Chapter 4 – Business Buying Behaviour
- Identify the ways in which business-to-business (B2B) markets differ from business-to-consumer (B2C) markets.
- Explain why business buying is acutely affected by the behavior of consumers.
Business-to-business (B2B) markets differ from business-to-consumer (B2C) markets in many ways. For one, the number of products sold in business markets dwarfs the number sold in consumer markets. Suppose you buy a five-hundred-dollar computer from Dell. The sale amounts to a single transaction for you. But think of all the transactions Dell had to go through to sell you that one computer. Dell had to purchase many parts from many computer component makers. It also had to purchase equipment and facilities to assemble the computers, hire and pay employees, pay money to create and maintain its Web site and advertise, and buy insurance and accounting and financial services to keep its operations running smoothly. Many transactions had to happen before you could purchase your computer.
Each of those transactions needed a salesperson. Each of those companies may have a marketing department. Thus, there are a lot more university or college marketing graduates going into B2B companies than in B2C, which is reason enough to spend some time studying the subject. There are other differences, too.
Business products can be very complex. Some need to be custom built or retrofitted for buyers. The products include everything from high-dollar construction equipment to commercial real estate and buildings, military equipment, and billion-dollar cruise liners used in the tourism industry. A single customer can account for a huge amount of business. Some businesses, like those that supply the auto industry, have just a handful of customers—Tesla, Toyota, and/or Ford. Consequently, you can imagine why these suppliers become very worried when the number of cars being bought is declining.
Not only can business products be complex, but so can figuring out the buying dynamics of organizations. Many people within an organization can be part of the buying process and have a say in ultimately what gets purchased, how much of it, and from whom. Having different people involved makes business marketing much more complicated. And because of the quantities each business customer is capable of buying, the stakes are high. For some organizations, losing a big account can be financially devastating and winning one can be a financial bonanza.
Generally, the more high-dollar and complex the item being sold is, the longer it takes for the sale to be made. The sale of a new commercial jet to an airline company such as Air Canada can literally take years to be completed. Purchases such as these are risky for companies. The buyers are concerned about many factors, such as the safety, reliability, and efficiency of the planes. They also generally want the airplanes customized in some way. Consequently, a lot of time and effort is needed to close these deals.
Unlike many consumers, most business buyers demand that the products they buy meet strict standards. Take for example the Five Guys burger chain, based in Virginia. The company taste-tested eighteen different types of mayonnaise before settling on the one it uses. Would you be willing to taste eighteen different brands of mayonnaise before buying one? Probably not (Steinberg, 2009).
Another characteristic of B2B markets is the level of personal selling that goes on. Salespeople personally call on business customers to a far greater extent than they do consumers. A few of us have had door-to-door salespeople call on us. However, businesses often have multiple salespeople call on them in person or by phone daily, and some customers even provide office space for key vendors’ salespeople. Figure 4.1 “Business-to-Consumer Markets versus Business-to-Business Markets: How They Compare” outlines the main differences between B2C and B2B markets.
Even though they don’t sell their products to consumers, B2B sellers carefully watch general economic conditions to anticipate consumer buying patterns. The firms do so because the demand for business products is based on derived demand. Derived demand is demand that springs from, or is derived from, a source other than the primary buyer of a product. When it comes to B2B sales, that source is consumers. If consumers aren’t demanding the products produced by businesses, the firms that supply products to these businesses are in big trouble.
Fluctuating demand is another characteristic of B2B markets: a small change in demand by consumers can have a big effect throughout the chain of businesses that supply all the goods and services that produce it. Often, a bullwhip type of effect occurs. If you have ever held a whip, you know that a slight shake of the handle will result in a big snap of the whip at its tip. Essentially, consumers are the handle and businesses along the chain compose the whip—hence the need to keep tabs on end consumers. They are a powerful purchasing force.
For example, Cisco makes routers, which are specialized devices that enable computer networks to work. If Google uses five hundred routers and replaces 10 percent of them each year, that means Google usually buys fifty routers in a given year. What happens if consumer demand for the Internet falls by 10 percent? Then Google needs only 450 routers. Google’s demand for Cisco’s routers therefore becomes zero. Suppose the following year the demand for the Internet returns to normal. Google now needs to replace the fifty routers it didn’t buy in the first year plus the fifty it needs to replace in the second year. So in year two, Cisco’s sales go from zero to a hundred, or twice normal. Thus, Cisco experiences a bullwhip effect, whereas Google’s sales vary only by 10 percent.
Because consumers are such a powerful force, some companies go so far as to try to influence their B2B sales by directly influencing consumers even though they don’t sell their products to them. Intel is a classic case. Do you really care what sort of microprocessing chip gets built into your computer? Intel would like you to, which is why it has run a long series of commercials on TV and online to encourage you to think about what chip is inside your computer. The following video clip shows how they’ve continued to promote “Intel Inside” even though their actual product has changed. The commercial isn’t likely to persuade a computer manufacturer to buy Intel’s chips. But the manufacturer might be persuaded to buy them if it’s important to you. Derived demand is also the reason Intel demands that the buyers of its chips put a little “Intel Inside” sticker on each computer they make—so you get to know Intel and demand its products.
Intel Animations Over the Years (Click to see video on Youtube)
Does this commercial make you want to buy a computer with “Intel Inside”? Intel hopes so.
B2B buyers also keep tabs on consumers to look for patterns that could create joint demand. Joint demand occurs when the demand for one product increases the demand for another. For example, when a new video console like the Xbox Series X comes out, it creates demand for new physical or digital video games.
Let’s look at how the characteristics of products in the business market are different than products for consumer markets. Products sold in business to business markets often tend to be more technical in nature because they are often large complex system for things like machinery and equipment. For example, many businesses purchase manufacturing equipment or machines to produce their finish goods. The purchase of these types of equipment tends to be more technical because of the complexity of this type of equipment. ‡
Additionally, some businesses are also buying goods. Business goods often differ from consumer goods because business goods are often raw materials or semi-finished goods. For example, Kellogg’s, who manufactures many types of cereal, will purchase goods such as wheat or other types of grains to manufacture the cereals they sell to consumers. These types of products purchased by businesses are considered raw materials, because they require further processing to manufacture the final product sold to consumers. Other businesses may also buy semi-finished goods. These are goods that don’t require further processing by the businesses who purchase them. They are simply assembled into the finished good without further processing. For example, Apple will purchase semi-finished goods such as Samsung solid state drives (SSD) to put into their iPhones. When Apple purchases these SSD’s, they are in a finished state and are simply assembled into the Apple products, which becomes the finished product sold to the consumer. ‡
Finally, a key focus B2B purchases is on delivery times, availability of parts and after sale service, and financing. Businesses want to ensure their products arrive when needed, that their technical services and parts are made available when required after purchase. Finally, because these purchases typically involve high monetary costs, many businesses will also look for financing availability.‡
Buying Process Characteristics
The business buying process is also different in some ways than the consumer buying process. In business buying situations, the buying decisions are often more complex due to the number of individuals involved and the type of product being purchased. Furthermore, often times, sellers will bid for the business of the customer. When a business purchaser has a large purchase to make, they will most likely put out a bid to potential sellers asking them to bid for their business. Also, the buying process is often more formal with a buying team, which will tend to specify their buying criteria and the specific objective they want from a product purchase. Lastly, in business to business buying situations, the seller will often attempt to build close long-term relationships to help secure their current and future business with the buying company. ‡
Marketing Mix Characteristics
If we look at the marketing mix (4 P’s) characteristics in a business to business market, there are also many differences with consumer markets. First, in B2B marketing, many companies will tend to employ personal selling as a promotion strategy to reach business customers. This is because of the complexities and large price tags commonly associated with business products, which necessitate a technical or professional salesperson to help close the sale. If communication is required, the focus tend to be more on the technical aspects of the products versus building brand awareness in consumer markets. Finally, unlike consumer markets, in business marketing, price often tends to be negotiated between the buyer and the seller, and it may incorporate trade or quantity discounts. ‡