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
ENVIRONMENTAL
•Level of demand
•Economic outlook
•Interest rate
•Rate of
technological change
•Political and
regulatory
development
•Competitive
developments
•Social
responsibilityu
concerns
ORGANIZATIONAL
•Objectives
•Policies
•Procedures
•Organizational
structures
•Systems
INTERPERSONAL
•Interests
•Authority
•Status
•Emphaty
•persuasiveness
INDIVIDUAL
•Age
•Income
•Education
•Job position
•Personality
•Risk attitudes
•culture
Business
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.
2.
3.
4.
Routine product: these product have low value and cost to the
customer and involve little risk (office supplies)
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)
Strategic products : these products have high value and cost to
the customer, and also involve high risk (main frame computers)
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