business markets - 5

8/7/2019 Business Markets - 5

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Organisation/Business Markets

By

Dipankar Das


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Organisation/Business Markets

The Business market consists of allorganisations that buy goods and services forproduction of their products and services.

Business buyer behaviour refers to the buyingbehaviour of people in business organisationsresponsible for purchases.

In the business buying process, business buyers

determine which products and services theirorganisations need to purchase and then findand evaluate suppliers and choose among them.


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Characteristics of Business Market

1. There are relatively fewer and large buyers.

2. There is a close supplier- customer relationship.Because of the smaller customer base and theimportance and power of large customers, suppliers

frequently customise their products to individualcustomer needs.

3. There is professional purchasing : Business goodsare often purchased by trained purchasing agents whomust follow their organisations purchasing policies,constraints and requirements.

This means business marketers have to providegreater technical data about their product and itsadvantages over competitors products.


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Contd.

4. There are several buying influences: Many people

influence the business buying decisions. Buying

committees consisting of technical experts and even

senior management are common in the purchase ofmajor goods. Business marketers have to send well

trained sales representatives and sales teams to deal

with the well trained buyers.

5. Multiple sales calls: Because many people are

involved in the buying process it takes multiple salescalls to win most business orders and some sales

cycles can take years


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Contd.

6. Derived Demand: The demand for businessgoods is a derived demand from consumergoods ex. The demand for cement and steel

industry may be due to a boom in the housingand infrastructure sector.

7. Inelastic demand: The total demand formany business goods and services is inelastic

ie. It is not much affected by price changes.Demand is especially inelastic in the short runbecause producers cannot make quick changesin the production.


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Contd.

8.Fluctuating Demand: The demand for

business goods and services tends to be more

volatile than the demand for consumer goods

and services. A given percentage increase inconsumer goods demand can lead to a much

larger percentage increase in the demand for

plant and equipment necessary to produce the

additional output. Economists refer to this asAcceleration Effect.


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Contd.

9. Geographically Concentrated Buyers:

Different types of industries tend to get

concentrated in specific regions of different

states. Ex. Concentration of hosiery andknitting industries in Tirupur nearCoimbatore,

Software companies in Bangalore, Diamond

cutting and polishing industry in Surat.

10. Direct Purchasing: Business buyers often

buy directly from manufacturers rather than

through intermediaries


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Buying Situations

The business buyer faces many decisions while

making a purchase. The nature of Decision

depends on the buying situation complexity of

the problem, newness of the buyingrequirement, number of people involved and

time required.

Based on above there are three types of Buying

Situations.


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The Straight Re-buy

The purchasing department reorders on a routine basis(

office supplies, fasteners, lubricants) and chooses from

suppliers on an approved list.

The suppliers strive to maintain product and servicequality and often propose automatic reordering systems

to save time.

Out suppliers attempt to offer something new or to

exploit dissatisfaction with a current supplier.

Out suppliers try to get a small order and enlarge their

share over time.


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Modified Re-Buy

The buyer wants to modify product

specifications, prices, delivery requirements or

other terms. The modified re-buy usually

involves additional participants on both sides.The in-suppliers become nervous and have to

protect the account. The out-suppliers see an

opportunity to propose a better offer to gain

some business.


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New Task

A purchaser buys a product or service for the first time.The greater the cost or risk, the larger the number ofparticipants and greater their information gathering andtherefore the longer the time to decide.

The new task buying passes through the followingstages:

1. Awareness

2. Interest

3. Evaluation4. Trial

5. Adoption


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Contd.

The effectiveness of communication tools varies at each

stage.

Mass media are the most important during the initial

awareness stage. Sales people have the greatest impactat the interest stage and technical sources are the most

important during the evaluation stage.

In the new task situation, the buyer has to determine

product specification, price limits, delivery terms and

times, service terms, payment terms, order quantities,

acceptable suppliers and the selected supplier.


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Contd.

The new task buying situation is the marketers

greatest opportunity and challenge.

Because of the complicated selling involved,

many companies use a missionary sales forcecomprising the most effective sales people. The

marketer also tries to reach as many key

participants as possible and provide helpful

information and assistance.


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Systems Buying & Selling

Many business buyers prefer to buy a total

solution to a problem from one seller.

The practice originated with government

purchases of major weapons and capitalequipment.

Sellers have increasingly recognised that buyers

like to purchase in this way and many have

adopted systems selling as a marketing tool.


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The Buying Centre

The Buying Centre is the decision making unit of thebuying organisation.

It is composed of all those individuals and groups whoparticipate in the purchasing decision making process,

who share some common goals and the risk arising fromthe decisions.

The buying centre is not a fixed and formally identifiedunit within the buying organisation.

It is a set of buying roles assumed by different people fordifferent purchases within the organisation.

The size and make up of the buying centre will vary fordifferent products and for different buying situations.


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Contd.

The buying centre includes all members of theorganisation who play the following seven roles in thepurchase decision process:

Initiators: Those who request that something be

bought and used. They may be users or others in theorganisations.

Users: Those who will use the product or service. Inmany cases, the users initiate the buying proposal andhelp define the product requirements.

Influencers: People who influence the buyingdecision. They often help define specifications andalso provide information for evaluating alternatives.Technical personnel are particularly importantinfluencers.


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Contd

4. Deciders : People who decide on product

requirements or on suppliers.

5. Approvers: People who authorise the

proposed action of deciders or buyers.

6. Buyers: People who have formal authority to

select the supplier and arrange the purchase

terms. Buyers may help shape product

specifications. They play a major role in

selecting vendors and negotiating.


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Contd.

7. Gatekeepers: People who have the power to

prevent sellers or information from reaching

members of the buying centre eg. Purchasing

agents, receptionists and telephone operatorsmay prevent salespersons from contacting users

or deciders.


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Contd.

Several individuals can occupy a given role ex.There may be many users and influencers. APurchasing Manager for example often occupies

the roles of buyer, influencer and gatekeepersimultaneously.

The typical buying centre has a minimum of fiveor six members and often has dozens.

Buying centres usually include severalparticipants with differing interests, authority,status and persuasiveness.


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Contd.

People are not buying products. They are buying

solutions to two problems the organisations

economic and strategic problem and their own

personal problem of obtaining individualachievement and reward.


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Business Buying Process

1. Problem Recognition

2. General need description

3. Product specification

4. Supplier Search

5. Proposal solicitation

6. Supplier selection

7. Order

8. Performance Review

business markets - 5

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