Business Marketing

Session 4
Dr.R.Satish Kumar
Three Sectors of Business Market

1. Commercial enterprises
2. Government,
3. Institutions
 Commercial Enterprises
Unique aspects of the sector,
geographic concentration and volume
concentration by large firms
DERIVED DEMAND
North American Industrial Classification System
(NAICS)
Replaces SIC system
 Commercial Enterprises Unique
Characteristics
Manufacturing, construction,
service, professional groups, resellers

Small in number; large in volume

10 percent of the manufacturers
produce 78 percent of the value
added
 Government purchasing
practices and procedures
Understand the contractual and legal side
of government purchasing.
Federal buying process is provided to
emphasize the type of marketing efforts
required by potential suppliers
 Government Contracts

Stringent legal requirements, often unrelated to

the purchase
Small subcontractor preferences
Minority employment
Public laws which specify contractual
arrangements
Vendors must carefully understand government
laws
Knowledge of government requirement
needed for effective negotiation
Types of contracts:
Fixed price profit potential is good if inflation is
stable and costs are controlled
Cost reimbursement effective when extensive
developmental efforts are required. Carefully
monitored
 Defense Procurement
The Department of Defense spends a large
portion of the central government's budget on
procurement
Defense Logistics Agency procures & distributes
common supplies to all military branches
Military branches procure major items
 Institutional Buying
Environment
Institutional buying forms a middle
ground between the commercial
and government sectors in terms
of purchasing processes and
procedures
 Nondefense procurement
There are many centres where state and Central
government units buy a variety of products
required by railways, department of
telecommunications, state electricity boards, state
transport undertakings etc
DGS&D is an agency which finalizes the running
contracts for various standard products on behalf
of central government
 Purchasing in Government Units
Competitive Bidding: Government organizations
are required to purchase goods and services
through the bidding or tender system.
Two types of bidding or tender systems:
1. Closed
2. Open
 Closed Bidding/ Sealed Tender
For standard products and services, tender
notices are advertised in national newspapers
Suppliers procure tender papers from
specified government authority after paying
tender fees
Suppliers submit tender offers in sealed
envelops , duly signed by persons having
signing authority within the specified time and
date along with the EMD.
 Closed Bidding/ Sealed Tender contd.
After tender offers are received in the tender
box sealed covers are opened at the specified
date and time in the presence of the
representatives of the suppliers
Prices, delivery, and other relevant terms are
read out for the benefit of those attending the
tender opening.
 Open Bidding/ Open Tender
For non-standard or complex technical products
government organizations use open bidding or
tendering
Buying firm may invite offers or bids from limited
suppliers who are capable of supplying complex
or non-standard products and services
Discussions are held first on technical matters
Negotiations are held between buying firm and
supplier firms on prices, payment terms , delivery
period, warranty service, and other commercial
terms
 Reverse Bidding
Here, the buyers set the highest possible bidding
price, beyond which the offers will not be
accepted
Each supplier is encouraged to offer its price
below the set price indicated by the buyer
Lowest price bidder may get the order, without
compromising on quality of product and service
Example: Lafarge India, a cement manufacturer,
uses this bidding system
Institutional Market: Unique characteristics

A large market composed of a vast array of

schools, hospitals, universities,
libraries, foundations etc.
A middle ground between business and
government
Requires the marketer to respond to the
needs of the product users (professional staff)
and the buyers (purchasing personnel)
The Market Centered Customer Driven
Organisation
Business buyer diversity:
Marketers must respond to the unique
purchasing requirements of each segment of the
market
The marketing organization is structured so that
major customer markets become the centers
around which the firm is organized
Firm's marketing efforts are therefore focused on
each market sectorgovernment, business,
institutional, and international
Eight Stage Model of the Organisational
Buying Process
The eight stages may be contracted depending
upon the nature of the purchasing situation
Types of buying situations which occur in
organizational buying are "new task," "straight
rebuy," and "modified rebuy"
 Organizational Buying Process

Eight stage model of the organizational buying process:

1. Problem recognition
2. Determine product dimensions and quantity
3. Precise description of product characteristics
4. Search and qualification of potential sources
5. Acquisition and analysis of proposals
6. Evaluation of proposals and supplier selection
7. Selection of an order routine
8. Performance feedback and evaluation
New Task: A Firm has no prior experience in
Purchasing the Product
Here the firm requires extensive problem solving:
Strong predispositions toward suppliers
do not exist
Two distinct buying decision
approaches are employed
Judgmental new task: when unfamiliar
with parts, technology, etc.
Strategic new task: when decision is
extremely important to the firm
Straight Rebuy : A Recurring Requirement; Buyers
have Substantial Experience with
the Purchase

Information needs are low; little need to

evaluate alternative solutions
Routinised response behavior; selection of
vendor from a list of acceptable vendors
Choice criteria are well developed
Strong predisposition to certain suppliers
Modified Rebuy: Buyer Perceives Benefits
from a Reevaluation of Alternatives
LIMITED PROBLEM SOLVING
THERE ARE TWO TYPES
1. SIMPLE
2. COMPLEX
Complex: involves a large set of choice
alternatives IN VS OUT SUPPLIER
 Forces Shaping Organizational
Buying Behavior
ENVIRONMENTAL
ORGANIZATIONAL
GROUP
INDIVIDUAL