Business marketing is the marketing of products to organizations for the direct use of the product in the production of another product, for use in the general daily operations of the organization, or for reselling the product to other businesses or the final consumer. Marketing goods and services to businesses and organizations, while sharing some similarities with consumer markets, is different in many ways. The nature and characteristics of the business market, the types of consumers, the different buying situations that occur in businesses and organizations, who is involved in the decision-making process and the business-to-business buying process all differ significantly from the consumer market. These differences often make the normal purchasing process more involved and complex.
Nature and characteristics of the business market
The first obvious difference is that there are significantly fewer customers in the business market than in the consumer market. These customers also buy in significantly larger quantities (e.g., tires by the thousands) and the prices of some of their single item purchases far exceed those of an individual consumer (e.g., millions of dollars for a new bridge). Finally, business customers in the same industry often tend to be located in a concentrated geographic region. For example, the Silicon Valley in California
The nature of the demand for products differs from consumer demand because it is often derived from consumer demand. A derived demand means that the demand for original equipment leather seat covers installed in new cars depends on the demand for the models of automobiles that use those seat covers. They have a more inelastic demand curve because the demand for the seat covers depends on the consumer demand for the automobiles, not on the price of the seat covers. Another factor influenced by derived demand is that it may cause large fluctuations in the demand for the seat covers. If the demand for the automobiles drops, it may have a small effect on the sales figures of the auto manufacturer, but if this particular contract represents a large share of the seat cover vendor’s production, that vendor could suffer a significant loss of revenue.
Finally, the products and the buying process may differ from the consumer market to varying degrees. While some products purchased in the business market are the same or very similar to the products bought by consumers (e.g., office supplies), the buying process may be much more involved because of negotiated contracts and unique or customized needs. Product specifications, price, quantity, service requirements, length of the contract, and delivery schedules are just a few of the terms that may need to be negotiated. On the other hand, many of the products are very complex and often custom-made to agreed-upon specifications. The complexity of the buying process is further complicated because a given purchase will need to satisfy a number of different individuals and departments within the company. Because of these factors, the buying decisions in businesses and organizations are often determined by a group of individuals known as the buying center, which is discussed later in this entry.
Types of consumers
The business market consists of many different organizations involved in many different primary activities, but they generally fall into four major types:
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- Government —Federal, state, and local governments represent the largest single business or organizational market. Collectively they spend trillions of dollars for services and products needed for governmental operations and to provide citizens with the products and services needed for their general welfare.
- Institutions —Institutions are those organizations whose primary activities and goals are charitable, educational, community, or nonbusiness in nature. They include both public (such as libraries) and private (some hospitals) institutions, which may be nonprofit (charitable organizations) or profit (some nursing homes) oriented.
Types of buying situations
There are three major types of buying situations, each requiring a different buying approach. The straight rebuys are routine purchases of standard products from an existing vendor without modifying specifications or without renegotiating new terms. Little effort, beyond a short performance review, is necessary.
On the other hand, modified rebuys occur when the product is not purchased on a regular basis, when there is a change in the specification of the product, when there is dissatisfaction with the current vendor, or if a new vendor offers better terms. Modified rebuys may involve new product specifications, additional evaluation of vendors, or renegotiation of contracts.
The third buying situation is a new task buy. This situation normally involves purchases made by a business for the first time The buying process needs to start from scratch and will probably be an extended problem-solving endeavor. One of the early decisions will be whether the firm wants to purchase the product from a vendor, lease the product, or produce the product in-house. These decisions and the actual purchase decisions are often the responsibility of a buying center.
The buying center
Because of the size, importance, complexity, and commitment involved in a business buying decision, often a committee called the buying center is formed. The buying center is responsible for deciding how best to acquire the products and services needed to operate the business. The individuals included in the buying center can differ from one buying decision to another, but may involve representatives from the purchasing, finance/accounting, and engineering departments, as well as the departments that will use the product, and an executive from management. The members of any given buying center committee could play one or more of the following roles:
- Gatekeeper —The individual responsible for the flow of information to the other members of the buying center
- User(s) —The member(s) most likely to use or be responsible for the use of the product
- Influencer(s) —The individual(s) who will influence(s) the decision but may not necessarily use the product
- Decider(s) —The member(s) who make(s) the final decision
- Purchaser —The member who negotiates the actual purchase
Business to business buying process
The typical process that is followed by the buying center to analyze the needs and develop solutions to meet those is:
- Recognize or anticipate and clearly define a need
- Determine and evaluate alternative solutions
- Straight rebuy
- Modified rebuy
- New task buy
- Select a course of action and develop product specification
- Select a vendor
- Identification of potential vendors
- Evaluation of vendors—solicitation and analysis of proposals
- Select a vendor
- Negotiate a contract
- Review performance
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