Analyzing business markets and business buying behavior
Analyzing business markets
and business buying behavior
By: Agung Utama
What is organizational buying?
Organizational buying: decision making
process by which formal organizations
establish the need for purchased products
and services, identify, evaluate, and choose
among alternative brands and suppliers.
The characteristics of business
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,
supplied to others.
• The major industries making up business
markets are: agriculture, transportation,
manufacturing, mining, construction,
communication, banking, finance,
insurance, public utilities, distribution and
services.
Several characteristics of business markets:
Fewer buyer: the business markets normally
deals with far fewer buyers than the consumer
marketer does.
Larger buyer : a few large buyers do most of the
purchasing in such industries as aircraft engines
and defense weapons.
Close supplier-customer relationship : because
of the smaller customer base and importance of
and the power of the larger customers, supplier
are frequently expected to customize their
offerings to individual business customer needs.
Geographically concentrated buyers: the
geographical concentration of producers helps
to reduce selling cost.
Derived demand : the demand for business
goods is ultimately derived from the demand
for consumer goods. For this reason, the
business marketer must closely monitor the
buying patterns of ultimate consumer.
In elastic demand : the total demand for many
business goods and services is in elastic
demand, that is not much affected by price
changes. Demand is especially in elastic in the
short run because producers can not make
quick changes in production methods.
Fluctuating demand : the demand for many
business goods and services tends to be more
volatile than the demand for consumer goods
and services. A given percentage increase in
consumer demand can lead to a much larger
percentage increase in the demand for plant
and equipment necessary to produce the
additional output. It is called the acceleration
effect.
Professional purchasing : business goods are
purchased by trained purchasing agents, who
must follow their organization’s purchasing
policies, constraints, and requirements.
Several buying influences: more people
typically influence business buying decisions.
Buying committees consisting of technical
experts and even senior management are
common in the purchase of major goods.
Multiple sale calls: because more people are
involved in the selling process, it takes
multiple sales calls to win most business order
and some sales cycles can take years.
Direct purchasing: business buyers often buy
directly from manufacturers rather than
through intermediaries, especially items that
are technically complex or expensive (such as
mainframes or aircraft).
Reciprocity: business buyers often select
suppliers who also buy from them.
Leasing: many industrial buyers lease instead
of buy heavy equipment like machinery and
trucks. The lessee gain a number of
advantages: conserving capital, getting the
latest products, receiving better services, and
gaining some tax advantages.
Buying situations
• There are three types of buying situations (Patrick
Robinson and others):
– Straight rebuy: a buying situation in which the
purchasing department reorders on a routine basis
(eg., office supplies).
– Modified rebuy: a buying situation in which the buyer
wants to modify product specifications, prices,
delivery requirements or other terms.
– New task: a buying situation in which purchaser buys
a product or service for the first time (eg., office
building). The greater the cost or risk, the larger the
number of decision participants and the greater their
information gathering, and therefore the longer the
time to decision completion.
Systems buying and selling
Many business buyers prefer to buy a total
solution to their problem from one seller.
Called system buying.
This practice originated with government
purchases of major weapons and
communication systems.
Participants in the business
buying process
Who does the buying of goods and services
needed by business organizations?
Webster and Wind call the Buying Centre,
which consists of all those individuals and
groups who participate in the purchasing
decisions making process, who share some
common goals and the risk arising from the
decisions.
• Seven roles which playing by the all members in the
buying center:
– Initiator: those who request that something to be
purchased
– Users: those who will use the product or service
– Influencers: people who influence the buying decisions.
– Deciders: people who decide on product requirements
or on suppliers.
– Approvers: people who authorize the proposed actions
of deciders or buyers
– Buyers: people who have formal authority to select the
supplier and arrange the purchase terms.
– Gatekeepers: people who have power to prevent sellers
or information from reaching members of the buying
centre. For example, purchasing agents, receptionist,
and telephone operators may prevent sales persons
from contacting users or deciders.
Major influences on industrial
buying behavior
ENVIRONMENT
AL
•Level of
demand
•Economic
outlook
•Interest rate
•Rate of
technological
change
•Political and
regulatory
development
•Competitive
developments
•Social
responsibilityu
concerns
ORGANIZATION
AL
•Objectives
•Policies
•Procedures
•Organizational
structures
•Systems
INTERPERSON
AL
•Interests
•Authority
•Status
•Emphaty
•persuasivene
ss
INDIVIDUAL
•Age
•Income
•Education
•Job position
•Personality
•Risk
attitudes
•culture
Busine
ss
Buyer
Environmental factors
Business buyers pay close attention to current
and expected economic factors: level of
production, investment, consumer spending,
and the interest rate.
In a recession, business reduce their investment
in plant, equipment, and inventories.
Business buyers actively monitor technological,
political regulatory, and competitive
developments.
Organizational factors
Every organization has specific purchasing
objectives, policies, procedures, organizational
structures and systems.
Interpersonal and individual factors
Buying centers usually include several
participants with differing interest, authority,
status, empathy, and persuasiveness.
Each buyer caries personal motivations,
perceptions, and preferences, which are
influenced by the buyers age, income,
education, job position, personality, attitudes
toward risk, and culture.
Cultural factors
Here are some rules of social and business etiquette
that marketers should understand when doing
business in other countries:
France: if you do not speak french, apologize for your lack of
knowledge. The french are quite proud of their language and
believe that everyone should feel privileged to speak it.
Germany: Germans are sticklers for titles. Try to introduce
people using their full, correct title, no matter how long it is.
Japan: Most Japanese businesspeople know what will be
discussed at a meeting, how everyone feels about it, and how
it will affect their business before they even get there
Korea: Korean do not like foreigners to assume that their
culture is the same as Japan.
Types of Purchasing Process
Peter Krajic distinguished four product related purchasing
process:
1. Routine product: these product have low value and cost
to the customer and involve little risk (office supplies)
2. Leverage product: these products have high value and
cost to the customer but involve little risk of supply
because many companies make them (engines pistons)
3. Strategic products : these products have high value and
cost to the customer, and also involve high risk (main
frame computers)
4. Bottleneck products: the products have low value and
cost to the customer but they involve some risk (spare
parts).
The purchasing/procurement
process
• Stages in the buying process
– Problem recognition
– General needs description and product
specification
– Supplier search
– Proposal solicitations
– Supplier selection
– Order routine specification
– Performance review
and business buying behavior
By: Agung Utama
What is organizational buying?
Organizational buying: decision making
process by which formal organizations
establish the need for purchased products
and services, identify, evaluate, and choose
among alternative brands and suppliers.
The characteristics of business
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,
supplied to others.
• The major industries making up business
markets are: agriculture, transportation,
manufacturing, mining, construction,
communication, banking, finance,
insurance, public utilities, distribution and
services.
Several characteristics of business markets:
Fewer buyer: the business markets normally
deals with far fewer buyers than the consumer
marketer does.
Larger buyer : a few large buyers do most of the
purchasing in such industries as aircraft engines
and defense weapons.
Close supplier-customer relationship : because
of the smaller customer base and importance of
and the power of the larger customers, supplier
are frequently expected to customize their
offerings to individual business customer needs.
Geographically concentrated buyers: the
geographical concentration of producers helps
to reduce selling cost.
Derived demand : the demand for business
goods is ultimately derived from the demand
for consumer goods. For this reason, the
business marketer must closely monitor the
buying patterns of ultimate consumer.
In elastic demand : the total demand for many
business goods and services is in elastic
demand, that is not much affected by price
changes. Demand is especially in elastic in the
short run because producers can not make
quick changes in production methods.
Fluctuating demand : the demand for many
business goods and services tends to be more
volatile than the demand for consumer goods
and services. A given percentage increase in
consumer demand can lead to a much larger
percentage increase in the demand for plant
and equipment necessary to produce the
additional output. It is called the acceleration
effect.
Professional purchasing : business goods are
purchased by trained purchasing agents, who
must follow their organization’s purchasing
policies, constraints, and requirements.
Several buying influences: more people
typically influence business buying decisions.
Buying committees consisting of technical
experts and even senior management are
common in the purchase of major goods.
Multiple sale calls: because more people are
involved in the selling process, it takes
multiple sales calls to win most business order
and some sales cycles can take years.
Direct purchasing: business buyers often buy
directly from manufacturers rather than
through intermediaries, especially items that
are technically complex or expensive (such as
mainframes or aircraft).
Reciprocity: business buyers often select
suppliers who also buy from them.
Leasing: many industrial buyers lease instead
of buy heavy equipment like machinery and
trucks. The lessee gain a number of
advantages: conserving capital, getting the
latest products, receiving better services, and
gaining some tax advantages.
Buying situations
• There are three types of buying situations (Patrick
Robinson and others):
– Straight rebuy: a buying situation in which the
purchasing department reorders on a routine basis
(eg., office supplies).
– Modified rebuy: a buying situation in which the buyer
wants to modify product specifications, prices,
delivery requirements or other terms.
– New task: a buying situation in which purchaser buys
a product or service for the first time (eg., office
building). The greater the cost or risk, the larger the
number of decision participants and the greater their
information gathering, and therefore the longer the
time to decision completion.
Systems buying and selling
Many business buyers prefer to buy a total
solution to their problem from one seller.
Called system buying.
This practice originated with government
purchases of major weapons and
communication systems.
Participants in the business
buying process
Who does the buying of goods and services
needed by business organizations?
Webster and Wind call the Buying Centre,
which consists of all those individuals and
groups who participate in the purchasing
decisions making process, who share some
common goals and the risk arising from the
decisions.
• Seven roles which playing by the all members in the
buying center:
– Initiator: those who request that something to be
purchased
– Users: those who will use the product or service
– Influencers: people who influence the buying decisions.
– Deciders: people who decide on product requirements
or on suppliers.
– Approvers: people who authorize the proposed actions
of deciders or buyers
– Buyers: people who have formal authority to select the
supplier and arrange the purchase terms.
– Gatekeepers: people who have power to prevent sellers
or information from reaching members of the buying
centre. For example, purchasing agents, receptionist,
and telephone operators may prevent sales persons
from contacting users or deciders.
Major influences on industrial
buying behavior
ENVIRONMENT
AL
•Level of
demand
•Economic
outlook
•Interest rate
•Rate of
technological
change
•Political and
regulatory
development
•Competitive
developments
•Social
responsibilityu
concerns
ORGANIZATION
AL
•Objectives
•Policies
•Procedures
•Organizational
structures
•Systems
INTERPERSON
AL
•Interests
•Authority
•Status
•Emphaty
•persuasivene
ss
INDIVIDUAL
•Age
•Income
•Education
•Job position
•Personality
•Risk
attitudes
•culture
Busine
ss
Buyer
Environmental factors
Business buyers pay close attention to current
and expected economic factors: level of
production, investment, consumer spending,
and the interest rate.
In a recession, business reduce their investment
in plant, equipment, and inventories.
Business buyers actively monitor technological,
political regulatory, and competitive
developments.
Organizational factors
Every organization has specific purchasing
objectives, policies, procedures, organizational
structures and systems.
Interpersonal and individual factors
Buying centers usually include several
participants with differing interest, authority,
status, empathy, and persuasiveness.
Each buyer caries personal motivations,
perceptions, and preferences, which are
influenced by the buyers age, income,
education, job position, personality, attitudes
toward risk, and culture.
Cultural factors
Here are some rules of social and business etiquette
that marketers should understand when doing
business in other countries:
France: if you do not speak french, apologize for your lack of
knowledge. The french are quite proud of their language and
believe that everyone should feel privileged to speak it.
Germany: Germans are sticklers for titles. Try to introduce
people using their full, correct title, no matter how long it is.
Japan: Most Japanese businesspeople know what will be
discussed at a meeting, how everyone feels about it, and how
it will affect their business before they even get there
Korea: Korean do not like foreigners to assume that their
culture is the same as Japan.
Types of Purchasing Process
Peter Krajic distinguished four product related purchasing
process:
1. Routine product: these product have low value and cost
to the customer and involve little risk (office supplies)
2. Leverage product: these products have high value and
cost to the customer but involve little risk of supply
because many companies make them (engines pistons)
3. Strategic products : these products have high value and
cost to the customer, and also involve high risk (main
frame computers)
4. Bottleneck products: the products have low value and
cost to the customer but they involve some risk (spare
parts).
The purchasing/procurement
process
• Stages in the buying process
– Problem recognition
– General needs description and product
specification
– Supplier search
– Proposal solicitations
– Supplier selection
– Order routine specification
– Performance review