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What is Organizational Buying?

Many marketers sell not to consumers but to organizational buyers. Frederick E. Webster Jr. and Yoram Wind define organizational buying as the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers.43 The business market differs from the consumer market in a number of ways.

The Business Market versus the Consumer Market

The business market consists of all the organizations that acquire goods and services used in the production of other products or services that are sold, rented, or supplied to others. Some of the major industries making up the business market are aerospace; agriculture, forestry, and fisheries; chemical; computer; construction; defense; energy; mining; manufacturing; construction; transportation; communication; public utilities; banking, finance, and insurance; distribution; and services. Table 5.1 shows 10 unique characteristics of business markets.

TABLE 5.1 Characteristics of Business Markets

Characteristic

Description

Fewer, larger buyers

Business marketers normally deal with far fewer, much larger buyers than consumer marketers.

Close supplier-customer relationships

Because of the smaller customer base and the importance and power of larger customers, suppliers are frequently expected to customize offerings to individual customer needs.

Professional purchasing

Trained purchasing agents follow formal purchasing policies, constraints, and requirements. Many of the buying instruments, such as proposals and purchase contracts, are not typically part of consumer buying.

Multiple buying influences

More people influence business buying decisions. Business marketers must send well-trained sales representatives and teams to deal with well-trained buyers and with buying committees.

Multiple sales calls

Because more people are involved, it takes multiple sales calls to win most business orders during a sales cycle often measured in years.

Derived demand

Demand for business goods is ultimately derived from the demand for consumer goods, so business marketers must monitor the buying patterns of end users.

Inelastic demand

Total demand for many business offerings is inelastic—that is, not much affected by price changes, especially in the short run, because producers cannot make quick production changes.

Fluctuating demand

Demand for business offerings tends to be more volatile than demand for consumer offerings. An increase in consumer demand can lead to a much larger increase in demand for plant and equipment necessary to produce the additional output.

Geographically concentrated buyers

More than half of U.S. business buyers are concentrated in seven states: New York, California, Pennsylvania, Illinois, Ohio, New Jersey, and Michigan. The geographical concentration of producers helps to reduce selling costs.

Direct purchasing

Business buyers often buy directly from manufacturers rather than through intermediaries, especially items that are technically complex or expensive.

As an example of the business market, consider the process of producing and selling a simple pair of shoes.44 Hide dealers must sell hides to tanners, who sell leather to shoe manufacturers, who in turn sell shoes to wholesalers. Wholesalers sell shoes to retailers, who finally sell them to consumers. Each party in the supply chain also buys other goods and services to support its operations.

 
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