Analyzing Business Market


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Analyzing Business Market

  1. 1. Marketing Management Chapter 7: Analyzing Business Market
  2. 2. Chapter questions  What is the business market, and how does it differ      from the consumer market? What buying situations do organizational buyers face? Who participates in the business-to-business buying process? How do business buyers make their decisions? How can companies build strong relationships with business customers? How do institutional buyers and government agencies do their buying?
  3. 3. Content I. What is organizational buying? II. Participants in the business buying process III. Managing business-tobusiness customer relationships
  4. 4. I. What is organizational buying ? What is business market?  A business market is a group of profit making organizations that buy goods and services for business use.  It consists of industries, distributors and retailers.  This market has rational buying with and experiences an inelastic demand.
  5. 5. Characteristics of Business Markets           Fewer, larger buyers Close supplier-customer relationships Professional purchasing Multiple buying influences Multiple sales calls Derived demand Inelastic demand Fluctuating demand Geographically concentrated buyers Direct purchasing
  6. 6. How does it differ from the consumer market ? Consumer Business Every customer has equal value and represents a small % of revenue There are a small number of big customers that account for a large % of revenue Sales are made remotely, the manufacturer doesn't meet the customer Sales are made personally, the manufacturer gets to know the customer Products are the same for all customers. The service element is low Products are customized for different customers. Service is highly valued Purchases are made for personal use Purchases are made for others to use - image is important for its own sake - image is important where it adds value to customers
  7. 7. Cont. The purchaser is normally the user The purchaser is normally an integrator, someone down the supply chain is the user. Costs are restricted to purchase costs Purchase costs may be a small part of the total costs of use The purchase event is not subject The purchase event is conducted to tender and negotiation professionally and includes tender and negotiation. The exchange is one off transaction. There is no longtime view (financial services differ) The exchange is often one of strategic intent. There is the potential for long term value
  8. 8. Buying situations • Reorders supplies (office supplies, bulk chemicals) at a routine basis and chooses from Straight list of suppliers. rebuy • The buyer want to modified products Modified specs, prices, delivery requirements from previous orders. rebuy • Purchaser buys a products for the first time New task
  9. 9. II. Participants in the business buying process
  10. 10. The buying center 1. Initiators • Those requesting the product 2. Users • Those who will you use the product or service 3. Influencers • Those who influence the buying decisions 4. Deciders • Those who decide on products reqs & suppliers 5. Approvers • Those authorizing actions of buyers 6. Buyers • Those who have authority to select supplier & arrange purchase terms 7. Gatekeepers •• Those who prevent information from reaching tho members of buying center
  11. 11. Of Concern to Business Marketers  Who are the major decision participants?  What decisions do they influence?  What is their level of influence?  What evaluation criteria do they use?
  12. 12. Stages in Buying Process Problem recognition Supplier selection Order routine specification General need description Proposal solicitation Performance review Product specification Supplier search
  13. 13. The buygrid framework New Task Problem recognition General need description Modified Rebuy Maybe Maybe Product specification Supplier search Proposal solicitation Supplier selection Order-routine specification Performance review Maybe Maybe Maybe Maybe Straight Buy
  14. 14. Searching for suppliers Catalog sites Vertical markets Pure play auction sites Spot markets Private exchanges Barter markets Buying alliances • Electronic catalogs • Ordering raw materials from specialized websites • Online marketplaces (Ebay, Amazon) • On spot electronic markets, prices change by the minute • Private exchange to link groups of suppliers over the web • Participants offer to trade goods or services • Companies buying the same goods join together to form purchasing consortia
  15. 15. Overcoming Price Pressures  Limit quantity purchased  Allow no refunds  Make no adjustments  Provide no services
  16. 16. Researching Customer Value  Internal engineering assessment  Field value-in-use assessment  Focus-group value assessment  Direct survey questions  Conjoint analysis  Benchmarks  Compositional approach  Importance ratings
  17. 17. Order – routine specification  The buyers negotiates: The final order; listing the technical specifications; the quantity needed; the expected time of delivery; return policies; warranties… Performance review Three methods: 1. The buyer may contact the end users and ask for their evaluations 2. The buyer may rate the supplier on several criteria using a weighted score method 3. The buyer might aggregate the cost of poor performance to come up with adjusted costs of purchase including price
  18. 18. III. Managing Business- to- Business Customer Relationships
  19. 19. The Benefits of Vertical Coordination • Create more value for both buying partners and sellers partners Establishing Corporate Trust and Credibility
  20. 20. The relationship between advertising agencies and clients In the relationship formation stage, one partner experienced substantial market growth. Information asymmetry between partnership would generate more profit than if the partner attempted to invade the other firm’s area Dependence asymmetry existed such that one partner was more able to control or influence the other’s conduct At least one partner had high barriers to entry that would prevent the other partner from entering the business One partner benefited from economies of scale related to the relationship
  21. 21. Factors of buyer-supplier relationships Availability of alternatives Importance of supply Complexity of supply Supply market dynamism
  22. 22. Categories of Buyer-Supplier Relationships Basic buying and selling Cooperative systems Bare bones Collaborative Contractual transaction Mutually adaptive Customer supply Customer is king
  23. 23. Business Relationship : Risks and Opportunism Opportunism is a concern Vertical coordination can facilitate stronger customer – seller ties but increase the risk to the customers and supplier specific investment
  24. 24. Institutional and Government Markets  Institutional market consists of schools ,hospitals, nursing home, prisons and other institutions that provide goods and services to people in their care
  25. 25. Institutional and Government Markets ( Cont )  Buyers for government organization 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
  26. 26. Summary Business markets differ from consumer markets Business buyers make purchase decisions base on different buying situations The buying process consists of eight stages.  sellers use different sales strategies according to their size. One is to use e – marketplaces There are also different strategies in handling price – oriented customers Business marketers must form strong bonds and relationships with their customers and provide them added value.