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 organizations 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
ENVIRONMENT
AL
Level of
demand
Economic
outlook
Interest rate
Rate of
technological
change
Political and
regulatory
development
Competitive
developments
Social
responsibilityu
concerns

ORGANIZATION
AL
Objectives
Policies
Procedures
Organizational
structures
Systems

INTERPERSON
AL
Interests
Authority
Status
Emphaty
persuasivene
ss

INDIVIDUAL
Age
Income
Education
Job position
Personality
Risk
attitudes
culture

Busine
ss
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. Routine product: these product have low value and cost
to the customer and involve little risk (office supplies)
2. 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)
3. Strategic products : these products have high value and
cost to the customer, and also involve high risk (main
frame computers)
4. 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