Page 208 - Marketing Management

ANALYZING BUSINESS MARKETS | CHAPTER 7 185

• 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 pro-
fessional 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 representa-
tives 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 deliver-
ing 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 automo-
biles, 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, equip-
ment, 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.

Buying Situations
The business buyer faces many decisions in making a purchase. How many depends on the complex-
ity of the problem being solved, newness of the buying requirement, number of people involved, and
time required. Three types of buying situations are the straight rebuy, modified rebuy, and new task. 9
• Straight rebuy. In a straight rebuy, the purchasing department reorders supplies such as office
supplies and bulk chemicals on a routine basis and chooses from suppliers on an approved list.
The suppliers make an effort to maintain product and service quality and often propose auto-
matic reordering systems to save time. “Out-suppliers” attempt to offer something new or
exploit dissatisfaction with a current supplier. Their goal is to get a small order and then
enlarge their purchase share over time.