Business Marketing Demand. The 4 Main Factors

The factors affecting Marketing Demand or 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.

Thebusiness marketcontains 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 theStandard 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 thebusiness 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 Kwacha value of a firm’s output minus the value of the inputs from other firms. If a manufacture buys lumber for 400 Kwacha and converts it into a table that it sells for 1000 Kwacha, the value added by the manufacturer is 600 Kwacha.

The marketing significance of these facts is that buying powerbusiness marketsis 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 actually 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 threebuying classesare new, task buying, straight re-buy, and modified re-buy.

1. 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.
2. 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:

1. Need recognition. NBCexecutives 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.

1. Purchase decision.Based on the evaluation, the buyer decides on a specific brand and supplier. Next, the purchasing department negotiates the contract.
2. 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.