Lo2 Distinguishing Characteristics of Business Markets

LO1 Types of Buyers

Pages 48 to 51

LO2 DISTINGUISHING CHARACTERISTICS OF BUSINESS MARKETS

CONCENTRATED DEMAND

DERIVED DEMAND

HIGHER LEVELS OF DEMAND FLUCTUATION

PURCHASING PROFESSIONALS

MULTIPLE BUYING INFLUENCES

CLOSE BUYER-SELLER RELATIONSHIPS

Salespeople work and interact with many different types of buyers. These buyer types range from heavy industry and manufacturing operations to consumers making a purchase for their own use. These variants of customer types arise out of the unique buying situations they occupy. As a result, one type of buyer will have needs, motivations, and buying behavior that are very different from another type of buyer. Consider the different buying situations and the resulting needs of a corporate buyer for Foot Locker compared with the athletic equipment buyer for a major university or Joe Smith, attorney at law and weekend warrior in the local YMCA's basketball league. As illustrated in Exhibit 3.1, each of these buyers may be looking for athletic shoes, but their buying needs are very different. To maximize selling effectiveness, salespeople must understand the type of buyer with whom they are working and respond to their specific needs, wants, and expectations.

The most common categorization of buyers splits them into either (1) consumer market or (2) business market. Consumers purchase goods and services for their own use or consumption and are highly influenced by peer group behavior, aesthetics, and personal taste. Business markets are composed of firms, institutions, and governments. These members of the business market acquire goods and services to use as inputs into their own manufacturing process (e.g., raw materials, component parts, and capital equipment), for use in their day-to-day operations (e.g., office supplies, professional services, insurance), or for resale to their own customers. Business customers tend to stress overall value as the cornerstone for purchase decisions.

LO2 DISTINGUISHING CHARACTERISTICS OF BUSINESS MARKETS

Although there are similarities between consumer and business buying behaviors, business markets tend to be much more complex and possess several characteristics that are in sharp contrast to those of the consumer market. These distinguishing characteristics are described in the following sections.

CONCENTRATED DEMAND

Business markets typically exhibit high levels of concentration in which a small number of large buyers account for most of the purchases. The fact that business buyers tend to be larger in size but fewer in numbers can greatly impact a salesperson's selling plans and performance. For example, a salesperson selling high-grade

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EXHIBIT 3.1 Different Needs of Different Athletic Shoe Buyers
Buyer for Foot Locker Shoe Stores / University Athletic Equipment Buyer / Joe Smith—YMCA Weekend Warrior
Functional Needs / •Has the features customers want
•Well constructed—minimizes returns
•Off ers point-of-sale displays for store use
•Competitive pricing / •Individualized sole texture for different player performance needs
•Perfect fi t and size for each team member
•Custom match with university colors
•Size of supplier's payment to coach and school for using their shoes / •Off ers the leading edge in shoe features
•Prominent brand logo
•Highest-priced shoes in the store
Situational Needs / •Can supply stores across North America
•Ability to ship to individual stores on a just-in-time basis
•Off ers 90-day trade credit / •Ability to deliver on time
•Provide supplier personnel for team fittings
•Make contract payments to university and coach at beginning of season / •Right size in stock, ready to carry out
•Takes Visa and Master-Card
Social Needs / •Invitation for buying team to attend trade show and supplier-sponsored reception / •Sponsor and distribute shoes at annual team shoe night to build enthusiasm
•Include team and athletes in supplier brand promotions / •Off ers user-group newsletter to upscale customers
•Periodic mailings for new products and incentives to purchase
Psychological Needs / •Assurance that shoes will sell at retail
•Brand name with strong market appeal
•Option to return unsold goods for credit / •Brand name consistent with players' self-images
•The entire team will accept and be enthusiastic toward product decision
•Belief that the overall contract is best for the university, team, and coaches / •Reinforces customer's self-image as an innovator
•Product will deliver the promised performance
•One of only a few people having purchased this style of shoe
Knowledge Needs / •Level of quality—how the shoe is constructed
•How the new features impact performance
•What makes the shoe unique and superior to competitive offerings
•Product training and materials for sales staff / •What makes the shoe unique and superior to competitive offerings
•Supporting information and assurance that the contracted payments to university and coaches are superior to competitive offerings / •What makes the shoe unique and superior to competitive offerings
•Assurance that everybody on the court will not be wearing the same shoe

EXHIBIT 3.1 Different Needs of Different Athletic Shoe BuyersView PDF

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PROFESSIONAL SELLING IN THE 21ST CENTURY: Actions Buyers Expect from Salespeople

Mark Bishop, president of whatbuyerswant.net, provides actions buyers are looking for from salespeople to indicate they will support them beyond the sale in an effort to help their company succeed. As such, Mark suggests that buyers are looking for salesperson actions that

•Exhibit the salesperson has a genuine concern for the buying organization and has a history of achievement.

•Indicate the salesperson is inclined to post-sale support and recognizes internal organizational stressors faced by the buyer.

•Demonstrate the salesperson has the ability to get things done within their own organization, so they can follow through on their commitments.

•Evidence respect for the buyer's time.

•Facilitate the buyer in gaining support from co-workers and internal customers.

•Demonstrate the salesperson is trustworthy.

By taking such actions, salespeople can help buyers overcome their fear of making a purchase.

industrial silicon for use in manufacturing computer chips will find that his or her fate rests on acquiring and nurturing the business of one or more of the four or five dominant chip makers around the world.

DERIVED DEMAND

Derived demand denotes that the demand in business markets is closely associated with the demand for consumer goods. When the consumer demand for new cars and trucks increases, the demand for rolled steel also goes up. Of course, when the demand for consumer products goes down, so goes the related demand in business markets. The most effective salespeople identify and monitor the consumer markets that are related to their business customers so they can better anticipate shifts in demand and assist their buyers in staying ahead of the demand shifts rather than being caught with too much, too little, or even with the wrong inventory. Republic Gypsum's salespeople accurately forecasted a boom in residential construction and the pressure it would put on the supply of sheetrock wall-board. Working closely with their key customers, order quantities and shipping dates were revised to prevent those customers from being caught with inadequate inventories to supply the expanded demand. This gave those customers a significant competitive advantage over their competitors, who were surprised and suddenly out of stock.

HIGHER LEVELS OF DEMAND FLUCTUATION

Closely related to the derived demand characteristic, the demand for goods and services in the business market is more volatile than that of the consumer market. In economics, this is referred to as the acceleration principle.

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As demand increases (or decreases) in the consumer market, the business market reacts by accelerating the buildup (or reduction) of inventories and increasing (or decreasing) plant capacity. A good example would be the rapidly growing demand for tri-mode wireless phones with advanced capabilities such as voice-activated dialing and vision-enabled access to the Internet and Web with enhanced full-color screens. In response to higher consumer demand, wholesalers and retailers are increasing their inventories of these advanced phones while decreasing the number of single-mode voice-only devices they carry. In response, manufacturers have shifted their production away from the voice-only wireless phones to increase their production of the more advanced Internet-capable models. Salespeople are the source of valuable information and knowledge, enabling their customers to anticipate these fluctuations and assisting them in developing more effective marketing strategies. As a result, both the buying and selling organizations realize mutual positive benefits.

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Salespeople in business markets work closely with buyers to satisfy various needs aimed at improving their business performance.

PURCHASING PROFESSIONALS

Buyers in the business markets are trained as purchasing agents. The process of identifying suppliers and sourcing goods and services is their job. This results in a more professional and rational approach to purchasing. As a result, salespeople must possess increased levels of knowledge and expertise to provide customers with a richer and more detailed assortment of application, performance, and technical data.

MULTIPLE BUYING INFLUENCES

Reflecting the increased complexity of many business purchases, groups of individuals within the buying firm often work together as a buying team or center. As a result, salespeople often work simultaneously with several individuals during a sales call and even different sets of buyers during different sales calls. Buying team members come from different areas of expertise and play different roles in the purchasing process. To be effective, the salesperson must first identify, then understand and respond to, the role and key buying motives of each member.

CLOSE BUYER-SELLER RELATIONSHIPS

The smaller customer base and increased usage of supply chain management, characterized by buyers becoming highly involved in organizing and administering logistical processes and actively managing a reduced set of suppliers, has resulted in buyers and sellers becoming much more interdependent than ever before. This increased interdependence and desire to reduce risk of the unknown has led to an emphasis on developing long-term buyer-seller relationships characterized by increased levels of buyer-seller interaction and higher levels of service expectations by buyers. As demonstrated in "PROFESSIONAL SELLING IN THE 21ST CENTURY: Actions Buyers Expect from Salespeople,"1buyers are looking for concrete actions that demonstrate a salesperson's commitment to a relationship. Such actions show the salesperson's willingness to support the buyer and be a partner in his or her firm's success.

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O3 The Buying Process

Pages 51 to 62

PHASE ONE—RECOGNITION OF THE PROBLEM OR NEED: THE NEEDS GAP

LO4 TYPES OF BUYER NEEDS

PHASE TWO—DETERMINATION OF THE CHARACTERISTICS OF THE ITEM AND THE QUANTITY NEEDED

PHASE THREE— DESCRIPTION OF THE CHARACTERISTICS OF THE ITEM AND THE QUANTITY NEEDED

PHASE FOUR—SEARCH FOR AND QUALIFICATION OF POTENTIAL SOURCES

PHASE FIVE—ACQUISITION AND ANALYSIS OF PROPOSALS

LO5 PROCEDURES FOR EVALUATING SUPPLIERS AND PRODUCTS

ASSESSMENT OF PRODUCT OR SUPPLIER PERFORMANCE

ACCOUNTING FOR RELATIVE IMPORTANCE OF EACH CHARACTERISTIC

EMPLOYING BUYER EVALUATION PROCEDURES TO ENHANCE SELLING STRATEGIES

PHASE SIX—EVALUATION OF PROPOSALS AND SELECTION OF SUPPLIERS

PHASE SEVEN—SELECTION OF AN ORDER ROUTINE

PHASE EIGHT—PERFORMANCE FEEDBACK AND EVALUATION

LO6 UNDERSTANDING POSTPURCHASE EVALUATION AND THE FORMATION OF SATISFACTION

THE GROWING IMPORTANCE OF SALESPEOPLE IN BUYERS, POSTPURCHASE EVALUATIONS

Although not always the case in the consumer marketplace, buyers in the business marketplace typically undergo a conscious and logical process in making purchase decisions. As depicted in Figure 3.1, the sequential and interrelated phases of the business buyers's purchase process begin with

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FIGURE 3.1 Comparison of Buying Decision Process Phases and Corresponding Steps in the Selling ProcessView PDF

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(1) recognition of the problem or need, (2) determination of the characteristics of the item and the quantity needed, (3) description of the characteristics of the item and quantity needed, (4) search for and qualification of potential sources, (5) acquisition and analysis of proposals, (6) evaluation of proposals and selection of suppliers, (7) selection of an order routine, and (8) performance feedback and evaluation.

Depending on the nature of the buying organization and the buying situation, the buying process may be highly formalized or simply a rough approximation of what actually occurs. The decision process General Motors employs for the acquisition of a new organization-wide computer system will be highly formalized and purposefully reflect each of the previously described decision phases. Compared with General Motors, the decision process of Bloomington Bookkeeping, a single office and four-person operation, could be expected to use a less formalized approach in working through their buying decision process for a computer system. In the decision to replenish stock office supplies, both of the organizations are likely to use a much less formalized routine—but still, a routine that reflects the different decision phases.

As Figure 3.1 further illustrates, there is a close correspondence between the phases of the buyer's decision process and the selling activities of the salesperson. It is important that salespeople understand and make use of the interrelationships between the phases of the buying process and selling activities. Effective use of these interrelationships offers salespeople numerous opportunities to interact with buyers in a way that guides the shaping of product specifications and the selection of sources while facilitating the purchase decision.

PHASE ONE—RECOGNITION OF THE PROBLEM OR NEED: THE NEEDS GAP

Needs are the result of a gap between buyers' desired states and their actual states. Consequently, need recognition results from an individual cognitively and emotionally processing information relevant to his or her actual state of being and comparing it to the desired state of being. As illustrated in Figure 3.2, any perceived difference, or needs gap, between these two states activates the motivation or drive to fill the gap and reach the desired state. For example, the SnowRunner Company's daily production capacity is limited to 1,000 molded skimobile body housings. Their research indicates that increasing capacity to 1,250 units per day would result in significant reductions in per-unit costs and allow them to enter additional geographic markets—both moves that would have significant and positive impacts on financial performance. The perceived need to expand production activates a corresponding motivation to search for information regarding alternative solutions and acquire the capability to increase production by 250 units.

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Business buyers typically undergo a conscious and logical process in making purchase decisions.

Figure 3.2 The Needs Gap The needs gap is the difference between the buyer's perceived desired state and the buyer's perceived actual state.

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However, if there is no gap, then there is no need and no active buying motive. It is common for salespeople to find themselves working with buyers who, for one reason or another, do not perceive a needs gap to be present. It is possible that they do not have the right information or lack a full understanding of the situation and the existence of options better than their current state. It is also possible that their understanding of the actual state might be incomplete or mis taken. For example, SnowRunner's buyers might not understand the cost reduction possibilities and increased market potential that could result from increased capacity. As a result, they perceive no need to increase production—the desired state is the same as their actual state. Similarly, the buyers might be functioning with incomplete information regarding the company's actual state of reduced production capacity due to SnowRunner's existing molding machines requiring increased downtime for maintenance. Properly realized, this lowering of the actual state would result in a needs gap. Successful salespeople position themselves to assist buyers in identifying and understanding needs as a result of their broader expertise and knowledge regarding product use and application. Salespeople can also use sales conversations to present buyers with information and opportunities that effectively raise the desired state, generate a need, and trigger the purchase decision process. Top-performing salespeople understand the importance of assisting their buyers in forming realistic perceptions of the actual state and the desired state. In this manner, the salesperson can continue to serve as a nonmanipulative consultant to the buyer while affecting buying motives that yield mutual benefits to all parties. However, it should be noted that the persuasive power of assisting the buyer in determining and comparing desired and actual states can also be misused and lead to unethical and manipulative selling behaviors such as those exhibited in "An Ethical Dilemma."