BUYER BEHAVIOR IN BUSINESS MARKETS

 

Business markets and consumer markets:
Both contain buyers and sellers who seek to make good purchases and satisfy their personal or organizational objectives.  Include stages associated with need identification, information search, and product evaluation.  Consumers buy products for their personal use or consumption.  Organizational buyers purchase products for use in their operations.

  • Commercial Markets-buy raw materials for use in producing finished goods, and they buy facilitating goods and services used in the production of finished goods.
  • Reseller Markets-channel intermediaries such as wholesalers, retailers, or brokers that buy finished goods from the producer market and resell them at a profit, channel intermediaries have the responsibility for creating the variety and assortment of products offered to consumers.
  • Government markets-include federal, state, county, city, and local governments.  Governments buy a wide range of finished goods.  Most government purchases are for the services provided to citizens.
  • Institutional markets-consist of a diverse group of noncommercial organizations such as churches, charities, schools, hospitals, or professional organizations.  These organizations primarily buy finished goods that facilitate their ongoing operations.

Unique Characteristics of Business Markets
Hard and soft costs.  Many business transactions are based on long-term relationships, so trust, reliability, and overall goal attainment are often much more important than the price of the product.

The Buying Center
The group of people responsible for making purchase decisions.  In an organization, the buying center tends to be much more complex and difficult to identify.  3 groups: economic buyers, technical buyers, and users-each of which may have its own agenda and unique needs that affect the buying decision.
Economic buyers- those senior managers with the overall responsibility of achieving the buying firms objectives.  This made economic buyers a greater target for promotional activities.  Technical buyers-employees with the responsibility of buying products to meet needs on an ongoing basis-include purchasing agents and materials.
Users-managers and employees who have the responsibility of using a product purchased by  the firm-comprise the last group of people in the buying center.

Hard and Soft Costs
Hard Costs-include monetary price and associate purchase costs such as shipping and installation.
Soft costs-such as downtime, opportunity costs, and human resource costs associated with the compatibility of systems, in the buying decision.

Reciprocity
Such arrangements can be upfront condition of purchase in purely transaction-based marketing.  Reciprocal buying is less likely to occurs within long-term relationships unless it helps both parties achieve their respective goals.

Mutual Dependence
Consumer-marketer relationships, this level of dependence tends to be low.  Not case in business markets where sole-source or limited-source buying may leave an organization’s operations severely distress then a supplier shuts down or cannot deliver.  Rubbermaid was able to recover somewhat by lavishing its buying partners with exceptional service.

The Business Buying Process

  1. Problem Recognition-the recognition of needs can stem form a variety of internal and external sources
  2. Develop Product Specifications-define business purchases. Typically done by buying center.
  3. Vendor Identification and Qualification-Business buyers must ensure that potential vendors can deliver on needed product specifications within a specified time frame and in the needed quantities.
  4. Solicitation of Proposals or Bids-buying firm may request that qualified vendors submit proposals or bids
  5. Vendor Selection-best vendor not necessarily the one offering the lowest price.  Issues such as reputation, timeliness of delivery, guarantees, or personal relationships with the members of the buying center are often more important
  6. Order processing-processing the order, negotiating credit terms, setting firm delivery dates, and any final technical assistance need to complete the purchase.
  7. Vendor Performance Review-Product may successfully fulfill the needed specifications, but the vendor’s performance is poor.  The result of these evaluations will affect future purchase decisions.

Environmental conditions can have a major influence on buyer behavior by increasing the uncertainty, complexity, and risk associated with a purchase.  In situations of rapid environmental change, business buyers may alter their buying plans, postpone purchases, or even cancel purchases until things settle down.  Also effect decisions regarding the recruitment and hiring of employees.  Organizational factors can also influence business buying decisions.  These factors include conditions with the firm internal environment (resources, strategies, policies, objectives), as well of the condition of relationships with business or supply chain partners.  A shift in the firms resources can change buying decisions.  internal changes in information technology.  Interpersonal relationships and individual factors.  Power struggles are not uncommon in business, or Individual factors-certain managerial personal preferences or prejudices.

Market Segmentation
Market Segmentation as the process of dividing the total market for a particular product or product category into relatively homogeneous segments or groups.  To be effective, segmentation should create groups where the members within the group have similar likes, tastes, needs, wants, or preferences, but where groups themselves are dissimilar from each other.  Many firms today take segmentation to the extreme by targeting small niches of a market, or even the smallest of market segments: individuals

Traditional Market Segmentation Approaches
Some organizations actually use more than one type of segmentation, depending on the brand, product, or market in question.

Mass Marketing
Companies aim mass marketing campaigns at the total (whole) market for a particular product.  Undifferentiated approach that assumes that all customers in the market have similar needs an wants that can be reasonably satisfied with a single marketing program.  Marketing Program consists of single product or brand, one price, one promotional program, and one distribution system.  Works best when the needs of an entire market are relatively homogeneous.  Good examples include commodities like oil and agricultural product.  Although mass marketing is advantageous in terms of production efficiency and lower marketing costs, it is inherently risky.  When barriers of trade are low, mass marketing runs the risk of being seen as too generic.  Mass marketing is very risky in global markets.

Differentiated Marketing
1) dividing the total market into groups of customers having relatively common or homogeneous needs
2) attempting to develop a marketing program that appeals to one or more of these groups.  This approach may be necessary when customer needs are similar within a single group, but their needs differ across groups.  Multisegment approach-seek to attract buyers in more than one market segment by offering a variety of products that appeal to different needs.  Multisegment approach is the most widely used segmentation strategy in medium-to large-sized firms.  It is extremely common in packaged goods and grocery products.  One third of the U.S. population is a minority.  Minority populations have a large middle class with strong buying power.  Core values such as family, faith, nationalism, respect for the elderly, and community leaders, and cultural institutions are the dominant features that define minority populations.  Groups work hard to preserve their ethnic values and customs.  Emotional connections to their own ethnic traditions.  Digital communication-affinity for gadgets and respond well/  Or try to promote ethnic individuality.  Market Concentration approach-focus on a single market segment. Main advantage is specialization. also major disadvantage of this.

Niche Marketing
Some companies narrow the market concentration approach even more and focus their marketing efforts on one small, well-defined market segment or niche that has a unique, specific set of needs.  Will typically pay higher prices for products that match their specialized needs.  The key to successful niche marketing is to understand and meet the needs of target customers so completely that the firms substantial share makes the segment highly profitable.

Individualized Segmentation Approaches
By combining demographic data with past and current purchasing behavior, organizations can tweak their marketing programs in ways that allow them to precisely match customers’ needs, wants, and preferences.  Three types of individualized segmentation are one-to-one marketing, mass customization, and permission marketing.

One-to-One marketing
When it creates an entirely unique product or marketing program for each customer in the target segment.  The key to one-to-one marketing is personalization, where every element of the marketing program is customized to meet the specifics of a particular client’s situation.  The key to one-to-one marketing is personalization.  One-to-one marketing has been used less often in consumer markets.  Ex: Amazon profiles assist with the customization of web pages in real time, product suggestions, and reminder e-mails sent to customers.

Mass Customization
Providing unique products and solutions to individual customers on a mass scale.  Along with the Internet, advances in supply chain management-including real time inventory control-have allowed companies to customize products in ways that are both cost-effective and practical.  Occurs in business markets.  System allows employees to requisition goods and services via a customized catalog-unique to the firm-where the buying firm has negotiated the products and prices.  E-procurement systems have allowed firms to save a great deal of money-not only on prices, but also on the costs of placing orders.

Permission Marketing
Customers choose to become part of a firms market segment.  Opt-in email list-permit a firm to send periodic e-mail about goods and services that they have interest in purchasing.  Customers who opt in have already shown interest in the goods and services offered by the firm.  Allows firm to precisely target only those individuals with an interest in their products, thereby eliminating wasted marketing effort and expense.  One-to-one marketing, mass customization, and permission marketing will become even more important in the future because their focus on individual customers makes them critical to the development and maintenance of long-term relationships.  The simple truth is that customers will maintain relationships with firms that best fulfill their needs or solve their problems.  The delivery of the marketing program must be automated to a degree that misses it cost-efficient.  The marketing program must not become so automated that the offerings lacks personalization.  Changing customers choices-not only in terms of product configuration, but also int terms of the entire marketing program.  Customers can choose payment terms, shipping terms, delivery locations, gift wrapping, and whether to opt in e-commerce firms can offer product suggestions on the fly.  Customized point-of-scale information not only increases sales, it also better fulfills customer’s needs and increases the likelihood of establishing long-term customer relationships.

 

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