Frederick E. Webster Jr. and Yoram Wind define organizational buying 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 suppliers.3
The Business Market versus the Consumer Market
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. The major
industries making up the business market are agriculture, forestry, and fisheries; mining; manufacturing;
construction; transportation; communication; public utilities; banking, finance, and insurance;
distribution; and services.
• Fewer, larger buyers. The business marketer normally deals with far fewer, much larger buyers
than the consumer marketer does, particularly in such industries as aircraft engines and defense
weapons. The fortunes of Goodyear tires,Cummins engines, Delphi control systems, and other automotive
part suppliers depends on getting big contracts from just a handful of major automakers.
• Close supplier–customer relationship. Because of the smaller customer base and the importance
and power of the larger customers, suppliers are frequently expected to customize their offerings to
individual business customer needs. Through its Supplier Added Value Effort ($AVE) program,
Pittsburgh-based PPG industries challenges its suppliers of maintenance, repair, and operating
(MRO) goods and services to deliver on annual value-added/cost-savings proposals equaling at least
5 percent of their total annual sales to PPG. One preferred supplier submitted a suggestion to $AVE
that reduced costs for a lighting project by $160,000 by negotiating discounted prices for new fixtures
and fluorescent bulbs.7 Business buyers often select suppliers that also buy from them.A paper
manufacturer might buy from a chemical company that buys a considerable amount of its paper.• Professional purchasing. Business goods are often purchased by trained purchasing agents, who
must follow their organizations’ purchasing policies, constraints, and requirements.Many of the
buying instruments—for example, requests for quotations, proposals, and purchase contracts—
are not typically found in consumer buying. Professional buyers spend their careers learning how
to buy better.Many belong to the Institute for Supply Management, which seeks to improve professional
buyers’ effectiveness and status. This means business marketers must provide greater
technical data about their product and its advantages over competitors’ products.
• Multiple buying influences. More people typically influence business buying decisions.
Buying committees consisting of technical experts and even senior management are common
in the purchase of major goods. Business marketers need to send well-trained sales representatives
and sales teams to deal with the well-trained buyers.
• Multiple sales calls. A study by McGraw-Hill found that it took four to four and a half calls to
close an average industrial sale. In the case of capital equipment sales for large projects, it may
take many attempts to fund a project, and the sales cycle—between quoting a job and delivering
the product—is often measured in years.8
• Derived demand. The demand for business goods is ultimately derived from the demand for
consumer goods. For this reason, the business marketer must closely monitor the buying
patterns of ultimate consumers. Pittsburgh-based Consol Energy’s coal business largely
depends on orders from utilities and steel companies, which, in turn, depend on broader
economic demand from consumers for electricity and steel-based products such as automobiles,
machines, and appliances. Business buyers must also pay close attention to current
and expected economic factors, such as the level of production, investment, and consumer
spending and the interest rate. In a recession, they 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 the demand.
• Inelastic demand. The total demand for many business goods and services is inelastic—that
is, not much affected by price changes. Shoe manufacturers are not going to buy much more
leather if the price of leather falls, nor will they buy much less leather if the price rises unless
they can find satisfactory substitutes. Demand is especially inelastic in the short run because
producers cannot make quick changes in production methods. Demand is also inelastic for
business goods that represent a small percentage of the item’s total cost, such as shoelaces.
• Fluctuating demand. The demand for business goods and services tends to be more volatile
than the demand for consumer goods and services. A given percentage increase 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 effect.
Sometimes a rise of only 10 percent in consumer demand can cause as much as a 200 percent
rise in business demand for products in the next period; a 10 percent fall in consumer demand
may cause a complete collapse in business demand.
• Geographically concentrated buyers. For years, more than half of U.S. business buyers have
been concentrated in seven states: New York, California, Pennsylvania, Illinois, Ohio, New
Jersey, and Michigan. The geographical concentration of producers helps to reduce selling
costs.At the same time, business marketers need to monitor regional shifts of certain industries.
• Direct purchasing. Business buyers often buy directly from manufacturers rather than
through intermediaries, especially items that are technically complex or expensive such as
mainframes or aircraft.
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