Business-to-business Markets and Buying Behavior

1. 5 Business-to-businessMarkets and BuyingBehavior

2. Learning Objectives • After studying this chapter, you should be able to: • Define the nature of business-to-business buying behavior and markets. • Explain the differences between business-to-business buying and consumer purchase behavior. • Recognize the different types of buying decisions. • Define the different stages of the business buying process. • Describe the buying center concept and the determinants of influence within the buying center. • Understand the nature of government, reseller, and other institutional markets.

3. Office Depot • Companies like Office Depot spend enormous amounts on products and services for business operations, and then market products and services to other consumer or business buyers. These firms are making many changes to improve purchasing performance.

4. Business-to-Business Buying • Business-to-business (B2B) buying behavior refers to decision making and other activities of organizations as buyers. Suppliers Elements of B2B Sources Vendors

5. Business Categories Business Firms Manufacturers of tangible goods and firms that provide services such as health care, entertainment, and transportation Government Markets Federal, state, and local Reseller Markets Wholesalers and retailers Institutional Markets Hospitals (profit and nonprofit), educational and religious institutions, and trade associations.

6. Supply Chain Management Supply Chain Management The integration of business processes from end user through original suppliers that provides products, services, and information that add value for customers. Supply Management The identification, acquisition, access, positioning, and management of resources the organization needs or potentially needs in the attainment of its strategic objectives.

7. Characteristics of B2B Buying • Consumers buy for their own use and for household consumption. • Business buyers purchase for • further production • for use in their firm’s operations • for resale to other customers. • Derived demand is demand for business-to-business products that is often dependent on demand in consumer markets.

8. Industry Classification System Exhibit 5-2 • The federal government has developed a numerical scheme called the North American Industry Classification System (NAICS) for categorizing businesses.

9. The Importance of B2B Buying • Business-to-business markets and purchasing behavior are important for two basic reasons: • The size of business markets offers many opportunities for astute marketers. • Many firms are trying to increase profits by improving purchasing practices.

10. Electronic commerce Strategic cost management Strategic sourcing Supply chain partner selection and contribution Relationship management Performance measurement Global supplier development Third-party purchasing Competitive bidding Strategic supplier alliances Win–win negotiation strategy Complexity management Trends in B2B Buying Selected purchasing trends 1998–2008

11. Trends in B2B Buying Outsourcing Productivity Improvement Corporate Downsizing Reducing Cycle time

12. Use of Technology • Buyers are increasingly employing technology to improve the productivity of purchasing operations. • Electronic marketplace exchanges or B2B exchanges were heralded as the next revolutionary development in organizational buying. • Private exchanges, those that link invitation-only buyers and sellers, are now showing more promise than most of the open-access exchanges.

13. Electronic Commerce

14. A Relationship Perspective Exhibit 5-6

15. Trends in B2B Buying • Customer Value Considerations • Continually increasing quality • Lowering costs • Environmental Impact • Purchasers should identify activities, products, and services that have an environmental impact. • This includes recycling programs, emissions to air, discharges to water, use of raw materials, and storage and movement of hazardous materials and the impact of both on land and communities. • Purchasers can work with suppliers to reduce excessive packaging, conserve natural resources, and minimize the dangers of products and processes that may harm the environment.

16. Types of Buying Decisions • The classes of buying decisions are distinguished according to the newness of the purchase decision, the information required, and the need to consider alternatives in the purchase, such as different suppliers.

17. The Buying Process Recognize problem or opportunity Determine desired product characteristics and quantity Describe desired product specifications Make purchases and evaluate performance Evaluate and select suppliers Locate and qualify suppliers

18. The Buying Center Buying Center Includes more than the purchasing department or the purchasing function; it is made up of people throughout the organization at all levels. Gatekeepers Those who control the flow of information and communication among the buying center participants.

19. Government Markets • In the United States, the government market includes federal, state, and local government organizations that purchase goods and services for use in many activities. • Total expenditures in the trillions of dollars, the government market is the largest in the world • The United States federal government is the largest customer in this market. • The Department of Defense is the federal government’s biggest spender, trailed by the Department of Health and Human Services in expenditures.

20. Reseller Markets • The reseller market is made up of firms that purchase goods and in turn sell them to others at a gain. • This market includes wholesalers and retailers, totaling approximately 3.5 million companies with more than 20 million employees.

21. Other Institutional Markets • Nonprofit organizations must also purchase goods and services to support their activities, includes: • educational institutions • public and private hospitals • religious and charitable organizations • trade associations

22. Ethical Issues Reciprocity occurs when firm A purchases from supplier B, who in turn buys A’s own products and services. The important values of fairness, honesty, and trust should influence all negotiations between business purchasers and their suppliers. For firms pursuing global markets, the possibility of encountering ethical dilemmas is multiplied many times.

23. Summary • After studying this chapter, you should be able to: • Define the nature of business-to-business buying behavior and markets. • Explain the differences between business-to-business buying and consumer purchase behavior. • Recognize the different types of buying decisions. • Define the different stages of the business buying process. • Describe the buying center concept and the determinants of influence within the buying center. • Understand the nature of government, reseller, and other institutional markets.