Understanding Business Markets

Business Markets

• A business market, also known as a business-to-business (B2B) market, is made up of individuals, organizations, or groups buying a specific type of product for resale, direct use in producing other products, or use in general daily operations.
• Marketing to businesses uses the same concepts as marketing to consumers, focusing on defining target markets, understanding buyer behavior, developing effective marketing mixes (4 P's), and being aware of the external operating environment (PESTEL).
• The goal for business marketers is to understand customer needs and provide a value-added exchange, shifting from attracting customers to keeping them and developing relationships.
• The four main categories of business markets are producer, reseller, government, and institutional markets.

Producer Markets

• Producer markets consist of individuals and organizations that purchase products to make a profit by using them to produce other products or in their operations.
• These markets include buyers of raw materials, semi-finished, and finished items.

Reseller Markets

• Reseller markets are made up of intermediaries that buy finished goods to resell for a profit, including wholesalers and retailers.

Government Markets

• Government markets include federal, state, county, and local governments that buy goods and services to support internal operations and provide products to their constituencies.

Institutional Markets

• Institutional markets are composed of organizations with charitable, educational, community, or other nonbusiness goals, such as churches, hospitals, fraternities, charitable organizations, and private colleges.

Industrial Classification Systems

• Industry Classification Systems help segment and identify target markets, similar to consumer markets.
• The North American Industry Classification System (NAICS) generates comparable statistics among the United States, Canada, and Mexico based on types of production activities.
• NAICS is similar to the International Standard Industrial Classification (ISIC) system used in Europe and many other parts of the world.
• NAICS divides industrial activity into 20 sectors with 1,170 industry classifications.

Dimensions of Business Customers and Business Transactions

• Transactions with business customers differ from consumer sales, involving larger orders, more in-depth discussions, and negotiations, requiring considerable marketing time and selling effort.
• Suppliers need to identify and promote their competencies to position their products and showcase customer value.
• Business customers are generally better informed about the products they purchase, demanding detailed information about functional features and technical specifications.
• Personal goals can influence business buying behavior, with purchasing agents seeking psychological satisfaction from organizational advancement and financial rewards.
• Suppliers and customers often build and maintain beneficial relationships, sometimes called partnerships.
• When making purchasing decisions, business customers consider price, which affects operating costs, product quality, service, ethics, social responsibility, and the costs of maintaining supplier relationships.

Methods of Business Buying

• Most business purchasers use one of the following purchase methods:
  • Description: Used when products are standardized and graded according to certain characteristics like size, shape, weight, and color like commodities and raw materials
  • Inspection: Used when products have unique characteristics and may vary with regard to condition such as industrial equipment, used vehicles, and buildings
  • Sampling: Used when products are homogeneous and examining the entire lot is not physically or economically feasible like grain
  • Negotiation: Used commonly for one-time projects such as buildings, capital equipment, and special projects

Types of Business Purchases

• Most business purchases are one of three types, each requiring different selling approaches:
  • New-task purchase: The initial purchase of an item to perform a new job or solve a new problem.
  • Straight rebuy purchase: A routine purchase of the same products under similar terms.
  • Modified rebuy purchase: Changes made to a new-task purchase or when requirements of a straight rebuy purchase are modified.

Demand for Business Products

• Demand for business products (industrial demand) is characterized as:
  • Derived: Demand stems from demand for consumer products.
  • Inelastic: Buyers are not sensitive to price or have no ready substitutes.
  • Joint: Use of two or more items in combination to produce a product.
  • Fluctuating: Price changes lead to unexpected temporary shifts in demand.

Business Buying Decisions

• Business (organizational) buying behavior is the purchase behavior of producers, government units, institutions, and resellers.
• The buying center consists of the people within an organization who make business purchase decisions.
• The structure of an organization's buying centers is affected by the organization's size, market position, volume and types of products purchased, and overall managerial philosophy.
• The size of a buying center depends on the stage of the buying decision process and the type of purchase (New task/Straight rebuy/Modified rebuy).
• Stages of the Business Buying Decision Process:
  • Recognize problem: One or more individuals recognize a problem or need. Occurs when machines malfunction or a new product is introduced
  • Develop product specifications: Buying center participants assess the problem, determine what is necessary to resolve or satisfy the need.
  • Search for and evaluate possible products and suppliers, Search activities may involve: Looking in company files and trade directories, Websites Contacting suppliers for information,examining various online and print publications
  • Select product and supplier and order product: The results of deliberations and assessments in the third stage are used to select the product to be purchased and the supplier.
  • Evaluate product and supplier performance:Members of the buying center evaluate the supplier's and product's performance by comparing it with specifications,
• Multiple sourcing means using several suppliers
• Sole sourcing means using only one supplier

Influences on the Business Buying Decision Process

• Environmental: Including competitive and economic factors, political forces, legal and regulatory forces, technological changes, sociocultural issues, and PESTEL-C.
• Organizational: The company’s objectives, purchasing policies, resources, and the size and composition of the buying center.
• Interpersonal: The relationships among people in the buying center, the level of trust, interpersonal dynamics, and communication abilities.
• Individual: The age, education level, personality, tenure and position in the organization, and experience in the industry of those involved.

Reliance on the Internet and Other Technology

• Businesses turn to the internet to search for information and find sources, allowing buyers to research potential solutions and talk with peers before beginning a formal buying process.
• B2B e-commerce sites are online marketplaces where buyers and sellers can exchange information, goods, services, ideas, and payments, known as trading exchanges, B2B exchanges, and ehubs. They can be independent or private and may operate as online auctions.