CHAPTER

LEARNING OBJECTIVES
4 ANALYZING BUSINESS
MARKETS
After studying this chapter, you should be able to:

4.1 Explain the key aspects of the organizational buying process.

4.2 Define the role of the buying center in an organization.
4.3 Describe the stages of the decision process in business markets.
4.4 Explain how organizations develop marketing programs to attract and retain
business customers.
4.5 Describe how business-to-business marketers build and maintain relationships
with customers.

CHAPTER SUMMARY
1. Organizational buying is the decision-making process by which formal organizations
establish the need for purchased products and services, then identify, evaluate, and
choose among alternative brands and suppliers. The business market consists of all the
organizations that acquire goods and services used in the production of other products
or services that are sold, rented, or supplied to others.
2. Compared with consumer markets, business markets generally have fewer and
larger buyers, a closer customer–supplier relationship, and more geographically
concentrated buyers. Demand in the business market is derived from demand in the
consumer market and fluctuates with the business cycle. Nonetheless, the total
demand for many business goods and services is quite price inelastic.
3. The buying center is the decision-making unit of a buying organization. It consists of
initiators, users, influencers, deciders, approvers, buyers, and gatekeepers. To
influence these parties, marketers must consider environmental, organizational,
interpersonal, and individual factors.
4. Successful business-to-business marketing requires that marketers determine not only
the types of companies on which to focus their selling efforts but also whom to
concentrate on within the buying centers in those organizations. In developing selling
efforts, business marketers can also consider their customers’ customers, or end users.
5. The buying process consists of eight stages: problem recognition, need description,
product specification, supplier search, proposal solicitation, supplier selection,
contract negotiation, and performance review. Business marketers must ensure that
the value of their offerings comes through at each stage of the buying process.
6. Business-to-business marketers are using a variety of marketing tools to attract and
retain customers. They are strengthening their brands and using technology and other
communication tools to develop effective marketing programs. They are also using
systems selling and are adding services to provide customers added value.
7. Business marketers must form strong bonds and relationships with their customers.
Building trust is one prerequisite to enjoying healthy long-term relationships. Trust

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 depends on factors such as the firm’s perceived competence, integrity, honesty, and
benevolence. Business marketers need to be aware of the role of professional
purchasers and their influencers, the need for multiple sales calls, and the importance
of direct purchasing, reciprocity, and leasing.
8. The institutional market consists of schools, hospitals, retirement communities,
nursing homes, prisons, and other institutions that provide goods and services to
people in their care. Buyers for government organizations tend to require a great deal
of paperwork from their vendors and to favor open bidding and domestic companies.
Suppliers must be prepared to adapt their offers to the special needs and procedures
found in institutional and government markets.

OPENING THOUGHT
Students unfamiliar with business and business operations will have a difficult time
understanding the concept of organizational buying. The major differences between the
consumer market and the B2B market lie in the complexity of the decision process and
the amount of people involved in the final purchasing decision.

Instructors can best serve their student audiences by incorporating guest speakers from
the business community who are responsible for purchasing products and/or services to
help students understand the complexity in the buying process for businesses. Sales-
people, who sell to businesses, are also good resources to have as guest speakers when
covering this chapter. Instructors can also use university situations or other common
business examples to get across the concept of organizational buying to their students.

TEACHING STRATEGY AND CLASS ORGANIZATION

PROJECTS
1. At this point in the semester-long marketing project, no presentations are necessary
unless the instructor has approved a business-to-business product or service.

2. Students should compare and contrast the complexity of that buying process to the
ones noted in Chapter 3—Analyzing Consumer Markets. How and where are the major
points of difference between the two markets in their purchase intensions? Can a firm
market its products to both the industrial and consumer markets with one strategy? Are
there sufficient differences between markets for different products and strategies to be
developed?

ASSIGNMENTS

Ad Age recently reported on a study done by B2B which talks about how much of the
decision-making process occurs in business buying before salespeople are involved:
http://adage.com/article/btob/branding-key-filling-sales-pipeline/288911/?btob=1. In
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small groups or individually, ask the students to interview local business managers/
owners to see: a) how they reach the right customers at the right time, and b) how they
build awareness.

Have each of the students read Bob Donath’s “Emotions Play Key Role in Biz Brand
Appeal,” Marketing News, June 1, 2006, p. 7, and comment on their perception of how
effective “biz” is in their lives and in their purchasing of products.

Contact your local Pearson Higher Education sales representative and ask him/her to
make a presentation to the class on how he/she sells to your college or university.

In small groups (five students suggested as the maximum), have the students visit your
college or university’s Central Purchasing or Procurement Department (you may have to
clear this with your administration before assigning). Have the students conduct
interviews with purchasing personnel on how they buy, who is involved in a purchase
decision, and what characteristics the best salespeople who call on them share. Students
should format their questions to the key concepts contained in this chapter. Student
reports should also characterize the differences found between government or
institutional buying, business-to-business buying, and consumer purchasing.

To improve effectiveness and efficiency, business suppliers and customers are exploring
different ways to manage their relationships. Have the students visit each of the
company’s websites mentioned throughout the chapter. Which ones do the students feel
most effectively and efficiently address the needs of the corporate buyer? Which websites
do not? Why and what in their opinion is missing from the least effective websites? How
can the firm do better in its execution?

Have the students visit GE‘s Medical Systems® website (www.gehealthcare.com/). In

context to the major points of this chapter, have the students define how GE is addressing
the needs of their hospital customers by the design of this website? Where and what is
GE doing right, what is GE doing wrong, and where can GE improve?

Small businesses have been described as the “lifeblood” of the economy. Students who
have after-school jobs in small business should be assigned to interview their employers,
managers, or purchasing departments to understand how small businesses purchase goods
and services. How many of the concepts in this chapter do small business owners actually
employ (for example, are the purchasing habits of the student’s small business owner
organized, how many decision makers are involved in purchasing, how important is the
customer-supplier relationship to them, is their purchasing just transactional, etc.)?
Students should prepare to present their findings to the class in either an oral or a written
report. Students not employed should be prepared to question the presenting students as
to their understanding of the “whys” for such actions.

END-OF-CHAPTER SUPPORT

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Marketing Spotlight: Alibaba

1. What are the key factors contributing to Alibaba’s market success?

Suggested answer: Jack Ma offers two key insights on why Alibaba.com has become
such a massive B2B marketplace. First, Ma believes that Chinese sellers are
extremely frugal. Sellers and buyers would not be interested in a marketplace that
entails high monetary costs. With this in mind, Alibaba made all of the basic services
on its platform free to use. Ma’s second insight is that Chinese users are wary of
trusting strangers on websites. To avoid this problem, Alibaba.com established a
service in which third parties verify the claims made by sellers to ensure legitimacy.
In addition, Alibaba created the Alipay system, which takes buyers’ money up front
and puts it in escrow so that the seller can be assured of payment.

2. How does Alibaba create value in business markets?

Suggested answer: Alibaba.com benefits from the network-ranking effect. The

impressive scale of Alibaba and its various platforms typically means it comes up as
the top link when prospective buyers search for goods on Baidu, China’s equivalent
of Google. This results in a greater number of buyers for Alibaba. More buyers create
the need for more sellers, and more sellers create greater options and variety for new
buyers, forming a positive feedback loop.

3. Which of the two core markets—business or consumer— should Alibaba

prioritize in the future? Why?

Suggested answer: Students can debate which core market to prioritize in the future.
It seems that the B2B market offers more opportunity for growth. Alibaba.com is
simply a platform that connects buyers with Chinese suppliers; the company itself
carries no inventory from the B2B marketplace. Alibaba charges sellers a commission
for each transaction and features a wide variety of products that overseas businesses
can purchase. Available products include machinery, oil, plastics, furniture, luggage,
clothing, food and agricultural products, and service equipment. Alibaba.com’s
expansive selection is an attractive option for many types of businesses, from hotels
to farms to clothing shops.

Marketing Spotlight: Salesforce.com

1. Why has Salesforce.com been so successful? What did the company do

particularly well when it created and expanded Salesforce.com’s offerings?

Suggested answer: Salesforce.com innovated the CRM software market

by offering applications completely online, a system called “on-demand CRM.”
Based on cloud computing, Salesforce.com stored and delivered its software on
central servers. Customers gained access to the company’s software by purchasing
monthly or yearly plans. Simply by logging onto the Salesforce.com website,

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 customers were able to use CRM applications. Because no software had to be
installed, the cloud-based platform allowed customers to access their applications on
any device connected to the internet.

Saleforce.com’s cloud computing platform addressed many of the issues of the

traditional practice of purchasing software licenses. Customers no longer had to
invest in expensive IT employees and the upfront cost of hardware infrastructure to
use CRM applications.

2. What are some of the challenges Salesforce.com faces moving forward?

Suggested answer: Following the success of software as a service, industry leaders

that dominated software licensing began adding on-demand CRM applications to their
own portfolios. Salesforce.com maintained its position as the market leader by
developing innovative software that gave it the competitive edge. Salesforce.com
launched applications such as force.com, which allowed external developers to create
applications and host them on Salesforce.com servers. However, a market leader must
always be concerned about market challengers—companies that could compete with
Salesforce.com. Although Salesforce.com secured a strong foothold in the CRM
software market and maintained its dominance by developing new and innovative
CRM applications, other innovators could arise.

3. What other products and services might Salesforce.com expand into next? Why?

Suggested answer: Students can offer their ideas about new products and services for
Salesforce.com. They can offer suggestions for creating a CRM environment tailored
specifically to their needs. New products are essential to remain competitive in the
marketplace.

DETAILED CHAPTER OUTLINE

Opening vignette: Caterpillar ranks number one or number two in every industry it
serves. Its products have a reputation for high quality and reliability, and the company
has maintained a strong focus on innovation while expanding its product portfolio. Its
distinctive yellow machines are found all over the globe and have helped make the brand
an American icon. Some of the world’s most valuable brands, such as Caterpillar, belong
to business marketers. Many principles of basic marketing also apply to business
marketers. They need to embrace holistic marketing principles, such as building strong
loyalty relationships with their customers, just like consumer marketers. But they also
face some unique challenges in selling to other businesses. In this chapter, we will
highlight some of the crucial similarities and differences for marketing in business
markets.

I. The Organizational Buying Process

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A. Organizational buying is 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 suppliers.
B. Understanding Business Markets
i. The business market consists of all the organizations that acquire goods
and services used in the production of other products or services that are
sold, rented, or supplied to others.
ii. Some of the major industries making up the business market are
aerospace; agriculture, forestry, and fisheries; chemical; computer;
construction; defense; energy; mining; manufacturing; construction;
transportation; communication; public utilities; banking, finance, and
insurance; distribution; and services.
iii. More dollars and items change hands in sales to business buyers than to
consumers.
iv. The biggest enemy to business-to-business marketers is
commoditization.
 Commoditization eats away margins and weakens customer loyalty.
 Commoditization can be overcome only if target customers are
convinced that meaningful differences exist in the marketplace and
that the unique benefits of the firm’s offerings are worth the added
expense.
v. A critical step in business-to-business marketing is to create and
communicate relevant differentiation from competitors.
vi. Business marketers face many of the same challenges as consumer
marketers, especially understanding their customers and what they
value.
vii. The three biggest hurdles for B2B marketing are:
 building stronger interfaces between marketing and sales
 building stronger innovation-marketing interfaces
 extracting and leveraging more granular customer and market
knowledge
viii. Four additional imperatives are:
 demonstrating marketing’s contribution to business
performance
 engaging more deeply with customers and customers’
customers
 finding the right mix of centralized versus decentralized
marketing activities
 finding and grooming marketing talent and competencies
ix. Business marketers contrast sharply with consumer markets in some
ways, however. They have:
 Fewer, larger buyers
 Close supplier–customer relationships
 Professional purchasing
 Multiple buying influences
 Multiple sales calls

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  Derived demand
 Inelastic demand
 Fluctuating demand
 Geographically concentrated buyers
 Direct purchasing
C. Types of Buying Situations
i. The number of decisions faced by a business buyer depends on the
complexity of the problem being solved, newness of the buying
requirement, number of people involved, and time required.
ii. Three types of buying situations are the straight rebuy, modified rebuy,
and new task.
 Straight rebuy: the purchasing department reorders items like office
supplies and bulk chemicals on a routine basis and chooses from
suppliers on an approved list.
 Modified rebuy: the buyer in a modified rebuy wants to change
product specifications, prices, delivery requirements, or other terms.
This usually requires additional participants on both sides.
 New task: A new-task purchaser buys a product or service for the
first time (an office building, a new security system). The greater
the cost or risk, the larger the number of participants, and the
greater their information gathering—the longer the time to a
decision.
 The business buyer makes the fewest decisions in the straight rebuy
situation and the most in the new-task situation.
iii. The buying process passes through several stages: awareness, interest,
evaluation, trial, and adoption.
 Mass media can be most important during the initial awareness
stage.
 Salespeople often have their greatest impact at the interest stage.
 Technical sources can be most important during evaluation.
 Online selling efforts may be useful at all stages.
iv. In the new-buy situation, the buyer must determine product specifications,
price limits, delivery terms and times, service terms, payment terms, order
quantities, acceptable suppliers, and the selected supplier.
 Many companies use a missionary sales force consisting of their
most effective salespeople.
 The marketer also tries to reach as many key participants as
possible with information and assistance.
 In-suppliers are continually seeking ways to add value to their
market offer to facilitate rebuys.
II. The Buying Center
A. Who buys 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 employees are more influential in
new-buy situations.

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  Engineers are usually influential in selecting product components,
and purchasing agents dominate in selecting suppliers.
B. The Composition of the Buying Center
i. The buying center is the decision-making unit of a buying organization.
It consists of “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.”
 Initiators: Users or others in the organization who request that
something be purchased.
 Users: Those who will use the product or service.
 Influencers: People who influence the buying decision, often
by helping define specifications and providing information for
evaluating alternatives.
 Deciders: People who decide on product requirements or on
suppliers.
 Approvers: People who authorize the proposed actions of
deciders or buyers.
 Buyers: People who have formal authority to select the supplier
and arrange the purchase terms.
 Gatekeepers: People who have the power to prevent sellers or
information from reaching members of the buying center. For
example, purchasing agents, receptionists, and telephone
operators may prevent salespersons from contacting users or
deciders.
ii. Several people can occupy a given role such as user or influencer, and
one person may play multiple roles A buying center typically has five or
six members and sometimes dozens.
C. The Role of the Buying Center in the Organization
i. Recent competitive pressures have led many companies to upgrade their
purchasing departments and elevate administrators to vice-presidential
rank.
ii. These new, more strategically oriented purchasing departments
have a mission to seek the best value from fewer and better suppliers.
iii. Some multinationals have even elevated purchasing departments to
“strategic supply departments” with responsibility for global sourcing
and partnering.
D. Buying Center Dynamics
i. Participants have differing interests, authority, status, susceptibility to
persuasion, and sometimes very different decision criteria.
ii. Business buyers also have personal motivations, perceptions, and
preferences influenced by their age, income, education, job position,
personality, attitudes toward risk, and culture.
iii. Individuals, not organizations, make purchasing decisions.
iv. Businesspeople are buying solutions to two problems: the
organization’s economic and strategic problem and their own personal
need for achievement and reward.

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 E. Selling to Buying Centers
 Business marketers may divide the marketplace in many different
ways to choose the types of firms to which they will sell.
 Finding the sectors with the greatest growth prospects, most
profitable customers, and most promising opportunities for the firm
is crucial.
 Once it has identified the type of businesses on which to focus
marketing efforts, the firm must then decide how best to sell to
them.
 Whatever information the business salesperson can obtain about
personalities and interpersonal factors is useful.
 Small sellers concentrate on reaching the key buying influencers.
 Larger sellers go for multilevel, in-depth selling.
 Companies must rely more heavily on their communications
programs to reach hidden buying influences and keep current
customers informed.
III. Understanding the Buying Process. See Fig. 4.1.
A. Problem recognition
 Triggered by internal or external stimuli
 Business marketers can stimulate
B. General need description
C. Product specification
i. Product value analysis is an approach to cost reduction that studies whether
components can be redesigned, standardized, or made by cheaper methods of
production without adversely affecting product performance.
D. Supplier search
 Includes electronic marketplaces like catalog sites, vertical markets,
auction sites, spot markets, private exchanges, barter markets,
buying alliances
 Online business buying shaves transaction costs for both buyers and
suppliers, reduces time between order and delivery, consolidates
purchasing systems, and forges more direct relationships between
partners and buyers.
 For disadvantages, it may help to erode supplier–buyer loyalty and
create potential security problems.
 E-procurement: websites are organized around two types of e-hubs
and used in a variety of ways
o Vertical hubs centered on industries (plastics, steel, chemicals,
paper)
o Functional hubs (logistics, media buying, advertising, energy
management)
E. Proposal Solicitation: the buyer next invites qualified suppliers to submit
written proposals and invites a few suppliers to make formal presentations
F. Supplier Selection
i. Business buyers seek the highest benefit package (economic, technical,
service, and social) in relationship to a market offering’s costs.

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 ii. The strength of their incentive to purchase is a function of the difference
between perceived benefits and perceived costs.
iii. The attributes that buyers commonly use to evaluate vendors include price,
reputation, reliability, and agility.
iv. Before selecting a supplier, the buying center will specify and rank desired
supplier attributes, often using a supplier-evaluation model to rate suppliers
based on their performance on the attributes valued by the buyer.
v. Companies are increasingly reducing the number of their suppliers.
G. Contract Negotiation
i. After selecting suppliers, the buyer negotiates the final order, listing the
technical specifications, the quantity needed, the expected time of delivery,
return policies, and warranties.
ii. Many industrial buyers lease rather than buy heavy equipment such as
machinery and trucks.
iii. For maintenance, repair, and operating items, buyers are moving toward
blanket contracts rather than periodic purchase orders.
iv. Companies that fear a shortage of key materials are willing to buy and hold
large inventories.
v. Some companies shift the ordering responsibility to their suppliers.
H. Performance Review
i. Periodic reviews of the performance of the chosen supplier(s) using one of
three methods:
 Contact end users and ask for their evaluations
 Rate the supplier on several criteria using a weighted-score method
 Aggregate the cost of poor performance to come up with adjusted
costs of purchase, including price
IV. Developing Effective Business Marketing Programs
A. Business-to-business marketers are using every marketing tool at their disposal
to attract and retain customers.
i. They are embracing systems selling, adding valuable services to their
product offerings, employing customer reference programs, and utilizing a
wide variety of online and offline communication and branding activities.
B. Transitioning from Products to Solutions
i. Systems buying originated with government purchases of major weapons
and communications systems.
ii. Sellers have increasingly recognized that buyers like to purchase in this way,
and many have adopted systems selling as a marketing tool.
iii. One variant of systems selling is systems contracting, in which a single
supplier provides the buyer with its entire requirement of MRO supplies.
 Customer benefits from reduced procurement and management
costs.
 Seller achieves lower operating costs thanks to steady demand
and reduced paperwork.
C. Enhancing Services
i. Services play an increasing strategic and financial role for many business-to-
business firms selling primarily products.

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 ii. Adding high-quality services to their product offerings allows them to
provide greater value and establish closer ties with customers.
iii. Technology firms and others are bundling services to improve customer
satisfaction and increase profits.
D. Building Business-to-Business Brands
i. Business marketers are increasingly recognizing the importance of their
brands. Brands ensure product quality and make it easier to justify the
purchase of established brands to the company stakeholders.
ii. In business-to-business marketing, the corporate brand is often critical
because it is associated with so many of the company’s products.
E. Overcoming Price Pressures
i. Marketers can counter requests for a lower price in a number of ways,
including the use of framing.
ii. They may also be able to show that the total cost of ownership—that is, the
life-cycle cost of using their product—is lower than that for competitors’
products.
iii. They can cite the value of the services the buyer now receives, especially if
it is superior to that offered by competitors.
iv. Improving productivity helps alleviate price pressures.
v. Collaboration can further help alleviate price pressure.
F. Managing Communication
i. Companies need to inform business customers about the benefits of their
offerings as well as coordinating their activities with collaborators.
ii. As in consumer markets, business communications are increasingly moving
online, using search engine optimization (SEO) and search engine marketing
(SEM) to connect with buyers.
V. Managing Business-to-Business Relationships
A. Loyalty is driven in part by supply chain management, early supplier
involvement, and purchasing alliances.
i. Business-to-business marketers are honing in on their targets and
developing one-to-one marketing approaches.
B. Understanding the Buyer-Supplier Relationship
i. Much research has advocated greater vertical coordination between buying
partners and sellers so that they can transcend merely transacting and instead
create more value for both parties.
ii. Another study suggests that greater vertical coordination between buyer and
seller through information exchange and planning is usually necessary only
when high environmental uncertainty exists and specific investments
(described below) are modest.
iii. Four relevant ways to develop a relationship include: availability of
alternatives, importance of supply, complexity of supply, and supply market
dynamism.
iv. Closest relationships between customers and suppliers arose when supply
was important to the customer and there were procurement obstacles, such
as complex purchase requirements and few alternate suppliers.
C. Managing Corporate Trust, Credibility, and Reputation

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 i. Building trust is one prerequisite to enjoying healthy long-term relationships.
ii. Trust is a firm’s willingness to rely on a business partner.
iii. Building trust can be especially tricky in online settings, and firms often
impose more stringent requirements on their online business partners than on
others.
iv. Corporate credibility is the extent to which customers believe a firm can
design and deliver products and services that satisfy their needs and wants. It
reflects the supplier’s reputation in the marketplace and is the foundation of a
strong relationship.
v. Corporate trustworthiness reflects the extent to which a company is seen as
motivated to be honest, dependable, and sensitive to customer needs.
vi. Corporate likability reflects the extent to which a company is seen as likable,
attractive, prestigious, and dynamic.
D. Risks and Opportunism in Business Relationships
i. Establishing a customer–supplier relationship creates tension between
safeguarding (ensuring predictable solutions) and adapting (allowing for
flexibility for unanticipated events).
ii. Vertical coordination can facilitate stronger customer–seller ties but may also
increase the risk to the customer’s and supplier’s specific investments.
iii. Specific investments are expenditures tailored to a particular company and
value-chain partner (investments in company-specific training, equipment,
and operating procedures).
iv. Specific investments entail considerable risk to both customer and supplier.
v. Opportunism is a “form of cheating or undersupply relative to an implicit or
explicit contract.”
vi. Opportunism is a concern because firms must devote resources to control and
monitoring that they could otherwise allocate to more productive purposes.
vii. The presence of a significant future time horizon and/or strong solidarity
norms causes customers and suppliers to strive for joint benefits.
viii. Their specific investments shift from expropriation (increased opportunism on
the receiver’s part) to bonding (reduced opportunism).
E. Managing Institutional Markets
i. The institutional market consists of schools, hospitals, nursing homes, prisons,
and other institutions that must provide goods and services to people in their
care.
ii. Many of these organizations are characterized by low budgets and captive
clienteles.
iii. In most countries, government organizations are a major buyer of goods and
services.
iv. Different types of agencies—defense, civilian, intelligence—have different
needs, priorities, purchasing styles, and time frames.
v. The federal government has been trying to simplify the contracting procedure and
make bidding more attractive.

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