CHAPTER 5 Industrial Markets

8/11/2019 CHAPTER 5 Industrial Markets

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CHAPTER 5

Industrial Markets

Business vs. Consumer Marketing

Producers

Business Marketing Business Marketing Consumer Marketing

Fruit is grown

& harvested

Fruit is processed into

various forms

Brachs

(jelly beans)

Winn-Dixie(jams, jellies, etc.)

Kelloggs(Pop Tarts)

Processed fruit is

included as ingredients

in foods

CISCO Targets Businesses

What is Organizational Buying?

Organizational buying refers

to the decision-making process by

which formal organizations establish

the need for purchased products and

services, and identify, evaluate, and

choose among alternative brands

and suppliers.

Characteristics of Business Markets

• Fewer, larger buyers

• Close supplier-

customer

relationships• Professional

purchasing

Multiple buyinginfluences

• Multiple sales calls

• Derived demand

• Inelastic demand

• Fluctuating demand

• Geographically

concentrated buyers

• Direct purchasing

Example: Derived Demand SimplifiedYou make headlamp assemblies for autos – Auto company’s demand

for headlamp is affected by the consumers’ demand for cars.

Consumers want

more cars

Automobile

manufacturers need

more components

and steel

Need more ofyour company’s

headlamp

assemblies

Consumers stop buying cars

Automobile

manufacturers stop

making cars

You can’t sell

headlamp

assemblies

• Fluctuating demand : the demand for

many business goods and services tends

to be more volatile than the demand forconsumer goods and services. A given

percentage increase in consumer demand

can lead to a much larger percentageincrease in the demand for plant and

equipment necessary to produce the

additional output. It is called the

acceleration effect.

ORGANIZATIONAL BUYING

• Business vs. Consumer Market:

Mrk.Characteristics Consumer Business

Number of buyers Many Few

Size of Buyers Small Large

Supplier Relations No CloseConcentration No. Yes

Demand Unpredictable Derived

Demand Elastic Inelastic

ORGANIZATIONAL BUYING (CONT.)

Mrk.Characteristics Consumer Business

Demand Normal Fluctuating

Professional Purchasing No Yes

Purchasing Middlemen Direct

Buying Influence No Yes

Reciprocity No Yes

Leasing Some Heavy

A Model of Business Buyer Behavior

Buying Situation

Straight rebuy

Modified rebuy

New task

Organizational Buying

Buying Situations

• Straight rebuy• Modified rebuy

• New task

• Routine reorders from

approved vendor list

• Low involvement,

minimal timecommitment

• Example: copier

Buying Situations

• New task

• Specifications,prices, delivery termsor other aspectsrequire modification

• Moderate level ofinvolvement and timecommitment

• Example: desktopcomputers

Buying Situations

• New task

• Purchasing a productor service for the first time

• High level ofinvolvement and timecommitment; multipleinfluences

• Example: selecting aweb site design firmor consultant

How the buying situation affects buying

center behavior

Examples of purchasing situations

Routine task

Low risk

New task

High risk

Straight rebuy Modified rebuy New task

Systems Buying and Selling

Turnkey solution

desired;

bids solicited

Primecontractors

Second-tiercontractors

System

subcomponents

assembled

Participants in the BusinessBuying Process

• Buying center : All the individuals andunits that participate in the businessbuying-decision process

• The buying center is not a fixed or formallyidentified unit

• It is a set of buying roles assumed by differentpeople for different purchases

5 - 19

The Buying Center

Initiators

Influencers

Deciders

Approvers

Buyers

Gatekeepers

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.

Match Game

Which buying center participant – a buyer, decider, gatekeeper, influencer, oruser – is most likely to make each of the following statements?

• “This bonding agent better be good, because I have to put this product

together.”

• “I specified this bonding agent on another job, and it worked for them.”

• “Without an appointment, no sales rep gets in to see Mr. Johnson.”

• “I don’t see any reason why we can’t use this bonding agent on the next

job.”

• “Okay, it is a deal – we’ll buy it.”

• “I’ll place the order first thing tomorrow.”

Match Game

Which buying center participant – a buyer, decider, gatekeeper, influencer, oruser – is most likely to make each of the following statements?

• “This bonding agent better be good, because I have to put this product

together.” - user

• “I specified this bonding agent on another job, and it worked for them.” -influencer

• “Without an appointment, no sales rep gets in to see Mr. Johnson.” -

gatekeeper

• “I don’t see any reason why we can’t use this bonding agent on the next

job.” - influencer

• “Okay, it is a deal – we’ll buy it.” - decider

• “I’ll place the order first thing tomorrow.” - buyer

Business Buyer Behavior

The Buying Process

Problem recognition occurs when someone in thecompany recognizes a problem or need.

• Internal stimuli

• Need for new product or production equipment

• External stimuli

• Idea from a trade show or advertising

The Buying Process

General need description describes the characteristics andquantity of the needed item.

Product specification describes the technical criteria.

• Value analysis is an approach to cost reduction wherecomponents are studied to determine if they can be

redesigned, standardized, or made with less costly

methods of production.

The Buying Process

Supplier selection is the process when the buying

center creates a list of desired supplier attributes

and negotiates with preferred suppliers forfavorable terms and conditions.

Order-routine specifications is the final order with the

chosen supplier and lists all of the specificationsand terms of the purchase.

The Buying Process

Performance review involves a critique of supplier

performance to the purchase terms.

Buygrid Framework: Major Stages (Buyphases) of the Industrial Buying Process in

Relation to Major Buying Situations (Buyclasses)

Buyclasses

New Modified Straight

Task Rebuy Rebuy

1. Problem recognition Yes Maybe Yes

2. General need description Yes Maybe No

3. Product specification Yes Yes No

Buyphases 4. Supplier search Yes Maybe No

5. Proposal solicitation Yes Maybe No

6. Supplier selection Yes Maybe No

7. Order-routine specification Yes Maybe No

8. Performance review Yes Yes Yes

What is Opportunism?

Opportunism is some form of

cheating or undersupply relative to

an implicit or explicit contract.

CHAPTER 5 Industrial Markets

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