MBA-ProMA
Industrial Marketing
Industrial Buying Behavior
Market Segmentation
Hossein Dadfar
Professor of Industrial/International Marketing
Demand in Business Markets
Demand
Demand is...
is...
Description
Description
Derived
Derived
Demand
Demand for
for business
business products
products results
results from
from
demand
demand for
for consumer
consumer products
products
Inelastic
Inelastic
A
A change
change in
in price
price will
will not
not significantly
significantly affect
affect
the
demand
for
product
the demand for product
Joint
Joint
Multiple
Multiple items
items are
are used
used together
together in
in final
final
product.
Demand
for
one
item
affects
product. Demand for one item affects all
all
Fluctuating
Fluctuating
Demand
Demand for
for business
business products
products isis more
more volatile
volatile
than
for
consumer
products
than for consumer products
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1
Types of Business Products
Major
Major Equipment
Equipment
Accessory
Accessory Equipment
Equipment
Raw
Raw Materials
Materials
Component
Component Parts
Parts
Major
Major
Categories
Categories
of
of Business
Business
Products
Products
Processed
Processed Materials
Materials
Supplies
Supplies
Business
Business Services
Services
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Types
Types of
of Business
Business Customers
CustomersHow
How Industrial
Industrial
Marketing
Marketing differs...
differs...
Manufacturers
Manufacturers
Service
ServiceProducers
Producers
Retailers
Retailers&
&
Wholesalers
Wholesalers
Governments
Governments
focus.:
Grouped by Industry
focus.:
Close to Customers
focus.:
Buying for Targets
focus. :
Bids & Regulations
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Interaction Approach
Interaction approach is based upon four main assumptions:
1.
Both the buying and selling firms are active in transaction (exchange).
2.
The relationship between buyer and seller is close and continuous in
nature and frequently long-term.
3.
There is a stable industrial market structure, where buyer and seller know
each other and have a good knowledge of the market.
4.
There is a similarity of task for buyers and sellers. An understanding can
be reached by studying both sides of a relationship.
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Elements of Interaction Approach
1. The interaction process
2. The interaction parties
3. The interaction environment
4. The atmosphere in which interaction is taking place
Seller
Interaction/relation
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Buyer
6
3
Element of exchange
The elements of exchange are:
1) product or service exchange,
2) information exchange,
3) financial exchange, and
4) social exchange.
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The Exchange Process
At
At Least
Least Two
Two
Parties
Parties
Something
Something of
of
Value
Value
Necessary
Necessary
Conditions
Conditions for
for
Exchange
Exchange
Ability
Ability to
to
Communicate
Communicate
Offer
Offer
Desire
Desire to
to Deal
Deal
With
Other
With Other Party
Party
Profesor Hosssein Dadfar
Freedom
Freedom to
to
Accept
Accept or
or Reject
Reject
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4
Dyadic Relationship
Seller
Supplier
Buyer
Focal
Buyer
”Industrial Marketing deals with relations between the
firms in industrial systems”
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Relationships and bonds
•
Relationships takes time to and efforts to establish, maintain
and develop.
•
Organizations invest in relationships to others.
•
Through these relationships organizations exchange values
(goods, services, information, payment, etc.)
•
The assets created by these investments are immaterial(
knowledge, adaptation of products and production process and
service, common planning routines, mutual trust, etc.)
•
These investments are as important as conventional
production investments.
•
Furthermore, these two types of investments must be
integrated
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5
Bonds
Relation between organizations can not be easily changed because
they contain bonds of different types such as:
1.
Technical bond: two companies have technical bonds when
have adjusted to each other in some technical sense.
2.
Time based bonds: two companies have time based bond
when there is a need for temporal coordination sequential
activities in a production process involving separate firms.
3.
Knowledge-based bonds: through exchange of information
over time organizations build up knowledge about each
other’s problems and opportunities. It also refers to exchange
of technical knowledge.
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Bonds
4. Legal bonds: two companies may have a long term
contract.
5. Economic bonds: two companies can invest in each
other’s business, or extend credit.
6. Social bonds: central to social bonds is trust and person
to person contact.
Note:
a) The different types of bonds are not independent
b) Bonds are continuously challenged by another supplier
and we call it ”competition”
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Bonds
More significant the bonds two company
have, more strength relationship they have,
less chance for competitors to replace them.
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Buyer-Seller Relationship
The buying firm needs
Problem required to
be solved
Supplier’s offer
Problem solving
Supplier thinks about
problem solving ability
Buyer thinks about
how problem solving
can be transferred
Problem solving can be:
a) General (less complex, routine)
b) Specific, complex and need adaptation
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7
Buyer-Seller Relationship
Transfer can be:
a) General (less complex, routine)
b) Specific, complex and need adaptation
General
aspect
HIGH
LOW
General
aspect
Problem solving
HIGH
3
4
1
2
Low
LOW
High
Transfer
3
4
1
2
Low
Adaptive
aspect
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High
Adaptive
aspect
15
Problem solving/relation analysis
General
aspect
Problem solving
HIGH
LOW
3
4
2
1
Low
High
Adaptive
aspect
Position 1: The buying firm has a problem that can be solved in a standard way by several suppliers.
There is no obstacle for sides to change the counterpart. Relationship is weak.
Position 2. Problem solution is adopted to the buyer’s need stronger relationship
Position 3: opposite to the position 2
Position 4: Very special relationship, not challengeable
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Transfer
General
aspect
Transfer
HIGH
LOW
4
3
1
Low
2
Adaptive
aspect
High
Position 1: There is no special transfer, everyone can do the same thing
Position 2. The customer does not get a higher performance from the
supplier but gets special adaptation or attention
Position 3. Opposite to position 2
Position 4: High performance
highDadfar
adaptation
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Hosssein
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Strategies
Customer’s
General
need
HIGH
Product
development
3
1
LOW
Low price
Low
1.
Customer’s
General
need
Problem solving
strategy
Customer
development
HIGH
Logistic
4
2
c
a
Customer
adjustment
High
Transfer strategy
Standard
Transfer
LOW
Customer’s
specific need
No individual demand on functional quality,
price, price, price
Low
Customer
integration
d
b
Customer
adaptation
High
Customer’s
specific need
a)
Minimize the cost of transfer, low price
b)
Selling firm should adapt to the customer,
technically time wise or training
2.
Adjustment, supplier’s flexibility
3.
Customer demands high functional quality,
supplier should be technically ahead from the
competitors to offer always better quality.
4.
High demand on organizational resources and
planning
Profesor Hosssein Dadfar
c)
Logistics, precision, volume, promptness
d)
Very close link between seller and buyer many
cases joint R & D
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9
Network
•An industrial network consists of
organizations that carry out
productive activities and
relationships between these
organizations.
• A firm has direct and/or
indirect relationships to
customers, suppliers, distributors,
customer's customers,
competitors, complimentary
suppliers, political bodies, etc
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Network...
•In network approach, marketing environment consists of other
organizations
• The market is a network of other organizations
• An organization has primary network and secondary network
• Position in the network, a very important issue, is defined by
• relationships between involved organizations (who is related to
whom)
•function, division of work
• power between the organizations
• a company can be in many networks, thus has many positions,
all integrated in a total position.
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10
Network Structure
Network structure:
•
Tightly structure: the interdependencies and bonds
between the units/ actors are strong clear and
strong position.
•
Loosely structured network, the position of
organizations are more diffuse and unclear. Low
degree of dependence.
Tips: More tightly structured a network is more difficult it
Will be to enter into it.
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Network Analysis
To analyze your company’s network here are some questions:
• How strong are our bonds to the customers?
•How dependent are we on specific customers and how dependent are they
on us?
•Is the network that we are about to enter, tightly or loosely structured?
•Is our network changing, from being loosely structured to becoming more
tightly structured?
•Are our suppliers becoming more strongly committed to competitors than
before?
•What are the relationships between our customers can we use such
relationships fro diffusion of information or learn more about the network.
•SWOR Analysis?Profesor Hosssein Dadfar
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Market Establishment/Critical Mass
Traditional criteria for the degree of being established in the
market:
• Sales volume
•Market Share
• The time period, how long have you been in the market?
New criteria: The position of the firm in the network- Critical
mass of relations
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Establishment Process
‰
Establishment is a process under which the company
builds up a critical mass of relations with other actors in
the market network.
‰
Establishment, therefore, refers to the situation that a
company has built up the relations that its position in the
network is secured, assumed be maintained.
‰
Critical mass means that the firm in the new market has a
position that does not need additional recourse, and is
self-sufficient.
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12
Critical Mass
Dimensions of critical mass:
¾
¾
Number of Relations: there must be enough number of relations. What is
enough depends on the structure of the network and product type.
The contents of relations: the bonds that were explained before.
Large
Number of
relations
Critical Mass
Small
Weak bonds
Strong bonds
The contents of relations
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Industrial Buying Behavior
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13
THE
THE HEART
HEART OF
OF Industrial
Industrial MARKETING
MARKETING
HOW AND WHY ORGANIZATIONS BUY AND HOW
THEY CAN BE INFLUENCED
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Time taken for decision
Buying Situation Implications
New
Task
Modified
Rebuy
Straight
Rebuy
No of people involved in buying centre
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Buying Decision Grid
Type of Buying Newness of the
Situation
Problem
Information
Requirements
Consideration
of New
Alternatives
New Task
High
Maximum
Important
Modified
Rebuy
Medium
Moderate
Limited
Straight Rebuy
Low
Minimal
None
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New Task (rarest, most glamorous)
aBig DMU (decision-making unit)
`lots of people involved in the decision
`lots of people indirectly influence the decision
aSlower-than-usual process
apeople think its’ a risky buy; novelty, precedent
aGather and weight a lot of information
aAnyone can win
aYour past relationship along won’t win the order
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New Task (continued)
aPerformance matters a lot, price doesn’t so much
aThe most influential people are knowledgeable
`users
`technically competent
aThey set the specifications & then the game is 75%
over
aLow ranking experts can be very influential
aHigh ranking non-experts often stand back
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Effective Salespeople in New Task
a Listen, probe
`Understand DMU
`Understand needs, perceptions of you and of competitors
a In early, influencing specifications & views of the competitors
a Come to be viewed as consultants (“creeping commitment”)
a Spend lots of time
a Analyze a lot
a Bring in support troops
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Straight Rebuy
a Small DMU (usually one person)
a Perceived low risk, hence low priority
a In a hurry
a Close-minded, arrogant, think they know it all
a Go on minimum acceptable quality (better doesn’t help)
a Then price and assured delivery
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Straight Rebuy
a In Supplier
`“Out” suppliers find it hard to get an appointment, let alone break in
a Pray for the “in” supplier to screw up noticeably or for
requirements to change (pressure from users, staff)
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Modified Rebuy
a A window of opportunity
a An “aging” new task
a Or a “rejuvenated” straight rebuy
a Mini-version of new task strategy can make you the “in”
supplier
a Then don’t screw-up
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Market Segment
aA group of existing or potential
customers sharing some common
characteristic that is relevant in
explaining or predicting their response to
a company’s marketing program.
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Market Segmentation
aIdentify sub-markets within market
aDecide which one(s) to pursue (target)
aDesign marketing mix(es) to be attractive to
targeted segment(s)
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Segmentation Bases
aCompany size
aCompany location
aIndustry
aTechnology (used)
aPolicies (purchasing)
aProduct application
aBenefits sought
aBuying center characteristics
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Industiral vs Consumer buying Behavior?
I INDUSTRIAL. BUYING
CONSUMER BUYING
„
DECISION IS MADE BY A GROUP OF
PEOPLE (DMU )
„
DIFFERENT NEEDS AND OBJECTIVES
MUST BE FULFILLED
„
PROCEDURES, FORMALITIES ARE
„
COMPLEX
„
DECISIONS ARE VERY OFTEN STRATEGIC
FREQUENTLY
ONLY BY ONE PERSON
MAINLY THE BUYER'S
NEEDS
NO FORMALITY
SIMPLE
ROUTINE, OFTEN
HABITUAL
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Buying
Buying Center
Center
Buyers
Buyers
Buying
Buying
Center
Center
Users
Users
Gatekeepers
Gatekeepers
Influencers
Influencers
Deciders
Deciders
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Business Buying Behavior
Buying
Buying Centers
Centers
Evaluation
Evaluation Criteria
Criteria
Aspects
Aspects of
of
Business
Business
Buying
Buying
Behavior
Behavior
Buying
Buying Situations
Situations
Purchasing
Purchasing Ethics
Ethics
Customer
Customer Service
Service
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Sheht Model
•.The psychological world of the individuals involved in industrial buying.
•.The conditions which precipitate joint decision joint decisions among these
individuals
•.The process of joint decisions making with the inevitable conflicts among
the decision makers
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Sheht Model
Specialised
Education
Salesmen
Exhibitions and
Trade Shows
Role
Orientation
(1c)
Active
Search
Life
Style
(1a)
Background of
the
Individual
(4)
Situational
Factors
(1e)
Satisfaction
with
Purchase
Supplier of
Brand Choice
Direct Mail
Journal
Advertising
Professional and
Technical
Conferences
Trade News
Word of Mouth
Autonomous
Decisions
(1)
Expectations of
Press Releases
.
.
.
.
Purchasing Agents
Engineers
(2)
Industrial
Buying
Process
(3)
Conflict
Resolution
Users
(1d)
Perceptual
Distortion
Others
Others
(2a)
Product-Specific
Factors
Time
Pressure
Perceived
Risk
.
.
.
.
Problem Solving
Joint
Decisions
Type of
Purchase
(2b)
Company-Specific
Factors
Organisation
Orientation
Organisation
Size
Persuasion
Bargaining
Politicking
Degree of
Centralisation
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Ind. Buying Behavior
Complex Models
Bbuying behavior (B) is a function of individual
attributes (I), group factors (G), organizational
characteristics (O), and environmental factors (E) as
expressed in the following equation:
B = f (I,G,O,E)
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1 The environment (environmental determinants of buying)
Physical environment
Technological environment
Suppliers
Customers
Economic environment
Political environment
Government
Information about suppliers
(marketing communication
Legal environment
Cultural environment
Trade
associations
Labour
unions
Availability of
General business
goods and services
Professional
groups
Other
Business firms
Other social
institutions
Value and norms
conditions
2 The organisation (organisational determinants of buying behaviour)
The organisational climate
Physical
Technological
Cultural
Organisational
structure
Organisational
goals and tasks
Organisational
actors
Technology
relevant for
purchasing
Organisation of
the buying center
and the
purchasing
function
Buying tasks
Members of the
buying center
Group
Technological
structure
constraints and
technology
3 The buying
centerto(interpersonal determinants of buying behaviour)
available
the group
Task
Economic
Organisational
technology
Activities
Interactions
Sentiments
Group tasks
Nontask
Activities
Member
characteristics,
goals and
leadership
Interactions Sentiments
Group processes
4 The individual participants
Motivation Cognitive structure Personality Learning process Perceived roles
Buying decision process:
Buying
Decision
1. Individual decision-making unit 2. Group decision-making unit
Profesor Hosssein Dadfar
Webster and
45 Wind
Model
Buying Center
All those persons in
an organization who
become involved in
the purchase decision.
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Buying Centers
Decider
Initiator
Influencer/
Evaluator
Buying
Center
Roles
Purchaser
Gatekeeper
Users
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1.
eepe
r
Gat
ek
ider
Dec
Buy
er
Infl
uen
Use
r
cer
Models of industrial buying behavior
Identification of need
2. Establishing specification &
scheduling the purchase
3. Identifying buying alternatives
4. Evaluating alternative buying
actions
5. Selecting the suppliers
Webster and Wind, 1972
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Dadfar’s Model for Industrial Buying Selling Interaction and Process
Profesor Hosssein Dadfar
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Variables for dimensions of Buying behavior
Example of variables describing each dimension of buying behavior
____________________________________________________
1. Commercial
a. Price
b. Short delivery time
c. Credit facility
d. Reciprocity of transaction
2. Social
a. Personal feeling of confidence
b. Ease of communication
c. Salesman's personality
d. Friendship with supplier's personnel
e. Equipment not taboo
f. Prestige of dealing with supplier
3. Technical
a. Past experience with the equipment
b. Quality- technical advantages
c. Technical modification of equipment—ease of
installation in existing system
e. Ease of operation
f. Ease of maintenance
d.Technical information
g.Training aid
Profesor Hosssein Dadfar
___________________________________________________
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Buying Situations
New
New Buy
Buy
A
A situation
situation requiring
requiring the
the purchase
purchase
of
a
product
for
the
of a product for the first
first time.
time.
Modified
Modified
Rebuy
Rebuy
A
A situation
situation where
where the
the purchaser
purchaser wants
wants
some
change
in
the
original
good
some change in the original good or
or
service.
service.
Straight
Straight
Rebuy
Rebuy
A
A situation
situation in
in which
which the
the purchaser
purchaser
reorders
reorders the
the same
same goods
goods or
or services
services
without
looking
for
new
information
without looking for new information or
or
investigating
investigating other
other suppliers.
suppliers.
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Buying Decision Grid
Type of
Buying
Situation
Newness of
Information Consideration
the Problem Requirements
of New
Alternatives
New Task
High
Maximum
Important
Modified
Rebuy
Medium
Moderate
Limited
Straight
Rebuy
Low
Minimal
None
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Market Segment
aA group of existing or potential
customers sharing some common
characteristic that is relevant in
explaining or predicting their
response to a company’s marketing
program.
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Market Segmentation
aIdentify sub-markets within market
aDecide which one(s) to pursue (target)
aDesign marketing mix(es) to be attractive
to targeted segment(s)
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Segmentation Bases
aCompany size
aCompany location
aIndustry
aTechnology (used)
aPolicies (purchasing)
aProduct application
aBenefits sought
aBuying center characteristics
Profesor Hosssein Dadfar
Macrosegmentation
55
5
The process of dividing
business markets into
segments based on general
characteristics such as
geographic location, customer
type, customer size, and
product use.
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28
5
Microsegmentation
The process of dividing
business markets into
segments based on the
characteristics of decisionmaking units within a
macrosegment.
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Business Marketing
Segmentation
5
Geographic
MacroMacrosegmentation
segmentation
Customer Type
Customer Size
Product Use
Business
Business
Markets
Markets
Purchasing Criteria
MicroMicrosegmentation
segmentation
Profesor Hosssein Dadfar
Purchasing Strategy
Importance
Personal
Characteristics
58
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Macro Vs. Micro Segmentation
Variable
Example
Macro Segmentation
1.
Size of Organization
2.
Geographical
3.
Industrial Sector
4.
End Market served
1.
2.
3.
Micro Segmentation
a Choice cheriteria
a Structure of decisionmaking unit
a Decision-making process
a Buying situation
a Type of purchasing org.
4.
Large, Medium or Small
Local, National, regional, worldwide
Metal industries, Process industries,
construction industries.
Defined by product or service
a
a
Quallity, delivery, supplier reputaion, price,
Complexity, hierachical
a
a
a
Long, short
New task, straight or modified rebuy
Centraized, decentralized
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Nested Approach
Demographic
Operating variables
Purchasing
approaches
Situational factors
Personal Characteristics
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Demographic Variables
Industry, Company Size (Large, SMEs) , Location
Operating Variables
Technology, User or Nonuser status (light, medium, heavy users)
Customer requirements (few services or extended requirements)
Purchasing Variables
Purchasing function approach (centralized or decentralized), Power
structure( technology top, finance top, marketing top), Nature of
existing relationships( old firms or new firms), general purchasing
policies ( leasing, service contracts, sealed bidding ) , purchasing
criteria (quality, service, price)
Situational Factors
Urgency of requirement, size of order
Personal Characteristics
Loyalty, attitude toward risk, some similarities between buyer-seller
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Loyalty
I’ll buy your product first
Referral
I’ll tell my friends to try you
Satisfaction
I like you
Reinforcement
Did I make the right decision
Trial
Show me what you can do
Quality, Service--Product
Performance counts!
Inclination
I’ll look for you
Image
I know what you stand for
Familiarity
I know who you are
Awareness
I’ve heard of you
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The Consumer Thought Process: Marketing News, August 4, 1997
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