Business Markets & Business Buyer Behaviour
How B2B markets differ from consumer markets, the three buying situations, systems buying and selling, the buying centre's seven roles, purchasing orientations, Kraljic's four product types, the 8 buy phases, and B2B relationships.
1What is a business market?
The business market consists of all organisations that acquire goods and services used to produce other products or services that are sold, rented or supplied to others.
Major industries in it: agriculture, forestry and fisheries; mining; manufacturing; construction; transport; communication; public utilities; banking, finance and insurance; distribution; services.
Hide dealers sell to tanners, who sell leather to shoe manufacturers, who sell to wholesalers, who sell to retailers, who sell to consumers. Each party also buys many other goods and services.
So far more money and items change hands in B2B than in consumer sales.
2How business markets differ from consumer markets
| Characteristic | Meaning | Example |
|---|---|---|
| Fewer, larger buyers | Far fewer but much bigger customers | Goodyear depends on a few major car makers; aircraft engines, defence |
| Close supplier–customer relationship | Offers are customised to individual customers. Buyers often pick suppliers who also buy from them | A paper maker buys chemicals from a chemical firm that buys its paper |
| Professional purchasing | Trained purchasing agents follow policies; formal requests for quotation, proposals, contracts | Marketers must give more technical data |
| Several buying influences | Buying committees of technical experts and senior managers | Need trained sales teams |
| Multiple sales calls | It takes 4–4.5 calls to close an average industrial sale (McGraw-Hill); capital projects can take years | — |
| Derived demand | B2B demand is derived from consumer demand, so watch consumers and the economy | Minivan popularity drove steel demand. In a recession, firms cut investment |
| Inelastic demand | Total demand barely changes with price, especially short-term, or when the item is a small part of total cost | Shoe makers won't buy much more leather if it gets cheaper; shoelaces |
| Fluctuating demand | More volatile. A small rise in consumer demand causes a large rise in demand for plant and equipment: the acceleration effect | +10% consumer demand → up to +200% business demand; −10% → collapse |
| Geographically concentrated buyers | Buyers cluster in regions, which reduces selling costs | Over half of US business buyers are in 7 states |
| Direct purchasing | Often buy directly from manufacturers, especially for complex or expensive items | Mainframes, aircraft |
3Buying situations
There are three, according to Patrick Robinson and others. The number of decisions depends on problem complexity, newness, the number of people involved, and the time required.
| Situation | Meaning | Example | Supplier implications |
|---|---|---|---|
| Straight rebuy | Routine reorder from an approved list of suppliers | Office supplies, bulk chemicals | In-suppliers maintain quality and offer automatic reordering. Out-suppliers offer something new or exploit dissatisfaction: win a small order, then grow it |
| Modified rebuy | The buyer wants to change specs, prices, delivery or terms. More participants on both sides | New supplier terms for packaging | In-suppliers get nervous and protect the account; out-suppliers see an opportunity |
| New task | Buying something for the first time | Office building, new security system | The greater the cost or risk, the more participants, the more information-gathering, and the longer the decision |
4Systems buying & selling
- Systems buying: many buyers prefer to buy a total solution from one seller.
- It originated in government purchases of weapons and communication systems. A prime contractor assembles the package from second-tier contractors, giving a turnkey solution: the buyer just "turns one key".
- Systems selling is the seller's version, used as a marketing tool.
A single supplier provides the buyer's entire MRO (maintenance, repair, operating) requirement and manages the customer's inventory. Shell Oil manages many customers' oil inventories and knows when to replenish.
- Customer benefits: lower procurement and management costs, price protection.
- Seller benefits: steady demand, lower operating costs, less paperwork.
Systems selling is key when bidding for large-scale industrial projects: dams, steel factories, irrigation, sanitation, pipelines, utilities, even new towns. Firms compete on price, quality, reliability and other attributes.
5The buying centre — seven roles
Webster and Wind: the buying centre is the decision-making unit of a buying organisation. It is all the individuals and groups who participate in the purchasing decision, share common goals and share the risks.
| Role | Who / what |
|---|---|
| 1. Initiators | Request that something be bought (users or others) |
| 2. Users | Will use the product. Often initiate and help define requirements |
| 3. Influencers | Influence the decision: define specs, provide evaluation information. Technical staff are key |
| 4. Deciders | Decide on product requirements or suppliers |
| 5. Approvers | Authorise the proposed actions of deciders or buyers |
| 6. Buyers | Have formal authority to select suppliers and negotiate terms. Can include senior managers for complex buys |
| 7. Gatekeepers | Control the flow of sellers and information into the buying centre: purchasing agents, receptionists, telephone operators |
- Several people can hold one role, and one person can hold several roles. A purchasing manager is often buyer + influencer + gatekeeper at once.
- A typical buying centre has 5–6 members, often dozens, and can include outsiders (government officials, consultants, technical advisers).
- Purchasing agents dominate straight and modified rebuys and supplier selection. Other departments (e.g. engineering) dominate new tasks and component selection.
Memory hook: "I U I D A B G": Initiators, Users, Influencers, Deciders, Approvers, Buyers, Gatekeepers.
6Procurement: orientations & Kraljic's four product types
Business buyers seek the highest benefit package (economic, technical, service, social) relative to cost. Purchase incentive ∝ perceived benefits ÷ costs. Purchasing has been upgraded, sometimes to vice-president level, so sellers must upgrade their salespeople too.
Three purchasing orientations
| Orientation | Focus | Tactics |
|---|---|---|
| Buying | Short-term, tactical: lowest price for a given quality | Commoditisation (treat it as a commodity; care only about price) and multisourcing (make several suppliers compete) |
| Procurement | Quality improvement and cost reduction together | Collaborative relationships, early supplier involvement, JIT, long-term contracts, MRP |
| Supply chain management | Strategic, value-adding | A seamless supply chain from raw materials to on-time delivery to end users |
Kraljic's four purchasing processes
| Type | Value / cost | Risk | Example | Supplier strategy |
|---|---|---|---|---|
| Routine | Low | Low | Office supplies | Standardise and consolidate; low price |
| Leverage | High | Low | Engine pistons | Prove lowest total cost |
| Strategic | High | High | Mainframe computers | Strategic alliances: co-development, co-investment |
| Bottleneck | Low | Some | Spare parts | Guaranteed steady supply, tracking, help desk |
7The 8 buy phases (Robinson et al.)
- Problem recognition
- General need description & product specification
- Supplier search
- E-procurement
- Proposal solicitation
- Supplier selection
- Order-routine specification
- Performance review
| # | Stage | Key points |
|---|---|---|
| 1 | Problem recognition | Internal triggers: new product, machine breakdown, unsatisfactory material, a chance to get lower prices or better quality. External triggers: trade shows, ads, sales calls. Marketers stimulate it with direct mail, telemarketing, calling on prospects |
| 2 | General need description & product specification | Define the item's characteristics and quantity. For complex items, work with engineers and users on reliability, durability and price |
| 3 | Supplier search | Trade directories, contacts, trade ads, trade shows, the Internet. B2B e-commerce far outstrips B2C |
| 4 | E-procurement | Web e-hubs: vertical hubs (industries such as plastics, steel, chemicals, paper) and functional hubs (logistics, media buying, advertising, energy management) |
| 5 | Proposal solicitation | Invite qualified suppliers to submit proposals, then formal presentations. Proposals should be marketing documents describing value in customer terms |
| 6 | Supplier selection | Specify supplier attributes and weights; use supplier-evaluation models and customer value assessment (CVA: 8 methods). Attributes depend on the situation: routine (delivery reliability, price, reputation), procedural-problem such as a copier (technical service, flexibility, reliability), political-problem such as a computer system (price, reputation, product and service reliability, flexibility) |
| 7 | Order-routine specification | Final order: specs, quantity, delivery time, returns, warranties. Leasing heavy equipment (lessee conserves capital and gets the latest models). Blanket contracts (stockless purchase plans): the supplier resupplies as needed at agreed prices; the buyer's computer orders automatically, which locks suppliers in |
| 8 | Performance review | Ask end users, use weighted-score ratings, or add up the cost of poor performance. Then continue, modify or drop the supplier |
Consumers go through 5 stages (Week 5). Business buyers go through 8 buy phases, with more formality, more people, written specs and proposals, and supplier evaluation.
8Business-to-business relationships
- Closer relationships are driven by supply chain management, early supplier involvement and purchasing alliances.
- Vertical coordination goes beyond transactions to create more value for both sides. Trust is a prerequisite.
What drove ad-agency–client relationships (a historical study):
- Market growth for one partner (mass production led to national brands and mass advertising).
- Information asymmetry: partnering beats invading the other's area (agencies' specialist knowledge).
- High entry barriers for one partner.
- Dependence asymmetry: one partner controls the other (agencies controlled media access).
- Economies of scale from the relationship.
Cannon & Perreault classified buyer–supplier relationships using four factors: availability of alternatives, importance of supply, complexity of supply, supply market dynamism. They found eight relationship types:
| Type | Character |
|---|---|
| Basic buying and selling | Simple, routine; moderate cooperation |
| Bare bones | More seller adaptation, less cooperation |
| Contractual transaction | Low trust; defined by a formal contract |
| Customer supply | Traditional custom supply; competition dominates |
| Cooperative systems | Operationally close, no structural commitment |
| Collaborative | High trust and commitment: true partnership |
| Mutually adaptive | Lots of relationship-specific adaptation, not necessarily trust |
| Customer is king | The seller adapts to the customer without expecting change in return |
Closest relationships arise when supply is important to the customer and there are procurement obstacles: complex requirements, few alternative suppliers. Some buyers just want basic performance, and some suppliers won't invest in low-growth customers.
Expect:
- Differences between business and consumer markets (derived, inelastic and fluctuating demand are favourites)
- The three buying situations
- Systems buying and selling and its advantages
- The seven buying-centre roles
- Purchasing orientations
- Kraljic's four product types
- The 8 buy phases
- Why B2B relationships matter
9Quiz 06: model answer
From Week 07/Quiz 06.docx in the Marketing folder.
Question: Take a position: B2B marketing needs its own special set of concepts and principles, OR B2B marketing isn't really different and the basic principles apply. Discuss.
What the model answer covers:
- Define B2B marketing
- Explain how it differs from B2C: fewer, larger buyers; derived demand; professional purchasing; the buying centre
- Describe the B2B buying process, and how the marketing mix and strategies are applied to it
10Quick revision sheet
| Concept | Remember it as |
|---|---|
| Business market | Organisations buying to produce other offerings |
| B2B differences | Fewer/larger buyers, close relationships, professional purchasing, many influences, multiple calls, derived/inelastic/fluctuating demand, concentrated, direct |
| Acceleration effect | +10% consumer → up to +200% business demand |
| Buying situations | Straight rebuy · modified rebuy · new task |
| Systems selling | Turnkey total solution; systems contracting (Shell manages MRO inventory) |
| Buying centre | Initiators, users, influencers, deciders, approvers, buyers, gatekeepers |
| Orientations | Buying (price) → procurement (quality + cost) → supply chain (strategic) |
| Kraljic | Routine · leverage · strategic · bottleneck |
| 8 buy phases | Problem → need/spec → search → e-procurement → proposals → selection → order routine → review |
| Blanket contract | Stockless purchase plan; auto-reorder |
| Relationships | Vertical coordination; trust; Cannon & Perreault's 8 types |
?Self-check quiz
11 questions on this week. Answer them all, then press Check my answers. Your best and latest scores are saved and shown on the subject page.