The Factors affecting Business Marketing Demand

 The factors affecting the market for business
products are: (i) the number of potential business users; (i ) their purchasing power; (iii) buying
motives, and (iv) buyer habits. Let us now discuss
these factors in turn.

NUMBER AND TYPES OF BUSINESS USERS

Number of Buyers. 

The
business market contains
relatively few buying units compared to the consumer market. In the U.S
there are above 15 million business users in contrast to about 250 million
consumers divided among more than 85 mil ions households. The business market
seems even more limited to most companies, because they sell to only a small segment of the total market One very useful way of
organizing information is the Standard Industrial Classification (SIC)
system, which enables a company to identify relatively segments of its
business market. Can you
get more information on SIC?

SIZE OF BUSINESS USERS

While the
business market may be limited in the total number of buying units, it is large
in purchasing power. A
relatively small percentage of firms account for the greatest share of the value
added to products by manufacturing. Value added is the naira value of a firm’s
output minus the value of the inputs from other firms. If a manufacture
buys lumber for 400 naira and
converts it into a table that it sells for 1000 Naira, the value added by the
manufacturer is 600
Naira.

The marketing
significance of these facts is that buying power business markets is highly concentrated in a relatively
few firms. That is, a high percentage of industry sales are accounted for by a very
small number of firms. Therefore sellers have the opportunity to deal
directly with the business users. Middlemen are not as essential as in the consumer market.

REGIONAL CONCENTRATION OF BUSINESS USERS

There is
substantial regional concentration in many major industries and among business users as a whole.

VERTICAL
AND HORIZONTAL BUSINESS MARKETS

For effective marketing planning, a company should
know whether the market for its products is vertical or horizontal. If a firm’s
product is usable by virtually all firms in only one or two industries, it has a vertical business market.
On the other hand, if it is usable by many industries, then it is said
to have a broad or horizontal
business market.

A company’s marketing programme
ordinarily is influenced by whether its markets are vertical or horizontal. In
a vertical market, a product can be tailor-made to meet the specific
needs of one industry. However, the industry must buy enough to support this
specialization. In addition, advertising and personal selling can be directed more effectively in vertical
markets. In a horizontal market, a product is developed as an all purpose
item, to reach a larger market. However because of the large potential market,
the products are likely to move
competition.

BUYING POWER OF BUSINESS USERS

Another determinant of business market demand is the purchasing power of business customers. This can be measured either by the expenditures of business users or by their sales volume. However, such information is not always available or is very difficult to estimate. In such cases purchasing power is estimated indirectly, using an activity indicator of buying power, that is, some market factor related to sales and expenditures. For example, a company marketing agricultural products or equipment can estimate the buying power of its farm market by studying such indicators as cash farm income, acreage planted, or crop yields. A chemical producer that sells to a fertilizer manufacturer might study the same indices, because the demand for chemicals in this case derives from the demand for fertilizer.

BUSINESS BUYING BEHAVIOR

Business buying behavior is initiated when an aroused
need ( a motive) is recognized. This leads to goal-oriented activity designed
to satisfy the need, marketers must try to determine what motivates the buyer,
and then understand the buying process and
buying patterns of business organizations in their markets. Purchasing
has become an important part of overall strategy for at least three reasons

(i)              
Companies
are making less and buying more. For many year General Motors has owned the
plants that made many of the parts for its cars. But in 1992 it announced the closing
of seven plants that were no longer competitive. As a result, General Motors
will become much more reliant on
independent part suppliers.

(i )Finns are under intense quality and time pressures. To reduce costs
and improve efficiency, firms
no longer buy and hold inventories of parts and supplies. Instead, they demand
that raw materials and components that meet specifications be delivered just in
time to go into the production process.

(i i)To get what they need, firms are concentrating their purchase with
fewer suppliers and developing
long term “partnering” relationships. This level of involvement
extends beyond a purchase to include such things as working together to develop
new products and providing financial support?

BUYING MOTIVES OF BUSINESS USERS

One view of buying
motives is that business purchases are methodical and structured. Business
buying motives, for the most part, are presumed to be practical and
unemotional. Business buyers are assumed to be motivated to achieve the optimal
combination of price, quality and service in the products they buy. An
alternative view is that business buyers are human, and their business
decisions are certainly influenced by their attitudes, perceptions, and values.

The truth actual y is somewhere in
between. Business buyers have two goals-to further their company’s position (in
profits, in acceptance by society) and to protect or improve their
position in their firms (self-interest). For example, the firm’s highest
priority may be to save money, and the buyer knows that he will be rewarded for negotiating a low price.

TYPES OF BUYING SITUATIONS

The buying
situation in business organizations vary widely in their complexity, number of
people involved, and time required. Researchers in organizational buying
behavior have identified three
classes of business buying situations. The three buying classes are new, task buying, straight re-buy, and modified re-buy.

^i.                  
New-task buying. This is the most difficult and complex buying situation because
it is a first-time purchase of a major product. Typical y more people are
involved in new-task buying than in the other two situations because the risk
is great. Information needs are
high and the evaluation of alternatives is difficult because the
decision makers have little experience with the product. A hospital’s first-time purchase of laser surgical
equipment or a company robots for factory (or buying the factory itself) are
new-task buying conditions.

^ii.                
Straight rebuy. This is a routine, low —involvement purchase with minimal information needs and no
great consideration of alternative. The buyer’s extensive experience with the seller has been
satisfactory, so there is no incentive to search. An example is the
repeat purchase of steering wheels by Freightliner, a truck manufacturer.

iii. Modified re-buy. This buying situation is somewhere
between the

other two in items of time and people
involved. Information needed, and alternatives considered. In selecting diesel engines for the
trucks it manufactures. Freightliners consider Cummins, Detroit Diesel, and
Caterpillar products among others. However, because these engine makers
frequently introduce new design and performance. Freightliner evaluates each on
a regular basis

BUYING-DECISION PROCESS IN BUSINESS

The buying-decision process in business markets is a sequence of five
stages.

Not every purchase involves all the five
steps. Straight re-buy purchase usual y is low involvement situations for the
buyer so they typical y skip some stages. But a new-task buying of an expensive
good or service is likely to be a high-involvement, total-stage buying decision.

To illustrate the process let’s assume that NBC is considering a sugar
substitute in Coca-Cola:

i.          
Need
recognition. NBC executives are
sensitive to the concern of any

consumer about sugar in their diets.
The opportunity to produce high-quality, good tasting Coke without sugar
is very attractive, but finding the right substitute is the challenge.

ii.
Identification of alternatives. The
marketing staff draws up a list of product performance specification for the
sugar-free drink-attractive appearance, good taste, and reasonable cost. Then
the purchasing department identifies the alternative brands and supply sources
of sugar substitutes that generally meet these specifications.

iii.
Evaluation of alternatives. The
production, research, and purchasing people jointly evaluate both the
alternative products and sources of supply. The complete evaluation considers
such factors as product performance and price as well as the suppliers’ abilities to meet delivery
schedules and provide consistent quality.

iv. Purchase decision. Based on the evaluation, the buyer
decides on a specific brand and supplier. Next, the purchasing
department negotiates the contract.

v.   
Post-purchase behaviour. NBC continues to
evaluate the performances of the sugar substitutes and the selected suppliers
to ensure that both meet expectations.
Future dealings with a supplier will depend on this performance evaluation and
on how well the supplier
handles any problems that may later arise involving its product.