Kotler 2020, Chapter 7 Business Markets PDF

CHAPTER 7 – Business markets and business buyer behaviour Mini contents Company case -IBM: the world's most valuable business-to- business brand Business markets Best practice – IKEA: involving suppliers from start to finish Company case - STIGA: marketing in industrial markets B...

CHAPTER 7 – Business markets and business buyer behaviour Mini contents Company case -IBM: the world's most valuable business-to- business brand Business markets Best practice – IKEA: involving suppliers from start to finish Company case - STIGA: marketing in industrial markets Business buyer behaviour The business buyer decision process Business-to-business digital and social media marketing E-procurement Institutional and governmental markets Legislation issues Chapter preview In the previous chapter, you studied final consumer buying behaviour and factors that influence it. In this chapter, we'll do the same for business customers those that buy goods and services for use in producing their own products and services or for resale to others. As when selling to final buyers, firms marketing to business customers must build profitable relationships with business customers by creating superior customer value. The chapter will start with a story about IBM. Although the IBM brand is very familiar to most final consumers, nearly all of the company's around USD 100 billion in annual revenues comes from business and institutional customers. IBM succeeds by working closely and at a deep level with customers to develop complete solutions to their information and data analytics problems. IBM wants to become a strategic information and insights partner with its business customers - and up to now this has worked well. Learning objectives After reading this chapter, you should be able to: 1. Define the business market and explain how business markets differ from consumer markets. 2. Identify the major factors that influence business buyer behaviour 3. List and define the steps in the business buying decision process. 4. Compare the institutional and governmental markets and explain how institutional and governmental buyers make their buying decisions. Business markets In one way or another, most large companies sell to other organizations. Companies such as Aria, Atlas Copco, Google and KPMG sell most of their products and services to other businesses. The public sector is a significant player in business markets - just think of infrastructure projects such as the City Tunnel in Stockholm (sek 9 billion) or Ostlänken Järna-Linköping (SEK 24 billion), the amount of public money transferred to public and private kindergartens, schools and universities in a year, and public investment in roads (e-g. Kungens Kurva-Akalla at a cost of SEk 27 billion), health care and environmental protection. These are a few among many examples. The business market is huge. In fact, business markets involve far more money and items than do consumer markets. Business buyer behaviour refers to the buying behaviour of the organizations that buy goods and services for use in the production of other products and services that are sold, rented OT supplied to others. It also includes the behaviour of retailing and wholesaling firms that acquire goods to resell or rent to others at a profit. In the business buying process, busi- ness buyers determine which products and services their organizations need to purchase and then find, evaluate and choose among alternative suppliers and brands. Business- to- business (B2B or B-to B) marketers must do their best to understand business markets and business buyer behaviour. Then, like businesses that sell to final buyers, they must build profitable relationships with business customers by creating superior customer value. Business buyer behaviour – The buying behaviour of the organizations that buy goods and services for use in the production of other products and services or to resell or rent them to others at a profit. Business buying process – The decision process by which business buyers determine which products and services their organizations need to purchase. Business markets operate behind the scenes' to most consumers. Most of the things you buy involve many sets of business purchases before you ever see them. Think about the large number of business transactions involved in the production and sale of a single set of Nokian tyres. Various suppliers sell Nokian the rubber, steel, equipment and other goods that it needs to produce tyres. Nokian then sells the finished tyres to retailers, who in turn sell them to consumers. Thus, many sets of business purchases were made for only one set of consumer purchases. In addition, Nokian sells tyres as original equipment to manufacturers who install them on new vehicles, and as replacement tyres to companies that maintain their own fleets of company cars, trucks, and buses or other vehicles. In some ways, business markets are similar to consumer markets. Both involve people who assume buying roles and make purchase decisions to satisfy needs. However, business markets differ in many ways from consumer markets. The main differences, shown in Table 7.1, are in market structure and demand, the nature of the buying unit, and the types of deci- sions and the decision process involved Market structure and demand The business marketer normally deals with far fewer but far larger buyers than the consumer marketer does. Even in large business markets, a few buyers often account for most of the purchasing. For example, when Nokian sells replacement tyres to final consumers, its potential market includes the owners of the millions of cars currently in use in Sweden, Scandinavia, the rest of Europe and around the world. But Nokian's fate in the business market depends on getting orders from one of only a handful of large car manufacturers. Similarly, GGr Group, with Swedish STIGA as its flagship brand, sells its lawn mowers, snow blowers and other garden equipment to about 100 countries worldwide.? To cover all these countries, GGP Group must sell these products through retail customers that include a broad range of channels, Further, business demand is derived demand - t ultimately derives from the demand for consumer goods. Acne and Filippa Kbuy fabric because consumers buy their items of clothing. And there is a high correlation between computer sales and computer screen sales thus, the most efficient way of boosting screen sales is to increase the demand for computers (most people buy laptops but companies and institutions buy a certain number of desktop computers). If consumer demand for shoes drops, so will the demand for shoe soles. Therefore, B-to-B marketers sometimes promote their products directly to final consumers to increase B-to-B demand. Derived demand – Business demand that ultimately comes from (derives from) the demand for consumer goods. Many business markets have inelastic demand; that is, total demand for many business products is not affected much by price changes, especially in the short term. A fall in the price of leather will not cause shoe manufacturers to buy much more leather unless it results in lower shoe prices, which, in turn, will increase consumer demand for shoes. Just as a 50 per cent discount on spare parts would hardly boost sales of shock absorbers or exhaust pipes for cars, since demand is almost perfectly derived from the old shock absorbers or exhaust pipe wearing out regardless of whether the buyer is a consumer or a business. Finally, business markets have more fluctuating demand. The demand for many busi- ness goods and services tends to change more - and more quickly - than the demand for consumer goods and services. A small percentage increase in consumer demand can cause large increases in business demand. Nature of the buying unit Compared with consumer purchases, a business purchase usually involves more decision participants and a more professional purchasing effort. Often, business buying is done by trained purchasing agents who spend their working lives learning how to buy better. The more complex the purchase, the more likely it is that several people will participate in the decision-making process. Buying committees made up of technical experts and top manage- ment are common in the buying of major goods. Beyond this,B-to-B marketers now face a new breed of higher-level, better-trained supply managers. Therefore, companies must have well- trained marketers and salespeople to deal with these well-trained buyers. Types of decisions and the decision process Business buyers usually face more complex buying decisions than do consumer buyers. Busi- ness purchases often involve large sums of money, complex technical and economic consid- erations, and interactions among many people at many levels of the buyer's organization. The business buying process also tends to be more formalized than the consumer buying process Large business purchases usually call for detailed product specifications, written purchase orders, careful supplier searches and formal approval. Finally, in the business buying process, the buyer and seller are often much more dependent on each other, B-to-B marketers may roll up their sleeves and work closely with their customers during all stages of the buying process from helping customers define problems, to finding solutions and to supporting after-sales operation. They often customize their offer- ings to individual customer needs. In the short run, sales go to suppliers who meet buyers immediate product and service needs. In the long run, however, B-to-B marketers keep a customer's sales and create customer value by meeting current needs and by partnering With customers to help them solve their problems. For many products, relationships between customers and suppliers have been changing from downright adversarial to close and friendly. In fact, many customer companies are now practising supplier development, systematically developing networks of supplier-partners to ensure an appropriate and dependable supply of products and materials that they will use in making their own products or reselling to others. IKEA doesn't just buy from its suppliers; it involves them deeply in the process of delivering a stylish and affordable lifestyle to IKEA's customers. Supplier development - Systematic development of networks ofsupplier-partners to ensure an appropriate and dependable supply of prod- ucts and materials for use in making products or reselling them to others. However, this must not be the case. For products that dont need co-operation with suppliers but are standardized and replaceable with competitors' products, there may even be a tendency to gO back to transactions marketing rather than relationship marketing. When it is possible to reduce costs through exploring new supplier opportunities without compromising with quality, many companies now are under pressure from shareholders to do so. Competi tion is tough and trade-off between quality and costs must be thought through. Business buyer behaviour At the most basic level, marketers want to know how business buyers will respond to various marketing stimuli. Business buying decisions can range fromn routine to incredibly complex, involving only a few or very many decision-makers and buying influences. Figure 7.1 shows a model of business buyer behaviour. In this model, marketing and other stimuli affect the buying organization and produce certain buyer responses. These stimuli enter the organi- zation and are turned into buyer responses. In order to design good marketing strategies, the marketer must understand what happens within the organization to turn stimuli into purchase responses. Within the organization, buying activity consists of two major parts: the buying centre, made up of all the people involved in the buying decision, and the buying decision process The model shows that the buying centre and the buying decision process are influenced by internal organizational, interpersonal and individual factors, as well as by external environ- mental factors. The model in Figure 7.1 suggests four questions about business buyer behaviour: what buying decisions do business buyers make; who participates in the buying process; what are the major influences on buyers; and how do business buyers make their buying decisions? Major types of buying situations Business buying situations may be conceptualized on a continuum. At one extreme is the straight re-buy, which is a fairly routine decision. At the other extreme is the new task, which may call for thorough research. In the middle is the modified re-buy, which requires some research. In a straight re-buy, the buyer reorders something without any modifications. It is usually handled on a routine basis by the purchasing department. Based on past buying satisfaction, the buyer simply chooses from the various suppliers on its list. In suppliers try to main- tain product and service quality. They often propose automatic reordering systems so that the purchasing agent will save reordering time - and, of course, in order to create a natural flow of orders independent of customers thoughts about considering other suppliers. 'Out suppliers try to find new ways to add value or exploit dissatisfaction so that the buyer will consider them. The re-buy may represent significant sums of money, e.g. fuel for a petrol station or frozen food, fruit and vegetables for a major ICA Maxi store, but the purchase deci- sion doesn't need an overly qualified decision-maker as product specifications, prices, terms of delivery etc. have already been negotiated. Straight re-buy – A business buying situation in which the buyer routinely reorders something without any modifications. Modified re-buy – A business buying situation in which the buyer wants to modify product specifica- tions, prices, terms or suppliers. In a modified re-buy, the buyer wants to modify product specifications, prices, terms or suppliers. The modified re-buy usually involves more decision participants than does the straight re-buy. The in' suppliers may become nervous and feel pressured to put their best foot forward to protect an account. 'Out’ suppliers may see the modified re-buy situation as an opportunity to make a better offer and gain new business. Switching costs may give ‘in' suppliers an advantage, e.g., when buying an enterprise system for a subsidiary. A company buying a product or service for the first time faces a new-task situation, In such cases, the greater the cost or risk, the larger the number of decision participants and the greater their efforts to collect information. The new-task situation is the marketer's greatest opportunity and challenge. The marketer not only tries to reach as many key buying influences as possible but also provides help and information. New-task-A business buying situation in which the buyer purchases a product or service for the first time. Many business buyers prefer to buy a complete solution to a problem from a single seller instead of buying separate products and services from several suppliers and putting them together. New suppliers may have advantages but there are also risks. Think of Scania, who have a long track record of superior product quality. Procurement costs could be reduced significantly by always choosing the cheapest offer - however, Scania's reputation and bus. ness model would be at stake. The sale often goes to the firm that provides the most complete system for meeting the customer's needs and solving its problems. Such systems selling (or solutions selling) is often a key business marketing strategy for winning and holding accounts. It helps customers to solve problems and focus on the core business. For instance, transportation and logistics giant UPs does more than just ship packages for its business customers. It develops entire solutions to customers' transportation and logistics problems. Systems selling (solutions selling) - Buying a packaged solution to a problem from a single seller, thus avoiding all the separate decisions involved in a complex buying situation. Participants in the business buying process Who does the buying of the trillions of dollars worth of goods and services needed by busi- ness organizations? The decision-making unit of a buying organization is called its buying all the individuals and units that play a role in the business purchase decision- centre making process. The buying centre includes all members of the organization who play any of five roles in the purchase decision process: Users are members of the organization who will use the product or service. In many cases, users initiate the buying proposal and help define product specifications. Buying centre – All the individuals and units that playa role in the purchase decision-making process. Users – Members of the buying organization who will use the product or service. Approaching users instead of the formal buying unit maybe a smart selling strategy: the user might then help the seller put pressure on managers to buy a product or service. Influencers often help define specifications and also provide information for evaluating alternatives. Technical personnel are particularly important influencers, but so are other employees with a lot of knowledge about the product in question and who are keen to solve the issue at hand, e.g. a passionate Apple user who attempts to change the company policy towards accepting Apple computers.  Buyers have the formal authority to select the supplier and arrange terms of purchase. Buyers may help to shape product specifications, but their major role is in selecting vendors and negotiating. In more complex purchases, buyers might include high-level officers participating in the negotiations. Deciders have the formal or informal power to select or approve the final suppliers. In routine buying, the buyers are often the deciders, or at least the approvers. Gatekeepers control the flow of information to others. For example, purchasing agents often have the authority to prevent salespeople from seeing users or deciders. Other gate keepers include technical personnel and even personal secretaries. Influencers – People in an organization's buying centre who affect the buying decision; they often help define specifications and also provide information for evaluating alternatives. Buyers – Members of the buying organization who make a purchase Deciders – People in an organization's buying centre who have the formal or informal power to select or approve the final suppliers. Gatekeepers – People in an organization's buying centre who control the flow of information to others The buying centre is not a fixed and formally identified unit within the buying organiza- tion. It is a set of buying roles assumed by different people for different purchases. Within the organization, the size and make-up of the buying centre will vary for different products and for different buying situations. For some routine purchases, one person may assume all the buying centre roles and serve as the only person involved in the buying decision (cf. straight re-buy). For more complex purchases, the buying centre may include 20 or 30 people from different levels and departments in the organization. Consider the case of selling hydroelectric power facilities for power supply in South America or Africa; 20-30 people may be involved in a selling process that lasts for years, and still the result may be zero sales. The buying centre concept presents a major marketing challenge. The business marketer must learn who participates in the decision, each participant's relative influence, and what evaluation criteria each decision participant uses. This can be difficult. The buying centre usually includes some obvious participants who are involved formally in the buying decision. For example, the decision to buy a corporate jet will probably involve the company's CEO along with the board of directors, chief pilot, a purchasing agent, some legal staff, a member of top management and others formally charged with the buying decision It may also involve less obvious, informal participants, some of whom may actually make or strongly affect the buying decision. It's likely that the decision will be criticized for sustain- ability reasons as well as the costs it involves. Even though the CEO's time is very useful, there is a risk that a corporate jet contributes to maintaining a practice of extensive traveling for meetings rather than rethinking the way people meet and greet to make decisions. Sometimes, even the people in the buying centre are not aware of all the buying partici- pants. For example, the decision about which corporate jet to buy may actually be made informally - by a corporate board member who has an interest in flying and who knows a lot about aircraft - a situation similar to that of a wealthy person buying a SEK 700,000 car who makes the decision by asking a knowledgeable friend. The board member who is interested in flying may work hard behind the scenes to sway the decision. Many business buying decisions result from the complex interactions of ever-changing buying centre participants. And one should be aware of the tendency among experts to suggest products that are more pricey than the user actually needs. If you ask a professional photographer or fashion designer about products in their field, you are likely to be recommended something that is great but may be more expensive than you need. Major influences on business buyers Business buyers are subject to many influences when they make their buying decisions. Some marketers assume that the major influences are economic. They think buyers will favour the supplier who offers the lowest price, the best product or the most service, so marketers are expected to concentrate on offering strong economic benefits to buyers. This view reflects a belief that business buying is a rational process with every decision based on reason. However, business buyers actually respond to both economic, personal and other factors Far from being cold, calculating and impersonal, business buyers are also human and social. They react to both reason and emotion. Today, most B-to-B marketers recognize that emotion plays an important role in business buying decisions. All types of companies - whether they sell medical equipment to primary healthcare organizations, books to secondary schools, air conditioners to public museums or car fleet finance to companies share the experience that great salesp eople have a substantial influence on sales volume and customer satisfaction. A great sales force may result in higher prices and margins, and an increased sales volume. When suppliers offers are very similar, business buyers have little basis for a strictly rationa choice. Because they can meet organizational goals with any supplier, buyers can allow personal factors to play a larger role in their decisions However, when competing products differ greatly, business buyers are more accountable for their choices and tend to pay more attention to economic factors. Figure 7.2 lists various groups of influences on business buyers environmental, organizational, interpersonal and individual. Environmental factors Business buyers are heavily influenced by factors in the current and expected economic environment, such as the level of primary demand the economic outlook and the cost of money. Another environmental factor is shortages in key materials. Many companies are now more willing to buy and hold larger inventories of scarce materials to ensure adequate supply. Today's just-in-time orientation makes businesses very sensitive to supply shortages. In factories, hospitals and many other contexts, supply shortages can be very harmful. Business buyers are also affected by technological, political and competitive developments in the environment, just as consumers are. Finally, culture and customs can strongly influence business buyer reactions to the marketer's behaviour and strategies. The business buyer must watch these factors, determine how they will affect his business, and try to turn these chal- lenges into opportunities. Organizational factors Each buying organization has its own objectives; policies, procedures, structure and systems, and the business marketer must understand these factors well. Questions such as the following arise. How many people are involved in the buying decision? Who are they? What are their evaluative criteria? What are the company's policies and limits on its buyers? Interpersonal factors The buying centre usually includes many participants who influence each other, so interpersonal factors also influence the business buying process. However, it is often difficult to assess such interpersonal factors and group dynamics without information from inside the company. Buying centre participants do not wear tags that label them as 'key decision-maker" or not influential". Nor do buying-centre participants with the highest rank always have the most influence Participants may influence the buying decision because they control rewards and punishments, are well liked, have special expertise or have a special relationship with other important participants. Interpersonal factors are often very subtle, Formal and informal structures and decision-makers must be understood. The formal decision- maker may well be fed up with letters, phone calls and other attempts to sell to them and may throw any advertising material in the bin. The informal decision-maker may not be identifi- able without some inside information on how the organization really works'. For example, the person making the buying decisions about PCs in a major Swedish university could formally be employed as a secretary, which is the information you will get from the organiza- tional chart, Meanwhile the formal decision-maker, as identified on the organizational chart, may know very little at all about computers. Business marketers must try to understand these factors and design strategies that take them into account. Individual factors Each participant in the business-buying decision process brings in personal motives, percep- tions and preferences. These individual factors are affected by personal characteristics such as age, income, education, professional identification, personality and attitudes towards risk. Also, buyers have different buying styles. Some may be technical types who make in-depth analyses of competitive proposals before choosing a supplier. Other buyers maybe intuitive negotiators who are adept at pitting the sellers against one another for the best deal. As in consumer markets,B-t-B buyers are inherently different, and marketers need to make use of that. The business buyer decision process Figure 7.3 lists the eight stages of the business buying process. Buyers facing new, complex buying decisions usually go through all of these stages. Those making re-buys often skip some of the stages. Either way, the business buyer decision process is usually much more complicated than the simple flow diagram in figure 7.3 suggests. We will examine these steps for the typical new-task buying situation. Problem recognition Problem recognition - The first stage of the business buying process in which someone in the company recognizes a problem or need that can be met by acquiring a product or service. The buying process begins when someone in the company recognizes a problem Or need that can be met by acquiring a specific product or service. Problem recognition can result from internal or external stimuli. Internally, the company may decide to launch a new product that requires new production equipment and materials. Or a machine may break down and need new parts. Perhaps a purchasing manager is unhappy with a current supplier's product quality, service or prices. Externally, the buyer may get some new ideas at a trade show or from an appointment with former study friends, see an advert or receive a call from a salesperson who offers a better product or a lower price. In fact, in their advertising, business marketers often alert customers to potential problems and then show how their products provide solutions. For example, consulting firm Accen- ture's award-winning 'High Performance. Delivered.' B-to-B ads do this. One Accenture ad points to the urgent need for a business to get up to speed with digital technology. 'Accenture Digital can help you attract more customers,' the ad states, showing moths drawn to a brightly lit smartphone screen. Accenture's solution: 'Our industry expertise, coupled with our integrated capabilities across interactive, analytics, and mobility, can help you take advantage of the opportunity to innovate and compete.' Other ads in the series tell success stories of how Accenture has helped client companies recognize and solve a variety of other problems. General need description Having recognized a need, the buyer next prepares a general need description that describes the characteristics and quantity of the item needed. For standard items, this process presents few problems. For complex items, however, the buyer may need to work with others engineers, users, and consultants - to define the item. The team may want to rank the impor- tance of reliability, durability, Price and other attributes desired in the item. In this phase, the alert business marketer can help the buyers define their needs and provide information about the value of different product characteristics. General need description – The stage in the business buying process in which the company describes the characteristics and quantity of the item needed. Product specification The buying organization next develops the item's technical product specifications, often with the help of a value analysis engineering team. Product value analysis is an approach to cost reduction in which components are studied carefully to determine if they can be rede- signed, standardized or made by less costly methods of production. The team decides on the best product characteristics and specifies them accordingly. Sellers, too, can use value analysis as a tool to help secure a new account By showing buyers a better way to make an object, outside sellers can turn straight re-buy situations into new-task situations that give them a chance to obtain new business. Product specification – The stage of the business buying process in which the buying organization decides on and specifies the best technical product characteristics for a needed item. Organizations that are new players in competitive markets,e.g. municipalities outsourcing public transport or the health administration in a country outsourcing primary healthcare, may lack experience and make costly mistakes in this phase. It is very important that the general need description and product specification are written with care, particularly for those organizations not used to doing it, and that agreements are written in the interest of suppliers only. Supplier search The buyer now conducts a supplier search to find the best vendor, by reviewing trade direc- tories, doing computer searches, phoning other companies for recommendations or using Internet services that connect buyers and suppliers. Supplier search – The stage of the business buying process in which the buyer tries to find the best vendors. The newer the buying task and the more complex and costly the item, the greater the amount of time the buyer will spend searching for suppliers. The supplier's task is to build a good reputation in the marketplace, get listed in major offline and online directories, and make sure they feature prominently in any Google search. Proposal solicitation Proposal solicitation – The stage of the business buying process in which the buyer invites qualified suppliers to submit proposals. In the proposal solicitation stage of the business buying process, the buyer invites qualified suppliers to submit proposals. In response, some suppliers will send only a catalogue or a salesperson. However, when the item is complex or expensive, the buyer will usually require detailed written proposals or formal presentations from each potential supplier. Business marketers must be skilled in researching, writing and presenting proposals in response to buyer proposal solicitations. Proposals should be marketing documents, not just technical documents. Presentations should inspire confidence and should make the market- er's company stand out from the competition. Fast delivery may be critical – increasingly consumers and business buyers are frustrated when they have to wait too long for a response Supplier selection The members of the buying centre now review the proposals and select a supplier or suppliers. During supplier selection, the buying centre will often draw up a list of the desired supplier attributes and their relative importance. Such attributes include product and service quality, reputation, on-time delivery, ethical corporate behaviour, honest communi- cations and competitive prices The members of the buying centre will rate suppliers against these attributes and identify the best suppliers. Supplier selection – The stage of the business buying process in which the buyer reviews proposals and selects a supplier or suppliers. Buyers may attempt to negotiate with preferred suppliers for better prices and terms before making the final selections. Many buyers prefer multiple sources of supply to avoid being totally dependent on one supplier and to allow comparisons of prices and performance of several suppliers over time. If a supplier knows their supply is critical to the customer's production, it puts them in a position of power that may ultimately damage the customer. Order-routine specification Order-routine specification -The stage of the business buying in which the buyer writes the final order with the chosen supplier(s), listing the technical specifications, quantity needed, expected time of delivery, return policies, and warranties. The buyer now prepares an order-routine specification. It includes the final order with the chosen supplier or suppliers and lists items such as technical specifications, quantity needed, expected time of delivery, return policies and warranties. In the case of maintenance, repair and operating items, buyers may use blanket contracts rather than periodic purchase orders. A blanket contract creates a long-term relationship in which the supplier promises to resupply the buyer as needed at agreed prices for a set time period. Many large buyers now practise vendor-managed inventory, in which they turn over ordering and inventory responsibilities to their suppliers Under such systems, buyers share. sales and inventory information directly with key suppliers, The suppliers then monitor inventories and replenish stock automatically as needed Performance review Performance review – The stage of the business buying process in which the buyer assesses the performance of the supplier and decides to continue, modify, or drop the arrangement. In this stage, the buyer reviews supplier performance. The buyer may contact users and ask them to rate their satisfaction. Increasingly, such reviews may be conducted on the Internet The performance review may lead the buyer to continue, modify or drop the arrangement The seller's job iS to monitor the same factors used by the buyer to mal ke sure that they are giving the expected satisfaction. The eight-stage buying-process model provides a simple view of business buying as it might occur in a new-task buying situation. The actual process is usually much more complex. Emotions can have a substantial influence over some decisions, thus in a sense disturbing the rational buying process In the modified re- buy or straight e-buy situation, some of thee stages would be compressed or bypassed. Each organization buys in its own way, and each puying situation has unique requirements. Moreover, different buying-centre participants may be involved at different stages of the process. Although certain buying-process steps usually do occur, buyers do not always follow them in the same order, and they may add other steps. Finally, a customer relationship might involve many different types of purchase ongoing at a given time, all in difrent stages of the buying process. The seller must manage the total customer relationship, not just individual purchases Like many models, it won't reflect the unique characteristics of each organization, butit isa good starting point for understanding the phenomenon and developing your own methods. E-procurement E-procurement – Purchasing through electronic connections between buyers and sellers - usually online. E-procurement, i.e, electronic purchasing, has grown rapidly in recent years and gives buyers access to new suppliers, lowers purchasing costs. and hastens order processing and delivery. In turn, business marketers can connect with customers online to share marketing information, sell products and services, provide customer support services and maintain ongoing customer relationships. Companies can carry out e-procurement in any of several ways. They can conduct reverse auctions, in which they put their purchasing requests online and invite suppliers to bid for the business. Or they can engage in online trading exchanges, through which Companies work collectively to facilitate the trading process. Companies can conduct e-procurement by setting up their own company buying sites. For example, General Electric operates a company trading site on which it posts its buying needs and invites bids,negotiates terms and places orders. Or companies can create extranet links with key suppliers, e.g. by creating direct procurement accounts with suppliers. Business-to-business e-procurement yields many benefits. First, it shaves transaction costs and results in more efficient purchasing for both buyers and suppliers. A web- powered purchasing programme eliminates the paperwork associated with traditional requisition and ordering procedures and helps an organization keep better track of all purchases. E-procurement reduces the time between order and delivery. Time savings are particularly dramatic for companies with many overseas suppliers. Finally, e-procure- ment frees purchasing staff to focus on more strategic issues. For many purchasing professionals, going online means reducing drudgery and paperwork and spending more time managing inventory and working creatively with suppliers. That is the key,' says an HP purchasing executive. 'You can now focus people on value-added activities. Procure- ment professionals can now find different sources and work with suppliers to reduce costs and to develop new products. E-procurement also presents some problems. For example, at the same time that the Internet makes it possible for suppliers and customers to share business data and even collaborate on product design, it can also erode decades-old customer-supplier relationships. As mentioned at the outset of the chapter, digitization and e-commerce provide B-to-B buyers with the power to pit suppliers against one another and to search out better deals, products, and turn- around times on a purchase-by-purchase basis. Without doubt, e-procurement contributes to decreasing loyalty: proactive actors are likely to benefit, while reactive actors relying on long- term relationships and success in the past are likely to suffer. As a seller, you may be reluctant to join the e-procurement train since your position will become weaker. E-procurement takes the buyer's perspective and focuses on price linked to acceptable quality rather than giving the seller the opportunity to demonstrate and get paid for features and advantages that a product may have. Business-to-business digital and social media marketing In response to business customers rapid shift toward online buying, today's B-to-B marketers are using a wide range of digital and social media marketing approaches to engage business customers and manage customer relationships. Contrary to an earlier-held common belief, busi ness customers must also be engaged and enlightened. Consider Copenhagen-based Maersk Line, the world's leading container shipping and transport company, and Denmark's biggest company, serving business customers through close to 400 offices in about 130 countries: Compared to traditional media and sales approaches, digital and social media can create greater customer engagement and interaction. B-to-B marketers know that they aren't really targeting businesses, they are targeting individuals in those businesses who affect buying decisions. And today's business buyers are always connected via their digital devices whether it's pcs, tablets or smartphones. Don't forget, these individuals are also consumers who are living in consumer-oriented spaces as much as any other consumer. Digital and social media play an important role in engaging the always connected busi- ness buyers in a way that personal selling alone cannot. Instead of the old model of sales reps calling on business customers at work or maybe meeting up with them at trade shows, the new digital approaches facilitate anytime, anywhere connections between a wide range of people in the selling and customer organizations. It gives both sellers and buyers more control of and access to important information. B-to-B marketing has always been social network marketing, but today's digital environment offers an exciting array of new networking tools and applications. Some B-to-B companies mistakenly assume that today's digital and social media are useful primarily to consumer products and services companies. But no matter what the industry, digital platforms can be powerful tools for engaging customers and other important members of the public. For example, Scania uses social media for marketing purposes in relation to industrial buyers as well as truck drivers, who may own their vehicles through their small company operations, or work for a freight forwarding company. Many B-t-B companies work in a similar way. Institutional and governmental markets So far, our discussion of organizational buying has focused largely on the buying behaviour of business buyers. Much of this discussion also applies to the buying practices of institutional and governmental organizations, but they have additional characteristics and needs. Many marketers set up separate divisions to meet the special characteristics and needs of institutional and governmental buyers. Institutional markets Institutional market – Schools, hospitals, nursing homes, prisons and other institutions that provide goods and services to people in their care. The institutional market consists of schools, hospitals, nursing homes, prisons and other institutions that provide goods and services to people in their care, Institutional markets can be huge, but low budgets and captive patrons characterize many of them. For example, hospital patients have little choice but to eat whatever food the hospital supplies. A hospital purchasing agent has to decide on the quality of food to buy for patients. Because the food is provided as a part of a total service package, the buying objective is not profit. Nor is strict cost minimization the goal - patients receiving poor-quality food may complain and at the end, the hospital's reputation might be damaged. Thus, the hospital purchasing agent must seek out institutional food vendors whose quality meets or exceeds a certain minimum standard and whose prices are low. In this sector it is often difficult to offer higher quality through higher prices. Swedish public transport is provided by a number of companies (or run by the regions themselves), e.g. Nobina, Keolis and TransDev. To keep their contracts, these transport companies need to adhere to certain quality standards. However, there are no financial incentives to improve quality. The CFO of a Swedish public transportation provider says: 'Cost-effectiveness is the only strategy that works, since cost is the overriding criterion when we get a contract, quality is only a sub- criterion.' The law is there to make it possible for new entrants to enter a market, a criterion diffi cult to combine with giving benefits to companies that have been performing well in the past. Governmental markets Governmental market Government market – Government units – national,regional and local - that purchase or rent goods and services for carrying out the main functions of government. The governmental market offers large opportunities for many companies, both big and small, In most countries, governmental organizations are major buyers of goods and services Government buying and business buying are similar in many ways. But there are also differ ences. To succeed in the governmental market, sellers must understand the political decision process that is linked to the buying decision process in such markets. Consider the legislation on public procurement, supervised by the Swedish Competition Authority, which we'll now take a closer look at. Legislation issues Government organizations - more so than major companies - tend to favour domestic suppliers over foreign suppliers. The desire to support local business is a natural thing that comes with the election process in a democracy - local politicians want to support businesses that give advantages to the local area. A major complaint of multinationals operating in Europe has been that each country shows favouritism towards its nationals in spite of better offers from foreign firms, The European Economic Commission is gradually removing this bias by imposing the legislation described here. For several years, legislation that reg ulates public spending has been in place. Based on Euro- pean Commission competition legislation, the member countries' Public Procurement Acts translate the ideas into domestic law. The Act regulates almost all public procurement, which means that contracting entities, such as local government agencies, county councils, government agencies and publicly owned companies must comply with the Act when they purchase, lease, rent or hire purchase supplies, services and public works. This piece of legislation places many restrictions on public buying: five principles of European Community law apply. The principle of non- discrimination prohibits all discrimination based on nationality. No contracting entity may, for example, give preference to a local company simply because it is located in the municipality. According to the principle of equal treatment all suppliers must be treated equally. All suppliers involved in a procurement procedure must, for example, be given the same informa- tion at the same time. Even informal phone calls and e-mail correspondence that goes beyond answering basic questions may be harmful to this principle. According to the principle of transparency the procurement process must be characterized by predictability and openness. In order to ensure equal conditions for tenderers, the contract document has to be clear and unambiguous and contain all the requirements concerning the items to be procured. The principle of proportionality states that qualification requirements must have a natural relation to the supplies, services or works procured and not be disproportionate. Thus, quali- fications that can only be fulfilled by local suppliers, e.g. 'the supplier must contribute to the growth of the Karlstad municipality', are not allowed. The principle of mutual recognition means, among other things, that documents and certifi- cates issued by the appropriate authorities in an Eu Member State must be accepted in the other Member States. Thus, a local government can't use the following line of argument: 'The products we procure must pass tests conducted by the FoI (Swedish Defence Research Agency),' implying that tests conducted by the Spanish agency are worthless. All these principles must be considered by governmental buyers, and although not every purchase transaction will take these principles completely into account, they still have a strong impact on government buying in the European Community. Like consumer and business buyers, government buyers are affected by environmental, organizational, interpersonal and individual factors. One unique thing about government buying is that it is carefully watched by outside publics interested in how the government spends taxpayers' money. Because their spending decisions are subject to public review, governmental organizations require considerable paperwork from suppliers, who often complain about excessive paperwork, bureaucracy, regulations, decision-making delays and frequent shifts in procurement personnel. Given all the red tape, why would any firm want to do business with the government? The reasons are quite simple: as we stated at the beginning of the chapter, purchases by govern- ments are huge. But there is little doubt that the legislation adds complexity and makes it more difficult to navigate through the restrictions that exist in public procurement contracts SUMMARY Business markets and consumer markets are alike in key ways, but business markets also differ in some many ways from consumer markets The business market comprises all organizations that buy goods and services for use in the produc- tion of other products and services or for the purpose of reselling or renting them to others at a profit. As compared with consumer markets, business markets usually have fewer, larger buyers who are more geographically concentrated. Business demand is largely derived demand, and the business buying deci- sion usually involves more, and more professional buyers. Business buyers make decisions that vary with the three types of buying situations, straight re-buys modified re-buys and new tasks. The decision-making unit of a buying organization - the buying centre -can consist of many different people playing many different roles. The business marketer needs to know the following. Who are the major buying centre partici- pants? In what decisions do they exercise influence and to what degree? What evaluation criteria does each decision participant use? The business marketer also needs to understand the major environmental, organizational, interpersonal and individual influences on the buying process. The business buying decision process itself can be quite involved, with eight basic stages: problem recogni- tion, general need description, product specification, supplier search, proposal solicitation, supplier selec- tion, order-routine specification and review. Buyers who face a new-task buying situation usually go through all stages of the buying process Buyers making modi- fied or straight re-buys may skip some of the stages. However, decision-makers are not always as rational and sequential as the model suggests. The institutional market comprises schools, hospi- tals, prisons and other institutions that provide goods and services to people in their care. Low budgets and captive patrons characterize these markets. The govern- mental market, which is vast, consists of government units national, regional and local - that purchase or rent goods and services for carrying out the main func- tions of government. sovernment buyers purchase products and services for defence, education, public welfare and other public needs. Government buyers operate under the watchful eye of voters, politicians, media and private watchdo g groups. Hence, they tend to require more forms and signatures, and to respond more slowly and deliberately when placing orders. In addition, the Public Procurement Act regulates public spending within the European Union. KEY TERMS Business buyer behaviour Business buying process Buyers Buying centre Deciders Derived demand E-procurement Gatekeepers General need description Governmental market Influencers Institutional market Modified re-buy New-task Order-routine specification Performance review Problem recognition Product specification Proposal solicitation Straight re-buy Supplier development Supplier search Supplier selection Systems selling (solutions selling) Users