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Business Market Behaviour

Chapter ObjectivesUnderstand the characteristics of business-to-business (B2B) products and B2B markets, explaining market structure and demand, the nature of the buying unit, and the decision process.Outline the model of B2B buyer behaviour.Discuss business buyer behaviour, types of buying situations, participants in the business buying process and the main influences on business buyers.

ContdIdentify and define the steps in the business buying process, and compare and contrast them with the consumer market.Identify the differences between business markets, institutional markets and government markets.

Business Markets (B2B)Business markets consist of those firms that buy goods and services to use in the production of other products and services, or for the purpose of renting the products to others at a profit.

The key difference between a Business product and a Consumer product is the intended use of the product

ContdBusiness markets are usually very large, and tend to be characterised by complex products and complex business structures.A business market will typically include the industrial market and the reseller market, as well as the institutional and government market.

although, strictly speaking, the institutional and government markets are non-business markets, much of the discussion on B2B marketing can also be applied to these categories of buyers.

Characteristics of Business ProductsCan be described in three broad groups:

Materials and partsinput to manufacturing (raw / processed)Capital itemsexpensive, long-term investment expenditureConsumableseveryday business supplies

Characteristics of Business MarketsDespite the differences, business markets do have some similarities to consumer markets.Both involve people who assume buying roles and make purchase decisions to satisfy needs.However, the three key characteristics of B2B markets that clearly distinguish them from Consumer markets (B2C), are as follows:

ContdA. Market Structure and Demand

Fewer buyersLarger buyers; larger quantitiesClose supplier / customer relationshipsGeographically-concentrated buyersDerived demandInelastic demandFluctuating demand

ContdDerivedDemand results from the level of demand for the relevant consumer productInelasticChange in the price of a product will not significantly affect demand for that productFluctuatingDemand for business products tends to be more volatile than for consumer products

ContdB. Nature of the buying unit Professional purchasing: business goods are purchased by trained purchasing agents who must follow the organisations purchasing policies, constraints and requirements. Several buying influences: more people will have an influence on business buying decisions than on consumer buying decisions.

ContdC. Types of Decisions and Decision Processes

More complex and more formalised decisionsDirect purchasing (less use of intermediaries)Reciprocal buyingUse of Leasing arrangements

Business Buyer BehaviourMarketers want to know how business buyers will respond to the various marketing stimuli. Marketing and other stimuli will influence the buyer and produce certain buying responses.

As with consumer buying, the marketing stimuli for business buying consist of the marketing mix elements (the 4Ps). in the case of Services firms, this will be the extended mix elements: product; price; place; promotion; plus people; processes; and physical evidence. (7Ps)

ContdOther stimuli include major forces in the environment:

EconomicTechnologicalPoliticalCulturalCompetitive

A Model of Business Buyer Behaviour

Major Types of Business Buying SituationsWhere a straight rebuy occurs, the buyer reorders items without any modifications. Usually handled on a routine basis by the firms purchasing officers. In a modified rebuy, the buyer wants to modify the product specifications; prices; terms or suppliers. Modified rebuy may involve more decision participants than straight rebuy. In a new task situation, an industrial buyer purchases a product or service for the first time. Requires greater level of involvement by the buyer.Buying a packaged solution to a problem, thus avoiding all the separate decisions involved in buying each item or service separately, is referred to as systems buying.

Of the following, the simplest type of industrial buying situation is the:modified rebuystraight rebuynew taskmodified taskroutine purchase

The three types of Industrial Buying Situations

Participants in the Buying ProcessUsers are members of the organisation who will use the product or service. Influencers affect the buying decision. They often help to define specifications and also provide information for evaluating alternatives. Buyers have formal authority to select the supplier and arrange the terms of purchase. Deciders have formal or informal power to select or to approve the final suppliers. Gatekeepers control flow of information to others.

The Main Influences on Business Buying Behaviour

Upgraded PurchasingEven though they might may a major percentage of a firms costs, the purchasing (Procurement) personnel have often occupied a lowly position in the management hierarchy.

However, many companies are now offering higher compensation in order to attract top talent in the purchasing area.

ContdCentralised Purchasing gives a firm more purchasing strength, which can produce cost savings. Also means the marketer deals with fewer, higher-level buyers.Business buyers are increasingly seeking long-term contracts with suppliers.The evaluation of purchasing performance will use incentive systems to reward high performance.Just-in-time production systems ensure that inputs to production are received at the right time, and finished products get to the customer exactly when needed.

Other Influences on PurchasingInterpersonal FactorsThe buying centre usually includes many participants who influence each other. The business marketer often finds it difficult to determine what kinds of interpersonal factors and group dynamics enter into the buying process.

Individual FactorsEach participant in the process brings in personal motives, perceptions, and preferences. These are affected by personal characteristics such as age, income, personality and attitudes towards risk.

Eight step Buying ProcessProblem Recognition (first stage)Consumer recognises a problem or a need.

General Need DescriptionDescribes characteristics/ quantity of the required item.

Product SpecificationPrecise technical description of the required item.

Supplier SearchExtensive search to find the best potential vendors.

ContdProposal SolicitationFormal stage in which the buyer invites qualified suppliers to submit proposals.

Supplier SelectionReview of proposals and selection of supplier(s).

Order-Routine SpecificationOrder finalised with the chosen supplier.

Performance ReviewPost-purchase assessment to determine satisfaction.

Institutional / Government MarketsInstitutional markets consist of schools; TAFE colleges; polytechnics; universities; hospitals; prisons; and other institutions that provide goods and services to people in their care.

The government market offers significant opportunities for many firms. In Australia, federal, state, and local government contain many separate buying units.To achieve efficiencies, governments are making increased use of e-procurement.

Government MarketsMain Influences on Government Buyers

Government buyers are affected by environmental; organisational; interpersonal; and individual factors.

Government is watched by outside publics that are interested in how taxpayers money is spent.

Governments usually require suppliers to submit bids or tenders which are evaluated. (often low cost wins).

Governments normally favour domestic suppliers.

Government buying decisions often seem complex to suppliers, but government is generally helpful in providing information about its needs and procedures.

***Relates to objective 1*Relates to objective 1*Relates to objective 1 & 2*Relates to objective 1 & 2*Relates to objective 1 & 2*Relates to objectives 1 & 2 *Relates to objectives 2 & 3*Relates to objective 3*Relates to objective 3*Relates to objectives 2, 3 &4 *Relates to objectives 3 & 4*Answer B, clearly a simple rebuy of the tried and tested product.

Relates to objectives 3 & 4

*Relates to objectives 3 & 4

*Relates to objective 4*Relates to objective 4*Relates to objective 4*Relates to objectives 3 & 4*Relates to objective 4*Relates to objective 4*Relates to objective 5*Relates to objective 5