Chapter: Business Markets and Business Buyer Behavior
In one way or another, most large companies sell to other organizations. Many companies, such as DuPont, Boeing, Cisco Systems, Caterpillar, and countless other firms, sell most of their products to other businesses. Even large consumer-products companies, which make products used by final consumers, must first sell their products to other businesses. For example, General Mills makes many familiar consumer products—Cheerios, Betty Crocker cake mixes, Gold Medal flour, and others. But to sell these products to consumers, General Mills must first sell them to the wholesalers and retailers that serve the consumer market.
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Business buyer behavior refers to the buying behavior of the organizations that buy goods and services for use in the production of other products and services that are sold, rented, or supplied to others. It also includes the behavior of retailing and wholesaling firms that acquire goods for the purpose of reselling or renting them to others at a profit. In the business buying process, business buyers determine which products and services their organizations need to purchase, and then find, evaluate, and choose among alternative suppliers and brands. Companies that sell to other business organizations must do their best to understand business markets and business buyer behavior.
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Business Markets
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The business market is huge. In fact, business markets involve far more dollars and items than do consumer markets. For example, think about the large number of business transactions involved in the production and sale of a single set of Goodyear tires. Various suppliers sell Goodyear the rubber, steel, equipment, and other goods that it needs to produce the tires. Goodyear then sells the finished tires to retailers, who in turn sell them to consumers. Thus, many sets of business purchases were made for only one set of consumer purchases. In addition, Goodyear sells tires as original equipment to manufacturers who install them on new vehicles, and as replacement tires to companies that maintain their own fleets of company cars, trucks, buses, or other vehicles.
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CHARACTERISTICS OF BUSINESS MARKETS
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In some ways, business markets are similar to consumer markets. Both involve people who assume buying roles and make purchase decisions to satisfy needs. However, business markets differ in many ways from consumer markets. The main differences, shown in Table 7.1 and discussed below, are in market structure and demand, the nature of the buying unit, and the types of decisions and the decision process involved.
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Market Structure and Demand
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The business marketer normally deals with far fewer but far larger buyers than the consumer marketer does. For example, when Goodyear sells replacement tires to final consumers, its potential market includes the owners of the millions of cars currently in use in the United States. But Goodyear's fate in the business market depends on getting orders from one of only a handful of large automakers. Even in large business markets, a few buyers often account for most of the purchasing.
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Business markets are also more geographically concentrated. More than half the nation's business buyers are concentrated in eight states: California, New York, Ohio, Illinois, Michigan, Texas, Pennsylvania, and New Jersey. Further, business demand is derived demand—it ultimately derives from the demand for consumer goods. General Motors buys steel because consumers buy cars. If consumer demand for cars drops, so will the demand for steel and all the other products used to make cars. Therefore, business marketers sometimes promote their products directly to final consumers to increase business demand.
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For example, Intel's long-running "Intel Inside" advertising campaign sells personal computer buyers on the virtues of Intel microprocessors. The increased demand for Intel chips boosts demand for the PCs containing them, and both Intel and its business partners win. Similarly, DuPont promotes Teflon directly to final consumers as a key ingredient in many products—from nonstick cookware to stain-repellent, wrinkle-free clothing. You see Teflon Fabric Protector hangtags on clothing lines such as Levi's Dockers, Donna Karan's menswear, and Ralph Lauren denim.2 By making Teflon familiar and attractive to final buyers, DuPont also makes the products containing it more attractive.
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| TABLE 7.1 | Characteristics of Business Markets | ||||||||||||
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Many business markets have inelastic demand; that is, total demand for many business products is not affected much by price changes, especially in the short run. A drop in the price of leather will not cause shoe manufacturers to buy much more leather unless it results in lower shoe prices that, in turn, will increase consumer demand for shoes.
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Finally, business markets have more fluctuating demand. The demand for many business goods and services tends to change more—and more quickly—than the demand for consumer goods and services does. A small percentage increase in consumer demand can cause large increases in business demand. Sometimes a rise of only 10 percent in consumer demand can cause as much as a 200 percent rise in business demand during the next period.
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Nature of the Buying Unit
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Compared with consumer purchases, a business purchase usually involves more decision participants and a more professional purchasing effort. Often, business buying is done by trained purchasing agents who spend their working lives learning how to buy better. The more complex the purchase, the more likely that several people will participate in the decision-making process. Buying committees made up of technical experts and top management are common in the buying of major goods. As one observer notes, "It's a scary thought: Your customers may know more about your company and products than you do. . . . Companies are putting their best and brightest people on procurement patrol."3 Therefore, business marketers must have well-trained salespeople to deal with well-trained buyers.
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Types of Decisions and the Decision Process
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Business buyers usually face more complex buying decisions than do consumer buyers. Purchases often involve large sums of money, complex technical and economic considerations, and interactions among many people at many levels of the buyer's organization. Because the purchases are more complex, business buyers may take longer to make their decisions. The business buying process also tends to be more formalized than the consumer buying process. Large business purchases usually call for detailed product specifications, written purchase orders, careful supplier searches, and formal approval.
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Finally, in the business buying process, buyer and seller are often much more dependent on each other. Consumer marketers are often at a distance from their customers. In contrast, B2B marketers may roll up their sleeves and work closely with their customers during all stages of the buying process—from helping customers define problems, to finding solutions, to supporting after-sale operation. They often customize their offerings to individual customer needs.
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In the short run, sales go to suppliers who meet buyers' immediate product and service needs. However, business marketers also must build close long-run partnerships with customers. In recent years, relationships between customers and suppliers have been changing from downright adversarial to close and chummy. In fact, many customer companies are now practicing supplier relationship management, developing a core of suppliers and working closely with them. For example, Caterpillar no longer calls its buyers "purchasing agents"—they are managers of "purchasing and supplier development." Says one purchasing expert, "You no longer treat your supplier as a ‘supplier' but as an extension of your business." Consider this example:
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Motoman, a leading supplier of industry robotic systems, and Stillwater Technologies, a contract tooling and machinery company and a key supplier to Motoman, are tightly integrated. Not only do they occupy office and manufacturing space in the same facility, they also link their telephone and computer systems and share a common lobby, conference room, and employee cafeteria. Philip Morrison, chairman and CEO of Motoman, says it's like "a joint venture without the paperwork." Short delivery distances are just one benefit of the unusual partnership. Also key is the fact that employees of both companies have ready access to each other and can share ideas on improving quality and reducing costs. This close relationship has also opened the door to new opportunities. Both companies had been doing work for Honda Motor Company, and Honda suggested that the two work together on systems projects. The symbiotic relationship makes the two bigger and better than they could be individually.4
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| Business marketers often roll up their sleeves and work closely with their customers throughout the buying and consuming process. In this award-winning business-to-business ad, Fujitsu promises more than just high-tech products: "Our technology helps keep you moving upward. And our people won't let you down." |
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In the long run, business marketers keep a customer's sales by meeting current needs and by partnering with customers to help them solve their problems. This is true for marketers in small as well as large businesses. For example, small industrial detergent maker ChemStation does more than simply supply its customers with cleaning chemicals. It works closely with them to custom-design total solutions to their unique cleaning problems. "Our customers . . . oftentimes think of us as more of a partner than a supplier," says the company's newsletter.5
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A Model of Business Buyer Behavior
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At the most basic level, marketers want to know how business buyers will respond to various marketing stimuli. Figure 7.1 shows a model of business buyer behavior. In this model, marketing and other stimuli affect the buying organization and produce certain buyer responses. As with consumer buying, the marketing stimuli for business buying consist of the four Ps: product, price, place, and promotion. Other stimuli include major forces in the environment: economic, technological, political, cultural, and competitive. These stimuli enter the organization and are turned into buyer responses: product or service choice; supplier choice; order quantities; and delivery, service, and payment terms. In order to design good marketing-mix strategies, the marketer must understand what happens within the organization to turn stimuli into purchase responses.
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| FIGURE 7.1 | Model of business buyer behavior |
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Within the organization, buying activity consists of two major parts: the buying center, made up of all the people involved in the buying decision, and the buying-decision process. The model shows that the buying center and the buying-decision process are influenced by internal organizational, interpersonal, and individual factors as well as by external environmental factors.