MARK 5320: Advanced Marketing Fundamentals
Chapter 4: Business Buying Behavior

Introduction

This chapter provides an overview of business to business buying behavior. Topics discussed include ways B2B markets differ from B2C markets, types of B2B buyers, buying centers, and stages of the B2B buying process. The chapter wraps up with a discussion of international B2B markets, e-commerce and ethics in the B2B market.

Learning Objectives

Identify ways in which business-to-business (B2B) markets differ from business-to-consumer (B2C) markets. Explain why business buying is acutely affected by the behavior of consumers.
Describe the major categories of business buyers. Explain why finding decision makers in business markets is challenging for sellers.
Explain what a buying center is. Explain who the members of buying centers are and describe the roles they play. Describe the duties of professional buyers. Describe the personal and interpersonal dynamics that affect the decisions buying centers make.
Outline the stages in the B2B buying process. Explain the scorecard process of evaluating proposals. Describe the different types of B2B buying situations and how they affect sellers.
Describe the reasons why firms in the same industries are often located in the same geographic areas. Explain the effect e-commerce is having on the firms, the companies they do business, where they are located, and the prices they charge. Outline the different types of e-commerce sites and what each type of site is used for.
Explain how the ethical dilemmas B2B markets face differ from the ethical dilemmas B2C marketers face. Outline the measures companies take to encourage their employees and executives act in ethical ways.

The Characteristics of Business-to-Business (B2B) Markets

The section will cover the differences between Business-to-Business (B2B) Markets and Business to Consumers (B2C) Markets. B2B markets differ from B2C marketing in a number of ways:

Number of products sold - B2B sales dwarf B2C sales.
Business products are more complex and often are tailored to fit the needs of individual business buyers.
The buying dynamics within the organization can be quite complex, with many people involved in the buying process.
B2B sales take longer because the buying process is more complex and the product's price is usually much higher.
There is more personal selling in B2B marketing.

The Demand for B2B Products

B2B sellers monitor consumer markets because consumer buying patterns affect their business customers' buying behavior. Specifically, B2B sellers look at several areas of demand:

B2Bs are affected by derived demand, which is demand that springs from, or is derived from, a secondary source other than the primary buyer of the product. For example A situation where demand for a particular product or service results from the need for other goods and/or services. For example, demand for aluminum cans is derived from consumption of soft drinks or beer. Many organizations may take part in creating the consumer purchase. When consumers change their buying habits, the companies they buy from also change their buying patterns.
Small changes or fluctuating demand by consumers trickles down to B2B markets. Slight changes in the demand by consumers can have a big effect throughout the chain of businesses that supply all the goods and services that produce it. While a change in consumer demand of 10% doesn't sound like much, for a B2B seller who supplies component parts to the company making the final product, it could mean few if any sales. This has been called the bullwhip effect. My favorite illustration is to think about Indiana Jones - when he snaps his wrist his bullwhip makes a huge arc.
B2B sellers also keep an eye on consumer buying patterns that may create joint demand. Joint demand occurs when the demand for one product increases the demand for another product.

This video is a great explanation of derived and joint demand. Petrol is the English term for gasoline.

Types of B2B Buyers

The four types of buyers in B2B markets are:

Producers or companies that purchase goods and services that they transform into other products. Includes manufacturers as well as service providers. Producers generally buy raw materials or components that that they then turn into other products. Producers include manufacturers as well as service providers. GM needs steel and hundreds of thousands of other products to produce cars. A dentist needs drugs like Novocain, oral tools and X-ray equipment.
Resellers or companies that sell goods and services produced by other firms without materially changing them. Includes wholesalers, brokers and retailers. Walmart and Target fall into this category of buyer. Resellers are companies that sell goods and services produced by other firms without materially changing them. They include wholesalers, brokers, and retailers. A B2B seller that gets a reseller to buy its products can see a significant sales increase. Example, B2B seller who gets Walmart to carry its product in all Walmart Stores.
The government is the biggest purchaser of goods in the U.S. The federal government purchases everything imaginable from companies. It contracts for all kinds of services also. B2G markets, or when companies sell to local, state, and federal governments, represents a major selling opportunity even for smaller sellers. At the federal level B2B sellers can visit the General Services Administration Web site. The GSA helps 200-plus federal agencies buy a wide variety of products purchased routinely. B2B sellers can also visit the web sites of the agencies they want to buy their products if the products are not routine purchases. State web sites provide information about selling to state governments. Selling to the federal government involves the following steps:

Registering with the Central Contractor Registry at www.unitedstatesbusinessregistration.us
Consulting the General Services Administration (GSA) web site at www.gsa.gov to view the kinds of products the GSA helps agencies routinely buy.
Aggressively market product to the agencies most likely to purchase it.

Institutions include nonprofit organizations such as the American Red Cross, churches, hospitals, charitable organizations, private colleges, civic clubs and so on.

B2B sellers must look to the web sites of individual institutions for their buying policies and procedures.

Who Makes the Purchasing Decisions in Business Markets?

Figuring out who makes purchasing decisions in business markets can be difficult. Take for example, college textbooks. The end user, namely the student, doesn't really have any say in what textbook is used for a particular course. The decision is often that of the instructor, department head, or a college committee. Consequently, book sellers don't generally target students with their marketing efforts, instead focusing on college administration and faculty. B2B sellers must look to the web sites of individual institutions for their buying policies and procedures. There are often a number of people involved in purchasing decisions for a business, so knowing who to approach first is sometimes difficult. Additionally, the policies and procedures that a company follows when it seeks to purchase from another business aren't readily available to the seller, so it can be difficult for the seller to know what steps need to be taken.

Buying Centers

Buying centers are groups of people within organizations who make purchasing decisions. Large companies often have permanent departments responsible for company purchases.

Buying centers may also be referred to as buyers, purchasing agents, purchasing managers, procurement officers, or merchandisers (retailers). Buyers have a large impact on expenses, sales, and profits. Their jobs depend upon them making profitable purchasing decisions for their companies.

Other Players

Purchasing agents don't make all the buying decisions in their companies. Other players include:

Users - the people and groups within the company that actually use the product.
Influencers - the people who may or may not use the product but have experience or expertise that can help improve the buying decisions.
Gatekeepers - people who decide if and when you get access to members of the buying center. These are often people with titles such as buying assistant, personal assistant, or secretary.
Deciders - the people who make the final purchasing decisions. May be a purchasing agent for routine purchases, but for larger, more complex decisions, it could be a member of upper level management or even the CEO.

The Interpersonal and Personal Dynamics of B2B Marketing

Politics can play a role in purchasing decisions within B2B buyers. One person in a buying unit might wield a lot of power and greatly influence the purchasing decision, but other people in the unit may resent the power he or she wields and insist on a different offering, even if it doesn't meet the company's needs. Personal factors such as the likability of a particular sales representative may also affect purchasing decisions if factors such as features, benefits, and price are relatively the same. B2B sellers can try to counteract negative interpersonal factors by successfully branding their products. In other words, they build the reputation of their product so that business buyers come to the conclusion that their products are the best choice.

The Duties of Professional Buyers

Considering the availability of products, the reliability of the products' vendors, and the technical support they can provide.
Studying a company's sales records and inventory levels.
Identifying suppliers, and obtaining bids from them.
Negotiating prices, delivery dates, and payment terms for goods and services.
Keeping abreast of changes in the supply and demand for goods and services their firms need.
Staying informed of the latest trends so as to anticipate consumer buying patterns.
Determine the media (TV, the Internet, newspapers, and so forth) in which advertisements will be placed.
Tracking advertisements in newspapers and other media to check competitors' sales activities.

Stages in the B2B Buying Process and B2B Buying Situations

This section outlines the stages of the B2B buying process, explains the scorecard process of evaluating proposals, and describes the different types of B2B buying situations and how they affect sellers. Some companies use a single supplier. This helps streamline the company's paperwork and other buying processes. Buying from one seller and in huge volumes may allow for deeper discounts, also. Buying from a single supplier, however, is risky. The supplier may not deliver on the product, may go out of business, or raise its prices. For these reasons, many firms prefer to do business with more than one supplier. Doing business with multiple suppliers also keeps suppliers on their toes; they know that if they don't perform well for a buyer, the buyer can easily get the product from someone else.

Stages of the B2B buying process:

A need is recognized - someone recognizes that the organization has a need that can be solved by purchasing a good or service. Users often drive this stage.
The need is described and quantified - a buying center or a group of people brought together to help make buying decisions, describe what they believe is needed, the features it should have, how much of it is needed, where and so on.
Potential supplier are searched for - people involved in the buying process seek out information about the products they are looking for and the vendors that can supply them.
Qualified suppliers are asked to complete responses to requests for proposals (RFP) - each vendor that makes the cut is sent a request for proposal, which is an invitation to submit a bid to supply the good or service. The RFP outlines what the vendor is able to offer in terms of its products.
The proposals are evaluated and suppliers selected - organizations will rank parts of the proposal differently, based upon their goals and the products they purchase. Price might be more important to some sellers; for others it may be follow-up service. Some companies use a scorecard approach to evaluating suppliers. See Figure 4.7
An order routine is established - This is the stage in which the actual order is put together. The order includes the agreed-upon price, quantities, expected time of delivery, return policies, warranties and any other terms of negotiation.
A post-purchase evaluation is conducted and the feedback is provided to the vendor - B2B buyer evaluates the purchase experience and decides if the relationship with a particular supplier is worth continuing. Some buyers establish on-time performance, quality, customer satisfaction, and other measures for their vendors to meet and provide those vendors with the information regularly such as trend reports that show if their performance is improving, remaining the same or worsening.

Some companies use a single supplier. This helps streamline the company's paperwork and other buying processes. Buying from one seller and in huge volumes may allow for deeper discounts, also. Buying from a single supplier, however, is risky. The supplier may not deliver on the product, may go out of business, or raise its prices. For these reasons, many firms prefer to do business with more than one supplier. Doing business with multiple suppliers also keeps suppliers on their toes; they know that if they don't perform well for a buyer, the buyer can easily get the product from someone else.

Types of B2B Buying Situations

There are three types of buying situations that have an impact on the way that the DMU is organized and how products and suppliers are selected: Straight re-buy, modified re-buy, and new-task purchase.

Straight re-buy - The buyer reorders without requesting any product or service modifications. The buyer simply chooses a supplier from an approved list based on past buying satisfaction. Because it is a routine reordering situation, the supplier may propose an automatic reordering system both to save purchasing time and to reduce the risk of losing profitable, regular purchases.
Modified re-buy - Although the company has prior experience of the product, the particular purchase situation demands some degree of customization, such as changes in the product specification, price, terms or supplier. Approved suppliers, including those currently under contract to the customer, may use the purchasing opportunity to make a better offer to the customer in order to win new business.
New-task purchase - A company buying a product or service for the first time may have no experience of supplier capabilities or performance evaluation. Consequently, the greater the cost or risk, the larger the DMU and its informational requirements. The new-task situation represents the marketer's greatest opportunity and challenge: the aim is to reach as many key buying influencers as possible, and to provide help and information.

International B2B Markets and E-commerce

This section gives reasons why firms in the same industries are often located in the same geographic areas. Additionally, e-commerce is defined and its effect on B2B markets explained.

B2B markets are often distinguished by their geographic areas. Companies doing business with each other often cluster together in particular areas of the country because the human and natural resources needed are located in some areas and not in others. Additionally, suppliers want to be close to their buyers, so they locate their operations nearby.

Examples of clustering include:

Gulf Coast - oil-related industries
Silicon Valley - high-tech companies
Wall Street - banks and financial institutions
Napa Valley - wine related industry

Types of B2B web sites include:

Sell side sites such as the Union Pacific site; in which a single seller sells products to many different buyers.
Buy side site is one in which a business buys products from multiple sellers that go to the buyer's site to do business with the firm. Some government agencies have buy side sites.
B2B exchanges are e-commerce sites where multiple buyers and sellers go to find and do business with each other. These exchanges are similar to Craig's List but comprised solely of business buyers and sellers.
B2B auctions are web-based auctions that occur between businesses. The auctions can be sell side or buy side. Sometimes sell side auctions are referred to as forward auctions. Buy side auctions are initiated by the buyer. Sellers bid against each other for the buyer's business. Buy side auctions are sometimes referred to as reverse auctions. Ebay has been used for B2B auctions.

B2B Facebook Examples

Ethics in B2B Markets

This section examines the ethical dilemmas faced by B2B marketers and how companies encourage ethical behavior. B2B markets often involve offering customers free dinners, golf games, and so forth, although such practices are illegal in some countries, such as the U.S. The top five countries with a penchant for bribery include Russia, China, Mexico, India, and Italy. Another ethical issue that affects B2B markets is misrepresentation of products. For example, Dean Foods, which manufactures the Silk brand of soy milk, experienced a lot of negative press after the company changed the word "organic" to natural on its labels and quietly switched to conventional soybeans which are grown with pesticides. Many grocers and consumers felt duped. What is considered unethical behavior and what isn't has always been up for debate. Following laws and regulations is only starting points for ensuring employees behave ethically. Companies are also developing ethics codes that provide general guidelines about how their employees should behave. Many firms also require ethics training so they know what to do when they face tricky ethical dilemmas. Having a reputation for ethical behavior is important because companies want to do business with firms that are responsible. Consumers are increasingly demanding that all companies in the supply chain behave ethically. Walmart has a reputation for ethical behavior in B2B relationships. Its buyers are not allowed to accept any perks from suppliers. Walmart and other companies have realized that perks drive up product costs and can influence buyer decisions in ways that are not beneficial to the company. Ethical behavior is highly subjective. What may seem like ethical behavior to one company may be considered unethical by another.