9 Business Buying Behavior.docx
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9 Business Buying Behavior.docx
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9BusinessBuyingBehavior
BusinessBuyingBehavior
Thebusinessmarketiscomprisedoforganizationsthat,insomeform,areinvolvedinthemanufacturer,distributionorsupportofproductsorservicessoldorotherwiseprovidedtootherorganizations. Theamountofpurchasingundertakeninthebusinessmarketeasilydwarfsthetotalspendingbyconsumers. Becausethebusinessmarketissolargeitdrawstheinterestofmillionsofcompaniesworldwidethatmarketexclusivelytobusinesscustomers. Forthesemarketersunderstandinghowbusinessesmakepurchasedecisionsiscriticaltotheirorganizations’marketingefforts.
Insomewaysunderstandingthebusinessmarketisnotascomplicatedasunderstandingtheconsumermarket. Forexample,incertainbusinessmarketspurchasedecisionshingeontheoutcomeofabiddingprocessbetweencompetitorsofferingsimilarproductsandservices. Inthesecasesthedecisiontobuyisoftenwhittleddowntooneconcern–whohasthelowestprice. Thus,unlikeconsumermarkets,wherebuildingarecognizablebrandisveryimportant,formanypurchasesituationsinthebusinessmarketthisisnotthecase.
However,inmanyotherwaysbusinessbuyingismuchmorecomplicated. Forinstance,thedemandbybusinessesforproductsandservicesisaffectedbyconsumerpurchases(calledderiveddemand)andbecausesomanyorganizationsmayhaveapartincreatingconsumerpurchases,asmallswinginconsumerdemandcancreatebigchangesinbusinesspurchasing. Automobilepurchasesareagoodexample. Ifconsumerdemandforcarsincreasesmanycompaniesconnectedwiththeautomobileindustrywillalsoseedemandfortheirproductsandservicesincrease(wewilllaterrefertothesecompaniesassupplychainmembers). Undertheseconditionscompanieswillratchetuptheiroperationstoensuredemandismet,whichinvariablywillleadtonewpurchasesbyalargenumberofcompanies. Infact,itisconceivablethatanincreaseofjustoneortwopercentforconsumerdemandcanincreasebusinessdemandforproductsandservicesbyfiveormorepercent. Unfortunately,theoppositeistrueifdemanddeclines. Tryingtopredicttheseswingsrequiresbusinessestonotonlyunderstandtheirimmediatecustomersbutalsotheenduser,whichaswewilldiscuss,maybewelldownthesupplychainfromwherethebusinessoperates.
ThissectionofourhighlydetailedPrinciplesofMarketingTutorialsdiscussestheuniquecharacteristicsofthebusinessmarket. Wewillseethatmarketersmustappealtobusinesscustomersinwaysthataredistinctfromhowtheywouldapproachconsumers. Whilemarketerssellingtootherbusinessesoperatewithmostofthesamemarketingtoolsusedbymarketersofconsumerproducts,howtheyemploythesetoolstoreachtheirmarketingobjectivesmaybequitedifferent.
WhoMakesUptheBusinessMarket
Therearemillionsoforganizationsworldwidesellingtheirproductsandservicestootherbusinesses. Theyoperateinmanyindustriesandrangeinsizefromhugemultinationalcompanieswiththousandsofemployeestoone-personsmallbusinesses. Withsuchalargenumberoforganizationsandindustriescontainedwithinthebusinessmarket,amarketercanobtainabetterpictureofwhoisinvolvedbylookingatpopularbusinessclassificationsystemssetupbyinternationalgovernments,suchastheNorthAmericanIndustrialClassificationSystem(NAICS),whichcoversCanada,MexicoandtheUnitedStatesandtheInternationalStandardIndustrialClassification(ISIC),whichiswidelyusedinEurope. Thesereportsprovidedescriptionsofhundredsofindustryclassifications. Forinstance,thetablebelowshowshowUSoperatorsof"GolfProShops"arelistedintheNAICScodingsystem. Notethenumericsequencethatoccursasone"drillsdown"inordertolocateindividualindustrygroups.
Level
NAICSCode
Description
Sector
45
RetailTrade
Subsector
451
SportingGoods,Hobby,Book,andMusicStores
IndustryGroup
4511
SportingGoods,Hobby,andMusicalInstrumentStores
Industry
45111
SportingGoodsStores
USIndustry
451110
GolfProShops
Onceindustrycodesareknownthesecanbeusedwithinvariousgovernmentandindustryresearchreportstolocatespecificindustryinformationsuchasnumberoffirmsoperatingintheindustry,totalindustrysales,numberofemployeesandmore.
Forthepurposesofthistutorial,however,wewilluseabroaderapproachtocategorizingbusinesseschoosingtocategorizebasedonthegeneralbusinessfunctionanorganizationperformsratherthenbyindustry. Webreakthebusinessmarketdownintotwobroadcategories-SupplyChainMembersandBusinessUserMarkets.
SupplyChainMarket
Thesupplychainconsistsofmostlyfor-profitcompaniesengagedinactivitiesinvolvingproductcreationanddelivery. Essentiallythechainrepresentsmajorstepsneededtomanufactureaproductthatwilleventuallybesoldasafinalproduct. Eachmemberofthesupplychainpurchasesproductsandservicesenablingthemtocarryoutitsbusinessobjectives. Whenmakingpurchasedecisionssupplychainmembersmaybemotivatedbysuchfactorsas:
productcost,returnoninvestment(i.e.,benefitsobtainedexceedpricepaid),assuranceofconsistentsupply(i.e.,productisavailableanddeliveryison-time),reciprocitywithsupplyingfirm(i.e.,webuyfromyouandyoubuyfromus),andmuchmore. Examplesofpurchasingoccurringinthesupplychaininclude:
manufacturingandplantequipment,informationtechnology,officesupplies,professionalbusinessservices,etc.
Inthetablebelowwearbitrarilyidentifyfivemaincategoriesofsupplychainmembersprimarilybasedonthestageatwhichtheycontributetothemanufacturingprocess. However,itisconceivablethatthesecategoriescanbefurtherdividedinordertoflushoutmorespecificactivities.
SupplyChainMember
WhatTheyDo
Example
RawMaterialSuppliers
Thesecompaniesaregenerallyconsideredthefirststageinthesupplychainandprovidebasicproductsthroughmining,harvesting,fishing,etc.,thatarekeyingredientsintheproductionofhigher-orderproducts.
Copperisminedandextractedfromcopperore. Copperisthenrefinedtoremoveimpurities.
ProcessedMaterialsorBasicComponentManufacturers
Firmsatthisleveluserawmaterialstoproducemoreadvancedmaterialsorproductscontainedwithinmoreadvancedcomponents.
Copperispurchasedbyelectricalwiremanufacturers.
AdvancedComponentManufacturers
Thesecompaniesusebasiccomponentstoproduceproductsthatofferasignificantfunctionneededwithinalargerproduct.
Electricalwireispurchasedbyamanufacturerofelectricalpowersupplies.
ProductManufacturers
Thismarketconsistsofcompaniesthatpurchasebothbasicandadvancedcomponentsandthenassemblethesecomponentsintoafinalproductdesignatedforauser. Theseproductsmayormaynotbesoldasstand-aloneproducts. Somemaybeincludedwithinlargerproducts.
Powersuppliesarepurchasedbymanufacturersofdesktopcomputers.
SupportServiceFirms
Thesecompaniesofferservicesatalmostanypointinthesupplychainandalsotothebusinessusermarket. Someservicesaredirectlyrelatedtotheproductwhileothersfocusonareasofthebusinessnotdirectlyrelatedtoproduction.
Distributioncompanies,suchastruckfirmsandstoragefacilities,assistinmovingproductsfromonesupplychainmembertoanother. However,inmostcasestheydonottakeownershipofproductsthatpassthroughthesupplychain.
BusinessUserMarkets
Besidessellingfinalproductsandservicestosupplychaincompanies,severaladditionalusermarketsalsomakepurchaseseitherfortheirownconsumptionortheybuywiththeintentionofredistributingtoothers. InthesepurchasesituationsthebuyergenerallydoesnotradicallychangetheproductfromitsformwhenitwaspurchasedfromaProductManufacturer. Whiletechnicallythesemarketsarealsopartofthesupplychain,membersofthebusinessusermarketdonot,inmostcases,engageordirectlyassistinproductionactivities.
Market
WhatTheyDo
ConsiderationsWhenBuying
WhatTheyBuy
Government
MadeupofFederal,State,LocalandInternationalgovernments. Theyusepurchasestoassistwiththefunctioningofthegovernmentthatmayincluderedistributingtoothers.
Mostlyrequiresupplierstobeapproved,meetspecificationsandtobidforpurchases.
Defenseequipment,heavyequipmentforpublicworksprojects,officesupplies,pharmaceuticals,etc.
Not-For-Profit
Organizationswhosetaxstructureprecludesearningprofitsfromoperationsandwhosemissionstendtobeorientedtoassistingothers.
Lookforpurchasesthatwillfitwithintightbudgetaryrestrictionsandalsowithinthemissionoftheorganization.
Officeequipmentandsupplies,officerental,professionalservices,etc.
Reseller
Alsocalleddistributors,thesecompaniesoperateinboththeconsumerandthebusinessmarkets. Theirfunctioninvolvespurchasinglargevolumesofproductsfrommanufacturers(andsometimesfromotherresellers)andsellingtheseproductsinsmallerquantities. Includeswholesalers,retailersandindustrialdistributors.
Seekproductsthatareofinteresttothereseller’scustomers. Otherissuesincludehowdeliveryishandledandwhetherthesupplieroffersincentivestohelptheresellerpromotetheproduct.
Consumerandindustrialproductstoberedistributedtootherbusinessesandconsumers
BusinessvsConsumerMarkets
Formarketers,thesellingenvironmentofbusinessmarketspresentuniquelydifferentcircumstanceswhencomparedtosellingtoconsumers. Atthebeginningofthistutorialwesawtwowaysinwhichconsumerandbusinessmarketsdiffer:
1)busines
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