer purchases, a business purchase usually involves more decision participants and a more professional purchasing effort.

Often, business buying is done by trained purchasing agents who spend their working lives learning how to buy better.

The more complex the purchase, the more likely that multiple people will participate in the decision-making process.

Types of Decisions and the Decision Process

Business buyers usually face more complex buying decisions than do consumer buyers. Purchases often involve large sums of money, complex technical and economic considerations, and interactions among many people at many levels of the buyer’s organization.

The business buying process also tends to be longer and more formalized than the consumer buying process.

In the business buying process, buyer and seller are often much more dependent on each other.

Many customer companies are now practicing supplier development, systematically developing 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 reselling to others.

Review Learning Objective 1: Define the business market and explain how business markets differ from consumer markets.

Learning Objective 1

p. 175

Key Term: Derived Demand

p. 175

Ad: Intel and Toshiba

p. 176

Photo: GE

p.

Key Term: Supplier Development

Ø Assignments, Resources

Use Critical Thinking Exercise 6-6 here

Use Video Case here

Use Think-Pair-Share 2 here

Use Outside Example 1 and 2 here

Ø Troubleshooting Tip

The first major barrier to learning in this chapter comes from the fact that most students have had no experience with the business market or its buying processes. To aid in the student’s understanding, it is necessary to first carefully explain exactly what the business market is (see Key Terms) and how it is different from the consumer market. The text provides ample material with which to accomplish this objective.

PPT 6-11

p. 177

PPT 6-12

PPT 6-13

PPT 6-14

Identify the major factors that influence business buyer behavior.

Business Buyer Behavior

At the most basic level, marketers want to know how business buyers will respond to various marketing stimuli.

Within the organization, buying activity consists of two major parts: the buying center and the buying decision process.

Major Types of Buying Situations

There are three major types of buying situations:

In a straight rebuy, the buyer reorders something without any modifications. It is usually handled on a routine basis by the purchasing department.

In a modified rebuy, the buyer wants to modify the product specifications, prices, terms, or suppliers. The modified rebuy usually involves more decision participants than does the straight rebuy.

A company buying a product or service for the first time faces a new task situation. In such cases, the greater the cost or risk, the larger the number of decision participants and the greater their efforts to collect information will be.

Many business buyers prefer to buy a complete solution to a problem from a single seller. Instead of buying and putting all the components together, the buyer may ask sellers to supply the components and assemble the package or system. Thus, systems selling is often a key business marketing strategy for winning and holding accounts.

Learning Objective 2

p. 177

Figure 6.1: A Model of Business Buyer Behavior

p. 177

Key Terms: Straight Rebuy, Modified Rebuy, New Task

p. 178

Key Term: Systems Selling (Solutions Selling)

p.178

Photo: Six Flags

Ø Assignments, Resources

Use Discussion Question 6-2 here

Use Critical Thinking Exercise 6-8 here

p. 178

PPT 6-15

PPT 6-16

p. 178

PPT 6-17

p. 179

PPT 6-18

PPT 6-19

p. 180

PPT 6-20

p. 180

PPT 6-21

PPT 6-22

PPT 6-23

PPT 6-24

Participants in the Business Buying Process

The decision-making unit of a buying organization is called its buying center: all the individuals and units that participate in the business decision-making process.

The buying center includes all members of the organization who play any of five roles in the purchase decision process.

· Users are members of the organization who will use the product or service.

· Influencers often help define specifications and also 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 or approve the final suppliers.

· Gatekeepers control the flow of information to others.

The buying center is not a fixed and formally identified unit within the buying organization. It is a set of buying roles assumed by different people for different purchases.

Within the organization, the size and makeup of the buying center will vary for different products and for different buying situations.

The buying center concept presents a major marketing challenge. The business marketer must learn who participates in the decision, each participant’s relative influence, and what evaluation criteria each decision participant uses.

The buying center usually includes some obvious participants who are involved formally in the buying process. It may also involve less obvious, informal participants, some of whom may actually make or strongly affect the buying decision. Sometimes, even the people in the buying center are not aware of all the buying participants.

Major Influencers on Business Buyers

Business buyers are subject to many influences when they make their buying decisions. Business buyers respond to both economic and personal factors. They react to both reason and emotion.

When suppliers’ offers are very similar, business buyers have little basis for strictly rational choice. Because they can meet organizational goals with any supplier, buyers can allow personal factors to play a larger role in their decisions.

When competing products differ greatly, business buyers are more accountable for their choice and tend to pay more attention to economic factors.

Business buyers are heavily influenced by factors in the current and expected economic environment, such as the level of primary demand, the economic outlook, and the cost of money.

An increasingly important environmental factor is supply of key materials. Many companies are now more willing to buy and hold larger inventories of scarce materials to ensure adequate supply. Business buyers also are affected by technological, political, and competitive developments in the environment.

Culture and customs can strongly influence business buyer reactions to the marketer’s behavior and strategies, especially in the international marketing environment.

Organizational factors are also important. Each buying organization has its own objectives, policies, procedures, structure, and systems, and the business marketer must understand those factors as well.

The buying center usually includes many participants who influence each other; so interpersonal factors also influence the business buying process. It is often difficult to assess such interpersonal factors and group dynamics.

Each participant in the business buying-decision process brings in personal motives, perceptions, and preferences. These individual factors are affected by personal characteristics such as age, income, education, professional identification, personality, and attitudes toward risk.

Review Learning Objective 2: Identify the major factors that influence business buyer behavior.

p. 178

Key Terms: Buying Center, Users, Influencers, Buyers, Deciders, Gatekeepers

p. 179

Ad: USG

p. 179

Figure 6.2: Major Influences on Business Buyer Behavior

Ø Assignments, Resources

Use Real Marketing 6.1 here

Use Discussion Questions 6-3 here

Use Marketing Ethics here

Use Additional Projects 1 and 2 here

Use Small Group Assignment 1 here

Use Individual Assignment 1 here

Ø Troubleshooting Tip

One area of concern deals with students understanding a buying center. The easiest way to overcome this is by asking the students to form their own buying center. Who at the university or college would be involved in buying computers for the computer lab, athletic equipment for the gym, textbooks for the class, and shrubs for the campus? Be sure to explain that it is not always the most obvious people that might be involved in the process. How many committees (people) did they come up with? After one illustration, students usually catch on to how the process works. Finish the discussion by asking how the marketing person in a supplier organization should use or gain knowledge about the buying center process of a future sales client (use the examples above if necessary to make a connection).

PPT 6-25

p. 180

PPT 6-26

PPT 6-27

p. 182

PPT 6-28

PPT 6-29

p. 183

PPT 6-30

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

The Business Buying Process

Buyers who face a new task buying situation usually go through all stages of the buying process. Buyers making modified or straight rebuys may skip some of the stages.

Problem Recognition

Problem recognition can result from internal or external stimuli. Internally, the company may decide to launch a new product that requires new production equipment and materials. Externally, the buyer may get some new ideas at a trade show, see an ad, or receive a call from a salesperson who offers a better product or a lower price.

General Need Description

The buyer next prepares a general need description that describes the characteristics and quantity of the needed item.

For standard items, this process presents few problems. For complex items, however, the buyer may have to work with others—engineers, users, and consultants—to define the item.

Product Specification

The buying organization next develops the item’s technical product specifications, often with the help of a value analysis engineering team.

Product value analysis is an approach to cost reduction in which components are studied carefully to determine if they can be redesigned, standardized, or made by less costly methods of production.

The team decides on the best product characteristics and specifies them accordingly.

Supplier Search

The buyer now conducts a supplier search to find the best vendors. The buyer can compile a small list of qualified suppliers by reviewing trade directories, doing a computer search, or phoning other companies for recommendations.

Today, more and more companies are turning to the Internet to find suppliers.

The newer the buying task, the more complex and costly the item, and the greater the amount of time the buyer will spend searching for suppliers.

Proposal Solicitation

In the proposal solicitation stage of the business buying process, the buyer invites qualified suppliers to submit proposals.

When the item is complex or expensive, the buyer will usually require detailed written proposals or formal presentations from each potential supplier.

Supplier Selection

During supplier selection, the buying center often will draw up a list of the desired supplier attributes and their relative importance.

Buyers may attempt to negotiate with preferred suppliers for better prices and terms before making the final selections. In the end, they may select a single supplier or a few suppliers.

Many buyers prefer multiple sources of suppliers to avoid being totally dependent on one supplier and to allow comparisons of prices and performance of several suppliers over time.

Order-Routine Specification

The buyer now prepares an order-routine specification. It includes the final order with the chosen supplier or suppliers and lists items such as technical specifications, quantity needed, expected time of delivery, return policies, and warranties.

In the case of maintenance, repair, and operating items, buyers may use blanket contracts rather than periodic purchase orders. A blanket contract creates a long-term relationship in which the supplier promises to resupply the buyer as needed at agreed prices for a set time period.

Performance Review

The performance review may lead the buyer to continue, modify, or drop the arrangement.

The eight-stage model provides a simple view of the business buying-decision process. The actual process is usually much more complex.

Learning Objective 3

p. 180

Figure 6.3: Stages of Business Buying Behavior

p. 182

Ad: Accenture

p. 180

Key Terms: Problem Recognition

p. 182

Key Term: General Need Description

p. 183

Key Term: Problem Specification

p. 183

Key Terms: Supplier Search, Proposal Solicitation, Supplier Selection, Order-Routine Specification

p.183

Key Term: Performance Review

Ø Assignments, Resources

Use Discussion Question 6-4 here

Use Critical Thinking Exercise 6-7 here

Use Marketing by the Numbers here

Use Video Case here

Ø Troubleshooting Tip

It is often difficult for students to draw a parallel between business buying and consumer buying even though the students will have just covered consumer buying in the previous chapter. One way to overcome this difficulty is to have students discuss the differences in how they buy clothes for themselves, versus how Macy’s or another department store would buy clothes to resell.

p. 184

PPT 6-31

PPT 6-32

PPT 6-33

E-Procurement: Buying on the Internet

Electronic purchasing, or e-procurement, has grown rapidly in recent years. It is now standard procedure in most companies.

E-procurement gives buyers access to new suppliers and lower purchasing costs, and hastens order processing and delivery. In turn, business marketers can connect with customers online to share marketing information, sell products and services, provide customer support services, and maintain ongoing customer relationships.

E-procurement reduces the time between order and delivery. Time savings are particularly dramatic for companies with many overseas suppliers.

Beyond the cost and time savings, e-procurement frees purchasing people to focus on more strategic issues.

The use of e-procurement also presents some problems.

At the same time that the Web makes it possible for suppliers and customers to share business data and even collaborate on product design, it can also erode decades-old customer-supplier relationships.

E-procurement also can create potential security concerns.

Review Learning Objective 3: List and define the steps in the business buying decision process.

p. 184

Key Term: E-Procurement

p. 184

Ad: Staples

Ø Assignments, Resources

Use Real Marketing 6.2 here

Use Online, Mobile, and Social Media Marketing here

Use Think-Pair-Share 3 here

PPT 6-34

p. 186

p. 187

PPT 6-35

PPT 6-36

PPT 6-37

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

Institutional and Government Markets

Much of this discussion also applies to the buying practices of institutional and government organizations. However, these two non-business markets have additional characteristics and needs.

Institutional Markets

The institutional market consists of schools, hospitals, nursing homes, prisons, and other institutions that provide goods and services to people in their care. Institutions differ from one another in their sponsors and in their objectives.

Many institutional markets are characterized by low budgets and captive patrons.

Many marketers set up separate divisions to meet the special characteristics and needs of institutional buyers.

Government Markets

The government market offers large opportunities for many companies, both big and small.

In most countries, government organizations are major buyers of goods and services. In the United States alone, federal, state, and local governments contain more than 89,000 buying units.

Government organizations typically require suppliers to submit bids, and normally they award the contract to the lowest bidder. In some cases, the government unit will make allowance for the supplier’s superior quality or reputation for completing contracts on time.

Government organizations tend to favor domestic suppliers over foreign suppliers.

Government buyers are affected by environmental, organizational, interpersonal, and individual factors.

One unique thing about government buying is that it is carefully watched by outside publics, ranging from Congress to a variety of private groups interested in how the government spends taxpayers’ money.

Because their spending decisions are subject to public review, government organizations require considerable paperwork from suppliers, who often complain about excessive paperwork, bureaucracy, regulations, decision-making delays, and frequent shifts in procurement personnel.

Most governments provide would-be suppliers with detailed guides describing how to sell to the government.

Non-economic criteria also play a growing role in government buying.

· Government buyers are asked to favor depressed business firms and areas; small business firms; minority-owned firms; and business firms that avoid race, gender, or age discrimination.

· Many firms that sell to the government have not been marketing oriented.

· Total government spending is determined by elected officials rather than by any marketing effort to develop this market.

· Government buying has emphasized price, making suppliers invest their effort in technology to bring costs down.

· When the product’s characteristics are specified carefully, product differentiation is not a marketing factor.

· Nor do advertising or personal selling much matter in winning bids on an open-bid basis.

Several companies have established separate government marketing departments.

These companies anticipate government needs and projects, participate in the product specification phase, gather competitive intelligence, prepare bids carefully, and produce stronger communications to describe and enhance their companies’ reputations.

Review Learning Objective 4: Compare the institutional and government markets and explain how institutional and government buyers make their buying decisions.

Learning Objective 4

p. 187

Key Term: Institutional Market

p. 187

Photo: Nestlé Professional

p. 187

Key Term: Government Market

Ø Assignments, Resources

Use Discussion Question 6-5 here

Use Critical Thinking Exercise 6-8 here

Use Small Group Assignment 2 here

Use Individual Assignment 2 here

Use Think-Pair-Share 4 here

Use Company Case here