sts, meeting employee needs, and satisfying lega! obligations.

• More persons typically

participate in organizational buying decisions than in con sumer buying decisions,
especially in procuring major items. The decision partici pants usually represent
different departments and apply different criteria to the purchase decision. • The buyers
must heed the forma! purchasing policies, constraints, and requirements established by
their organizations. • The buying instruments, such as requests for quotations,
proposals, and purchase con tracts, add another dimension not typically found in
consumer buying. Webster and Wind define orga11izatio11al buyi11g as "the decision-
making process by which formal organizations establish the need for purchased
products and services and identify, evaluate, and choose among alternative brands and
sup pliers."1 Although no two companies buy in the same way, the seller hopes to iden
tify enough buying uniformities to improve its marketing strategy planning. In this
chapter, we will look at business markets and briefly at institutional and government
markets. We will examine five questions: Who is i11 tlre market? Wlzat b11yi1Zg
decisio11s do buyers make? Wizo participates i11 the b11yi11g process? Wliat are the
111ajor i11Jl11e11ces 011 the buyers? How do buyers 111ake tlieir buyi11g decisio11s?
The Business Market Who Is in the Business Market? The business market consists of all
the organizations that acquire goods and services to use in the production of other
products or services that are sold, rented, or sup plied to others. The major industries
making up the business market are agricul ture, forestry, and fisheries; mining;
manufacturing; construction; transportation; communication; public utilities; banking,
finance, and insurance; distribution; and services. More dollars and items are involved
in sales to business buyers than to con sumers. To produce and sell a simple pair of
shoes, hide dealers must sell hides to tanners, who sell leather to shoe manufacturers,
who sell shoes to wholesalers, who sell shoes to retailers, who finally sell them to
consumers. Each party in the supply chain has to buy many other goods and services,
and this explains why there is more business buying than consumer buying. 205
Business markets have several characteristics that contrast sharply with con sumer
markets.2 FEWER BUYERS The business marketer normally deals with far fewer buy ers
than does the consumer marketer. Goodyear Tire Company's fate depends crit ically on
getting an order from one of the big three U.S. automakers. But when Goodyear sells
replacement tires to consumers, it faces a potentia! market of 171 million American car
owners. LARG ERB UYERS Many business markets are characterized by a high buyer-
concentration ratio: a few large buyers do most of the purchasing. In such in dustries as
motor vehicles, cigarettes, aircraft engines, and organie fibers, the top four
manufacturers account for over 70% of total production. CLOSE SUPPLIER-CUSTOMER
RELATIONSHIP ♦:♦ Because of the smaller customer base and the importance and
power of the larger customers, we observe close relationships between customers and
suppliers in business markets. Suppliers are frequently expected to customize their
offerings to individual busi ness customer needs. Contracts go to those suppliers who
cooperate with the buyer on technical specifications and delivery requirements.
Suppliers are expected to at tend special seminars held by the business customer to
become familiar with the buyer's quality and procurement requirements.
GEOGRAPHICALLY CONCENTRATED BUYERS ♦ : ♦ More than half of U.S. business
buyers are concentrated in seven states: New York, California, Pennsylvania, Illinois,
Ohio, New Jersey, and Michigan. Industries such as petro leum, rubber, and steel show
an even greater geographical concentration. Most agricultural output comes from a
relatively few states. This geographical concen tration of producers helps to reduce
selling costs. At the same time, business mar keters need to monitor regional shifts of
certain industries, as when textiles moved out of New England to the sou them states. D
ERIVED D EMAND The demand for business goods is ultimately derived from the
demand for consumer goods. Thus animal hides are purchased because consumers buy
shoes, purses, and other leather goods. If the demand for these con sumer goods
slackens, so will the demand for all the business goods entering into their production.
For this reason, the business marketer must closely monitor the buying patterns of
ultima te consumers.3 INELASTI C D EMAND The total demand for many business goods
and serv ices is not much affected by price changes. Shoe manufacturers are not going
to buy much more leather if the price of leather falls. Nor are they going to buy much less
leather if the price of leather rises unless they can find satisfactory leather substi tutes.
Demand is especially inelastic in the short run because producers cannot make quick
changes in their prod uction methods. Demand is also inelastic for busi ness goods that
represent a small percentage of the item's total cost. For example, an increase in the
price of metal eyelets for shoes will barely affect the total demand for metal eyelets. At
the same time, producers may switch their eyelets supplier in re sponse to price
differences. PARTU Analyzing Marketing Opportunities 'I FLUCTUATING DEMAND The
demand for business goods and services tends to be more volatile than the demand for
consumer goods and services. This is especially true of the demand for new plant and
equipment. A given percentage in crease in consumer demand can lead to a much
larger percentage increase in the demand for plant and equipment necessary to
produce the additional output. Economists refer to this as the acceleration principle.
Sometimes a rise of only 10% in consumer demand can cause as much as a 200% rise
in business demand in the next period; and a 10% fall in consumer demand may cause a
complete collapse in the demand for investment goods. This sales volatility has led
many business mar keters to diversify their products and markets to achieve mare
balanced sales over the business cycle. PROFESSIONAL PURCHASING Business goods
are purchased by trained purchasing agents, who spend their professional lives learning
how to buy better. Many belong to the National Association of Purchasing Managers
(NAPM), which seeks to improve the effectiveness and status of professional buyers.
Their profes sional approach and greater ability to evaluate technical information leads
to mare cost-effective buying. This means that business marketers have to provide and
master greater technical data about their product and competitors' products. SEVERAL
BUYING INFLUENCES More people typically influence busi ness buying decisions than
consumer buying decisions. Buying committees con sisting of technical experts and
even senior management are common in the purchase of major goods. Consequently,
business marketers have to send well trained sales representatives and often sales
teams to deal with the well-trained buyers. Although advertising, sales promotion, and
publicity play an important role in the business promotional mix, personal selling serves
as the main mar keting tool. MISCELLANEOUS CHARACTERISTICS Here are additional
character istics of business buying: • Direct P11rclzasi11g: Business buyers often buy
directly from manufacturers rather than through middlemen, especially those items that
are technically complex and/or ex pensive, such as mainframes or aircraft. • Reciprocity:
Business buyers of ten select suppliers who also buy from them. An exam ple would be
a paper manufacturer who buys chemicals from a chemical company that buys a
considerable amount of its paper. • Leasing: Many industrial buyers lease their
equipment instead of buying it. This hap pens with computers, shoe machinery,
packaging equipment, heavy-construction equipment, delivery trucks, machine tools,
and company automobiles. The lessee gains a number of advantages: conserving
capital, getting the seller's la test products, receiving better service, and gaining some
tax advantages. The lessor often ends up with a larger net income and the chance to sell
to customers who could not afford out right purchase.4 What Buying Decisions Do
Business Buyers Make? The business buyer faces many decisions in making a purchase.
The number of de cisions depends on the type of buying situation. MAJOR TYPES OF
BUYING SITUATIONS Robinson and others distin guish three types of buying situations,
which they call buyclasses.5 They are the straight rebuy, modified rebuy, and new łask.
Straiglzt Rebuy. The straight rebuy describes a buying situation where the pur chasing
department reorders on a routine basis (e.g., office supplies, bulk chemi cals). The buyer
chooses from suppliers on its "approved list," giving weight to its CHAPTER8 Analyzing
Business Markets and Business Buying Behavior past buying satisfaction with the
various suppliers. The "in-suppliers" make an ef fort to maintain product and service
quality. They often propose automatic re ordering systems so that the purchasing agent
will save reordering time. The "out-suppliers" attempt to offer something new or to
exploit dissatisfaction so that the business buyer will consider buying some amount
from them. Out-suppliers try to get a small order and then enlarge their "purchase
share" over time. Modified Rebuy. The modified rebuy describes a situation where the
buyer wants to modify product specifications, prices, delivery requirements, or other
terms. The modified rebuy usually in,·olves additional decision participants on both the
buyer and seller sides. The in-suppliers become nervous and have to protect the
account. The out-suppliers see an opportunity to propose a "better offer" to gain some
busi ness. PARTII New Task. The new task describes a purchaser buying a product or
service for the first time (e.g., office building, new weapon system). The greater the cost
and/or risk, the larger the number of decision participants, the greater their information
gathering, therefore the longer the time to decision completion.6 The new-task sit uation
is the marketer's greatest opportunity and challenge. The marketer tries to reach as
many key buying influencers as possible and provide helpful information and
assistance. Because of the complicated selling involved in the new task, many
companies use a 111issio11ary salesforce consisting of their best salespeople. New-
task buying passes through several stages. Ozanne and Churchill iden tified the stages
as aware!less, i11terest, evaluatio11, trial, and adoptio11.7They found that
communication tools varied in effectiveness at each stage. Mass media ,vere most
important during the initial awareness stage; salespeople had their greatest impact at
the interest stage; and technical sources were the most important during the eval uation
stage. Marketers needed to employ different tools at each stage of the new task buying
process. J\lAJOR SUBDECISIONS IN\'OLVED IN THE BUYI G DECISIO The business buyer
makes the fewest decisions in the straight-rebuy situation and the most in the new-task
situation. In the new-task situation, the buyer has to de termine product specificatio11s,
price limits, delivery terms and times, seruice terms, pay me11t terms, order
qua11tities, acceptable s11ppliers, and the selectcd supplier. Different decision
participants influence each decision, and the order varies in which these decisions are
made. Analyzing Marketing Opportunities THE ROLE OF SYSTEMS BUYING AND SELLING
Many business buy ers prefer to buy a total solution to their problem from one seller.
Called systems b11y i11g, it originated in gm·ernment purchasing of major vveapons
and communication systems. The government would solicit bids from prime
contractors, who would assemble the package or system. The winning prime contractor
would be responsi ble for bidding and assembling the subcomponents. The prime
contractor would thus provide a tumkey solutio11, so called because the buyer simply
had to tum one key to get the job done. Sellers have increasingly recognized that buyers
like to purchase in this way and have adopted systcms sellilłg as a marketing tool.
Systems selling can take dif ferent forms. The supplier might sell a set of interlocking
products; thus a supplier of glue sells not only glue but glue applicators and dryers as
well. The supplier might sell a system of production, inventory control, distribution, and
other serv ices to meet the buyer's need for a smooth-running operation. Another variant
is systems co11tracti11g where a single supply source provides the buyer with his or her
entire requirement of MRO (maintenance, repair, operating) supplies. The cus tomer
benefits from reduced costs as the inventory is maintained by the seller. Savings also
result from reduced time spent on supplier selection and from price protection over the
term of the contract. The seller benefits from lower operating costs because of a steady
demand and reduced paperwork.8 Systems selling is a key industrial marketing strategy
in bidding to build large-scale industrial projects, such as dams, steel factories;
irrigation systems, san itation systems, pipelines, utilities, and even new towns. Project
engineering firms such as Bechtel and Fluor must compete on price, quality, reliability,
and other at tributes to win awards. The award often goes to the firm that best meets the
cus tomer's total needs. Consider the following: The Indonesian government requested
bids to build a cement factory near Ja karta. An American firm made a proposal that
included choosing the site, designing the cement factory, hiring the construction crews,
assembling the materials and equipment, and turning over the finished factory to the
lndonesian government. A Japanese firm, in outlining its proposal, included all of these
services plus hi ring and training the workers to run the factory, exporting the cement
through their trading companies, using the cement to build needed roads out of Jakarta,
and also using it to build new office buildings in Ja karta. Although the Japanese
proposal involved more money, its appeal was greater, and they won the contract.
Clearly, the Japanese viewed the prob lem not just as one of building a cement factory
(the narrow view of systems selling) but as one of contributing to lndonesia's economic
development. They saw them selves not as an engineering project firm but as an
economic development agency. They took the broadest view of the customer's needs.
This is true systems selling. Who Participates in the Business Buying Process? Who does
the buying of the trillions of dollars' worth of goods and services needed by business
organizations? Purchasing agents are influential in straight-rebuy and modified-rebuy
situations, whereas other department personnel are more influen tial in new-buy
situations. Engineering personnel usually have major influence in selecting product
components, and purchasing agents dominate in selecting sup pliers.9 Thus in new-buy
situations, the business marketer must first direct prod uct information to the
engineering perso1mel. In rebuy situations and at supplier selection time,
communications should be directed primarily to the purchasing agent. Webster and
Wind call the decision-making unit of a buying organization the buying center, defined as
"all those individuals and groups who participate in the purchasing decision-making
process, who share some common goals and the risks arising from the decisions."10
The buyingcenter includes all members of the organi zation who play any of six roles in
the purchase decision process.11 • Users: Users are those who will use the product or
service. In many cases, the users initiate the buying proposal and help define the
product specifications. • Influencers: Influencers are persons who influence the buying
decision. They often help define specifications and also provide information for
evaluating alternatives. Technical personnel are particularly important as influencers. •
Deciders: Deciders are persons who decide on product requirements and /or on sup
pliers. • Approvers: Approvers are persons who authorize the proposed actions of
deciders or buyers. • Buyers: Buyers are persons who have forma! authority to select the
supplier and arrange the purchase terms. Buyers rnay help shape product
specifications, but they play their major role in selecting vendors and negotiating. In
more cornplex purchases, the buyers rnight include high-level managers participating in
the negotiations. CHAPTERS Analyzing Business Markets and Business Buying Beha\·ior
209 · ·" • Gatekeepers: Gatekeepers are persons who have the power to prevent sellers
or infor mation from reaching members of the buying center. For example, purchasing
agents, receptionists, and telephone operators may prevent salespersons from
contacting users or deciders. Within any organization, the buying center will \'ary in the
number and type of participants for different classes of products. More decision
participants will be involved in buying a computer than in buying paper elips. The
business marketer has to figure out: Who are the major decisio11 participa11ts? W/wt
decisions do tlzetJ i11Jl11 e11ce? W/wt is their /evel of i11fl11ence? W/wt evaluatio11
criteria do tlzey 11se? Consider the following example: Baxter sells nonwoven
disposable surgical gowns to hospitals. lt tries to identify the hospital personnel who
participate in this buying decision. They include the vice president of purchasing, the
operating-room administrator, and the surgeons. Each participant plays a different role.
The vice-president of purchasing analyzes whether the hospital should buy disposable
gowns or reusable gowns. If the findings favor disposable gowns, then the operating-
room administrator compares various com petitors' products and prices and makes a
choice. This administrator considers the gown's absorbency, antiseptic quality, design,
and cost and normally buys the brand that meets the functional requirements at the
lowest cost. Finally, surgeons influence the decision retroactively by reporting their
satisfaction with the particular brand. When a buying center includes many participants,
the business marketer will not have the time or resources to reach all of them. Small
sellers concentrate on reaching the key b11yi11g i11Jlue11cers. Larger sellers go for
1111ilti/ez,e/ i11-depth se/ling to reach as many buying participants as possible. Their
salespeople virtually "live" with their high-volume customers. Business marketers must
periodically review their assumptions on the roles and influence of different decision
participants. For years, Kodak's strategy for sell ing X-ray film to hospitals was to sell to
lab technicians. The company did not no tice that the decision was increasingly being
made by professional administrators. As its sales declined, Kodak finally grasped the
change in buying practices and hur riedly revised its market targeting strategy. What Are
the Major Influences on Business Buyers? Business buyers are subject to many
influences w hen they make their buying deci sions. Some marketers assume that the
most important influences are economic. They see the buyers as favoring the supplier
who offers the lowest price, or best product, or most serYice. This Yiew suggests that
business marketers should con centrate on offering strong economic benefits to buyers.
Other marketers see buyers responding to personal factors such as fayors, at tention, or
risk aYoidance. A study of buyers in ten large companies concluded that . . . corporate
decisio11-111akers rema i Ił l111mm1 after tlzey e11ter the office. Tlzey re po11d to
"i111age"; tlzey buy fro111 co111palłies to wizie/z tlzey fee/ "close"; tlzey farnr suppliers
wizo slzow tlzem respect a11d perso11a/ co11sideratio11, a,uf wizo do extra tlzilłgs 'jor
tlze111"; tlzey "over react" to real or i111agi11ed sliglzts, te11di11g to reject
co111palłies wlziclz fai! to respo11d or delay in sub111itti11g req11ested bids. 12 PART
II Analyzing Marketing Opportun i ties Business buyers actually respond to both
economic and personal factors. Where there is substantial similarity in supplier offers,
business buyers haYe little basis for rational choice. Since they can satisfy the
purchasing requirements with any supplier, these buyers will place mare weight on the
personal treatment they receive. Where competing offers differ substantially, business
buyers are mare ac countable for their choice and pay mare attention to economic
factors. Webster and Wind have classified the various influences on business buyers
into four main groups: environmental, organizational, interpersonal, and individ ual.13
These groups are shown in Figure 8-1 and described next. ENVIRONMENTAL FACTORS
Business buyers are heavily influenced by factors in the current and expected economic
environment, such as the level of pri mary demand, the economic outlook, and the cost
of money. In a recession econ omy, business buyers reduce their investment in plant,
equipment, and inventories. Business marketers can do little to stimulate total demand
in this environment. They can only fight harder to increase or maintain their share of
demand. Companies that fear a shortage of key materials are willing to buy and hold
large inventories. They will sign long-term contracts with suppliers to ensure a steady
flow of materials. Du Pont, Ford, Chrysler, and several other major compa nies regard
supply plmming as a major responsibility of their purchasing managers. Business buyers
are also affected by technological, political, and competitive developments in the
environment. The business marketer has to monitor all of these forces, determine how
they will affect buyers, and try to tum problems into opportuni ties. ORGANIZATIONAL
FACTORS Each buying organization has specific ob jectives, policies, procedures,
organizational structures, and systems. The business marketer has to be familiar with
them. Such questions arise as: How many people are involved in the buying decision?
Who are they? What are their evaluation crite ria? What are the company's policies and
constraints on the buyers? Business marketers should be aware of the following
organizational trends in the purchasing area: • Purclzasing-department upgrading:
Purchasing departments commonly occupy a low position in the management
hierarchy, in spite of managing often more than half of the company's costs. However,
recent competitive pressures have led many companies to Objectives Policies
Procedures Organizational structures Systems lnterpersonal lndividual Authority Status
Empathy Persuasiveness Age lncome Education Job position Persona lity Risk attitudes
Culture BUSINESS BUYER FIGURE8-1 Major lnfluences on Industrial Buying Behavior
CHAPTER8 Analyzing Business Markets and Business Buying Behavior lłfi 211. , .Pl
upgrade their purchasing departments and elevate their administrators to vice-presi
dential status. These departments have been changed from old-fashioned
p11rclzasi11g depart111e11ts with their emphasis on buying at the lowest cost to
procurenzent depart 111e11ts with their mission to seek the best value from fewer and
better suppliers. Some multinationals have elevated them into strategie materia Is
depart111e11ts with responsibil ity for sourcing around the world and working with
strategie partners. At Caterpillar, functions such as purchasing, inventory control,
production scheduling, and traffic have been combined in one department. Many
companies are looking for top talent and offering higher compensation. This means that
business marketers must corre spondingly upgrade their sales personnel to match the
higher caliber of the business buyers. • Centralized p11rclzasing: ln multidivisional
companies, most purchasing is carried out by separate divisions because of their
differing needs. Recently companies have started to recentralize some of the
purchasing. Headquarters identifies materials pur chased by severa! divisions and buys
them centrally. The company thereby gains more purchasing clout. The individual
divisions can buy from another source if they can get a better deal, but in generał,
centralized purchasing produces substantial savings for the company. For the business
marketer, this development means dealing with fewer and higher-level buyers. Instead
of the business marketer's salesforces selling at sepa rate plant locations, the marketer
may use a national account salesforce to deal with large corporate buyers. National
account selling is challenging and demands a sophisti cated salesforce and marketing
planning effort. i.i • Long-term co11tracts: Business buyers are increasingly initiating or
accepting long-term contracts with reliable suppliers. Thus General Motors wants to buy
from fewer sup pliers, who are willing to locate close to its plants and produce high-
quality compo nents. In addition, business marketers are supplying electro11ic order-
interchange (EDI) systems to their customers. The customer can enter orders directly on
the computer and they are automatically transmitted to the supplier. Many hospitals
order directly from Baxter in this way, and many bookstores order from Follett's in this
way. • P11rclzasi11g-perfor111a11cc eval11atio11: More companies are setting up
incentive systems to reward purchasing managers for good buying performance, in
much the same way that sales personnel receive bonuses for good selling performance.
These systems will lead purchasing managers to increase their pressure on sellers for
the best terms. The emergence of just-in-time production systems promises to have a
major impact on organizational purchasing policies. Its ramifications are described in
Marketing Strategies 8-1 on pages 214-15. INTERPERSONAL FACTORS The buying center
usually includes severa! participants with differing interests, authority, and
persuasiveness. The business marketer is not likely to know what kind of group
dynamics will take place during the buying decision process, although whatever
information he or she can discover about the personalities and interpersonal factors
would be useful. PARTII Ana]yzing Marketing Opportunities INDIVIDUAL FACTORS Each
participant in the buying process has per sonal motivations, perceptions, and
preferences. These are influenced by the par ticipant's age, income, education,
professional identification, personality, attitudes toward risk, and culture (see Global
Marketing 8-1 on page 216). Buyers definitely exhibit different buying styles. There are
"keep-it-simple" buyers, "own-expert" buyers, "want-the-best" buyers, and "want-
everything-done" buyers. Some younger, highly educated buyers are "computer whizzes"
and make rigorous analyses of competitive proposals before choosing a supplier. Other
buyers are "tough guys" from the "old school" and play off t