LEARNING OBJECTIVES

After reading this chapter, students should:

?
Know what is the business market, and how it differs from the consumer m
arket
?
Know what buying situations do organizational buyers face
?
Know who participates in the business-to-business buying process
?
Know how business buyers make their decisions
?
Know how companies can build strong relationships with business customer
s
?
Know how institutional buyers and government agencies do their buying
CHAPTER SUMMARY
Organizational buying is the decision-making process by which formal organizatio
ns establish the need for purchased products and services, then identify, evalua
te, and choose among alternative brands and suppliers. The business market consi
sts of all the organizations that acquire goods and services used in the product
ion of other products or services that are sold, rented, or supplied to others.
Compared to consumer markets, business markets generally have fewer and larger b
uyers, a closer customer-supplier relationship, and more geographically concentr
ated buyers. Demand in the business market is derived from demand in the consume
r market and fluctuates with the business cycle. Nonetheless, the total demand f
or many business goods and services is quite price inelastic. Business marketers
need to be aware of the role of professional purchasers and their influencers,
the need for multiple sales calls, and the importance of direct purchasing, reci
procity, and leasing.
The buying center is the decision-making unit of a buying organization. It consi
sts of initiators, users, influencers, deciders, approvers, buyers, and gatekeep
ers. To influence these parties, marketers must be aware of environmental, organ
izational, interpersonal, and individual factors.
The buying process consists of eight stages called buyphases: (1) problem recogn
ition, (2) general need description, (3) product specification, (4) supplier sea
rch, (5) proposal solicitation, (6) supplier selection, (7) order-routine specif
ication, and (8) performance review.
Business marketers must form strong bonds and relationships with their customers
and provide them added value. Some customers, however, may prefer more of a tra
nsactional relationship.
The institutional market consists of schools, hospitals, nursing homes, prisons,
and other institutions that provide goods and services to people in their care.
Buyers for governmental organizations tend to require a great deal of paperwork
from their vendors and to favor open bidding and domestic companies. Suppliers
must be prepared to adapt their offers to the special needs and procedures found
in institutional and government markets.
OPENING THOUGHT
Students unfamiliar with business and business operations will have a difficult
time understanding the concept of organizational buying. The major differences b
etween the consumer market and the B2B market lie: in the complexity of the deci
sion process and the amount of people involved in the final purchasing decision.
Instructors can best serve their student audiences by incorporating guest speake
rs from the business community who are responsible for purchasing products and/o
r services to help students understand the complexity in the buying process for
businesses. Sales-people, who sell to businesses, are also good resources to hav
e as guest speakers when covering this chapter. Instructors can also use univers

ity situations or other common business examples to get across the concept of or
ganizational buying to their students.
TEACHING STRATEGY AND CLASS ORGANIZATION
PROJECTS
1.
At this point in the semester-long marketing project, no presentations a
re necessary unless the instructor has approved a business-to-business product o
r service.
2.
Students should compare and contrast the complexity of that buying proce
ss to the ones noted in Chapter 6 Analyzing Consumer Markets. How and where are th
e major points of differences between the two markets in their purchase intensio
ns? Can a firm market its products to both the industrial and consumer markets w
ith one strategy? Are there sufficient differences between markets for different
products and strategies to be developed?
3.
Sonic PDA Marketing Plan Business-to-business marketers have to underst
and their markets and the behavior of members of the buying center in order to d
evelop appropriate marketing plans. Jane Melody has defined the business market
at Sonic as mid- to large-sized corporations that need to help their workforces
stay in touch and input or access important data from any location. She has aske
d you to find out:
What specific types of businesses appear to fit the business market definition u
sed at Sonic?
What needs could Sonic s PDA address for these businesses?
Who would participate in and influence the purchase of PDAs for use in these bus
inesses?
Which environmental, interpersonal, and individual influences are likely to be m
ost important to business buyers of PDA products and why?
Report your findings and conclusions in a written marketing plan or type them in
to the Market Demographics and Target Markets sections of Marketing Plan Pro.
ASSIGNMENTS
In the journal Marketplace, Winter 2006, the Institute for the Study of Business
Markets listed the Top Business Marketing Challenges for the years 2005 2007 (T
able 7.1). In small groups or individually, ask the students to interview local
business managers/owners to see: a) These challenges have migrated to this year
b) How well they faired against these challenges or c) There are more challenges
ahead for business in the years ahead.
Have each of the students read Bob Donath s Emotions Play Key Role in Biz Brand App
eal, Marketing News, June 1, 2006, p.7 and comment on their perception of how eff
ective biz is in their lives and in their purchasing of products.
Contact your local Prentice-Hall sales representative and ask him / her to make
a presentation to the class on how he / she sells to your college or university.
In small groups (five students suggested as the maximum), have the students visi
t your college or university s Central Purchasing or Procurement department (you m
ay have to clear this with your administration before assigning). Have the stude
nts conduct interviews with purchasing personnel on how they buy, who is involve
d in a purchase decision, and what characteristics do the best salespeople who c
all on them share. Students should format their questions to the key concepts co
ntained in this chapter. Student reports should also characterize the difference
s found between government or institutional buying, business-to-business buying,
and consumer purchasing.

To improve effectiveness and efficiency, business suppliers and customers are ex

ploring different ways to manage their relationships. Have the students visit ea
ch of the company s Web sites mentioned throughout the chapter. Which one(s) do th
e students feel most effectively and efficiently addresses the needs of the corp
orate buyer? Which Web sites do not? Why and what in their opinion is missing fr
om the least effective Web sites? How can the firm do better in its execution?
Have the students visit GE s Medical Systems Web site (www.gehealthcare.com/). In c
ontext to the major points of this chapter, have the students define how GE is a
ddressing the needs of their hospital customers by the design of this Web site?
Where and what is GE doing right, what is GE doing wrong, and where can GE impro
ve?
Small businesses have been described as the lifeblood of the economy. Students, wh
o have after school jobs in small business, should be assigned to interview thei
r employers, managers, or purchasing departments to understand how small busines
ses purchase goods and services. How many of the concepts of this chapter small
business owners actually employ (for example, is the purchasing habits of the st
udent s small business owner organized, how many decision makers are involved in p
urchasing, how important is the customer-supplier relationship to them, is their
purchasing just transactional, etc.)? Students should prepare to present their
findings to the class in either an oral or a written report. Students not employ
ed should be prepared to question the presenting students as to their understand
ing of the whys for such actions.
END-OF-CHAPTER SUPPORT
MARKETING DEBATE How Different Is Business-to-Business Marketing?
Many business-to-business marketing executives lament the challenges of business
-to-business marketing, maintaining that many traditional marketing concepts and
principles do not apply. For a number of reasons, they assert that selling prod
ucts and services to a company is fundamentally different from selling to indivi
duals. Others disagree, claiming that marketing theory is still valid and only i
nvolves some adaptation in the marketing tactics.
Take a position: Business-to-business marketing requires a special, unique set o
f marketing concepts and principles versus business-to-business marketing is rea
lly not that different and the basic marketing concepts and principles apply.
Pro: Business-to business marketing requires a unique set of marketing concepts
and principles versus consumer marketing. The special set of concepts and skills
needed in business-to-business marketing include professional salespeople; prod
ucts that meet specific and sometimes specially engineered needs of a set of a f
ew customers; marketing promotional aspects that deemphasize price in exchange f
or services; delivery terms; special financing arrangements; and other tradition
al non-marketing considerations.
Finally, the other major difference between consumer and business-to-business ma
rketing usually involves the amount of people involved in the sale: from both th
e sellers firm and the purchasing firm. In consumer selling, the user is general
ly the purchaser. In the business-to-business, marketing both the selling firm a
nd the buying firm includes members of other disciplines (engineering, transport
ation, warehousing, finance, and others) from the beginning of the process to th
e time of actual purchase. The addition of these people fosters strong ties betw
een the two firms but also lengthens the time and complexity of the sale.
Con: Business-to-business marketing does not really differ from the consumer mar
ket in ones approach. The major differences between the two is not in delivering
value to the consumer but in the implementation and time phase. Buyers still buy

to solve problems and business-to-business marketing and consumer marketing still

has to solve the buyers problems. Time and attention to detail may be extended fo
r business-to-business marketers but the accepted marketing principles of price,
place, promotion, and product still apply it is just their implementation and a
pplication(s) that differ.

MARKETING DISCUSSION
Consider some of the consumer behavior topics from Chapter 6. How might you appl
y them to business-to-business settings? For example, how might noncompensatory
models of choice work?
Suggested Response:
From Chapter 6 we have learned that consumer behavior is influenced by cultural
factors, social factors, and personal factors. These are individual consideratio
ns that apply to the business-to-business market as well as to the consumer mark
et. The difference is that all of the members of the buying center will possess
different sets of these considerations and that the business-to-business markete
r must try to appeal to all of these simultaneously.
In addition, there are four main psychological processes: motivation, perception
, learning, and memory apply as well to the business-to-business market. Again,
in business-to-business marketing, each member of the buying center will exhibit
different degrees of each of these processes.
Finally, in the business-to-business buying situation, problem recognition, info
rmation search, evaluation of alternatives, purchase decisions, and post-purchas
e behavior will differ from the consumer market. The difference(s) lie in the am
ount of time involved, the degree of research expended, the decision-maker s role
and the evaluation of the product or service.
In the business-to-business market, more attention is paid to information search
, purchase decisions, the evaluation of alternatives, and the fact that the user m
ay not be the final decision maker. In the business-to-business market, there ar
e seven roles demonstrated by people within the company (initiators, users, infl
uencers, deciders, approvers, buyers, and gatekeepers), each of which must be co
nsidered as a factor in the selling process. In the consumer market, many of the
se roles are included in the single role as buyer.
Noncompensatory choice models and other impartial decision-making tools receive a
greater degree of importance as the business-to-business buying center tries to
remove personal choice options from the equation.
DETAILED CHAPTER OUTLINE
Business organizations do not only sell, each buys vast quantities of raw materi
als, manufactured components, plant and equipment, suppliers, and business servi
ces. To create and capture value, seller need to understand the organizational b
uyer needs, resources, policies, and buying procedures.
WHAT IS ORGANIZATIONAL BUYING?
Webster and Wind define organizational buying as the decision-making process by
which formal organizations establish the need for purchased products and service
s and identify, evaluate, and choose among alternative brands and suppliers.
A)
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, or supplied to others.
B)
More dollars and items are involved in sales to business buyers than to
consumers. Business markets have several characteristics that contrast sharply w
ith those of consumer markets:

1)
Fewer, larger buyers
2)
Close supplier-customer relationship
3)
Professional purchasing
4)
Several buying influences
5)
Multiple sales call
6)
Derived demand
7)
Inelastic demand
8)
Fluctuation demand
9)
Geographically concentrated buyers
10)
Direct purchasing
Marketing Insight: Big sales to small business
Illustrates how some very large companies (IBM, Microsoft, and others are reachi
ng the small businesses in the US (defined as having fewer than 500 employees).
Buying Situations
The business buyer faces many decisions in making a purchase. The number of deci
sions depends on the buying situation: complexity of the problem being solved, n
ewness of the buying requirement, number of people involved, and time required.
There are three types of buying situations: the straight rebuy, modified rebuy,
and new task.
A)
Straight rebuy is when the purchasing department reorders on a routine b
asis and chooses from suppliers on an approved lists.
B)
Modified rebuy is when the buyer wants to modify product specifications,
prices, delivery requirements, or other items.
C)
New task is when the purchaser buys a product or service for the first
time.
1)
The business buyer makes the fewest decisions in the straight rebuy situ
ation and the most in the new-task situation.
2)
In the new-task situation, the buyer has to determine product specificat
ions, price limits, delivery terms and times, service terms, payment terms, orde
r quantities, acceptable suppliers, and the selected supplier. This situation is
the marketer s greatest opportunity and challenge.
3)
Because of the complicated selling involved, many companies use a missio
nary sales force consisting of their most effective salespeople for new-task sit
uations.
Marketing Memo: Maximizing customer relations
Lists the five common mistakes in developing customer reference stories and the
seven keys to successfully developing customer reference stories.
Systems Buying and Selling
Many business buyers prefer to buy a total solution to a problem from one seller
. Called systems buying, this practice originated with the government. It consis
ts of:
A)
Prime contractors
B)
Second-tier contractors
C)
One variant of systems selling is systems contracting where a single sup
plier provides the buyer with his or her entire requirements of maintenance, rep
air, and operating (MRO) supplies.
PARTICIPANTS IN THE BUSINESS BUYING PROCESS
Purchasing agents are influential in straight-rebuy and modified-rebuy situation
s, where as engineering personnel usually have a major influence in selecting pr
oduct components, and purchasing agents dominate in selecting suppliers.
The Buying Center
Webster and Wind call the decision-making unit of a buying organization the buyi
ng center. It is composed of all those individuals and groups who participate in
the purchasing decision-making process, who share some common goals and the risk
s arising from the decisions.

There are seven roles in the purchase decision process:

A)
Initiators requests the product
B)
Users will use the product
C)
Influencers influence the buying decision
D)
Deciders makes the decision of what to purchase
E)
Approvers authorize the proposal
F)
Buyers have the formal authority to purchase
G)
Gatekeepers have the power to prevent seller information from reaching mem
bers of the buying center
Buying Center Influences
Buying centers usually include several participants with differing interests, au
thority, status, and persuasiveness.
A)
Each member of the buying center is likely to give priority to very diff
erent decision criteria.
B)
Business buyers also respond to many influences when they make their dec
isions.
C)
Each buyer has personal motivations, perceptions, and preferences that a
re influenced by the buyers:
1)
Age
2)
Income
3)
Education
4)
Job position
5)
Personality
6)
Attitudes toward risk
7)
Culture
D)
Individuals are motivated by their own needs and perceptions in an attem
pt to maximize the rewards.
E)
Personal needs motivate the behavior of individuals.
F)
Organizational needs legitimate the buying decision process and its outcom
es.
G)
People are not buying products ; they are buying solutions to two problems:
1)
The organization s economic and strategic problem
2)
Their own personal problem of obtaining individual achievement and reward
Buying Center Targeting
To target their efforts properly, business marketers have to figure out: Who are
the major decision participants? What decisions do they influence? What is thei
r level of influence? What evaluation criteria do they use?
A)
Small sellers concentrate on reaching the key buying influencers.
B)
Large sellers go for multilevel in-depth selling to reach as many partic
ipants as possible.
THE PURCHASING/PROCUREMENT PROCESS
Business buyers seek to obtain the highest benefit package (economic, technical,
services, and social) in relation to a market offering s costs. A business buyer s
incentive to purchase will be greater in proportion to the ratio of perceived be
nefits to costs. The marketer s task is to construct a profitable offering that de
livers superior customer value to the target buyers.
Purchase Department Perceptions
Today s purchasing departments are more strategically orientated and have a missio
n to seek the best value from fewer and better suppliers.
Purchasing Organization and Administration
The upgrading of purchasing means that business marketer s must upgrade their sale
s personnel to match the high caliber of the business buyer.
A) Most purchasing professionals describe their jobs as more strategic,
technical, team-orientated, and involving more responsibility than ever before.

B) In multi-divisional companies, most purchasing is carried out by sepa

rate divisions
STAGES IN THE BUYING PROCESS
Robinson and Associates have identified eight stages and called them buyphases.
A)
Problem recognition
B)
General need description
C)
Product specification
D)
Supplier search
E)
Proposal solicitation
F)
Supplier selection
G)
Order-routine specification
H)
Performance review
Problem Recognition
The buying process begins when someone in the company recognizes a problem or ne
ed. The recognition can be triggered by internal or external stimuli.
General Need Description and Product Specification
Next, the buyer determines the needed item s general characteristics and requireme
nts.
Supplier Search
The buyer next tries to identify the most appropriate suppliers through
trade directories, contacts with other companies, trade advertisements, and trad
e shows.
Companies that purchase over the Internet are utilizing electronic marketplaces
in several forms:
A)
Catalog sites
B)
Vertical markets
C)
Pure Play auction sites
D)
Spot or (exchange ) markets
E)
Private exchanges
F)
Barter markets
G)
Buying alliances
Online buying offers several advantages:
A) Shaves transaction costs
B) Reduces time between order and delivery
C) Consolidates purchasing systems
D) Forges closer relationships
On the downside, online ordering may:
A) Helps to erode supplier-buyer loyalty
B) Create security issues
E-Procurement
Web sites are organized around two types of e-hubs: vertical hubs centered on in
dustries and functional hubs.
A)
In addition to using these Web sites, companies can do e-procurement in
other ways:
1)
Direct extranet links to major suppliers
2)
Buying alliances
3)
Company buying sites
B)
Moving into e-procurement involves more than acquiring software; it requ
ires changing purchasing strategy and structure.
C)
The supplier s task is to get listed in major online catalogs or services,
develop a strong advertising and promotion program, and build a good reputation
in the marketplace.

D)
This often means creating a well-designed and easy-to-use Web site.
Lead Generation
The supplier s task is to ensure it is considered when customers are in the market
searching for a supplier.
Proposal Solicitation
The buyer invites qualified suppliers to submit proposals. If the item is comple
x, the buyer will require a detailed written proposal from each qualified suppli
er.
A)
Business marketers must be skilled in researching, writing, and presenti
ng proposals.
Supplier Selection
Before selecting a supplier, the buying center will specify desired supplier att
ributes and indicate their relative importance. To rate and identify the most at
tractive suppliers, buying centers often use a supplier-evaluation model.
Marketing Memo: Developing compelling customer value propositions
States that to command price premiums in competitive B-to-B markets, firms must
create compelling customer value propositions. Lists the top 8 ways to research
the customer.
Overcoming Price Pressures
Business marketers need to do a better job of understanding how business buyers
arrive at their valuations.
A)
Despite moves toward strategic sourcing, partnering, and participation i
n cross-functional teams, buyers still spend a large chunk of their time hagglin
g suppliers on price.
1)
Marketers can counter request for a lower price in a number of ways.
i.
total cost of ownership
ii.
life-cycle cost
B)
Improving productivity helps alleviate price pressures
Number of Suppliers
Buying centers must decide on how many suppliers to use. Companies are increasi
ng decreasing the number of suppliers in order to cut costs.
Order-Routine Specifications
After selecting suppliers, the buyer negotiates the final order, listing the tec
hnical specifications, the quantity needed, the expected time of delivery, retur
n policies, warranties, and so on.
Performance Review
A)
The buyer periodically reviews the performance of the chosen supplier(s)
MANAGING BUSINESS-TO-BUSINESS CUSTOMER RELATIONSHIPS
To improve effectiveness and efficiency, business suppliers and customers are ex
ploring different ways to manage their relationships. Closer relationships are d
riven in part by supply chain management, early supplier involvement, and purcha
sing alliances.
The Benefits of Vertical Coordination
Building trust between parties is often seen as one prerequisite to healthy long
-term relationships.
Knowledge that is specific and relevant to a relationship partner is also an imp
ortant factor in the strength of interfirm ties between partners.
Research has found that buyer-supplier relationships differ according to four fa
ctors:

A)
B)
C)
D)

Availability of alternatives
Importance of supply
Complexity of supply
Supply market dynamism

Based in this research, they classify buyer-supplier relationships into 8 catego

ries:
A)
Basic buying and selling
B)
Bare bones
C)
Contractual transactions
D)
Customer supply
E)
Cooperative systems
F)
Collaborative
G)
Mutually adaptive
H)
Customer is King
Breakthrough Marketing: General Electric
Relates the story how in 2003, GE faced a new challenge: how to promote its dive
rsified brand globally with a unified message.
Marketing Insight: Establishing corporate trust and credibility
Defines the terms: corporate credibility, expertise, trustworthiness, and likabi
lity.
Business Relationships: Risks and Opportunism
Vertical coordination can facilitate stronger customer-seller ties but at the sa
me time may increase the risk to the customer and supplier s specific investments.
A)
Specific investments are those expenditures tailored to a particular com
pany and value chain partner.
B)
Specific investments also entail considerable risk to both customer and
supplier.
C)
Opportunism is some form of cheating or undersupply relative to an implic
it or explicit contract .
D)
A more passive form of opportunism might be a refusal or unwillingness t
o adapt to changing circumstances.
E)
Opportunism is a concern because firms must devote resources to control
and monitoring
F)
There is a shift in specific investments from expropriation (increased o
pportunism on the receiver s part) to bonding (reduced opportunism).
INSTITUTIONAL AND GOVERNMENT MARKETS
The institutional market consists of schools, hospitals, nursing homes, prisons,
and other institutions that must provide goods and services to people in their
care.
A)
Many of these organizations are characterized by low budgets and captive
clienteles.
B)
In most countries, government organizations are a major buyer of goods a
nd services.
Marketing Memo: Selling tech to the government
Details some tips to selling IT to the U.S. Government via the General Services Ad
ministration (GSA).