What is business market?

A business market, also known as the business-to-business (B2B) market, refers to the transactions and activities that occur between businesses, rather than between a business and individual consumers.

Organisations are buyers as well as sellers. The Business Markets includes organisations that buy products on large scale either for production of another product or for their own use.

Buying for producing for consumers

Organisations buy products and add value to the same for selling to Consumers. These organisations are end users, buying products and services for their operations from suppliers. For E.g., an ice cream producer needs to buy materials to produce (milk, sugar, preservatives), to package (wood, paper) the ice cream bar for consumers.

Buying for own use

Organisations also buy products and services for their own consumption instead of adding value to them for selling. For E.g., air conditioners, stationary, insurance for the company and employees, etc. These also include wholesalers and retailers that acquire good for reselling them at profit.

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Buying Situations

Buying situations, also known as buying motives or purchase situations, refer to the different circumstances or reasons that drive individuals or organizations to make a purchase. Understanding these buying situations is crucial for businesses as it helps them tailor their marketing strategies, product offerings, and customer service to meet the specific needs and motivations of their customers.

There are three major types of buying situations.

1. New Task
   
2. Modified Rebuy
   
3. Straight Rebuy
   

New Task

The purchase is done for the first time with no purchasing experience, and extensive search is done to evaluate options. Expertise of decision– making in participants will be very crucial as there is great risk involved. For E.g., for the first time, an organisation buying chemicals to manufacture paints.

Modified Rebuy

Due to change in preferences or entry of a substitute product in the market, organisations are forced to modify an existing product to suit the target market. The modifications can be change in product characteristics, price, quality, suppliers, etc.

This process is less risky and less time consuming as compared to “New Task” buying situation as the information is gathered on alternatives. E.g. A school may purchase a bigger school bus to add to the existing fleet of mini–buses. The supplier of the bigger bus is the same who had earlier supplied mini–buses to the school.

Straight Rebuy

In this buying the organisations rebuy products and services from the same suppliers. Suppliers usually visit the organisations to take the orders in advance to maintain their market share. The people involved in the buying process have relatively good experience of buying and need no additional information on products and services.

There is no risk involved because of past experience of purchasing the same products and services. E.g. A paint manufacturer who buys chemicals repeatedly from the same suppliers to meet the production demand will be a straight re–buy. In this cases the specifications of the required chemicals, price, delivery period etc., must remain the same.

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Business Buying Behaviour

Business buying behaviour refers to the actions of employees of an organisation to buy products and services for the organisation which includes the decision–making process of selection of suppliers and bearing post purchase consequences.

Steps in Buying Behaviour

There are common steps involved in Business buying though each organisation has its own way of making decision for buying products. The process may also differ for all the three buying situations :

• 1 New Task,
  
• Modified Rebuy and
  
• Straight Rebuy

Steps in Business Buying Process

Need / Problem Recognition

In business buying the need or problem arises for a product required by operation of the business. It is essential that businesses make decisions to buy products that will enhance their operations in some way. Before making a purchase decision, businesses must identify a true need of their company.

For example,

purchasing new software may improve inventory management, or adding a printer might increase productivity. Often, employees present their needs while at other times, employers have to recognize a need after reviewing work flow and business goals. Business buyers buy products either to take advantage of new opportunities in the market or to find a solution for any issues related to operations.

Situations may be – new machinery required, old machinery break down, new inventory for production, instrument with better technology. Understanding the buying needs helps business marketers to plan suitable marketing programs. For E.g., in machinery breakdown, the suppliers can provide free repairs, offer buy back options against new machinery, etc.

In situations like Straight Rebuy, organisations usually have a contract for a certain period of time to supply the already purchase products at specified quantity, rate and within a time frame. For E.g., cement required regularly by a construction company. The need recognition is complicated in New Task and Modified Rebuy situations.

Need / Problem Description

When there are many individuals involved in the decision process, a clear draft outlining the problem, quality and quantity of products written down for the discussions and approval by the concerned authorities. For E.g., the school that is in need of bigger school buses requires inputs from drivers and the administration staff.

The need description for this case may include – AC / Non–AC, training for drivers, number of buses required. In this scenario, a driver highlighted the need wherein a child with special needs should be able to board the school bus. This resulted in a specification written which could have been overlooked and would have resulted in grievance issues at a later stage.

Information Search

Use the product specifications to search for viable options. The vendors and suppliers have to be found who offer the product that meets the specifications. It will be worthwhile to consider vendors who have supplied in the past, or those who have sales or offer discounts to businesses like yours For Straight and Modified Rebuy the purchasing department already has information on the existing suppliers.

In New Task situations, technical staff will have to give inputs. If the search is informal, the purchasing team may seek contact information from advertisements in trade journals, internet search, visit trade shows, or scan any proposals sent by suppliers in the recent past.

For formal search, site visits of suppliers, analysis of product characteristics, sample test of the product, etc. maybe essential. Suppliers maybe rejected, if they have bad image in the industry, high price, erratic delivery schedule, or quantity and quality discrepancy etc.

Supplier Evaluation and Selection

Narrow your search and identify the best options for your business. Work with the purchasing team to identify the pros and cons of each option. Consider costs, features, maintenance, delivery times, payment options, customer service and vendor reputation. Additional information on suppliers is needed to further verify, evaluate and select the suppliers.

The organisation asks the shortlisted suppliers to send proposals or formally meet or make presentations. The final negotiations could be based on price and quality before final selection. Many organisations select more than one supplier to overcome any hurdles like a strike, etc. This gives advantage for negotiations on price, etc.

As organisations are in the business for making profits, most of the negotiations are around the price of the product. Once a contract is mutually agreed upon, the final order is made listing the product specifications, delivery terms, payment terms, after sale services, etc.

Make The Purchase

Determine how your company plans to pay for the purchase and identify the purchasing team member to finalise the purchase. Contact the vendor who provides the product you want to buy and make your purchase.

Post Purchase Evaluation

Once the products are used in the production department, organisations assess if the supplier has fulfilled all the terms of the agreement. This process is formal as compared to consumer post purchase evaluations. A questionnaire may be sent to the production team for getting a clear picture on the product bought.

The feedback on the purchase will determine if changes need to be made to the specifications if the product or software must be updated in the future. The suppliers also follow this activity to ensure the buyers are satisfied so as to continue the business. A dissatisfied buyer may make demands for corrections or may even switch to other supplier.

The Purchase Department

The Purchase Department has individuals and groups who participate in the purchasing decision making process, who share some common goals and the risks arising from the decisions.

Seven roles performed in the purchase decision process.

Initiators

Those who request for purchase. They are the actual users of the product or item. On some occasions, it may be top management, maintenance or engineering department.

Users

those who will use the product or service. They are R & D, engineering – those who play a vital role in buying process.

Deciders

people who decide on product requirements or on suppliers. In most cases, the purchase executive may be the decider. For high value and technically complex products, senior executives are the deciders.

Approvers

people who authorizes the proposed actions of deciders or buyers. They could be personnel form top management or finance department or the user.

Buyers

people who have formal authority to select the supplier and arrange the purchase terms. Buyers may help shape product specifications, but they play their major role in selecting vendors and negotiating. In more complex purchases, the buyer might include high level managers participating in the negotiations.

Gate keepers

people who have the power to prevent sellers from reaching users or deciders. They may be purchasing agents, receptionists etc. They are closest to the action, purchasing executive or the person involved in the buying centre. It generally happens that information is usually routed through them.

To target the efforts properly, vendors have to sort out : who are the major decision participants in the organisation ? What decisions do they influence ? What their level of influence ? What evaluation criteria do they use ?

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Characteristics of Business Markets

Fewer buyers

The business marketer normally deals with far fewer buyers than the consumer marketer does. For E.g. : MRF Tyres largely depend on orders from Maruti Ltd and Honda.

Large buyers

Do most of the purchasing in such industries as aircraft engines and defense equipment.

SupplierCustomer 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 needs. Sometimes the buyers require the sellers to even change their practices and performance.

Geographically concentrated buyers

Large group of business buyers in India are concentrated in major cities : Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Pune and Ahmedabad. The geographical concentration of producers helps vendors to focus and reduce selling costs.

Derived demand

Large group of business buyers in India are concentrated in major cities : Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Pune and Ahmedabad. The geographical concentration of producers helps vendors to focus and reduce selling costs.

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.

Inelastic demand

The total demand for many business goods and services is inelastic that is, not much affected by price changes. Shoe manufacturers do not buy more leather if price of leather fall or vice versa. Demand is especially inelastic also because producers cannot make fast changes in production methods.

Fluctuating demand

The demand for business goods and services tends to be more volatile than the demand for consumer goods and services. A small 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.

Professional Purchasing

Business goods are purchased by trained purchasing agents, who have to follow the organisation’s purchasing policies, limitations, and requirements.

Several buying influence

Purchasing committees consisting of technical experts and even senior management are common in the purchase of major goods. Vendor marketers have to send well trained sales representatives and often sales teams to deal with the well senior executives.

Multiple sales calls

because more people are involved in the selling process it takes multiple sales calls to get business orders. On an average, it takes more than four calls to close an average industrial sale. In the case of capital equipment sales for large projects, it may take multiple attempts to fund a project, and the sales cycle between quoting for a job and final delivery of the product is often measured in a number of months.

Direct purchasing

Business buyers often buy directly from manufacturers rather than through intermediaries, especially items that are technically complex or expensive.

Reciprocity

Business buyers often select suppliers who also buy from them. An E.g. a paper manufacturer will buy chemicals from a chemical company that buys a considerable amount of its paper.

Leasing

Many industrial buyers lease instead of buy heavy equipment like machinery and trucks. The lessee gains a number of advantages conserving capital, getting the latest product, and receiving better service. The lessor often ends up with a larger net income and the chance to sell customers who could not afford outright purchase.

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Institutional and Government Markets

The business to business market has a focus on products, goods and services that are typically sold to other businesses rather than direct to consumers. Examples include office furniture, corporate accounting services and conference and exhibit supplies.

Many business–to–business markets have some overlap with consumer markets, for example, a cleaning company may provide both residential and commercial services.

Institutional Markets

The institutional market consists of schools, colleges, hospitals, nursing homes, prisons and other such institutions that must provide goods and services to people. Many of these organisations are characterized by low budgets and captive clienteles.

For E.g., hospitals have to provide hygienic food for their patients. The buying objective being not profit, but part of the total service package. The objective is also not cost reduction because poor food will harm the patients and hurt the hospital’s reputation. The hospital purchasing agent has to search for institutional food vendors whose quality meets a certain minimum standard.

Many food vendors setup a separate division to sell to institutional buyers because of these buyers’ special needs and characteristics. Thus, organisations will produce, package, and price their products differently to meet the different requirements of hospitals, colleges, and prisons.

Government Markets

In most countries, government organisations are a major buyer of goods and services. Government organisations typically require suppliers to submit bids, and award the contract generally to the lowest bidder. Governments will also buy on a negotiated contract basis, primarily in the case of complex projects involving major R & D costs and risks and in cases where there is little competition.

Government organisations tend to favour domestic supplies over foreign suppliers. A major complaint of multinationals operating in Europe was that each country was favouring its nationals in spite of superior offers that were available from foreign firms.

As their spending decisions are subject to public review, government organisations require considerable paperwork from suppliers, who often complain about excessive paperwork, bureaucracy, regulations, decision– making delays, and frequent shifts in procurement personnel.

Managing Business To Business Customer Relationship

A seller in B2B market has to maintain relationships with its buyer. He has to formally use distributors and sales people, through informal networks consisting of personal contacts and good relationships between supplier’s and the customers’ employees. Many suppliers and buyers have long term relationship that has many advantageous, like reduced risk, for both buyer and seller.

Improved communication and joint problem solving and designing of components can take place in B2B relationship. New product development can also benefit from such relationships. Sellers gain through closer knowledge of buyer requirements and by gaining the trust of the buyer, an effective barrier to entry for competing firms may be established.

Buyers treat their trusted suppliers as strategic partners, sharing information and drawing on their expertise when developing cost efficient, high quality new products. Relationship managers maintain a open line of communication with the buyers as they have to co–ordinate between departments of their own companies and departments of buyer companies to ensure customer satisfaction.

An in–depth understanding of buyer’s decision–making unit is developed by sales people. The sales team should be able to develop a relationship with a large number of individual decision makers.

Building Relationships

A seller has to take a decision on the type of relationships it will pursue with its buyers, and the amount of time, effort and resources it will spend in building and maintaining such relationships. Some buyers prefer casual relations as they prefer to buy on price and do not perceive major benefits accruing from closer relationships. They may see good relationships with suppliers as a hindrance in extracting more concessions from them.

Methods of improvement by suppliers to customers at zero or nominal cost

Technical support

The seller helps to improve the operations and better use of the machine by the buyer. It is a form of technical co–operation between the two, followed by after sales service, and providing training to customer’s employees, thereby enhancing the customer’s know–how and productivity.

Expertise

A supplier can provide expertise to the buyer including designing components and equipment for the buyer, thereby improving its competitiveness.

Resource support

A supplier can support resource base of its customers by extending credit facilities, giving low interest loans, co–operative promotion of the buyer’s products, and accepting reciprocal buying practices where the supplier agrees to buy products from customers.

Service levels

A supplier can improve the level of service by providing more reliable delivery, setting up computerized reorder system, offering fast, accurate quotes and reduce defect levels. Hence, change of suppliers will be costly for the buyer.

Risk reduction

A supplier offers free demonstration, products for trial at zero or low cost to customer, product and delivery guarantee, preventive maintenance contracts, swift complaint handling and proactive follow up. These services provide a customer the reassurance that the supplier is willing to extend itself to serve him.

Benefits of positive customer relations

Customer retention

When your customers know they will have a positive experience with the business, and it’s very difficult for a competitor to woo them away.

Customer loyalty

Having positive relationships with the customers inspires a type of loyalty that overcomes many common reasons why customers defect, including cost and convenience.

Customer acquisition

The satisfied customers recommending to others to buy and write positive blogs.

Customer satisfaction

Most customers stop patronizing a business rather than complaining, positive customer relations make it easier to get customer feedback.

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FAQ