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LEARNING OBJECTIVES
In this chapter, we will address the following questions:
1. What is organizational buying?
2. What buying situations do business buyers face?
3. Who participates in the business-to-business buying process?
4. How do business buyers make their decisions?
5. In what ways can business-to-business companies develop effective marketing programs?
6. How can companies build strong loyalty relationships with business customers?
7. How do institutional buyers and government agencies do their buying?
CHAPTER SUMMARY
1. Organizational buying is the decision-making process by which formal organizations establish
the need for purchased products and services, then identify, evaluate, and choose among
alternative brands and suppliers. The 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.
2. Compared with consumer markets, business markets generally have fewer and larger buyers, a
closer customer supplier relationship, and more geographically concentrated buyers. Demand
in the business market is derived from demand in the consumer market and fluctuates with the
business cycle. Nonetheless, the total demand for many business goods and services is quite
price inelastic. Business marketers need to be aware of the role of professional purchasers and
their influencers, the need for multiple sales calls, and the importance of direct purchasing,
reciprocity, and leasing.
3. The buying center is the decision-making unit of a buying organization. It consists of
initiators, users, influencers, deciders, approvers, buyers, and gatekeepers. To influence these
parties, marketers must consider environmental, organizational, interpersonal, and individual
factors.
4. The buying process consists of eight stages called buyphases: (1) problem recognition, (2)
general need description, (3) product specification, (4) supplier search, (5) proposal
solicitation, (6) supplier selection, (7) order-routine specification, and (8) performance review.
5. Business marketers are strengthening their brands and using technology and other
communication tools to develop effective marketing programs. They are also using systems
selling and adding services to provide customers added value.
6. Business marketers must form strong bonds and relationships with their customers. Some
customers, however, may prefer a transactional relationship.
7. The institutional market consists of schools, hospitals, nursing homes, prisons, and other
institutions that provide goods and services to people in their care. Buyers for government
C H A P T E
R 7ANALYZING BUSINESS
MARKETS
organizations tend to require a great deal of paperwork from their vendors and to favor open
bidding and domestic companies. Suppliers must be prepared to adapt their offers to the
special needs and procedures found in institutional and government markets.
OPENING THOUGHT
Students unfamiliar with business and business operations will have a difficult time
understanding the concept of organizational buying. The major differences between the consumer
market and the B2B market lie in the complexity of the decision process and the amount of
people involved in the final purchasing decision.
Instructors can best serve their student audiences by incorporating guest speakers from the
business community who are responsible for purchasing products and/or services to help students
understand the complexity in the buying process for businesses. Salespeople, who sell to
businesses, are also good resources to have as guest speakers when covering this chapter.
Instructors can also use university situations or other common business examples to get across the
concept of organizational buying to their students.
TEACHING STRATEGY AND CLASS ORGANIZATION
PROJECTS
1. At this point in the semester-long marketing project, no presentations are necessary unless the
instructor has approved a business-to-business product or service.
2. Students should compare and contrast the complexity of that buying process to the ones noted
in Chapter 6—Analyzing Consumer Markets. How and where are the major points of differences
between the two markets in their purchase intensions? Can a firm market its products to both the
industrial and consumer markets with one strategy? Are there sufficient differences between
markets for different products and strategies to be developed?
3. Sonic Smartphone Marketing Plan: Business-to-business marketers have to understand their
markets and the behavior of members of the buying center in order to develop appropriate
marketing plans. Jane Melody has defined the business market at Sonic as mid- to large-sized
corporations that need to help their workforces stay in touch and input or access important data
from any location. She has asked you to find out:
What specific types of businesses appear to fit the business market definition used at Sonic?
What needs could Sonic’s Smartphone address for these businesses?
Who would participate in and influence the purchase of Smartphoness for use in these
businesses?
Which environmental, interpersonal, and individual influences are likely to be most important
to business buyers of Smartphone products, and why?
Report your findings and conclusions in a written marketing plan or type them into the Market
Demographics and Target Markets sections of Marketing Plan Pro.
ASSIGNMENTS
Ad Age recently reported on a study done by B2B which talks about how much of the
decision-making process occurs in business buying before salespeople are involved:
http://adage.com/article/btob/branding-key-filling-sales-pipeline/288911/?btob=1 . In small
groups or individually, ask the students to interview local business managers/ owners to see: a)
How they reach the right customers at the right time and b) How they build awareness.
Have each of the students read Bob Donath’s “Emotions Play Key Role in Biz Brand Appeal,”
Marketing News, June 1, 2006, p. 7 and comment on their perception of how effective “biz” is in
their lives and in their purchasing of products.
Contact your local Pearson Higher Education sales representative and ask him/her to make a
presentation to the class on how he/she sells to your college or university.
In small groups (five students suggested as the maximum), have the students visit your college or
university’s Central Purchasing or Procurement department (you may have to clear this with your
administration before assigning). Have the students conduct interviews with purchasing personnel
on how they buy, who is involved in a purchase decision, and what characteristics do the best
salespeople who call on them share. Students should format their questions to the key concepts
contained in this chapter. Student reports should also characterize the differences found between
government or institutional buying, business-to-business buying, and consumer purchasing.
To improve effectiveness and efficiency, business suppliers and customers are exploring different
ways to manage their relationships. Have the students visit each of the company’s Web sites
mentioned throughout the chapter. Which one(s) do the students feel most effectively and
efficiently addresses the needs of the corporate buyer? Which Web sites do not? Why and what in
their opinion is missing from the least effective Web sites? How can the firm do better in its
execution?
Have the students visit GE‘s Medical Systems® Web site (www.gehealthcare.com/). In context to
the major points of this chapter, have the students define how GE is addressing the needs of their
hospital customers by the design of this Web site? Where and what is GE doing right, what is GE
doing wrong, and where can GE improve?
Small businesses have been described as the “lifeblood” of the economy. Students, who have after
school jobs in small business, should be assigned to interview their employers, managers, or
purchasing departments to understand how small businesses purchase goods and services. How
many of the concepts in this chapter do small business owners actually employ (for example, is
the purchasing habits of the student’s small business owner organized, how many decision makers
are involved in purchasing, how important is the customer-supplier relationship to them, is their
purchasing just transactional, etc.)? Students should prepare to present their findings to the class
in either an oral or a written report. Students not employed should be prepared to question the
presenting students as to their understanding of the “whys” for such actions.
DETAILED CHAPTER OUTLINE
Opening vignette: Business organizations sell and they buy vast quantities of raw materials,
manufactured components, plant and equipment, supplies, and business services. To create and
capture value, sellers such as Cisco must understand organizations’ needs, resources, policies, and
buying procedures. Some of the world’s most valuable brands belong to business marketers:
ABB, Caterpillar, DuPont, FedEx, GE, Hewlett-Packard, IBM, Intel, and Siemens, to name a few.
They face some unique considerations in selling to other businesses.
I. What Is Organizational Buying?
A. Organizational buying is 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
B. The Business Market versus the Consumer Market
i. The 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
ii. Some of the major industries making up the business market are aerospace;
agriculture, forestry, and fisheries; chemical; computer; construction;
defense; energy; mining; manufacturing; construction; transportation;
communication; public utilities; banking, finance, and insurance;
distribution; and services
iii. More dollars and items change hands in sales to business buyers than to
consumers
iv. The biggest enemy to business-to-business marketers is commoditization
1. Commoditization eats away margins and weakens customer loyalty
2. Commoditization can be overcome only if target customers are
convinced that meaningful differences exist in the marketplace and
that the unique benefits of the firm’s offerings are worth the added
expense
3. A critical step in business-to-business marketing is to create and
communicate relevant differentiation from competitors.
v. Business marketers face many of the same challenges as consumer
marketers, especially understanding their customers and what they value
vi. Three biggest hurdles for B-to-B marketing are:
1. building stronger interfaces between marketing and sales
2. building stronger innovation-marketing interfaces
3. extracting and leveraging more granular customer and market
knowledge
vii. Four additional imperatives are:
1. demonstrating marketing’s contribution to business performance
2. engaging more deeply with customers and customers’ customers
3. finding the right mix of centralized versus decentralized marketing
activities
4. finding and grooming marketing talent and competencies
viii. Business marketers contrast sharply with consumer markets in some ways,
however. They have:
1. Fewer, larger buyers
2. Close supplier–customer relationships
3. Professional purchasing
4. Multiple buying influences
5. Multiple sales calls
6. Derived demand
7. Inelastic demand
8. Fluctuating demand
9. Geographically concentrated buyers
10. Direct purchasing
II. Buying Situations
A. The number of decisions faced by a business buyer depends on the complexity of the
problem being solved, newness of the buying requirement, number of people
involved, and time required.
B. Three types of buying situations are the straight rebuy, modified rebuy, and new task
i. Straight rebuy: the purchasing department reorders items like office supplies
and bulk chemicals on a routine basis and chooses from suppliers on an
approved list
ii. Modified rebuy: the buyer in a modified rebuy wants to change product
specifications, prices, delivery requirements, or other terms. This usually
requires additional participants on both sides.
iii. 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 gathering
—the longer the time to a decision
iv. The business buyer makes the fewest decisions in the straight rebuy situation
and the most in the new-task situation
C. The buying process passes through several stages: awareness, interest, evaluation,
trial, and adoption
i. Mass media can be most important during the initial awareness stage
ii. Salespeople often have their greatest impact at the interest stage
iii. Technical sources can be most important during evaluation
iv. Online selling efforts may be useful at all stages
D. In the new-task situation, the buyer must determine product specifications, price
limits, delivery terms and times, service terms, payment terms, order quantities,
acceptable suppliers, and the selected supplier.
i. Many companies use a missionary sales force consisting of their most
effective salespeople
ii. The marketer also tries to reach as many key participants as possible with
information and assistance
iii. In-suppliers are continually seeking ways to add value to their market offer to
facilitate rebuys
III. Participants in the Business Buying Process
A. Who buys the trillions of dollars’ worth of goods and services needed by business
organizations?
i. Purchasing agents are influential in straight-rebuy and modified-rebuy
situations, whereas other employees are more influential in new-buy
situations
ii. Engineers are usually influential in selecting product components, and
purchasing agents dominate in selecting suppliers
iii. The buying center is the decision-making unit of a buying organization
1. “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”
2. Initiators: Users or others in the organization who request that
something be purchased
3. Users: Those who will use the product or service.
4. Influencers: People who influence the buying decision, often by
helping define specifications and providing information for
evaluating alternatives.
5. Deciders: People who decide on product requirements or on
suppliers
6. Approvers: People who authorize the proposed actions of deciders or
buyers
7. Buyers: People who have formal authority to select the supplier and
arrange the purchase terms
8. Gatekeepers: People 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
9. Several people can occupy a given role such as user or influencer,
and one person may play multiple roles
10. A buying center typically has five or six members and sometimes
dozens.
iv. Buying Center Influences
1. Participants with differing interests, authority, status, susceptibility to
persuasion, and sometimes very different decision criteria
2. Business buyers also have personal motivations, perceptions, and
preferences influenced by their age, income, education, job position,
personality, attitudes toward risk, and culture.
3. Individuals, not organizations, make purchasing decisions
4. Businesspeople are buying solutions to two problems: the
organization’s economic and strategic problem and their own
personal need for achievement and reward.
B. Targeting Firms and Buying Centers
i. Business marketers may divide the marketplace in many different ways to
choose the types of firms to which they will sell
ii. Finding the sectors with the greatest growth prospects, most profitable
customers, and most promising opportunities for the firm is crucial
iii. Once it has identified the type of businesses on which to focus marketing
efforts, the firm must then decide how best to sell to them.
iv. Whatever information the business salesperson can obtain about personalities
and interpersonal factors is useful
1. Small sellers concentrate on reaching the key buying influencers
2. Larger sellers go for multilevel in-depth selling
3. Companies must rely more heavily on their communications
programs to reach hidden buying influences and keep current
customers informed
IV. The Purchasing/Procurement Process
A. In principle, business buyers seek the highest benefit package (economic, technical,
service, and social) in relationship to a market offering’s costs.
i. The strength of their incentive to purchase will be a function of the difference
between perceived benefits and perceived costs
ii. Framing occurs when customers are given a perspective or point of view that
allows the seller to “put its best foot forward.”
B. New, more strategically oriented purchasing departments have a mission to seek the
best value from fewer and better suppliers
V. Stages in the Buying Process: Eight buyphases, buygrid framework
A. Problem recognition
i. Triggered by internal or external stimuli
ii. Business marketers can stimulate
B. General need description
C. Product specification
D. Supplier Search
i. Includes electronic marketplaces like catalog sites, vertical markets, auction
sites, spot markets, private exchanges, barter markets, buying alliances
ii. Online business buying shaves transaction costs for both buyers and
suppliers, reduces time between order and delivery, consolidates purchasing
systems, and forges more direct relationships between partners and buyers
iii. For disadvantages, it may help to erode supplier–buyer loyalty and create
potential security problems
iv. E-procurement: Web sites are organized around two types of e-hubs and used
in a variety of ways
1. Vertical hubs centered on industries (plastics, steel, chemicals, paper)
2. Functional hubs (logistics, media buying, advertising, energy
management)
3. Set up direct extranet links to major suppliers
4. Form buying alliances
5. Set up company buying sites
v. Lead generation: the right balance between the quantity and quality of leads
E. Proposal Solicitation: the buyer next invites qualified suppliers to submit written
proposals and invites a few suppliers to make formal presentations
F. Supplier Selection: the buying center will specify and rank desired supplier attributes,
often using a supplier-evaluation model
i. To develop compelling value propositions, business marketers need to better
understand how business buyers arrive at their valuations
ii. Researchers have identified eight different customer value assessment (CVA)
methods
1. Internal engineering assessment
2. Field value-in-use assessment
3. Focus-group value assessment
4. Direct survey questions
5. Conjoint analysis
6. Benchmarks
7. Compositional approach
8. Importance ratings
iii. Specify the customer value proposition, following a number of important
principles
1. Clearly substantiate value claims by concretely specifying the
differences between your offerings and those of competitors on the
dimensions that matter most to the customer
2. Document the value delivered by creating written accounts of costs
savings or added value that existing customers have actually
captured by using your offerings
3. Make sure the method of creating a customer value proposition is
well implemented within the company, and train and reward
employees for developing a compelling one.
iv. The choice of attributes and their relative importance vary with the buying
situation.
v. Marketers can counter requests for a lower price in a number of ways,
including framing as noted above
1. Total cost of ownership, that is, the life-cycle cost of using their
product, is lower than for competitors’ products
2. Cite the value of the services the buyer now receives, especially if it
is superior to that offered by competitors
3. Research shows that service support and personal interactions, as
well as a supplier’s know-how and ability to improve customers’
time to market, can be useful differentiators in achieving
key-supplier status
4. Improving productivity helps alleviate price pressures
5. Set a lower price but establishing restrictive conditions: (1) limited
quantities, (2) no refunds, (3) no adjustments, and (4) no services
6. Solution selling can also alleviate price pressure and comes in
different forms
a. Solutions to enhance customer revenues
b. Solutions to decrease customer risks
c. Solutions to reduce customer costs
7. Risk and gain sharing can offset price reductions customers request
vi. Companies are increasingly reducing the number of their suppliers
1. Trend toward single sourcing, though companies that use multiple
sources often cite the threat of a labor strike, natural disaster, or any
other unforseen event as the biggest deterrent to single sourcing
2. May also fear single suppliers will become too comfortable in the
relationship and lose their competitive edge
G. Order-Routine Specification: negotiation of the final order, listing the technical
specifications, the quantity needed, the expected time of delivery, return policies,
warranties, etc.
i. For maintenance, repair, and operating items, buyers are moving toward
blanket contracts rather than periodic purchase orders
ii. Companies that fear a shortage of key materials are willing to buy and hold
large inventories
iii. Some companies go further and shift the ordering responsibility to their
suppliers, using systems called vendor-managed inventory where the
suppliers keep track of inventory and develop continuous replenishment
programs
H. Performance Review: periodic reviews the performance of the chosen supplier(s)
using one of three methods
i. Contact end users and ask for their evaluations
ii. Rate the supplier on several criteria using a weighted-score method
iii. Aggregate the cost of poor performance to come up with adjusted costs of
purchase, including price
VI. Developing effective business-to-business marketing programs
A. Business-to-business marketers are embracing systems selling and adding valuable
services to their product offerings and employing customer reference programs and a
wide variety of online and offline communication and branding activities
i. Business marketers are increasingly recognizing the importance of their
brand, which is often associated with many of the company’s products.
ii. Top firms are redesigning Web sites, improving search results, engaging in
social media, and launching Webinars and podcasts to improve their business
performance through their B-to-B marketing
iii. Buyers can interact with a company and its customers in a variety of ways—
via social media; conferences, events, and trade shows; and their own
personal and professional networks.
iv. Peer-to-peer interaction can assist a potential buyer
1. Establish a formal, organized customer reference program
2. Put references at the center of your growth strategy
3. Use an experienced executive as the leader of the reference program
4. Focus on a smaller group of truly committed, impactful company
advocates
5. Revolutionize your customer value proposition
6. Find customers who want to be advocates because of their passion
for the company and not as the result of any financial inducement.
B. Systems Buying and Selling
i. Systems buying originated with government purchases of major weapons and
communications systems
1. Prime contractors traditionally provided a turnkey solution, so-called
because the buyer simply had to turn one key to get the job done
2. Sellers have increasingly recognized that buyers like to purchase in
this way, and many have adopted systems selling as a marketing tool.
ii. One variant of systems selling is systems contracting, in which a single
supplier provides the buyer with its entire requirement of MRO supplies.
1. During the contract period, the supplier also manages the customer’s
inventory.
2. Customer benefits from reduced procurement and management costs
and from price protection over the term of the contract
3. Seller achieves lower operating costs thanks to steady demand and
reduced paperwork
C. Services play an increasing strategic and financial role for many business-to-business
firms selling primarily products.
i. Adding high-quality services to their product offerings allows them to
provide greater value and establish closer ties with customers.
ii. Technology firms are also bundling services to improve customer satisfaction
and increase profits
iii. All kinds of firms are finding ways to bundle value-added services to their
products
VII. Managing Business-to-Business Customer Relationships
A. Loyalty is driven in part by supply chain management, early supplier involvement,
and purchasing alliances
B. Business-to-business marketers are avoiding “spray and pray” approaches to
attracting and retaining customers in favor of honing in on their targets and
developing one-to-one marketing approaches
C. The Benefits of Vertical Coordination
i. Building trust is one prerequisite to enjoying healthy long-term relationships
1. Provide full, honest information
2. Provide employee incentives aligned to meet customer needs</
3. Partner with customers to help them learn and help themselves
4. Offer valid comparisons with competitive products
ii. Four relevant ones ways to develop relationship are availability of
alternatives, importance of supply, complexity of supply, and supply market
dynamism.
iii. Buyer–supplier relationships are categorized into eight categories
1. Basic buying and selling - simple, routine exchanges with moderate
levels of cooperation and information exchange
2. Bare bones - require more adaptation by the seller and less
cooperation and information exchange
3. Contractual transaction - defined by formal contract and generally
have low levels of trust, cooperation, and interaction
4. Customer supply - In this traditional supply situation, competition
rather than cooperation is the dominant form of governance
5. Cooperative systems - The partners in cooperative systems are united
in operational ways, but neither demonstrates structural commitment
through legal means or adaptation
6. Collaborative - much trust and commitment lead to true partnership
7. Mutually adaptive - Buyers and sellers make many
relationship-specific adaptations, but without necessarily achieving
strong trust or cooperation
8. Customer is king - In this close, cooperative relationship, the seller
adapts to meet the customer’s needs without expecting much
adaptation or change in exchange
iv. Closest relationships between customers and suppliers arose when supply
was important to the customer and there were procurement obstacles, such as
complex purchase requirements and few alternate suppliers
v. Greater vertical coordination between buyer and seller through information
exchange and planning is usually necessary only when high environmental
uncertainty exists and specific investments (described next) are modest
D. Risks and Opportunism in Business Relationships
i. Establishing a customer–supplier relationship creates tension between
safeguarding (ensuring predictable solutions) and adapting (allowing for
flexibility for unanticipated events).
1. Vertical coordination can facilitate stronger customer–seller ties but
may also increase the risk to the customer’s and supplier’s specific
investments
2. Specific investments entail considerable risk to both customer and
supplier.
3. Opportunism is “some form of cheating or undersupply relative to an
implicit or explicit contract
ii. The presence of a significant future time horizon and/or strong solidarity
norms typically causes customers and suppliers to strive for joint benefits.
Their specific investments shift from expropriation (increased opportunism
on the receiver’s part) to bonding (reduced opportunism)
VIII. Institutional and Government Markets
A. The institutional market consists of schools, hospitals, nursing homes, prisons, and
other institutions that must provide goods and services to people in their care.
i. Many of these organizations are characterized by low budgets and captive
clienteles.
ii. In most countries, government organizations are a major buyer of goods and
services.
iii. Different types of agencies—defense, civilian, intelligence—have different
needs, priorities, purchasing styles, and time frames.
