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Business market management

Introduction

Business to business marketing management is the process of understanding, creating and delivering value to targeted business markets and customers. It provides a means of gaining equitable return on the value delivered and of enhancing a supplier firm’s present and future profitability.

Business markets are firms, institutions or governments that acquire goods and services either for their own use, or to incorporate into products or services that they in turn produce or for resale along with other products and services to other firms, institutions, and governments. (Anderson and Narus 2004) Business to Business Marketing is growing at a phenomenal rate. It accounts for well over half the world’s economic activity and is very challenging and dynamic (Webster 1978)

A major percentage of a typical firm’s revenues go to pay for goods and services it acquires from suppliers. In this era of globalization business organizations are under tremendous pressure to manufacture a product or provide a service that is of optimum quality, is customized to individual customer requirements and is delivered on time at minimum possible price. Firms are increasingly focusing on their purchasing practices to improve profitability.

Widespread quality management in operations and greater availability of comparable market offerings from domestic and international sources has led firms to pressure their suppliers to provide high quality products at minimum possible costs (Gleckman and McWilliams 1977). Operating under such competitive pressures business marketers need to understand the business buyer behavior and evolve close, enduring and long-term relationships.

Effective business to business marketing strategy must begin with the understanding of the business buyer behavior which encompasses the knowledge of the different types of buying situations that buying organizations encounter, the process that organization buyers go through in reaching the purchase decisions, and also how such decisions are effected by the different members of the organization and the motives or the criteria they apply in making such purchase decisions (Naumann et al 1984).

The different types of buying situations a business to business buyer may encounter are the straight rebuy, the modified rebuy and the new-task buy. In a straight rebuy situation the buyer reorders a product or service without any modifications on a routine basis through the purchase department. In this situation the buyers have substantial experience in dealing with the need and require little or no additional information.

Routine problem solving approach is suitable for this type of buying situation. In a modified rebuy situation the buying organization may seek certain modifications in the specifications of the product/service being purchased, prices, terms of supply etc. the most appropriate decision making approach in this type of situation is the limited problem solving approach. This situation usually involves more number of participants in the buying decision process.

In a new task buying situation the company is buying a product or service for the first time and has very little or no experience in such a purchase. The decision makers seek more information in this situation to help them evaluate and choose from amongst the alternatives.  In such a situation the organization buying process is more complex and involves many more number of participants from different departments in the organization. The buying company also needs to decide on the product/service specifications, prices, delivery terms, order quantities, service terms etc. companies follow the extensive problem solving approach for making decisions in such situations (Howard and Sheth 1993).

The organizational buying decision making process is more exhaustive as compared to the consumer buying decision making process. Every organization goes through a number of phases or stages when it goes through the purchase decision process. The first stage is the recognition of a need for a product or service by some employee or a department in the company. At the next stage broad parameters for the desired product/service that may satisfy the need are then worked out. In the next step a more detailed description and specifications are developed for the product/service that is expected to satisfy the need.

In the next phase the company seeks information of the suppliers who may be competent to meet the requirements of the needed product.  The potential suppliers are asked to submit their proposals for the supply of the same. The proposals so received are evaluated and the most promising of the suppliers are short-listed. The short-listed suppliers are invited for negotiations and the final suppliers are selected.

The order is then placed with the selected suppliers on the agreed terms. Finally the performance of the firms supplying the required products/ services is reviewed periodically. The exhaustiveness of the purchase decision process for a given company will depend on the importance of the product/service being offered by the business marketer to the buying company.

The concept of the buying center is one of the most important concepts in business to business marketing. The buying center also known as the buying team refers to all those members of an organization who become involved in the buying decision process for a particular product or service (Johnston and Bonoma 1981). It is an informal, cross-departmental decision unit in which the primary objective is the acquisition, impartation and processing of relevant purchasing related information (Reeder and Brierty 2002).

Evolution of the Composition of the Buying Center during the Purchasing Process

The composition of the buying center, that is, individuals of the buying organization involved in the purchase decision process will change in a given buyer organization depending on the buying situation. So also depending on the information needs required for a specific purchase situation and the importance of different individuals in the different stages of the purchase process the composition of the buying center will evolve during the various phases or stages of the purchase decision process for the product/service being offered by the business marketer. (Lewin and Johnson 1996).

The changes in the composition of the buying center when the purchase decision moves through the various phases in the buying decision process will also vary from organization to organization depending on the classification and the critical importance to the buyer organization of the product / service being offered by the business marketer. This can be explained better with the help of an example.

There has been an increase in the number of accidents because of the inability of the drivers to identify on-coming vehicles approaching alongside the blind spot of the driver. A need was felt at Ford Motor Company to install a suitable system to increase the safety of all its models. The buying center members at this need recognition stage will be all the managers from different departments like manufacturing, marketing, finance, general administration, public relations etc. The buying situation for this problem situation is the new task buy.

In the second stage the general description of characteristics of the safety system required are developed. A decision is arrived at to install a blind spot information system in all the models that will help alert the driver to vehicles approaching alongside to increase the safety of the vehicles. The probable members of the buying center at this stage will be from marketing, research and development, and engineering.

In the third stage the specifications and the quantity of the blind spot information system required are specified. At this stage the marketing representative will have dropped out and the buying center will compose mainly representatives from research and development, engineering, manufacturing, costing and purchase.

In the next stage of supplier search and proposal acquisition, Ford Motors needs to invest more time as it is a new task buy situation and the product being purchased is of great significance to the final product offerings of Ford Motor Company. The major participants in the buying center at this stage will be the representatives from purchase, research and development and engineering functions.

The next stage is the selection of the most suitable supplier/s for the blind spot communication system. At this stage there is a need to hold detailed negotiations for the critical system and the probable buying center participants will be from research and development, engineering, manufacturing, finance and the purchase functions.

Once a supplier is selected and he supplies the required blind spot communication system then his performance is reviewed on a periodic basis. The buying center composition at this stage is dominated by the purchase department with information inputs from the manufacturing department. From the above example it is clear that as a specific purchase situation moves through the stages in the purchase decision process of the buying organization the composition of the buying center changes with members entering, leaving and reentering the center depending on the information needs and importance of the individuals at each stage.

Variation of the Composition of the Buying Center from Organization to Organization

The composition of the buying center may also vary from organization to organization. The variation may be because of the size of the organization. For example in a large organization like Uniliver only the representatives from the purchase department and the MIS department maybe involved in the purchase of computers wherelse in case of a small consultancy firm the top management and the finance manager may also be involved in the purchase of the same computers.

The composition of the buying center may vary with the importance of the product/ service being purchased by the buying organization For example a medical equipment manufacturing company like ResMed may need computers to be a part of their equipment. In such a case the computer is very critical, as it will have an impact on the price and performance of the medical equipment being manufactured. In this case the buying center may compose of the representatives of the management, research and development, engineering, manufacturing, purchase and finance. However in case of a company like Aventis purchasing the same computers, only representatives of the purchase and MIS departments may be a part of the buying center.

The composition of the buying center may vary depending on the classification of the business buyer. The buying center of governments and other institutions may comprise of all the members of the buying committee as per the policies irrespective of the product or service being purchased. For example in some educational institutions the student representatives maybe a part of the buying decision process. In this way the composition of the buying center may vary from one organization to another for the same product/service being offered by the business marketer.

Identification of Key Members of the Buying Center

The buying center members may play any one or a combination of the five roles namely, users, influencers, buyers, deciders and gatekeepers. Users are the members in the organization who will actually use the product being offered. Influencers are members within or outside the organization who influence the purchase. Buyers are members who have the formal authority in the selection of the final suppliers.

Deciders are members who have formal or informal power to select/approve the final suppliers. Gatekeepers are members who control the flow of information from the seller to other members of the buying center. Identifying the roles of different members of the buying center is very important for the business to business marketer.

The buying motives/objectives of each member of the buying center through which the members evaluate potential suppliers may differ. The motives may include task oriented objectives such as price, quality, service and Return on Investment and non-task oriented objectives such as recognition, promotion, increments and job security. Understanding the motives of the key members of the buying center will be very supportive in evolving suitable marketing strategies.

The composition of the buying center gives a good framework to the salesperson associated with business to business marketing for answering the question as to who is really involved in the purchase decision process at the given point of time for the product/service being offered. The key members of the buying center are powerful individuals who have an important personal stake in the decision, possess expert knowledge about the product/service being purchased and control the flow of decision related information.

Identification of the key members of the buying center will help the marketer to understand the buying motives and the buying roles of such key members so that suitable strategies can be formulated to meet the information needs of each member and increase the effectiveness and efficiency of the sales calls. However the salesperson should exercise great care in identification of the composition of the buying center for the given purchasing situation (Jackson et al 1984)

The salesperson can predict the composition of the buying center by estimating the impact of the product/service, he is offering to the industrial customer, on various functional areas in the buying organization. If the product will have an impact on the marketability of the firm’s product/service then the marketing function will have a major influence, engineering and production function will be more influence in purchase of capital equipment, components and parts. If the purchase has huge financial commitments and involve policy matters then the top management and the financial function will be more involved.

As discussed earlier the members of the buying center change as the organizational buyer moves through the purchasing processes. This makes the task of identifying the buying center members very complex. It is very critical for the sales person to identify the key buying influences who are capable of knowingly or unknowingly swaying others influences in a given purchase situation.

The ability of the salesperson to identify the key buying influencers amongst the members of the buying center and sell them on product/service attributes is vital for formulating good marketing strategies. The various steps that can be taken by the salesperson involved in business to business marketing is explained using a model (Mattson 1988).

The first step is to identify the mission of the organization. If the given purchase situation has relevance to the mission then key influencers may be from the top management. For example the purchase of substitute materials to bolster Intel’s intent of leadership through innovation will have major influence from the members of the top management.

The second step is for the seller to understand the potential use and importance of the product/service being offered to the buyer. For example tires may be purchased by Volks Wagon and Unilever. In case of Volks Wagon this purchase is very critical as it impacts the performance and the price of Volks Wagon cars and the key influencers may be from the engineering and the costing department.

In case of Unilever the purchase is to replace tires of its company vehicles and is of less importance with purchase function being the key influence. The third important step in the identification of the key buying center members is the identification of the buying situation and the stage at which the purchase is, in the buying decision process of the buying organization, for the product/service being offered.

The next step is to predict the dollar value of the purchase to the buying organization. The increase in the dollar value will result in more participants from the top management in the buying center. The salesperson also needs to identify the stage at which buying firm’s product is in its life cycle. There will be more involvement from multifunction in the introduction and growth phase as compared to maturity and decline stage (Fox and Rink 1978).

To identify powerful influencers amongst the buying center members the salesperson needs to isolate the personal stakeholders who have personal stake in the purchase being made. For example the research and development manager will be a very powerful influencer in the purchase of new material testing equipment. The salesperson can follow the information flow in the purchase situation.

All other buying center members will be directing the flow of information to these key members. He also needs to identify the experts who posses the most knowledge and ask the most probing questions as such persons have the most powerful influence. The salesperson also needs to trace the connections of the buying center members to the top management. This is helpful because the most powerful buying influencers have direct access to the top management, which enhances their influence amongst other members of the buying center (Hutt and Speh 2006).

Conclusion

The composition of the buying center changes with members entering, leaving and reentering the center depending on the information needs and importance of the individuals at each stage as a specific purchase situation moves through the stages in the purchase decision process. The composition of the buying center will also vary from one organization to another for the same product/service being offered by the business marketer.

The correct identification of the key members of the buying center who have a major influence on the purchase of the product/service being offered in the given organization and understanding their purchase motives will enable the marketing personnel of the selling organization to evolve optimum marketing strategies for competitive advantage.

References

Anderson, James, C. and Narus, James, A. 2004. Business market management: Understanding,

creating and delivering value, Singapore: Pearson Education Inc.

Edwards, Cliff. 2006. Inside Intel, Business Week, January 9, pp. 43-53

Fox, Harold, W. and Rink, David, R. 1978. Purchasing role across life cycle, Industrial

marketing Management, 7, pp. 186-192

Giglierano, Vitali. 2002. Business to business marketing: Analysis and practice in a dynamic

environment, Singapore: Thomson South Western.

Gleckman, Howard & McWilliams, Gary. October 1977. Ask and it shall be discounted.

Business Week, pp. 116-118

Howard, John, A, Sheth, Jagdish, N. 1993. The theory of buyer behavior, NY: John Wiley and

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Hutt, Michael, D. and Spey, Thomas, W., 2004. Business marketing management, Singapore:

Thomson South Western, pp.77-78.

Jackson, Donald, W., Keith, Janet, E. and Burdick, Richard, K. 1984. Purchasing agents’

perception of industrial buying center influence. Journal of Marketing, 48, pp. 75-83

Johnston, Wesley, J. and Bonoma, Thomas, V. 1981. The buying centre: Structure and

interaction patterns. Journal of Marketing, pp. 143-156

Kotler, Philip. And Armstrong, Gary. 2006. Principles of marketing, London: Pearson Education

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Lewin, Jeffery, E. and Johnson, Wesley, J. 1996. Organizational buyer behavior: Towards an

integrative Framework. Journal of Business Research, 35, pp. 1-15

Mattson, Melvin, R. 1988. How to determine the composition and influence of a buying center.

Industrial Marketing Management, 17, pp. 205-214

Naumann, Earl, Douglas, Lincoln, J. and McWilliams, Robert, D. 1984. The purchase of

components: Functional areas of influence. Industrial Marketing Management, 13, pp.

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Reeder, Robert, R., Brierty, Edward, G., & Reeder, Betty, H. (2002). Industrial marketing:

Analysis, planning and control, NJ: Prentice-Hall, Inc., pp. 83-88

Volvo Models, http://www.volvocars.us/models/s80/ (Accessed 22 March, 2007)

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Marketing

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