LEARNING OBJECTIVES
In this chapter, we will address the following questions:
1. What is the business market, and how does it differ from the consumer market?
2. What buying situations do organizational buyers face?
3. Who participates in the business-to-business buying process?
4. How do business buyers make their decisions?
5. How can companies build strong relationships with business customers?
6. 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
2. Compared to consumer markets, business markets generally have fewer and larger
buyers, a closer customer supplier relationship, and more geographically concentrated
3. The buying center is the decision-making unit of a buying organization. It consists of
4. The buying process consists of eight stages called buyphases: (1) problem recognition,
(2) general need description, (3) product specification, (4) supplier search, (5)
5. Business marketers must form strong bonds and relationships with their customers and
6. 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
C H A P T E R
7
ANALYZING BUSINESS
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.
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
3. Sonic PDA 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?
• Which environmental, interpersonal, and individual influences are likely to be most
important to business buyers of PDA products, and why?
ASSIGNMENTS
In the journal Marketplace, Winter 2006, the Institute for the Study of Business Markets
listed the Top Business Marketing Challenges for the years 2005-2007 (Table 7.1). In
small groups or individually, ask the students to interview local business
managers/owners to see: a) These challenges have migrated to this year b) How well they
faired against these challenges or c) There are more challenges ahead for business in the
years ahead.
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.
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
END-OF-CHAPTER SUPPORT
MARKETING DEBATE—How Different Is Business-to-Business Marketing?
Many business-to-business marketing executives lament the challenges of business–to–
business marketing, maintaining that many traditional marketing concepts and principles
do not apply. For a number of reasons, they assert that selling products and services to a
company is fundamentally different from selling to individuals. Others disagree, claiming
that marketing theory is still valid and only involves some adaptation in the marketing
tactics.
Finally, the other major difference between consumer and business–to-business marketing
usually involves the amount of people involved in the sale: from both the sellers firm and
the purchasing firm. In consumer selling, the user is generally the purchaser. In the
business-to-business, marketing both the selling firm and the buying firm includes
members of other disciplines (engineering, transportation, warehousing, finance, and
others) from the beginning of the process to the time of actual purchase. The addition of
these people fosters strong ties between the two firms but also lengthens the time and
complexity of the sale.
MARKETING DISCUSSION: Applying B-to–C Concepts to B-to-B
Consider some of the consumer behavior topics for business–to-consumer (B-to-C)
marketing from Chapter 6. How might you apply them to business–to-business (B-to-B)
settings? For example, how might noncompensatory models of choice work?
Suggested Response:
From Chapter 6 we have learned that consumer behavior is influenced by cultural factors,
Finally, in the business-to-business buying situation, problem recognition, information
search, evaluation of alternatives, purchase decisions, and post-purchase behavior will
differ from the consumer market. The difference(s) lie in the amount of time involved,
the degree of research expended, the decision-maker’s role, and the evaluation of the
product or service.
In the business-to-business market, more attention is paid to information search, purchase
decisions, the evaluation of alternatives, and the fact that the “user” may not be the final
decision maker. In the business-to-business market, there are seven roles demonstrated by
Marketing Excellence: ACCENTURE
1) What has Accenture done well to target its B2B audience?
Suggested Answer: The company came up with the name Accenture which connoted
accent of the future, retained the Ac of the original company and helped retain some of its
2) Has Accenture done the right thing by dropping Tiger Woods as its spokesperson?
Discuss the pros and cons of its decision.
Suggested Answer: Student opinions will vary, but good students should note that “focus
Marketing Excellence: GE
1) Discuss the importance of B2B marketing and a strong B2B brand to GE.
Suggested Answer: B2B marketing is critical to GE because “General Electric (GE) is
made up of five major divisions that operate in a wide range of industries: Energy
(Energy, Oil & Gas, Water and Process Technologies), Technology Infrastructure
2) Have “Imagination at Work,” “Ecomagination,” and “Healthymagination”
successfully communicated GE’s focus on its newer endeavors? Why or why not?
Suggested Answer: Student answers will differ but good students will note: “After
extensive consumer research, the company launched a major new campaign called
“Imagination at Work,” which highlighted its renewed focus on innovation and new
DETAILED CHAPTER OUTLINE
Business organizations do not only sell; they also buy vast quantities of raw materials,
manufactured components, plant and equipment, supplies, and business services.
According to the Census Bureau, there are roughly 6 million businesses with paid
employees in the United States alone. To create and capture value, sellers need to
understand these organizations’ needs, resources, policies, and buying procedures.
businesses.
WHAT IS ORGANIZATIONAL BUYING?
Webster and Wind define organizational buying as the decision-making process by which
The Business Market versus the Consumer Market
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.
A) More dollars and items are involved in sales to business buyers than to consumers.
B) Given the highly competitive nature of business–to–business markets, the biggest
enemy to marketers here is commoditization.
1) Fewer, larger buyers
2) Close supplier-customer relationship
3) Professional purchasing
7) Inelastic demand
8) Fluctuation demand
Buying Situations
The business buyer faces many decisions in making a purchase. How many depends on
the complexity of the problem being solved, newness of the buying requirement, number
of people involved, and time required. Three types of buying situations are the straight
rebuy, modified rebuy, and new task.
A) Straight rebuy is when the purchasing department reorders on a routine basis and
chooses from suppliers on an “approved list.”
B) Modified rebuy is when the buyer wants to change product specifications, prices,
delivery requirements, or other terms.
C) New task is when the purchaser buys a product or service for the first time.
1) The business buyer makes the fewest decisions in the straight rebuy situation
and the most in the new-task situation.
2) New–task buying is the marketer’s greatest opportunity and challenge. The
process passes through several stages: awareness, interest, evaluation, trial, and
adoption.
they must execute well in a number of areas to gain marketplace success.
Systems Buying and Selling
Many business buyers prefer to buy a total solution to a problem from one seller. Called
systems buying, this practice originated with the government. It consists of:
A) Prime contractors
B) Second-tier contractors
PARTICIPANTS IN THE BUSINESS BUYING PROCESS
Purchasing agents are influential in straight-rebuy and modified-rebuy situations, whereas
engineering personnel usually have a major influence in selecting product components,
and purchasing agents dominate in selecting suppliers.
The Buying Center
Webster and Wind call the decision-making unit of a buying organization the buying
center. It consists of “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.”
The buying center includes all members of the organization who play any of seven roles
in the purchase decision process:
A) Initiators—requests the product
B) Users—will use the product
Several people can occupy a given role such as user or influencer, and one person may play
multiple roles.
Buying Center Influences
Buying centers usually include several participants with differing interests, authority,
status, and persuasiveness.
A) Each member of the buying center is likely to give priority to very different decision
criteria.
B) Business buyers also respond to many influences when they make their decisions.
D) Individuals are motivated by their own needs and perceptions in an attempt to
maximize the rewards.
E) Personal needs “motivate” the behavior of individuals.
F) Organizational needs “legitimate” the buying decision process and its outcomes.
Targeting Firms and Buying Centers
Successful business-to-business marketing requires that business marketers know which
types of companies to focus on in their selling efforts, as well as who to concentrate on
within the buying centers in those organizations.
TARGETING FIRMS As discussed in Chapter 8, business marketers may divide the
marketplace in many different ways to decide on the types of firms to which they will
sell.
Marketing Insight: Big sales to small business
Illustrates how some very large companies (IBM, Microsoft, and others are reaching the
small businesses in the U.S. (defined as having fewer than 500 employees).
Targeting Within the Business Center
To target their efforts properly, business marketers have to figure out: Who are the major
decision participants? What decisions do they influence? What is their level of influence?
What evaluation criteria do they use?
THE PURCHASING/PROCUREMENT PROCESS
Business buyers seek to obtain the highest benefit package (economic, technical, services,
and social) in relation to a market offering’s costs.
Business marketers must therefore ensure that customers fully appreciate how the firm’s
offerings are different and better.
1) Framing occurs when customers are given a perspective or point of view that
allows the firm to “put its best foot forward.”
2) Framing can be as simple as making sure customers realize all the benefits or cost
3) Framing requires understanding how business customers currently think of and
4) Supplier diversity is a benefit that may not have a price tag but that business
5) Minority suppliers are the fastest-growing segment of today’s business landscape.
Today’s purchasing departments are more strategically orientated and have a mission to
seek the best value from fewer and better suppliers.
STAGES IN THE BUYING PROCESS
Robinson and Associates have identified eight stages and called them buyphases.
A) Problem recognition
B) General need description
C) Product specification
D) Supplier search
Problem Recognition
The buying process begins when someone in the company recognizes a problem or need.
The recognition can be triggered by internal or external stimuli.
General Need Description and Product Specification
Next, the buyer determines the needed item’s general characteristics and required
Supplier Search
The buyer next tries to identify the most appropriate suppliers through trade directories,
contacts with other companies, trade advertisements, trade shows, and the Internet.
Companies that purchase over the Internet are utilizing electronic marketplaces in several
forms:
A) Catalog sites
B) Vertical markets
On the downside, online ordering may:
A) Help to erode supplier-buyer loyalty.
B) Create potential security problems.
E-Procurement
Web sites are organized around two types of e-hubs: vertical hubs centered on industries
and functional hubs.
A) In addition to using these Web sites, companies can use e-procurement in
other ways:
Lead Generation
The supplier’s task is to ensure it is considered when customers are in the market
searching for a supplier.
1) Marketing must find the right balance between the quantity and quality of leads.
Proposal Solicitation
The buyer invites qualified suppliers to submit proposals. If the item is complex or
expensive, the proposal will be written and detailed.
A) Business marketers must be skilled in researching, writing, and presenting
proposals.
Supplier Selection
Before selecting a supplier, the buying center will specify and rank desired supplier
attributes, often using a supplier-evaluation model.
1) Marketers can counter request for a lower price in a number of ways.
i. “total cost of ownership”
ii. “life–cycle cost”
Number of Suppliers
Companies are increasing reducing the number of suppliers in order to cut costs.
A) These companies want their chosen suppliers to be responsible for a larger
component system, they want them to achieve continuous quality and
performance improvement, and at the same time they want them to lower prices
each year by a given percentage.
Order-Routine Specifications
After selecting suppliers, the buyer negotiates the final order, listing the technical
specifications, the quantity needed, the expected time of delivery, return policies,
warranties, and so on.
A) The lessee gains a number of advantages: the latest products, better service, the
conservation of capital, and some tax advantages. The lessor often ends up with a
larger net income and the chance to sell to customers that could not afford outright
purchase.
Performance Review
A) The buyer periodically reviews the performance of the chosen supplier(s).
B) Many companies have set up incentive systems to reward purchasing managers for
good buying performance, in much the same way sales personnel receive bonuses for
good selling performance.
MANAGING BUSINESS-TO-BUSINESS CUSTOMER RELATIONSHIPS
To improve effectiveness and efficiency, business suppliers and customers are exploring
different ways to manage their relationships. Closer relationships are driven in part by
supply chain management, early supplier involvement, and purchasing alliances.
The Benefits of Vertical Coordination
Much research has advocated greater vertical coordination between buying partners and
sellers, so they can transcend merely transacting and instead engage in activities that
create more value for both parties.
Marketing Insight: Establishing corporate trust and credibility
Defines the terms: corporate credibility, expertise, trustworthiness, and likability.
Building trust is one prerequisite to healthy long-term relationships.
D) and supply market dynamism.
Based on these we can classify buyer-supplier relationships into eight categories:
A) Basic buying and selling
B) Bare bones
Business Relationships: Risks and Opportunism
Researchers have noted that establishing a customer-supplier relationship creates tension
between safeguarding (ensuring predictable solutions) and adaptation (allowing for
flexibility for unanticipated events).
Vertical coordination can facilitate stronger customer-seller ties but at the same time may
increase the risk to the customer and supplier’s specific investments.
A) Specific investments are those expenditures tailored to a particular company and value
chain partner.
B) Specific investments also entail considerable risk to both customer and supplier.
New Technology and Business Customers
Top firms are comfortable using technology to improve the way they do business with
their business-to-business customers.
INSTITUTIONAL AND GOVERNMENT MARKETS
The institutional market consists of schools, hospitals, nursing homes, prisons, and other
institutions that must provide goods and services to people in their care.
A) Many of these organizations are characterized by low budgets and captive
clienteles.
procurement staff.
But the fact remains that the U.S. government bought goods and services valued at $220
billion in fiscal year 2009, making it the largest and therefore most potentially attractive
customer in the world.
A) Government decision makers often think vendors have not done their homework.
Different types of agencies—defense, civilian, intelligence—have different needs,
priorities, purchasing styles, and timeframes.